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Generative AI is poised to unleash the next wave of productivity. We take a first look at where business value could accrue and the potential impacts on the workforce.
AI has permeated our lives incrementally, through everything from the tech powering our smartphones to autonomous-driving features on cars to the tools retailers use to surprise and delight consumers. As a result, its progress has been almost imperceptible. Clear milestones, such as when AlphaGo, an AI-based program developed by DeepMind, defeated a world champion Go player in 2016, were celebrated but then quickly faded from the public’s consciousness.
Generative AI applications such as ChatGPT, GitHub Copilot, Stable Diffusion, and others have captured the imagination of people around the world in a way AlphaGo did not, thanks to their broad utility—almost anyone can use them to communicate and create—and preternatural ability to have a conversation with a user. The latest generative AI applications can perform a range of routine tasks, such as the reorganization and classification of data. But it is their ability to write text, compose music, and create digital art that has garnered headlines and persuaded consumers and households to experiment on their own. As a result, a broader set of stakeholders are grappling with generative AI’s impact on business and society but without much context to help them make sense of it.
The speed at which generative AI technology is developing isn’t making this task any easier. ChatGPT was released in November 2022. Four months later, OpenAI released a new large language model, or LLM, called GPT-4 with markedly improved capabilities.1 Similarly, by May 2023, Anthropic’s generative AI, Claude, was able to process 100,000 tokens of text, equal to about 75,000 words in a minute—the length of the average novel—compared with roughly 9,000 tokens when it was introduced in March 2023.2 And in May 2023, Google announced several new features powered by generative AI, including Search Generative Experience and a new LLM called PaLM 2 that will power its Bard chatbot, among other Google products.3
To grasp what lies ahead requires an understanding of the breakthroughs that have enabled the rise of generative AI, which were decades in the making. For the purposes of this report, we define generative AI as applications typically built using foundation models. These models contain expansive artificial neural networks inspired by the billions of neurons connected in the human brain. Foundation models are part of what is called deep learning, a term that alludes to the many deep layers within neural networks. Deep learning has powered many of the recent advances in AI, but the foundation models powering generative AI applications are a step-change evolution within deep learning. Unlike previous deep learning models, they can process extremely large and varied sets of unstructured data and perform more than one task.
More in the McKinsey Report: The economic potential of generative AI
Authors
Michael Chui
Eric Hazan
Roger Roberts
Alex Singla
Kate Smaje
Alex Sukharevsky
Lareina Yee
Rodney Zemmel
Business leaders around the world are currently addressing not only economic volatility, geopolitical instability, and the lingering effects of the COVID-19 pandemic but also a range of organizational shifts that have significant implications for structures, processes, and people. The shifts include complex questions about how to organize for speed to shore up resilience, find the right balance between in-person and remote work models, address employees’ declining mental health,1 and build new institutional capabilities at a time of rapid technological change, among others.
To help CEOs and their leadership teams consider such questions, we have launched McKinsey’s The State of Organizations 2023 report. The report is an account of an ongoing research initiative that seeks both to pinpoint the most important shifts that organizations are grappling with and to provide some ideas and suggestions about how to approach them.
As part of the research, we conducted a survey of more than 2,500 business leaders around the world.2 Only half say their organizations are well prepared to anticipate and react to external shocks, and two-thirds see their organizations as overly complex and inefficient. We also spoke with business leaders to gather inspiring stories and best practices from beacons—organizations that have been able to adapt to recent economic and operational disruptions and forge new paths. Finally, we developed four points to consider in addressing the ten organizational shifts, leveraging the survey results, the quantitative research with executives, and insights from our work in the field and through existing McKinsey research.
1. Increasing speed, strengthening resilience.
2. ‘True hybrid’: The new balance of in-person and remote work.
3. Making way for applied AI
More: Full Report (92 pages)
Authors: Patrick Guggenberger, Dana Maor, Michael Park, and Patrick Simon
Martin Beck, Chief Economic Advisor to the EY ITEM Club, says: “July’s final S&P Global/CIPS manufacturing survey reported another decline in activity, with the PMI falling to 45.3 from 46.5 in June. The index was dragged down by a significant decline in production, with survey respondents suggesting that mounting uncertainty from rising interest rates had led to a softening in demand both at home and from abroad.
“But the fall in the PMI balance looks to have been exaggerated by some overstocked firms choosing to cut purchases amid improving supply chains, leading to a further fall in supplier delivery times. The PMI is also prone to being affected by sentiment, so the weight of recent bad news about rising mortgage rates may have depressed the outlook of survey respondents and dragged on the PMI.
“Beyond the survey’s disappointing set of backward-looking balances, its forward-looking indicators didn’t offer much positivity either. Respondents reported a large fall in new business, suggesting that manufacturing output is likely to remain weak in the near-term. Goods producers are likely to struggle over the rest of this year as rising borrowing costs and still-high inflation continue to squeeze household and corporate budgets.
“One area where the survey did offer some brighter news was on costs. Input cost inflation fell outright for the third consecutive month as pressures on transport and energy prices eased. But manufacturers appear to be attempting to rebuild margins rather than pass lower costs onto consumers, with factory gate charges remaining flat. Falling cost pressures should be welcomed by the Monetary Policy Committee (MPC), but the committee is unlikely to place much weight on the results of today’s survey. Instead, the MPC’s attention is likely to be focused on the much bigger services sector, where inflation has come down recently, but remains uncomfortably high. Therefore, the EY ITEM Club still expects the MPC to raise Bank Rate by 25bps later this week.”