From gen AI pilots to automated supply chains, technology is reshaping how operations leaders create efficiencies, build resilience, and encourage teamwork. On this episode of The McKinsey Podcast, McKinsey Senior Partner Daniel Swan speaks with Editorial Director Roberta Fusaro about how COOs can embed technology, particularly AI, into their company’s culture. It requires balancing the urgency of today with the transformation of tomorrow.
The McKinsey Podcast is cohosted by Lucia Rahilly and Roberta Fusaro.
The following transcript has been edited for clarity and length.
What’s new on McKinsey.com
Lucia Rahilly: On the heels of COP30,1 our recently published article about the physical challenges of the energy transition is top of mind.
Roberta Fusaro: And new energy sources go hand in hand with powering AI development. To dig into the state of AI, our latest global survey reveals that most companies are experimenting with AI but not quite scaling it across the enterprise.
Lucia Rahilly: Lots to explore there. Now let’s hear from McKinsey Senior Partner Daniel Swan.
Connecting teams through technology
Roberta Fusaro: We’ve talked a lot on this podcast about a slowdown in productivity growth and what organizations and economies can do to help reverse the trend. Excellence in operations seems to be a good place to start. What’s the connection between the COO and the company’s ability to increase productivity and achieve its goals?
Daniel Swan: One of the interesting parts about productivity is, whether it’s by the COO, CEO, or CFO, setting that tone right from the top is super important. You can walk into an organization and know right away if the productivity mindset permeates from the top all the way to the front line or if it exists only in pockets in certain parts of the organization.
You’ve got people in manufacturing, supply chain, and service operations who obviously play a massive role in how to drive cost and how to drive productivity year over year. But if they’re doing that when they’re at odds with the rest of the organization, it’s a very tough slog and hard to get the results you need.
Roberta Fusaro: Why do you think it’s tough for business leaders to focus on quick fixes and long-term plans at the same time?
Daniel Swan: It’s the old issue of how you can run at two speeds at once. I think one of the things we see is there are some organizations that are outstanding at the Band-Aids. They have a culture that is driven around reacting to the latest crisis, resolving it. And they culturally reward people who go above and beyond the call of duty to fix and control issues when they happen.
Sometimes that can be at odds with what it takes to drive long-term productivity, which can be things like a consistent and standard process that everybody follows the same way every time. You need to enable those processes through technology so that you can eliminate some of the non-value-added work and have your human labor focused on the things that are adding the most value to the organization. Sometimes the hero mentality of Jane or Joe “went out of their way and did something that was so remarkable that we celebrate it” is very different from rewarding Jane or Joe for doing the same thing every time for their step in the process or their part of the work.
Getting people to react and drive the short-term actions to hit the budget or fix issues that come up while at the same time transforming the way they do the work is a challenge. Sometimes it’s as simple as having different people work on those two different things. But oftentimes you’ve got to be very clear about which thing you’re trying to do with which effort. And sometimes that’s a hard thing for organizations to get perfectly clear all the time.
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Tools of the COO’s trade
Roberta Fusaro: What levers do COOs have at their disposal to help boost productivity?
Daniel Swan: Usually, the COO has a broad range of levers at their disposal. What we find is people have a very clear mindset and target around what they’re trying to achieve. The second thing we see is a focus on functional excellence. If you are a COO who buys a lot of stuff, it’s really important that you’re ensuring you’re doing strategic sourcing, leveraging cleansheets, and bringing the best procurement capabilities to bear. The third thing is technology enablement. These days, automation is one of the real enablers for productivity, both because there’s, at times, a shortage of labor for certain roles and because oftentimes automation takes away the parts of the job that employees least like doing.
Companies that have real automation are driving better employee retention.
Companies that have real automation are driving better employee retention. And when you’ve got people who are capable and experienced, your productivity goes up meaningfully. So it’s about how do you enable technology—AI, gen AI, automation, or the full suite of technology solutions—to improve your processes?
The last thing I would say is COOs who are effective at reaching across the aisle, so to speak, and working with marketing leaders and working with sales leaders are often the people who really differentiate on that last point or two of productivity.
We see things like design-to-value strategies and how you think about designing for cost and manufacturing as an “unlock” that some companies have done very well and others have really struggled with. The same thing applies in terms of how you set service-level expectations, whether that’s in a call center or in transportation and delivery to your customers.
Roberta Fusaro: I want to get back to the point you made about tech enablement. There’s a recent study from the Massachusetts Institute of Technology that says 95 percent of tech-driven pilots get stuck in purgatory.2 How can COOs facing this issue improve their odds of success?
Daniel Swan: The reality is we could have a whole podcast or series of podcasts on this question because I think it’s a defining question for our generation of leaders. We encourage clients to focus on the parts of their business that they need to transform to perform the way they want.
The second thing we say is to think about doing stuff at scale from day one, hour one. When you look at a lot of the things that have gotten stuck in pilot purgatory, it’s because somebody designs a pilot for one part of the organization, and they prove that it works. But what it takes to go from one part of the organization to the rest of the organization is a totally different set of activities, skills, capabilities, and technology investments. The notion of thinking from the very beginning about stuff at scale—what it’s going to take to get it across the entirety of the organization—is critical.
Roberta Fusaro: Can you share some examples of companies that have had success with their pilots, maybe doing cool things with gen AI or other cutting-edge initiatives within operations?
Daniel Swan: When you look at it in the call center arena or “customer care,” as we call it, you’ll see a ton of examples of people leveraging AI agents to help serve their customers. What’s super interesting in that example is oftentimes people know they’re talking to an agent versus a human being. And they are more satisfied talking to the agent than the human being.
We might not want to look too closely at that one. But I think, in reality, it means that people are very open and receptive. And I think there are pockets where you see that same thing with something like R&D. We’re seeing this in some of the product development space where you can go get feedback in a gen AI process in hours, where before it would take weeks and months of consumer sampling to get feedback on new products.
I do think the good news over the past couple of years is we’ve reached an inflection point where there are enough examples out there to be really excited about.
The influence of automation on labor
Roberta Fusaro: Thinking more broadly about productivity, there’s been a lot of talk about the impact and influence of gen AI on the workforce. How are you thinking about it?
Daniel Swan: Historically we’ve thought about automation and technology being as bad for our workers. I fundamentally believe the opposite.
We still have basically half a million manufacturing jobs open in the United States right now. There are open jobs in distribution. We’re having a hard time filling some of these, and that’s before even thinking about all the new manufacturing facilities that are being built in the US, all the construction that’s coming on. Realistically, we’re going to have some labor shortages: we’ve estimated up to potentially three million by the time you get to 2030 in terms of skilled labor for manufacturing and construction.
The second thing we see in this space is it provides an amazing opportunity for frontline workers. I think some of our research suggests that 40 to 50 percent of a frontline laborer’s job, skill, and time spent could meaningfully shift over the next three to five years from technology. You could look at that glass half empty and say, “That’s very scary.” If you look at that glass half full, you say, “Those skills that they’re developing are far more valuable and transferable outside of the current role that they’re in.”
You’re learning how to interact with computers and technology in a manufacturing environment. You’re learning how to interact with robots. You’re learning how to leverage AI and machine learning and other things like that that are very transferable skills beyond manual labor, if you will. And so I actually look at it as an incredible opportunity.
Roberta Fusaro: Switching it up a bit, how can the COO encourage more collaboration across the C-suite or business units to build the kind of teamwork that improves productivity?
Daniel Swan: For supply chain disruptions, coordination and teamwork are critical. When you look from a productivity perspective, a COO often has meaningful control over a large portion of the cost base and can get to pretty good productivity on their own.
There’s almost no COO who has control over the full cost base and the full decision rights in a way that you’re going to get to world-class productivity without getting input from others. I’ll give a couple of examples of that.
Oftentimes one of the big drivers of productivity can be how effective you are being with your capital. Are you deploying new capacity, are you investing in technology to drive productivity, et cetera? A COO often has to work with the CFO and others to figure out what the capital agenda looks like and how to prioritize capital dollars.
Another big driver of the cost base for any company is strategy—how you’re thinking about which customer requirements you’re going to meet, how you’re thinking about product design, and how you’re thinking about service levels. And the answers to those questions all drive collaboration, whether it’s with product development and R&D, whether it’s with sales, or whether it’s with marketing. So your ability to influence the full set of costs changes dramatically.
When you have a more collaborative process of, “Yeah, I know that’s your product design. But what if you change this material for that material? We think the consumers might like it better. And oh, it’s 20 percent cheaper.” That’s way more interesting than going to your supplier and seeing if you can get it for 2 percent cheaper than what you’ve been buying it for over the past year or two. I think there are a number of places where a COO has to work with their peers on the executive team to really figure out the full costs in that trade-off to drive the best-in-class productivity that any can achieve.
How COOs can help respond to external disruption
Roberta Fusaro: I know that supply chains are a personal passion of yours. Looking at external forces—like tariffs, supply chain disruption, and geopolitical instability—how can COOs help their organizations respond to these forces to achieve operational excellence?
Daniel Swan: Well, I’d say three things.
You have to understand where your exposures are across your supply chain. That can be people exposures, product exposures, et cetera. The second thing that we look at is, what are the places where those risks are going to have a more fundamental business impact on you than not? The third thing is, what are the levers that you can take?
And we’ve seen a number of things. One is there are some structural levers. We’ve seen people move to more regional supply chain setups. It’s not necessarily saying globalization is dead in any way, shape, or form. But if you’re making and distributing the product closer to where you’re selling it, you just by definition have a little bit more resilience in that.
The second part of that is having multiple sources of supply. We’ve seen a lot of people who have single nodes of failure and understand those nodes in a way that is compelling. But we look at resilience as a real skill and a real capability now.
Roberta Fusaro: I’m assuming that resilience requires a continuous look at operations to observe and diagnose new processes. I’m imagining this isn’t something you do once and put it away.
Daniel Swan: I have two reactions to that, Roberta. One reaction is I don’t think the world is getting simpler anytime soon. I think this isn’t a cycle. This is, I think, a structural shift in the complexity of how you operate a supply chain in this world we live in.
The second is I think the world is also changing faster and more dynamically. We’ve honestly never seen that more acutely than what we dealt with and are still dealing with on some of the tariff timing, right?
Roberta Fusaro: It’s like building the muscle and working out frequently to make sure it remains strong in a particular area, right?
Daniel Swan: Yes, and a lot of organizations have those capabilities. We used to talk about the supply chain being this balance of cost, quality, and service. And people have been operating on that for a very long time in how they manage supply chains. We would argue that resilience and potentially sustainability are the fourth and fifth pillars of how you think about a balanced supply chain or a balanced operations organization these days. So it’s about building the muscle and getting better at understanding the trade-offs and how you make choices.
Influencing an institutional mindset
Roberta Fusaro: Is there a role for COOs in changing mindsets and keeping people focused on growth and improvement?
Daniel Swan: I think absolutely there’s a role for that. If you look at some of the companies that have long been known as the best operations or productivity-driving companies—like Toyota and lean manufacturing—and the real foundation of all of that is continuous improvement. Consider how to make your process a little more efficient, a little more effective, every single day that you come to work.
Now it’s, “How can technology enable me to change this?” Or, “The external environment around me has changed meaningfully, so even if my process was perfect yesterday, my context may have shifted. So I need to be ready to be flexible and shift with that external environment.”
But I think that the underlying pieces of a mindset of continuous improvement—be curious, think about what we could do better, and don’t be defensive about how we’ve always done things—are critically important. And I think the COO often sets the tone on that, and it’s so powerful for unlocking not only productivity but ideas that can drive growth, that can drive service, that can drive anything else. And so if I could impart one thing, it would be how to get that mindset around curiosity and continuous improvement really embedded in the organization.
Roberta Fusaro: A little bit of a navel-gazing question, but how different was the COO’s job five, ten years ago compared with today? And if you look into your crystal ball, what do you predict for five, ten years into the future?
Daniel Swan: The good news about it is a lot of the things that have made people successful COOs in the past will make them successful COOs today and will make them successful COOs in the future. These are things like being a terrific problem solver, having a bold ambition, being collaborative, being able to work across an organization, and being an outstanding people leader. I would call out two things that I think have changed and will continue to change.
Be curious, think about what we could do better, and don’t be defensive about how we’ve always done things.
What you often saw 15 or 20 years ago was the COOs were the best operators. If you worked in a manufacturing company, that might mean the COO was the best plant manager. If you worked in a services company, that maybe meant the COO ran the best field operation or the best call center. And I think what we see more and more now is that COOs are really the people who are the best end-to-end thinkers.
In a physical supply chain, can you think across procurement, product development, planning, distribution, logistics, and manufacturing? Think about how you have people who really piece that together and then, importantly, also understand it from a sales-and-marketing perspective.
The second really big shift is the role that technology plays. I think the decision-making between the chief information officer and the COO is getting fuzzier and fuzzier, and I think there’s a lot of strength to that. COOs embracing technology as the way that the work is done is a mindset shift but also just a capability. I mean, a lot of people who are COOs have been in business for 20, 30 years. And the technology landscape has changed massively. So how do you keep up with that and understand what those new capabilities are?
Roberta Fusaro: I guess that means a more exciting future for COOs, right? Because you always want to grow and change, and the next big technology moment is going to present all kinds of learning and growth development opportunities.
Daniel Swan: I’m wildly biased. But I think there’s never been a more challenging time to be in this field and, at the same time, never a more exciting time to be in this field. What else can you ask for?
