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💡 Key Insights from McKinsey's 'The state of AI in 2023: Generative AI’s breakout year'

I've read the report so you don't have to.

June 09, 2024

You're busy.

So, I've read the report so you don't have to.

This week I'm highlighting the key insights from the latest McKinsey report - The state of AI in 2023: Generative AI’s breakout year.

In today’s newsletter:

📌 [Insights] The state of AI in 2023: Generative AI’s breakout year (McKinsey)

📌  Latest social media news

📌  Previously on Smart CMO Newsletter

If Generative AI (Gen AI) is not on your radar:

  1. Where have you been for the last few months??

  2. Generative artificial intelligence (AI) describes algorithms (such as ChatGPT) that can be used to create new content, including audio, code, images, text, simulations, and videos. Recent breakthroughs in the field have the potential to drastically change the way we approach content creation.

Now we're all up to speed, let's get on with the show.

📌 [Insights] The state of AI in 2023: Generative AI’s breakout year (McKinsey)

Here's What You Need To Know (Key Takeaways):

FYI - These results are gathered as part of the latest annual McKinsey Global Survey.

Rapid Adoption of Gen AI

  • 1/3 of organisations are using Gen AI regularly in at least one business function. The most common uses are in marketing, product development, and customer service.

  • AI "high performers" (those with over 20% of EBIT from AI) are investing more heavily in generative AI and AI overall than others. They are focused more on revenue growth than cost reduction.

  • Organisations continue to see benefits from AI adoption, with increases in revenue and decreases in costs. Over two-thirds expect to increase AI investment in the next 3 years.

Significant Disruption in Tech and Financial Services

  • A whopping 75% of respondents expect generative AI to cause significant or disruptive change in their industries in the next 3 years. Tech and financial services expect the most disruption.

  • However, organisations are not yet well prepared to manage generative AI risks. Inaccuracy (or hallucinations as they're often called) is most commonly cited as a concern, but only 32% are working to mitigate it.

  • AI high performers also are much more likely than others to use AI in product and service development, for uses such as product-development-cycle optimisation, adding new features to existing products, and creating new AI-based products.

Talent and Reskilling

  • Hiring specialised AI talent remains challenging but has gotten slightly easier. More reskilling of workforces is expected rather than job cuts.

  • The expected business disruption from gen AI is significant, and respondents predict meaningful changes to their workforces. They anticipate workforce cuts in certain areas and large reskilling efforts to address shifting talent needs.

  • Overall AI adoption remains steady at 55% of organisations. Generative AI tools aren't yet driving increased broader AI adoption.

In summary, generative AI adoption is happening rapidly and expected to disrupt industries, but overall AI adoption remains steady. Companies are still early in managing generative AI risks and capturing its potential benefits.

🔊 3 Headline Quotes From Thought Leaders

"Just a few months ago, the conversation in the C-suite was pretty rudimentary, focused on trying to understand what it was and seeing what was hype versus what was reality. Now in just about six months, business leaders are having much more sophisticated conversations."

Alex Singla, Senior partner and global leader of QuantumBlack, AI by McKinsey

Alex's quote highlights how quickly the understanding and adoption of generative AI has progressed in just six months, going from hype to reality.

"While reported overall AI adoption remains steady at around 55 percent, more than two-thirds of respondents say their companies plan on increasing their investments in AI. [...]

[...] "And we continue to see a set of AI high performers that are building out the foundations and capabilities that allow them to generate value. "

Michael Chui, Partner, McKinsey Global Institute

Michael's insights indicate that while current AI adoption has plateaued, companies plan to increase investments, likely to capitalise on generative AI's potential, which has the opportunity to drive broader adoption.

"Generative AI, in contrast, will still need highly skilled people to build large language models and train generative models, but users can be nearly anyone, and they won’t need data science degrees or machine learning expertise to be effective."

Lareina Yee, Senior partner, McKinsey; chair, McKinsey Technology Council

Lareina highlights the revolutionary potential of Gen AI, and likens the use of the personal computers to how anyone can use its capabilities without needing highly technical skills.

But What Does Any Of This Really Mean? (Key Benefits)

According to the report, some of the key benefits organisations are seeing from AI adoption are:

Cost Reductions

  • On average across functions, 42% of respondents reported cost reductions of 10% or more due to AI adoption. The highest cost reductions were seen in service operations (54%), marketing and sales (55%), and manufacturing (66%).

Revenue Increases

  • On average 59% of respondents reported revenue increases of over 5% due to AI, with the highest revenue increases in product/service development (65%), marketing and sales (61%), and service operations (57%).

Improved Offerings

  • For AI "high performers", the top objective of generative AI is increasing the value of offerings by integrating AI-based features or insights.

New Revenue Sources

  • 23% of AI high performers cite creating new businesses or revenue sources as the top objective for generative AI, compared to only 12% of others.

Productivity Enhancements

  • Generative AI is expected to provide productivity benefits across knowledge work activities like drafting documents, summarising text, creating product designs, and customer service chatbots.

There you have it. Now you can head back to the office and [wow] / [bore] your colleagues with your newfound insights on Gen AI.

📌 Social Media News

Ads are the order of the day.

Today we're focusing on how Instagram is testing a new ad display for Reels, and the news that X (formerly Twitter) is moving away from 'Promoted Accounts' ads.

Instagram’s Testing Multi-Ad Display for Reels

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Some users have reported seeing a new ad format on Reels where multiple ads are displayed on screen at once (see left).

This new format groups a selection of related brands onto a single screen, which is then displayed between Reels posts.

Digital expert, Barry Holt, stated that:

"I would consider this impression much lower value than a full Reels or Feed ad placement, but it can be used to serve cheap CPMs, more like a right column placement.

Lower CPMs on an optimized platform with multiple varied placements are not better for you. When you see lower CPMs, don't celebrate it, question it."

X Promoted Accounts Are No More

It's estimated that this move could cost X around $100 million per year in revenue.

X is depreciating its account promotion ads, which enabled brands to highlight their account in user feeds as a means to gain more followers. According to X, this ad format is no longer in keeping with their approach. X will instead focus more on video and other interactive ad formats.

📌 Previous Edition of The Smart CMO Newsletter

Last time I discussed  '3 Tools to Build Video into Your Marketing Strategy the Easy Way'. But did you know I also run through the newsletter in a video, just in case you prefer to listen instead of read.

Check it out here: