Too early to say generative AI is affecting jobs, says McKinsey’s Noshir Kaka

Noshir Kaka further believed that engineering workforces would not fall in future and felt that the inclusion of software in every product will surge, in the coming years.

At a time when there’s speculation over disruptive technologies such as artificial intelligence (AI) and generative AI taking over jobs Noshir Kaka,  a senior partner at management consulting firm McKinsey, said that it is “too early” to say that the nascent technology has started affecting headcounts.

First movers will have a massive advantage in growth and efficiency, but most importantly, in people, because  latest technology is where the “good talent” wants to go, Kaka said on the sidelines of WEF 2024.

“If you look at the hiring pattern, most of these firms hired a lot of people when they saw pandemic-fuelled growth, so the de-growth you're seeing is essentially the supply catching up with where the demand is,” he said.

In the recently concluded December quarter, India’s top three IT companies reported that they had slashed a total of 16,254 jobs amid an uncertain demand environment. This came after four of India’s largest companies reported their workforce had been reduced by 21,213 in the second quarter.

The outsourcing industry’s growth rate has halved in (CY) 2023, and expectations are that it may grow between 4-8 percent (in CY 24), and then rebound in 2025, said Kaka, who is also the Co-Head of the Global Telecom, Media, and Technology (TMT) practice at McKinsey.

On generative AI, Kaka spelt out a unique “20-30-40-80 rule” with respect to the tech services industry. He said he sees a 20 percent expansion of the target total addressable market in the form of new service lines. “For example, you could never ever do a one-on-one personalised advertisement in the past. Now you can actually have AI do that,” explained Kaka.

Kaka also sees a 30 percent jump in productivity and 40 percent greater opportunity in support functions. “And finally, these firms are going to see an 80-100 percent increase in developer satisfaction,” Kaka added.

Watch the full interview here.

“I don't know about layoffs, but for sure, there will be greater efficiency in 2024,” Kaka said regarding recent reports of layoffs in the tech world.

He added that organisations have resized and will continue to do so. “So, I think the push for efficiency is going to continue,” Kaka added.

Asked about the skills of the future, Kaka said that only 11 percent  of the developers worldwide can review code.

“What that means is if you deploy gen AI for junior developers without any training, their productivity actually goes down, so they need to be reskilled to review code, and not just engineer prompts. Code review is a fundamental skill,” Kaka said.

Kaka replied in the negative on whether he anticipates a significant decline in the engineering workforce. “The reason for this is, as we've seen throughout history, when the cost of something goes down, demand goes up,” Kaka  elaborated.

Going forward, he said, more and more software will be embedded in every product.

“I think India is a bright spot, not just from an economic perspective, but in other aspects as well,” he said.

Backing his opinion with data, Kaka said that in 2022, 7 million households in India earned above $35,000 a year — this figure is expected to jump to 30 million in the next six years.

Kala also said that the scale, speed, and cost at which the digital public infrastructure has been rolled out is incredible: “You've not seen that anywhere in the world.”

Kaka,  who founded the outsourcing and offshoring practice at McKinsey, added that there are lots of bright spots in the digital economy and the outsourcing industry.

“This is not to say that everything is great, we have a lot of external uncertainty,” he explained. Multiple wars in the world and India’s dependency on oil are some of the things one should watch out for. He cautioned that India’s balance of payments can go awry if there is a spike in oil prices.

Nevertheless, it's probably one of the best times for outsiders looking at India, he said.

Kaka said the world has been hit by four or five issues at the same time, which hasn’t been the case so far. “It's not just geopolitics, it's not just climate, it's also the energy transition, (and) technology,” he said.

Kaka said that if a company is asked, they would say they look at generative AI with a “tremendous amount of excitement,” but chief executives would add  that it is a very uncertain environment. “More uncertain than I've perhaps seen before,” Kaka added.

Nonetheless, he said there is optimism and hope that both geopolitics as well as the uncertainty around the economy will die down.

Kaka said “responsible AI” is absolutely critical, and that generative AI has given us a very powerful tool which can be used for both good and bad. He said that bias, toxicity, and hallucination (incorrect predictions, for example) are some of the aspects that we need to be especially careful when training AI engines with data.

“My simple way of thinking about responsible AI is that if you're a company serving clients or customers, the client or customer should feel their data is safer with you than possibly with themselves,” Kaka said. “If you do that, I think consumers and companies will reward you (the company) extraordinarily.”

Also read: AI takes centre-stage for global & Indian tech companies