Scaling Global Organizations in the Age of AI with ServiceNow Chairman and CEO Bill McDermott

0:00The cost to replace an enterprise platform in this SaaS-pocalypse that people talk about is an extraordinary expense. Let's take that cost, and then let's take the cost associated with the human capital doing that instead of something else, because the platform is doing the work for you, and then let's add up the cost of the GPU factory and the tokens that will materially affect their business model. And so for a simple application on our platform, it would be 10 times greater in cost to try to replicate it with a language model. People that run businesses understand that people make mistakes.

0:40They never will forgive software for making a mistake.

0:50Hi, listeners. Welcome back to No Priors. Today, I'm here with Bill McDermott, CEO of ServiceNow. and the closest thing we have to a rock star in enterprise technology. We talk about leadership in the age of AI, what enterprise customers actually want, the difference between SaaS platforms and the SaaSpocalypse theory, and the next 10 years of ServiceNow. Welcome. Thank you so much for being here. Thank you for having me, Sarah. Thank you. So I want to talk about your career and leadership and what's going on with ServiceNow, but I want to start at the beginning. I read Winter's Dream last week, and it's an amazing book.

1:25You talk about the deli you bought when you were 16. First of all, that's a very strange thing to do. But it's such an amazing story. Can you tell me a little bit first about your thought process? And then we can talk about how you managed it. Yeah, I don't deserve too much credit for, you know, doing a strange thing buying the deli. Because I was really trading in multiple part-time jobs. At the time, I was stocking shelves, pumping gas, and bussing tables. And so I had a chance to consolidate all of that into the delicatessen and have one job where I could spend all of my hours. And for a kid going to high school, that kind of made a little bit more sense.

2:11So I got lucky. I bought the business for 5 ,500 notes, 7 ,000 with interest. If I make the payments, I keep it. If I miss a payment, they take everything away from me. So it was a pretty cut and dry moment. And I think the biggest thing that I've learned in my life, and especially there, is it's all about the customer. In the end, the customer and the customer alone determines whether you win or lose. And it's a very simple equation. If you keep them coming back, you got a good chance. And if you don't, you lose. And, you know, back then, one of the most interesting parts about that store was knowing your customer and knowing your base.

2:56And I really had, you know, three main customers. You know, one was the blue collar worker like my dad, as I said in the book, was rich on Friday and dead broke by Sunday morning. there were the senior citizens and this was the early days of DoorDash I guess because they never wanted to leave their house and we delivered and no one else did and the hard part was getting the kids to walk a block and a half past 7-eleven to come to my store and these were the early days of video games and asteroids and Pac-Man and you know you tell that to people today, most of them never even heard of these games, but kids would stand there for hours plucking their parents' quarters into those games.

3:42And that's how I got them to walk a block and a half past 7-Eleven and come to my store. At the end of a long day, one of the young people said to me, you know, when we want to have good food, be treated with dignity and respect and play video games, we come to your store. And when we want to steal stuff, we go to 7-Eleven. So if you take care of your customer, you know who your customer is, and you give them what they want, just the way they want it, no matter what business you're in, you've got a really good chance. And that's all I did. And it put me through school, including college, and it got me my start.

4:26And I have to tell you, the EQ that comes with dealing with 500 customers a day is worth a lot. And I have a feeling the world could use a little more EQ right now. I learned a great deal, not managing a deli, but at least being a hostess and outback steakhouse. See? Yeah. You can relate, right? Well, you just, you know, the repeats of dealing with a lot of different types of people is useful. So it's still like amazing and strange to me. You talk about this set of customers that you understood and tried to serve. Like, were you just sitting there in the deli observing them before you bought the thing?

5:04Like, how did you even figure out these were people? I worked there first, you know, and what happened was the owner was going through some personal divorce circumstances and wanted out. And I was the guy that was always there anyway. So he tried to sell it. It was only a one-year lease. You never owned the land or the building. So he was selling a one-year lease. The lease was owned by Sunmark Industries, which is Sunoco gas station. And they could throw you out anytime they wanted. So only a kid who didn't know any better would pay anything for it. So eventually, that's how the deal got put together.

5:43I said, I don't have any money, but I'll, you know, take a note from you and pay you back with interest. If I miss a payment, you get everything back. What was really interesting about the story is I didn't have any money. But what I did have, because I work there, is relationships with all the suppliers. So I got them to give me the first order on consignment. I said, I will always pay you back. This is not a favor. This is a chance for you. to get your shelves filled up with your stuff that I'm going to sell for you. But in the end, I'll always owe you that first delivery. And probably they charged me too much on the margin, but I didn't care.

6:26I was in business and that's all I wanted was a shot. And that's all I've ever wanted is a shot. And I'm so honored that in my life I've had the shot. And when you have a chance, you can really bring the winner within you out. and all people should ever want is an opportunity because an opportunity is a gift and it's something that you should really cherish. And every time you get one, make the most of it. That resonates. One of the things I love about being in venture is you're in the business of giving people shots. Exactly. And entrepreneurs like yourself, especially when they get to be very successful, they value it for a really long time.

7:06Well, I deeply admire what you do. And I mean, can you imagine being the guy that came from the corner store that went to the corner office. And I think about your great job that you do in the venture world and how unbelievably creative you have to be and the benefit of seeing all these young entrepreneurial companies. It's something I've always had a great deal of interest in. So, like, I should really be doing the interview of you right now, Sarah. Absolutely not. When you, okay, so it starts with, you know, your part-time jobs in the deli and then this amazing career in sales and leadership and SAP and ServiceNow.

7:47One more piece on the leadership front before we go to, you know, talking about the companies and what's happening in the tech landscape. So in the book, you talk about resilience and ambition and disciplined execution. When did those ideas crystallize in your head as the way you would lead? And then do you think that changes today, given how dynamic the landscape is? And I was just talking to the leader of a tens of billions of dollar AI company. And they're like, we have to update our strategy every month. Like, we have no idea what's going on. And so how do you think about operating in today's environment?

8:21I had the great pleasure last night of meeting with about 800 business people that were in town from Brazil. and we were talking about leadership and they took me back to my book winner's dream a lot of them listened to it which is fun because I actually read it kind of straight through in between business trips and I'm glad I did because it added the authenticity to the book I had hoped for but it was wonderful being with them and they really wanted to talk about leadership And I think leadership is the greatest profession in the world. And in this environment we're in today, which is changing, and it's dynamic like never before.

9:10And it's fast like never before. I tell them it is fast, but it'll never move this slow again. So this is the way it's going to be. It's kind of stressful. Yeah, it is in one way, but it's inspiring in another. You know, we have to learn to get like real inspiration from the challenges that are in front of us. Because if we're able to cope with them, and especially if we're able to overcome them, we get superpower. But I go back to the original job being a leader and, you know, getting my first break with getting my job at Xerox. And, you know, Xerox back then was the Google of its era. Right.

9:53And it was just like such an honor. And, you know, I go back to that original interview a lot in my mind. And I think about the opportunity of getting that shot. And, you know, I'm getting geared up to leave Long Island. My dad drops me off at the railroad tracks. And, you know, I'm just turned 21 years old. And I guaranteed my dad I was coming home with my employee badge in my pocket. And there's something important about that, because my dad said, Bill, you're a good guy. Don't put all that pressure on yourself. And I said, no, no, no, I guarantee it. And I went in to New York that day, and I was reading the annual report on how that CEO, David Kearns was his name, was reinventing this corporation under the quality management principles given to the world by Deming.

10:47And at that time, as you know, most of the most valuable companies in the world were from Japan. And they were actually selling a very high quality product for a lesser price than Xerox was building a lesser quality product. It's hard. Hard to do, right? And so this is exactly the time I'm joining the company. But I was so inspired by this guy who wanted to transform that company that by the time I got into New York, I wanted to be the next David Kearns. but I had to go knock on cold doors for a living to get my shot. So on my last interview, I'm so psyched up because I'm meeting with the big boss at 9 West 57th overlooking Central Park.

11:30And I sit on a bench next to another friend that's my buddy today, who's waiting for an interview. And he's been waiting for a long time. I said, what are you doing waiting? I go over to Joanne Siciliano, who's a receptionist. And I said, look, I had all day. I'm not going anywhere. Please let Mr. Fullwood know I'm waiting, and I really look forward to our meeting. I was instantly invited into his office, and this is the essence of it all. As I looked over his shoulder at Central Park on the 38th floor, and I was 57. I realized then, as I realize now, it was not an interview. It was a battle for survival, because if I get that job, I'm in control of my own destiny.

12:19It's my shot and it's up to me to do something with it. So at the end of an interview, he said to me, Bill, it's very interesting interview. You're interesting guy. The HR department's going to get in touch with you in the next couple of weeks. And I said to him, you know, Mr. Fullard, I don't think you completely understand the situation, sir. And he looks at me with the tilted head, like what's his kid up to? And I said, I haven't broken a promise to my father in 21 years and I guarantee to him come home tonight with my employee badge in my pocket and he really like kind of tilts his head now like what's this guy up to and uh you know he goes you know Bill McDermott as long as you haven't committed any crimes you're hired now I hadn't committed any crimes of course I told him that and I double checked that you really mean and I'm hired and he goes yeah so I go over there and I you know he's kind of sitting the way you are I pick him up hug him a little bit put him safely back in his chair and I run past the receptionist Joanne and get down to um Fifth Avenue and head over to Sixth Avenue to a Bunnenberg or to a pay phone I call up mom and dad and I say you know break out the corbell got the job now people don't often know especially in silicon valley what corbell is i'll admit i do not it is like the cheapest worst champagne you've ever ever had in your life okay but in long island where i come from that's cristal so the point of the whole thing 25 years later emerson fullwood asked me to give a speech at the rochester institute of technology to students and in introducing me he said the only time that he had ever broken policy at the xerox corporation was the day he hired me i didn't know that and what i found remarkable about it is that he remembered that and he knew what he was doing when he did it and thought it was worth it.

14:32So we have to put tremendous care into people, tremendous attention to detail when it comes to, you know, uniqueness in human beings and what they are capable of doing. And without him, I wouldn't have gotten my shot. And I never forgot that. And today, When I have CEO meetings, he still comes to them. And he's my friend for life. So I think somehow in the mixture of things with AI and today's society, we're losing a little bit of the human power that we all have to connect with each other and do magical things together. And just make sure we remember AI is to serve people. And to make the human ambition greater, not to take it away from us.

15:29And so that's my feeling on, you know, just how things have changed. But in many ways, the essence of leadership, human connection, people are just more important now than ever. I know I said I was going to then ask you about service now, but I have to ask you a little bit more about this. Sure, let's do it. Do you think it's possible to coach or to teach people that type of agency that you have? Yeah, I do. I think that, you know, someone asked me last night, you know, that similar question. And I said, you know, I'm a person like a lot of other people. I was a very shy, quiet, laid back kid and really came into my own through work.

16:19And, you know, those part time jobs I was telling you about and the desire to be somebody in this world and know that my only way out, I wasn't going to make the NBA. I love basketball, but I wasn't going to make the NBA. Yeah, me neither. Right. So I said, you know, what what can I control? I can control how hard I work. I can control desire to do something and make a difference. I can control that. And so I got a lot of confidence from work. And, you know, other people might get confidence from something else, and that's fine. But I think it's so important to be connected to work, especially work that ties to people.

17:02Because when you know how to deal with people, and in the deli I had 500 of them a day, you start to get a good feeling and a good understanding that if you really listen, if you really care and you're really there present and not just going through the motions, there's people that want to connect with that kind of person. And so I really do believe that that you can teach that, but you do have to practitioner, you know, those ideas. You have to be a part of the process. And I think so much is done today on the beautiful mobile phone in your hand that it's replaced, you know, the human side of the connection.

17:52I, like you, I've got one in each pocket and I value them because they make me more productive and happier because I can do those things. But we really do have to train people. We have to make them do it where they actually have to simulate and be trained and be certified and understand and be coached well. so they have the confidence to get out there and be in front of other people where they can lead and make a difference. And I'm convinced that they can do it. Yes, there are differences. Some people are more skilled at it naturally, innately, no question, but more people are capable of more things than they realize.

18:38That's very encouraging. One thing that also struck me as soon as I asked you the question about leadership in the age of AI was your immediate reaction, I said, you know, something that's a very common sentiment. It's the pace of change is scary. And your immediate reaction was like, well, it's also inspiring. It's a very positive attitude, especially for someone running an amazing, incredibly adorable platform company where you're also facing more questions than you have previously. How do you think about like, you know, in getting everybody at your company or encouraging other people to have that type of reaction to change, that it's all an opportunity.

19:21Well, for one, I agree with you that a lot of people are frightened of change to begin with. The era of AI has disrupted every industry, every business, every person, and everybody needs to really rethink everything. And it seems to be coming all at once. So my approach to that was to lean into it. And one of the ways we did that here is put together a white paper on the blueprint for agentic business, which I'll happily give you a copy of today. And train them on, you know, what is the difference between a language model and an enterprise platform? Not saying better or worse. They're both important.

20:12They're both extremely important. And one actually makes the other stronger. But if you don't know where one begins and one ends, it really is kind of confusing for people. And that was a big unlock. I literally had CEOs tell me that that white paper actually let them see the world totally different, that there were many things in it that they didn't know or didn't realize. One such example would be, you know, let's take an example that's real. Every company today has a compensation issue. So, OK, we have a compensation issue on aisle seven in XYZ Corporation. The language model will do a great job of telling you, in a compensation situation like this, please consider step one, two, and three.

21:04Excellent. Does it in milliseconds. Fantastic. Only problem is, it doesn't actually close the case. Mm-hmm. So now in aisle seven, we got to have the data, the context, and we'll have to go in and out of several different iterations of departments because let's assume it's a salesperson in aisle seven. And oh, by the way, that's connected to the HR department. And because it might be a problem, probably finance is involved in it or legal or compliance or risk. And now we have data and a workflow that's gone through many different iterations, databases, and functions to come back and remediate the issue and close the case.

21:52That's what a workflow platform like ServiceNow does. And it was also important to have AI think, but workflow acts. That's an unlock for a lot of people. Another case example would be, hey, you know, I'm a bank. I've got 15 ,000 of my own engineers. My CEO is under pressure from the board to come up with AI use cases. The board meeting is coming up in 60 days. And I got to look like I got all my story straight on what we're doing to infuse AI. You agree that that's a common thing, right? Very common, yes. Very common thing. Okay. So one thing would be AI and some of the AI code out there is fantastic.

22:43And it can write new code very beautifully and set up the engineer for success and get things done at a speed never before done in the world. It's also true that that net new code comes at a cost because the cost to replace an enterprise platform in this SaaS-pocalypse that people talk about is an extraordinary expense to try to match what some of these really important enterprise platforms do. Because you'd have to rebuild it. You're getting a model. I'm going to write code now. So I'm rebuilding your model. Let's take that cost. And then let's take the cost associated with the human capital doing that instead of something else because the platform was doing the work for you.

23:34And then let's add up the cost of the GPU factory, the business model associated with the language model company, and the tokens that will materially affect their business model. We've actually done the math on this. And so for a simple application on our platform, it would be 10 times greater in cost to try to replicate it with a language model. Now, the other thing about that is if I give you the language model and it makes a mistake, you call me up and you say, hey, Bill, the language model made a mistake. And I say to you, the language model works. And you say, yeah, it works, but it made a mistake.

24:16Well, it's probably right. but it's not deterministic. And incidentally, it doesn't have the context of all the data that has materialized in the company and our relationship for a couple of decades now. And so what we're learning too is people that run businesses understand that people make mistakes. They never will forgive software for making a mistake. So we're kind of in a situation where at a very small fraction of an IT budget, a premier platform is a bargain. And to combine that with AI and the things that AI can do, you get the best of both worlds. You get more innovation, better integration, and a better outcome.

25:05Try to build it yourself at a 10X higher price, and then you have a problem. And I just tell you that the model works because I just give you the model. you don't have someone to call to fix things. I think a lot of the SaaSpocalypse discussion ignores the basic fact that I don't think most businesses want to build workflow software for everything they do internally. And I do think they want somebody to be responsible for it. And I think it takes a lot of energy to go gather that context today. It is not an automated thing. And maybe it'll become more automated, But that all resonates for me. I will have to ask you, you know, so LMs, they can, in the traditional interaction mode, they give you an answer when you ask a question, right?

25:57Now you have long horizon agents. Maybe you have computer use. People can use applications with these models. Does that change your thinking at all? No, I think we lean into it. You know, our perspective is these language model companies are fantastic. and they're very important and they're going to do fabulously well. We said the same thing with the hyperscalers. You know, it wasn't that long ago that people were like, hey, you know, why wouldn't the hyperscalers just eat software? Because everything is going to go to a workload in these great hyperscaler companies. And they are great companies.

26:32They're fabulous companies. And so our perspective was we have to be the AI control tower for business reinvention that integrates with all the hyperscalers, with all the language models, and all the systems of record, because they too are important companies, and the data that resides in them is very important. So if we can be that fabric that connects all those nodes, now we can help you run a true agentic business. And on top of that, we made the move into security, not because we're going to do all things in security, but because U.S. is the world's largest economy, China is number two, and cybercrime is number three.

27:24It's a$1 trillion a month problem. And so we feel that being able to integrate to all the good security platforms, but manage IT and OT, which is the operating technology, with Armus now becoming a part of ServiceNow, we're going to give corporations the ability to have a full purview of the whole landscape. And so, for example, in operating technology, you know, it could be networks with devices attached to it. It could be manufacturing with various tools that are or aren't on a network where AI can or may not even see them. It could actually be medical devices in a health care situation. It could be a world's prestigious bank managing critical infrastructure, which includes the people, places, things, but also the building and the things in it.

28:23To have all of that in one automated AI platform for this reinvention of your business, it's pretty compelling. So it's all there now. And I really like see such a future and such growth in all of these businesses, our core and what we've extended it to because we're a native AI company. Even the platform itself now is autonomous. And, you know, you've seen what we did with Moveworks, the agentic front door to the enterprise, and VESA, which is human and non-human identity. And now the security move with Armus on top of an unbelievable core. By the way, we integrated these businesses in 20 days.

29:0820 days. So a lot of companies don't have the engineering power to say they can do hard things quickly. But, you know, we're blessed with some real talent here. It's very impressive. I have sold companies to, you know, large enterprise software vendors where it takes like a year and a half of rebuild to get some value out of it. Totally. Yeah. I think it's a really good historical reminder that people forget that there was this fear about the hyperscalers as well, which, as you mentioned, have become very important to all of our businesses. And yet have not replaced the need for, you know, workflow software and platforms.

29:50Yeah, as you said, you know, actually are very good partners, you know, and on the back of ServiceNow franchise, get billions in workloads into those clouds. And they're all such great companies, but they all tend to do different things super well. So for the customer to have choice is also a great idea, just like they'll want choice on the language models and us not staying in the way of that and giving choice. But acting as that control tower is a huge competitive advantage or differentiation, whichever your perspective might be. Do you think there's any segment in enterprise software that is at risk from generated code and agents?

30:36I think that it's true. that there will be companies that will be at risk. It's also true that they theoretically should be more valuable because of the data and the context around that data. But if there was a risk, I believe it's more departmental companies. So if you think about companies that do something that span multiple departments or are a serious system of record that is very hard to replicate, they're safe. And they'll be a part of the future. If you're serving one function and what you do is not tremendously high value add, and it might not even be a high up on the priority list of a CEO, I think that that would be the chance where the vulnerability equation really rises quickly.