Life After SAP: Bill McDermott’s 10-Point Plan to Triple ServiceNow’s Revenue

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In a bizarre but compelling courtship ritual, Bill McDermott—who’s the outgoing CEO of SAP and the future CEO of ServiceNow—and John Donahoe—the soon-to-be-ex-CEO of ServiceNow and future CEO of Nike—outlined in a recent earnings call the fabulous future of a company neither exec fully represents.

Setting aside that quirkiness in the space-time continuum, the outgoing Donahoe and the incoming McDermott shared some compelling perspectives and insights about the future of ServiceNow as McDermott prepares to take control in January.

In advance of that earnings call, ServiceNow disclosed total Q3 revenue of $899.2 million. The company also continued its impressive streak of quarterly revenue growth of about 35%. Overall, ServiceNow’s Q3 numbers reflected a strong company with a solid market position and enviable reputation in the marketplace.

But the numbers were merely the backdrop for the unfolding drama that would play out in the unconventional old-CEO-with-new-CEO setting. And what made the already-unusual Donahoe-McDermott combo even more intriguing was that there was no CFO on the call. That’s exceedingly rare on an earnings call. But it came to pass because six months ago, longtime ServiceNow CFO Mike Scarpelli announced his intentions to step down at this time.

So the stage was set for the Bill and John show. And they did not disappoint. While I wish John Donahoe all the best as he heads to Nike, I’m going to focus here on the comments made by McDermott and what those mean for ServiceNow.

Here are 10 excerpts from McDermott’s commentary on the earnings call. I’ve framed them out in an order that I believe reflects the approach he’ll take as he looks to triple ServiceNow’s revenue from its current $3.5-billion annual run rate.

1. Endorsing the vision of ServiceNow generating $10 billion in annual revenue.

McDermott asked himself a question that he believes is on the minds of many others. Namely: “‘Bill, what about this $10 billion path that John Donahoe and the ServiceNow management team have been discussing?’ Well, let me answer that very simply: I completely buy in, stand by it, and I’m looking forward to achieving it.”

2. Acknowledging and embracing the ServiceNow culture.

It’s not on any financial statement, but culture can the single most-valuable—or damaging—asset a company can have. And McDermott said he likes what he sees at his new home.

“First and foremost, the culture of ServiceNow is truly special. As I think about John Donahoe and what he’s been able to accomplish and the amazing legacy of [founder] Fred Luddy and how he has set the tempo for really humble and hungry employees serving customers in the absolute best way possible, and also for this idea of ‘making work, work better for people,’ it’s just so human and so necessary in today’s enterprise where customers more and more are looking for a true partner that really deeply cares.”

3. Okay—you like the vision and you like the culture. What’s the destination?

McDermott is as unabashedly open and expressive as any CEO I’ve ever met. And he sure as heck didn’t hold anything back in sharing with employees, customers and investors exactly what he thinks about ServiceNow’s prospects.

“I’m looking forward to doing things that have never been accomplished before, because I’m doing it off of a base that’s just truly incredible. So we’re going to set the standard and be the most admired business-software company in the world. And I’m fired-up and I can’t wait to get started.”

Before you dismiss this as fluffy rah-rah, recall that the same heart-on-the-sleeve personality turned SAP into one of the most successful and influential technology companies in the world. (You can read all about that in How Bill McDermott Rescued SAP in its Darkest Hour: Courageous Leadership.)

4. ServiceNow’s incoming CEO says its total addressable market is “limitless.”

Hey, maybe the suggestion that McDermott plans to triple ServiceNow’s revenue is much too conservative!

Speaking of growth strategies, McDermott said, “Another clear example is the way you broaden the perimeter. Right now, I believe that the TAM of ServiceNow is limitless in the sense that, if you really think about how broken most enterprises are and how messed up the workflow and business processes are and how unpleasant using these old systems are for the users… We could literally create a revolution where business users in the enterprise demand ServiceNow get the story straight by aggregating the workflow of these various platforms. I’m not sure that any work has actually been done on identifying the size of that TAM but I believe it’s only limited by one’s imagination.”

5. The 3-Pronged Growth Plan: more regions, more midsize targets, more vertical specialization.

You have a great organic growth story here—the pristine nature of this platform and the revenue that this platform alone can begin to drive is a real growth story in and of itself. Then when you think about the solution set that ServiceNow has, there’s plenty of room within the context of these solutions to grow them in different geographies. And obviously, you can grab some same-account revenue growth as you get more and more customers to buy the complete solution set. And of course, putting an industry flavor to things will also be quite helpful,” McDermott said. 

A few minutes later, he elaborated on those opportunities. 

  • Moving down-market: “And you can move the company into different markets based on the dynamics of the size of the customer. I think we’re now focused on 5,000 employees and more, so when you go to 4,000 or to 3,000, that creates yet another opportunity.” 
  • Leveraging a big ecosystem: “The team here has done a great job of expanding the ecosystem. But, if you look at the ecosystem and the relationships that I’m plugged into, there may be a value play with some of the partners. And not just the biggest ones, but also the mid-sized ones around the world.”
  • Developing vertical-market solutions: “Within the context of these systems—financial systems, capital-management systems, supply-chain systems and manufacturing-systems—there are areas of the workflow that are not meeting the modern needs of the modern user. And we’re in a golden position to architect that workflow in a way that’s highly pleasing to a lighthouse customer and is then transferable from that lighthouse customer at the high end to many other customers around the world.”
6. Exploiting the full power of McDermott’s relationships with global CEOs and government leaders.

In his 17 years with SAP, McDermott built up a massive network of high-level relationships that should also prove to be an accelerant for ServiceNow’s growth.

“Last year I think we had meetings with 34 heads of state from around the world. On the CEO front, one of the things that brought John and me together over the years are the CEO meetings that I host. And I was very fortunate to have John join me,” McDermott said. “ As an example, we have one coming up in November, where there’ll be 100 CEOs from around the world including some of the biggest business cards in the world. And SAP does this not only in the United States but also in Europe and Asia.

“So the rolodex is really strong, and I believe that John and I are both the kind of executives who work our hearts out to help hard-working CEOs solve mission-critical business problems so they can help their customers be successful. That’s the attitude we kind of bring to those relationships.”

7. The power of ServiceNow’s strategic position: Digital Workflows.

“I believe ServiceNow is in the privileged position of being a platform of platforms. When you look at the business processes and the workflow that goes on in enterprises today, everybody has this deep need to get the data aggregated in a workflow that creates simplicity for the users. And the more we can reinvent business processes in the image of the actual users themselves, the more we can become the defining platform of the platform for the modern enterprise.

“So I think the organic growth story here is just amazing and it’s only just begun.”

8. ServiceNow’s future: “Innovation without Disruption.”

“I see innovation without disruption because we can layer in some added focus to give the solutions a richer context around the buying centers or around the scientific methodology to deliver the value. So we can have even new hires look like they’ve been on the job for a long time.

“But this is systemic—it’s something that’s been done before and we’ll do it the ServiceNow way. All in all, I’m very, very pleased with everything I’ve seen from the management team so it’s all about a continuous evolution. We do not need to disrupt this place, we do not need to revamp territory coverage, we do not need to break customer relationships. This is going to be a very smooth transition.”

9. ServiceNow’s already an SAP customer—will it become an SAP partner?

“I have spoken with the co-CEOs of SAP—whom I’m working with in friendship, by the way—in achievement of their goals as well. It’s really a beautiful situation, where everybody really does care genuinely about the other and we have an affinity for SAP, from ServiceNow’s perspective SAP has a very strong relationship and affinity for ServiceNow. They told me that.

“So I spoke with [newly named SAP co-CEOs] Jennifer Morgan and Christian Klein. Christian Klein was the lead decision-maker in actually choosing ServiceNow to run the IT operations of SAP. Because there was huge value creation for SAP by doing that. And we talked about the importance of this partnership and what could be done in the open market. So I actually think that you should really takeaway from this that there’s a great foundation already in place that can be built upon.”

10. That said, McDermott fully understands that ServiceNow’s not SAP and vice-versa.

Asked by an analyst if ServiceNow would pursue M&A as aggressively as SAP did during his 10 years there as CEO, McDermott offered a compelling rationale for why—at least for now—the expansion-by-acquisition approach is not the right one for ServiceNow.

“I’m really happy you asked that question because you’ve given me an opportunity to kind of set the record straight. Because ServiceNow is not SAP, and SAP is not ServiceNow. These are entirely different companies at entirely different stages of their evolution and they have very different business models. So what I believe is that SAP did a great job of taking the core and expanding the perimeter into the cloud through strategic M&A. That was done very effectively.

“But as you know, when you do M&A you also have to integrate M&A and you have to put all the pieces together over time, because you want to make sure that the customer relationship is absolutely best-in-class. So you have to walk and chew gum, right? You have to get revenue right, the margin profile right, but also the happy and loyal customers. And I think SAP has done a very good job with that. On the ServiceNow side, with the way we’re positioned and the literally immaculate nature of this amazing platform and these solutions that the whole world needs, it’s a matter of expanding the solution set. It’s a matter of getting to new customers, it’s the new geography and expanding the industry. And maybe expanding the market profiles.

“But it’s all there! All the pieces are there and the TAM for being the platform of the platform and really working through that workflow scenario where we can continue to build. We have developers that can build solutions, and we have customers that can build their own solutions on the platform. We can literally take customer-built solutions and make them commercially viable successes all over the world. So this is a juggernaut waiting to happen on its own organic means.

“Now to the extent we weren’t to do strategic M&A, and I’m just giving you my bias, again this is not a decision this is just what I honestly think. And so the answer to your question is that I would be very careful with it. You should do tuck-ins where it’s in the best interest of the customer and obviously the shareholder. But it should never affect the pristine nature of this platform.

“I think our customers are really relying on ServiceNow for that simple, beautiful, gorgeous user experience and they really expect us to be so perfect with the workflow and so pleasing that they just walk away after the transaction and say, ‘I can’t wait to do another one! Keep making me happy, keep me loyal!’ And that is the culture here that is super powerful and I would never want to do anything to jeopardize that.”

Disclosure: at the time of this writing, SAP was a client of Evans Strategic Communications LLC.

 

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