Following the CEO musical chairs announcement of SAP’s Bill McDermott moving to ServiceNow and ServiceNow’s John Donahoe moving to Nike, the music stopped yesterday as ServiceNow turned in some strong Q3 numbers.
That gave both men the opportunity on the post-results analyst call to drill down into their reasons for their respective changes of role.
Donahoe kicked off, insisting that his decision to move on did not reflect on his faith in ServiceNow:
I believe deeply in ServiceNow and I believe deeply in ServiceNow's opportunity. As I've said before, there is a clear cloud tailwind. This is a beautiful - as Bill calls it - clean strategic technology platform, customers are leaning in and want to partner with our platform and we have the ability to extend and expand across the enterprise. And I believe as much today as any time I've been here, we're very well positioned to get to $10 billion and move on our way to becoming a great enduring company. And to be honest, I fully intend to be part of that journey.
But, he added, a “unique situation” with a “unique company” had arisen, building on a 20 year personal history with Nike:
Over the last five years, I've had the privilege of serving on their Board. I deeply resonate with Nike's purpose. And as everyone at ServiceNow knows I regularly use them as the gold standard of what a great company looks like and I love sports.
So when the Nike Board reached out to me to ask me to come to be their next CEO it was a calling, I felt I had to pursue.
I will say it again, it is not in any way change my belief in ServiceNow and the opportunity ahead. And so the board and I have spent the last couple of months trying to identify the best successor in the world for ServiceNow.
That successor is of course former SAP CEO Bill McDermott who was on hand to explain his rationale for settling into a new leadership role - or as he put it “the next chapter of my career”. He said:
I was with SAP for 17 years. I was CEO for 10 years. In that 10-year time horizon, we moved the market cap from $39 billion to $163 billion. We either doubled or tripled or quadrupled revenue profits, the number of customers that we serve around the world. Our last count was in the order of 450,000 customers around 193 countries.
I believe strongly that at this particular time rather than renew for another five years, it was proper to say 10 years is good principal. I passed at the time to two excellent leaders that are now co-CEOs of SAP and I'm very proud of them. I'm looking forward to their continued success of SAP, a really wonderful company, a great experience, and to my friends at SAP, thanks so much and we'll continue to do great job in the next couple of months.
But onwards to the new role and McDermott gave some hints at what to expect, beginning with the necessary tribute to the road travelled to date:
The culture of ServiceNow is truly special. As I think about John Donahoe and what he's been able to accomplish and the amazing legacy of [founder] Fred Luddy and how he has set the tempo for really humble and hungry employees serving customers in the absolute best way possible. This idea of making work work better for people is so human and so necessary in today's enterprise where customers more and more are looking for a true partner that really deeply cares.
As to the future, McDermott is clearly conscious that his appointment has attracted a lot of attention and curiosity about what his plans will be. With a couple of months to go before he takes over, McDermott was keeping his powder dry for now, but set out to reassure investors that he wasn’t about to come in and tear everything up:
If I was in your shoes, what would I want to hear from Bill McDermott? I would want to hear Bill, what about this $10 billion path that John Donahoe and the ServiceNow management team have been discussing? Well, let me answer that very simply. I completely buy in, stand by it, and I'm looking forward to achieving it.
What about all the commitments including the financial commitments of the company on the revenue as well as the margin expansion story? Are you in on that too? 100%. The customer commitments and the bright future of ServiceNow could not possibly be more in focus for me.
The current management team at ServiceNow has been “doing things very well”, he added:
The question becomes can we do more and can we make it even better? And the answer is of course. That's why I'm here, because I see a great opportunity. But I see innovation without disruption. I see a way that we can layer in some added focus to give the solutions a richer context around the buying centers or around the scientific methodology to deliver the value. So we can have even new hires, look like they've been on the job for a long time. But this is systemic. It's something that's been done before and we'll do it the ServiceNow way.
But all-in-all, I am very, very pleased with everything I have seen from the management team and it's just about a continuous evolution. We do not need to disrupt this place. We do not need to revamp territory coverage. We do not need to break customer relationships. This is going to be very smooth transition…you're not going to see a big change here. You're going to see a continuous evolution of a great thing.
This is a big deal for McDermott personally, he insisted, arguing:
I have already sold houses, bought houses, enough land for my family and I am 100% in. I’m looking forward to doing things that have never been accomplished before, because I am doing it off of a base that is just truly incredible. So, we are going to set the standard and be the most admired business-software company in the world. I am fired-up and I can't wait to get started.
The emphasis by McDermott on “a tremendous amount of continuity between everything that John has told you” is one that may be welcome to investors. The ServiceNow share price has had a bumpy ride this week on the back of the announced changes. Change spooks Wall Street. There’s not much more to be read into the situation than that and yesterday's Q3 numbers calmed some nerves.
That said clearly things will evolve at ServiceNow once McDermott is in situ. As he put it:
ServiceNow is not SAP and SAP is not ServiceNow. These are entirely different companies at entirely different stages of their evolution and they have very different business models.
For his part, Donahoe made a very pertinent remark about one thing that his successor brings to the table:
Bill McDermott makes my role of desk look paltry in terms of his relationship with CEOs all over the world.
As ServiceNow chalks up more and more enterprise wins - there are now 809 customers spending more than $1 million, up 32% from 612 for the comparable period last year - that’s a major asset to have on hand. As Derek noted yesterday, 2020 is going to be a big year for ServiceNow and its ambitions. McDermott probably gave his biggest clue as to what’s ahead when he said:
This is a juggernaut waiting to happen.
Fasten your seat belts!