BCG’s Weekly Briefs

In BCG’s Weekly Brief, our most senior executives, including Global Chair Rich Lesser and CEO Christoph Schweizer, share their latest perspectives and ideas, as well as some of the firm’s most compelling thought leadership, in an email to colleagues, clients, and friends around the world. These messages cover a wide range of topics that are top of mind for business leaders today, issues that have become more layered and challenging than ever: from global trade and consumer choice to corporate purpose, climate change, and responsible AI. Here is a selection:

In Uncertain Times, Control What You Can Control: Costs

FEBRUARY 20, 2024

We live in uncertain times. Geopolitical tensions remain high. Global trade patterns are shifting. Inflation and interest rates have come down but are still above pre-pandemic levels. In a recent BCG survey of more than 600 executives, economic uncertainty was their top concern for 2024.

In the face of such significant unknowns, many CEOs and top executives focus on controlling what they can control: costs—the top priority of companies in 2024 in North America, Europe, and Asia alike, according to our survey. Growth was the number two priority.

Fortunately, cost control and growth are not mutually exclusive. Cost management frees up resources, which can fuel a company’s growth and support its strategic priorities.

The Focus for Cost Management Is Shifting

To cope with the pandemic, supply chain disruption, energy shocks, and other factors, most companies added to their cost bases, which were further impacted by input-cost inflation. As a traditional reaction, companies have reduced overhead expenses to manage costs. Now, two-thirds of executives say manufacturing and supply chain costs are their top priority. This shift is particularly evident at consumer goods, industrial goods, and energy companies, where these costs are very significant.

Linear, rigid, just-in-time supply chains no longer work in today’s challenging times. Corporations now need to carefully manage their supply chains for cost, flexibility, and resilience by relying on best-in-class, real-time data and digital capabilities. In addition, AI, GenAI, and other disruptive technologies can help. As one CEO told me, “If we aren’t experimenting with AI, our competitor is and two start-ups are, too.”

Why Traditional Cost Management Falls Short...and How to Do It Better

Too often, we find that the effectiveness of traditional approaches to cost management fades over time. In the survey, 83% of leaders said that their companies met or exceeded recent cost savings targets, but more than one-third also reported that the costs crept back soon. Lots of work for little lasting impact!

We have learned how to make cost transformations stick: looking beyond one-and-done cost takeouts and instead establishing a culture of continuous improvement. This shift emphasizes innovation and treats setbacks as learning opportunities by focusing on:

  • Engagement. Sharing the company’s priorities and cost management vision can engage employees, help them feel part of the solution, and shift how they work.
  • Enablement. Providing other leaders with the right resources and clear objectives encourages them to better balance cost and growth ambitions.
  • Execution. Effective governance and monitoring processes allow teams to break down a large cost transformation into distinct actions with measurable change—and to hold teams and leaders accountable.

Companies also need their workforces to possess emotional strength. If companies can meet four fundamental human needs—the need for clarity, trust, meaning, and belonging—they significantly increase their chances of success.

Christoph Schweizer
Chief Executive Officer

The Global Race for Economic Growth

FEBRUARY 13, 2024

I recently caught up with BCG’s Chief Economist Philipp Carlsson-Szlezak just after he attended a private dinner with CEOs in Canada. I asked him to share some of the key messages he delivered to that group.

Over the past couple years, Philipp and his collaborator Paul Swartz repeatedly made the case that narratives of structural inflation and inevitable recession were too pessimistic and that the US was most likely headed toward a soft landing. Now that this is playing out, I was eager to hear Philipp’s current global views, not just for the US but for China and the Eurozone as well. Here’s an overview of his take, which I hope you’ll find helpful.

A Reversal of Fortunes

To see the near-term growth prospects of these three regions, we need to consider the emerging structural legacies of recent shocks. The direct comparison of growth rates would be misleading, but understanding each bloc’s ability or inability to return to its old growth path tells us a lot about resilience and the tactical outlook. (See Philipp’s and Paul’s new article on this topic in Fortune.)

  • The US started out as a laggard in 2020 but is now the only bloc on its way to its pre-pandemic growth trajectory. Inflation threatened that progress, but the unfolding soft landing is evidence of remarkable resilience.
  • China’s economy was the envy of the world in 2020, making a swift return to its old growth path. But in its own reversal of fortunes, China’s switch to a consumption-driven economy is proving challenging and has pushed it off that pre-pandemic path.
  • The Eurozone has seen yet a different reversal of fortunes. It was making sustained progress toward its old growth path—until the war in Ukraine. Though a show of resilience has allowed it to escape a recession, a return to pre-pandemic growth now looks challenging.

Tactical Growth in 2024

Settling into their new trajectories, each bloc is fighting for tactical strength in the year ahead. Prospects vary, but we can view near-term growth with an optimistic lens. It should be a year of progress.

US Strength. Philipp thinks the US will continue to defy the pessimists. Consensus recession odds of 45% remain too high and are reminiscent of the recent past when pessimism was simply punted out quarter after quarter.

Yes, growth will be slower than the fast 3.1% of 2023, but the underlying resilience of the US economy is sustainable, not finite. As inflation has fallen below wage growth, real incomes are growing again. After a pullback during much of 2023, corporate earnings are set to expand. And the labor market is structurally tight, pushing companies to embrace technology where labor is scarce and pricey.

On the monetary side, it will get easier in 2024, even as the timing of rate cuts remains uncertain. And looking beyond this year, Philipp’s team thinks the US is likely to overshoot its pre-pandemic trend.

China’s Challenges. China’s tactical fight, meanwhile, is to arrest the drag on growth. The shrinking real estate sector and weak equity markets remain headwinds as they impair the confidence and spending power of households whose consumption is needed to drive growth.

Stimulus would help, but many of the old channels, such as pushing construction, would undermine the desired rebalancing toward consumption. That said, even as the Chinese economy has been pushed off its old growth path, its rate of growth likely remains much higher than that of the other blocs, and China’s past ability to manage difficulties points to resilience.

Europe’s Restart. Despite the challenges, the Eurozone will see faster—but uneven—growth. Germany, which weathered the 2010s well relative to other Eurozone members, is now at the bottom of the growth league tables.

Yet labor markets across the bloc remain stronger than they’ve been in two decades, and real income growth is set to return as inflation drops below wage growth. Plus, after an era of tepid investment, the Eurozone has found convincing investment narratives in decarbonization, technology, and defense.

Combining Vigilance with Ambition

The better-than-expected growth outlook is no reason to let down our guard. The past four years have shown that shocks are ubiquitous, and continuous judgment of macroeconomic risks should stay at the top of corporate agendas.

But the past four years have also shown that shocks are not deterministic—neither for economies nor companies. The resilience we have seen, especially the avoidance of recession, is testament to the strong collective efforts of business leaders and policymakers. While leaders can’t control the shocks, investing in capabilities to understand and react to them is a muscle they can continue to build.

Finally, given a baseline positive case for growth, boldness alongside vigilance is important, too!

Rich Lesser
Global Chair

India: A Nation on the Move

FEBRUARY 08, 2024

I recently returned from India, where the business leaders I met in Mumbai and Chennai believe that India’s moment on the world stage has arrived. The evidence is strong.

At a time when growth is hard to find in many parts of the world, the Indian economy is growing by about 7% annually. It is on a path to become a $7 trillion economy by 2030 and is likely to surpass both Japan and Germany in size.

Indian consumers are benefitting from this growth. GDP per capita has grown from about $1,000 15 years ago to about $2,500 currently, putting more money in the pockets of consumers. The elite and affluent consumer segments account for 15% of the population, up from about 6% a decade ago. By 2030, these segments will approach one-quarter of the population. Domestic and international companies alike can tap into this opportunity.

The country is enjoying other tailwinds as well:

  • Global trade is going through profound changes, and India is emerging as one key option. In our recent global trade report, we project that India will add nearly $400 billion in additional trade in goods over the next ten years.
  • There is a concerted effort to expand India’s manufacturing base, driven in part by Production Linked Incentive (PLI) schemes. This creates an opportunity for the country to diversify beyond services that have powered growth this century—building an additional leg for the economy to stand on.
  • India, now the most populous country in the world, has the workforce to support this transition. Its working-age population will reach 950 million next year, a striking demographic dividend in an aging world. The share of the working-age population will continue to grow until 2041.
  • To enable this growth, India is investing in hard infrastructure such as roads, airports, ports, and power. It is also a leader in public digital infrastructure, building on its traditional strength in IT services. India’s Unified Payments Interface and Open Network for Digital Commerce facilitate peer-to-peer transactions, while Aadhar is the world’s largest biometric identity system.

The leaders I met with recognize the opportunity of a large and growing local economy alongside the challenges. They are keeping their eyes on the horizon but feet on the ground.

A significant share of manufacturing moving to India involves assembly. To guarantee future competitiveness, India will need to improve the skill level of employees in manufacturing and related functions (e.g., in quality management). The added value per employee in manufacturing is below that of several countries in Southeast Asia, which are also seeking to attract investments.

Healthy ecosystems around raw materials and subcomponents will be critical. Companies need to improve their R&D and innovation capabilities to compete globally. Inclusivity is also key. More opportunities for women, a reduction in regional disparities, and support for micro, small, and medium-size enterprises will all help India reach its potential.

One of my colleagues in India described the country as ready for “tough optimism.” The country’s ambitions are high, and it has a lot going for it. I am excited to see India meet the moment.

Christoph Schweizer
Chief Executive Officer

Why We Need Catalytic Climate Action—and a New Resource to Get Us There

JANUARY 29, 2024

Last week, Christoph and I wrote to you with an overview of our takeaways from Davos, focusing on some of the larger themes. Now I want to double-click on climate and sustainability, which was my biggest focus at the annual meeting, and share two important updates with you.

The first is our latest report with the WEF Alliance of CEO Climate Leaders, where I serve as chief advisor. The second is a practical resource that can help companies turn a central insight of the report—the power of supplier decarbonization—into action.

Bold Measures to Close the Climate Action Gap

This year’s report takes as its starting point our current reality: while many companies and governments have taken steps to act responsibly on climate change, the sum of all our actions and global progress is far from sufficient. The key to catching up will be for the many committed companies and governments to become catalysts to accelerate broader systemic change.

We presented this work at Davos, highlighting five ways companies can broaden their climate action efforts well beyond their direct spheres of control:

  • Accelerate supplier decarbonization. For many companies, suppliers’ emissions are three to eight times greater than their own Scope 1 and 2 emissions. And it’s possible to reduce the end-to-end emissions of many products with a final price increase that’s less than 1%.
  • Make it easier for customers to make greener choices. Product redesign, including value-creating circular models, can lower the emissions footprint of many products.
  • Drive change with peers in your sector. The potential is especially great in supply chain “pinch points,” where ten players or fewer control more than 40% of many key markets. Standardizing product labeling is another great area of opportunity.
  • Engage in cross-industry partnerships. Large-scale buying groups, in particular, can have a dramatic impact, mobilizing capital and accelerating the development and scaling of advanced technologies.
  • Advocate for bolder policies. Start by making sure the government engagements of your company and lobbying partners are not harming climate progress. Then look for opportunities to go further, partnering with governments to encourage bold and pragmatic changes in incentives, policies, and reporting.

Net-Zero Value Chain Support Hub

For several years at BCG, we’ve been digging into the power of supplier decarbonization, led by deep insights from my colleagues Chrissy O’Brien, Patrick Herhold, and others. Some companies are making strides in this area. Members of the First Movers Coalition are signing offtake agreements with suppliers and investing in them to meet their goals.

To speed up change across supply chains even more, we’ve developed the Scope 3 Support Hub in partnership with the World Economic Forum. It’s an online resource that offers knowledge and tools to guide procurement teams, suppliers, and companies throughout the maturity stages of supply chain decarbonization.

It’s an offering that comes out of a multiyear focus of the WEF’s Alliance of CEO Climate Leaders on upstream Scope 3, including great work from my colleague Trine de Nully. Its success has also depended on the close collaboration of ecosystem partners, such as SBTi, WBCSD, WMB, along with powerful case studies from Alliance members, including GEA, Scania, H&M, and Unilever. The Support Hub can help you in your own journey to accelerate the decarbonization of your supply chain.

I hope you’ll take a little time to read our report and investigate the Support Hub—and think about how you can be a catalyst for broader change.

Rich Lesser
Global Chair

Davos Reflections and the Road Ahead

JANUARY 23, 2024

The official theme of the World Economic Forum’s annual meeting in Davos last week was “Rebuilding Trust.”

At BCG, we believe trust starts with delivering on promises. So what will it take for business leaders to deliver on many of the commitments shared at Davos: driving impact through AI, responding wisely to geopolitical and macroeconomic concerns, and taking action on climate?

Driving Impact Through AI. AI, especially GenAI, was at the heart of so many conversations at Davos. After a period of experimentation, it’s now time to translate the potential of the technology into tangible business impact and return on investment. Getting there will be mostly about people—talent, training, incentives, leadership, processes, and organizational setup. Our research shows that 9 out of 10 CEOs rank AI as a top priority, but only 1 out of 10 lead companies that have trained more than one-quarter of their employees on GenAI tools—a misalignment we need to correct.

The other critical part of realizing AI’s potential is making sure we use the technology responsibly. We have to build greater transparency and accountability and avoid hallucination, bias, misinformation, and the undermining of societal values. If we can demonstrate a strong commitment to responsible AI, our employees, customers, and society will feel they can trust the change that happens.

Responding to Geopolitical and Macroeconomic Unknowns. Half the world’s population lives in countries holding nationwide elections this year, and the results of some are likely to alter geopolitics, trade, climate commitments and policies, and more. Ongoing wars and conflicts—with highly unpredictable outcomes—are causing enormous human suffering. While the US-China relationship has improved in recent months, uncertainties remain high. And, of course, there are still major macroeconomic unknowns in every part of the world around growth, inflation, and interest rates.

It’s important for business leaders to focus on what they can control. Setting up our organizations and running processes in a very cost-efficient way will allow us to best adapt and react to short-term discontinuities, while also maintaining room to invest in the future. Regular scenario planning along key factors of uncertainty affecting our respective businesses is also essential.

Going from climate agreements to climate action. Many companies and governments have made commitments to tackling climate change, but progress overall has been too slow. Building on a successful COP 28, much of the conversation at Davos centered on how to translate a host of agreements and a strong negotiated statement into faster action.

At the Alliance of CEO Climate Leaders, with 80 CEOs present, this centered on how climate leaders can be catalysts for broader systemic change by focusing on five areas: accelerating supplier decarbonization, enabling customers to make greener choices, driving change with peers in your sector, engaging in cross-industry partnerships, and advocating for—and supporting—bold and pragmatic government policies.

* * * * * * *

Davos is always an important opportunity to reflect on the challenges we’re facing and engage with a wide range of senior leaders for positive change. The conversations this year were practical yet full of possibility.

But talk only goes so far. We’re excited about the year ahead, getting down to work to deliver on promises and “unlock the potential of those who advance the world” jointly with you.

Christoph Schweizer
Chief Executive Officer

Rich Lesser
Global Chair

Transforming the Poetry of GenAI into the Prose of Business

JANUARY 16, 2024

A famous US politician once said, “You campaign in poetry. You govern in prose.” Business leaders too can talk poetically about their strategies and goals but ultimately are judged by their prose—what they accomplish.

At the start of 2024, GenAI is moving from the realm of potential and promise to the reality of business plans and profitability. 2023 was the year of experimentation. 2024 has to be the year of business impact. CEOs and their executive teams will be judged on whether they can get the human part of the equation right—capabilities, processes, organizational setup, incentives, leadership models, and more.

There is still so much work to be done. BCG recently surveyed more than 1,400 C-suite executives across 50 markets:

  • Nine out of ten of these executives say that GenAI is a top technology priority for their company in 2024.
  • But fewer than one in ten companies, just 6%, have trained one-quarter of their workforce on GenAI tools.

In a world full of change and disruption, wait-and-see is not a viable option. And yet that is the path most organizations have adopted.

  • 90% of organizations are on the sidelines or still only experimenting with GenAI.
  • Unsurprisingly, 66% of executives are ambivalent or dissatisfied with their organization’s progress on AI and GenAI.

I empathize with many of these respondents. At BCG, we have had to make some of the same tradeoffs and decisions as our clients. How much do we invest in GenAI?  Should we build or buy GenAI solutions? How much freedom do we give employees to experiment? How fast can and should we train our staff? How do we mitigate risks like overreliance?

We have decided to move boldly—partnering with large and small tech companies on a few comprehensive platforms that we’re scaling rapidly and training large numbers of our staff on new ways of working.  Just as important, we are implementing responsible AI policies every day.

I worry that too many C-suite executives continue to treat GenAI as a new technology to be delegated to the experts rather than a new way of working. More than half of leaders surveyed, 59%, say that they have limited or no confidence in their executive teams’ proficiency in GenAI.

To kick off 2024, I encourage you to:

  • Become familiar with GenAI tools and incorporate them into your workday.
  • Think big. How can you deliver on your top business priorities even more boldly and faster with AI?
  • Obsess about your people. Take a zero-based approach to defining the skills you need tomorrow and start training today.
  • Build a safe technological environment. The financial and reputational costs of AI can be significant.
  • Spend time with your legal, regulatory, and risk staffs. The ethical decisions tied with this technology need to be steered from the top.

Embrace the uncertainty.

Christoph Schweizer
Chief Executive Officer

Navigating the Dramatic Shifts in Global Trade

JANUARY 12, 2024

Welcome to 2024!

Today, a team of BCG experts released a report about what to expect in global trade, not just for this new year but for the decade to come—and how to navigate the challenges.

The story of global trade at any given moment lives at the intersection of geopolitics and macroeconomics. It started to change dramatically 7-8 years ago, when Brexit hit the UK/EU and the US began several rounds of tariffs—actions that continue today.

Since then, the list of events has only grown: sanctions following Russia’s invasion of Ukraine, legislation in the US related to clean energy (Inflation Reduction Act) and semiconductors (CHIPS Act), moves in the EU related to deforestation and a carbon border tax, among others.

To help our clients manage the uncertainty, the team behind this report built a remarkably sophisticated AI-powered trade model that creates forecasts using geopolitical and trade dynamics as well as 500 million data points that measure a thorough range of macroeconomic indicators. It offers forecasts through 2032, including the projection that global trade growth, at 2.8%, will fall behind the pace of global macroeconomic growth (3.1%), reversing a 20-year trend.

Read the report for a full overview of the findings, which detail how the strength of regional trade blocs will only continue to grow. Here are some of the projections with broad-ranging implications that really jumped out at me:

  1. Trade within North America will be strong, a big win for Mexico in particular. US trade with its neighbors is forecast to grow by $466 billion in the coming decade because of the US Mexico Canada Agreement and new industrial policies in the US.
  2. Ongoing trade tensions between China and the West will have significant consequences, with 2032 trade between China and the US expected to fall by $197 billion from 2022 levels.
  3. ASEAN is poised to be a huge beneficiary of the emerging changes, as the region increasingly becomes critical both for China and for companies looking to decrease their dependence on China. Cumulative ASEAN trade is expected to grow by $1.2 trillion in the next ten years.
  4. India will also benefit as companies diversify their global footprint. The country’s projected external trade will grow by $393 billion in the next ten years, including $180 billion with the EU and US and $124 billion with China.
  5. Russia’s trade map has been shifting toward Brazil, China, India, and South Africa since the start of the war in Ukraine. By 2032, its trade with China and India is expected to grow by $134 billion and $26 billion respectively, compared with 2022, while trade with the EU will decline by $222 billion.
  6. Climate action, especially in Europe, will further reorder the trade map. Policies such as the European Green Deal and the Carbon Border Adjustment Mechanism will incent European companies to seek out more low-carbon energy sources and locate manufacturing closer to home.

Operating in This New Trade Environment

These projections will have major implications for most global companies. Here are four moves companies can take that will improve preparedness and competitiveness as trade patterns reshape the economy.

  • Deploy AI in the supply chain. Invest in AI and other digital tools to improve agile decision making and adaptability, as well as risk and cybersecurity capabilities through a custom cybersecurity roadmap.
  • Continue building supply chain resilience. This can include embedding geopolitical decision-making capabilities, building buffer inventories, getting alternative suppliers at the ready, and planning contingencies for at-risk supply inputs.
  • Be ready for price volatility and pockets of inflation.   Improve the ability to sense shifts in demand as early as possible, strengthen customer relationships and contracting flexibility, and explore new monetization models.
  • Meet the needs of customers with speed, responsiveness, and innovation. Consider the entire customer journey and draw on the local customer’s unique and real-time data to design products—an approach we call fractal innovation.

The more globally integrated trade environment that enabled companies to build low-cost, highly efficient supply chains in recent decades is fast disappearing. We’re facing a much more fragmented global market, characterized by a mix of smaller regional and local supply chains. By diversifying their networks and beefing up resilience, companies will be ready to adapt to the challenges to come.

Rich Lesser
Global Chair

A Business Case for Bold Action in 2024

DECEMBER 18, 2023

2023 did not produce the doomsday recession, runaway inflation, or high unemployment that were predicted a year ago. We avoided a global recession, and inflation is coming down in the US and Europe. But 2023 has still been a year filled with challenges—with additional conflicts, macroeconomic complexities in Europe and China, and high interest rates. And we’re facing plenty of global uncertainty in the year ahead, with an incredible 4 billion people expected to vote across 76 countries—the highest number ever.

Even so, 2024 looks to be a year with macroeconomic upside potential, and not just in the US. Interest rates are likely to come down. And though the growth outlook is uneven across the eurozone, an acceleration for the area as a whole is probable. China’s economy seems likely to plateau and may even begin to rebound. And growth will continue to surge in South Asia, especially in India.

In that context, the needs and opportunities for business leaders to drive bold change have only increased. The opportunities will vary by sector and geography, but four in particular stand out to us:

  • GenAI is changing business from top to bottom. The coming year is when we will start to see the vast business potential from AI come to life. There will be a proliferation of GenAI-powered tools, including call center support, software writing, HR, legal, and personal assistants. Some companies will dramatically step-change productivity and customer experiences by reshaping key functions, such as customer service, marketing, field operations, and R&D. And some will launch new business models, like personal agents and information services, which will drive new revenue streams. Now is the time to figure out where you want to go after new business outcomes at scale and gear up your investments and your team accordingly.
    Turning GenAI Magic into Business Impact
  • On climate and sustainability, business must take on some heavy lifting. COP28 produced many meaningful commitments and the boldest consensus agreement yet on accelerating the energy transition. The EU and others are forcing much greater transparency across supply chains. Climate investments in the US will exceed initial projections. And China is outpacing its own national commitments. Of course, the US elections create uncertainty. But even if the US government steps back, the rest of the world will expect businesses to move forward boldly. Integrating sustainability into the core business strategy will only grow in importance. COP28: Strong Progress from Dubai and the Road Ahead
  • Talent strategy becomes even more critical for companies’ success. Competitiveness in an AI-driven world will depend on transforming the workforce, faster than ever before. Training employees for new capabilities, processes, roles, and responsibilities will be the mark of tomorrow’s leading companies, as will more forward-looking workforce planning. The coming year is a critical time to get that right, and rapidly so.
    Set the Right People Priorities for Challenging Times
  • The M&A market is likely to return. It is hard to predict precisely when M&A will bounce back, but with imminent transformations driven by margin pressures, AI, and the energy transition—along with potential interest rate declines on the horizon—it’s bound to happen. And those that are ready to act will find real advantage.
    M&A Is Looking Up After Bottoming Out

With the combination of these four opportunities, we believe 2024 will require bold and ambitious leadership, despite some lingering pressures from 2023. We very much look forward to engaging with you on that in the new year.

With best wishes for a joyous holiday season and a great 2024.

Christoph Schweizer
Chief Executive Officer

Rich Lesser
Global Chair

Capturing Value from GenAI

DECEMBER 12, 2023

In my 26 years at BCG, I have never seen a business topic grow as quickly in size and relevance as GenAI.

In the past year, BCG’s GenAI leaders have spoken with more than 2,000 C-suite executives and worked with hundreds of clients. They keep hearing the same questions: where is the value, how do we capture it, and how do we think about technology, people, and risk? How, in other words, can we turn the magic of GenAI into business impact?

Answers to these questions vary depending on the three value plays we see most often.

Deploying GenAI in Everyday Tasks. GenAI can create initial drafts of emails and presentations and summarize meetings much more quickly than humans. It can free up time for higher-order work while delivering substantial productivity gains. At BCG, for example, consultants in a pilot using a suite of GenAI tools are saving up to ten hours a week.

Still, GenAI is not plug and play. Companies need to select and manage a fast-evolving ecosystem of technologies while encouraging employee adoption and the proper use of AI through upskilling.

Reshaping Critical Functions and Processes. Organizations can achieve even greater gains by reshaping customer service, marketing content generation, software development (including testing and documentation), field service, and engineering. GenAI can deliver 30% to 50% efficiency and effectiveness gains in these areas.

These gains are not guaranteed. They depend on combining GenAI with other AI approaches. BCG’s Fabriq marketing platform, for example, relies on predictive AI for product selection and experimentation and on GenAI for automating campaigns and creating content.

As the interplay between machines and humans deepens, companies need to change processes, skills, ways of working, and incentives. To manage risk and respond to emerging regulation such as the EU’s A.I. Act, they need to embed responsible AI principles.

Inventing New Business Models. Beyond increasing productivity, GenAI can help organizations reinvent customer experiences, create new services and offerings, and even build new business models. This play promises the greatest long-term competitive advantage. A financial information company, for example, is using the technology to create an insight-generation platform for its clients that it expects will generate $100 million in new revenue.

New business models will likely require custom systems and strong customer-centric design thinking. A consumer company building a GenAI-powered conversational assistant for customers, for example, is relying on four different large language models and ten databases to deliver the desired user experience.

In these early days of GenAI, a few lessons seem to be enduring:

  • Focus on a few high-value transformative initiatives rather than hundreds to ensure visibility.
  • Combine GenAI with predictive AI to take advantage of their respective abilities to excel at right brain (creative) and left brain (analytical) powers.
  • Focus 10% of your AI effort on algorithms, 20% on the underlying data and technology, and 70% on process re-engineering, upskilling, and other people-related changes.

We are on an exceptionally steep learning curve. BCG is excited to help our clients and the world responsibly explore the vast capabilities and potential of GenAI.

Christoph Schweizer
Chief Executive Officer

Encouraging Progress at COP28

DECEMBER 05, 2023

We are concluding Day 5 at COP28, and both of us have found the experience so far here on the ground in Dubai to be remarkable—and more hopeful than what you may be reading in the press.

We thought we would use this Weekly Brief to update you on what has been achieved so far and the impressions we have gathered in discussions with other leaders across government, business, and NGOs. Here are some highlights:

A Major Breakthrough on Loss and Damage. Establishing a fund to support the most climate-vulnerable countries has been a divisive issue at the heart of the COP for many years. Building on progress at COP27, the Presidency announced a breakthrough agreement on the eve of the conference. This was quickly followed by over $700 million in commitments, including $100 million from the UAE. Everyone recognizes these initial contributions are dwarfed by the scale of climate impact, but directly addressing this issue in the spirit of solidarity contributes to a more conducive atmosphere for the broader negotiating agenda.

Landmark Announcement on Climate Finance. The UAE President Mohammed bin Zayed Al Nahyan announced a $30 billion fund for global climate solutions that aims to draw in $250 billion in investments by 2030. Included in this fund are $5 billion of concessionary capital to support the energy transition in low- and middle-income countries. The World Bank announced an additional $9 billion for projects related to climate finance for the fiscal year 2024-2025.

Progress on Food and Agriculture.  The Presidency announced that 134 world leaders have signed on to its landmark declaration on agriculture, food, and climate action, supported by more than $2.5 billion in funding, including the launch of the COP28 Action Agenda on Regenerative Landscapes, which will mobilize $2.2 billion of that funding. This initiative brings together more than 25 leading organizations partnering with 3.6 million farmers to transition 160 million hectares to regenerative agriculture (nearly three times the size of France). BCG is co-chairing this work with World Business Council for Sustainable Development, the COP28 Presidency, and the UN High-Level Champions.

Momentum on Renewable Energy. The numbers here are impressive, with more than 120 countries agreeing to triple renewable power generation capacity to 11,000 GW and double energy efficiency by the end of this decade. The hope is that this pledge makes its way into a more binding commitment in the negotiations themselves.

A Big Step Forward on Industry Decarbonization. Fifty oil and gas companies pledged to reach near-zero methane emissions by 2030 and to submit a plan to meet those targets by 2025. A fund was also announced for methane abatement projects in emerging markets and developing economies. The US, China, and the UAE held a Methane Summit, with China releasing a methane strategy and the US committing to cut methane emissions by 80% over the next 15 years. The UAE launched the Industry Transition Accelerator to drive decarbonization across seven hard-to-abate sectors, including cement, steel, and aluminum.

Beyond these wins, we have seen important commitments on cities, hydrogen, and nuclear energy. The First Movers Coalition, where BCG serves as knowledge partner in creating demand for new climate technologies, has continued to expand. There’s deep engagement on the role of AI to address climate mitigation and adaptation.

We have spoken to hundreds of leaders, including senior government officials, negotiators, CEOs, and heads of NGOs. The consistent view is that this has been a very strong start for the COP, well ahead of expectations and with important wins that will accelerate decarbonization and support the hardest-hit countries, communities, and people.

The Tough Negotiations Ahead

We are only at the halfway point, and there is heavy lifting left to do. The focus of the next week will be on the negotiated statement. Because of the requirement for unanimous alignment across nearly 200 countries, this has been a daunting challenge in the past. Since 1995, we are 0 for 27 in getting a bold and sharp enough statement about transforming the global energy system and reducing our dependence on fossil fuels. Let’s hope that in nine days we can report we are now 1 for 28, but that won’t be easy and will require a remarkable degree of collaboration in an often-divided world.

If nothing else, we hope this update leaves you with some optimism that progress in Dubai is greater than the media headlines you are likely reading. Soon it will be on all of us to turn that progress into sustained action and impact.

Christoph Schweizer
Chief Executive Officer

Rich Lesser
Global Chair

Empowering People Management for a Future in Flux

NOVEMBER 27, 2023

Disruptions in recent years—the pandemic chief among them—forced the leaders of HR functions to be able to think on their feet, redefine priorities, and rapidly acquire new capabilities in safety, health, and flexible working models.

The frenzy of that period may be mostly behind us (we hope!), but the core lessons are still relevant. And the pressures to come could be even more daunting: more frequent disruptions, larger gaps in talent, and a fast-evolving need for digital transformation and innovation, driven by advances in AI.

For 15 years now, BCG has been collaborating with the World Federation of People Management Associations to conduct comprehensive surveys of people leaders, digging into their biggest challenges and recommending actions for future success.

Our new report on this work came out last week, based on an analysis of responses from almost 7,000 participants in 102 markets across all industries. I think it’s an important guide to identifying today’s most urgent priorities—critical for a thriving HR function and for organizational performance overall.

People Priorities: From Talent to Technology

Although every company must build the capabilities most relevant to its unique context, it’s clear that virtually all need to focus on a handful of capabilities. The biggest obstacle today? Not surprisingly, it’s talent struggles, cited by 72% of respondents.

The report also highlights the skills HR leaders have developed in response to the people management crisis at hand. That’s invaluable. But they tend to be less savvy when it comes to simultaneously keeping their eye on mid- to long-term challenges.

The thread that connects all the top priorities is technology. Capabilities such as HR IT architecture, operations, and cloud software are not up to speed at most organizations. And while AI, including generative AI, is gaining traction, the vast majority of companies are still at the earliest stages of adoption.

The report lays out a handful of recommendations—areas of focus for people management leaders that will be essential to their success:

Use data to plan for talent supply and demand. The core principles of strategic workforce planning are not new, but the urgency to act has increased—and the abundance of data-driven insights has changed the competitive landscape.

Get better at talent acquisition. Digital technology can help companies differentiate themselves, leading to better success rates in recruiting and hiring new employees.

Invest in upskilling and reskilling. Talent acquisition is important, but leaders shouldn’t neglect the powerful opportunity to develop the talent they already have. Constantly advancing technology means companies need to keep refreshing their workforce’s skills and capabilities.

Build big wins through AI. Generative AI can revolutionize self-service processes, boost productivity, personalize customer and colleague experiences, and build data-driven talent ecosystems. Early adopters are already capturing value along the entire HR value chain.

A great example of a company pursuing all this is Schneider Electric. In its effort to adopt generative AI, it has held dozens of workshops to gain the input of stakeholders from across the organization.

Participants identified upskilling and leadership development as two of the most critical success factors in the tech transformation, which led Schneider to use its digital talent steering committee, with top HR and talent leaders at the helm. The process has signaled that leaders view the changes to come as a company-wide effort, rather than a shift being imposed from the top down.

It’s a lot to juggle. People leaders must always keep in mind the transformative potential—and pitfalls—of change. They can play a pivotal role not only in making their own function as strong as it can be but also in championing the well-being and growth of the workforce, and the successful organizational transformation of the entire company.

* * * * * * * *

On Wednesday, I head to Dubai for ten days at COP28, where I will meet Christoph and a large delegation of BCGers who have worked this past year supporting the agenda of the COP Presidency on a range of strategic issues critical to advancing the global decarbonization, climate finance, and adaptation agenda. We look forward to updating you on the progress, I hope with some important wins to share.

Rich Lesser
Global Chair

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