AI will boost productivity so ServiceNow won't have to backfill open jobs, CEO says
In a recent interview with CNBC, Bill McDermott, the CEO of ServiceNow, expressed confidence in the company’s ability to maintain its workforce levels despite ongoing acquisitions and market fluctuations. He emphasized that the integration of artificial intelligence (AI) into the company’s operations is key to achieving this goal.
ServiceNow’s Strategy for Workforce Management
McDermott stated that he expects ServiceNow’s headcount to remain flat as the company moves into 2027, compared to its workforce at the beginning of 2026. This stability is attributed to the productivity enhancements brought about by AI.
“As you have attrition in the company, you don’t have to backfill it,” McDermott explained. This approach allows ServiceNow to maintain a strong corporate culture while achieving significant efficiencies that contribute to the company’s free cash flow margin.
Financial Performance and Market Challenges
ServiceNow recently reported its first-quarter earnings for 2026, surpassing analysts’ expectations on both revenue and profit margins. Despite this positive performance, the company’s stock price fell by 12% following the earnings announcement, reflecting broader concerns in the software industry regarding AI’s impact on traditional business models.
AI’s Role in Cost Management
McDermott pointed out that several companies, including Block and Atlassian, have announced layoffs in response to the cost-saving potential of AI technologies. He believes that ServiceNow’s proactive approach to integrating AI will help the company avoid similar measures.
Growth in AI-Driven Revenue
Despite the challenges, McDermott remains optimistic about ServiceNow’s growth trajectory. He highlighted that the company is not solely reliant on traditional seat-based subscription models. “Half of our revenue is coming from consumption,” he noted, indicating a shift towards more flexible pricing strategies that include tokens, infrastructure, hardware, and connectors to various systems.
Market Dynamics and Regional Challenges
While ServiceNow is experiencing growth, it is not immune to external factors that can impact its business. McDermott mentioned the ongoing geopolitical tensions in the Middle East, which have led to changes in customer behavior. He explained that many sovereign countries in the region prefer on-premise installations, which can affect revenue recognition.
“In on-premise, you don’t recognize the revenue ratably—you recognize the revenue all at once,” McDermott said. This means that any slowdown in business or cancellations in the Middle East can have an immediate financial impact. However, he noted that the situation appears to be stabilizing, with discussions of renewed business activity in the region.
Future Outlook for ServiceNow
Looking ahead, McDermott is confident in ServiceNow’s ability to leverage AI technology to drive growth and maintain operational efficiency. He pointed out that the company is currently experiencing a 21% year-over-year increase in remaining performance obligations, which bodes well for future revenue.
Moreover, he dismissed concerns about the decline of seat-based pricing models, asserting that the company’s active seats have increased by 25%. This growth, combined with the revenue generated from non-seat-based pricing, positions ServiceNow favorably in a rapidly evolving market.
Conclusion
As ServiceNow continues to navigate the challenges posed by the AI revolution and changing market dynamics, McDermott’s leadership and strategic focus on productivity enhancements will be crucial. The company’s ability to adapt to these changes while maintaining a stable workforce could serve as a model for other organizations facing similar pressures in the tech industry.
Note: This article is based on information available as of April 2026 and reflects the views of ServiceNow CEO Bill McDermott regarding the company’s future and the impact of AI on the workforce.
