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Influencers with Andy Serwer: Bill McDermott

In this episode of Influencers, Andy sits down with ServiceNow CEO Bill McDermott as they discuss the probability of a U.S. economic recession, how digitization is transforming business across all industries, and why Bill is optimistic about America's financial future.

Video transcript

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ANDY SERWER: In this episode of "Influencers," ServiceNow CEO Bill McDermott.

BILL MCDERMOTT: Our customers more and more realize that IT is not just supporting the business. It has actually become the business.

If you have great ideas, and you can innovate and build solutions that the customer doesn't know they need yet, but once they get them, they don't know how they ever live without it, then you're doing something important.

If you see inflation numbers come down, and you see monetary policy stabilize, you're gonna see the markets run.

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ANDY SERWER: Hello, everyone, and welcome to "Influencers." I'm Andy Serwer, and welcome to our guest, Bill McDermott, CEO of ServiceNow. Bill, nice to see you.

BILL MCDERMOTT: Great to see you, Andy. Thank you.

ANDY SERWER: Thanks for coming here today, Bill. Why don't we start out by talking a little bit about ServiceNow?

BILL MCDERMOTT: Sure.

ANDY SERWER: Maybe some people aren't so familiar with the company. SaaS-- what does that all mean? Tell us about ServiceNow.

BILL MCDERMOTT: Amazing company. As I said, we are about to celebrate our 10 years of publicly traded company on Friday at the Stock Exchange. A gentleman named Fred Luddy-- great-hearted innovator-- wanted to build a platform that made people's lives better. So it gave you a little bit better day on the job and made all of the work flow more smoothly, from IT to the employee experience to how you service your customers and even how you build new applications to innovate a better world.

That was 10 years ago as a public company. And now ServiceNow is a global sensation. So we are in the business of helping customers achieve their dreams.

ANDY SERWER: So what would be an example-- say, if I'm a company, and I have a need for ServiceNow, exactly what would you be doing for me?

BILL MCDERMOTT: I just left one on the upper east side, so the conversation was fresh in my mind. This particular CEO said, I have to have IT digitally transform my company. I need my company to be secure. I have to manage my assets.

I have to smoothly run my operations so I can give my employees a great experience where all the things they need are in one portal, and they can access everything on their mobile so I can recruit them, hire them, onboard them, train them, manage every need that they have, and do it with a great user experience.

And this CEO was very smart. He said, hey, most everyone that leaves my company leaves if I don't give them a great onboarding experience. The same is true for the customer. And, in this case, this is a health care company. So they have to give the patient a great experience, and it's all mobile.

And how you go from one department to another-- I go from X-rays. I go to surgery. I go to postsurgery. I get prescriptions. All this has to be done on the mobile with great efficiency so your case is perfectly managed, all visible, all beautiful to use, all on the mobile. So that particular need in health care.

All industries have similar issues with giving employees, customers great experiences. That's what we do.

ANDY SERWER: You know, it's interesting. I hear people like yourself and other people in enterprise software-- SaaS software, B2B software-- you kind of make it exciting, Bill, right? Because it's, by definition, maybe not so exciting. So can you talk about that? How do you energize your employees and your customers?

BILL MCDERMOTT: I think the idea, first of all, is you have to have a great culture. And we have to help customers build their great culture. But we have to have a great culture too.

And our culture is really based on innovation and building something that never existed before. And, you know, the world that I see is a world that I call Dantatsu, meaning better than the best. So--

ANDY SERWER: What kind of word is that?

BILL MCDERMOTT: That is Japanese, and it means, basically, better than the best. If we're already the best platform in the business, how do we get better? How do we make our customers get better?

And what's unique about our platform-- and why I do think it's super exciting-- it's one platform that can single-thread business across an entire enterprise, all functions of a business. So it is a great unifier in a sense because some people have very powerful chief information officers. Others have chief digital officers. Others have chief people officers. Others have these wonderful data managers.

But to have one platform that single-threads all of those powerful relationships to deliver great experiences is super exciting to us. And our customers more and more realize that IT is not just supporting the business. It has actually become the business.

Your product is the digitization of your service. And, ultimately, the cloud is the pervasive computing theme of the 21st century because it simplifies everything. Everything's on the mobile. Everything's beautiful and easy to use.

These experiences have to be magnificent. And we have to turbocharge them by speaking the language of our customer and helping them take care of their customer. A lot of people talk B to B, B to C, B to B to C. I talk business to people.

ANDY SERWER: All right. I knew you'd have a good pitch and a good answer to that question. Having said that, there are headwinds right now for all businesses. And, you know, the company has been growing like crazy over the past five-plus years. I think-- what did you grow?-- the stock is up with 321% versus the S&P, which is 65% over the past five years-- year to date, though, down 28%, which is about double with the market's down, and like your peers, of course, same kind of thing.

BILL MCDERMOTT: Right.

ANDY SERWER: How's the business doing right now? I know you were on talking to our Brian Sozzi just a couple of weeks ago--

BILL MCDERMOTT: Yes.

ANDY SERWER: --with earnings. Thank you for that, by the way.

BILL MCDERMOTT: Honor.

ANDY SERWER: So what kind of growth are you looking at right now, and is it slower than before?

BILL MCDERMOTT: No, it isn't. It's actually-- what's interesting about this company, Andy, we're growing at a rule of 60. So if you take our revenue growth, and you take our free cash flow growth, this is the only SaaS company at scale growing at the rule of 60, doing it with 25% operating margins, which is unheard of, especially with the macro crosswinds that you're talking about.

The key message is this. The digital transformation tailwinds are a lot stronger than the macro crosswinds. 95% of CEOs have a digital-first strategy. So they're leaning in to digital transformation because it's the only way out.

On one hand, software is the great deflationary force. On another hand, if you can't transform and recreate your business model and innovate digitally, you lose the game. So CEOs are very well aware of this. So that tailwind is super strong.

And, in our case, what we've uniquely done is we have 11 and 1/2 billion in backlog right now. They call that RPO, or this remaining performance obligation, 11 and 1/2 billion. So--

ANDY SERWER: It's not run-pass option.

BILL MCDERMOTT: No. Run-pass option is what we call on the field every day. We have to read--

ANDY SERWER: Yeah.

BILL MCDERMOTT: --react, the run-pass option.

ANDY SERWER: Yeah.

BILL MCDERMOTT: But in a great standing of revenue like that, it's indicative of a 99% retention rate, 130% expansion rate with existing customers because they love us. And they love us because we build great products.

And what's unique about ServiceNow-- done it all organically. So this isn't an M&A story. Everything has come hard-earned through great engineering. Our engineers are the best.

And our go-to-market people love the customer. And if you have great ideas, and you can innovate and build solutions that the customer doesn't know they need yet, but once they get them, they don't know how they ever lived without it, then you're doing something important. And that's kind of what we're all about at ServiceNow.

ANDY SERWER: You know, throwing around this SaaS and some other acronyms--

BILL MCDERMOTT: Right.

ANDY SERWER: That's Software as a Service.

BILL MCDERMOTT: Right.

ANDY SERWER: Who are your competitors, Bill? And how are you better than they are, or how do you think you're better than they are?

BILL MCDERMOTT: That's a really important question because that's how we differentiate. I look at the world through the eyes of the customer. And the customer today has great hyperscaler options.

If you look at the hyperscalers-- AWS, Google Cloud platform, Azure-- these are great companies, and they have great businesses, and they're gonna keep growing. So customers are moving their infrastructure to the cloud. The systems of record that they built in the 20th century-- financial systems, HR systems, customer systems-- they're there, but they're not actually agile enough to keep up with the ever-changing demands of the marketplace you referenced.

Everything is read and react-- read-pass option. It's happening quick. So we uniquely don't compete with the systems of record or the hyperscalers. We are kind of the control tower of a digital transformation.

So, on one hand, we can move the workloads to the hyperscaler cloud, get good efficiency for the customer. But we are that single-threaded platform that resides above the systems of record to give users a great experience. And you take the data from those difficult-to-use systems, those very complex systems, and you put it into one simple architecture that can give the consumer an unbelievable experience.

I'll give you an example. A CIO that I will meet today wants to meet me because she said, Bill, I've got security solutions all over my company. But I don't have one single pane of glass where I can observe everything in one shot so I can look at the vulnerabilities.

I have assets. I have them everywhere. I don't even know what my hardware and so forth assets are. I just know that my CEO told me, take a lot of costs out of my business.

We're right on it. We'll take care of it for her. And she'll have an unbelievable experience with ServiceNow. So that's the IT component of it.

Everybody today is looking at jobs. And are companies hiring, are they slowing down hiring, or are they laying people off? Either way, you've got to make your people much more productive. And how are you gonna increase that productivity per employee-- again, something we're very focused on?

ANDY SERWER: How many people work at ServiceNow?

BILL MCDERMOTT: Almost 20,000 now.

ANDY SERWER: And what kind of footprint do you have globally? And, in line with that question, Bill, is it more difficult now to have a global business, given what we're seeing with the relationship with China and even the relationship with Europe, with different privacy regulations and oversight? Talk to us about that.

BILL MCDERMOTT: Yeah. First of all, when I think about the global economy, I really think we got the world by the tail because there's no architecture that snaps in to all these different economies better than ServiceNow. So, for example, in Europe, we have lots of customers that have operations in Ukraine and Russia.

They have very expensive headcount on their books, and they either pulled out of Russia or their employees are in a bunker in Ukraine and therefore not too productive. So we bring mass efficiency to the equation to help these customers take cost out of the equation. So we're relevant there. We don't have operations in Ukraine and Russia. So we don't lose anything on the revenue side.

If you look at Europe in general, Europe has more large-scale, 20th-century systems per capita than the United States. So they really have to go to the cloud, and they really need a modern architecture like this to innovate, grow, and get much more efficient. So outside the US, the opportunities in Europe are amazing. And so, too, are the opportunities in Asia.

And I'll be in Japan in September. We're announcing a new release we call Tokyo. So, Andy, we release two major software revisions each year, one in March and one in September. We name it after cities in the world.

We did one in March 2021, which was a total sensation, where we took RPA, robotics process automation, process mining, machine learning, and AI operations all integrated into our platform. This release is gonna be all about how do we take this future of work-- people that are working from anywhere-- how do we navigate these complex office structures and give people choice?

And no matter whether you're working at home, you're on the move, or you're in an office, with ServiceNow, we can navigate your journey so beautifully and match all the big projects in a company-- everything that's going on in a company-- to the most skilled individuals who are trained and ready to achieve that mission. All of this is seamlessly done on the mobile. So when Japan sees the opportunity to move to the cloud with ServiceNow, they'll do so in record numbers.

ANDY SERWER: It doesn't sound like you're doing business in China, though?

BILL MCDERMOTT: We're not.

ANDY SERWER: OK.

BILL MCDERMOTT: And, right now, candidly, Andy, it's not a great time to enter into China when you have so many other places geographically, and by industry and persona, where you can grow the company. So we're not gonna make a move into China at this stage.

ANDY SERWER: Interesting. And you talked about-- I think you said you had very low attrition.

BILL MCDERMOTT: Yes.

ANDY SERWER: And I'm curious about the job market, though, for you guys. It's competitive for everyone, still, even though there's talk about recession. We'll get to that in a second.

BILL MCDERMOTT: Sure.

ANDY SERWER: But what's it like with trying to recruit and retain?

BILL MCDERMOTT: It's amazing right now. We have hired 10,000 people through the COVID crisis. And--

ANDY SERWER: So you doubled your workforce.

BILL MCDERMOTT: Doubled our workforce in the COVID crisis. And we're hiring on a per capita basis less than Stanford actually admits. So it's hard to get into ServiceNow. We're really focusing on fingers on keyboards and great go-to-market people-- so engineering and customer service-oriented people, whether they're selling or servicing, taking care of that customer is job one.

And we have had no problem because the little ones had a great story. Come here and get rich quick. And people have realized that's not such an easy thing anymore.

And then the big ones, you know, they have very fine companies, but this is a little bit more exciting and a little bit more high beta on the growth and the opportunity. So we're kind of like right in the middle where you have global scale, very low risk, and great leverage. And people love it.

ANDY SERWER: So let's go back to that recession point. What's your take on that, Bill? Do you think we're gonna be heading into a recession, and what are customers telling you?

BILL MCDERMOTT: I think most customers are preparing to be in a recession. I think there's a chance you could have a technical recession, but I don't think it'll be long-lived. I do believe that, as the monetary policy becomes a little bit more predictable and perhaps even loosens, let's just say, a year from now, if you see inflation numbers come down, and you see monetary policy stabilize, you're gonna see the markets run because business is great. And the business for digital companies like ours is fantastic.

And, actually, I see the tailwind coming into the market again, where people are now saying, OK. I've done the great reprioritization. I know which platforms matter. I actually know what those platforms do. I'm doubling down on digital transformation.

So I see that tailwind actually reigniting even stronger than it was before these macro crosswinds became popular to talk about in the last 90 days. So I think growth is back, especially for digital companies.

ANDY SERWER: When do you see that actually taking hold, though? I mean, do we need to see a resolution in Ukraine? Do we need to see this cycle turning with the Fed?

BILL MCDERMOTT: Yeah. I think that the Ukrainian situation is unpredictable and probably could last a while. And I don't think that'll be a bellwether for the overall economy anywhere in the world.

Yes, the supply chain complications are there. Yes, there's issues. And, of course, it's a humanitarian crisis beyond belief. And we're all heartbroken to see this happening. It shouldn't be happening in the 21st century. It's hard to actually stomach.

But, that aside, it won't be the determining factor in the economy. I do think inflation is the big thing. So once inflation stabilizes or starts to come down, I think that is gonna be a very, very good sign.

And I don't think it'll take that long, given the tightening of the monetary policy, not only in the United States, but now also in Europe. So I'm actually really optimistic right now that you could have something technical, short-lived, and I think the economies are actually gonna be fine.

ANDY SERWER: Speaking of Europe, you know a little bit about that because you were the CEO of SAP.

BILL MCDERMOTT: Yeah.

ANDY SERWER: What's the biggest difference between running a company-- a European company and an American company?

BILL MCDERMOTT: Speed. I think the big thing is speed. And, to me, the greatest asset in business is speed.

One thing about American companies-- we're not shy on bureaucracy, either. But it is a little bit more of a challenging structure when employees and external board members participate equally in the management of-- senior management. There is more protocol. There is more channels that have to be operated through to get stuff done.

So I just think we move a little quicker. That's not always good, by the way. Sometimes, more checks and balances is very positive. And I think employee representatives play a very important part in European companies if management and the employees are on the same page. But, on a day-to-day basis, it's just faster to operate in the US.

ANDY SERWER: You're a New Yorker. You live in California, though, now. Talk about the differences there. What do you like more? West Coast or East Coast? Come on, be serious.

BILL MCDERMOTT: You know, a lot of people ask me, like, what's the best place you ever lived? Do you love living in California, or do you love living in New York and Germany and other places? And I always tell them the place I'm at now is my favorite place because it's true.

And I've loved them all, just like I've loved all the jobs I've had in my life, you know? Which company do you like best? I love them all. But I love where I am now at this moment in time.

So I really, like, try to Inhale life and feel life-- feel life in terms of where I work, where I live, the people I surround myself with, be alive. And I never look back, you know. I'm not even a guy that can look at pictures without getting a tear in my eye because it's so emotional, because I want to feel alive every second of the day. And that's why I love California. I'm now a California resident and have been for a while. And I expect to stay there long-term.

ANDY SERWER: All right. Let's talk about your roots, though. Growing up in the New York City area, you're from Amityville originally. Your grandfather was a basketball player, and then you started a deli when you were young. Talk about some of those experiences and how formative they were for you, Bill.

BILL MCDERMOTT: So formative. You know, I said in my book, "Winners Dream," to my mother Kathleen, "Everything I was, am, and ever will be, I owe it all to you." And I do.

But the other person I want to give a lot of credit to is my dad because my dad is a hardworking guy-- worked for Con Edison. You know, I still see him chiseling the ice off the windshield to go to his shift, his midnight shift, to work in the manholes in New York City, putting those big cables together so the lights went on. And I always admired my father's work ethic.

But my grandfather, Bobby McDermott, was a hall of fame basketball player. And I think-- you know, I never had a chance to really spend the time with him because, unfortunately, he was killed in a car accident at 49. So he died too young. And I was a little over two years old when we lost him.

But my dad tells the best stories. And he could bring my grandfather to life for me like nobody else. And my grandfather was not only a great player, but he was a great competitor, and he was a winner, and just getting that built into my character at a very young age.

But also, my grandfather wanted to win. But he believed in teamwork. And it was never about how many points he scored. It was always about the team getting the win. And him scoring nothing would have been fine if they got the win.

And I think that's why he became a player-coach. You know, today, you look at these great players. And there's many great players, but none of those players are also the coach of the team.

And my grandfather not only played at a hall of fame level, but he also coached the teams he played on. In fact, in the world of basketball-- I know you and I love sports-- you know, George Mikan was the first great big man in the game. And my grandfather and George Mikan won world titles together. They used to call them Mr. Inside and Mr. Outside.

And Mikan told some incredible stories on what it was like to play for him. And all those things just shaped my life in such a positive way.

ANDY SERWER: And then you went to work at Xerox, right?

BILL MCDERMOTT: Yeah. I ran my own business, as you said, a delicatessen business. I learned a lot there because I also put a video game business as a sidecar to that deli. And I realized quickly that that's where the money was, in young people throwing quarters in machines.

So, you know, I tell this story in the book. One of the customers I had worked at Xerox. And he would come in every morning for his coffee before he got on his train and all that. And I said, you know, I want to get into one of them big buildings in Manhattan. I want to get in a suit and tie like you, and I want to go in there and change the world.

So I sent out a hundred direct-mail letters to IBM and Xerox and wonderful companies like that. And Xerox was the first one to respond. And I'll never forget getting my break at Xerox because my dad took me to the railroad tracks that morning to put me on the railroad. And I said, I guarantee I'm coming home with my employee badge in my pocket today.

My dad said, Bill, you're a good guy. Don't put all that pressure on yourself. I said, I guarantee it.

I go into Manhattan, get to the hiring center, ended up on several interviews that day. And at the end of a long day, I sit down with the big boss, Emerson Fullwood, like we're talking here, and the interview's over. And he said, Bill, it was really nice meeting you. You're a good young guy. The HR department will get in touch with you.

And I said, Mr. Fullwood, I don't think you completely understand the situation, sir. And he kind of looks at me, head tilted a little bit. I said, I haven't broken a promise to my dad in 21 years. And I guaranteed him I'd have my employee badge in my pocket tonight when I went back to Long Island.

And he looks at me, and he said, Bill, as long as you haven't committed any crimes, you're hired. And I said, well, I haven't committed any crimes. So does that mean I'm hired?

So I get the job. I run down, you know, the hall, get to the elevator, down 38 stories, 9 West 57th. I go to Bun N' Burger at 58th and 6th. I had to pluck quarters in the phone and call up my mom and dad.

I said, Mom and Dad, I got good news. I got the job. Break out the Korbel. And, of course, you know, as you know from being a New Yorker, Korbel is-- that's Cristal if you come from Long Island, man, you know.

ANDY SERWER: Right. Yeah. That's fantastic. That's a great story. Bill, some people don't know that you lost sight in your eye--

BILL MCDERMOTT: Yeah.

ANDY SERWER: --in an accident. I don't know if you want to talk about that.

BILL MCDERMOTT: Sure.

ANDY SERWER: That was also a life-changing event for you recently, right?

BILL MCDERMOTT: Yeah, it was. Well, I actually was in a serious accident. You know, I've told the story many times. But, you know, the eye doesn't hold up very well to a sheet of glass going through it.

So I did lose that battle. But, actually, one thing I really learned about the whole thing-- you know, I went through several surgeries. I ended up losing my eye. But I got a new one, and it's fine.

But what I learned is, like, we're all gonna get hit with these thunderbolts. And I got hit with one. And if that's the worst of it, I'm a lucky guy.

And I think the key to this whole thing is just recognizing how blessed we are because at the time, I was pretty worried about it in the sense-- not in the sense that I'd get back to my career and everything, but I was just pretty worried, like, wow, what does this mean? Like, how will people be with me being different now?

And I was a little worried about it in the beginning. And then I realized it actually worked in my favor because maybe I was a little too perfect. And maybe, now that I'm not so perfect, I'm more approachable. Maybe I even got more empathy in my heart and my soul than I ever had before.

Maybe we can connect on a more human level because people tell me their stories and the challenges that they have in a super human way. And they volunteer them in ways that they never would have if they didn't know I went through something. And I think that's a beautiful thing.

And I also learned, Andy, that, you know, vision is not just what you see. It's how you feel and how you make other people feel. And every day, I wake up, and I see everything. And, like, I see things now that I wouldn't have seen before.

And I think it's just beautiful to be on this planet and be alive and be well and be human and have a chance to experience something like that and come back. So I love being, you know, the comeback kid in that context because a lot of people didn't think I was getting up. But I had no doubt that I would get up.

ANDY SERWER: That's some great perspective there, Bill. Some people have suggested you might be interested in running for office at some point. What do you think about that--

BILL MCDERMOTT: I don't--

ANDY SERWER: --becoming a politician, running for president, anything like that in your future?

BILL MCDERMOTT: You know, it's so amazing. Like, I really sit back, and I follow it every day. I follow the markets every day. I follow the political environment every day.

And I follow the idea of public service very carefully because I think if I was to push the clock real forward-- because I've got a lot of work to do here at ServiceNow, and this is the work I love doing, and I'll be doing this for a while. But I'm still a young guy.

And is there a chance someday that I would make a contribution in public service? I think it'd have a lot to do with, am I being called upon to do that? And, you know, you have to be in that moment at that time to see what the circumstances are and then the will of the people if they need you and if they are calling upon you to do that.

I find it hard to believe that I would just wake up one day and say, I don't want to be a CEO anymore because I want to run around and fundraise and do that. I think it would be much more if there was a calling, and something happened that brought me to the table. But never say never.

ANDY SERWER: Well, that sounds like a maybe. So if you were having a conversation with President Biden right now, Bill, what would you tell him the most pressing issues facing our country are? And what advice would you perhaps even give him?

BILL MCDERMOTT: I think the whole thing comes down to restoration of the American spirit and the American will to do things that have never been done before and recognize that with every single challenge we have, our opportunities are greater than ever. And as you lead through these turbulent times, recognize that others have, too.

And the more confident we are, the more belief that we have in ourselves, and the more we actually dream bigger than ever before, the more likely we are to find circumstances that no one else can, that only this country can. And I would be very focused on that.

You know, what is our moonshot? What is our moonshot for this generation at this time? And it can't just be the tactical things that we have to struggle through every day.

Yes, we have to do them. And we have to do them to the best of our ability. But the even bigger dream is on a mountaintop. And we got to find where that is, and we got to point to it, and then we got to go get it.

ANDY SERWER: All right. Bill McDermott, CEO of ServiceNow, thanks so much for joining us.

BILL MCDERMOTT: Thank you, Andy. Thank you very much, sir.

ANDY SERWER: Thank you, Bill.

BILL MCDERMOTT: Appreciate it. Thank you.

ANDY SERWER: You've been watching "Influencers." I'm Andy Serwer. We'll see you next time.

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