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

The cost to replace an enterprise platform in this SaaS apocalypse 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 was 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. They never will forgive software for making a mistake.

Thank you for having me, Sarah. Thank you.

Yeah, I don't deserve too much credit for 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. So I got lucky. I bought the business for 5,500 dollars, 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 back then one of the most interesting parts about that store was knowing your customer and knowing your base. And I really had three main customers. 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. They 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 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 and 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. And 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.

See? Yeah.

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 the 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. I said, 'I don't have any money, but I'll 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 worked 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. I 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.

Well, 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.

I 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'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 and 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.

Yeah, it is. And 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 of being a leader and getting my first break with getting my job at Xerox. And you know, Xerox back then was the Google of its era, right? And it was just like such an honor. And I go back to that original interview a lot in my mind and I think about the opportunity of getting that shot. And I'm getting geared up to leave Long Island. My dad drops me off at the railroad tracks and 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. And 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 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. And 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. Fulwood 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 in 9 West 57th, 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. It'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 a very interesting interview. You're an interesting young guy. The HR department's going to get in touch with you in the next couple of weeks.' And I said to him, 'Mr. Fulwood, I don't think you completely understand the situation, sir.' And he looks at me with the tilted head like, 'What's this kid up to?' And I said, 'I haven't broken a promise to my father in 21 years, and I guaranteed him I'm coming 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 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 it. I'm hired. And he goes, 'Yeah.' So, I go over there and 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 Fifth Avenue and head over to 6th Avenue to a Bunninburg to a pay phone. I call up mom and dad and I say, 'Break out the Korbel, got the job.' Now, people don't often know, especially in Silicon Valley, what Korbel is.

It is like the cheapest, worst champagne you've ever had in your life.

But in Long Island, where I come from, that's Cristal. So the point of the whole thing, 25 years later, Emerson Fulwood 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. So we have to put tremendous care into people, tremendous attention to detail when it comes to 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. And so that's my feeling on just how things have changed but in many ways the essence of leadership, human connection, people are just more important now than ever.

Yeah, I do. I think that, you know, someone asked me last night that similar question and I said, 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. And 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.

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. Because 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 you can teach that, but you do have to practice 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 the human side of the connection. I 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.

Well, 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 what is the difference between a language model and an enterprise platform. Not saying better or worse. They're both important. They'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, let's take an example that's real. Every company today has a compensation issue. So, okay, we have a compensation issue on employee 7 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. Excellent. Does it in milliseconds. Fantastic. Only problem is it doesn't actually close the case. So now in employee 7, 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 employee 7 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. That'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, 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 stories straight on what we're doing to infuse AI. You agree that that's a common thing?

Very common thing. Okay. So one thing would be AI and some of the AI code out there is fantastic and 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 apocalypse 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. And 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.' Well, 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. Try 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.

No, I think we lean into it. Our perspective is these language model companies are fantastic and they're very important and they're going to do fabulously. We said the same thing with the hyperscalers. You know, it wasn't that long ago that people were like, hey, 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. They'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 the US is the world's largest economy, China is number two, and cyber crime is number three. It'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 Armis 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, 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 healthcare 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. To 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 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've seen what we did with Moveworks, the agentic front door to the enterprise, and VIZA, which is human and non-human identity. And now the security...

Move with Armis on top of an unbelievable core. By the way, we integrated these businesses in 20 days. 20 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.

Totally.

Mhm.

I 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 high up on the priority list of a CEO, I think that that would be the chance where the vulnerability equation really rises quickly.

We're fortunate in the sense that we go end to end on a horizontal and north to south on a vertical up and down the stack and across the enterprise. And I think that's a pretty huge moat. And right now, I believe the last time I looked at it was more than 85 billion workflows are in flight as we're having this podcast and we got 7 trillion transactions happening on that platform. And it's representing the most important brands in the world and that's not only something we're proud of but it's also a serious responsibility because those companies can't miss and that system always has to be there for them and fortunately it is.

Yeah.

Yep.

Yeah, I think that had we only done what you rightfully point out, which had been an IT service company as an example, that might have been a system of record for the IT department. But I think when CEOs look at a corporation and they say, 'What are the needle movers?' Those are the companies that since you mentioned the two that I work for, you know, one is running the financial system of global corporations of mass scale in multiple currencies, geographies, industries and it's really kind of thorny and complicated to even think about removing something especially something that's probably been mass customized for the unique attributes of that business.

So the investment scale was great, the switching costs are very high. I think you would consider that a platform and I would say the same is true in a certain sense for a company like ServiceNow. But for a different reason. Yes, it's a system of record for all the things it and the services that it provides, but it's even bigger than that in the sense that all of the other systems of record integrate with it. So now you have roughly 800 of the more substantial systems of record that integrate into it and because of our in-memory open-source data platform so it's built on the open-source technologies but its speed, its scale, its ability to ingest data we could take as much as you give us but similarly you might say okay, you know, I'll give you your core IT and OT and I get the holistic end-to-end process but you know I have data lakes, I have hyperscalers, I have language models, what about in the flow of work or a business process, what can you do for me if I don't want to put it in ServiceNow? Oh, we make a zero copy and then the transaction is complete, done and dusted, nothing moved, there was no risk associated with it and it works. So I think that is a mission-critical platform in the execution of work and the basics of getting things done. What's unique about it is you can change the business process instantaneously using the AI tools that are resident in the platform. So if you want to build a net new application, you can do so. If you want to see how the business process would change in a knowledge graph, you can do so. And you can see how that change impacted the processes and the way work flows and all the individuals impacted in a corporation in real time. So I think the motion of that is very, very hard to replicate both on the history of it, the bandwidth of it and also what we have designed in terms of the systems capabilities. It's very unique.