ServiceNow CEO McDermott on Bringing Simplicity to Complex Businesses | At Barron's
Summary
TLDRIn this interview, ServiceNow CEO Bill McDermott discusses the company's workflow automation platform, which digitally transforms businesses end-to-end. He emphasizes the importance of simplifying complex legacy systems, enhancing productivity with generative AI, and maintaining a customer-centric approach. McDermott also shares insights on leadership, innovation, and the company's commitment to people, reflecting on ServiceNow's growth and potential despite economic challenges.
Takeaways
- 🌟 ServiceNow is a market leader in workflow automation, providing a platform for digital transformation across various business processes.
- 💼 The platform simplifies business operations by reducing the complexity of legacy systems and integrating various applications into one, enhancing productivity.
- 🔧 ServiceNow aims to improve the employee experience and customer service by offering a mobile-first approach and leveraging generative AI to assist with tasks.
- 📈 The company differentiates itself from competitors by focusing on end-to-end digital transformation rather than serving specific departments.
- 🛠️ ServiceNow's platform is designed to be the 'Swiss army knife' of enterprise software, offering a comprehensive solution for business needs.
- 🌐 The company's global strategy involves mass customization and innovation tailored to each market's unique cultural and industry-specific needs.
- 💡 ServiceNow's founder, Fred Luy, envisioned technology that improves the lives of enterprise workers, a philosophy that continues to drive the company's mission.
- 🤖 The integration of generative AI with ServiceNow's platform is expected to revolutionize the employee experience and increase productivity by 35% on average.
- 🌱 ServiceNow's commitment to its people is evident in its no-layoff policy and focus on employee satisfaction, which has resulted in high retention rates and industry recognition.
- 🌍 The company's leadership emphasizes the importance of addressing global challenges by offering solutions that can be rapidly deployed, such as during crises.
- 📊 Despite a high PE ratio, ServiceNow's growth trajectory and innovative platform suggest potential for continued value creation for shareholders.
Q & A
What is ServiceNow's primary function in the market?
-ServiceNow is a workflow automation market leader that provides a platform enabling companies to digitally transform their businesses end-to-end, covering employee experience, customer service, and increasing the productivity of engineers and knowledge workers.
How does ServiceNow differentiate itself from other enterprise software companies like Workday and Oracle?
-ServiceNow simplifies the way companies run by offering a single platform that integrates all business functions, as opposed to legacy systems that serve specific departments and create complexity.
What is the significance of generative AI in enhancing human productivity according to Bill McDermott?
-Generative AI can improve human productivity by an average of 35% by enhancing the work experience and automating tasks such as deflecting customer inquiries that could be answered by a computer.
Why is the integration of systems critical for digital transformation and what challenges does it address?
-Integration is critical because it allows different systems to communicate smoothly, which is a common failure point in digital transformation projects. ServiceNow's platform integrates everything, addressing the issue of complexity and improving productivity.
How does ServiceNow's platform benefit the 'person on the street'?
-ServiceNow's platform can personalize and simplify customer experiences, such as ordering a Starbucks coffee from a hotel, by using location data to ensure the customer receives their order without administrative burden.
What is the philosophy behind ServiceNow's approach to market growth and competition?
-ServiceNow believes in a growth mindset where the market can expand beyond existing players, focusing on serving customers' needs rather than taking market share from competitors.
How did ServiceNow respond to economic pressures such as inflation and hiring difficulties?
-ServiceNow committed to no layoffs, focusing on retaining, inspiring, and training their workforce, which resulted in high employee satisfaction and retention rates.
What is ServiceNow's vision for the future role of AI in their platform?
-ServiceNow is working with companies like Nvidia to fine-tune domain-specific use cases with generative AI, aiming to revolutionize employee experiences, customer service, and engineering productivity.
What advice does Bill McDermott have for educating and preparing young people for the workforce?
-Bill McDermott suggests giving young people challenging opportunities early on, emphasizing the importance of work experience over just academic achievements to develop EQ and self-respect.
How does ServiceNow approach global competition and innovation?
-ServiceNow focuses on mass-customized innovation, tailoring its platform and approach to suit the unique cultural, industry-specific, and persona-specific needs of different markets and countries.
What leadership qualities does Bill McDermott emphasize in challenging global situations like conflicts and economic crises?
-Bill McDermott emphasizes the importance of using technology to serve the world, such as offering platforms to identify missing persons in crises, and focusing on innovation, efficiency, and productivity in all industries.
How does Bill McDermott justify the continued investment in ServiceNow's stock despite its high PE ratio and recent growth?
-He points to ServiceNow's position as one of the fastest-growing enterprise software companies nearing $10 billion in revenue, its innovative platform, and its commitment to customer service as reasons for continued growth and shareholder value.
Outlines
🤖 Digital Transformation with ServiceNow
In this segment, Andy Serwer interviews Bill McDermott, CEO of ServiceNow, a workflow automation market leader. McDermott explains that ServiceNow's platform enables companies to digitally transform their business operations, from employee experience to customer service, on a single platform with a consumer-grade user experience. He emphasizes the company's differentiation from traditional enterprise software by simplifying business processes and reducing the complexity of legacy systems. The conversation also touches on the potential of generative AI to enhance productivity and customer experience.
🌐 ServiceNow's Impact on Everyday Life
This paragraph delves into the practical applications of ServiceNow's technology in daily life, using the example of a Starbucks coffee order within a Marriott hotel. McDermott illustrates how ServiceNow's platform can seamlessly integrate different systems to provide a better customer experience without administrative burden. He also discusses the company's philosophy of 'no one has to lose for us to win,' suggesting that ServiceNow's growth comes from expanding the market rather than taking share from competitors. The conversation highlights the importance of integration in digital transformation and the role of ServiceNow in simplifying complex business processes.
👓 Leadership and Resilience at ServiceNow
Bill McDermott shares personal insights and experiences, including the story of ServiceNow's founder, Fred Luy, who was inspired to create the company after witnessing the repetitive tasks that burdened a worker's life. McDermott emphasizes the company's commitment to improving workers' lives and its rapid development of new applications on the ServiceNow platform. He also discusses the leadership qualities needed to navigate global challenges, such as the ongoing conflicts and economic pressures, and how ServiceNow's platform can be utilized for humanitarian efforts, like connecting missing persons with their families.
💼 Economic Challenges and AI Innovation
In this segment, McDermott addresses the economic pressures faced by companies, such as inflation and hiring difficulties. He outlines ServiceNow's approach during economic downturns, which includes a commitment to no layoffs and a focus on employee well-being. McDermott also discusses the transformative potential of generative AI, particularly in partnership with Nvidia, to fine-tune domain-specific use cases and enhance productivity across various roles within a company, from customer service to engineering.
🌟 Empowering Youth and Global Competition
McDermott shares his views on the best way to educate and prepare young people for the workforce, advocating for early involvement in meaningful work to develop EQ alongside IQ. He also talks about ServiceNow's strategy for global competition, which includes mass customization of innovation to suit the unique needs of different industries, personas, and countries. The importance of maintaining a customer-centric approach and a culture of excellence is highlighted as key to ServiceNow's success.
🚀 ServiceNow's Future and Investment Potential
In the final paragraph, McDermott makes a case for ServiceNow's continued growth and investment potential. He points to the company's rapid growth, its position as one of the few enterprise software companies nearing $10 billion in revenue, and its commitment to innovation as indicators of a bright future. McDermott also discusses the creation of a new category business model through digital transformation and generative AI, positioning ServiceNow as a platform that can modernize legacy systems while driving shareholder value.
Mindmap
Keywords
💡Workflow Automation
💡Digital Transformation
💡Enterprise Software
💡Generative AI
💡Employee Experience
💡Customer Retention
💡Integration
💡Productivity
💡Simplicity
💡Innovation
💡Net Promoter Score
Highlights
ServiceNow is the workflow automation market leader, providing a platform for digital transformation across businesses.
ServiceNow's platform simplifies business operations by integrating various departmental functions, reducing complexity from legacy systems.
The company focuses on improving productivity with digital technology, such as deflecting customer inquiries with AI.
Generative AI can enhance the work experience by an average of 35%, according to ServiceNow's insights.
ServiceNow's platform enables a mobile-first employee experience, from recruitment to training.
Customers today prefer self-service and simplicity, which ServiceNow aims to provide.
ServiceNow's growth mindset includes not taking market share from competitors but growing the market itself.
The company's purpose is to serve the customer's customer, exemplified by improving everyday experiences like ordering coffee.
ServiceNow's founder Fred Luy's vision was to improve the average worker's life in the enterprise.
ServiceNow has built 5,000 net new applications on its platform, reflecting its commitment to customer service.
The company's leadership approach is to address global challenges as opportunities for innovation.
ServiceNow's platform can be rapidly implemented to aid in crisis situations, such as identifying missing persons during conflicts.
The company's strategy includes mass customization of innovation for every industry and persona globally.
ServiceNow's commitment to no layoffs during economic downturns reflects its belief in the strength of its team.
Generative AI is transforming ServiceNow's operations, from improving employee experience to enhancing app development.
ServiceNow collaborates with Nvidia to innovate large language models and fine-tune domain-specific use cases.
Bill McDermott's leadership at ServiceNow, starting during the pandemic, has seen the stock double and the company thrive.
ServiceNow is positioned to cross the $10 billion revenue mark and is considered a once-in-a-generation platform.
Transcripts
[Music]
hello everyone and welcome to at Barons
I'm Andy serwer and Welcome to our guest
Bill McDermot CEO of service now Bill
great to see you thank you very much
Andy great to be with you again I want
to start off by asking you to tell us
about service now just for people who
aren't so familiar with the company yeah
service now is the workflow automation
market leader so we make a platform that
enables companies to digitally transform
their business end to end so if you're
running it your employee experience
taking care of your customers or making
your engineers and knowledge workers far
more productive you can do it all on one
platform with a consumer grade user
experience and you can fundamentally
transform how you run your company all
right this is an Enterprise software
business absolutely there are other
Enterprise software companies out there
bill yeah um workday Oracle
Etc how is your company different what
do you do that's different from some of
those
competitors what we do is we simplify
the way companies run you know Andy in
the 20th century there were really good
software companies some of them made
financials some of them were database
companies some of them did operating
system some of them did business
applications but all of them did so to
serve a specific Department
that has created a lot of complexity
because those Legacy systems are now a
half a century old so what companies
want to do today is they want to
radically improve their productivity so
I give you an example the average person
working in an office today spends
onethird of their time swivel chairing
between 13 different
applications meanwhile most of the
things that they're solving for could be
hand L by digital technology like
deflecting customer inquiries that could
be easily answered by a computer as an
example on top of that generative AI can
improve human productivity by enhancing
the work experience by 35% on average so
what we do is we have one platform that
enables you to digitally transform and
how you manage your assets your
operations you service your business you
now have an employee experience where
the employee can do everything on the
mobile the way they get recruited hired
onboarded trained all their services on
the mobile and now generative AI can
give them a digital assistant to make
their job easier the customer not only
do you sell somebody but you want to
keep them as a customer you want to
retain them so the mid office and the
back office has to actually keep that
brand promise and how you service the
customer after you sell them
and today's customer they don't want
heavy complicated conversations with
call center agents they want to be able
to self-service and solve any problem
themselves so they don't have to
interface in a complex way with your
company and your engineers they don't
want to do the setup stuff they just
want to build great technology they want
to text to code text to new app
development all of this is done on one
platform right where the consumer grade
ux that integrates with all the brands
you mentioned yeah yeah because I want
to jump on that first of all I know all
about that swivel cheering I think
pretty much everyone does yeah but you
said recently no one has to lose for us
to win so you're not taking market share
from some of those Legacy Enterprise
companies the market can grow on top of
them is that what you're saying I'm
saying that customers will decide how
they want to apply their budgets and
what they want to spend their money on
what I'm seeing in the market is more
and more companies want to invest in
platforms that matter not
solo technology for a department they
want to serve that department but what
they do and what they invest in has to
integrate with everything else
85% of the digital transformation
business cases that companies have
already invested in have never delivered
a positive Roi why because of one simple
reason integration right one system
doesn't smoothly talk to another ours
integrates everything how does this
company matter to say the person on the
street have you ever thought about that
I think about it all the time um because
if you think about our purpose it's to
serve the customer's customer so I was
just with laxman for example the CEO at
Starbucks I mean no better example than
serving a person a cup of coffee which
most Americans and people around the
world do every day what if you're
staying at the Marriott and you order a
Starbucks coffee but there's also a
Starbucks kind of right across the
street but you're in the Marriott
wouldn't it be nice if the system knew
geographically where you were and said
you know you place the order at the
Starbucks across the street but you stay
in the Marriott or vice versa and that
you just got your cup of coffee you
never got double build but from the
company's point of view all of that
complexity was hidden and you never had
to worry about any administrative burden
to get a credit on your breakfast or
your cup of coffee because service now
did that in the background using
generative AI That's one example about
thinking about a person on the street
what what Bill what insights do you have
personally or does your company does
service now have that others might
miss I think the whole Magic of service
now is that service now began with a guy
named Fred luy who is a great founder
who had a simple Vision he made a sales
call on American Standard when he was a
very young guy and his dream was to
build a piece of technology that
improved the average workers life in the
Enterprise and he made a call on Phyllis
and she had kept repetitively doing the
same task each and every day to the
point where it was grinding her to a
halt she asked him to help he went home
and developed an application came back
the next day and it was the Inception of
service now when she cried he cried too
and that man still today serves on this
board as our founder and that generosity
Gene feeds everything we do and that's
why this year alone we built 5,000 net
new applications onto this service now
platform because we are in service to
the world to our customers and that's
the absolute passion of everyone that
works here all you talked about the
world it's a difficult world it's a
complicated world it's a dangerous world
out there what sort of leadership does
it take given what's going on in Ukraine
given what's going on in Israel
relationship with China all those things
Bill the biggest problems in the world
are also the world's biggest
opportunities because the world needs
you more and you're right I mean you
could add Rising interest rates and
inflation and lots of other things to
that we wanted to build a platform that
increased the productivity in the world
so for example if you're dealing with
the Middle East War right now it might
be a nice idea to have a platform where
you can identify the missing and connect
them with their family members or their
loved ones and you would want a common
platform in which to do that and that's
a crisis and we've obviously offered our
service to use that platform and we can
Implement that platform in 36 hours and
that's what we've done for hurricanes
and other natural disasters around the
world so it's really doing things in
service to the world but in every
industry today Andy they have to take
cost out of the
equation they have to they have to do
things more efficiently they have to do
things more productively and when you
combine taking cost out improving
productivity and creating new frontiers
of growth whether it's an auto
manufacturer servicing an electronic
vehicle dream they have to think
differently and they have to digitize
and transform their business I like to
think of this as business transformation
management how do I transform my
business and how do I manage on an end
to end basis all of the steps in the
value life cycle to ultimately give that
customer my Innovation take better care
of my people or run a more secure
business that manages risks manages
compliance issues and takes care of
assets and operations in a world-class
way but I want Simplicity you know it's
been said that the ultimate form of
sophistication is Simplicity itself so I
like to think of our platform as the
Swiss army knife of the
Enterprise I want to follow up on some
points you just may before we do that I
want to kind of interrupt the flow for
one second people may be wondering Bill
why you're wearing sunglasses and I know
you had an accident so that's why you do
that right yeah that's right hey you
know the reality is you know a lot of
people could think it's I'm a little too
cool for school cuz why do you need them
inside but it really does help me out a
lot I did have a serious accident and
I've never been defined by that I've
actually been defined by not being
defined by that and I'm so healthy and
happy and excited to do what I do and I
think that a lot of people need to
understand that it's not getting knocked
down that's going to mess you up it's
failure to get back up and be the better
version of yourself when you do and keep
going so um I'm a big fan of you know
some men see things as they are and say
why I dream things that never were and
say why not going back to what you were
just talking about a little bit though
um I'm curious about some of the
shortages and dislocation the economic
ones that you mentioned the the
inflation trying to hire people is
difficult trying to retain people how
are you handling some of those economic
pressures the most important thing I
think we did as a company in September
of
20122 when there was a lot of
Corporations going for layoffs they all
said we have to take people out of the
equation because as you know in the
runup to this economic turmoil there was
a lot of hiring going on and a lot of
growth in the economy and in economies
around the world so people hired a lot
of people and they laid a lot of people
off we said no
layoffs I believe that a company is only
as strong as each teammate on the
team and each teammate on the team is
only as strong as the company and we
were very thoughtful and deliberate
about the 12 12,000 new jobs that we
added in the last few years and were
equally as thoughtful and deliberate
about retaining inspiring and training
great people today we have the highest
employee scores in the industry the best
retention rates and the happiest
Workforce as measured by things like
glass door and all the other means and
we're very proud to be on the best
places to work list not because it's the
recog nition itself that turns us on
it's the people themselves so we're all
about the people here right you
mentioned generative Ai and gave that
example about Starbucks are there other
ways that it's transforming what you're
doing tell us about your vision in the
future for AI I know you've got
something going on with Nvidia which is
great how does that play up a lot of
companies right now are really use let's
take Nvidia as an example one of the
great companies in the world Jensen Wong
one of the greatest greatest innovators
in the world not only do we team up with
Nvidia to basically take the strength of
his compute power that GPU connected to
the value chain of other things that
they do to innovate large language
models but we use that to fine-tune
domain specific use cases on the service
now platform domain specific to the F
service now platform means in most cases
the customer customer is taking their
own data which they've been curating and
purifying and cleaning up now for
decades they finally got it to a point
where it's like wow what if I could put
this massive exciting new technology on
my data what could I do well for one
thing I could completely revolutionize
the employee experience because instead
of swivel sharing on those 13
applications on average burning up 33%
productivity I could use a service now
platform but even better I would have
incredible help from natural language
model use cases that enable me to do my
job in my role better and we cover all
the roles you could take a customer wow
they not only can enable me to selfs
service but they can recommend next best
idea because they know everything about
me maybe it's an upgrade cycle maybe
there's something new that's coming
coming out in terms of a new product or
a new service they're
anticipating and they have the foresight
that I need to feel like they know me
Engineers here's the big thing Andy most
of these software companies that have
been around for half a century got there
by buying a lot of other companies and
they have neglected to integrate all of
those companies it's a complicated thing
to do so the engineers don't want to
consolidate the past they want to
innovate the future but what's really
cool about that is every engineer comes
to work to invent a future but now with
generative AI they don't have to do the
intramural stuff the setup stuff they
can text right to code they can text to
make a new app right so that has
improved their productivity
40% so they're happier they're more
productive we're getting out thousands
of new apps as a result but we're doing
it on a common platform right so you
don't sacrifice Simplicity for
Innovation it's a beautiful thing let me
ask you about young people yes and what
do you think the best way to educate
young people is in terms of preparing
them for jobs and employment and just
being productive citizens push them I
mean I think the key to managing young
people is not treating them like young
people get them working and get them
working early because you can have all
the IQ you want and you can study and
get a 100 on every test and it didn't
necessarily give you 1 ounce of EQ and
this world works because people make it
work and you work because you help
people work and I think the work is the
thing that really does give people
self-respect and improve their
self-image and make them somebody and
then they're positioned to do something
and with with regard to young people in
our company what I do is I push them way
too
early I can take a person that's 21 22
years old right at a university put him
in the office of the CEO give him the
most challenging opportunity or problem
that I'm going after and they'll
surprise me on the upside every time so
give young people too much experience do
it too soon and I doubt they'll ever
disappoint and most of the time they
surprise you on the upside love that how
does the US and service now compete
globally what's the best way to do that
best way to do that is innovate um but
you also have to realize as you're
innovating you know I just got back from
Tokyo I cannot innovate and treat the
Tokyo Market the same way as I do London
or New York city so you have to or for
that matter Berlin you have to
personalize the brand
the language that you speak to the
culture and the product and the domain
around the orientation of how that
country operates then you add on another
layer which is every industry within
every country is slightly different and
every Persona within every company is
slightly different what we do is mass
customized
Innovation to every Goo every industry
and every proc
in the world so it's this custom
centricity it's every detail of how you
build an application how you design a
user experience how every detail is
covered when you engineer something but
not just engineering every detail when
you deal with an executive and they give
you their trust and you keep that
promise and even when you make a mistake
you clean it up quickly and then double
down on giving them a double X bet of
service
it is a passion it is absolute Obsession
and it's something that either makes a
company what it's meant to be running on
all cylinders or you become a Wandering
generality just like most companies
where they're saying God why can't I hit
that high note because it's a culture
it's the commitment to customer
satisfaction it's the net promoter score
it's everybody on the inside caring
about everybody on the outside
you got me worried that I'm going to
become a wandering generality at some
point I mean I hope not uh let me let me
ask you final question bill you became
CEO at the end of 2019 yeah right into
the teeth of the pandemic yeah I know
you started at sap right before 2008 so
you're used to starting with a crisis
the stock has doubled since you took
over markets up about 30 or 40% over
that time so you had a great run make
the case to our audience for owning the
stock going forward after that nice
runup you got a high PE is there upside
going forward Bill absolutely but the
main thing to remember is this what has
history taught us about service now and
why should we have belief in the
future okay there's only five enterprise
software companies that have crossed the
$10 billion value in Revenue interesting
we're on the doorstep of one to be one
of those we are the company that's the
fastest growing and we are operating at
the rule of 55 which means when you
combine our free cash flow margin and
our Revenue we're growing at the rule of
55 they say when you're operating at the
rule of 40 you're world
class more than ever I don't rely on
that I go back to the innovation
I believe that this platform is a once
in a generation platform I believe that
we are in the midst of creating a new
category business model
transformation because with the power of
digital
transformation and the combination of
generative AI we now can transform
businesses on an endtoend basis we can
take the operating systems that have
been out there for half a century and
still make them relevant but feed that
process Innovation into a modern
platform that makes people happy it
makes customers happy and it drives
unbelievable shareholder value so we are
in service to the customer and their
customer and that'll be our Guiding
Light going forward and I believe we are
only getting warmed up Bill mcdermit CEO
of service now thank you so much your
time thank you very much Andy this is at
baren I'm Andy serwer we'll catch you
next
time
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