Weekly Business Insights

In the world’s tech capital it is taken as read that AI will transform the global economy. But for AI to fulfil its potential, firms everywhere need to buy the technology, shape it to their needs and become more productive as a result. Investors have added more than $2trn to the market value of the five big tech firms in the past year—in effect projecting an extra $300bn-400bn. For now, though, the tech titans are miles from such results. Even bullish analysts think Microsoft will make only about $10bn from generative-ai-related sales this year. Beyond America’s west coast, there is little sign AI is having much of an effect on anything.

One problem is the rate of adoption. Reputable companies are putting out startling estimates of how many people are using generative AI. Close to two-thirds of respondents to a recent survey by McKinsey, a consultancy, say that their company is “regularly using” the tech, nearly twice as many as the year before. A report by Microsoft and LinkedIn, an online platform for professionals, finds that 75% of global “knowledge workers” (folk who sit in front of a computer all day) use it. People are, by such accounts, already in an AI world.

And in a sense, they are. Almost everyone uses AI when searching for something on Google or picking a song on Spotify. But the incorporation of AI into business processes remains a niche pursuit. Official statistics agencies pose ai-related questions to firms of all varieties, and in a wider range of industries than Microsoft and LinkedIn do. America’s Census Bureau produces the best estimates. It finds only 5% of businesses have used AI in the past fortnight . Even in San Francisco many techies admit, when pressed, that they do not fork out $20 a month for the best version of ChatGPT.  It is a similar story elsewhere. 

Concerns about data security, biased algorithms and hallucinations are slowing the roll-out.  Firms are holding off on big projects because AI is developing so fast, meaning it is easy to splash out on tech that will soon be out of date.  Companies that are going beyond experimentation are using generative ai for a narrow range of tasks. Streamlining customer service is perhaps most common. 

Indeed, there is no sign in the macroeconomic data of a surge in lay-offs. Unemployment across the rich world is below 5%, close to an all-time low. Workers are not moving between companies faster than usual, as would probably happen if lots of jobs were disappearing.  Macroeconomic data also show little evidence of a surge in productivity. The latest estimates, using official figures, suggest that real output per employee in the median rich country is not growing at all. 

In time, businesses may wake up to the true potential of AI. Most technological waves, from the tractor and electricity to the personal computer, take a while to spread across the economy. Indeed, on the assumption that big tech’s AI revenues grow by an average of 20% a year, investors anticipate that almost all of big tech’s earnings from AI will arrive after 2032.

When ChatGPT was first released, everyone in AI was talking about the new generation of AI assistants. But over the past year, that excitement has turned to a new target: AI agents.  Agents featured prominently in Google’s annual I/O conference in May, when the company unveiled its new AI agent called Astra, which allows users to interact with it using audio and video. OpenAI’s new GPT-4o model has also been called an AI agent.  And it’s not just hype, although there is definitely some of that too. Tech companies are plowing vast sums into creating AI agents, and their research efforts could usher in the kind of useful AI we have been dreaming about for decades. Many experts, including Sam Altman, say they are the next big thing.   

The grand vision for AI agents is a system that can execute a vast range of tasks, much like a human assistant.  One vision for agents is that they are multimodal, meaning they can process language, audio, and video. For example, in Google’s Astra demo, users could point a smartphone camera at things and ask the agent questions. The agent could respond to text, audio, and video inputs. 

The term “AI agents” has been around for years and has meant different things at different times.  There are still many open questions that need to be answered.  They can do stuff, but they’re unreliable and still not really autonomous. So humans still need to be actively involved in the process. AI systems still can’t fully reason, which is a critical step in operating in a complex and ambiguous human world. Another limitation is that after a while, AI agents lose track of what they are working on. AI systems are limited by their context windows, meaning the amount of data they can take into account at any given time.   To tackle this problem, Google has increased its models’ capacity to process data, which allows users to have longer interactions with them in which they remember more about past interactions. The company said it is working on making its context windows infinite in the future.  For embodied agents such as robots, there are even more limitations. There is not enough training data to teach them, and researchers are only just starting to harness the power of foundation models in robotics. 

So amid all the hype and excitement, it’s worth bearing in mind that research into AI agents is still in its very early stages, and it will likely take years until we can experience their full potential.

Over the past five years corporate leaders and investors have had to digest a rapid succession of macroeconomic shocks, crises—and false alarms. In 2020, when the pandemic delivered an intense recession, leaders were told it would be worse than 2008 and potentially as bad as the Great Depression. Instead a fast and strong recovery unfolded. In 2021, when supply bottlenecks and strong demand sent prices soaring, a common view was that runaway inflation would take us back to the ugly 1970s. Instead inflation in USA fell from 9.1% to just above 3% in a year.

For executives and investors such whiplash comes with two types of costs: financial and organizational.  Shocks and crises pose a real threat, but so does overreaction to them. And for every true crisis there are many false alarms. Understanding macroeconomic risk—the potential for negative or positive change, both cyclical and structural—is essential to responding to these threats with rational optimism.

Understanding risk is not about building the right model—no matter what many economists will tell you. To be sure, perfect foresight is impossible even if we look beyond the confines of modeling. But executives can cultivate their judgment—and use it to see past the headlines, to identify key causal narratives, and ultimately to make better calls.

Still, by embracing three analytical habits that can result in better macroeconomic judgment, leaders stood a fair chance of recognizing the false alarms.  These three habit are: 

1. Let go of master-model mentality.  Models are unreliable because macroeconomic relationships are context-dependent and use small sample sizes.  Compounding this problem is the fact that models and their forecasts are least reliable when they are most needed: in times of crisis.
2. Discount doom mongering. Leaders must contend with a constant drumbeat of headlines foretelling disaster. Why the negative bent? Simple: Doom sells. Economic and financial journalists rarely have an opportunity to write about sex, crime, or celebrities. Crises and collapse are reasonable substitutes in a competition to attract eyeballs and generate clicks. Leaders need to choose their clicks wisely and remember who is speaking and from what perch. They don’t have to follow every news cycle that spins the latest data point into a story of collapse. And they must be able to quickly calibrate the stories they do spend time on by asking, simply: What would it take for this to happen?
3. Practice judgment through economic eclecticism. There is an alternative to master models and doom-scrolling. To stand a better chance of getting macroeconomics right, leaders must develop a situationally aware mindset that is focused on causal persuasiveness and coherence of narrative. Inputs to this sort of judgment should come not only from economics but also from adjacent (and far-flung) disciplines and methods. Sometimes frameworks help us understand risks; sometimes historical episodes are illuminating; sometimes even formal economic models can be useful. Narratives about how the system works matter and can be used to stress-test the bold claims in economic debate. And once it is understood that macroeconomics lacks the analytical elegance of, say, physics, leaders can more confidently bring in broader perspectives and methods. Macroeconomics is not best suited to be a soloist; it plays better as part of a band.

The key is an approach that values contextual flexibility over theoretical rigidity, rational optimism over doom mongering, and judgment over prediction.

When Allan Fawcett decided to retire from his career in computer science in 2011, he knew he wanted to spend at least a few years traveling, particularly around Europe. After decades working in tech, he was ready, as he says, to give his mind a rest. “Computer programming destroyed my brain,” he tells Fortune. “I needed an escape.”

What he didn’t know is that that escape would become permanent. He met his now-wife, Elisabeth, shortly after he retired, and eventually took the leap to move permanently to Spain with her.

Fawcett, now 67 and a Spanish resident through marriage, couldn’t be happier about his decision. Though his wife still works, he spends his days playing tennis, reading, and going to the beach or cafés with expat friends in Barcelona. He and his wife are able to travel around the continent, even planning a trip to Paris for the Olympics this year.

The same lifestyle wouldn’t be possible in the U.S., Fawcett says. Housing is much more affordable, food is inexpensive, and the wine is even less so. The mass transit system is a godsend; Fawcett doesn’t have a car and doesn’t need one to get around. Walkability is also a major benefit.

“It’s a good life here,” says Fawcett, who became a resident in 2019. “Outdoor dining is everywhere, the weather is amazing. Everything is very cheap.”

Fawcett is part of a growing trend of retirees, spurred by America’s retirement crisis, who are moving abroad instead of spending their golden years in the U.S. In December 2022, there were over 700,800 people receiving Social Security payments abroad, according to the most recently available data from the Social Security Administration. In 2000, that figure was less than 400,000.

Some move abroad because they simply cannot comfortably live on a fixed retirement income in the U.S., where the costs of housing and healthcare, especially, are becoming increasingly unaffordable. A substantial number of retirees rely almost completely on Social Security payments to make ends meet in the U.S., which average around $1,900 per month. A growing portion of elderly Americans live in poverty, with social services few and far between, if they are accessible at all.

Others always dreamed of travel and immersing themselves in other cultures. And still others could afford to stay in the U.S. but realized how much more they could get for their money abroad. 

There are drawbacks, of course. The retirees, in most of the cases, families are in the states, so they need to plan trips to see each other. The cultural differences can be difficult to manage, at least at first. There’s not the same level of individual wealth in Europe as in the U.S.  The typical salary is far lower than the six-figure jobs you can find in the states. And of course, the income tax burden is much higher. 

But the standard of living is much better for a wider swath of the population than it is in the U.S. There are the small things, like fresher, less expensive groceries and concert tickets being much more affordable and accessible. And then there are the larger benefits, like months of paid maternity leave, inexpensive secondary education, and affordable health care.

Some technologies are so compelling that they quickly take on a life of their own. Generative AI (gen AI) introduced in late 2022 made the leap from the laboratory to the mainstream.  By the first quarter of 2023, big technology companies were integrating gen AI capabilities into their own products and offering programmatic access to generative models for business customers. A year on, gen AI is making its mark in multiple industries, including those that have traditionally taken a relatively conservative approach to the adoption of emerging technologies—credit risk, for example.

McKinsey recently surveyed senior credit risk executives from 24 financial institutions, including nine of the top ten US banks. And asked these executives about their organizations’ adoption of gen AI, its current use cases, their future plans for it, and the challenges they expected.

Twenty percent of the respondents have already implemented at least one gen AI use case in their organizations, and a further 60 percent expect to do so within a year. Even the most cautious of these executives believe that gen AI will be part of their companies’ credit risk processes within two years.

Survey revealed several potential use cases for gen AI in credit risk including in client engagement, during credit decision and underwriting processes, in portfolio monitoring, and in customer assistance processes.

Gen AI has arrived in the credit risk world but has yet to transform it. Executives surveyed were candid about the current state of their gen AI use cases, which are mostly narrow, noncustomer-facing solutions addressing specific operational pain points.

Executives acknowledge that scaling up the application of gen AI in credit risk will be challenging. The most significant barriers, highlighted by 75 percent of our respondents, concern risk and governance. 

To capture the full potential of gen AI in credit risk, financial institutions must move beyond today’s ad hoc approach and develop a common set of practices to prioritize, develop, deploy, maintain, and reuse gen AI applications. Eight such practices are essential: establish an AI road map, aligned processes for building gen AI tools; build a secure, gen AI-ready technology stack; integrate with enterprise-grade foundation models and tools; initiate Robust automated supporting tools; a governance and talent model that can deploy cross-functional expertise to support gen AI development; develop a modular solution architecture; and finally product of these practices should be a library of production-ready, reusable gen AI services and solutions.

As a company matures, it can become clear that the CMO’s leadership skills and abilities no longer align with the organization’s needs — which could spell the end of the CMO’s tenure.

The authors interviewed 100 company leaders to understand how CMO roles and marketing functions should be organized at different stages of growth (from series A to IPO). What the study found was surprising: The skills and abilities that make a CMO well suited to leading an early-stage company are quite different from those a company needs as it grows. The study identified three key points at which organization-level marketing changes: Series A (the early stage), Series B-D (the developing stage), and Series E-IPO (the mature stage).

Assuming that a CMO has the skills and knowledge to succeed as a business matures through different growth stages is a mistake. What makes a CMO successful at an early-stage company may, in fact, limit their success at the company’s mature stage unless there is an intervention to upskill them.  For example, at the early stage, organizations need a scrappy, nimble, roll-up-your-sleeves CMO who can go from creating content to pulling together and delivering an investor presentation. These CMOs often wear multiple hats, shifting from content creator to CMO to project manager to analyst as needed, and are capable of stepping into and executing any number of roles. Marketing operations are often less structured and less routinized compared with other business functions, making it imperative that the CMO is flexible and can adapt to rapid change. 

However, as companies grow (the developing stage), they need scale experts who are better equipped to help the marketing function become more structured and systematic. At this stage, it needs processes and repeatable systems that support scale. CMOs need skills associated with designing and engineering routines, systems, and processes that enable more consistent and efficient implementation of programs. This requires planning and structure and less ad hoc leadership.

As businesses mature further, CMOs need the ability to lead a more sophisticated organization with more layers and a broader remit. They shift to becoming a leader rather than a doer — or, metaphorically, they become more of an orchestra conductor versus a soloist. In addition to being capable of strengthening the processes to ensure repeatably efficient and effective operations, they also are adept at reorganizing, hiring, and developing talent to drive sustainable, profitable growth. They serve as general architects of the marketing function, adapting it to meet the changing needs of the company and “professionalizing” operations.

Leaders can take these three key actions to help ensure that CMOs can succeed as the business grows:  prepare and upskill the CMO, resetting the expectations from CMO role, and hire somebody with a proven track record at companies in that stage.

To get what you want and meet all of your career priorities, you need to “design” your career and not just follow what everyone else is doing or even what the company initially demands. You can have a vibrant career and still set boundaries around your work and life. Here are four ways to design your career to prevent remote work from slowing you down:

1. Look for success stories to emulate.  Knowing that you can have both career growth and work-life balance is the very first step, so you’ll stick to what you want and not just fold at the first sign of pushback. Look for other colleagues who work remotely and manage to get promoted, stay visible and stay marketable.   Keep in mind that, if all the people who advance are people who work mainly onsite, you might have a company culture that prioritizes face time. This doesn’t mean all companies demand face time, so this is something you can specifically look for in your next opportunity. However, if you want to stay at your current employer and grow within, make sure you can find precedent for both the remote work and career growth you want.
2. Define what growth means to you.  Career growth can mean increasing visibility around the company, expanding scope of responsibilities (aiming for the C-suite?), more resources (e.g., team, budget), a supportive network, and /or new skills, expertise and experience to add to your background. Over time, a healthy career should show all of these things, but you can’t focus on everything all at once. How do you want to grow your career in the next one to two years?  Depending on your immediate career growth priorities, you can then figure out how to make progress while working remotely. To increase your visibility, you’ll need to be proactive about getting virtual access to meetings and scheduling time with decision-makers since you won’t just bump into them on a typical workday. If you need to expand your role or resources assigned to you, this is something to specifically ask for and negotiate with your manager and other higher-ups. If your network is thin, perhaps you have only developed relationships within your department, then you’ll need to book time with people outside your department. If growth means learning new skills, broadening your expertise or acquiring different experience, then work with your manager to outline what exactly you need to learn and how you will do that.
3. Identify and mitigate career risks.  Remote work carries the risk that you’re out of sight and therefore out of mind. Leaders forget about you when it comes time to dole out career-making assignments or simply to save your job in a restructuring. However, that out-of-sight risk can be mitigated by nurturing your network and maintaining your visibility. Block time on your calendar to prioritize these relationships. Raise your hand to present at meetings or to ask an insightful question – you won’t fade as easily into the virtual background if you’re the one leading the discussion.
4. Match decisions to your personal situation.  There is no one-size-fits-all career decision. Remote work takes you out of the office where decisions are made and work gets noticed, so there is some risk in increasing your remote days while you’re pushing on your career. You can put in extra work to get your career visibility back up or repair relationships that weaken in your absence, but you can’t recoup the family time that you miss while working.  When figuring out tradeoffs between work and life, always consider the timing of your decisions.

Why is it so hard for some of the world’s most powerful leaders to pass on the torch?  Succession across any generation can be done well (which largely goes unreported) or disastrously (which makes juicy news). But succession is never simple. What separates succession success from failure? One of the most important factors is the incumbent leader’s ability to let go.

For leaders whose identity is inextricably intertwined with their work, that’s no small feat. That’s partly because of the trajectory of a powerful career. While leaders may feel consistent growth and impact during the years, those who rise to the very top often hit an important inflection point toward the end of their career–a high-impact zone when they are the top dog–CEO, managing partner, or possibly president. It’s then when leaders can have the largest and most lasting impact on the people, institutions, and communities they care deeply about.  But at the same time, leaders at that apex also sense that the clock is ticking on how much time they have left to make that impact. With the opportunity to make a lasting impact and not much time, the urge to control what they care so deeply about becomes profound.

It’s all about control.  Control can manifest in two forms: negative and positive. On the negative side, we know leaders who believe they can find ways to continue to control the people, the direction, the priorities, and values of the institution–even after they’re gone. This control often manifests in positional power–“I will not give up my seat”–even when it’s clear that a younger leader might be best for the institution.  Trying to find ways to extend such control is most often highly destructive, not least because it takes away the agency of the next generation of leaders to lead the institutions in the manner they see best.  If the leader holds on too long, they tend to become increasingly isolated, limited to a few family members and advisers who have a stake in the leader’s holding on to power. None of this is the recipe for a healthy, enduring family business in the long run.

By contrast, the most successful leaders direct their psychological need for control to things they can positively control: themself, their boundaries with others, and their job. This is not referring to a particular job title, but “job to be done,” which involves deep insight into what problem or struggle customers most need help solving. That’s not necessarily the same as what the leader most wants to do. The best leaders we see actively choose to retool what they care about at the end of their careers in a way that offers the most value to their customers.  Successful succession requires leaders to give up what they care most about.  Such leaders reset boundaries with others. They see the value in letting the next generation of leaders find their own path. If the leaders have mentored well, the next generation will be fine. 

Finally, in contrast to holding on to their seats, successful leaders change their jobs. They can continue to add enormous value to the institution they care about, but perhaps from a different vantage point. These hyper-successful people often are unrelenting problem solvers, whose skills can be channeled into other important roles. As life proceeds, leaders must reconsider and renew who their most important customers are and what job their customers hire them to do.

As costs rose over the last two years, companies across the globe have worked to protect their profit margins by increasing prices. For new small business owners, this has created several challenges, and many consumers are still facing the pressures as wages haven’t kept pace with inflation rates.  Many companies realize they need to be more competitive with their pricing to retain and attract new customers. For small business owners, defining the right pricing strategy can feel overwhelming.   Some tips to help you find the right pricing balance.

1. Determine your value.  Within any market, it’s essential to analyze how valuable your product is compared to others. For instance, did you use better materials, or are you solving a problem that no other product can? If so, your value may be higher than any other brand can offer, so you might be able to set a higher price. 
2. Review your customer base.  Knowing who your customers are is an essential function of any business, and it’s particularly important for pricing. For instance, are you catering to people who purchase high-end goods? Are you targeting people who are more likely to value a bargain? By performing customer research, you’ll know how to set prices better.
3. Evaluate pricing potential.  It’s important to determine exactly how much you could charge for any product. This doesn’t mean you will charge that amount, but by considering factors including your customer base, your competition and the cost to produce your product, you can determine the high end of your pricing potential.
4. Determine a price range.  You’ll need to know the minimum price you can charge for a product and still make money — the low end of your range — as well as the high point based on customer research. Once you’ve determined a range, you can adjust your prices based on peak buying seasons, discount opportunities and other factors.
5. Evaluate the competition and industry.  Your competition can provide guidance when it comes to pricing strategies. Within each industry, there are standard markups or profit margins that are typically recognized as normal ranges. Evaluating these can help small business owners understand if their costs are too high or low relative to their sales price.
6. Gather feedback from customers.  The sales volume you generate will give you insight into if you’re pricing fairly, but if you need more data, it’s always wise to talk to your customers. By providing opportunities for surveys, reading reviews or conducting direct outreach, you’ll better understand what matters to your customers and if they see value in your product.
7. Be transparent.  Consumers often want to support companies they believe are trustworthy. Shady pricing and hidden fees can damage a relationship with your customers, so it’s best to be upfront and transparent about your product pricing. If sharing your price scares away customers, it’s a good indication that you need to revisit your pricing strategy or do a better job of demonstrating the product’s value.