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The economic potential of generative AI: The next productivity frontier

Generative AI is poised to unleash the next wave of productivity. We take a first look at where business value could accrue and the potential impacts on the workforce.

The economic potential of generative AI: The next productivity frontier

AI has permeated our lives incrementally, through everything from the tech powering our smartphones to autonomous-driving features on cars to the tools retailers use to surprise and delight consumers. As a result, its progress has been almost imperceptible. Clear milestones, such as when AlphaGo, an AI-based program developed by DeepMind, defeated a world champion Go player in 2016, were celebrated but then quickly faded from the public’s consciousness.

Generative AI applications such as ChatGPT Copilot, Stable Diffusion, and others have captured the imagination of people around the world in a way AlphaGo did not, thanks to their broad utility—almost anyone can use them to communicate and create—and preternatural ability to have a conversation with a user. The latest generative AI applications can perform a range of routine tasks, such as the reorganization and classification of data. But it is their ability to write text, compose music, and create digital art that has garnered headlines and persuaded consumers and households to experiment on their own. As a result, a broader set of stakeholders are grappling with generative AI’s impact on business and society but without much context to help them make sense of it.

The speed at which generative AI technology is developing isn’t making this task any easier. ChatGPT was released in November 2022. Four months later, OpenAI released a new large language model, or LLM, called GPT-4 with markedly improved capabilities.1 Similarly, by May 2023, Anthropic’s generative AI, Claude, was able to process 100,000 tokens of text, equal to about 75,000 words in a minute—the length of the average novel—compared with roughly 9,000 tokens when it was introduced in March 2023.2 And in May 2023, Google announced several new features powered by generative AI, including Search Generative Experience and a new LLM called PaLM 2 that will power its Bard chatbot, among other Google products.3

To grasp what lies ahead requires an understanding of the breakthroughs that have enabled the rise of generative AI, which were decades in the making. For the purposes of this report, we define generative AI as applications typically built using foundation models. These models contain expansive artificial neural networks inspired by the billions of neurons connected in the human brain. Foundation models are part of what is called deep learning, a term that alludes to the many deep layers within neural networks. Deep learning has powered many of the recent advances in AI, but the foundation models powering generative AI applications are a step-change evolution within deep learning. Unlike previous deep learning models, they can process extremely large and varied sets of unstructured data and perform more than one task.

Foundation models have enabled new capabilities and vastly improved existing ones across a broad range of modalities, including images, video, audio, and computer code. AI trained on these models can perform several functions; it can classify, edit, summarize, answer questions, and draft new content, among other tasks.

All of us are at the beginning of a journey to understand generative AI’s power, reach, and capabilities. This research is the latest in our efforts to assess the impact of this new era of AI. It suggests that generative AI is poised to transform roles and boost performance across functions such as sales and marketing, customer operations, and software development. In the process, it could unlock trillions of dollars in value across sectors from banking to life sciences. The following sections share our initial findings.

For the full version of this report, download the PDF.

Key insights

Generative AI’s impact on productivity could add trillions of dollars in value to the global economy. Our latest research estimates that generative AI could add the equivalent of $2.6 trillion to $4.4 trillion annually across the 63 use cases we analyzed—by comparison, the United Kingdom’s entire GDP in 2021 was $3.1 trillion. This would increase the impact of all artificial intelligence by 15 to 40 percent. This estimate would roughly double if we include the impact of embedding generative AI into software that is currently used for other tasks beyond those use cases.

About 75 percent of the value that generative AI use cases could deliver falls across four areas: Customer operations, marketing and sales, software engineering, and R&D. Across 16 business functions, we examined 63 use cases in which the technology can address specific business challenges in ways that produce one or more measurable outcomes. Examples include generative AI’s ability to support interactions with customers, generate creative content for marketing and sales, and draft computer code based on natural-language prompts, among many other tasks.

Generative AI will have a significant impact across all industry sectors. Banking, high tech, and life sciences are among the industries that could see the biggest impact as a percentage of their revenues from generative AI. Across the banking industry, for example, the technology could deliver value equal to an additional $200 billion to $340 billion annually if the use cases were fully implemented. In retail and consumer packaged goods, the potential impact is also significant at $400 billion to $660 billion a year.

Generative AI has the potential to change the anatomy of work, augmenting the capabilities of individual workers by automating some of their individual activities. Current generative AI and other technologies have the potential to automate work activities that absorb 60 to 70 percent of employees’ time today. In contrast, we previously estimated that technology has the potential to automate half of the time employees spend working. The acceleration in the potential for technical automation is largely due to generative AI’s increased ability to understand natural language, which is required for work activities that account for 25 percent of total work time. Thus, generative AI has more impact on knowledge work associated with occupations that have higher wages and educational requirements than on other types of work.

The pace of workforce transformation is likely to accelerate, given increases in the potential for technical automation. Our updated adoption scenarios, including technology development, economic feasibility, and diffusion timelines, lead to estimates that half of today’s work activities could be automated between 2030 and 2060, with a midpoint in 2045, or roughly a decade earlier than in our previous estimates.

Generative AI can substantially increase labor productivity across the economy, but that will require investments to support workers as they shift work activities or change jobs. Generative AI could enable labor productivity growth of 0.1 to 0.6 percent annually through 2040, depending on the rate of technology adoption and redeployment of worker time into other activities. Combining generative AI with all other technologies, work automation could add 0.2 to 3.3 percentage points annually to productivity growth. However, workers will need support in learning new skills, and some will change occupations. If worker transitions and other risks can be managed, generative AI could contribute substantively to economic growth and support a more sustainable, inclusive world.

The era of generative AI is just beginning. Excitement over this technology is palpable, and early pilots are compelling. But a full realization of the technology’s benefits will take time, and leaders in business and society still have considerable challenges to address. These include managing the risks inherent in generative AI, determining what new skills and capabilities the workforce will need, and rethinking core business processes such as retraining and developing new skills.

Where business value lies

Generative AI is a step change in the evolution of artificial intelligence. As companies rush to adapt and implement it, understanding the technology’s potential to deliver value to the economy and society at large will help shape critical decisions. We have used two complementary lenses to determine where generative AI, with its current capabilities, could deliver the biggest value and how big that value could be (Exhibit 1).

Exhibit 1

The first lens scans use cases for generative AI that organizations could adopt. We define a “use case” as a targeted application of generative AI to a specific business challenge, resulting in one or more measurable outcomes. For example, a use case in marketing is the application of generative AI to generate creative content such as personalized emails, the measurable outcomes of which potentially include reductions in the cost of generating such content and increases in revenue from the enhanced effectiveness of higher-quality content at scale. We identified 63 generative AI use cases spanning 16 business functions that could deliver total value in the range of $2.6 trillion to $4.4 trillion in economic benefits annually when applied across industries.

That would add 15 to 40 percent to the $11 trillion to $17.7 trillion of economic value that we now estimate nongenerative artificial intelligence and analytics could unlock. (Our previous estimate from 2017 was that AI could deliver $9.5 trillion to $15.4 trillion in economic value.)

Our second lens complements the first by analyzing generative AI’s potential impact on the work activities required in some 850 occupations. We modeled scenarios to estimate when generative AI could perform each of more than 2,100 “detailed work activities”—such as “communicating with others about operational plans or activities”—that make up those occupations across the world economy. This enables us to estimate how the current capabilities of generative AI could affect labor productivity across all work currently done by the global workforce.

Some of this impact will overlap with cost reductions in the use case analysis described above, which we assume are the result of improved labor productivity. Netting out this overlap, the additional economic benefits of generative AI beyond those use cases—or the many small increases in productivity that are likely to materialize when the technology is applied to knowledge workers’ activities—amounts to an additional $6.1 trillion to $7.9 trillion annually (Exhibit 2).

Exhibit 2

While generative AI is an exciting and rapidly advancing technology, the other applications of AI discussed in our previous report continue to account for the majority of the overall potential value of AI. Traditional advanced-analytics and machine learning algorithms are highly effective at performing numerical and optimization tasks such as predictive modeling, and they continue to find new applications in a wide range of industries. However, as generative AI continues to develop and mature, it has the potential to open wholly new frontiers in creativity and innovation. It has already expanded the possibilities of what AI overall can achieve (see sidebar “How we estimated the value potential of generative AI use cases”).

In this section, we highlight the value potential of generative AI across business functions.

Generative AI could have an impact on most business functions; however, a few stand out when measured by the technology’s impact as a share of functional cost (Exhibit 3). Our analysis of 16 business functions identified just four—customer operations, marketing and sales, software engineering, and research and development—that could account for approximately 75 percent of the total annual value from generative AI use cases.

Exhibit 3

Notably, the potential value of using generative AI for several functions that were prominent in our previous sizing of AI use cases, including manufacturing and supply chain functions, is now much lower.4 This is largely explained by the nature of generative AI use cases, which exclude most of the numerical and optimization applications that were the main value drivers for previous applications of AI.

In addition to the potential value generative AI can deliver in function-specific use cases, the technology could drive value across an entire organization by revolutionizing internal knowledge management systems. Generative AI’s impressive command of natural-language processing can help employees retrieve stored internal knowledge by formulating queries in the same way they might ask a human a question and engage in continuing dialogue. This could empower teams to quickly access relevant information, enabling them to rapidly make better-informed decisions and develop effective strategies.

In 2012, the McKinsey Global Institute (MGI) estimated that knowledge workers spent about a fifth of their time, or one day each work week, searching for and gathering information. If generative AI could take on such tasks, increasing the efficiency and effectiveness of the workers doing them, the benefits would be huge. Such virtual expertise could rapidly “read” vast libraries of corporate information stored in natural language and quickly scan source material in dialogue with a human who helps fine-tune and tailor its research, a more scalable solution than hiring a team of human experts for the task.

In other cases, generative AI can drive value by working in partnership with workers, augmenting their work in ways that accelerate their productivity. Its ability to rapidly digest mountains of data and draw conclusions from it enables the technology to offer insights and options that can dramatically enhance knowledge work. This can significantly speed up the process of developing a product and allow employees to devote more time to higher-impact tasks.

Following are four examples of how generative AI could produce operational benefits in a handful of use cases across the business functions that could deliver a majority of the potential value we identified in our analysis of 63 generative AI use cases. In the first two examples, it serves as a virtual expert, while in the following two, it lends a hand as a virtual collaborator.


About the authors

Michael Chui is a partner in McKinsey’s Bay Area office, where Ro*ger Roberts is a partner and Lareina Yee is a senior partner; Eric Hazan is a senior partner in McKinsey’s Paris office; Alex Singla is a senior partner in the Chicago office; Kate Smaje and Alex Sukharevsky are senior partners in the London office; and Rodney Zemmel is a senior partner in the New York office.

The authors wish to thank Pedro Abreu, Rohit Agarwal, Steven Aronowitz, Arun Arora, Charles Atkins, Elia Berteletti, Onno Boer, Albert Bollard, Xavier Bosquet, Benjamin Braverman, Charles Carcenac, Sebastien Chaigne, Peter Crispeels, Santiago Comella-Dorda, Eleonore Depardon, Kweilin Ellingrud, Thierry Ethevenin, Dmitry Gafarov, Neel Gandhi, Eric Goldberg, Liz Grennan, Shivani Gupta, Vinay Gupta, Dan Hababou, Bryan Hancock, Lisa Harkness, Leila Harouchi, Jake Hart, Heiko Heimes, Jeff Jacobs, Begum Karaci Deniz, Tarun Khurana, Malgorzata Kmicinska, Jan-Christoph Köstring, Andreas Kremer, Kathryn Kuhn, Jessica Lamb, Maxim Lampe, John Larson, Swan Leroi, Damian Lewandowski, Richard Li, Sonja Lindberg, Kerin Lo, Guillaume Lurenbaum, Matej Macak, Dana Maor, Julien Mauhourat, Marco Piccitto, Carolyn Pierce, Olivier Plantefeve, Alexandre Pons, Kathryn Rathje, Emily Reasor, Werner Rehm, Steve Reis, Kelsey Robinson, Martin Rosendahl, Christoph Sandler, Saurab Sanghvi, Boudhayan Sen, Joanna Si, Alok Singh, Gurneet Singh Dandona, François Soubien, Eli Stein, Stephanie Strom, Michele Tam, Robert Tas, Maribel Tejada, Wilbur Wang, Georg Winkler, Jane Wong, and Romain Zilahi for their contributions to this report.

For the full list of acknowledgments, see the downloadable PDF.

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