ServiceNow CEO McDermott on Bringing Simplicity to Complex Businesses | At Barron's

Summary

In 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

00:00

🤖 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.

05:02

🌐 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.

10:02

👓 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.

15:04

💼 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.

20:06

🌟 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.

Keywords

💡Workflow Automation

Workflow automation refers to the technology that enables the automation of business processes, reducing the need for human intervention. In the context of the video, ServiceNow is described as a market leader in workflow automation, providing a platform that allows companies to digitally transform their operations end-to-end, enhancing productivity and efficiency.

💡Digital Transformation

Digital transformation is the process of integrating digital technology into all areas of a business, fundamentally changing how an organization operates and delivers value to customers. The video emphasizes ServiceNow's role in enabling digital transformation by offering a platform that simplifies complex business processes and improves productivity through automation and AI.

💡Enterprise Software

Enterprise software is designed to meet the needs of large organizations, often involving complex systems that serve multiple departments or functions within a company. The video discusses ServiceNow as an enterprise software company that differentiates itself by simplifying business operations and providing a unified platform for various business needs.

💡Generative AI

Generative AI refers to artificial intelligence systems that can generate new content, such as text, images, or code. In the video, Bill McDermott mentions generative AI as a technology that can enhance the work experience, improve human productivity, and provide digital assistance to employees, which is integral to ServiceNow's platform.

💡Employee Experience

Employee experience encompasses all aspects of how employees interact with an organization, including culture, technology, and physical environment. The video highlights ServiceNow's focus on improving the employee experience through a mobile-first approach and the integration of AI to streamline tasks and reduce the need for 'swivel chairing' between applications.

💡Customer Retention

Customer retention is the ability of a company to keep its customers over time. In the video, McDermott discusses the importance of not just selling to customers but also retaining them by providing excellent service after the sale. ServiceNow's platform aims to facilitate this by enabling self-service and reducing the complexity of customer interactions.

💡Integration

Integration in the context of enterprise software refers to the ability of different systems to work together seamlessly. The video points out that ServiceNow's platform integrates all aspects of a business, which is a key differentiator from legacy systems that often create complexity due to their inability to communicate effectively with each other.

💡Productivity

Productivity is a measure of the efficiency of production, often related to the output of goods and services in relation to the inputs used. The video emphasizes how ServiceNow's platform aims to radically improve productivity by reducing the time spent on non-value-added activities like 'swivel chairing' and by leveraging generative AI to assist with tasks.

💡Simplicity

Simplicity in the context of the video refers to the ease of use and the streamlined nature of ServiceNow's platform. McDermott mentions that the ultimate form of sophistication is simplicity, indicating that ServiceNow's platform is designed to be user-friendly and to simplify complex business processes.

💡Innovation

Innovation is the process of translating an idea or invention into a good or service that creates value. The video discusses ServiceNow's commitment to innovation, particularly in the areas of AI and digital transformation, to create new applications and improve existing ones, which is central to the company's growth and competitive advantage.

💡Net Promoter Score

Net Promoter Score (NPS) is a metric used to measure customer experience and predict business growth. In the video, McDermott mentions the importance of customer satisfaction and how ServiceNow's culture and commitment to service excellence contribute to a high NPS, reflecting positively on the company's reputation and success.

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