Bold but thoughtful – How a national productivity boom can be built, one organisation at a time.
This was a key insight explored at the 2024 Australian Financial Review Workforce Summit held in Sydney on 12 February. Supported by McKinsey & Company, the Workforce Summit coincided with the public release of McKinsey Australia’s flagship report for 2024 - Generative AI and the future of work in Australia.
In discussion with some of Australia’s most influential business leaders, policymakers, and industry insiders, McKinsey speakers Seckin Ungur, Wesley Walden and Ben Fletcher explored the profound shifts facing Australian workforces and the strategies that businesses, government and educators can implement now to be change-ready.
While there was debate and diversity of opinion across panels, sectors, and leading voices, three key themes emerged across various discussions.
1. The AI tide is unlikely to raise passive boats. Yet enough proactive boats could raise the tide for all.
Any piece-meal or ‘wait and see’ approach to AI adoption will be a lost opportunity – both for individual businesses and for the aggregate productivity boost arising from numerous workplace and customer innovations. With Australia's declining labour productivity, there is a pressing need for businesses to strategically embrace new technologies to unlock their full productivity potential.
Australia’s Chair of the Productivity Commission, Danielle Wood, noted how the pace of technology adoption in Australian businesses lags at the lower end of our OECD peers, yet could be catalytic in generating the productivity lift that the economy needs. Ms Wood outlined how while government policy has a role to play, the greatest productivity effect, and the greatest onus, is on business leaders to overcome their discomfort in diffusing new technologies into the workplace.
The productivity effect of technology is a J-curve, argued Ms Wood, so if businesses make their starting stance on tech adoption closer to the upswing point, the productivity effects will be maximised for both the business itself and – in aggregate – for the Australian economy. “So, I think that is a really important question: not just how does government get the policy settings right, and there’s a huge amount to be done there. But how do we shift closer to that frontier when it comes to technological adoption? Because that will be important in how we generate benefits of AI and other tech.”
McKinsey’s research also highlights the national upside that coordinated and strategic adoption of gen AI in Australian business, government and education offers. Beyond the immediate benefits to the individual organisations that proactively shape their response to new technology, there is significant macro potential – even a mid-point automation adoption scenario could contribute up to 1.1 percentage points to Australia’s productivity growth from the gen AI component alone. And if integrated with other automation opportunities, the annual growth figure could be as high as 4.1%.
“It’s not hyperbole to say that the productivity potential from Australian businesses embracing gen AI in a considered way could be historic,” says Wesley Walden. “To give some context, even if we achieved only half of the overall productivity potential from a mid-point adoption scenario, Australia’s productivity growth would be back in line with the figures that we last saw during the ‘economic heydays’ of the late 1990s.”
This theme was reflected across panels where leaders explored how technologies can provide the catalyst needed to simultaneously reimagine ways of working and move Australian businesses out of productivity stagnation. This comes at a time when shifting workforce and consumer expectations mean that organisations are already in a unique position to rethink how they work and how to accelerate output.
McKinsey says this creates “a perfect storm, in the best sense”, according to Seckin Ungur. “Acceleration of gen AI and other tech calls on leaders to completely reimagine ways of working and business processes to capture value and boost productivity. Leaders need to take a step back, look beyond today, and consider how they can best harness emerging technologies and rewire the business.”
We also all need to…
2. Get out of Pilot Purgatory.
Not having a clear internal path to scalability is holding the productivity potential of many well-intentioned pilots. So, from the outset of change, organisations need to be crystal clear on the nexus between technology potential and organisational purpose, design, and culture.
Before starting a pilot, do all stakeholders understand:
- What your goal is with the technology?
- How will it improve your business? (Ux? Cx? Ex?)
- How will you scale it? (and if this is not clear, what is the pilot for?)
“This goes to what we mean by a ‘thoughtful but bold’ approach,” Seckin Ungur told Summit participants. “Organisations need to understand their goal in the technology. What do we want out of it, and what happens next? Is this to address a known pain point? Improve customer experience? If time is saved, how is it reinvested? In what? To what purpose? Are we running smarter, or just faster? This in turn leads inevitably to the redesign of processes, change management, re-training, re-skilling, and having the right culture in place for innovation.”
On this topic, the Workforce Summit heard how automation is already transforming how Australians work and that the potential to automate so-called ‘knowledge work’ has doubled or tripled. This was reflected in anecdotes from leaders – in sectors from mining, to government, to retail – who gave personal examples of AI speeding routine and repetitive tasks, analysing vast amounts of data quickly, and providing insights to help senior decision-making processes.
Even more promising was when panellists gave examples of innovations that highlighted a strategic approach to AI use that generated greater benefits than time or cost saved.
Justine Cooper, Vice President of Human Resources from Schneider Electric, outlined how AI use in recruitment was not only saving processing hours, but was also scanning employee skills and capabilities to highlight out-of-the-box suggestions for promotions and transfers which had been otherwise missed. Scaled across a network of 160,000+ employees, this insight represents a powerful fulcrum to lift Schneider’s leadership capacity.
Similarly, insurer IAG highlighted how time saved through gen AI integration in claims processing has been reinvested in claims staff being more available to support customers through periods of trauma – a situation successfully tested in the 2023 New Zealand floods. “The outcome has been a workforce that is upskilling and reskilling to help customers one on one,” IAG Group Executive – People, Performance and Reputation Christine Stasi said.
“These are examples of the ‘thoughtful’ in ‘bold but thoughtful’ innovation,” says Seckin Ungur. “You don’t want to drive a bad car faster. Similarly, you don’t want to automate a process without testing the current or future value in it. In this sense there is value in zero-based design, or at least a minimal starting point.”
This echoes McKinsey’s key findings from the 2023 book, Rewired, which highlighted six key shifts in mentality to move from a business that engages digitally, to a genuine digital-first business:
- Shift focus from digital initiatives to designing for the digital customer
- Shift from hiring digital talent to developing digital talent across the business
- Shift from separate innovation teams to a distributed product-and-platform-based innovation model
- Shift from tech as a central capability to distributed engineering excellence
- Shift from central data and analytics to data tools embedded across the organisation
- Shift from short-term gains to sustainable scaling supported by a modern culture
“These last two points can be real innovation sleepers,” explains Seckin Ungur, “Rather than pointing ‘the power of AI’ at a data lake and hoping for insights, a better way is to define first what are the data products your teams or customers actually need. The AI task is then getting that data product, which will help the business experiment and innovate, packaged up and out across the business in an easy-to-use way.”
And then, there’s the people…
3. The best AI transition paths involve human co-pilots. So, make sure your humans are flight ready.
While some conversations at the Summit quipped about the prospect of gen AI ‘replacing’ humans, McKinsey is positive about the long-term stability for our knowledge sector, and indeed for Australia as a whole. “Our research does not point to widespread job losses, although there is potential for transitional impacts,” said Wesley Walden. “The key issue therefore is how do we act now to ensure Australian workforces are skilled, adaptable and ready to work with gen AI.”
The Summit panel on Skills, Education and Technology, discussed how a false dichotomy of ‘humans vs robots’ was likely adding to innovation hesitation in many businesses, when the reality of successful AI innovations shows that having gen AI complement and augment human skills leads to the strongest outcomes. This human-in-the-loop approach is less risky, and less frightening in a change management sense, but requires employees to have skill and confidence to use the technology, and to use it well to extract value.
This focus on being prepared for transition, and helping individuals move with it, was a key message from government and commercial sector leaders alike throughout the Summit. Examples of businesses that were seeing innovative boosts from AI were also invariably embracing the challenge of developing new capabilities, future skills, and creating a culture of ‘ongoing recalibration’ to support a climate of change and growth.
An estimated 1.3 million occupational transitions could occur in Australia through to 2030. And while basic cognitive tasks can be sped up and outsourced, this has most value when combined with social intelligence - so reskilling in transferable social intelligence and emotional skills will grow. With the pace of role evolution only expected to increase, it’s the transferability of skills that matters. Less, “what’s the job you want?” and more “what are the skills you need?”
Indeed, it was clear across the Summit that skill-building and education will be crucial to navigate a changing jobs landscape, for organisations, individuals, and government. While, for the education sector, the gen AI report points to even greater skills growth sectors like STEM, healthcare, and construction – all organisations - public and commercial - will need to embed cultures of lifelong learning within organisations.
This is another opportunity for Australian business to improve on a current stagnation point, as Australia ranks among the bottom 40 percent of OECD countries for improving worker skills. “That’s not a position we can sustain any more,” says Ben Fletcher. “Given the pace of technology, leaders will need to continually assess current and future talent needs and determine how best to redeploy and upskill their talent.”
Finally, underpinning all of this, is the inevitability that disruption will feel disruptive. So, for McKinsey, the cultural change challenge goes beyond skilling to help people adjust to disruption, to getting people actively engaged with it.
“In almost any business, people can see how technology is, or will, disrupt their business,” says Ben Fletcher. “So, the question is, do you just want to be able to accommodate that, or do you want to have a mindset of grabbing the reins and using that disruption to gain advantage?”
“Organisations doing this well are reconsidering everything – operating model, roles and responsibilities, culture, and fundamentally redesigning their process. We can’t emphasise enough the value of building an ‘innovate-in-safety’ culture too. Crack the culture and the rest follows.”
The Financial Review Workforce Summit presented by McKinsey & Company was held in Sydney, Australia on 12 February 2024. The above summary was prepared by McKinsey Australia partners Seckin Ungur, Wesley Walden and Ben Fletcher .
Read McKinsey’s report, Generative AI and the future of work in Australia.