ServiceNow is betting on AI to do the work of human employees it won't replace. CEO Bill McDermott signaled a major workforce strategy shift, telling investors the enterprise software giant will lean on AI productivity gains instead of backfilling open positions. The move comes as ServiceNow's stock slides alongside other software companies facing pressure from AI's disruption of traditional SaaS business models.
ServiceNow just made the quiet part loud. CEO Bill McDermott told investors the company won't be backfilling open positions, banking instead on AI to pick up the slack. It's a watershed moment for enterprise software, where growth has traditionally meant more bodies in seats, not fewer.
The announcement comes as ServiceNow's stock has taken a beating in 2026, caught in the broader software sector selloff. Investors are spooked by a fundamental question: if AI can automate the workflows that companies like ServiceNow manage, who needs the software? McDermott's answer is essentially to eat his own dog food - use AI internally to prove the productivity thesis before selling it to customers.
"We're seeing productivity gains that fundamentally change how we think about headcount," McDermott said, according to the CNBC report. It's a stark departure from the high-growth playbook that built ServiceNow into a $150 billion market cap company. For years, enterprise SaaS companies scaled by hiring aggressively - more salespeople, more engineers, more customer success managers. AI is flipping that script.
The strategy isn't just about cost-cutting, though that's certainly part of it. ServiceNow is trying to prove a broader point to its customer base: that AI-powered automation can genuinely replace human labor without sacrificing output. If the company can demonstrate productivity gains in its own operations, it becomes a more compelling sales pitch for the AI-infused workflow tools it's selling to enterprises.
But the market isn't buying it yet. Software stocks broadly have slumped as investors grapple with AI's dual threat - it could cannibalize existing software revenue while forcing massive R&D investments to stay competitive. ServiceNow is caught in this vice. The company built its business automating IT workflows and service management. Now AI agents and large language models promise to automate those automations, potentially cutting out the middleman.
McDermott is essentially making a bet that ServiceNow can evolve faster than it gets disrupted. By embedding AI deeply into its platform and demonstrating internal productivity gains, the company hopes to position itself as an AI enabler rather than an AI victim. It's a high-stakes pivot that other enterprise software giants are watching closely.
The workforce implications are profound. ServiceNow isn't talking about layoffs - it's talking about simply not replacing people who leave. Attrition becomes the mechanism for workforce reduction, a softer approach than pink slips but potentially more unsettling for employees wondering if their role will exist in two years. It's a preview of how AI might reshape corporate America: fewer dramatic layoff announcements, more gradual workforce optimization through natural attrition.
Industry analysts are divided on whether this strategy can work. Some see it as a necessary evolution - enterprise software companies can't keep hiring at the pace they did during the 2020-2021 boom, and AI provides a convenient justification for more disciplined growth. Others worry it's a desperation move by a company watching its traditional business model erode in real-time.
The broader context makes this moment even more significant. Across the tech industry, companies are shifting from selling AI as a product to using it internally first. It's a pattern we've seen before with other transformative technologies - the companies that successfully deploy them internally often build better external products. But it also means short-term pain as headcount growth slows and investors question whether the productivity gains are real or just a convenient narrative.
For ServiceNow's employees, McDermott's comments introduce new uncertainty. The company isn't saying which roles won't be backfilled or how extensive the AI-driven productivity gains need to be. That ambiguity can be more demoralizing than a clear restructuring plan. Employees are left wondering whether their departing colleagues will be replaced by software they might have helped build.
The stock market's reaction to ServiceNow's struggles reflects a broader reckoning in enterprise software. For a decade, the sector commanded premium valuations based on predictable subscription revenue and steady growth. AI is introducing unpredictability - both in how companies operate internally and in what customers will pay for. ServiceNow's pivot to AI-driven productivity is an attempt to navigate that uncertainty, but it's far from clear whether it will stabilize the stock or accelerate the decline.
ServiceNow's shift from headcount expansion to AI-driven productivity marks a defining moment for enterprise software. McDermott is betting the company can prove AI's value internally before convincing customers to embrace the same transformation. It's a strategy born of necessity as much as opportunity - the software sector's traditional growth playbook is breaking down, and AI is both the cause and the proposed solution. Whether this approach stabilizes ServiceNow's stock or accelerates the sector's reckoning remains to be seen, but one thing is clear: the days of unchecked headcount growth in enterprise SaaS are over. The companies that figure out how to grow revenue without growing headcount will define the next era of enterprise software.
