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WHATS NOW AND NEXT IN ANALYTICS,

AI, AND AUTOMATION


BRIEFING NOTE MAY 2017

Innovations in digitization, analytics, artificial intelligence,


and automation are creating performance and productivity
opportunities for business and the economy, even as they
reshape employment and the future of work.
Over the past few years, rapid technological how the leaders in the private and public sector as
advances in digitization and data and analytics well as workers will adapt to the impact on jobs,
have been reshaping the business landscape, capability-building and the nature of work itself.
supercharging performance and enabling the
emergence of new business innovations and new 1. THE OPPORTUNITY AVAILABLE NOW
forms of competition and business disruption. Yet Some companies are gaining a competitive edge
progress has been uneven. While many companies with their use of data and analytics, which can
struggle to harness the power of these technologies, enable faster and larger-scale evidence-based
companies that are fully leveraging the capabilities decision making, insight generation, and process
are capturing disproportionate benefits, transforming optimization. But the opportunity-capture is uneven,
their businesses and outpacingand occasionally and there is both room to catch up and to excel.
disruptingthe rest. Harnessing digitizations potential is similarly uneven.

At the same time the technology itself continues to Data and analytics are now widely acknowledged
evolve rapidly, bringing new waves of advances in as transformational, yet many companies are
robotics, analytics, and artificial intelligence (AI), and capturing only a fraction of their value
especially machine learning. Together they amount to Data and analytics have been changing the basis
a step change in technical capabilities that could have of competition in the years since our first report on
profound implications for business, for the economy, big data in 2011. Leading companies are using their
and more broadly for society as a whole. Machines capabilities not only to improve their core operations
today increasingly match or outperform human but also to launch entirely new business models.
performance in a range of work activities, including The network effects of digital platforms are creating
ones that require cognitive capabilities, learning, a winner-take-most dynamic in some markets.
making tacit judgments, sensing emotion, and even Yet while the volume of available data has grown
drivingactivities that used to be considered safe exponentially in recent years, most companies are
from automation. Adoption of these technologies capturing only a fraction of the potential value in terms
could bring significant new performance and of revenue and profit gains.
transformational benefits to companies that go
beyond simply substituting labor and lead to We recently revisited the five large sectors we
previously unimagined breakthrough performance focused on in our 2011 big data research and found
and outcomes. Moreover, they have the potential that only two of themlocation-based services and
to boost the productivity of the global economy at retailhad made progress in capturing the benefits,
a time when it is sorely needed for growth and the in part because of competition from digital native
share of the working-age population is declining. companies. The three other sectorsmanufacturing,
Yet their advent raises difficult questions about how the public sector, and healthcarehad captured
companies can best prepare for and harness these less than 30 percent of the potential value
technologies, the skills and organizational reinvention highlighted previously.
that will be required to make the most of them, and

McKinsey Global Institute Whats now and next in analytics, AI, and automation 1
Effective data and analytics transformations have McKinsey survey of more than 500 executives
several components. The first step should be asking representing companies across the spectrum of
fundamental questions to shape the strategic vision: industries, regions, and sizes, more than 85 percent
What will data and analytics be used for? How will the acknowledged that they were only somewhat
insights drive value? Which data sets are the most effective at meeting goals they set for their data and
useful for the insights needed? The second element is analytics initiatives.
solving for the problems in the way data is generated,
collected, and organized. Many incumbents struggle Data and analytics are already disrupting
to switch from legacy data systems to a more nimble business models and bringing performance
and flexible architecture that can get the most out of benefitsand this process is still early, with
big data and analytics. They may also need to digitize more to come
their operations more fully in order to capture more Disruptive data-driven models and capabilities are
data from their customer interactions, supply chains, reshaping some industries, and could transform
equipment, and internal processes. The third piece many more. Certain characteristics of a given market
is acquiring the skills needed to derive insights from (such as inefficient matching of supply and demand
data; organizations may choose to add in-house underutilized assets, dependence on demographic
capabilities or outsource to specialists. The fourth data when behavioral data is now available, and
component is a common stumbling block: changing human biases and errors) open the door to disruption
business processes to incorporate data insights into by those using new data-driven approaches. Several
the actual workflow. This requires getting the right archetypes of that disruption are highlighted in
data insights into the hands of decision-makers and Exhibit 1. They point to opportunities that leaders
making sure that these executives and mid-level should addressand that competitors will target.
managers know how to use data-driven insights.
In industries where most incumbents have become
Putting all these components in place is not easy. used to relying on standardized data to make
Many companies seeking to extract value from decisions, bringing in fresh types of data sets
data and analytics struggle to incorporate data- (orthogonal data) to supplement those already
driven insights in their daily business. In a recent in use can change the basis of competition. We

Exhibit 1: Data and analytics underpin six disruptive models, and certain characteristics make individual
domains susceptible

Archetype of disruption Domains that could be disrupted


Indicators of potential
for disruption
Business models
Insurance
enabled by Healthcare
orthogonal data Human capital/talent
Assets are underutilized due to
inefficient signaling Transportation and logistics
Hyperscale,
Supply/demand mismatch real-time matching
Automotive
Smart cities and infrastructure
Dependence on large amounts
of personalized data
Radical Healthcare Media
Data is siloed or fragmented personalization Retail Education
Large value in combining data
from multiple sources Massive Banking Public sector
data-integration
R&D is core to business model capabilities Insurance Human capital/talent

Decision making is subject to


human biases Life sciences and pharmaceuticals
Data-driven Material sciences
discovery
Speed of decision making limited Technology
by human constraints

Large value associated with Enhanced decision Smart cities Insurance


improving accuracy of prediction making Healthcare Human capital/talent

Source: McKinsey Global Institute analysis

2 McKinsey Global Institute Whats now and next in analytics, AI, and automation
Exhibit 2: The extent of digitization varies by company, with a large gap between digital leaders and the rest

Digital Quotient1 score, sample of large corporations


Established
84 Emerging
Medium
74 Low

64

54
Average
44 = 34

24

14

1 By evaluating 18 practices related to digital strategy, capabilities, and culture, McKinsey has developed a single, simple metric for the
digital maturity of a company.

Source: McKinsey Digital Quotient company survey, 201415; Tanguy Catlin, Jay Scanlan, and Paul Willmott, Raising your Digital Quotient,
McKinsey Quarterly, June2015, McKinsey.com

see this playing out for example in property and workforces grow revenue and market shares
casualty insurance, where new companies have faster than peers. They improve profit margins
entered the marketplace with telematics data that three times more rapidly than average and, more
provides insight into driving behavior, beyond often than not, have been the fastest innovators
the demographic data that had previously been and the disruptors in their sectorsand in some
used for underwriting. One of the most powerful cases beyond them. These are the digital leaders
uses is micro-segmentation based on behavioral operating on the digital frontier. Its not that the rest
characteristics of individuals. This is changing the are not doing anything digitalwhich company
fundamentals of competition in many sectors, doesnt have a digital initiative these days? Rather,
including education, travel and leisure, media, retail, the point is that, compared with the leaders, the
and advertising. rest are significantly behind in their use of digital
capabilities for competitive advantage. Many
Digitization, more broadly, is also progressing of these top performers were born digital, but
unevenly among companies, sectors, and perhaps more impressive are the smaller set of
economies and leaders are reaping benefits incumbent companies that have actively transformed
The corporate worlds broader embrace of themselves into digital leaders and benefit doubly
digitization is similarly uneven. Our use of the from their traditional strengths and their new
term digitization (and our measurement of it), digital capabilities.
encompasses (1) digitization of assets, including
infrastructure, connected machines, data, and There are also disparities between sectors in terms
data platforms, etc., (2) digitization of operations, of degree of digitization. In the United States, the
including processes, payments and business information and communications technology (ICT)
models, customer and supply chain interactions and sector, media, financial services, and professional
(3) digitization of the workforce, including worker services are surging ahead, while utilities, mining,
use of digital tools, digitally skilled workers, new and manufacturing, among others, are in the early
digital jobs and roles. In measuring each of these stages of digitizing. In labor-intensive industries such
various aspects of digitization, we find relatively large as retail and healthcare, substantial parts of their
disparities even among big companies (Exhibit 2). large workforces do not use technology extensively
(Exhibit 3). These differences matter because the
Our research finds that companies with advanced least digitized sectors tend to be the larger sectors in
digital capabilities across assets, operations and the economy and often the relatively low productivity

McKinsey Global Institute Whats now and next in analytics, AI, and automation 3
Exhibit 3: The extent of digitization varies by sector

MGI Sector Digitization IndexUS example Relatively low Relatively high


2015 or latest available US data digitization digitization
Digital leaders within relatively undigitized sectors

Assets Usage Labor


Digital- Digital Digital
Overall Digital asset Trans- Inter- Business Market spending capital Digitization
Sector digitization spending stock actions actions processes making on workers deepening of work
ICT1
Media 1
Professional services
Finance and insurance
Wholesale trade
Advanced manufacturing
Oil and gas
Utilities
Chemicals and pharmaceuticals 2 4
Basic-goods manufacturing
Mining
Real estate
Transportation and warehousing
Education
5
Retail trade
3
Entertainment and recreation
Personal and local services
Government
Healthcare
6
Hospitality
Construction
Agriculture and hunting

1 Relatively small, knowledge-intensive 4 B2B sectors, with potential to digitally


sectors, highly digitized engage and interact with customers
and users
2 Large, capital intensive, potential to
further digitize assets and expand 5 Large, labor intensive, with potential to
productivity digitally enable workforce, transform,
and increase productivity
3 Large service sectors, with long tail
of small firms having room to digitize 6 Large, localized, low productivity, could
customer transactions transform for productivity and delivery
of services

1 Information and communications technology.

Source: Appbrain; BEA; BLS; Bluewolf; Computer Economics; eMarketer; Gartner; IDC; industry-expert interviews; Live Chat customer
satisfaction report; McKinsey Payments Map; McKinsey social technology survey; US Census; US contact center decision-makers guide;
McKinsey Global Institute analysis

sectors with relatively lower wage growth. These while Germany and Italy are at 10 percent. Emerging
sectors thereby represent an opportunity to increase economies are even further behind, with countries
sector level as well as economy-wide productivity in the Middle East and Brazil capturing less than 10
growth, at a time when it is sorely needed for percent of their digital potential.
economic growth.
Digitization is transforming globalization,
This unevenness can also be observed across creating opportunities for companies and
countries; all have significant room to increase their economies
digitization. The US economy as a whole is reaching The world is more connected than ever, but
only 18 percent of its digital potential, but still ahead of the nature of its connections has changed in a
European countries. France has achieved 12 percent fundamental way. The volume of cross-border data
of its digital potential, the European Union average, flows has grown 45 times larger since just 2005. It

4 McKinsey Global Institute Whats now and next in analytics, AI, and automation
is projected to increase by an additional nine times crunching required for machine learning at speeds
over the next five years, as flows of information, many times faster than traditional processor chips.
searches, communication, video, transactions, More silicon-level advances beyond the current
and intra-company traffic continue to surge. As generation of GPUs are already emerging, such as
well as transmitting valuable streams of information tensor processing units. This compute capacity
and ideas in their own right, data flows enable the has been aggregated in hyper-scalable data
movement of goods, services, finance, and people. centers and is being made much more accessible
Virtually every type of cross-border transaction to users through the cloud. Third, massive amounts
now has a digital component. Approximately 12 of data that can be used to train machine learning
percent of the global goods trade is conducted via models are being generated, for example through
international e-commerce, with much of it driven by daily creation of billions of images, online click
platforms such as Alibaba, Amazon, eBay, Flipkart, streams, voice and video, mobile locations, and
and Rakuten. Beyond e-commerce, digital platforms sensors embedded in the Internet of Things. The
for both traditional employment and freelance combination of these breakthroughs has led to
assignments are beginning to create a more global spectacular demonstrations like DeepMinds
labor market. Some 50 percent of the worlds traded AlphaGo, which defeated a human champion of the
services are already digitized. These transformations complex board game Go in March 2016. With each
enable small and medium-sized enterprises around passing month, new milestones are being achieved
the world to compete head to head with larger in numerous areas, often with performance beyond
industry incumbents. human capabilities. In 2016, for example, Googles
DeepMind and the University of Oxford applied
2. THE NEXT WAVE OPPORTUNITY THAT IS deep learning to a huge data set of BBC programs
FAST EMERGING to create a lip-reading system that is more accurate
Coming over the horizon is a new wave of opportunity than a professional lipreader.
related to the use of robotics, machine learning, and
AI. Companies that deploy automation technologies To be clear, formidable technological challenges
can realize substantial performance gains and must still be overcome before machines can match
take the lead in their industries, even as their efforts human performance across the range of cognitive
contribute to economy-level increases in productivity. activities. One of the biggest technical challenges is
for machines to acquire the capability to understand
Advances in robotics, AI, and machine learning and generate natural languagecapabilities that
herald a new era of breakthrough innovation are indispensable for a multitude of work activities.
and opportunity Digital personal assistants such as Apples Siri,
Recent advances in robotics, machine learning, Amazons Alexa, and Google Assistant, are still
and AI are pushing the frontier of what machines in developmentand often imperfecteven
are capable of doing in all facets of business and though their progress is palpable for millions of
the economy. Physical robots have been around smartphone users.
for a long time in manufacturing, but more capable,
more flexible, safer, and less expensive robots are Harnessing these evolving technologies will
now engaging in ever expanding activities and unlock multiple benefits for companies beyond
combining mechanization with cognitive and learning labor substitution
capabilitiesand improving over time as they are For companies, successful adoption of these
trained by their human coworkers on the shop floor, evolving technologies will significantly enhance
or increasingly learn by themselves. performance and can be a critical competitive
advantage and differentiator. Some of the gains
The idea of AI is not new, but the pace of recent will come from labor substitution, but automation
breakthroughs is. Three factors are driving this also has the potential to enhance productivity, raise
acceleration: First, machine-learning algorithms have throughput, and improve predictions, outcomes,
progressed in recent years, especially through the accuracy, and optimization, as well expand the
development of deep learning and reinforcement- discovery of new solutions in massively complex
learning techniques based on neural networks. areas such as synthetic biology and material
Second, exponentially increasing computing science. Adoption will also improve quality and
capacity has become available to train larger and safety, and provide opportunities to create new
more complex models much faster. Graphics business modelsand it could unlock the otherwise
processing units (GPUs), originally designed to unlikely combination of scale and agility, creating
render the computer graphics in video games, have the ability to propagate changes across an entire
been repurposed to execute the data and algorithm organization instantaneously.

McKinsey Global Institute Whats now and next in analytics, AI, and automation 5
Exhibit 4: Machine learning has broad potential across industries and use cases

Agriculture Automotive Consumer Energy


Finance Healthcare Manufacturing Media
Pharmaceuticals Public/social Telecom Travel, transport,
Volume and logistics
Breadth and frequency of data
Lower priority Higher potential
10
Identify Personalize
fraudulent financial Personalize
9 advertising
transactions products
8 Identify and
Personalize crops to Discover new navigate roads
7 individual conditions consumer trends
Predict personalized
6 health outcomes
5 Optimize merchandising strategy Optimize pricing
and scheduling
4 in real time
Predictive
maintenance Predictive
3
(manufacturing) maintenance
(energy)
2
Diagnose diseases
1
Optimize clinical trials Case by case

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9
Impact score

Already today, a range of automation technologies some of this value, non-labor performance benefits
is generating real value. Rio Tinto, for example, are considerable in every case.
has deployed automated haul trucks and drilling
machines at its mines in Pilbara, Australia, and says AI and Automation will provide a much-needed
it is seeing 1020 percent increases in utilization boost to global productivity and may help some
there. Google has applied artificial intelligence from moonshot challenges
its DeepMind machine learning to its own data The application of AI and the automation of activities
centers, cutting the amount of energy they use by 40 can enable productivity growth and other benefits
percent. In financial services, automation in the form not just for businesses, but also for entire economies.
of straight-through processing, where transaction Economic growth over the last 50 years has been
workflows are digitized end-to-end, can increase the driven equally by growth in productivity and growth
scalability of transaction throughput by 80 percent, in labor supply. No longer. Demographic effects,
while concurrently reducing errors by half. such as aging and falling birth rates, are now set
to dramatically slow the growth in labor supply. To
Furthermore, a plethora of machine learning pick up the slack, productivity growth will need to
business use cases are emerging across sectors. increase sharply to sustain economic growththis
These include a larger number that involve significant at a time when productivity growth has been less
value at stake and potential for impact in sectors than stellar in most economies. At a macroeconomic
where much of the data needed for machine learning level, based on our scenario modeling, we estimate
is rapidly becoming available (Exhibit 4). automation alone could raise productivity growth on
a global basis by 0.8 to 1.4 percent annually. In short,
Scenarios we developed for several settings, businesses and the economy need the productivity
including a hospital emergency department, aircraft boost from automation.
maintenance, oil and gas operations, a grocery store,
and mortgage brokering, show that the value of the AI and other technologies can also be broadly
potential benefits of automationcalculated as a beneficial for society by helping tackle some
percentage of operating costscould range from moonshot challenges, including climate change
between 10-15 percent for a hospital emergency or curing disease. AI is already being deployed in
department to 25 percent for aircraft maintenance, synthetic biology, cancer research, climate science,
and to more than 90 percent for mortgage and material science. For example, researchers
origination. While labor substitution accounts for at McMaster and Vanderbilt Universities have
used computers to exceed the human standard in

6 McKinsey Global Institute Whats now and next in analytics, AI, and automation
Exhibit 5: Some activities have higher technical automation potential

81
Time spent on activities that can be automated
69
by adapting currently demonstrated technology, 64
%

26
18 20
9

Time spent in all


7 14 16 12 17 16 18
US occupations,
%
Manage1 Expertise2 Interface3 Unpredictable Collect data Process data Predictable
physical4 physical5
Total wages in US, 596 1,190 896 504 1030 931 766
2014, $ billion
Most susceptible activities
51% of US wages
$2.7 trillion in wages
1 Managing and developing people.
2 Applying expertise to decision making, planning, and creative tasks.
3 Interfacing with stakeholders.
4 Performing physical activities and operating machinery in unpredictable environments.
5 Performing physical activities and operating machinery in predictable environments.
Source: US Bureau of Labor Statistics; McKinsey Global Institute analysis

Exhibit 6: Some sectors have more automatable activities than others


Size of bubble indicates % of Ability to automate, %
time spent in US occupations
0 50 100

Unpredictable Collect Process Predictable Automation


Sectors by activity type Manage Expertise Interface physical data data physical potential, %
Accommodation and
food services 73
Most automatable

Manufacturing 60
Transportation and
warehousing 60
Agriculture 57
Retail trade 53
Mining 51
Other services 49
Construction 47
In the middle

Utilities 44
Wholesale trade 44
Finance and insurance 43
Arts, entertainment,
and recreation 41
Real estate 40
Administrative 39
Least automatable

Healthcare and social 36


assistances
Information 36
Professionals 35
Management 35
Educational services 27

Source: US Bureau of Labor Statistics; McKinsey Global Institute analysis

McKinsey Global Institute Whats now and next in analytics, AI, and automation 7
predicting the most effective treatment for major a small proportion of all occupations, about 5
depressive disorders and eventual outcomes of percent, consist of 100 percent of activities that are
breast cancer patients. fully automatable using currently demonstrated
technologies. However, we find that about
3. WHAT ABOUT EMPLOYMENT AND WORK? 30 percent of the activities in 60 percent of all
The advent of a new automation age is raising public occupations could be automated (Exhibit 8). This
concerns about the effect on employment and means that many workers will work alongside rapidly
the future of work. For most occupations, partial evolving machines, which will require worker skills
automation is more likely than full automation in the also to evolve. This rapid evolution in the nature of
medium term, and the technologies will provide new work will affect everyone from welders to landscape
opportunities for job creation. gardeners, mortgage brokersand CEOs; we
estimate about 25 percent of CEOs time is currently
About half the activities carried out by workers spent on activities that machines could do, such as
today have the potential to be automated analyzing reports and data to inform decisions.
The employment implications of automation are
challenging for business, governments and workers Several key factors will influence the pace and extent
alike. To assess the implications, we focused on of automation. These include (1) technical feasibility
work activities rather than whole occupations as a of automation, a critical first step that will depend
starting point. We consider work activities to be a on sustained breakthrough innovation, but alone is
useful measure since occupations are aggregations not sufficient; (2) cost of developing and deploying
of different activities, where each discrete activity has solutions; (3) labor market dynamics, including
a different potential for automation. For example, a supply and demand, and costs of human labor as an
retail salesperson will spend some time interacting alternative to automation; (4) business and economic
with customers, stocking shelves, or ringing up benefits, not merely labor substitution benefits but
sales. Each activity is distinct and requires different also benefits from new capabilities that go beyond
capabilities to perform successfully. In addition we human capabilities; (5) regulatory, user and social
bounded our assessment by considering currently acceptance, which can affect the rate of adoption
demonstrated (rather than theoretical) capabilities in even when deployment makes business and
AI and automation technologies. economic sense. A useful analogy to consider is that
electric vehicles were demonstrated to be technically
Activities that are more easily automatable include feasible several decades ago, but it was not until
physical activities in highly predictable and structured factors like (2)-(5) above became realistic that they
environments, as well as data collection and data showed up on the road.
processing (Exhibit 5). These activities account for 51
percent of wages in the US economy and exist across While the macro-advance of automation might
the entire spectrum of sectors, though they are more appear slow across entire sectors or economies, the
prevalent in sectors such as accommodation and effects may be quite fast at a micro level for particular
food service, manufacturing, transportation and occupations and sectors, especially where the costs
warehousing, and retail trade (Exhibit 6). and benefits are compelling, and social acceptance
and utility is high. This is already the case in some
Our analysis of the automation potential extends to micro-cases, for example the use of personal
46 countries representing about 80 percent of the AI-enabled agents on smart devices such as Apples
global workforce. Overall, we estimate that about Siri and Amazons Alexa.
half of the activities that people are paid almost
$15 trillion to do in the global economy have the Technology will also help create new jobs and
potential to be automated by adapting currently new opportunities for generating income, and
demonstrated technology. Four economiesChina, will help labor markets function better
India, Japan, and the United Statesaccount for Have we seen this movie before? Certainly. The
just over half of the total wages and almost two- scale of shifts in the labor force, over the many
thirds the number of employees associated with decades of automation that are now likely beginning,
activities that are technically automatable. There are is of a similar order of magnitude to the long-term
sizable differences in automation potential between technology-enabled shifts in developed countries
countries, based mainly on the structure of their as most workers moved from farms to factories
economies, the relative level of wages, and the size and service jobs. Those shifts did not result in
and dynamics of the workforce (Exhibit 7). long-term mass unemployment because they were
accompanied by the creation of new types of work
Looking across skill and wage categories, it is not foreseen at the time. We cannot definitively say
clear that all occupations will be affected. Only whether historical precedent will be repeated this

8 McKinsey Global Institute Whats now and next in analytics, AI, and automation
Exhibit 7: All countries could be affected by automation

Automatability across economies


Employee weighted overall % of activities that can be automated
Employee weighted overall % of activities
that can be automated by adapting
currently demonstrated technologies

<45 4547 4749 4951 >51 No data

Technical automation potential is concentrated in countries with the largest populations and/or high wages
Potential impact due to automation, adapting currently demonstrated technology (46 countries)

s s
trie trie
un un
C
co

hin
o
gc

Labor Wages
ing

a
Ch

inin
ain

associated associated
ina

Rema
Rem

with technically with technically


automatable activities automatable activities

100% = 100% =

1,156 $14.6
India
Japan

million FTEs trillion


pa
5 ine1
Bigurop

Ja

Un
E

ite
tes pe 1 dS
Stanited Euro in tates
U India 5
Big

1 France, Germany, Italy, Spain, and United Kingdom.

Source: EMSI database; Oxford Economics forecasts; US Bureau of Labor Statistics; McKinsey Global Institute analysis

McKinsey Global Institute Whats now and next in analytics, AI, and automation 9
Exhibit 8: While few occupations are fully automatable, 60 percent of all occupations have at least
30 percent of activities that are technically automatable

Automation potential based on demonstrated technology of occupation titles in the United States

Share of roles, %
Example occupations 100% = 820 roles

100 1 While about 5% of occupations


Sewing-machine
operators could have close to 100% of tasks automated
>90 8
Assembly line
workers
>80 18
Technical automation potential, %
Stock clerks >70 26
Travel agents
more occupations
Dental technicians >60 34
will have portions of their

>50 42 tasks automated, e.g.


Bus drivers 60% of occupations could have
Nursing assistants >40 51 30% of tasks automated
Web developers
>30 62

>20 73
Fashion designers
Chief executives
>10 91
Psychiatrists
Legislators >0 100

time. But our analysis shows that humans will still be searching between jobs, reducing unemployment.
needed in the workforce. So even while technologies By aggregating data on candidates and job openings
replace some jobs, they are creating new work in across entire countries or regions, they may address
industries that most of us cannot even imagine, as some geographic mismatches and enable matches
well as new ways to generate income and match that otherwise would not have come about. Finally,
talent to jobs. One third of new jobs created in the online talent platforms help put the right people in
United States in the past 25 years were types that the right jobs, thereby increasing their productivity
did not previously exist, or barely existed, in areas along with their job satisfaction. They can draw
including IT development, hardware manufacturing, people who are engaged in informal work into formal
app creation, and IT systems management. The employment, especially in emerging economies.
growing role of big data in the economy and business Both of these effects could increase output per
will create a significant need for statisticians and worker, raising GDP.
data analysts, for example; we estimate a shortfall of
up to 250,000 data scientists in the United States in While independent work is nothing new (and self-
a decade. employment is still the predominant form of work
in emerging economies), the digital enablement
Technology helps work in other ways. Digital talent of it is. The modern 9-to-5 job, which dates back
platforms such as LinkedIn have already begun to to the Industrial Revolution, is being challenged
improve the matching of workers with jobs, creating by technology-enabled independent work. Our
transparency and efficiency in labor markets, and research finds that 20 to 30 percent of the working
thereby raising GDP. While it is early days, there is age population in the United States and the European
already evidence that such platforms can raise labor Union is engaged in independent work. Just over
participation and working hours. With their powerful half of these workers supplement their income and
search capabilities and sophisticated screening have traditional jobs, or are students, retirees, or
algorithms, online talent platforms can also speed caregivers. While 70 percent choose this type of
the hiring process and cut the time individuals spend work, 30 percent turn to it out of necessity because

10 McKinsey Global Institute Whats now and next in analytics, AI, and automation
they cannot find a traditional job at all, or one that regardless of industry and sector will likely
meets their income and flexibility needs. The need to assess how distinctive its digital assets
proportion of independent work that is conducted and capabilities are vs. those of competitors.
on digital platforms, while only about 15 percent of Some competitors will bring nothing more
independent work overall, is growing rapidly, driven than world-class versions of these capabilities,
by the scale, efficiency, and ease of use for workers along with different business models, and
and customers that these platforms enable. Such compete effectively.
platforms include Uber, Etsy, Didi, and others. Those
who pursue independent work (digitally enabled Staying calibrated and investing accordingly:
or not) out of preference are generally satisfied, When it comes to digital capabilities and progress
although those who pursue it out of necessity are on digitization initiatives, all too often business
unsatisfied with the income variability and the lack leaders are satisfied with progress vs. their
of benefits typically associated with traditional work. own past. The most relevant calibration will be
Policy makers and innovators will need to grapple relative to (1) the scale of the opportunity and (2)
with solutions to these challenges. vs. competitors and potential disruptors both
from within their sectors and from outside them,
4. WHAT SHOULD LEADERS DO? which is where digitally enabled disruptions often
Business leaders and policy makers have an come from.
imperative: to find ways to harness the potential of
these technologies, even as they will have to address A new focus on human capital, including
the significant challenges. integrating workers and machines: Companies
are likely to face gaps in skills they need in a
Business leaders more technology-enabled workplace, and
For businesses, the opportunities are clear. would benefit from playing a more active role in
Leaders should embrace the transformation and education and training. Partial automation is more
performance opportunities already available to likely than full automation in the near to mid-term,
them (and their competitors) from data, analytics, and humans and machines will need to work
and digitization, as well as the rapidly evolving together much more closely. That will require
opportunities in AI, robotics, and automation. To retraining and often redeploying workers.
harness these benefits, business leaders will not only
have to invest in technology, but also in transforming Policy makers (and business leaders concerned
their organizations. Specific approaches will vary with wider economic and societal implications)
business by business, however several new mindsets Policy makers also have a powerful incentive to
will be critical: embrace the productivity growth opportunity for
their economies that these technologies offer. This
Testing, experimenting, learning, and scaling will help ensure future prosperity, and create the
fast: Beyond book knowledge, business leaders surpluses that can be used to assist workers and
will need to amass practical knowledge from society adapt to these rapid changes. At the same
devoting resources to experiments applying time, policy makers must evolve and innovate policies
technologies to real problems, and then scaling that help workers and institutions adapt to the impact
those that show promise. on employment:

Reimagining business models and business Adopting policies to encourage investment:


processes: To make full use of the power of Through tax benefits and other incentives, policy
analytics, AI, and other digital technologies will makers can encourage companies to invest in
require a thorough reimagining of processes, human capital. Policy makers could accelerate
with priorities for which processes to transform. the creation of jobs in general through stimulating
Similarly, leaders will need to reimagine how investment, and accelerate creation of digital jobs
current business models could be transformed in particular.
and how new business models could be created
based on these capabilities. Encouraging new forms of entrepreneurship
and more rapid new business formation:
Digital assets and capabilities as the new Digitally enabled opportunities for individuals
balance sheet: These assets and capabilities, to earn incomes must be found. In addition,
both hard and soft, are increasingly becoming accelerating the rate of new business formation
a competitive differentiator and platforms for will be critical. This will likely require simplifying
innovation and disruption. Each business regulations, creating tax and other incentives.

McKinsey Global Institute Whats now and next in analytics, AI, and automation 11
Public-private partnerships to stimulate Rethinking income support and safety
infrastructure investment: The lack of enabling nets: If automation (full or partial) does result in
digital infrastructure is holding back the digital a significant reduction in employment and/or
benefits for some emerging economies greater pressure on wages, some ideas such as
and even underserved regions in developed universal basic income, conditional transfers,
countries. Public-private partnerships could help and adapted social safety nets may need to be
address market failures. considered and tested.

Rethinking education, training, and learning: Incent investment in human capital: A broad
Policy makers working with education providers range of incentives exists for businesses to
could do more to improve basic science, invest in R&D or otherwise develop their capital.
technology, engineering, and math (STEM) skills Something similar is needed to encourage
through the school systems, and put a new investment in human capital.
emphasis on creativity as well as critical and
systems thinking.

Author James Manyika is director of the McKinsey Global Institute and a senior partner at McKinsey &
Company, based in San Francisco. MGI partners Michael Chui, Susan Lund, and Sree Ramaswamy
contributed to this briefing note.

References and further reading Paul Willmott, Adapting your board to the digital
For this briefing note, we have drawn on the age, McKinsey Quarterly, July 2016.
following MGI and McKinsey reports. All are
available at mckinsey.com. Paul Willmott, How to scale your own digital
disruption, October 2015.
Big data: The next frontier for innovation,
competition, and productivity, June 2011. Other reading
Autor, David, Why are there still so many jobs?
A labor market that works: Connecting talent with The history and future of workplace automation,
opportunity in the digital age, June 2015. Journal of Economic Perspectives, Summer 2015,
29(3), 3 30.
Playing to win: The new global competition for
corporate profits, September 2015. David Autor, David Dorn, and Gordon Hanson,
Untangling trade and technology: Evidence from
Digital America: A tale of the haves and the have- local labor markets, The Economic Journal, 2015,
mores, December 2015. 125 (May), 621646.
Digital globalization: The new era of global flows, Erik Brynjolffson and Andrew McAfee, The second
March 2016. machine age: Work, progress, and prosperity in a
time of brilliant technologies, W.W. Norton, 2014.
Digital Europe: Pushing the frontier, capturing the
benefits, June 2016. Jason Furman, Is This Time Different? The
Opportunities and Challenges of Artificial
Independent work: Choice, necessity, and the gig
Intelligence, remarks at AI conference in NY, July
economy, October 2016.
7, 2016.
The Age of analytics: Competing in a data-driven
Arun Sundararajan, The sharing economy: The
world, December 2016.
end of employment and the rise of crowd-based
A future that works: Automation, employment, and capitalism, MIT Press, 2016.
productivity, January 2017.

Jacques Bughin, Laura LaBerge, and Anette


Mellbye, The case for digital reinvention,
McKinsey Quarterly, February 2017.

12 McKinsey Global Institute Whats now and next in analytics, AI, and automation