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Case Study: Business Strategy of Sony Corporation

Founded on May 7, 1946 in Tokyo, Japan, one of the most successful technological corporations in the world: Sony was created under the two legendary men: the physicist Masaru Ibuka and the physicist Akio Morita (Sony, 2013). They made the decision to set up a company repairing and producing electrical equipment and established Sony under the name under the name Tokyo Tsushin Kogyo K.K. which is Tokyo Telecommunications Engineering Corporation, known as Totsuko. At that time, Totsuko was just a small company with capital of 190,000¥ (~ 2000 $) and around 20 employees compare to giant corporations in Japan such as Toshiba, Hitachi, Sharp, Matsushita with tremendous capital, facilities and labour capacity. Although in 1946 Japan was just recovered from the wartime, while the other giants still possessed enough resource and experience to control the Japan market, Totsuko had no machinery and little scientific equipment and using only their own intelligent and engineering expertise, the young talented group with great ambitious set their first step to the new markets. From 1955, the company continued producing product with the logo ‘SONY’. In 1957, the company decided to change the name of the company from Totsuko to Sony Corporation.

There was a little story behind the name ‘Sony’. it was originally by integrating “SONUS” the original Latin for “SONIC” meaning sound, with “SONNY” meaning a youthful boy. The idea came to Akio Morita when he was visiting the U.S in 1950s, he noticed that many U.S companies’ names are relatively simple with only alphabetic letters, at that moment he realized the name Totsuko was difficult to remember for customer around the world and decided to change to ‘Sony’.

Over a half century, Sony Corporation has always been a pioneer in technological development and acquired reputation for being innovative. Its aim is always to be the Japan’s first or even the world’s first. This is also the reason Sony had many failures in the past due to the fact of being first but it never stop moving forward. Grow from a small company of 20 employees, today, it has become a global corporation consists over 160,000 employees over the world and ranked #38 in the World’s Most Powerful Brands list according to Forbes (2012). Sony takes part in a wide range of businesses including electronics, game, entertainment and financial services sectors with major products such as television, computer, camera, game console, mobile audio, mobile phone and entertainment sectors with Sony Pictures Entertainment, Sony Music Entertainment making it one of the most comprehensive entertainment companies in the world. Famous for being always innovative, Sony may not be the biggest company but definitely, the most innovative, they have brought to humanity a vast number of creations that change the world that we already familiar with such as Walkman, Playstation, Blu-ray. Despite the fact that in recently years, Sony has lost their market’s stand due to economic losses and fierce competitions from Apple and Samsung, however, people still believe in the spirit of an innovative legend such as Sony will never fall down.

Unique Selling Points

One of the major unique selling points of Sony is its innovativeness. In the past where the company is not even a competitor to those giants such as Toshiba, Hitachi or Matsushita, the one strength Sony possessed is intelligence and gradually they proved to the world that they deserve a top position in world most innovative brands. The innovativeness of Sony comes from the strategy of creating their own in-house technology for their product development rather than adopting and relying on market technology. Long before the IPod from Apple becomes the world iconic music device, there was the Walkman from Sony. Introduced on 1st, July, 1971, the first Walkman with metal-cased blue-and-silver TPS-L2 was born as the world first’s low cost portable stereo and achieved great success until now with the sale record of 200 million unit by the time the IPod was introduced.

Product quality and quality management are also major unique selling points making the formidable reputation of Sony. From the original electronics products lines, entertainment and communication devices to robots, Sony always presents to the market premium products with the brand exclusive features in order to deliver to the customer their best cutting edge technology. Furthermore, the brand is also famous for its management system in term of quality enhancement and customer services in an effort to further achieve customer’s satisfaction, trust and reliability.

One more thing that makes Sony a well-known brand in the world as well as a major unique selling point is its strong brand equity . By extending the businesses of the company to a variety sectors including PCs and network products, TVs and Digital imaging, Electronic components and semiconductors, Entertainment and Financial services, Sony has achieved huge brand awareness , and it is likewise enhance its brand equity. Some feature products from Sony such as Bravia TVs, DSLRs Cameras, Playstation gaming consoles, portable music players Walkman and VAIO computers for example. In addition, they even take part in entertainment sector with the Sony Music Entertainment and Sony Pictures Entertainment which are very popular in the world.

Major Problems and Challenges Faced by Sony Corporation

Sony is a multinational organization and has to deal with the dynamic industry in which it is operating. It has developed itself by formulating a steady work environment where engineers had thoughtful appreciation of technology and have worked without restraint as they pleased to focus on development of dynamic technologies and creation of products that people have always desired.

Sony Corporation, which has been a leading corporation once, has reported losses for almost four consecutive years. It declared a record annual net loss of 520 billion yen ($6.4 billion) for the year ends in March 2012. The main strategic problem of Sony Corporation is embedded in its several product lines that provide too many parts of the entertainment value chain. The company’s innovation and operations slowed down due to the introduction of the “empire-building” strategy. It has lead to the weakening of its competitiveness in all of the market segments of its business. In addition to the internal problems faced by the wide product lines by Sony, it is facing other external challenges as well. In late 2000s, global economic crisis caused a significant decline in consumer spending as of recession and resultantly caused a decrease in the profitability of Sony. The overall demand of the products of Sony has declined due to the appreciation of the Japanese Yen as it has lead to negatively affect the purchasing power of non-Japanese consumers of Sony Products. Further, the Great East Japan Earthquake disaster and its consequences also effected Sony’s operations badly and resulted in extensive re-establishment costs. In the presence of these external and uncontrollable challenges, Sony was unable to cope with the increasing competition and it became difficult for Sony to retain its market share within the electronics and game industry. In accordance with such problems the top management team of Sony was comparatively conservative. As a result, Sony lost its competitive edge in the industry due to decrease in its technological innovation. In a nutshell, the primary emphasis of Sony Corporation on restructuring strategies in such alarming and challenging situation leads to enormous and continual losses.

Overview of Sony Corporation Strategies and its Implications

Sony Corporation is a giant in its industry having well-built core competencies . It has economies of scale and wide scope both in production and research and development because of its huge network in Japan, the United States and other countries all around the world. Moreover, its unique quality, technology and differentiated products are other top strategic benefits that can help it to attain competitive advantage in market.

Sony’s business operations have been restructured many times in last two decades. Sony’s first signs of loss began in early 1990s when it experienced a loss of ¥ 293.36b in 1995. The reason behind this loss was primarily the unrelated diversification and the dearth of innovation. New products are imitated very soon by the competitors in the digital era because these products can be produced by assembling widely-available parts. So there always remain the dangers of being entangled in price wars. This can only be avoided by readily adapting changes in a way that competitors cannot keep up. In reaction to this, Sony put all its efforts into restructuring the corporation considering it as a way towards success as there was general trend of diversification in leading companies. It faced heavy restructuring costs in this course but these efforts failed to attain the expected results and outcomes. In 1994, Sony formulated an eight company structure with an aim to create a market-responsive company but the losses prevailed. In 1996, it designed a ten-company structure with a same goal to get the company back to profits. Again, due to unrelated diversifications, heavy decentralization and minimal involvement of board room in major decisions, the losses cannot be reduced. After 1999, the company focused on Internet based products due to dot com burst. This major shift in business focus further worsened the situation. The major reasons for further losses were the lack of consolidation and hence substantial fall in sales. In addition to this, the economic slowdown in the US was also a key reason. Consequently, the focus on core competency was re-established which resulted in regaining profits slightly.

Sony must focus on increasing sales immediately so as to meet their short-term goals and attain success in long run. In addition to restructurings among Sony’s product lines, it should ensure stable profitable trend to avoid more severe decline. In the past few years, it has been able to reduce it cost. It should maintain this reduction so as to increase gross margin in the long run. Moreover, it should utilize the increased leverage and other assets in the ways that can lead to optimum and efficient boosting of sales. Most importantly, it should try to reduce or mitigate the macroeconomic risk which has been a major cause of unexpected losses in previous years.

Critical Evaluation of the ‘One Sony’ Strategy

The most important challenges for Sony are the high competition in industry and the macroeconomic risks. In this regard Sony should re-develop its competitive advantage, regain focus, ensure quality and reduce external factors effect on company’s performance and profitability.

The chief executive of Sony Corporation has emphasized on the fact that it’s the time for Sony to change now. He has given a revival plan that elucidates a major shift from the company’s unprofitable television business. It also planned to cut 10,000 jobs as well. In the new strategy, it is emphasized that the Sony would concentrate on three businesses namely the mobile devices, including smartphones and tablets; cameras and camcorders; and games.

Sony has fruitfully expanded into various business segments (Electronics, Game, Pictures, Music, and Financial Services) since the beginning of the company as a telecommunication company in 1946. It has diversified its product lines and has attained remarkable reorganization in a wide range of sectors. It has enhanced many other resources like research and development, marketing, customer services and even unrelated areas. All this has lead to both positive and negative effects simultaneously. As diversification has lead to the expansion of the company, it has also resulted in decreasing its specialized capabilities. Hence, Sony was unable to keep hold of its competitive advantage in any sector or segment of its business and lost the competitive edge against the highly specialized competitors within each segment.

So it’s the need of the hour that Sony locates a specific segment or sector to focus and specialize in it and then it should restructure the company around that focused segment. This type of restructuring can help the company to utilize maximum of its resources in the most productive and optimal way. The current move of Sony’s strategy is exactly in this line. Sony is about to terminate or integrate its least profitable segments. Such restructuring will lead to the development of a proprietary product collection and special set of Sony hardware and software products that can be used against the highly specialized competitors like the products of Apple. In this way, Sony can have an edge over the competitors in long run as no other company is operating in such wide range of sectors currently as Sony is. Sony, no doubt, will have an incomparable experience in this regard. This type of restructuring can reverse the recent unprofitable trend of the company as it will be a strong positive signal to the market and its competitors enhancing the confidence of consumers and investors.

The segments or sectors of business that should be focused should have the specific features. Sony should focus on such sectors which are already its main segments, namely the consumer, professional & devices segment or the networked products & services segment. Moreover, such segments should also have the prospect or potential to get integrated with various remaining segments. In this way, Sony will be able to leverage most of its current resources. Most importantly, this market segment should be moderate in competition as well. Sony would be able to implement the strategies in such segments where it has bigger market share recently.

Keeping these benefits in view, the mobile devices of Sony are extremely desirable sector to be focused by it. The series of Sony Ericsson smartphones launched with the Xperia brand in 2011 which operated on Android gained an extensive market share and have much more potential. Similarly, the Xperia smartphones can also be integrated with Sony tablets, personal computers and game consoles in this concern. In this way, Sony can be able to lower the cost and increase the demand for such Sony products in the long run keeping the main focus on the abundant competition in the smartphones and tablets markets.

Another sector to be focused by Sony can be of the games. The main reason behind it is that it’s the major segments for Sony in which it has competitive market share. The sector of games can induce synergies among Sony’s product lines. Moreover, the competition in the segment of games business is not as extreme as it is in the other market segments. Sony intends to replace the operations of disjointed lineup of content delivery platforms to expand its PlayStation game network which will offer music and video as well. This is no doubt a good strategic step.

However, one Sony strategy is intending to focus on Sony’s digital imaging business that involves digital cameras and camcorders. This policy is again not very appropriate as Sony will have to face intense competition from Canon, Nikon, and Olympus. Moreover, Sony will also face threats from substitutes such as tablet computers which are highly equipped with advanced digital imaging functions. Keeping all these factors in view, it can be deduced that Sony will encounter great problems in the integration of digital imaging sectors with its other businesses.

Another appropriate feature of the new strategy is the decision of shrinking the TV business as the severe competition from Samsung and LG, the deficiency of synergy potentials and the comparatively low share of market is making it impossible for Sony to attain or retain its competitive advantage.

The focus on certain sectors will provide various benefits to Sony. Sony can start acquisitions within related segments once it has established strong focus. The acquisition strategy will lead to increase market share, to get the economies of scale, decrease manufacturing costs, and provide access to new technologies and patents. An increase in the market share will provide Sony with higher pricing power. The economies of scale will raise its productivity. The reduction in the manufacturing cost will lead to give benefit in a price competition. The technologies and patents will allow Sony to speed up their innovation progress which is slow right now. Sony must start by acquiring smaller companies in its focused market segment and should overpay premiums for the expected synergies as well.

Another main focus of this new strategy is to improve the quality of its products by managing such features at the top level of management in integrated way. The major strength of Sony is its brand name because consumers deem Sony’s products as trustworthy and having high quality generally. Whereas the quality of products of Sony has decreased in last few years. For instance, Sony declared that almost around 535,000 of their VAIO laptops might be in danger of overheating because of the temperature gauge error in 2010. Similarly, Sony had also recalled eight models of Sony digital cameras because of the problems with the image pick-up shortly after its multiple delays in launching PlayStation3. Such quality problems have lead to cost lawsuit expenses and have damaged the corporate image as well. Now, Sony is seriously emphasizing on attaining specialization in its products to avoid any such circumstances in future which is a positive action of this strategy.

Moreover, Sony is expecting to enhance its business in emerging markets with greater focus on the innovation . It is a vital strategy for any business so as to keep itself in the market successfully. This will provide it with more markets’ availability in the long run increasing the sales and hence profits.

However, this strategy is lacking in one very important aspect which is handling the macroeconomic factors. The presence of Sony in the international market has lead to its sensitivity to exchange rates and local economies. No doubt, Sony cannot get direct control over such factors but it can utilize its Financial Services segment to mitigate the risk exposure. Sony can apply this strategy by making derivatives contracts (currency swaps and interest rate swaps) or by taking short positions in particular securities as long as these practices comply with laws and regulation. The most problematic task is goal congruence. It means alignment of the manager’s incentives with the overall firm because such hedging measures can impact the profitability of the financial services segment. If these factors are ignored, they will again lead to unexpected losses to Sony in the long run making all other measures unrewarding.

Sony took the direct action in introducing the company system in the first place. It then performed an organizational improvement synchronized with the changes in the surrounding environment. Its strategy shifted in accordance with Chandler’s proposition that “organization follows strategy”. Sony’s organizational reforms and responding to environmental changes after the bubble collapse were significant. The one Sony and one management system will lead to solve many problems and have the capability of improving the performance of the company as all the major decisions are now to be taken and implemented by the top management. The new approach emphasizes on the strengths of the entire Sony Group as “One Sony” by implementing a rapid decision-making process. With the help of this, Sony’s primary goal is to revive and cultivate the electronics business to create new value in addition to further escalation of the stable business foundations of the Entertainment and Financial Service businesses.

This management structure has reduced the previous complexity of the system and efficiency is expected to be increased. The more top-down leadership is expected to start to attain Sony’s goals for the next years as it is said it’s the key to spot the requirement to ‘create visions’, ‘motivate’, ‘establish direction’ and ‘align people’. The focus is on development of six components for successful strategic leadership that involves determining a firm’s vision, retaining core competencies and mounting human capital . All these aspects are introduced to develop new technology and benefit from a centralized decision making system in the long run.

Sony has faced many difficulties for several years and has now been able to properly identify many of its real problems. The latest strategy will lead to address them to some extent. Although some improvements have been shown in the recent times but still many areas are to be focused on in this strategic change. The basic reason behind it is that Sony is not a market leader now. Resultantly it does not have that old power to influence the direction of the market and follow its own plan. Moreover, the policy of defending its own interests has proved to be exigent. The strategies need not be deliberate always, they can emerge as well. This strategy is good in many aspects and can lead to revive Sony Corporation but still Sony needs to work hard if it wants to survive and regain its market-leading position again.

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Potential Sexual Transmission of Tinea Pubogenitalis From TMVII

• 1 The Ronald O. Perelman Department of Dermatology, New York University Grossman School of Medicine, New York
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• 3 Department of Pathology, New York University Grossman School of Medicine, New York
• 4 Wadsworth Center Mycology Laboratory, New York State Department of Health, Albany
• 5 Department of Biomedical Sciences, School of Public Health, University at Albany, Albany, New York

Tinea genitalis/pubogenitalis is a rare manifestation of dermatophytosis affecting the genitals and pubic region. In the last decade, male genital dermatophytosis has been increasingly reported in India, corresponding to the emergence of Trichophyton indotineae . 1 , 2 Climate, hygiene, and bathing practices likely contribute to genital dermatophytosis in India, which is also driven by inappropriate use of topical steroids. 1 A recent report highlights the potential for sexual contact to transmit T indotineae . 2 Similarly, tinea genitalis has increasingly been reported in Europe attributed to the emerging dermatophyte, T mentagrophytes internal transcribed spacer (ITS) genotype VII (TMVII), 3 - 6 which may spread via sexual contact. We describe a patient with TMVII resulting in tinea genitalis, glutealis, and corporis to highlight risk factors, diagnosis, and treatment.

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Caplan AS , Sikora M , Strome A, et al. Potential Sexual Transmission of Tinea Pubogenitalis From TMVII. JAMA Dermatol. Published online June 05, 2024. doi:10.1001/jamadermatol.2024.1430

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The state of AI in early 2024: Gen AI adoption spikes and starts to generate value

If 2023 was the year the world discovered generative AI (gen AI) , 2024 is the year organizations truly began using—and deriving business value from—this new technology. In the latest McKinsey Global Survey  on AI, 65 percent of respondents report that their organizations are regularly using gen AI, nearly double the percentage from our previous survey just ten months ago. Respondents’ expectations for gen AI’s impact remain as high as they were last year , with three-quarters predicting that gen AI will lead to significant or disruptive change in their industries in the years ahead.

About the authors

This article is a collaborative effort by Alex Singla , Alexander Sukharevsky , Lareina Yee , and Michael Chui , with Bryce Hall , representing views from QuantumBlack, AI by McKinsey, and McKinsey Digital.

Organizations are already seeing material benefits from gen AI use, reporting both cost decreases and revenue jumps in the business units deploying the technology. The survey also provides insights into the kinds of risks presented by gen AI—most notably, inaccuracy—as well as the emerging practices of top performers to mitigate those challenges and capture value.

AI adoption surges

Interest in generative AI has also brightened the spotlight on a broader set of AI capabilities. For the past six years, AI adoption by respondents’ organizations has hovered at about 50 percent. This year, the survey finds that adoption has jumped to 72 percent (Exhibit 1). And the interest is truly global in scope. Our 2023 survey found that AI adoption did not reach 66 percent in any region; however, this year more than two-thirds of respondents in nearly every region say their organizations are using AI. 1 Organizations based in Central and South America are the exception, with 58 percent of respondents working for organizations based in Central and South America reporting AI adoption. Looking by industry, the biggest increase in adoption can be found in professional services. 2 Includes respondents working for organizations focused on human resources, legal services, management consulting, market research, R&D, tax preparation, and training.

Also, responses suggest that companies are now using AI in more parts of the business. Half of respondents say their organizations have adopted AI in two or more business functions, up from less than a third of respondents in 2023 (Exhibit 2).

Gen AI adoption is most common in the functions where it can create the most value

Most respondents now report that their organizations—and they as individuals—are using gen AI. Sixty-five percent of respondents say their organizations are regularly using gen AI in at least one business function, up from one-third last year. The average organization using gen AI is doing so in two functions, most often in marketing and sales and in product and service development—two functions in which previous research  determined that gen AI adoption could generate the most value 3 “ The economic potential of generative AI: The next productivity frontier ,” McKinsey, June 14, 2023. —as well as in IT (Exhibit 3). The biggest increase from 2023 is found in marketing and sales, where reported adoption has more than doubled. Yet across functions, only two use cases, both within marketing and sales, are reported by 15 percent or more of respondents.

Gen AI also is weaving its way into respondents’ personal lives. Compared with 2023, respondents are much more likely to be using gen AI at work and even more likely to be using gen AI both at work and in their personal lives (Exhibit 4). The survey finds upticks in gen AI use across all regions, with the largest increases in Asia–Pacific and Greater China. Respondents at the highest seniority levels, meanwhile, show larger jumps in the use of gen Al tools for work and outside of work compared with their midlevel-management peers. Looking at specific industries, respondents working in energy and materials and in professional services report the largest increase in gen AI use.

Investments in gen AI and analytical AI are beginning to create value

The latest survey also shows how different industries are budgeting for gen AI. Responses suggest that, in many industries, organizations are about equally as likely to be investing more than 5 percent of their digital budgets in gen AI as they are in nongenerative, analytical-AI solutions (Exhibit 5). Yet in most industries, larger shares of respondents report that their organizations spend more than 20 percent on analytical AI than on gen AI. Looking ahead, most respondents—67 percent—expect their organizations to invest more in AI over the next three years.

Where are those investments paying off? For the first time, our latest survey explored the value created by gen AI use by business function. The function in which the largest share of respondents report seeing cost decreases is human resources. Respondents most commonly report meaningful revenue increases (of more than 5 percent) in supply chain and inventory management (Exhibit 6). For analytical AI, respondents most often report seeing cost benefits in service operations—in line with what we found last year —as well as meaningful revenue increases from AI use in marketing and sales.

Inaccuracy: The most recognized and experienced risk of gen AI use

As businesses begin to see the benefits of gen AI, they’re also recognizing the diverse risks associated with the technology. These can range from data management risks such as data privacy, bias, or intellectual property (IP) infringement to model management risks, which tend to focus on inaccurate output or lack of explainability. A third big risk category is security and incorrect use.

Respondents to the latest survey are more likely than they were last year to say their organizations consider inaccuracy and IP infringement to be relevant to their use of gen AI, and about half continue to view cybersecurity as a risk (Exhibit 7).

Conversely, respondents are less likely than they were last year to say their organizations consider workforce and labor displacement to be relevant risks and are not increasing efforts to mitigate them.

In fact, inaccuracy— which can affect use cases across the gen AI value chain , ranging from customer journeys and summarization to coding and creative content—is the only risk that respondents are significantly more likely than last year to say their organizations are actively working to mitigate.

Some organizations have already experienced negative consequences from the use of gen AI, with 44 percent of respondents saying their organizations have experienced at least one consequence (Exhibit 8). Respondents most often report inaccuracy as a risk that has affected their organizations, followed by cybersecurity and explainability.

Our previous research has found that there are several elements of governance that can help in scaling gen AI use responsibly, yet few respondents report having these risk-related practices in place. 4 “ Implementing generative AI with speed and safety ,” McKinsey Quarterly , March 13, 2024. For example, just 18 percent say their organizations have an enterprise-wide council or board with the authority to make decisions involving responsible AI governance, and only one-third say gen AI risk awareness and risk mitigation controls are required skill sets for technical talent.

Bringing gen AI capabilities to bear

The latest survey also sought to understand how, and how quickly, organizations are deploying these new gen AI tools. We have found three archetypes for implementing gen AI solutions : takers use off-the-shelf, publicly available solutions; shapers customize those tools with proprietary data and systems; and makers develop their own foundation models from scratch. 5 “ Technology’s generational moment with generative AI: A CIO and CTO guide ,” McKinsey, July 11, 2023. Across most industries, the survey results suggest that organizations are finding off-the-shelf offerings applicable to their business needs—though many are pursuing opportunities to customize models or even develop their own (Exhibit 9). About half of reported gen AI uses within respondents’ business functions are utilizing off-the-shelf, publicly available models or tools, with little or no customization. Respondents in energy and materials, technology, and media and telecommunications are more likely to report significant customization or tuning of publicly available models or developing their own proprietary models to address specific business needs.

Respondents most often report that their organizations required one to four months from the start of a project to put gen AI into production, though the time it takes varies by business function (Exhibit 10). It also depends upon the approach for acquiring those capabilities. Not surprisingly, reported uses of highly customized or proprietary models are 1.5 times more likely than off-the-shelf, publicly available models to take five months or more to implement.

Gen AI high performers are excelling despite facing challenges

Gen AI is a new technology, and organizations are still early in the journey of pursuing its opportunities and scaling it across functions. So it’s little surprise that only a small subset of respondents (46 out of 876) report that a meaningful share of their organizations’ EBIT can be attributed to their deployment of gen AI. Still, these gen AI leaders are worth examining closely. These, after all, are the early movers, who already attribute more than 10 percent of their organizations’ EBIT to their use of gen AI. Forty-two percent of these high performers say more than 20 percent of their EBIT is attributable to their use of nongenerative, analytical AI, and they span industries and regions—though most are at organizations with less than $1 billion in annual revenue. The AI-related practices at these organizations can offer guidance to those looking to create value from gen AI adoption at their own organizations.

To start, gen AI high performers are using gen AI in more business functions—an average of three functions, while others average two. They, like other organizations, are most likely to use gen AI in marketing and sales and product or service development, but they’re much more likely than others to use gen AI solutions in risk, legal, and compliance; in strategy and corporate finance; and in supply chain and inventory management. They’re more than three times as likely as others to be using gen AI in activities ranging from processing of accounting documents and risk assessment to R&D testing and pricing and promotions. While, overall, about half of reported gen AI applications within business functions are utilizing publicly available models or tools, gen AI high performers are less likely to use those off-the-shelf options than to either implement significantly customized versions of those tools or to develop their own proprietary foundation models.

What else are these high performers doing differently? For one thing, they are paying more attention to gen-AI-related risks. Perhaps because they are further along on their journeys, they are more likely than others to say their organizations have experienced every negative consequence from gen AI we asked about, from cybersecurity and personal privacy to explainability and IP infringement. Given that, they are more likely than others to report that their organizations consider those risks, as well as regulatory compliance, environmental impacts, and political stability, to be relevant to their gen AI use, and they say they take steps to mitigate more risks than others do.

Gen AI high performers are also much more likely to say their organizations follow a set of risk-related best practices (Exhibit 11). For example, they are nearly twice as likely as others to involve the legal function and embed risk reviews early on in the development of gen AI solutions—that is, to “ shift left .” They’re also much more likely than others to employ a wide range of other best practices, from strategy-related practices to those related to scaling.

In addition to experiencing the risks of gen AI adoption, high performers have encountered other challenges that can serve as warnings to others (Exhibit 12). Seventy percent say they have experienced difficulties with data, including defining processes for data governance, developing the ability to quickly integrate data into AI models, and an insufficient amount of training data, highlighting the essential role that data play in capturing value. High performers are also more likely than others to report experiencing challenges with their operating models, such as implementing agile ways of working and effective sprint performance management.

About the research

The online survey was in the field from February 22 to March 5, 2024, and garnered responses from 1,363 participants representing the full range of regions, industries, company sizes, functional specialties, and tenures. Of those respondents, 981 said their organizations had adopted AI in at least one business function, and 878 said their organizations were regularly using gen AI in at least one function. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP.

Alex Singla and Alexander Sukharevsky  are global coleaders of QuantumBlack, AI by McKinsey, and senior partners in McKinsey’s Chicago and London offices, respectively; Lareina Yee  is a senior partner in the Bay Area office, where Michael Chui , a McKinsey Global Institute partner, is a partner; and Bryce Hall  is an associate partner in the Washington, DC, office.

They wish to thank Kaitlin Noe, Larry Kanter, Mallika Jhamb, and Shinjini Srivastava for their contributions to this work.

This article was edited by Heather Hanselman, a senior editor in McKinsey’s Atlanta office.

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