Protocol | Enterprise
Bill McDermott wants to grow ServiceNow, fast. Rivals like SAP and Salesforce may stand in the way.
Turning the company into a juggernaut means going up against some of the industry's biggest names.
Turning the company into a juggernaut means going up against some of the industry's biggest names.
Bill McDermott took over as ServiceNow's CEO in 2019. But the foundation for the jump was laid a few years prior to that, when he saw a glimmer of great promise in the company.
After former CEO John Donahoe was appointed head of ServiceNow in 2017, McDermott, then CEO of SAP, was the first business leader to fly out to California to meet with him. During that huddle, McDermott, impressed by ServiceNow's platform, pushed for the two companies to become close partners in the marketplace.
"This company did it right. It grew organic innovation," McDermott told Protocol. "I saw it before it ever became an opportunity for me to be CEO."
So when Donahoe left to lead Nike, McDermott put together a five-point plan — the same one that he's running with now — highlighting how he could take ServiceNow from a $5 billion IT vendor to a $10 billion company enterprise-wide solution. He presented it to the board of directors, and the rest is history.
Still, despite seeing promise, McDermott didn't arrive into a cakewalk. ServiceNow might have already been growing at an impressive clip, but it's seen notable turnover at the top of the organization: prior to Donahoe's short tenure, Frank Slootman left for Snowflake after six years as CEO. And with McDermott in charge, it's in the midst of a huge rebranding, to turn itself from an IT-only solution to a platform that supports collaboration across the entire enterprise.
It's early days, of course. And while the company has a head start on rivals, that success hasn't been unnoticed by industry giants such as SAP and Salesforce. Now those companies are all pivoting to the burgeoning and increasingly lucrative "employee experience" industry that ServiceNow has — until now — enjoyed largely free reign over.
A quintessential salesman with a Rolodex that's nearly unmatched in the industry, McDermott has a knack for pageantry.
At an employee all-hands meeting last month, for example, Sheryl Crow performed a virtual concert, according to people familiar with the event. And on Feb. 1, McDermott interviewed Barack Obama at an internal event to kickstart Black History Month, according to sources (the company declined to comment on internal meetings). McDermott also brought over the "Winners Circle" from SAP: a year-end extravaganza for the company's top salespeople, put on hold for 2020 due to the coronavirus, but expected to return by the end of this year.
"Businesses have to step beyond the boundaries of just being a corporate entity," he said. "You've got to be on a purpose-led mission, but you also have to be very human."
Most of that wouldn't matter if McDermott didn't also have a track record of success. But he took SAP from a roughly $50 billion legacy on-prem provider to an emerging cloud player with a market cap flirting around $160 billion. And while the company is struggling now — as CEO Christian Klein mounts a major turnaround effort, some of which involves integrating the 38 companies McDermott acquired while at the helm — he brushed aside any notion that it's a result of his nine-year tenure.
For now, McDermott has been enjoying a pretty open runway at ServiceNow. At their most basic, the company's core product can help streamline, and potentially automate, the more mundane aspects of certain jobs, such as onboarding for new employees, which can be done via ServiceNow's platform completely from their own cell phone. But on a larger scale, the platform has helped customers rework entire workflows, an unglamorous but foundational part of organizations.
And financial results since McDermott arrived show there's certainly appetite for the products, however nonexotic they are. Subscription revenue skyrocketed 32% in the three months through December to $1 billion, and for 2021, the company is projecting sales to reach as high as $5.5 billion, a 22% rise. Last quarter, the company landed its largest deal ever with the Department of Veterans Affairs, now its biggest client. And despite the global economy still showing signs of weakness, IT spending is rising, giving McDermott and others confidence heading into 2021.
"They'll be a reordering of the large-scale [software] players in the new economy and we'll be one of them," he said.
Like other software executives, McDermott is riding the digital transformation riptide, one that grew in prevalence over the past several months and promises to continue after the pandemic subsides. But ServiceNow appears particularly primed for growth as companies increasingly look for solutions to help employees be more productive in the emerging hybrid world.
The company started off with a focus on IT, assisting tech leaders in managing help desk tickets and other less glamorous aspects of the job. But now, it's trying to grow to other areas, an expansion that is perhaps made easier after winning over tech leaders at organizations who often have influence on spend outside of their own departments. Outside of new business verticals, the company is also gearing up to make a big push in the low-code space with its new "Creator Workflow" product.
One of the benefits of its platform is the ease with which it can integrate into other collaboration tools, like enterprise resource planning systems from SAP and Oracle, per McDermott, who called it "the secret sauce." That's helped ServiceNow largely play nice with rivals, but more direct competition is looming, particularly as efforts intensify to win the growing, but still limited, tech dollars at corporations.
While no other company is currently offering a directly comparable platform, other vendors are nibbling at the edges — particularly as ServiceNow continues to expand beyond IT. For example, Salesforce, which analysts say is an emerging rival, took a key leap forward in its journey as an employee management software provider with its Work.com platform, a tool that helps companies manage their physical offices in the new hybrid-work world. SAP recently acquired business process manager Signavio. On Thursday, Microsoft unveiled a new suite of "employee experience" products that wade into ServiceNow's territory. And then there's Workday and others who compete in the HR tech marketplace. Even Box, which spent $55 million to acquire an e-signature company, is now branding itself as a business process manager.
ServiceNow is "encroaching into territory previously held by companies very familiar to Bill," said Constellation Research principal analyst Holger Mueller. And if McDermott "wants to grow faster than IT spending is growing, then he has to take it from someone."
For ServiceNow, "if the question is competing by providing core application functionality," there is no competition, Valoir analyst Rebecca Wettemann said. "If you're talking about competing for dollars, they already are." The challenge, then, becomes convincing, say, an existing Workday customer that there is value in deploying ServiceNow's products on top of that. (ServiceNow is a Workday customer, per sources, despite gradually encroaching on the company's core client base).
In an example of the type of growth McDermott is trying to mimic across customers, Calgary Catholic School District spends roughly $1.5 million on ServiceNow each year, alongside investments in Oracle's PeopleSoft, per the district's IT director, John Schutte. The education system started off by deploying it in IT and now uses the platform across several functions, including facilities management, procurement and HR. And in a sign of the compatibility with other products, Calgary is beta-testing integration with Microsoft Teams.
To help achieve his vision for expansion, McDermott promoted Lara Caimi to chief customer and partner officer. He also brought on two key hires, former Salesforce exec John Ball and former Oracle exec Gretchen Alarcon, as general managers. Overall, the company increased its workforce by 26% in 2020. And while hiring is expected to continue, the pace may subside.
"It's harder to get hired at ServiceNow than being an undergraduate trying to get into Stanford," McDermott said.
McDermott's jump from SAP, which at the time was doing roughly $33 billion in yearly sales, to ServiceNow, an up-and-coming provider, raised some eyebrows among analysts and other industry watchers. For McDermott, it was equal parts right timing and right opportunity.
"I had a wonderful run at SAP. We obviously created something special," he said. But, "I felt that if I could bring my experience and my vision to ServiceNow ... it could become the defining enterprise software company of the 21st century."
As McDermott's tenure at ServiceNow lengthens, his past at SAP comes further into focus. Some analysts say, for example, that his departure left a major void in leadership that the company is still struggling to fill, a claim McDermott disputes, along with any link between his rapid deal-making and SAP's current troubles.
"We didn't do too bad on the cloud. The history shouldn't be revised," he said. "Not a single one of those large-scale transactions were anything less than successful."
In many ways, ServiceNow is a much cleaner version of the kind of platform SAP is trying to now build. The cloud-native system operates as a unified data repository, giving companies a more detailed view of their organization and the workflow that occurs between workers and departments.
"The platform is one architecture, one data model, one platform," said McDermott. "You can swiftly build new innovation on it and roll it out."
But a key hurdle is convincing those outside IT that such a system, and the insight gained from it, can actually help save significant sums of money. A winning point for ServiceNow right now is its costs, which industry insiders say remain well below what SAP, Salesforce and others charge for additional licenses; the return on investment for the Calgary Catholic School District on ServiceNow is an impressive three-to-four-times its spend, according to Schutte. Maintaining that competitiveness, however, becomes trickier as ServiceNow looks to beef up revenue.
The recent months have tested the resolve of leaders like McDermott who try to, at least publicly, stay out of politics. But, like other CEOs, McDermott was forced to address the divisive political climate head-on after the January riot at the U.S. Capitol.
"Yesterday was an incredibly painful day in American history that has ripple effects to people all over the world," he wrote in a note to employees, seen by Protocol. "While the world is filled with its challenges, they are superseded by its opportunities. I'm inspired to know that we have a once-in-a-generation opportunity to change the world."
The role of activist CEO is not uncommon in tech, but McDermott is a bit different. He largely eschews any public commentary on politics and previously said the goal of a company like ServiceNow should be to support whatever administration is in the White House. But McDermott himself was floated as a potential third-party candidate in the 2016 election.
Asked about his political ambitions, McDermott seemed quite content where he is now. But he didn't rule out a run in the future after the recent election showed that "people can make substantial contributions to the public good well into their 70s."
"In that context, public service would be the perfect thing for me to do someday," McDermott said.
But for now, he seems happy enough trying to realize the potential he saw in ServiceNow during that meeting with Donahoe, and putting it up against the industry giants he knows so well. "I've loved all my jobs," McDermott said. "But this one is really super special. I really, really find that this is my most enjoyable professional moment of my career."
Joe Williams is a senior reporter at Protocol covering enterprise software, including industry giants like Salesforce, Microsoft, IBM and Oracle. He previously covered emerging technology for Business Insider. Joe can be reached at JWilliams@Protocol.com. To share information confidentially, he can also be contacted on a non-work device via Signal (+1-309-265-6120) or JPW53189@protonmail.com.