The AI transformation manifesto
The AI transformation manifesto
https://www.mckinsey.com/capabilities/tech-and-ai/our-insights/the-ai-transformation-manifesto?
Alex Singla is a senior partner in McKinsey’s Chicago office; Alexander Sukharevsky and Kate Smaje are senior partners in the London office; and Eric Lamarre is a senior partner emeritus and special adviser in the Boston office, where Robert Levin is a senior partner.
Twelve themes separate companies that are truly rewired for AI from their peers.
The companies that are truly innovating with AI are doing something very different from their peers: They are conceptualizing and developing AI capabilities that reshape their products, services, core business processes, and organizational systems.
These leading companies—many profiled in the second edition of our seminal book, Rewired: How Leading Companies Win with Technology and AI—are already realizing game-changing results and creating competitive advantage. Their advantage, however, does not come from the tech they use; those tools are broadly available. Their advantage comes from how—and how fast—they apply technology to solving real business problems at scale.
We summarize our perspective on how they do it in this AI transformation manifesto. This declaration captures the defining themes that separate the companies that are successfully transforming their business with tech and AI from those that are not. And while there’s no question that agentic AI is pushing the boundaries of what’s possible, the themes are enduring because they focus on what it takes to harness technology to drive business goals.
These themes are extracted from the six capabilities that are featured in Rewired: strategic road mapping, talent, operating model, tech, data, and adoption and scaling. In calling these themes out, we are highlighting what our work on hundreds of large-scale tech and AI transformations has shown really makes a difference. These themes should become a checklist for change and operate as guideposts along your transformation journey to value.
1. Technology alone doesn’t create advantage; enduring capabilities do. Who are the early winners at AI? The same companies that have been winning before by building capabilities that allow them to harness any technology effectively. We call them Rewired companies. When these new capabilities are built—and they take time to build—the company accelerates its business transformation with technology and outperforms its peers. The capabilities become the competitive advantage.
Are you building enduring capabilities for the journey, or merely delivering one-off solutions?
2. Economic leverage points are your best focal points. Any business model has a few key economic leverage points that provide the biggest impact when improved with AI. In mining, for example, process yield and throughput are key economic leverage points, and that’s where Freeport-McMoRan achieved a game-changing impact. In automotive, supply chain integration is a key leverage point, and that’s where Toyota had its AI breakthrough. Most companies have long lists of use cases. Successful ones focus on achieving deep business transformation in the few areas that matter strategically. That’s where they double down to build AI systems.
Have you disproportionately focused your AI efforts on your economic leverage points?
3. If the value you’re creating doesn’t move the business, you’re getting it wrong. We studied the impact achieved by 20 companies across industries that have proved themselves to be leaders in AI. On average, their technology- and AI-driven business transformations delivered a 20 percent EBITDA uplift, reached breakeven in one to two years, and generated $3 of incremental EBITDA for every $1 invested. These companies concentrated their efforts on one to three business domains, reinventing them with AI. That required creative problem-solving, coordinated use of tech and nontech levers, maniacal focus on the customers/users, and clear accountability for the business KPIs that mattered most. They made substantial, stage-gated investments and still continue to improve and stay ahead.
Will your business transformation plan result in game-changing value, or will the wins be incremental?
4. Building the tech and AI muscle of your senior business leaders should be a top priority. We don’t have a single success story where senior business leaders were not in the driver’s seat. IT leaders can support the transformation, of course, but it’s business leaders who need to drive it. At leading companies, they actively own the tech agenda—from defining how the business will be reimagined with technology to steering solution development to ensuring value delivery. These leaders, usually one or three levels below the CEO, combine deep business domain expertise with technology, data, and AI know-how that makes them formidable business transformers. They are conceptualizing, building, and running AI systems that power key aspects of the business.
Are your senior business leaders tech- and AI-capable?
5. Every tech and AI transformation is a people transformation. Leading companies increase their tech talent capability and density by following what we call the “30–70 shifts”: more than 70 percent of talent should be in-house, more than 70 percent of them should be “doer” engineers who build great software-based solutions, and more than 70 percent of them should perform at higher skill levels (that is, competent or expert). This produces small, highly skilled teams that outperform large armies of lower-skilled staff. On the business side, leaders evolve into domain and solution owners, accountable for outcomes and leading cross-functional agile teams. Leading companies have largely completed this transition, which results in higher talent density and much tighter business ownership.
As AI agents take on more of the coordination, execution, and routine decision-making work, human roles shift up the value stack. Engineers spend less time on routine coding tasks and more time designing architecture, workflows, constraints, and quality controls. Business and solution leaders focus less on task management and more on setting objectives, defining success metrics, and making trade-offs. The result is fewer people doing higher-leverage work, with clearer accountability and faster learning loops.
Have you progressed enough on your people transformation?
6. Speed is the defining organizational advantage. Businesses are in an innovation race with companies that have access to the same technologies. Companies win that race when their operating model redeploys resources more rapidly to important opportunities, empowers teams to act without excessive dependencies, and reduces the “latency” from insight to decision and decision to action. Speed requires embedding AI engineering and other functional talent directly in the business, maximizing technology and data reuse through platforms, and governing with clear business outcomes and sustained funding tied to results, not projects. This shortens cycle times dramatically. Without it, no company can truly innovate with technology and AI at scale; they will simply be too slow.
What are you doing to increase the metabolic rate of your organization?
7. Tech platforms are strategic assets; invest in them that way. Platforms determine a company’s execution speed, drive down its unit costs through reuse, get technology and data into the hands of the people who need them, and enable AI to scale responsibly. They provide standardized, safe, and shared tech and data capabilities that teams can access. Leading companies manage their platforms strategically with dedicated teams, road maps, budgets, target service levels, and users whose needs shape how the platform evolves. As a senior executive, understanding your technical architecture, the latitude it gives you, and how it drives competitive differentiation is now as essential to leading a modern company as knowing your profit and loss.
Are platforms understood and discussed as strategic assets?
8. Make data easy to consume—and enrich it for advantage. As David Baker, winner of the 2024 Nobel Prize in Chemistry, observed when reflecting on recent breakthroughs: “AI needs masses of high-quality data to be useful.” Without good data, AI breakthroughs are impossible. Yet in most organizations, data often still acts as the constraining factor. Scaling AI therefore, starts by productizing data—making it easy to discover, access, and consume across many AI-powered applications. That requires investments in building data products. Over time, the game shifts to data enrichment, deepening its quality, context, and uniqueness for sustained performance gains with AI. In Rewired organizations, data is a business-owned performance asset.
Can your teams easily consume your data, or are they still wrangling it?
9. Design for adoption and build for scale. AI systems create value only when they are adopted and scaled. That may sound obvious, yet it remains one of the hardest challenges. Adoption often fails because adjacent upstream and downstream processes are left unchanged. An AI solution may predict equipment failures days in advance, but if maintenance still follows calendar-based scheduling, nothing happens.
Scaling is a different, but equally difficult, challenge. Expanding AI solutions quickly and economically across markets, factories, customer segments, or product lines requires modular solution architectures and a well-choreographed dance between central teams and the receiving units. These considerations—including required investments and run costs—must be addressed up front, not retrofitted later.
Can your organization repeatedly adopt and scale AI, or is it still relying on isolated heroics?
10. No trust, no right to deploy AI. When AI systems fail, they challenge trust with customers, regulators, employees, partners, and society at large. Digital trust grows when stakeholders have confidence that your organization protects consumer data, enacts effective cybersecurity, offers trustworthy AI-powered products and services, and provides transparency around AI and data usage. The challenges are only increasing with the expansion of agentic technologies, requiring much more time for testing agentic systems and automating risk controls. It’s a fast-moving space, and the excitement for agentic AI may be getting ahead of companies’ ability to manage the more complex risks associated with the technology.
Would your AI deployments withstand public, regulatory, and customer scrutiny today?
11. Agentic engineering becomes the next capability to master. Foundation models are now capable of sustained, autonomous work over long periods, making it possible to build complex agentic workflows. Nowhere is this more evident than in software development, where the productivity gains have been astonishing. Leading companies are moving quickly to master agentic engineering. They are ingesting unstructured data, extending their AI platforms with agentic capabilities, automating guardrails and controls, and rapidly experimenting to codify what works into a repeatable agentic playbook. We’ve seen this pattern before. Rewired leaders consistently absorb new technologies faster because they’ve built the underlying capabilities to do so.
Will agentic workflows be your next engineering advantage—or your next catch-up problem?
12. (Re)learn like your business depends on it. One of the reasons we love working in this space is that it’s constantly changing. The half-life of skills is shortening as innovation accelerates. The organizations that learn, unlearn, and relearn the fastest have the advantage. Taking your leadership team on learning journeys is the most important thing a CEO can do to effectively accelerate business transformation with AI. As we have observed numerous times, these journeys are crucial for the top team to reach the point of conviction when both the strategic opportunity and transformation pathway become clear. At that point, every C-suite leader understands their role and the transformation truly accelerates.
Becoming the leader this era demands starts with committing to continuous learning; are you personally investing enough?
Building the complete set of rewired capabilities is the cornerstone of every successful tech and AI transformation. Companies can accelerate their way through developing them, but they cannot skip over the foundational work. This gets at the idea of compounding value as capabilities build off one another and competitive distance increases. That’s how leading companies consistently outperform their peers, again and again.
Hotel cap rates are legacy metrics. Do they matter?
https://hotelsmag.com/news/hotel-cap-rates-are-legacy-metrics-do-they-matter/?
A capitalization rate, or cap rate, is a ratio that can be used to estimate the value of income-producing properties. Put simply, a cap rate is the percentage of net operating income (NOI) to property asset value. For example, a $10 million sale price of a property that produces an annual net cash flow of $900,000 results in a calculated capitalization rate of 9.0% ($900,000/$10,000,000).
A comparatively lower cap rate indicates less risk associated with an investment, while a relatively higher cap rate points toward more risk. Factors considered in assessing risk include the creditworthiness of a tenant, term of lease, durability of the income stream, quality and location of the property, capital markets/debt availability, and general volatility of the market.
Use of a cap rate implies a durable and stable income stream, either in place or projected. It is important to note that, unlike investors of other types of commercial real estate, such as office and multifamily, sophisticated hotel investors do not typically formulate pricing decisions using a single cap rate applied to one year’s NOI, whether actual or anticipated. Given the lack of long-term leases and the unique feature of a continuous re-pricing of the leasing of transient hotel rooms, theoretically, lodging assets never stabilize.
Cap Rates: Fair or Foul?
Literally, not a day goes by without my being asked by someone about the reasonableness of a deal's capitalization rate. My standard response is: “Before I answer, which cap rate are you referring to? Trailing 12 months in place, actual, projected year one, stabilized year, or stabilized year deflated to today. Then, which level of income? Gross Operating Profit Before Management Fee(s) and Reserve for Replacement (Reserves); NOI after Base Management Fees; NOI after Base & Incentive Management Fees; NOI after Base & Incentive Management Fees and Reserves. Further, what percentages of revenues are being allocated to Base Management Fees, Incentive Management Fees, and/or Reserves?”
To illustrate the point, consider the eight different cap rates derived from a $50 million sales price of a 200-room, full-service hotel:
As illustrated, the range of 5.4% to 10.4% is very wide and proves the dramatic sensitivity of cap-rate calculations and the need to establish the year and level of net income, which are to be considered for such an analysis. If not, one may be mixing apples with oranges. When analyzing a lodging transaction, the story/detail behind the NOI level being utilized must be developed to truly comprehend what in fact the cap rate is.
It is critical to note that while many commercial property types produce relatively stable annuity type income, transient lodging facilities house operating businesses with volatile short-term and, in many cases, various divergent, revenue streams (i.e. rooms, food, beverage, recreational).
Furthermore, hotel investors are generally an optimistic group who seek value-enhancement opportunities. To establish pricing, hotel sponsors primarily rely upon a discounted-cash-flow (DCF) analysis that factors in their perceived upside during an assumed holding period. In practice, the value conclusion produced by a DCF analysis for a lodging asset is then used to “reverse engineer” an implied cap rate or rates based upon historic actual and/or projected NOI and is merely considered a “back of the envelope” benchmark consideration.
Throughout my career, I have come across terrific lodging investment opportunities priced at 2% cap rates as well as terrible deals available at 10% cap rates. For example, I have seen low-cap-rate deals that reflect investment at a fraction of replacement cost indicating potential upside through a successful business plan. Alternatively, I have encountered high-cap-rate deals that reflect asset value meaningfully greater than replacement cost with substantial downside risk associated with factors such as new supply coming into the market and/or demand generators relocating.
The bottom line: Relying solely on cap rates to value a hotel asset is fraught with danger and does not reflect the actions of sophisticated lodging investors.
This Quiet Stretch of the Dominican Republic Is Home to Its Best-Kept Resort Secret
Courtesy of Zemi Miches
https://www.fodors.com/world/caribbean/dominican-republic/experiences/news/i-was-skeptical-of-all-inclusivesuntil-this-dominican-hideaway-changed-my-mind
I dreaded all-inclusives, then this under-the-radar Dominican resort made me never
want to leave.
Between their unlimited cocktails, winding buffet lines, and the quiet fear that you’ve accidentally signed up for a fancy adult summer camp, I’ve always been a little suspicious of all-inclusive resorts. So, when I arrived at Zemi Miches, an all-inclusive resort nestled in the Dominican Republic, I admittedly arrived armed with mild skepticism, a skepticism that soon morphed into a feeling of not wanting to ever check out.
Tucked along the quiet Playa Esmeralda coastline, about 90 minutes from Punta Cana, Zemi Miches feels intentionally off-grid, surrounded by lush greenery, ocean views, and pools that wind around towering palms as if designed by nature first and architects second. My first night at the resort set the tone: sunset cocktails, Thai-inspired flavors at Boba, live music drifting through the warm Caribbean air, and suddenly, that all-inclusive experience I’d dreaded began to feel less like a package deal and more like stepping into the island’s natural rhythm.
My mornings at Zemi Miches started languidly, as most island vacations should, with the day beginning at Royal Palm—the resort’s vintage-inspired rooftop overlooking Playa Esmerelda–followed by admiring the resort’s thoughtful Taíno-inspired design and décor before disappearing into the cave-like Acana Spa, built around a tranquil water sanctuary reminiscent of a natural cenote. This is where the “wait, this is actually included?” thoughts began to set in as I discovered the resort’s four pools, full waterpark, padel courts, fitness classes, non-motorized water sports, arcade, bowling alley, escape room, laser tag, kids and teens clubs, and over ten restaurants and bars serving everything from Caribbean to Italian with 24 hour room service and daily refreshed minibars.
Somewhere between swimming in the ocean, enjoying cultural workshops, stepping into late-night speakeasies, and confections appearing in my room each night, like magic, I realized that the best all-inclusives aren’t about excess; they’re about place.
Zemi Miches leans into the Dominican Republic’s local culture, nature, and island energy, turning a quiet stretch of coastline into the kind of under-the-radar escape you’ll want to experience before everyone else discovers it.
Major U.S. Airports Could Lose International Flights Under New DHS Idea
Alexandre Fagundes De Fagundes/Dreamstime
https://www.fodors.com/news/news/dhs-considers-shutting-customs-at-airports-in-sanctuary-cities-threatening-international-travel
DHS Secretary Markwayne Mullin suggests closing customs operations at airports in sanctuary cities, a move that could disrupt international flights, trade, and tourism across the U.S.
Department of Homeland Security (DHS) Secretary Markwayne Mullin questioned whether international airports in so-called “Sanctuary Cities” should continue to be allowed to process inbound international travelers in an appearance on Fox News on Monday.
“If they’re a sanctuary city, should they really be processing customs into — into their city?” asked Mullin. “Seriously, if they’re a sanctuary city and they’re receiving international flights, and we’re asking them to partner with us at the airport, but once they walk out of the airport, they’re not going to enforce immigration policy? Maybe we need to have a really hard look at that, because we need to focus on cities that want to work with us.”
Several U.S. cities on the Justice Department’s list of sanctuary jurisdictions have large international airports, including Seattle, San Francisco, Philadelphia, Newark, New York City, Los Angeles, Denver, Chicago, and Boston. A cessation of international arrivals at some or all of these cities could hobble international travel to and from the United States.
United States Customs and Border Protection (CBP), a division of DHS, is responsible for screening inbound international passengers at all U.S. airports. CBP is separate from U.S. Immigration and Customs Enforcement (ICE). A closure of CBP operations at an airport would effectively halt all international flights to or from that airport, wreaking havoc on plans for international travelers. DHS has the authority to close a point of entry for specific reasons, such as emergencies, facility failures like power outages, or security threats, but use of that authority to shutter ports of entry for political reasons is largely untested.
More than 50 million international travelers arrived at the three international airports in New York City and Newark alone last year. Any halt to international air travel could severely impact U.S. international trade and tourism, including the FIFA World Cup, due to start in cities around the country in early June.
Immigration enforcement has been at the center of a partisan standoff since February 14, when the DHS entered a partial shutdown after funding expired.
Cities, counties, and states choose whether to direct their law enforcement divisions to cooperate with federal immigration officials. Many jurisdictions have chosen not to cooperate with immigration authorities for decades, reasoning that fear of being reported to immigration officials keeps non-U.S. citizens—whether they’re in the country legally or not—from reporting crimes or cooperating with local law enforcement investigations in unrelated matters. Los Angeles has prevented local police officers from questioning individuals solely based on immigration status since 1979. Chicago has had similar restrictions since the 1980s.
Many state and city governments also point to their own laws that citizenship status and immigration enforcement are fully within the jurisdiction and budget of federal authorities, although local jurisdictions will typically honor information requests from federal immigration authorities with a judicial warrant.
In later comments to reporters, Mullin stressed no final decision had been made, and that pulling CBP officers from airports is just one of many options under consideration. “We’re going to start having those conversations. As I said, this is just something I’m thinking. This isn’t something that I’m necessarily going to do,” he said.
There is little, if any, precedent for closing customs processing at U.S. airports for political reasons. CBP agents are currently being paid during the DHS shutdown, using already appropriated funds pulled from other parts of the budget, as frontline CBP agents are considered essential.
U.S. air travelers have borne much of the brunt of the DHS shutdown. TSA workers went without pay until late March, when they were given back pay by executive order. Until then, however, large numbers of them called off sick or outright quit, leaving airports understaffed and security lines out the door. The security lines have been alleviated now that TSA workers have been paid.
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