Knowledge 2023 - ServiceNow CEO Bill McDermott on the value of a ‘one company’ strategy
McDermott sits down with diginomica to discuss how the ServiceNow platform allows organizations to move beyond their organizational silos and operate as ‘one company’
Back in 2015, some eight years ago, I wrote that ServiceNow had an opportunity to become the cloud platform to beat - given its potential to break down organizational silos, tap into existing systems of record, and provide a service-led experience that allows customers to get work done more effectively.
A lot has changed since then, but at ServiceNow’s Knowledge 2023 event this week in Las Vegas, it feels like the workflow vendor has reached a pivotal moment in its strategy. The work it has been putting in to create this ‘one platform’ approach to operating an organization, whereby it has workflows for IT, employees and customers, as well as letting customers create their own, now feels fully formed.
The introduction of workflows for ERP modernization, the systems of record that underpin most organizations, allows ServiceNow to more confidently say that it is an ‘end-to-end’ platform for the enterprise. And as we noted recently, the vendor is also bucking the trend compared to a lot of other B2B software companies this year, in terms of its growth prospect, suggesting that its pitch is resonating with buyers.
That’s not to say it’s a complete slam dunk, ServiceNow has not yet reached $10 billion in ARR - which compared to the likes of Salesforce and Oracle, which bring in $30-$40 billion plus revenue each - means that it still has some scaling to do. But sitting down with CEO Bill McDermott, it’s clear that he’s bullish on achieving significantly more growth and market penetration. He says:
We're going for $20 billion. I see a $20 billion plus company. And when they [financial analysts] say: ‘can you be as big as this one, that one and the other one as well’? I say, we got to $7 billion faster than anyone ever got to $7 billion, organically.
It’s true that ServiceNow hasn’t achieved its growth success through acquisition, unlike some of the other players in the market. It has made some acquisitions, but these have been smaller buy-ins that focus on bringing in specific strategic skills or functionality. And the reason for this is that ServiceNow has been dogged in its commitment in maintaining the integrity of the Now platform, understanding that its strength is ensuring users can make work flow across one system.
Sitting down with McDermott this week, he’s convinced that customers are having somewhat of a ‘lightbulb moment’ in terms of what this ‘one platform’ approach means for them operationally. The platform, combined with the tough macroeconomic conditions, is forcing organizations to think ‘cross-silo’ about how they service employees and customers in new ways. McDermott says:
The customers are saying: I have to be ‘one company’. I have to be a ‘one State Farm’. I have to be a ‘one PepsiCo’, That's what they say. And what they want to do it on one platform. And that's the magic of what I think our vision and strategy has done. It's now convinced them that they're all in on the ServiceNow platform.
One company I met with today is a multi billion dollar company. They told me that they are now at the point with the macro environment where they have to take cost out of the company. They have to reorganize the company. They have undertaken different headcount maneuvers, but structural maneuvers are even more important, because they have multiple divisions that they don't want anymore.
So they're going for ServiceNow because they want one cross-enterprise intelligent platform that can help them service all dimensions of the business. You put generative AI on top and that's like putting lighter fluid on the fire.
If you think about the various silos, they're going away from them. That was a learning for me today.
McDermott adds that this ambition is becoming increasingly common amongst the ServiceNow customer base, where users are beginning to question why they have cut up their organizations into different silos that ultimately create barriers for effective work. And McDermott believes that this thinking will continue to gain traction in the market, making it harder for point solution vendors to find growth. He says:
They're gonna move out of these individual silos, which will kill the point solution providers. That doesn't mean they're not going to still be around, they’re just not going to be as big. The siloed providers that work in those areas are not going away entirely, but I don't think they're going to be extremely interesting to solve that problem.
I think that the platforms that go across the silos, especially those with the generative AI capabilities, will supersede the value that a siloed one can offer. In a silo, you can only take what the silo does, and make it better or faster. But it doesn't fundamentally change the experience, collaboratively across the enterprise. And the more I talk to these companies, they all say the same thing.
I actually think the macro environment is compounding the bull case for ServiceNow, because it's driving people to think differently about how they run the company all together.
Generative AI and ERP modernization
Throughout Knowledge this week, ServiceNow has made a number of product announcements, including extending the platform to include ERP workflows. We at diginomica have written previously on why this is an interesting development for the company, not just because of McDermott’s background in the ERP market.
McDermott believes that ERP will be part of what delivers ServiceNow’s future growth. He says:
The financial analysts that cover the company are not only convinced that the management team is the team to bet on, which always matters. But we also show them the technology and they are blown away. And it's not just IT, employee experience, customer service or creator. Now we’re into ERP monetization. We didn't even add this to our TAM, but you and I both know that's a $450 billion market. So we're swimming in a pretty big pond.
But it was the generative AI announcements - unsurprisingly - that caught most of the attention from attendees and observers this week. As diginomica highlighted, ServiceNow is following suit, much like other players in the market, by integrating with the likes of OpenAI and Microsoft to develop some generative AI use cases.
However, what is more interesting, is that ServiceNow is working with NVIDIA to build out its own domain-specific large language models (LLMs), that use customer data to train for scenarios that are specifically useful for ServiceNow’s Now platform. We saw live demos of text to code for the Now platform and how LLMs can be used to summarize case notes and provide recommended actions for administrators, according to a company’s specific policies. McDermott says:
We have now demonstrated that generative AI for ServiceNow is huge. If you think about the power of our CMDB and taking that data and applying generative AI to it, there are literally endless opportunities with use cases to help people actually experience a better life.
And you saw it today, if you're an innovator, and you're building apps, taking out the busy work and going text to code, or text to workflow automation, or text a new application development, you can see now that the dream of building a billion apps in the next two years is not fantasy. It's a reality - and it's about to happen. So I'm really, really pleased that ServiceNow has hit that new frontier of mass scale.
McDermott highlights that most of the acquisitions that ServiceNow has carried out in recent years have been focused on AI companies, where the vendor has not only been interested in the technology acquisition, but also the teams of data scientists and engineers. He quips that if he had tried to buy those companies today, they would have been worth twenty times as much - pointing to the recent hype in the AI market.
But McDermott’s belief is that the combination of this ‘one company’ operational approach, which relies less on silos to get work done, and the introduction of generative AI, will have a multiplier effect for ServiceNow. He says:
I think what's ultimately super interesting to me is there will be an exponential tailwind from all of these things compounding on themselves when the customers start inventing their own build out, on the Now platform, with their own extensions and use cases. And then I just think this thing is going to permeate itself through every enterprise of a substantial size and scale in the world.
The intelligent enterprise
These developments in AI are coming thick and fast, and it’s not clear yet how this will play out for a lot of organizations. Companies are going to have to rethink how they work, what skills they use, and they will be presented with new opportunities and challenges for how to service customers and employees.
Deciding to name its user event ‘Knowledge’ was prescient in some ways for ServiceNow, as the way knowledge is thought about in an enterprise will change dramatically over the next decade, with more ‘intelligence’ shifting towards machines. But McDermott believes that how companies approach this will fundamentally change how they are valued in the future too. He says:
I think that companies will be valued on their intelligence. That intelligence will come from computers, generative AI and data. But it will also come from people. I think that if you add up the intelligence of the human capital, and the machine capital, and you’ve figured out what it takes to be a winning culture, a winning company, a winning team, that’s the next evolution of it.
I believe that. And I also think that there will probably be new financial models that capital markets will come up with to literally value companies based on their intelligence.
However, ServiceNow is also aware that trust is going to be crucial in how this plays out. The development of AI is daunting for not only the enterprise, but humanity as a whole, where establishing what’s actually truthful and meaningful will become even more critical in years to come. McDermott says that ServiceNow’s approach is to work closely with customers, establishing what their needs are - whilst also acknowledging that the mistakes made on the Internet with AI won’t necessarily be seen in companies. He says:
There’s a big difference between AI on the internet and AI in enterprise. The first thing we have to do is recognize that the enterprise is a whole different ball game, rather than trying to chase what's going on in the Internet and just how many mistakes and hallucinations will take place there.
What we are talking about is the governance and the structures that would be built into how you run your IT shop, how you govern it, and how you religiously manage the importance of those data sets and what goes in to your CMDB, or your big data sets - garbage in has always been garbage out.
But for the most part, enterprises have been working on that and it's a race without a finish line. It won't be perfect, but ServiceNow has taken the position that it will be shoulder to shoulder with you, doing it based on your culture, your intentions and what you're trying to accomplish, not what we're telling you to do.
As someone that has been attending ServiceNow’s Knowledge events for close to a decade, I can say that this does feel like the first time that the strategy has become a ‘whole vision’ and the messaging for what the vendor is pursuing is being articulated cogently. What I wrote back in 2015, about ServiceNow potentially being the platform to beat, was prefaced on the idea that it could reach all sections of the enterprise and allow organizations to work differently. The conversations and the stories I listened to from customers this week suggest that this is the strategy that they are pursuing.
The whole pitch wrests on the idea that you don’t have to replace the past to win in the future. Do customers see value in ripping out and replacing their current ERP or HCM solutions? Does this enable you to do things differently? Maybe. But ServiceNow is betting on the idea that a cross-organization workflow platform is going to deliver more value, more quickly.
Now, as we know, the biggest barrier to organizations working differently is culture and people - not technology. Some will get it and some won’t. Organizational change isn’t easy, despite best intentions And there is an imperative on ServiceNow to educate and showcase the art of the possible. But based on the demos I saw this week, particularly with the interplay between generative AI and workflow automation, it is certainly intriguing. How this plays out in reality for customers, well, we look forward to more of those stories at Knowledge next year.
But more so than ever buyers are understanding that they need to think differently about how they go to market - silos create friction and reduce a company’s ability to service effectively.
The next few years will be important for ServiceNow, as it looks to amplify the work its customer base does on the Now platform. We will be watching closely and will continue to speak to customers to get an understanding of how this plays out in reality - but as far as events go, this has been a compelling one.