Technology Recommendations 2023
Technology Recommendations 2023
Looking to the future is always a challenging process. While a new year offers an opportunity to consider where to spend your energy with a fresh perspective on strategy and planning, it can be difficult to separate genuine trends from what is merely fashionable. This is especially true when it comes to technology. Think about the excitement around NFTs, crypto and the metaverse at this time last year. By the fall of 2022, NFT markets had dropped 90 percent, a cold winter had set in for crypto, and a vibrant metaverse remained a dream far from reality. Distinguishing genuine innovation from unkeepable promises can determine the difference between a big gain and a costly fiasco.
2023 will be a more conscious year for technology. Geopolitical and economic uncertainties create a need for caution in the next phase of technology evolution. Leaders will need to seek ways to do more with less, find value where innovations intersect, and make strategic investments in technologies reaching tipping points.
As a group of leaders from McKinsey's technology practice, in this article we look at what 2023 might bring and offer a few technology-related new year's resolutions.
Track Combinatorial Trends
Lareina Yee, San Francisco
In 2022 we identified 14 technology trends with the potential to change how we work and live. These included space technologies, clean technology, artificial intelligence and immersive virtual reality technologies. In 2023, the challenge for executives will not just be to identify trends or strengthen software engineering talent. It will also require thinking about the new possibilities these technologies can create when used together, that is, combinatorial trends.
Across many areas in all sectors, from consumer to business, combinatorial trends are creating new and exciting possibilities. Because the number of possible combinations is huge, 'finding the right components' is a key to success. Consider the technologies in a new electric vehicle: cloud and edge computing support the network among vehicles, applied artificial intelligence and machine learning provide autonomous decision making and driving logic, clean energy and sustainable consumption technologies provide the foundation for vehicle electrification. There are also new lightweight composites and advances in battery capacity. Next-generation software technologies enable faster development of customer-facing features and shorter time to market, while trust architectures enable secure data sharing. Taken together, these technologies combine autonomy, connectivity, intelligence and electrification to offer a new future for mobility on earth.
Similarly, new patient-level treatments such as blood-group-based therapies or cell targeting are among other innovations, alongside bioengineering (new treatments based on tissue engineering), immersive virtual reality technologies (remote therapies), web3 (traceability, interoperability and persistent EHR records), applied artificial intelligence and machine learning (advanced image processing, predictive health alerts), and cloud and edge computing (better data access and processing capabilities). The impact we see is not simply additive, but multiplicative.
In 2023 we expect some of these combinatorial approaches to begin to scale. For example, the approach that delivered mRNA vaccines (a combination of genomics, applied artificial intelligence and the industrialization of machine learning) can be applied to other diseases. In addition, we see signs that the combination of more advanced mobility, connectivity and applied artificial intelligence will be applied to economic and logistics problems that are unglamorous but critical for building supply chain resilience. As you plan how to invest in technology next year, try to think holistically and evaluate how different technologies, when working together, can open up new possibilities.
Prepare the Board for Tipping-Point Technologies
Klemens Hjartar, Copenhagen
Game-changing technologies such as 5G, artificial intelligence and the cloud have reached tipping points for mass adoption. According to our research, companies plan to move 60 percent of their IT assets to the cloud by 2025. More than 50 percent of companies report adopting artificial intelligence in at least one function of their business. While boards are busy reining in IT assets, they should remain focused on the risks and opportunities in these major shifts.
To do so, boards must prioritize in the budget the strengthening of IT foundations that provide speed, security, resilience and reusability. Although these are not the most attractive investments, businesses must automate processes, invest in data foundations, clean up technology debt and continuously refresh IT architecture in order to fully benefit from the new technologies being deployed.
Boards are best positioned to advocate for this approach. IT priorities are generally shaped by business units or divisions. Because investments in technology foundations ('IT for IT') benefit the entire enterprise, the board must work with senior management and lead this effort. A rule of thumb: 15 to 20 percent of the IT change budget should be allocated to this foundational strengthening work.
Leaders should not assume that boards will recognize this vision on their own. For the board to be engaged at this level, the CIO and CTO must be in more continuous and frequent dialogue with board members on technology priorities and needs.
Free Up Engineers at Your Company
Aamer Baig, Chicago
The layoffs and belt-tightening measures seen at many companies in the technology sector will require technology leaders to master doing more with less in 2023.
Do not fall into the trap of simply asking your technology employees to do more. Instead, enable them to do less by reducing administrative, bureaucratic and manual workload. We have found that in many large organizations, engineers spend only 50 percent of their time on actual development. Imagine increasing this rate by just 10 percent at a large company employing thousands of engineers. There is a substantial productivity gain to be obtained here.
CIOs can capture this productivity by being more scientific and methodical in developing and applying the engineering craft. A few steps companies can take
- Be careful about who makes up your teams and identify high performers. Individual engineer performance can vary by two to three times across teams.
- Try to find distractions that you can remove from engineers' workload. Reducing meetings or making 'agile ceremonies' more productive can save significant time.
- Finally, focus on automating the manual work that drags engineers down. Automating testing or compliance can have a big impact in increasing engineers' capacity to do the work they love.
This is not just about productivity, it is also about talent. If you want your company to be a destination for good engineers, you must create a work environment where engineers can do the work they love.
Focus on the Cloud
Will Forrest, Chicago
Last year, many CEOs fundamentally shifted their perspective on cloud computing from 'I will do this because the CIO recommends it' to 'I am all in on this.' I recently noticed this when the CEO of a large bank expressed frustration about the lack of continuous progress on the cloud. Instead of pulling back the program, he announced a more ambitious goal and a faster plan to reach it.
Right now, companies cannot miss the opportunity to raise their cloud goals. Because technology companies have reduced headcount and cancelled some of their programs, not only the bottom 20 percent performers but also good talent is entering the job market. Most of this talent is being snapped up quickly, and companies need to think about how they can move fast as cloud talent becomes available. This way they can take a big step in their cloud capabilities.
So the big question is how companies will benefit from these two trends. Most enterprise initiatives related to the cloud have been limited to moving applications off their own servers (often called 'lift and shift') or building test and development environments to try out new programs. Now is the time to think bigger and more cleverly.
In 2023, companies should focus on building strong cloud foundations to obtain the most important benefits the cloud provides (scaling applications or automatically adding capacity to meet demand spikes). This means developing the right application patterns (the code base to be applied across multiple applications or use cases). In addition, strong cloud economy capabilities, called FinOps, must be established. Recent McKinsey research shows that companies do not focus on cloud costs until they have lost 100 million dollars. This is not just a major loss, it is also a missed opportunity to create value. FinOps capabilities can track spending, determine unit economics across various cloud usage scenarios, and create optimal cloud offerings and price arrangements based on businesses' consumption needs.
The Cloud Is Changing Security
Jan Shelley Brown, Summit
For years, security was seen as an obstacle slowing down progress while security protocols were being established. In 2022, this changed fundamentally with companies' large investments in moving to the cloud. This shift created a useful forcing mechanism for CIOs and CISOs to reassess the role of security, especially to improve businesses' risk posture.
This trend will accelerate this year for several important reasons.
First, as companies move their applications to the cloud, they are taking the opportunity to automate security. This is because both businesses and cloud service providers are improving their own security. Service providers have spent billions of dollars on new security tools. These tools, for example, automatically scan code uploaded by developers for cybersecurity issues, reject vulnerable code, and offer remediation suggestions. Because most security issues stem from code and system misconfigurations, automation will significantly reduce security breaches. (For example, a large bank reduced security breaches by 70 to 80 percent after implementing automation in security.) Another benefit of this automated feedback system is that it accelerates developers' development speed by up to 10 times and provides a much better development experience.
Second, as the more heavily regulated banking and pharmaceutical industries move to the cloud, regulators are also reassessing what the sensitive points are. They have already begun setting rules on security and compliance standards for the cloud, and are thinking about other issues such as significant concentration risk. What if one of the major CSPs collapses and 30 banks with it? There probably will not be real answers to such questions in 2023, but we expect to see new policies emerge.
Decentralized Artificial Intelligence Is Changing the Game
Vinayak HV, Singapore
Last year saw major progress in the 'decentralization' of artificial intelligence, that is, the trend of increased access to advanced AI technologies that in the past only players with large, centralized and proprietary data sets could access. Products such as Stable Diffusion and ChatGPT enabled a greater number of organizations and individuals to access and interact with deep learning models that were once limited to organizations with very large data sets. This has major implications, such as improving search and increasing software developers' productivity.
According to analysis we conducted through McKinsey's artificial intelligence tool QuantumBlack, this decentralization could change various sectors in 2023. This change will probably begin in entertainment, gaming and media, areas where new technologies are typically adopted early.
The big challenge and opportunity for companies in 2023 will be taking advantage of these decentralized artificial intelligence capabilities and the values each organization can derive that fit its own business model. CIOs and CTOs should focus on how to integrate application programming interfaces (e.g., OpenAI, Stability.AI) into their own architectures to embed 'intelligence' in more applications and processes. This capability can, for example, automatically suggest code or code libraries to accelerate software development or generate code. The goal should be to make every piece of technology AI-based. Sufficient resources must be allocated to allow for experimentation. The best innovators allocate one to five percent of their revenue to innovation that can yield disproportionate returns. The ability to innovate effectively during downturns enables companies to grow faster when the economy improves. For this reason, protecting the innovation project, especially when budgets are under pressure to be cut, is important.
***
Predicting or making sense of what will appear on the horizon in 2023 is difficult and in this respect resembles past efforts to look at the future. But what is clear is that how companies handle technology problems in the new year will deeply affect how good their outlook will be next year.
Source: HBR
