This article was updated on November 15, 2023
Europe has a unique combination of multiple languages and cultures, abundant science and tech talent, and long-standing strengths in the manufacturing and services sectors. Taken together, these regional advantages render the transformative potential of generative AI especially compelling in a number of industries across the entire value chain—and for society at large.
Where and how can Europe’s generative AI adoption create the greatest value? Where are the most exciting opportunities to be found, both now and in the future? What are the key challenges? How can AI address environmental social and governance (ESG) risks while helping create the sustainable business models of the future? And what sets Europe apart from other regions?
To assess the scale of the business opportunity and economic potential for generative AI across the continent as a whole, we asked some of our partners and leaders—who serve many of Europe’s largest companies and organizations—for their perspectives and insights in a series of video interviews.
Reshaping industry and society
The era of AI, and generative AI in particular, is just beginning. It was only three months ago that OpenAI, the parent of ChatGPT, made its GPT-4 API model available to millions of developers around the world. Attempts to fully explore the technology’s potential to reshape industries and business functions have barely scratched the surface.
In our report “The economic potential of generative AI: The next productivity frontier” we examined gen AI’s potential multi-trillion dollar impact on the global economy, estimating it could add the equivalent of $2.6 trillion to $4.4 trillion annually in productivity gains. And this does not including the coming gen AI-induced reshaping of business models and entire industries. By comparison, the GDP of Germany, Europe’s largest economy, totaled $4.36 trillion in 2021.
About 75 percent of the value generative-AI could deliver falls across four areas: customer operations, marketing and sales, software engineering, and R&D. Generative AI will have a significant impact across all industry sectors, with banking, high-tech, retail, consumer, and life sciences among those that may realize the biggest impact as a percentage of revenue.
Across the banking industry, for example, gen AI could deliver value equal to an additional $200 billion to $340 billion in annual revenues. In the retail and consumer sectors, the potential revenue impact could reach $400 billion to $660 billion annually.
What will this look like in Europe? These are some of the insights shared by our partners and leaders.
Europe’s diverse cultures and languages
“Generative AI is powered by large language models (LLMs),” says Alexander Sukharevsky, senior partner and global leader of QuantumBlack, AI by McKinsey, based in the London office. “Language means culture, and we’ve got a very diverse set of cultures and languages in Europe. Therefore, one cannot only speak about global generative AI applications. They should also be localized into the local context and culture. And if anything, Europe is quite a unique place in which to do so.”
He adds: “I think what we are seeing now is a lot of European entrepreneurs or technologists coming back to Europe—or considering doing so—to live in their own countries and solve very local problems.”
Over and above the potential for transforming existing industries and developing new technologies, Sukharevsky believes the second dimension of Generative AI is around “changing our current social contract and interactions,” which he says creates enormous opportunities for the development of new applications by European technologists and entrepreneurs.
Sukharevsky cites Europe’s aging population as an example and believes technologists could use gen AI to solve complex problems and improve the quality of life for the elderly.
“Imagine a virtual assistant powered by voice that helps you to schedule your day, to shop, and which sometimes provides you with emotional support when you need it the most,” he says.
The European regulatory environment
For Yetunde Dada, senior director of product development in London, Europe’s regulatory environment—and as well as the potential of numerous local applications and solutions—also present opportunities to accelerate generative AI adoption.
“When you look at the way our legislators are thinking about how to regulate generative AI, some of those applications actually address some of the key reasons certain companies are choosing not to adopt generative AI in this space,” she says.
Dada points to gen AI risks such as intellectual property rights infringement, data explainability, model hallucinations, and the ability to respond to regulatory requirements as reasons why some companies are holding back—and why Europe’s regulatory environment could benefit companies operating both there globally.
“Having a clear framework to be able to build up a case would make it a lot easier for companies around the world to adopt generative AI. This goes beyond the borders of Europe, because globally, companies have been speaking about these issues and looking for a pathway forward. So, I think it’s really exciting in that way.”
She believes European regulation can create a clear playbook, remove ambiguity, and accelerate development. Europe already set the standard for data privacy by creating a framework that’s been adopted globally, she added, and is also leading the way in open-source software. This creates an opportunity for European companies who comply quickly with the new regulations, or create solutions that allow others to do so, either in Europe or elsewhere.
At the same time, a single gen AI model can analyze more data in an hour than a human could in 10 lifetimes, and one gen AI-powered system can outperform 10,000 knowledge workers. This raises clear social implications—not least around reskilling - which European policy makers could take into account when extending Europe's social model into the AI era.
Transformative applications
Sam Bourton, cofounder of QuantumBlack and leader of QuantumBlack Labs, partner in Lyon, says: “Europe has really fantastic talent, excellent universities, great ecosystems, and communities of technologists across the continent. I really enjoy seeing this generation of up-and-coming tech talent creating new innovations, new ideas, and new companies from generative AI with a pace and purpose I have not seen in the industry for 20 years.”
He also points to transformative and high-impact global initiatives being generated from within Europe’s social and public health sectors. “A lot of the clients I serve with generative AI are social sector and global public health clients. And we are seeing an amazing, truly transformative opportunity to take European expertise in healthcare, emergency response, and pandemics and make it available to project and programme leaders of social impact causes in the Global South and lower-income countries.”
Generative AI can also become a bulwark of Europe’s ambitions to lead the green business building (GBB) revolution of the future. In an off-camera conversation with Alexander Sukharevsky, he noted that generative AI could become a cornerstone of the technology stack required for the analysis and reporting of the impact green business hope to achieve.
In terms of banking and financial services, London office senior partner Gökhan Sari believes generative AI is “really shaping and reshaping the banking space” at pace, and cites three main categories of applications being explored by financial institutions.
“The first is on the back-office operations,” says Sari. “The second one is mostly in the risk space. The third one is customer-facing, which we can divide into two: either a copilot supporting the frontline relationship managers, or direct interaction with the customers.”
Holger Harreis, senior partner in Düsseldorf, says: “There’s a large potential for every organisation in generative AI—in every industry. I mainly work in the consumer retail industry and banking, and I really see a lot that every client should look into—across the whole value chain.”
He outlines three key thoughts: “One, this is a really a big opportunity and it is significantly different to anything we have seen before. Two, every organization should think this through right from value back. And three, it needs risk-aware scalability built in right from the start.”
Europe’s diverse set of languages, dispersed data, and perceived lack of scale can actually be viewed as formidable moats, offering protection for local developers to create solutions to help customers lower their costs.
Personalizing consumer engagement
Tey Bannerman, partner in London, believes generative AI can drive the personalization of products and services across all types of consumer-focused industries in beneficial and value-creating ways. But he cautions companies to put appropriate guardrails in place to avoid exposing or exploiting customer insights and data in counterproductive or harmful ways.
“A lot of my work is about how do we take the insights we have about consumers and use generative AI to help clients either to design new products and services, or to use the technology to engage customers in ways that are meaningful to them,” he says.
“What gen AI allows us to do is move into a world where content, advertising, and marketing are tailored to the individual based on insights that we have about that individual. With gen AI, you go from a world of everyone seeing the same thing to everyone seeing very specific messaging that is tailored to what they care about.”
Bannerman says companies should also be mindful of privacy and careful to avoid making consumers uncomfortable about how their individual insights and data are being generated or used. “The really important thing is putting in place the right guardrails and developing them in a way that you can be sure that the content you are creating is safe—and devoid of toxicity and bad messaging—but also thinks about customers and how they react to that content.”
Improving the customer experience
Asaf Somekh, cofounder and CEO of Tel Aviv-based Iguazio (a leading AI and machine-learning firm acquired by McKinsey in January 2023), sees firsthand how generative AI is increasingly being harnessed to improve customer experiences in Europe—particularly in non-English speaking countries, where advanced chatbots now help human agents enhance their interactions with customers.
“With gen AI, there is a leap in the ability to address the needs of languages that are not English, because these models are sophisticated enough to interact in a way that is meaningful and productive and is helping those agents to address many more clients,” he says.
Alexander Sukharevsky underscored in off-camera comments how gen AI “completely revamps the way we approach customer experience.” He also noted, “Today we are just human beings and we work within the limitations of technology, and the limitations of certain channels such as websites and what they can deliver in terms of functionality. What gen AI does is essentially allow you to use your natural language—whether in text or speech—in a way that is comfortable for you.”
In his view, this makes gen AI “more of a design question than a technology question,” adding, “Europe is known for its strength in design, so this is another opportunity for Europe to lead and keep ahead of the curve over other regions.”
Somekh also believes Europe’s emphasis on regulation will help create a robust overall ecosystem for the development of generative AI, and AI in general.
He adds: “We always recommend to enterprises building models or architectures to try and centralize the way they are operating their AI applications, so that when the regulations come, they can actually govern their operations in a way that does not require rebuilding their entire infrastructure.”
Change management is key
Whether creating content, automating processes, generating code, writing software, acting as a “copilot” in the workplace, or managing human interactions in an almost lifelike manner, generative AI has the potential to transform operations in every industry—reinventing customer experiences and interactions, accelerating productivity, generating supply chain efficiencies, and enhancing sustainability.
Europe hosts an array of advanced industries operating in traditional sectors like defence, automotive, and machinery that could reinvent themselves, lower their cost curves, and offer innovative products by leveraging generative AI while still relying on their world-class talent and intellectual property (IP).
Says Harreis: “You need to look at it value back. What does it mean? You need to understand where the value is—be it in an economic sense, a sustainability sense, or from a customer experience sense—which ultimately will probably translate into something economic.”
To Louise Herring, partner in London, change management will be critical to European companies implementing generative AI to deliver scalable and transformative changes. “What the technology has the opportunity to do is really focus the human effort on the places where you need a human, so that those colleagues can really focus on the things that matter in their day-to-day.”
She adds: “The big conversation that I wish was happening more in the organizations exploring generative AI at the moment is how to make the changes stick and scale.”
Maximizing business value
In terms of generative-AI’s transformative potential across the operations value chain, associate partner in London Marie El Hoyek stresses it must be used as a tool for impact, instead of a technological showpiece.
“Gen-AI, just like any other technology, has to serve a business purpose,” she says. “It has to be business-driven, not just technology-driven. Otherwise, we are talking about a fun toy to play with. But within our businesses—whatever we choose to invest in and really apply it thoroughly—it has to help us reach those targets.”
She adds: “If asked about the impact and potential of generative AI, I’d say one, it’s so refreshing and really game-changing. Two, it can serve a company’s purpose, if we do it thoughtfully and purposefully. And three it’s an agent for renewal, because we are boosting excitement again, and the ability to dream and learn.”
That is not to say generative AI does not include inherent risks European business leaders will need to grapple with. In the short-term, these will include gen AI-produced hallucinations and the need to protect IP. In the medium-term, these efforts could be more focused on building trust in an environment where seeing is not necessarily believing.
Transitioning to data-driven companies
Personalization is a principal driver of transformation, as generative AI accelerates the transition towards more data-driven companies—making possible a series of new use cases that unlock value and sharpen management focus on a wealth of new opportunities and applications.
Jacopo Ghidoni, partner in Milan, says, “Generative AI has boosted awareness on overall AI, and it has particularly boosted awareness in the boardrooms of our clients on accelerating the transition to become data-driven companies.”
Alexander Sukharevsky notes the transition to data-driven companies should be seen through the broader lens of European competitiveness. “One of the European challenges is around competitiveness and productivity,” he says. “Data-driven companies and the total disruption of the cost curve or cost structures could make Europe more competitive versus other regions and markets, given the richness of data in the region.”
Ghidoni believes applying generative AI on top of next-best-action models already using traditional AI allows companies to ensure any customer-centric actions achieve the most effective and individually-tailored outcomes. “How these two elements, the generative AI and the traditional AI, combine together to uplift value is a very big opportunity.”
Conversely, generative AI is also transforming the ways in which companies themselves can be analyzed and measured. The sustainability sector is one example, since gen AI can access and collate massive amounts of public data from company reports and websites anywhere in the world. This eliminates the need to contact companies directly, and facilitates the processing of information to provide a clear picture of their actions—and their impact—through a sustainability lens.
“This is an opportunity that was not possible before, because it has always been hard to process large sets of unstructured data without this technology,” Ghidoni says.
Using generative AI for social good
According to Ashley van Heteren, an Amsterdam partner and a core leader in Noble Intelligence, McKinsey’s initiative on AI for social good, there is already “a lot of uptake” of AI within the social good space. This AI adoption supports the UN’s Sustainable Development Goals in health and wellbeing, education, the future of work, and economic growth, as well as in peace and justice organizations.
“When I think about Europe’s involvement in this, I really think about the innovation side. One of the great opportunities is for Europe to continue its innovation in health, but to also support the world’s most vulnerable populations,” she says, highlighting the potential for generative AI in key healthcare areas such as the acceleration of drug discovery. “This is a real opportunity for Europe to flex that innovation muscle.”
The other big opportunity for Europe, according to van Heteren, is through companies reskilling and upskilling the workforce of the future, especially by focusing on education. “If we think about the diversity of people and our talent base in Europe, having education systems and upskilling programs that are personalized, and that can address different dialects and education requirements in the world’s most vulnerable populations throughout Europe, will be a key factor going forward,” she adds.
European Investment in AI
London office partner Ilia Bakhtourine believes there may be a surge in private equity deals as funds pursue transactions focused on generative AI opportunities.
“They can leverage generative AI both organically and inorganically,” he says. “For example, they can target the leading adopters of generative AI, buy these companies, and disseminate their skills and capabilities across the portfolio of the private equity fund. Or they can encourage one of their portfolio companies to quickly adopt generative AI solutions, make this company a center of excellence, and again, transplant all those capabilities and skills across the portfolio.”
Bakhtourine also recognizes the region’s strengths, and believes that if Europe can foster collaboration, organize its efforts, and align in these areas, it can not only compete with the United States and China—it can become the global gen AI leader.
“For Europe to become a leader in the adoption of generative AI, it needs to make sure talent, science, tech, and regulation all work towards the same goal—to make Europe as productive as possible and lead on productivity gains globally,” he says.
