CEO RESOLUTIONS FOR HANDLING FAST-CHANGING TECH IN 2023

??CEO RESOLUTIONS FOR ?HANDLING FAST-CHANGING TECH IN 2023

?INTRODUCTION

?The business leaders can make the most of tech this year. It is new year’s resolutions in technology are not optional for companies looking to navigate the uncertainties of 2023. Last year’s excitement around nonfungible tokens (NFTs), crypto, and the metaverse is likely to give way to a soberer 2023, with geopolitical and economic uncertainties and frequent turmoil inserting more caution into the next phase of tech’s evolution. ?Forward-looking is always a complicated business, but if a certain area is given focused attention in 2023, this might hold and offer a few new year’s tech resolutions to adopt in their business.

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EMPHASIS on AI and Generative AI

Particularly, ?The artificial intelligence (AI) market has been on a rapid growth path for several years – It seems that?the industry is expected to reach $42.4 billion in 2023, which is not just a high expectation but a conservative estimate. This momentum will continue, and we are starting to realize it with the debut of powerful new AI-powered tools and services across industries. There has been a shift from the well-understood role of AI in analysis and prediction – helping data scientists and enterprises make sense of the world and chart their courses accordingly – to new and innovative systems, like DALL-E, that are producing entirely new artifacts that have never been seen before 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 Copilot, Stable Diffusion, and others have captured the imagination of people around the world in a way AlphaGo did not, credits 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.?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.?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.

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. Foundation models have enabled new capabilities and vastly improved existing ones across a broad range of modalities, including images, video, audio, and computer code. AI trained on these models can perform several functions; it can classify, edit, summarize, answer questions, and draft new content, among other tasks. All of us are at the beginning of a journey to understand generative AI’s power, reach, and capabilities. This research is the latest in our efforts to assess the impact of this new era of AI. It suggests that generative AI is poised to transform roles and boost performance across functions such as sales and marketing, customer operations, and software development. In the process, it could unlock trillions of dollars in value across sectors from banking to life sciences.

?FOCUS ON THE COMBINATORIAL TRENDS

?As about 14 technology trends in 2022 that have likely to change how we work and live. These range from space technologies, cleantech, and AI to immersive-reality technologies. Each one can deliver a powerful impact on its own, which we can not ignore. Just think about how much better AI-enabled CXs could be. But an even wider unleash for companies comes when they insert innovations from multiple trends to work and concurrently to make new competencies. For executives in 2023, the challenge will be not just betting on individual trends or ramping up software engineering talent but thinking about how all these technologies can create innovative capillaries when they are used together—what we call combinatorial trends. In many domains, from consumer to enterprise, across all sectors, the involved trends are creating astonishing new possibilities. Because of the vast array of possible combinations, creativity in “mixing the ingredients” becomes a key to success. Consider the technologies in a new electric car: cloud and edge computing that power the networks connecting cars; applied AI and ML that enable autonomous decision-making and driving logic; clean energy and sustainable consumption technologies that create the core of vehicle electrification through, among others, new lightweight composites and battery capability advancements; next-generation software technologies that enable faster development of customer-facing topographies and prune reduce time to market; and trust architectures that ensure secure data sharing. Together, these technologies associate autonomy, connectivity, intelligence, and electrification to enable a new future of terrestrial mobility. Similarly, new patient-level treatments such as blood-type-based treatments or cell targeting are powered by advances in bioengineering (such as novel therapies based on tissue engineering), immersive-reality technologies (such as remote therapies), Web3 (which can offer traceability, interoperability, and permanence of electronic health records), applied AI and ML (such as improved image processing and predictive health alerts), and cloud and edge computing (which offer decentralized increased data access and processing capabilities). The impact is not simply a stabilizer—it is multiplicative.

Prep the board for tipping-point technologies

Klemens Hjartar

Senior Partner, Copenhagen

?The economic uncertainty and volitivity on the horizon in 2023 are going to need the boards to become more considerate and nuanced about technology decisions. CEOs mentioned the need to shift the conversation on tech with the board. While we can expect a linear or prune investment in IT budgets, the bigger issue on the table for boards is how to keep energies focused on what relates to tech. This focus is important because many game-changing technologies, such as 5G, AI, and cloud, are hitting tipping points for mass adoption. Companies are looking to move about 60 percent of their IT estate to the cloud by 2025. And 50 percent of companies report they have adopted AI in at least one function in their business. Both estimations are reasonable and achievable. ?That requires the board to keep the business pointed forward and prioritize the budget for upgrading IT foundations that enable speed, security, resiliency, and reusability. These are not the excitement for novelty in tech, but automating processes, investing in data foundations, cleaning up technical debt, and continually renewing the IT architecture are needed for the business to have a fortuitous of taking full advantage of the new technologies coming online. The reason this is a job for the board is that IT’s priorities are too often shaped by individual business units or divisions. The investments in tech foundations—“IT for IT”—benefit the entire business, so they require the board, working with top management, to guide and direct the effort. A good rule of thumb is allocating 15 to 20 percent of IT’s change budget to this foundation work. For the board to be able to engage at this level, the CIO and CTO will need to have more collaboration with individual members of the board about tech priorities and needs. ?“Projecting the global value of cloud: $3 trillion is up for grabs for companies that go beyond adoption, which is very conservative estimates/projections.

?Let the engineers you already must work in their own sophistically

Aamer Baig, Senior Partner, Chicago

?We do not have to be fortune readers to know that the coming year will bring with it significant pressures for tech. Layoffs in the tech sector and initial belt-tightening measures going into effect in most enterprises mean that tech leaders in 2023 will need to master the art of doing more with less. The trap will be to try to get your tech people to simply do more. Huge amounts of productivity are there for the taking by getting our engineers to do less—less administrative work, less bureaucratic work, and less manual work. We have found that, in many large organizations, engineers spend as little as 50 percent of their time on actual development. Imagine improving that by just ten percentage points for a large company that has thousands of engineers. CIOs can make significant inroads into this productivity gap in 2023 by being more scientific and methodical in developing and applying the craft of engineering. First, be more thoughtful about team makeup and getting a much better handle on who your top performers are. Our research shows that individual engineer performance can vary two- to threefold between teams. Second, investigate how many distractions you can take off of the plates of your engineers. In many cases, even relatively simple fixes, such as cutting down on meetings or making “agile ceremonies” more productive, can free up substantial time. And third, go all out on automation to remove the scourge of manual tasks that weigh down engineers. Automating testing or compliance, for example, can have a huge impact in terms of freeing up engineer capacity to do what they love. Through these and other actions, we have seen companies able to increase the productivity of their engineers tenfold. This is not just a productivity issue; it’s a talent issue. The CIO of a telco company recently spoke about the need to become a destination for top engineers but had not factored in how important developer work style is as part of that equation.

?Get ready for decentralized innovation architecture

?Vinayak HV, Senior Partner, Singapore

The idea that companies with the biggest data sets will lead the way in innovation (such as AI) took a hit in 2022. We have seen numerous start-ups emerge with compelling products that are going to give some of the large tech companies a run for their money. That reality is reflected in a few AI products that are generating buzzes, such as Stable Diffusion, which got 10,000 stars on GitHub in less than two months, or ChatGPT, which crossed the threshold of one million users in just five days. I recently asked ChatGPT to write a poem about Web3.??The implications are massive, from improving search to increasing developer productivity. These developments represent the maturing of AI “decentralization,” which refers to the development of advanced AI know-how that is not monopolized by players with access to massive, centralized, proprietary data sets. ?How this decentralization can disrupt different sectors, likely starting in the entertainment, gaming, and media areas, where traditionally we have seen new technologies make early inroads. The big challenge and chances opportunity for companies in 2023 will be how they can position themselves to take advantage of these decentralized AI capabilities. For business leaders, it will be important to visualize how their business models can take advantage of decentralized technologies. For the CIO or CTO, the focus will need to be on how to rework their architectures to easily incorporate APIs (like those from OpenAI and Stability AI) and embed “intelligence” into a wider swath of applications and processes. This capability can, for example, provide automated suggestions of code or code libraries to draw from or auto-generate code to kick-start the development. The goal should be to have AI-driven intelligence built into every part of the technology stack. Enabling this means allocating sufficient resources to experiment. Top innovators allocate 1 to 5 percent of their revenues to innovation that could yield inconsistent returns. Protecting this budget will be especially important as businesses feel the screws tightening on budgets, as the ability to effectively innovate during downturns allows companies to position themselves to grow quickly when the economy recovers.

?Make the most of your security opportunity

?(Jan Shelly Brown, Partner, New Jersey)

For years, security was treated as a blocker—albeit a critical one—that slowed progress to ensure security protocols were in place. In 2022, that changed, with companies making much greater commitments to modernizing their tech by moving to the cloud and rethinking the security role so it could act as a real enabler. Peering ahead to 2023, that trend will accelerate as security itself becomes much more automated, in part credit to the investments cloud service providers (CSPs) are making in their own risk capabilities and tooling. Code that developers submit will automatically be scanned for cybersecurity issues and rejected unless it complies, while providing clear recommendations for what fixes to make. Because most security issues are the result of code and system misconfigurations, this process will radically reduce the number of security breaches at many large companies. At one large bank, for example, breaches fell 70 to 80 percent after implementing security automation. The other benefit is simply the pace of development. With engineers able to submit code and update it based on automated feedback, the pace of development can increase as much as ten times. The key point isn’t that the cloud is more secure; it’s that moving to cloud provides companies with a huge opportunity to rethink their security posture. The other big shift we can expect is in the regulatory environment. As more heavily regulated industries such as banking and pharma move to the cloud, regulators themselves are rethinking what the pressure points are. They are already becoming more prescriptive about security and compliance standards and are thinking about other issues, such as the significant concentration risk. What if one of the big CSPs goes down and 30 banks with it? While there will not likely be real answers to these new questions in 2023, we can expect to see the contours of new policy start to emerge.

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Weigh on whether to adopt cloud or not

Will Forrest, Senior Partner, Chicago

?One of the most surprising developments in 2022 was how quickly many CEOs have changed their outlook on cloud computing, essentially going from “I’ll do it because that’s what my CIO recommends” to “I want to be all in.” At the same time, as tech companies eliminate programs and jobs, there is a surge of top tech talent becoming available. This is creating a once-in-a-lifetime opportunity for companies to jump ahead in terms of acquiring key cloud talent. The most pertinent question, then, is how are companies going to harness this surge of talent and executive interest in the cloud. Up until now, many corporate forays into the cloud have been limited to simply moving applications from their own servers to the cloud (often referred to as “lift and shift”) or building test and development environments to try out new programs. The coming year is the time, instead, to focus on building out strong cloud foundations that allow companies to take advantage of the most important benefits that the cloud provides (such as scaling applications or automatically adding capacity to meet surges in demand). Companies will need to focus on developing the right application patterns (code base that can be applied to multiple applications or use cases) and on putting in place strong cloud economics capabilities, called FinOps. Recent research has shown that companies tend to not really focus on cloud costs until they break $100 million, which is not just a tremendous waste but also a wasted opportunity to generate value.

Measure your ‘dark matter’ to pay your tech debt

Sven Blumberg, Senior Partner, Istanbul

For all the difficulties and suffering during the pandemic shutdowns, it was also a time when technology took center stage and allowed companies to pull off incredible feats that kept businesses running—and innovating—at a pace that had previously seemed unimaginable. Surprisingly, the pace continued at many companies through 2022. But achieving those feats required workarounds and quick fixes that in many cases added to organizations’ existing technical debt—the “tax” a company pays in the form of resources needed to address legacy technology when developing new tech. For example, updating core enterprise resource planning (ERP) systems might require engineers to do multiple rounds of fixes and testing to address such complexities that have accrued to the system over time. CIOs estimate that such technical debt can add up to 20 to 40 percent of the value of their entire technology estate (before depreciation). This coming year is going to be one when much technical debt comes due for CIOs and business leadership, as realizing the full benefit of critical technologies such as cloud and AI often requires resolving that tech debt. Migrating an application with significant amounts of tech debt to the cloud without refactoring it, without getting the cloud’s full benefits. Paying down the debt starts with a task that sounds simple but is not: identifying and costing it out. Tech debt is a little like dark matter in the universe—people know it exists, but finding and quantifying it is challenging. This quantification effort must occur at the application level to be meaningful and requires a cross-functional team to do it because tech debt in one application has effects on the business and also on technology performance at the infrastructure level. Unless the business understands the dollars-and-cents value locked away in its tech debt, making the right trade-off decisions and maintaining support for them becomes challenging. Once an organization has quantified its tech debt, it needs to think in terms of managing future tech debt in all projects going forward by adding 15 to 20 percent of resources to the cost of applications to clean them up. While this focus will be difficult given pressures to build resilience and, in many cases, to reduce costs, the value to the business can be so large that the CIO will need to hold the line. This is why undertaking the value analysis of what tech debt lies where in a company is so important.

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Skills to keep our best tech talent with us

Suman Thareja, Partner, New Jersey

The recent spate of layoffs in tech and the likelihood that belt-tightening measures continue into 2023 are laying a big trap for companies: they are in danger of losing their best tech talent. While it’s important to be ready to capture the expanding pool of talent entering the marketplace, companies cannot afford to lose focus on their own people. There are two reasons for this. One is that the best talent hitting the marketplace is snapped up quickly, making it hard for larger companies to compete. Of the approximately 160,000 tech workers who have been laid off so far in 2022 in the United States, 72 percent of them have found new jobs within three months, according to an analysis from Revelio Labs. ?And two, whether we think of it as the “great resignation” or the “great reshuffling,” it is not over. Though we can expect the numbers to moderate some if economic conditions worsen, many tech workers are still choosing to leave their jobs. The number of technical job openings in the United States, for example, has grown to over 5.5 million, adding more than 130,000 jobs in November 2022 alone. And when tech workers change jobs, 80 percent of them move to different organizations to do so. These realities mean that leaders need a plan to retain their best tech talent in 2023. To keep people engaged, companies should take three actions. One, they should actively keep their talent involved in decision making (even the small decisions). Two, they should use the “quiet” to upskill their people to demonstrate commitment to their growth and prepare for when the economic outlook brightens (a surefire way to lose their best people is have them work on mundane technology maintenance tasks). And three, they should maintain trust of their people by honoring offers, for example, because tech talent and others pay attention to how companies behave during what could be tough economic times.

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Do ?data due diligence diligently

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Holger Harreis, Senior Partner, Düsseldorf

In 2022, we saw a surge of companies trying to create exciting use cases with AI. But what came through over and over was that, without good data, good AI was not possible. Small-scale minimal viable products (MVPs) that looked promising sputtered when companies tried to scale them and found their data management practices and architecture were insufficient. With some of those lessons learned, companies will need to thread the needle in 2023 by investing in developing their data foundations, in particular the operating model, new approaches such as data products and DataOps, and also data architecture and technology. But they need to do it in a way that takes two critical factors into consideration. The first is they need to scale for the business. Often companies think in terms of building data solutions for specific use cases, without considering other similar cases. This chokes off the scaling effort and hampers a company’s ability to build real value for the business. For this reason, developing a few data products in 2023 that meet the most high-value use cases for the business should be an important focus. But they should have scalability built in right from the start. When well developed and supported, data products can deliver new business use cases as much as 90 percent faster, while the total cost of ownership, including technology, development, and maintenance costs, can decline by 30 percent. Practically minded companies should consider adding about 10 to 20 percent on top of data development costs to build in scale capabilities (such as APIs, module code blocks, and standardized coding). The second factor is that companies will need to build these foundations by sequencing initiatives and use cases to create value quickly, especially given the increasingly constrictive economic situation. In fact, if we are not starting to generate value from our data initiatives in less than six months, something is wrong. Focus on those initiatives that create near-term value while also establishing a robust foundation for future development.

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CIO mandate: Make 2023 the year of automation

Brant Carson, Senior Partner, Vancouver

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In 2023, we are going to see a further evolution in the demands on the CIO to do multiple things well at once. That includes understanding the business, creating value, increasing productivity, innovating, maintaining high levels of security, and managing a large organization. The pressure will especially be on CIOs to reduce costs while creating leaner, faster, and better IT. That might seem like a tall order, but it presents an opportunity for CIOs to recapture some of the high ground they occupied during the pandemic, when technology was at the center of many companies’ responses to the disruption. In some cases, making these gains will be straightforward. The past few years of plenty, for example, have led to runaway costs that are relatively easy to cut back. Migrations to cloud without sufficient attention to managing costs is just one typical example. But the opportunity and the primary focus for the CIO should be in automating away waste. One fast-growing tech leader made that a virtual mantra by writing code to drastically reduce both manual labor and process steps. That includes automating compliance (ensuring code meets regulatory guidelines before being submitted), testing (ensuring code will not bring down the system), and standing up infrastructure (enabling engineers to access safe development environments on their own). Good automation both reduces costs and drastically improves the efficiency and speed of development while lowering risk. These are core characteristics of top-performing companies in the digital age, so investing in automation during a downturn can put a business in the position to accelerate once the economic environment improves. The final piece of the automation puzzle for CIOs is how to communicate the gains from automation in terms of business cases. Companies will have a very high bar in 2023, so CIOs will need to be crystal clear on ROI for automation cases, incorporate them into all review processes, and ensure that the promised value is realized.

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Be accessible and inclusive to tap new growth

Gayatri Shenai

Partner, New York

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Consider this growing demographic tidal wave: by 2030, all baby boomers (about 73 million people born between 1946 and 1964) in the United States will be at least age 65. That translates to one in every five people in the United States being of retirement age. In 2000, by comparison, there were just 35 million people older than 65 Similar trends hold true for many other countries as well. This represents a massive need among people who are today already increasingly dependent on the internet and technology, and it underscores a broader point: companies should look for how to adapt to serve this growing population. The good news is that some companies, particularly in consumer sectors and retail finance, have already taken concrete steps to make their digital properties more accessible and relevant to people who have difficulties accessing standard technologies. That includes creating larger type sizes, improving text contrast to make it easier to read, offering audio options, using chatbots to speak with customers, and incorporating voice-recognition technologies. Of course, as advanced AI capabilities come online, we can expect accessibility capabilities to both proliferate and be easier to use. For companies looking to tap into this growing market through improved accessibility, 2023 can become an important proving ground to test and implement accessibility technologies and methodologies. This does not need to require significant investment in many cases. In fact, the biggest change is in mindset to incorporate accessibility functions and experiences into existing design and development processes as a must-have.

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CONCLUSION

The dual imperative—of overcoming near-term obstacles while reinventing businesses for the future—is visible through much of the survey. Nearly 73 per cent CEOs worldwide predict a decline in global economic growth, marking a significant departure from their optimistic outlook in 2021 and 2022. Inflation, macroeconomic volatility, geopolitical conflict, and climate change rank as the top threats, ahead of cyber and health risks. The picture is a little different in India, with CEOs here exuding an air of relative optimism, further accentuated by Budget 2023-24, which in some ways reflects the way business has been evolving in India. About 57 per cent of CEOs in India believe that the country’s economic growth will improve over the next year. Nearly 25 per cent of the CEOs indicated that they would like to focus on evolving their business and its strategy to meet future demands rather than drive operating performance.

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( The above article has been excerpt of the folloing, I just make it more crisp and also expressed my insights to make it more lucid and meaningful for a simple man to understand).)

1.???New year’s resolutions for tech in 2023, January 6, 2023?| Commentary

2.??????Aamer Baig?and?Will Forrest?are senior partners in McKinsey’s Chicago office;?Jan Shelly Brown?and?Suman Thareja?are partners in the New Jersey office;?Brant Carson?is a senior partner in the Vancouver office;?Holger Harreis?is a senior partner in the Düsseldorf office;?Klemens Hjartar?is a senior partner in the Copenhagen office;?Vinayak HV?is a senior partner in the Singapore office;?Gayatri Shenai?is a partner in the New York office; and?Lareina Yee?is a senior partner in the San Francisco office.

3.????A shorter version of this commentary originally appeared in “Where Is Tech Going in 2023?” in?Harvard Business Review,?January 6, 2023.

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