Solveigh Hieronimus is a Senior Partner at McKinsey & Company, based in Germany. She serves clients across heavily regulated industries such as energy, infrastructure and finance on topics covering digital and data strategies, sustainability, and innovation/growth. Hieronimus is also a member of both McKinsey’s Sustainability and People & Organizational Performance Practices and serves on the council of the McKinsey Global Institute, where she focuses her work on the competitiveness and long-term prosperity of Europe.
She is a Young Global Leader at the World Economic Forum, a member of the Trilateral Commission and serves on the European Commission’s high-level expert panel for the Future of Work. Prior to joining McKinsey, Hieronimus held various positions at the United Nations, Goldman Sachs and JPMorgan. She studied in Oxford, Madrid and Paris and has a M.Sc. in Economics and a Diplôme de Grande Ecole from ESCP-EAP European School of Management. In addition, she holds a Master’s degree in public administration (MPA) with focus on Public Finance, Development Economics and Security Policy from Columbia University in New York. Hieronimus, a speaker at DLD Circular and DLD AI in Munich Sept. 6 and 7, recently spoke to The Innovator about AI and Europe’s ability to compete.
Q: Can Europe compete on digital and AI?
SH: Europe is a world leader in sustainability and diversity & inclusion, and it is where many want to live in terms of quality of life. If it wants to maintain – and to continue to afford – this European way of life, it needs to remain competitive in the global arena. That competitiveness may currently be at stake.
There are ten transversal technologies, such as artificial intelligence, the bio revolution, and the Cloud, which are spreading horizontally across sectors and determining competitive dynamics. Europe leads on only two, according to McKinsey’s Digital Competitiveness study from 2022. If Europe is not successful in competing in these transversal technologies as they permeate across all sectors of economic activity, it could also lose its strongholds in its traditional industries. Take the automotive industry – one of the largest employers in Europe if you include the supply chain. In this industry, new and significant competitors have emerged in the past decade. It is Europe’s capabilities in frontier technologies that can drive its future competitiveness. Our Global Institute’s 2022 report on Europe’s competitiveness concluded that unless Europe catches up with other major regions on key technologies, it may be vulnerable across all sectors on growth and competitiveness—compromising the region’s globally leading position on sustainability and inclusion—as well as its long-term resilience
Q: How is this impacting Europe’s corporates?
SH: Weakness in tech compared to other regions is the source of a large and growing corporate performance challenge. Our data shows that Europe’s corporate performance is in aggregate lagging behind other regions. To understand differences in corporate performance, our Global Institute used McKinsey’s Corporate Performance and Analytics Tool to examine a sample of more than 2,000 US and European companies with revenue of more than $1 billion.
Staying clear of COVID effects 2020 onwards, between 2014 and 2019 large European companies were 20% less profitable (measured by return on invested capital), grew revenues 40 % more slowly, invested 8 % less (capital expenditure relative to the stock of invested capital), and spent 40% less on R&D than other companies in the sample.
Q: In your view, is it game over or is there still a chance to turn things around?
SH: There are a range of challenges Europe is facing which are not new and much debated, including fragmentation and lack of scale; ; less developed risk-capital funding; and a regulatory environment that could be more supportive of disruption and innovation.
So how can these challenges be addressed? We are at the beginning of a new technology era with generative AI. A powerful wave of productivity growth will likely affect all industries and could add as much as €4.1 trillion annually to the global economy. In the context of this new era, the tables on competitiveness in the digital age will be re-set. Europeans would benefit from unlearning the notion that we are behind in digital and tech and leverage our strengths with a broad industrial base, an ambitious sustainability roadmap and a highly skilled workforce in pragmatic ways to turn the buzz on genAI into tangible, economic opportunity for the continent.
The era of generative AI is just beginning, and fully realizing the enormous benefits of the technology will take time. European business leaders should begin rapidly experimenting with testing and implementing generative AI use cases that drive value rather than waiting on the sidelines as the performance gap between early adopters and cautionary observers will widen quickly. The competitive advantage will go to both the organizations (and regions) that that best use generative AI to accelerate their business priorities, innovations, and growth.
It is really the moment for the intersection of green with digital, for tech enabled solutions focused on new materials and energy creation. Some companies are already scaling such businesses. This is an opportunity for Europe. Instead of focusing on the prevailing deficit in digital, Europe can adopt an opportunity mindset and build on its strengths in sustainability to embrace AI and apply it to scale green solution.
Q: While some see Europe’s AI Act as a brake on innovation others think of it as a way for Europe to differentiate itself by developing trustworthy AI that would serve as an alternative to AI being developed in the U.S. or China. What is your view?
SH: A value-based and trustworthy AI framework architected in Europe could be a compelling, global proposition. Creating guardrails, as Europe did for example on data privacy with GDPR or the Carbon Boarder Adjustment mechanism is often referred to as the Brussels effect [the EU’s de facto externalizing its rules and regulations outside its borders as requirements to access the EU single market of +450m consumers], is a way for Europe to give some of its most important principles global relevance and scale. This could be Europe’s moment to accelerate its ambitions in this new era and define an alternative way of harnessing the benefits of AI in a trustworthy, responsible way – for societies and economies alike.
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