Good morning. I'm Steven Rosenbush, enterprise technology bureau chief at the WSJ Leadership Institute, stepping in to write today's CEO Brief.
Eight years ago, Warren Buffett and Jamie Dimon wrote an op-ed in The Wall Street Journal warning that short-term thinking posed a risk to American companies. "In our experience, quarterly earnings guidance often leads to an unhealthy focus on short-term profits at the expense of long-term strategy, growth and sustainability," they wrote.
It's a different world now, with a new set of challenges. Broadly speaking, risk aversion in the C-suite isn't at the top of the list. The WSJ Leadership Institute reported last Monday that Gartner expects IT spending for this year to grow a remarkable 14.2%, driven by AI. It's one indicator of the extent to which companies are willing to spend and invest in their growth.
The launch of OpenAI's ChatGPT in November 2022 changed business in many ways, including the ways in which CEOs and their companies approach risk. It isn't so much that they have become reckless, although there is bound to be excess. The difference, I believe, is that they are thinking more like venture-capital investors than ever before.
Going long
The broader corporate world has taken more than just algorithms and platforms from the tech world. It has absorbed some of the tech mindset, too. The VC business is built on longer time horizons, higher levels of risk and the potential for outsize payoffs tied to meaningful breakthroughs in technology. That sounds like a lot of CEOs today.
"If the CEO isn't constantly pushing to stay ahead of markets, what's the point of the job?" ServiceNow CEO Bill McDermott told me on Friday.
Being ahead of the markets certainly can come with a price, at least over the short term. ServiceNow shares traded Friday at about $111, roughly 43% below their 52-week high of $194.72.
"Sometimes you take a short-term hit for executing a bold strategy," McDermott said.
McDermott argues that ServiceNow was mistakenly caught in a rerating of SaaS companies driven by a fear of AI disruption. He maintains that ServiceNow is fundamentally different because it is a platform company, acting as a control tower astride legacy systems. The idea is to enable AI models to interact securely across enterprise workflows. It also has pushed deeper into markets such as cybersecurity.
"We never set out to buy revenue because we've always been a fast growth company. We set out to pursue opportunities of greater substance," McDermott said. He cites, for example, the company's acquisition of Element AI, co-founded by Turing Award winner Yoshua Bengio, a deal announced in 2020, as well as the recent acquisitions of cybersecurity companies Armis and Veza.
"None of this is to suggest that markets shouldn't influence strategy. Quite the contrary, markets rule," McDermott said. "Having said that, today there's a palpable feeling out there that if you only do what you always did, you'll only get what you always got. The best CEOs will never surrender to complacency. Vision has to supersede fear."
When it comes to embracing such vision, CEOs and VCs have one major difference. VCs can spread their risk across a portfolio of bets. CEOs are all in on their one company. They are placing huge bets with a unique concentration of risk and little margin for error.
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