ServiceNow, Inc. (NOW) Presents at RBC Capital Markets 2022 Technology, Internet, Media and Telecommunications Conference (Transcript)

ServiceNow, Inc. (NYSE:NOW) RBC Capital Markets 2022 Technology, Internet, Media and Telecommunications Conference November 15, 2022 11:45 AM ET

Company Participants

Bill McDermott – Chairman and Chief Executive Officer

Conference Call Participants

Derek Neldner – CEO and Group Head, RBC Capital Markets

Operator

Good afternoon. Please welcome CEO and Group Head, RBC Capital Markets, Derek Neldner; and Chairman and Chief Executive Officer of ServiceNow, Bill McDermott.

Derek Neldner

Good afternoon, everybody. All right. Great to see everybody. Thank you for taking the time to join RBC for our Annual Technology, Internet, Media and Telecom Conference. We are absolutely delighted today to have Bill McDermott, Chairman and CEO of ServiceNow with us. Bill, I know how busy you’ve been. We were just talking about your travel. Can’t thank you enough on behalf of the team at RBC, but importantly, everyone with us today for taking time out of your schedule to be with us.

Bill McDermott

Thank you. Very honored to be with you. Thanks a lot, Derek.

Derek Neldner

All right. Well, I know there’s a lot to cover and a lot of very significant trends at play in the world around us right now, and in particular, in the technology sector. So I’m sure our audience is very keen to jump right into it. And we’ll talk a lot about very big picture themes today because I know everyone would love to get your insights on them given your experience over many decades, but I’m actually going to start a little more detailed, which is with your recent quarter results. So congratulations. Obviously, phenomenal Q3 result, significant beat, significant strength in what otherwise has been a more challenging earnings season.

Question-and-Answer Session

Q – Derek Neldner

But before we get to macro trends, can you maybe just spend a few minutes and talk about recent quarters, what’s been driving your success, how your team has been executing and really allowing you to post very, very strong results as we saw a few weeks ago?

Bill McDermott

Well, thank you very much. First of all, for the kind remarks. We’re very proud of our company. We have a purpose, and that is to make the world work better for everyone. I like to say that the world works with ServiceNow. And that dream is starting to become a serious reality at mass scale.

I think the big difference with ServiceNow from all the other enterprise software companies is we’re building our innovation at a record clip. This year, we built 2,000 net new solutions on top of the ServiceNow Platform with two major releases, and I think the customers really appreciate the innovation. So we’re operating at the rule of near 60 between the top line and the free cash flow margin growth. There’s not a lot of companies in enterprise software doing that. And I really do. I tie it all back to the customer, the tremendous innovation that’s happening in the company and an outstanding go-to-market machine that wants to win. And we do play to win. So I think we’re not letting the weather conditions in the marketplace getting our way. Winning be achieved in any market as long as you adjust your strategy properly.

Derek Neldner

Great. Well, it clearly has been working. So I’m sure we’ll continue to see it going forward. Bill, if I maybe switch a little bit more to the macro. And you talked about the weather conditions, lots of analogies we could use on various storms blowing, I guess. But clearly, if you look at 2022, the themes have really been dominated by the macro and the geopolitical uncertainty, economic uncertainty, direction of inflation, direction of rates, everything that we’ve all been grappling with. Can you maybe spend a minute and just talk about how you’re thinking about the outlook going forward, and in particular, how you see that impacting IT spends and enterprise software?

Bill McDermott

Sure. There’s not too many $10.7 trillion market opportunities in the next three years, and digital transformation is a $10.7 trillion market in the next three years. And if you think about ServiceNow’s business and you’re looking at this as an investment, think about it this way: we had the operating system era. We had the database era. We did the application software era. And now we’ve moved into the platform era. And ServiceNow is becoming the center of gravity because it is the platform for end-to-end digital transformation. And that’s really what it’s all about.

The business started in IT, how do you service the business, manage your assets, manage operations, highly secure solutions. Then it came down to the employee and the experience. And we have now work-from-everywhere world, and employees have very high expectations. And they expect on a mobile app to be recruited, hired, onboarded, trained, certified, get all the services they need on one mobile app. And every leader should expect to deliver that to their employees because in many cases, you’re either laying people off or you’re not hiring more, and the work has to get done. So the friction has to be removed from the system.

The other thing that’s interesting about a platform is it can move into other areas quite effectively, customer service management being one of those when you think about direct-to-consumer. CRM has moved from just the engagement layer of I market to you, I upsell you. I cross-sell you too, I actually service you. I give you the right product in the right place at the right time, at the right form factor, just as you configured it. And then the mid-office and the back office supply chains accommodate the promise that you made at the point of sale.

And then finally, I think the big thing that people are really locking on to now is there’s going to be 750 million net new applications built in the enterprise in the next two years. To put that in context and why platforms matter, that’s more application development that has taken place in the last half century. So it’s time for digital transformation on an end-to-end basis. And ServiceNow is the control tower for digital transformation in enterprises globally. And we basically are 88% penetrated in the Global 2000, but we’re only 15% penetrated in the opportunity across that platform.

Derek Neldner

And so when you step — I mean that’s a great summary of obviously the ServiceNow positioning. Reading into that, obviously, a lot of macro headwinds. A lot of companies are starting to cut back on IT spending, but that’s offset obviously by the value proposition of digital transformation and automation. And so from your comments, even though there’s headwinds, it sounds like you think the secular trend far outweighs the near-term uncertainty and pressure on budgets that you might see.

Bill McDermott

100%. And if you look at every CEO today, on their short list of things that matter the most, it’s digital transformation because every company out there has to be a digital-first company. If they don’t become a digital-first company, they won’t be around very long. And all you have to do is go back to 1989, which isn’t that far in the past. And the top 30 companies as measured by market cap, there’s not a single one that’s left on the list in 2022. In fact, back then, four out of the top 5 were from Japan. There’s not a single one of the top 5 from Japan now. And four out of the five are high-profile American tech companies. So the world has really evolved quite quickly. And yes, I remain extremely confident today and far into the future because customers need to digitally transform the way they run. And if they don’t, they lose the game. And nobody wants to go to the stadium and lose the game.

Derek Neldner

Yes. One thing we focus on a lot at RBC with our strategy is trying to bring everything back to our clients and always saying, what are our clients looking for? How do we make it easy for them? What are their execution challenges? And so you touched on this a little bit, Bill, but you’re speaking to the top executives from some of the largest companies right around the world. Practically as they’re wrestling with the environment and what is not an easy task of digitizing their business, what do you hear from them? What are the challenges? How is your team then helping them get over the line on some of the key decisions in the execution? And interested to any differences you’re seeing regionally across sectors just given the breadth the global client base you interact with.

Bill McDermott

Derek, that’s the right question. The big thing now is speed. There is a need for speed because nobody has an interest in long drawn-out time-consuming, risky big time IT projects. Everything is now based on time to value, return on investment and how fast you can get me up and running and winning. And basically, what you’ll see a lot of right now is you’ll see consolidation of point solutions across enterprises by the 50s and the hundreds. We have one CPG company who’s taking $1 billion in cost out, and they’re running our procurement management solution to do it. It’s residing above their ERP processes, but they’re rethinking procurement management.

We have an auto manufacturer in Germany that had 4,000 suppliers between Germany and Mexico. They had to reorient the supply chain to accommodate a fast-changing world. They didn’t have three years to rethink what they did 20 years ago. They had three months to get it up and running so they could execute in today’s climate, very, very quick time to value. So what you’re going to see is — and you saw this in 2008 for the first time with the financial crisis. It was rolling along pretty good up to September of 2008, if you remember. And now when the financial crisis hit, a lot of focus was pulled away from the CIO, and it moved out to the line of business executives. And that was really the moment in time where the cloud accelerated at mass scale because the empowerment went to the line of business executive and the CEO said, “If you can do it, you can innovate. You could do it on your OpEx budget. Go for it, but there’s no CapEx happening in the company.” And that’s when the cloud tailwind really kicked in.

The environment is very much the same today. But today, even OpEx is being carefully looked at. So the CEO is like, this is the number. The CFO saying, I’m enforcing that. And the line of business executives, along with the CIO are accommodating a strategy built on platforms that matter. We have one company that took out 425 platforms and consolidated them onto the Now Platform. We have a bank down the street to consolidated 24 major platforms onto ServiceNow and actually spoke about the multimillion savings at their Analyst Day, and I could go on.

In fact, this fantastic brand, RBC, is using us as a control tower for digital transformation and how you navigate a multi-cloud world across all infrastructures managing all assets. And you’re saying, how can I do more because you want to know what the platform can do because if you could take cost out, deliver return on investment and do it fast, you’re going to win.

Derek Neldner

You touched on one item that you and I were chatting about earlier as well. When you look at ServiceNow, you have been clearly the bellwether of IT platform products. Part of the challenge when you’re so good at one area, as you expand into a lot of new areas that you have been, even things like ESG, security, risk, HR services. Can you talk a little bit about the growth opportunities there, but also some of the execution challenges of repositioning what you’re known for and how you overcome that?

Bill McDermott

There was once a time where IT supported the strategy. Now IT is the strategy. So the IT platform, if you really have a platform, can accelerate into the employee experience. It can accelerate into customer service management. It can accelerate into new application development. You can go into entirely new marketplaces. We have a $200 billion TAM in our core business when you add it up, but ERP is a $400 billion core business, and I’m not even adding that. But yet we go into ERP, not to replace the systems of record. They’re fine. They do good transactions. We have them in our company. Nobody of the 22,000 could even tell you what they are because we use ServiceNow above them as the system of action. So whether you’re managing IT or IT is servicing the business or you’re managing the employee experience or you’re servicing your customers like Disney, when a 31-year employee basically said, this is the greatest employee portal we’ve ever had. I could hit search and get an answer to any one of my questions first time in my 31-year career at Disney or you could be the CEO of Disney and saying, in COVID, I had no cinemas and no theme parks. I go for Disney+. And now you’re dealing with, what, 160-plus million, on your way to 250 million or 260 million users. And behind the scenes, ServiceNow is navigating those sign-ups on the Internet with chatbots and easy-to-use workflow automation to help consumers procure their service. So it’s a new world, and that’s why I say IT has actually become the strategy.

And we’re playing platform games now. You’ll have multi-cloud. All the multi-cloud companies are going to do great. They’ll do absolutely great because these workloads will move to the cloud, and they’re super important. Our role is to navigate those workloads, take a DNA of that infrastructure and make sure those workloads are being moved effectively. They are doing so in a way that’s compliant with the governance and the risk and the compliance and the ESG standards of the company. And at the same time, now you’ll have your IT, your employee, your customer and your creator workflows all automated above those systems of record that have been there for half a century.

The hardest part, Derek, will be for the smaller ones because to get mind share right now. If you’re a smaller one, it’s really hard. So you have to have some scale, some innovation. And again, I keep going back. If you don’t have a real platform, it’s going to be choppy out there because you’re selling into one buying center, and it’s a go, no go. And if you hit, you hit. If you don’t, you don’t, and it’ll be pretty inconsistent. That’s why I’m extremely confident in ServiceNow.

Derek Neldner

Bill, can you talk a little bit — against that backdrop, how are you thinking about new customers versus upsell with existing, and in particular, lots of headlines in a more challenging economic environment, sales cycle with new clients, for some companies, at least taking longer, companies are a little more hesitant on products. So in this kind of environment, do you just stick with your core strategy, focused on both new and existing? Do you pivot to focus the sales team more on upselling? I’d love to hear your thoughts on that.

Bill McDermott

Well, this group better than any group in the world understands cloud economics. And the first thing to succeed in the cloud is to have loyal customers. And when you like ServiceNow, depending on which quarter we report, it will be 98% or 99% customer loyalty, highest retention rate in the cloud and the business. We get about 85% of our business from same account revenue growth because the existing customers, once we land, we expand. They love the platform, and they continue to amplify our innovation in the amount that they consume for ServiceNow.

So in any situation, if they’re loyal and they love the platform and they continue to invest in the platform, you can weather any storm. At the same time, we’re expanding geographically, things like Japan, a huge market for us, a huge market opportunity. Think about India, massive. So much of the GDP expansion in the world economy in the next decade will take place in India. Indonesia, Vietnam, lots of things in South Korea. So big growth opportunity in Asia. We continue to expand in the Americas, and especially now getting a new gear in South America, which is interesting because there’s a lot of legacy there and we can really help them. And then in Europe, think about Germany and the opportunity we have in Germany. Once they see what this platform can do on an end-to-end basis, the other platforms that they have, they have for a long time, they can innovate on top of it and achieve all new goals. And then, of course, the big markets in Europe, but the Middle East, Africa. We are looking very globally, and we’re investing very globally because we will be one of the great brands in the world all time in technology.

But also industry. You know as well in financial services, telco, media, technology, government. Federal government love ServiceNow, but that Federal government expansion can go way beyond the United States. We studied all the governments of the world. There’s 11 that are extremely attractive. There’s five that we’re going to go after with all we have in the next 12 months. We think we can replicate what we’ve done in the U.S. and many governments around the world.

We have just bold ambitions in manufacturing and retail, obviously, CPG. So industry, geography, expansion in a platform by persona and then continue to do a great job on making sure the customers love the platform. They’re loyal to the platform. They expand on the platform. And yes, we can also bring the platform downmarket a bit.

We have had great success with the biggest customers in the world, and that was the smart strategy. But now we can virtualize that success in lighter-weight models, especially as we cocreate with partners to take ready-to-run turnkey business solutions into the 1,000- to 5,000-person establishments that are really looking for innovation like this. They don’t even know what’s available to them. So we’re going to do a lot more on that on a go-forward basis.

Summary of that, Derek, is there’s opportunity everywhere. And that’s why I always say, yes, the macro is what the macro is. The cross wins are there, but the tailwinds for digital transformation are much stronger than those cross wins, and we will power right through them.

Derek Neldner

Lots of levers for growth, which is great to hear. I’d love to hear against — I mean you have a huge opportunity in front of you, as you just talked about. How do you think about prioritization, focus, resources and chasing all these opportunities in a way that drives the most efficient execution, doesn’t distract the organization?

Bill McDermott

That’s a really super important question because we believe strongly that growth has to be accompanied by profitability. And if you looked at our results this year, we actually increased our revenue guide in constant currency to 28.5% for the fourth quarter. At a time, we didn’t have to increase the guide. But at the same time, everybody understands the strength of the dollar and the impact that, that’s had on operating margins. We held our operating margin guidance to the original guidance that we gave coming in to 2022 because with serious people. And yes, we can do the things that I just talked about, and we can still expand the operating margins of the company. So I really like this idea of keeping ServiceNow when you combine the revenue and the free cash flow margin growth. We’re operating near the rule of 60 now, and I like it out there. So we want to keep it high for you. And at the same time, we want to organize the company for speed. So we’ll do some things to make sure our ServiceNow doesn’t get complicated, that ServiceNow can run efficiently and can run highly effectively. And we’re already ahead of that curve as we go into our 2023 planning cycle, the way we want to structure, the way we want to go for growth, the way we want to expand margins and the belief that we have fundamentally in our organic growth strategy because we truly believe that the value here is having a one platform, one architecture, one data model approach where the customer never gets any tech debt from ServiceNow.

In fact, we go in there and clean up the mess, and the mess is everywhere, and that’s what gives us such a competitive advantage. So we want to make sure we stay true to the brand identity of the company and really be a brand-led enterprise software company, which I actually think is a relatively difficult thing to do since very few have ever done it. But we will.

Derek Neldner

Great to hear how you just bring it back and anchored on this core strategy, the vision positioning of the company. Switching gears a little bit. But as you talk about growth and expanding into new products, new categories, you’ve commented in the past that for ServiceNow to win doesn’t necessarily mean others have to lose. And you talked about where you can partner. Can you talk a little bit, Bill, about how you think about the difference between partnering versus your traditional competitors?

Bill McDermott

Yes, of course. And I think one of the big advantages here is we’re not trying to replace the systems of record in these enterprises. On the contrary, especially in these tough times, I don’t think executives really have the temperament to rethink what they spent years and years building, but they have all realized that what they built is sort of a functional story. I might have a great transactional finance system. That’s great. I might have a decent transactional HR system, hard to come by, but maybe. I invested a lot in how I get to my customers, and I think a lot of my strategy. Okay. So all those things are true. But at the same time, work is being done across all of you think about prioritization, those silos.

And collaboration and work-from-anywhere in the future of work is now going to be based on a mobile and a company’s ability to navigate across all of these domains and all these silos. People can work in teams to actually achieve a common goal, and they have shared values, and they have a purpose that they’re running on. And we’re the company that brings all those experiences together.

So I think it’s in the interest of all the systems of record companies to just adopt ServiceNow, because by doing so, it strengthens their solution. They now can give a user experience where they couldn’t in the past. They can now point to the fact that the transactions and the data in those systems actually can achieve or help to achieve goals. So we don’t go against anybody. We’re all about the customer, and I think that’s a major force multiplier for ServiceNow in these enterprises.

The other thing I will say, though, I had one situation — you can’t make this stuff up. It was a government entity with 78,000 people, they had 77 HR systems. And I said to the decision maker, I said, “You think you could have stopped at 76 or do you have to go for the 77?” And he said, “Bill, I don’t know what to do. What do I do?” I said, “Don’t even try to rethink what’s been done.” What we do is we populate it all into the ServiceNow employee experience. And over time, you will retire many of these, eventually all of them, and you might end up having one transactional system to accommodate the employee experience. Well, lo and behold, he was up and running in 90 days. Superstar, getting gold metals everywhere, and he’s winning. And that’s happening everywhere.

So what we’re seeing is we don’t have to work against anybody. But if the solutions are not automated, they are in silos, and they don’t have strategic relevance. They will disappear, especially in this environment. So I think we can really take out a lot of cost.

Derek Neldner

Well, it’s powerful. I mean, again, we have a big IT system, and it takes time to retire these legacy systems. And to the extent there’s an ability to overlay a platform on top and then over time, as you say, work through some of the legacy cleanup, that’s pretty powerful.

Bill McDermott

Yes.

Derek Neldner

You touched earlier, Bill, obviously, on all the growth levers you have and the focus on organic, and that has really been the core of ServiceNow’s strategy. When you look at the disruption that we’ve seen in markets, we have started to see M&A come into the sector a little bit. We’ve seen a few private equity firms, in particular, looking at maybe some opportunistic long-term value transactions in the sector. Can you maybe just step back, talk a little bit about, given your tenure in the industry, how do you think about M&A trends? Do you think M&A picks up in the sector? And then do you see inorganic being part of all — at all of ServiceNow’s playbook?

Bill McDermott

I always try to look at the world from the customer in versus ServiceNow out when it comes to M&A. And if I really did believe that M&A was in the customer’s interest, it would be a relevant conversation. But as it relates to the core ServiceNow Platform, I can’t think of a property in the marketplace today of size and scale that would come into the ServiceNow platform and actually add more value than pumping up the engineering machine to continue to build more and more innovation on that platform. And that’s the honest truth.

However, as it relates to the industry at large, you’re talking about private equity firms and things like that, it’s in their self-interest, and it is in their business model interest to do deals. And I do think the valuation on companies now in the software industry, in some cases, are extremely low. And if it’s in your business model interest, you should absolutely consider it.

And I also think that there’s big companies out there that if they actually put their mind to it and they look at the mirror and say, what’s it going to take for me to win? What my customers want from me? There are definitely opportunities out there that companies will take advantage of. I do believe that. Yes.

Derek Neldner

Good views. Good views. Sticking the theme a little bit of just trends in the industry. Again, long history of leadership roles, obviously, your time at Xerox, SAP. If you fast forward five years from now, 10 years from now, and you think about looking back, what are the two, three, four, five big trends you think five or 10 years from now we’ll be looking back on and talking about?

Bill McDermott

Well, first of all, I actually wrote myself today — my anniversary note in the ServiceNow system. “So happy anniversary, Bill. You have been here three years now. So thank you very much, Bill, for the note.” I came in, and that’s a fact. They really can’t — again, you can’t invent this stuff. It’s just too much creativity. I came in here to make ServiceNow the defining enterprise software company in the 21st century. I had that dream. That dream is stronger now than it ever was before. Where do I really think the world is going? I really believe that AI will be the future of the world. I see it every day. I see the power of taking massive oceans of data and thinking through that data in new and creative ways and then immediately connecting that, bypassing systems that have been around for half a century, bypassing them entirely and putting things into an automated workflow that creates massive experiences that change people’s lives.

I’m going to give you an example. I’m on the line today with our HR leader who’s fantastic, by the way. And she’s run HR for Walmart. I think they have 2.3 million people, a great customer, a great company. Glad to see them do so well in their earnings. Good for them. She also did it at Accenture, another great company. And basically, she and I had a briefing before this, and she was just giving me the update on matters of HR at the company. And we’re launching right now a solution that’s based on AI, so just in HR. Just think it is. Every single boardroom you ever go into, what’s the same thing? What did he say? What all these people do? I look at thousands of them. What do they actually do? And then now that it’s a work-from-anywhere, like do we have any idea where they are or what they’re doing?

Derek Neldner

At RBC conferences.

Bill McDermott

Right. Right. So it’s like it’s really entertaining at some level, but also a little scary on another. And so I’ve been trying this for 20-plus years to basically be able to take all the human capital assets with their knowledge, the skills, the attributes, the attainments, the trainings and all the things that people are great at, and they are the best asset in the company. People are everything, and align them with the most important opportunities, whether you’re building something great, whether you’re doing a go-to-market, where you’re on a customer project, we should know a time where our greatest asset can be put to the best use for the customer or the ecosystem to achieve goals. Check that box.

The other thing that’s fundamental to this is we’re all going to have to do more productivity per person, revenue per employee. So now the question is, how do we maximize the way we align these companies, drive productivity in these companies, automate the way work is done. That ties to the first half of the conversation.

So we’ve put a solution together that does both of those things that fundamentally is going to change the employee experiences for enterprises everywhere. So that’s rolling. Not to mention, everyone always talks about their — and incidentally, getting back to the AI. I tell you, in every single company, there’s one watchmaker for 1,000 pretenders. And if you don’t know where that watchmaker is, and that watchmaker is filling out an employee survey, for example, or that watchmaker is participating in a social network. And that watchmaker is not happy. And you don’t have any idea that, that skilled individual might need extra attention, then you really don’t understand the power of AI. And you probably remember Lucille Ballon the chocolate line like trying to put all the boxes together, you can’t do it at large scale. So AI and automation and totally getting into the human productivity case, you can apply that same logic into the customer relationship.

I have a large telecommunications company. Very smart technology leader said to me, what I want to do — so I want to take all the data that I have on my customers. I want to apply the best AI technology to it. I want to bypass every system that I have, and I want to fundamentally use AI to predict and provide the most incredible service that anyone in my industry can, but the whole bet is on AI and automation. AI is going to be the biggest thing in the world. That’s my prediction. I also think this idea of workflow automation. You say workflow automation, people like, I think I get it, but what is it? But what it is, is it’s bypassing all those sole-crushing jobs and all those nightmarish activities that all of us have to deal with.

I’m going to give you a stat. 20% of work productivity is forfeited by swivel sharing from one application or one outdated system architecture to another in terms of how you get your work done. Now maybe folks in this room have figured that out, and the IT departments helped you out and they give your own special dashboard, but there’s a lot of people that don’t have their own special dashboard. And it’s pretty incredible what’s going on.

So if you think about — let’s think about RBC. You think about Lloyds. You think about Swiss Re. You think about JPMorgan Chase. And I can go on and on and on. What you’re starting to see is the elimination of swivel sharing as it relates to payments. Can you imagine a customer makes an incorrect payment that has to get to the bank and try to actually achieve a common goal, and they have shared to chase that down and fix that problem? If you think about all the things that could be done on a self-service basis using the power of AI and chatbots and people that can actually navigate with the customer instead of against the customer because AI is doing 90% of the work, fundamentally changes the game.

I had one utility company in Europe that had 90% of the same problem sole-crushing the call centers where he’s having 45% turnover. To eliminate 45% turnover and get it to something more reasonable, AI and self-service back to the customer can fix nine out of the 10 inquiries. And then when an operator does get involved, they actually have the intelligence. They know what’s going on. They can help the customer get through AI. Cloud is already there. Multi-cloud is already there. Platforms are now in place. Apply AI to the data. Automate the work. Game over.

Derek Neldner

Mindful of time, I’ve got dozens of questions that I’d like to get through, but we’re going to run out of time. So I’m going to just jump to a few final ones here as we wrap up. One item I wanted to get your views on that you’ve touched. So I’ll shift past that is just talent. We are probably the most competitive market for talent in the early part of this year that I’ve seen in my 28 years in the business. Now that has changed dramatically. Now you’re seeing reductions in talent. You’ve got other companies that are investing, growing as ServiceNow is. And I was going to touch on the importance of talent. You touched on that a little bit in your prior comment, Bill.

Maybe where I’ll pivot to a little bit is the importance of leadership. And in your book, Winners Dream: A Journey from Corner Store to Corner Office, you talked a lot about the importance of bold ambition, optimism and then, obviously, hard work to execute on that. This is an environment that has been very difficult for companies to manage through. When you think about the last three years, starting with the pandemic, now the economic and geopolitical uncertainty, there are a lot to worry about. Can you touch a little bit on how you think about the importance of optimism, ambition even in the face of uncertainty and how you leverage that with your leaders?

Bill McDermott

Sure. Well, I think, first of all, optimism and ambition are more in demand when things are rough than when things are smooth sailing. And the first quarter I put in the book, Winners Dream: A Journey from Corner Store to Corner Office, was Robert Kennedy. And when Robert Kennedy once said, “Some men see things as they are and say, why? I dream things that never were and say why not.” That became the bedrock of a lot of ideas that came into my life very early on. And so I think the idea about dreams and really dreaming big, as long as they’re equally matched with details and leadership, you can achieve a lot. And if you don’t stretch people’s imagination to a completely new dimension, you’re really selling them short because they’re capable of doing so much more than they’re actually doing. I’m capable of doing more. You’re capable of doing more. The best version of ourself hasn’t been realized yet. We got to really think and then go for it.

So with regard to that, as it relates to ServiceNow, I tell the story about exponential thinking. If I take 30 steps, one, two, three, all the way up to 30, I’ll go for 30 meters. But if I think exponentially, and I go one, two, four, eight, in that same 30 steps, I go 1 billion. I go enough steps to go around the world 26 times. We got to think differently. And you have to see things differently before you can do things differently. So we spend a lot of time trying to look at the world just from a different perspective.

And then at the same time, you really have to really deal with execution. And I think execution is an art form, and the best leaders have this uncanny ability to achieve followership. And I think the art of leadership is really directing people in a way where they want to follow you. And I think when they want to follow you, they understand you. And what I always believed in, especially in these tough times, is anything worth communicating is almost always under-communicated. So we have a strategy. We over-communicate the strategy. We have dreams, but they only matter if they’re everyone’s dream at the macro, but then there’s all the people and their own individual goals, dreams and aspirations and how we’re helping them get that.

And one of the things I did in closing the book with a quote. I quoted Ted Kennedy because I wanted to deal with a figure that obviously did a great job in the Senate but had some controversy, but he was also Rob Kennedy’s brother to book in the book. And when Ted Kennedy was running against Jimmy Carter, and he lost the nomination to be the Democratic nominee, he gave a speech in 1976 that I thought was his greatest, and it was his greatest moment. And he said, “To all those whose cars are our concern, the cause endures, the hope still lives and the dream will never die.” Now I always thought it was so important to really lock into your constituency and understand that their scarce are your concerned deeply concerned for them and your ability to serve them. And giving them hope is all about finding that silver lining on a rainy day and where we can figure it out, and we can get there. How do you create ready-to-run turnkey solution in a world that needs it now as opposed to something that might have taken 6x, 10x longer? Again, that’s hope.

And the dream never dies. If enough people care, the dream never dies. I remember when I first came into ServiceNow, and I said we’re going to be the defining enterprise software company in the 21st century. And people looked at me like, where did we drop this guy in from? And now there’s acronyms of it in the company, DESCO 21C. I even have a board member that’s committed to tattooing it. And I’m like, wow, you really worked up over this thing. I like it. But it’s like dreams can become movements. And over-communicate it, stay true yourself, be authentic in your own skin and then drive that strategy, but also recognize that strategies are living. They’re breathing. They’re always on the move. We’re always refining it and sometimes entirely changing it a little bit to accommodate the market dynamics and the market conditions.

And the key to these big companies, when you got size and scale, is getting everybody on that same page. Not with that Pollyanna corporate stuff, but with this is what it’s going to take. This is why it matters. This is your future. We’re dealing with something that’s beyond ourselves. We have to pull it together here, and we have to find a way. So I think this will to win is just so tantamount to good leadership. And good leaders in coming many sizes, shapes and forms, but they have one thing perfectly in common: they want to win.

Derek Neldner

Well, that’s probably a good segue into my final question. I’ll end it on a short one. But you’ve left us with a lot of powerful growth messages today, a very exciting story, some inspirational messages around leadership. What’s the one thing that excites you the most about ServiceNow as you think about the decade ahead?

Bill McDermott

Innovation and the people. I think the culture that was built on innovation, and I give all the credit to Fred Luddy for the original invention, but more importantly than just the original invention for the goodness of him as a man, as a leader, as a person of consequence because he created followership in the customer relationships and in the people at ServiceNow then, now and always. So that culture is something that I came in to protect and build upon it. Cultures evolve, but the essence of a culture really does come from a great founder. And in our case, we have one of those, and I’m so happy that Fred and I will be running at this thing together for a really long time.

Now the innovation, we’re really great engineering in the company. And I know what great looks like now, and it’s hard to find, really, really hard to find. So I think about our engineering team and what they’ve been able to build and how they consistently deliver two of the greatest product releases on time and on quality every year. That’s not to say that innovation is happening all the time, but two major releases, and the customers like that, that’s the limit of what we can take. It’s coming at us so quick, which is really an awesome thing.

So our go-to-market machine understands that engineering and how powerful that is because they never have to get in front of a customer and apologize or be embarrassed because the product isn’t what we said it was. I spent the first 100 days on the road when I came to ServiceNow, and that was a stroke of luck because that was in 2019 at this time. And I came back and I couldn’t believe it because I met the top 100 customers in the world. I met every employee in person, everyone. And I came back and I said, “I didn’t get a product complaint. I didn’t get it to-do list. I didn’t get, like, a notebook full of request for the engineering department.” I only could find customers that were either super happy or saying, can you do more? Can you do more? Can you do more? We want more. We want more.” And then the people were happy, and they wanted to go to the next gear, the next level, and they could see it. They knew it was possible.

And now I just think that culture and the innovation in it and the way we bring it to market is something very unique. I’m going to say this is an extremely unique company and a unique asset with intangible benefits that are super interesting, especially when you think about long-term sustainability.

Derek Neldner

Well, it’s a terrific way to wrap it up, Bill. Thank you again on behalf of everyone for joining us today. Great messages.

Bill McDermott

Thank you very much. Thank you. Thank you. Thank you very much.

Derek Neldner

Thank you, Bill.

Bill McDermott

Thank you. Thanks, everybody. Appreciate you very much. Thank you.

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