ESSENTIALS FOR LEADERS AND THOSE THEY LEAD

Welcome to the latest edition of Leading Off. We hope you find our insights useful. Let us know what you think at Alex_Panas@McKinsey.com and Axel_Karlsson@McKinsey.com.

—Alex and Axel

The World Economic Forum’s annual meeting in Switzerland, also known as Davos, will convene the world’s leading decision-makers next week to discuss the most pressing issues of today—and tomorrow. From exponential technology growth to geopolitical uncertainty to sustainability, there’s certainly a lot to cover as leaders explore the future of business and society. This year’s program will incorporate these and other topics in focusing on five interconnected priorities: reimagining growth, industries in the intelligent age, investing in people, safeguarding the planet, and rebuilding trust. This week, we will preview the topics that will be top of mind at this pivotal gathering.

AN IDEA

Build trust in AI to grow

Companies are investing heavily in software, tools, and platforms powered by AI, hoping to generate value from the technology’s potential to unleash massive productivity growth. But their enthusiasm is tempered by worries about inaccuracy and other AI-related risks—meaning that organizations need to build trust in their AI systems to capture the full potential value. “After all, if customers or employees lack trust in the outputs of AI systems, they won’t use them,” note McKinsey’s Carlo Giovine and Roger Roberts and their coauthors. Leaders should evaluate the benefits and costs of investments in enhanced AI explainability, an emerging approach that helps organizations understand the inner workings of AI-powered systems and monitor the objectivity and accuracy of their outputs. “This is an essential step as AI initiatives make the difficult journey from early use case deployments to scaled, enterprise-wide adoption,” the authors say.

A BIG NUMBER

75%

That’s the percentage of financially successful companies that have invested in cloud technology, compared with just one-third of other respondents in a McKinsey Global Survey on tech transformations. McKinsey’s André Jerenz and Anusha Dhasarathy and their coauthors note that cloud technology correlates strongly with high profit margins but still represents a largely untapped opportunity. Top-performing companies are ahead of their peers in deploying cloud and other cutting-edge technologies to overcome the often slow delivery of IT solutions that stem from legacy architecture and platforms, which can hinder potential growth.

A QUOTE

“Managers are absolutely critical. They are the translators. They are the connectors. They are the navigators and the coaches.”

That’s McKinsey’s Emily Field on the importance of investing in managers, who are crucial to the future of a company’s work. In an episode of the McKinsey Talks Talent podcast, Field and Bryan Hancock (authors of Power to the Middle: Why Managers Hold the Keys to the Future of Work) note that leaders should think about what they can do differently to support managers who are dealing with burnout, challenges associated with the emergence of generative AI, and other pressures. “Invest in their development,” Hancock says. “Invest in the critical skills managers need to inspire and connect people to their organizations’ mission and purpose, to help them learn how to manage in a way that’s not micromanaging and empowers teams to do more than they had thought possible.”

A SPOTLIGHT INTERVIEW

Organizations often struggle with balancing sustainability and profitability, especially with rapidly changing market conditions and the growing complexity of global supply chains. The long-term solution is to embrace the circular economy, Dominique Lebigot, chief purchasing officer of LVMH Wines and Spirits, says in an interview with McKinsey senior partner Mauro Erriquez. Corporate procurement leaders can play a major role in establishing this new economy by developing an ecosystem of suppliers that are committed to waste reduction and economic efficiency. “We have to put our collective intelligence into organizing the circular economy—selling services and functions, not products, and then recycling, reusing, and reintroducing those products,” Lebigot says. “It’s the only way to optimize and get a return on investment for manufactured products as soon as possible—limit extraction, and then reduce the overall cost.”

— Edited by Eric Quiñones, senior editor, New York

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