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This is the McKinsey Podcast, where we help you make sense out of our world's toughest business challenges.
Welcome to the show.
I'm Lucia Raheli.
And I'm Roberta Fasaro.
Hey, everyone.
Today we've got a really cool segment coming up on quantum computing with McKinsey partner, Michael Bogobovich.
But before we go there, let's talk about what's new on McKinsey.com, more on tariffs.
We just published an article about the importance of establishing a nerve center that can help companies respond comprehensively and in real time.
Yeah, and geopolitically speaking, we have an interactive called the Global Trade Explorer.
It tracks the top trading partners for each world economy and it shows very clearly how trading partners have changed between 1995 and 2023.
Very eye-opening.
You can find both of these pieces of research on our site and in our show notes.
All right.
Let's hear from McKinsey partner Michael Bogobovich, who goes by Bogo.
And stick around, because in our second segment we hear from McKinsey senior partner, Michael Busey, about how CEOs can best lead their companies through transformations.
Bogo, really glad to have you on to talk about quantum.
Thank you for asking about it.
Honestly, it's a super interesting topic and I've been working on it for a few years now.
It's been something that's been five to 10 years away for many, many decades, but now it feels like it's really much more like three to five years away.
So it's a really good time to be having this discussion.
And there are so many announcements that have come out.
So many big players that have thrown their hat in the ring just because we're at this real inflection point in the industry.
Yeah.
So let's talk about that inflection point.
And also, thanks for joining.
Thank you so much.
Thank you for having me.
Quantum is an area of computing that has long been part of the lexicon of computing, but it can also feel a little bit difficult to grok.
Help us demystify quantum a little bit.
What is quantum computing and how is it different from classical computing?
Absolutely.
By the way, I love that use of the word grok.
The way that quantum computers are different from kind of traditional digital computers.
Traditional digital computers have really operated in the realm of ones and zeros.
And what quantum computing does is.
It really opens that up to a much wider ability to calculate in very different ways than we've had possible.
We're replacing computer chips with individual atoms and we're using the quantum properties of each of those individual atoms to act as an entire processor.
It also works differently because we can actually compute rather than doing things serially.
We can calculate hundreds of thousands of millions of scenarios all at the same time and come to an answer.
Wow.
So do you think there's a world where quantum computers will actually replace, you know, our typical laptop?
So quantum computers are really good at certain types of problems.
They're probably not going to replace every single type of computer out there.
They're not going to replace your PC, and they're not going to replace all the servers out there.
What it will do is it will act as an add-on, in the same way as your graphics card does, to solve very specific, very challenging and often very important problems.
So what kind of problems?
So things like, where do I need to go?
How do I find the best route?
How do I, you know, pack up a cargo plane?
Or how do I go and optimize my financial portfolio?
It's really good at doing those types of really challenging problems much faster than anything else.
It also can do other problems like simulation.
So material science is a really big deal, where we're looking at things like how does a drug impact in work with different viruses and different cells and what are the impacts and effects of it?
Predicting that is hugely valuable, not only to the pharmaceutical companies but to the people that will be benefiting from these drugs being accelerated through the pipeline.
We can also look at things like material sciences, for batteries is another huge area where every single slight gain in efficiency of a battery can drive huge amounts of value for every single organization that uses batteries, which basically is every single human being on this world.
So give us kind of a concrete example, if you would, of the potential power of quantum.
So relative to conventional computing, how powerful is quantum?
Also, one problem that's been very top of mind right now is just around information security.
People have been discussing this heavily, and I'm sure you've read a lot of articles about this.
But there's this entire concept of Q Day coming up, which will break encryption.
One of the most common standards out.
There are say, 2048 standards.
To crack that will take about 300 trillion years, which is longer than the lifetime of the universe.
So it's a pretty big deal.
Quantum computers.
The expectation is within a few years, maybe as far out as five years, they'll be able to crack it within a few hours.
And that's because it operates in such a fundamentally different way.
Once we get to 2048, there's a real danger of things like a steal now, decrypt later attacks, which is not that big of a deal if we're stealing like your emails from yesterday.
Probably nothing too major three years out.
But if we're looking at things like your health information or the designs for a nuclear submarine, that becomes a really big deal.
And that's one of the reasons why quantum is really impactful right now.
So we have been talking about quantum for eons.
It feels like einstein had that famous line, which i thought was very sort of romantic in college, where he described quantum entanglement as spooky action at a distance.
I'm sure i'm oversimplifying this to an incredible degree, but you have this ion right the way it was described.
If you flip a coin on Earth, the coin will also flip.
That is entangled with that coin.
You know, a bazillion miles away.
They retain some kind of entanglement despite this incredible distance.
And it's such a romantic idea, right?
That something could be separated from you and still be connected in some bizarre way.
I don't know how that plays out in terms of the actual use cases and application.
It does play out in the encryption space, right?
So the question is like, is this thing that's happening?
Because you can't actually send information about it faster than the speed of light.
But theoretically, this happens instantly, like faster than speed of light.
So it's like, is that breaking actually?
How is it possible?
It's crazy.
So people are like, well, does that break it?
And what's it?
Because you can't actually send information classically back.
It doesn't break the speed of light rules because you can't confirm that what you got was 100, the right answer, until you go the other way.
So it's very useful in encryption, not as good in transmitting information.
But we have actually, you know, figured out, using like Bell's theorem and a few other things, that we're very, very certain that it's not some third factor, that's just coincidental that you're getting this thing, that they are actually truly entangled.
And as soon as you measure one, the other one collapses.
And it's just crazy.
It's mind blowing.
That is so cool.
Why have practical applications of quantum been so difficult to implement?
Well, I think it's really just the fundamental nature of this.
We're still learning.
It took computers many, many decades before they started becoming mainstream.
What we're seeing in the quantum space.
Because we're dealing with tiny particles, it's very hard to interact with them directly, but it is actually very easy for other things to interact with them.
What we're actually doing is now we're teaming up hundreds of these atoms together.
Instead of a physical qubit, we're now going to logical qubits.
And we've seen 100x, 1000x, 10,000x fold increases in accuracy.
And so we're now at a point where we are seeing functional computers, but that's really what we've been dealing with.
It's just the scale of the computers themselves have been too small and the error rates have been too high.
So in the past several months we've seen three of what we call the hyperscalers Microsoft, Amazon and Google all announce big steps forward right in the development of their proprietary quantum chips.
What do these advances mean for the state of quantum development?
Also, the way I see it is, these announcements are a big confidence indicator in how quickly we're coming to quantum computing at scale.
Google, Amazon, Microsoft have all been working on this for years and years and years.
And should leaders be preparing for an accelerated timeline as a result of this quantum race intensifying?
Absolutely.
I think so.
I think we're still very dependent on some fundamental research.
But just the amount of funding pouring in over the last three or four years.
About four years ago, the number skyrocketed by 100x.
We went from, you know, tens of millions of dollars being invested, hundreds of millions of dollars being invested, to now billions and billions of dollars every single year.
You talked a little bit about this at the top, but let's return to it.
Let's talk about use cases, practical applications of quantum.
We recently published some research highlighting finance and telecommunications as the sectors most engaged with quantum thus far.
What do those sectors stand to gain?
I'll start off with finance because I think that one is a lot more straightforward.
Look, quantum is really good at dealing with noisy information and helping to optimize and forecast well.
So portfolio optimization in the finance space is a huge area, you know, making sure that it understands your risks and your constraints and is able to then build a portfolio for whatever particular investment strategy exists.
I think telecommunications is another one, but it is in a very different world.
So adjacent to quantum computing are things like quantum sensing and quantum networks, which are using the same fundamental science in order to build out new technologies and new capabilities.
For telecom, quantum encryption is particularly interesting because it can provide a truly secure way of communications.
The way that quantum works is you entangle two atoms.
They're able to talk to each other.
You know, just very simply put.
And what that means is if you have somebody that tries to listen in and eavesdrop, it actually breaks the connection in a way that they can't replicate.
So you're actually able to use the properties of fundamental physics to secure your communications.
Even with recent advances, widespread quantum usage remains, if I'm understanding you correctly, years away.
Anything companies should be doing now or thinking about now to get ready for the potential impact of quantum technology.
Absolutely.
I think the first one is just around security.
You know, this is a place where, if you're not using quantum safe algorithms and there are some that are published this is the first place to start.
If your data is getting captured now and then decrypted in a few years, that's a real major potential risk.
And a lot of the big players have already built in quantum safe algorithms into their chats.
Basically every major place where data is in transit.
There are already quantum safe algorithms in that space.
Places where data is at rest, that's probably the next big area where people are focusing on.
The second big piece is just around talent and strategy.
The talent needed to create quantum algorithms, to run quantum computers, to maintain the environment is tiny.
You know, it's thousands of people in the world right now.
And it takes years and years to train up a PhD to do this type of work.
And it's really new.
So if you really want to be involved in this in three years, you need to think about the right to play now and think about the one or two people that you're getting in so that you can play in the sector in three years.
Otherwise we're going to see what happened with developers, with data scientists, except tenfold worse where the cost of these people and the availability is.
It's just massively unaffordable for most organizations.
And the amount of value that we're talking is, like you know, across all industries, somewhere between one to two trillion dollars of value by 2035.
So it's massive and valuable.
And for some companies will be an absolute mandate.
You know all the financial organizations, banks that we've talked about.
They've already put their right to play card down and started to work on this space.
The last piece that I would say is get involved with your local innovation hubs.
Most areas somewhere nearby have these new hubs that are coming up, which are a combination of universities, private companies and public funding.
And they really need private companies to come in and help them understand use cases and test the technology and work and learn.
But that's probably the most cost effective and efficient way to get into this space as an entry point.
You're so lucky.
This is such an interesting and sort of revolutionary you know, it's just like an incredible space to be working in.
Someone turned me on to this guy called Carlo Rovelli, like eight or nine years ago.
He's an Italian scientist.
He writes books about quantum for more public consumption, like the non-scientific audience.
How did you hear about quantum in the first place?
I knew about quantum through this friend of mine who turned me on to Carlo Rovelli, did his doctorate at MIT jointly in physics and computer science.
And he would talk about how, at Google, They had these massive refrigerators is how I would think of them?
Or these like refrigerated areas.
You know, everything had to be like perfectly controlled and managed.
And he was like, it will never amount to anything, but it's the coolest field there is in physics.
Some of the pictures of, like the quantum computers that, like IBM and others have released are, just first off, absolutely gorgeous.
But it is also like near absolute zero in those rooms, like negative 273 degrees Celsius.
It's crazy.
Do you go in there for your client work?
Do you go in there and look at them or no?
Not for client work, but like we visit a bunch of the different sites.
Like the amount of engineering that goes into this is just absolutely incredible.
They are literally holding individual atoms in stasis and then like electrifying and entangling them.
That's really difficult to do, to like just pull out a single atom and then keep it isolated from everything else.
Bogo, thanks so much for joining us today.
Thank you so much for having me.
This was an absolute pleasure.
Now let's hear about how CEOs can lead their companies successfully through a transformation.
McKinsey Senior Partner Michael Busey speaks with our Managing Editor and Producer Laurel Moglen.
Michael, welcome to the McKinsey Podcast.
Thank you so much.
Transformation is a word that means many things to different people.
When it comes to organizations, how are we defining it for our conversation today?
For us, what we call it is a capital T transformation.
And it's an organization-wide effort to change how the company operates to drive outsized performance.
And performance being financial performance, operating performance, organizational performance.
And the reason why these organization-wide efforts are so important is, as we all know, change is tough.
But change is now forced upon organizations because of the pace which the world around us is changing, right.
I've had the privilege of doing this across all different types of industries telecom software fintech, manufacturing insurance.
And the single most important factor is the role of CEO.
That is the determination of whether these things are successful.
So let's talk about that role of the CEO.
What is the CEO uniquely responsible for doing during times of transformation?
The CEO sets the tone, the pace, the scope of the change.
CEOs must solve what we consider collective action problems, right?
Collective action.
Problems are where an individual or group is incentivized in one way and they're never going to optimize for the whole because of the incentives that are set up in the system.
The easiest one to conceptualize is what I call the budget problem, right?
Every single organization faces this.
The CEO demands, I want 10% improvements.
The business leader has every incentive to go for incremental improvement on last year, but not the full potential.
Only the CEO can solve to say, okay, no, we're going to go after our full potential.
Let me give you another kind of collective action problem, which is the optimization of the tribe versus the nation.
Within organizations, folks come together within their small groups and who they operate with every single day.
And it becomes natural to prioritize what that group needs, potentially at the expense of the whole.
Again, the CEO is uniquely organized, positioned to ensure that everybody says no no, no.
The nation is what really is important, rather than what individual tribes want.
And I need this organization to come together cross-functionally to engage with each other, to collaborate with each other, to push each other, to challenge each other so that we actually realize our full potential.
That leads me to my next question is this is CEO rallying the employee mindset to?
Are there specific ways a CEO can approach that?
First of all is the CEO is really the chief storyteller.
They are the person who is setting the vision for the organization, that is, helping the organization to craft the case for change.
What is the fact-based reason why we need to transform and why do we need to change and why do we need to adapt from what is comfortable and how we're operating today?
And then, from that case for change, the CEO needs to encourage each person in the organization, each executive, each manager, each frontline, to figure out their personal.
Why am I excited about this?
Why am I motivated by this change?
What's my personal change story?
And this type of storytelling is so important for both the narrative but also to motivate.
We can use employees to help radiate the story.
So can you talk a little bit about frontline workers?
The most important is that each frontline worker needs to understand their role in the change, their role within the company in terms of what do they do every single day.
What do they need to bring for the company to be successful?
There's a story that resonates with me.
In Western Australia, they're digging up iron ore from the ground.
And one of the things that actually sticks within the mining operations is there's a sticky dirt.
If you're a truck operator, you're trying to get as much as you can.
But when you hit the sticky substance, it actually is going to gum up the rest of the system.
And so Norm, who is an operator at this particular company, every single one of his incentives was, in a particular way, to actually keep going.
And he realized he had hit the sticky dirt and he said, no, I'm going to slow down.
And not only did he slow down, but then he told the person on the night shift hey, you need to slow down as well.
And so that one act actually preserved the chain that we were trying to create and actually increased the throughput, even though he actually had slowed down and reduced his throughput.
And again back to the CEO needs to be able to cascade that down so that everybody starts to understand their particular role and by articulating the vision of what are we trying to accomplish as an organization.
That seems quite obvious, but it's not, is it?
Everybody having their role, it's an obvious thing.
It's really hard to do in practice, right?
Because it requires really intense conversations and trade-offs, right?
And it requires actually working as an organization.
So if I think of the traits that a CEO needs to have as in part of this transformation, right?
We talked about the aspiration.
For me, there's four.
One was aspiration.
We talked about that.
We set the organization up.
The second is being engaged, right?
The CEO has to be on top of what we're trying to drive as this change and regularly engage in this at the right times and at the right moments.
Third is that the CEO has to be empowered.
CEOs often know what they want to do, but because of the board or because of other stakeholders, they don't have the ability to drive what they're trying to drive.
And then the last trait is around being effective.
CEOs need to step up.
They need to make the decisions when only they can make the decisions right.
Is it worthwhile to get into what happens when newly hired talent comes into an established workforce during a transformation, and how to help join forces as opposed to creating friction?
Talent that comes in too often when they're coming into a moving train situation.
We do a really poor job of actually getting them up to speed on the collective journey that the rest of the organization has been on.
Equally, when someone comes on with fresh eyes and with a fresh perspective, they can actually help to provide the galvanizing force to get the organization to change even faster.
So it's actually an opportunity, but too often because we don't do the proper context setting, create the moments for them being able to get them onto the moving train, they start to steer it in a very different direction than everybody else is actually going on.
And so therefore it's not as successful as it really could be.
Excellent.
So context is so important.
You meet with CEOs and leaders all the time.
What would you say?
Maybe single biggest challenge that you see across industries that CEOs don't anticipate during these transformations.
One of the challenges that we see is that bridges aren't built between the transformation in the day-to-day business.
And two results happen.
One is within the transformation, we're operating at a different pace.
We're starting to make decisions faster, et cetera.
Those same attributes aren't brought into the day-to-day business.
So everything feels business as usual, and we're not actually acting with the urgency.
And so therefore, we're self-optimizing.
The second part is the change and the transformation are not in lockstep.
And so therefore, you get into lots of disputes about, oh, I can't see the financial results here.
I don't understand actually what is really driving my performance, because at the bottom line I can't disaggregate what actually is driving this.
And we are very big actually on getting closer on the operating metrics of the business.
These are the leading indicators that show us where we're actually heading and making sure we can have a tight linkage within the day-to-day and the change on those operating metrics.
Let's talk about culture and communication then while this is going on.
It's a big, giant topic.
But when you think about that, what comes to mind about culture and communication that a CEO is uniquely suited to instill?
So first is that the CEO has to say hey, what we're doing today is not where I want to be in three months time, six months time, 12 months time.
And just the sheer act of actually setting a vision for how do we want the organization to operate is a powerful change that sets the organization onto a different course.
The second piece is okay.
Great, we're going to operate differently.
But who is going to be the catalyst of this change?
At the end of the day, it's the leaders within the business.
In general, like it's our high potentials.
You show us, you see the problems that are in the business every day.
You see what potentially how we could operate differently.
What are the things that we need to go change?
And unleashing them to be able to operate much differently, I think, is another powerful act that allows the organization to run much faster and to move in the right directions.
When all the teams are executing on this transformation, how hands-on is a CEO to sustain the wanted impact?
So I got good news and I got bad news for the CEOs that are out there.
The good news is it is not.
You need to be involved with a transformation 24 hours a day, seven days a week.
But the bad news is you do have to be engaged.
You do have to be involved.
And the cadence that we like to think of is weekly.
Weekly is enough to actually get work done, to be able to move an organization forward, to be able to get to the fact base of what needs to be solved and to tee up the right decisions.
But it's not so long that we're actually losing weeks and months of a year of performance.
Thank you for being with us today.
Thank you.
Thank you.
Thanks so much for listening to the McKinsey Podcast.
I'm Lucia Rahilly.
And I'm Roberta Fasaro.
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