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Knowledge ‘24 - CEO Bill McDermott says ServiceNow is ‘playing a game of chess, not checkers’

Derek du Preez Profile picture for user ddpreez May 8, 2024
Summary:
During a sit down with diginomica, ServiceNow CEO Bill McDermott explains how he sees generative AI having an impact on the enterprise - and why he believes the Now platform is going to be the long term winner.

Image of Bill McDermott ServiceNow CEO

Consistent long term thinking isn’t always an easy strategy in the enterprise technology industry. As we've seen many times over, the demands of quarterly earnings and a desire to scale through acquisition can result in what looks like a ‘pick and mix’ of technologies sitting under one roof. Time and time again we have seen examples of this leading to fragmented thinking, a lack of focus and not understanding where your competitive advantage lies - a confusing prospect for technology buyers deciding where to invest. CEO Bill McDermott, however, believes ServiceNow is fundamentally different in this regard and that the vendor is playing a strategic game of chess, not checkers. 

How? Well, part of this, as diginomica has pointed to many times, is ServiceNow’s continued focus on maintaining a ‘one data model, one platform’ approach. The vendor operates as an engagement layer that sits atop systems of record, acting as a workflow platform that unifies enterprise systems, allowing buyers to scale ServiceNow as part of a ‘one company strategy’. 

Rather than having to cobble together multiple integrations, driven by various department leads, ServiceNow argues that its customers can think about service as a unified approach - with data and work flowing through one platform across the organization.

This was the central argument from McDermott during our discussion last year, at Knowledge 2023. Some 12 months have passed since then - and during that time the rise of generative AI as a priority in the enterprise software market is driving fresh competition amongst vendors that are looking to win big. If the past decade or so has been defined by cloud computing, the next decade (or more) is likely to be defined by AI. 

And after spending a few days at Knowledge in Vegas this week, and getting to sit down with McDermott once again, it’s clear that the company is bullish on its position in the market. 

AI advantage

ServiceNow has partnered with the likes of NVIDIA and Microsoft to expand its generative AI capabilities, allowing buyers to adopt a multi-model approach across the Now platform. diginomica has outlined the key announcements this week, but the central proposal is that employees and customers will be able to interact with ServiceNow through conversational interfaces to automate tasks, receive summarized information, and no longer have to navigate multiple applications to get work done. 

One demo on stage today saw a new employee not only onboarded through a ServiceNow ‘My Assist’ tool, with digital passes being generated and new laptops being assigned and delivered, but also saw them being guided through suggested email templates to introduce themselves to their team, as well as being presented with data on their direct reports’ performance. Integrated with Microsoft productivity tools, ServiceNow’s AI-driven platform aims to center the user’s needs and demands, without needing to understand which department or application is driving the data or workflows in the backend. As McDermott explains: 

Think about the power of the ServiceNow platform to go across these companies, across all the functions. Think about a graph technology that knows you and knows all of your associations with the company. If you're an employee, for example, we know where you live, we know where you work, we know what assets you're using, we know what assets you're not using - and maybe you should just give them back so we can capture the savings. 

Similarly, with a customer, we know you. This to me is the competitive advantage that we have. Because once we get the information or the data - the ‘know’ - we have the automation with the ServiceNow platform, which is the ‘do’. I think what's going to happen is ‘knowing’ things is going to be important. But knowing and doing things is going to be the competitive advantage. 

It’s here that ServiceNow’s decision to maintain a one data model, one platform approach really pays off. As I’ve noted previously, if generative AI is the new UX, then this has implications for how organizations not only operate, but also how they think about strategic technology purchases. 

To put it another way, whilst all vendors are undoubtedly pursuing a generative AI strategy, it’s likely that the technology partners that are closest to the end user are going to deliver the highest impact - as they are engaging with them directly every day. If you couple this with ServiceNow’s ‘enterprise-wide engagement layer’ strategy, which pulls together all of your systems of record data into the ServiceNow CMDB, it’s a platform that every user in an organization (in theory) would be engaging with to get work done. You don’t need to know what’s happening behind the scenes if you’re having a conversation with an AI agent that is pulling the relevant information and carrying out tasks on your behalf. And at that point, are you seeing systems of record vendors as strategic? McDermott doesn’t think so. He says:  

Another way of saying it is, [system of record vendors] become a database. Yes, if they have generative AI, maybe they can move some things in that department to a higher effect. That's good. 

But in the end, people are working across departments. If I have a HR case in the company, it involves finance, it involves legal, it involves a number of departments. And it might involve two or three other people who have to be informed across the value chain. So you see this workflow going in all different directions, across many different domains and systems, to solve a simple case.

Emails, texts, pictures, post-it notes…but now you’ve got a case, it's open, it's being managed cross-functionally, there's a summary, the case is closed. It’s all being done by generative AI. 

And now a HR situation is as simple as pressing a button. Hitting a click. And the same is true on the customer side. 

McDermott quips:

I'm not doing that competition thing, I don't have to. We’re playing chess, we're not playing checkers. We know what we're doing.

Big change ahead

McDermott’s assessment of how this is going to impact companies is that generative AI will drive new expectations around service for both customers and employees. If AI tools do have the ability to know who you are and carry out tasks for you, users will expect a higher level of service more broadly - in that if the AI can’t do it, for whatever reason, there better be skilled people that are available and on demand to support. 

ServiceNow’s argument is that the automation of work and tasks using artificial intelligence will result in huge back-end costs being stripped out of companies, which should then leave some headroom to allocate funding to front-end service. McDermott argues that the new business models will be product and service-led, using automation to scale, without having to increase headcount. He says: 

Because the platform connects into all the data sources in an enterprise, because of generative AI and this renaissance moment, everyone's going to wake up to the fact that they’re not going to get away with swivel-chairing an employee through thirteen applications a day anymore. Their expectations are going to change. They're going to expect generative AI to do that for them, to make their life easier and their experience better. 

You won't need to double the size [of your workforce] commensurate with the revenue growth of the company, because the technology should be doing so much more of the work. And the people should be doing the high value things, not the “tactical execution things”.

If you have the data and you have it automated, there's no reason why people should suffer through the torment that they've gone through for half a century in the enterprise. 

McDermott provides an example of an insurer underwriting a new policy. He says that traditionally an insurance provider would have an underwriting process that spans its entire company, with processes that touch multiple people and multiple departments. However, he believes that with the ServiceNow platform and its one data model that automation could carry out the majority of the process - or as McDermott says, ‘just workflow it’. He adds: 

My thing is, every process, in every company will be workflowed with generative AI, to a perfect design. So you'll take a process that really matters, you'll design it perfectly, you'll automate a workflow into the action layer or the experience layer, which is ServiceNow…and now you're doing something. 

A different world

A question I put to McDermott, one that I’ve been trying to get an answer to from a number of vendors and companies I’m talking to, is how the introduction of generative AI will change organizations’ operating models. My curiosity is that if employees and customers are going to be interacting with companies via generative AI tools (the new UX!), where they then don’t have to think about if they’re dealing with a customer service department, or HR, or legal - does this impact how organizations think about organizing themselves? If the systems are breaking down information silos, in the way that ServiceNow envisions, what need is there for the silo at all? 

Of course, centers of excellence or knowledge centers will be required in some capacity, but the swathes of work that typically takes place in a ‘department’ could, in theory, be automated away. McDermott believes that the people power in companies or organizations will likely be geared towards the service or product delivery in the future, rather than the back-end operations. He says:  

I think you're onto something big here. And my way of looking at it is this: I always knew that a departmental focus, with departmental titles, was getting old. And certainly at the headcount levels it is at now. If there's domain expertise in a company, and let's say it's HR, it's clear to me that with generative AI, if you have 1,000 HR directors, you probably wouldn't need to hire 1000 more. Even if you grow.

But here's what I do think is going to happen…big picture…it will potentially change org structures. I think there's always going to be the human aspect of it. AI platform for business transformation is what we're talking about here. 

What the human impact is…I think 70% of the jobs are going to change. That doesn't mean 70% of headcount is going down, but I do think people will have to be retrained, reskilled, retooled.

Providing an example, he adds: 

If you're a healthcare provider, you’re not thinking about how you make the clipboard process a little smoother. You’re thinking about how to create the Four Seasons, in terms of the patient experience.

How do I digitize the entire procedure? From the time somebody calls up, to studying the case, to handing the case over to a medical professional, to analyzing it, and then ‘doing’ something? 

I ‘know’ and I ‘do’. That process is going to get cut down by 90%. It's just going to happen.

Finally, if service is the priority for business models, with humans being taken out of back office functions and driven towards the front office, McDermott also has some interesting ideas about the future licensing prospects for ServiceNow. Software licensing has always been a varied (and confusing) practice, with prices varying by size of company, number of users, the amount of data ingested, terms of the contract, etc etc. But if processes are being automated away, particularly across one platform as ServiceNow hopes it will, how does it see it pricing its offering in this AI future? McDermott says: 

I think we’ll have licensing models that are based upon transformational workflows that reinvent business processes and redefine the way work is done entirely.  

We can go to any industry and say: what's your biggest opportunity? What's your biggest headache? Let's rethink how it's done. We will re-engineer it with a new workflow orientation and the underlying tech can pull it off.

If I save you $5 billion, would you give me $250 million? Now we don’t have to screw around with licensing anymore. We’re changing the whole game. 

My take

McDermott is never someone lacking in ideas and ambition. And I feel like this is the first Knowledge event where he’s said the quiet bit out loud - ServiceNow is going after everything. It’s placing itself in a category separate from the system of record cloud vendors and positioning itself as the engagement layer that can carry out the majority of your tasks for you. McDermott recognizes that the changing nature of interacting with systems, and how we think about processes, means that the value lies in the system that is closest to the user and understands the ‘whole picture’. 

However, strategy is one thing, execution is another. But it’s true that ServiceNow’s long-term thinking around its data model and one platform approach leaves it well positioned to go to market with this. The thinking is cogent. And if the customer stories we’ve heard this week are anything to go by, it’s one that buyers are resonating with. They are seeking simplicity and can see the opportunity with AI - but it’s early days and the proof will be in the use cases over the years to come. 

My concern for ServiceNow is that the status quo is hard to dismantle. These organizations and their silos are well embedded and breaking down ‘work’ into a single platform - after islands of institutional power have been built over many decades - isn’t easy. Line of business owners are protective over their systems and processes for a reason (they know their jobs are tied closely to them). However, as is often the case, the companies that ‘get it’ will likely drive competition in the market and force others to adapt. 

What’s clear is that the next decade is going to be an interesting time for the cloud software industry and I believe that we are going to see some fundamental shifts, as generative AI gains traction amongst enterprise buyers. 

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