The 65 is on the road with a view from Davos. Daniel, it's been a great show so far. The big political fireworks haven't hit yet, but I really did appreciate coming to Davos for a second year to get a much better view of what's going on at the intersection between AI, policy, technology, and a whole lot more.
Well, we're seeing the world change right before our eyes. This is an event where you bring together the business, economics, and policy leaders, and you're able to have those conversations in such a small amount of time. I don't think there's been a bigger topic, regardless of industry, than the impact of AI. I expect this week to not only talk about regulation, energy and AI, and the escalating tariff and trade policy issues, but also about jobs. What does it mean when you have software that writes itself and completely rewrites industry? There's a lot going on this week.
Yeah, totally. One of the big tech companies making major moves not only in enterprise AI but also in government AI based on its Watson X platform is IBM. It's great to welcome Rob Thomas back to the show. Rob, how are you?
Wonderful, great to be with you both again. Another year in Davos, exciting.
Yeah, what has Davos brought you so far? I know it's early, but what do you want to achieve here?
We're just getting started for the week, but I would say the feeling is different this year. From what I can tell, CEOs around the world have shown up aggressively and significantly. If I look at the meetings I have, heads of state as well. So I feel like Davos is really on the map this year for many of the reasons that Daniel just alluded to. It's the convergence of business, technology, and government and everything that's happening in the world.
Makes sense. This one's going to go really quickly. One of the things you've been focused on, running many parts of IBM, is extracting value from AI. We've had these years where there are five or ten companies that AI is their business and they're really making money, and then there are a lot of companies trying to figure out where AI drives productivity and efficiency to their P&L. What is, in your mind, working with so many enterprise customers, the gap between companies really getting to value and P&L growth because of AI and where they're at today?
So maybe back up a little bit to the macro setting. S&P 500 in 2019 operating margins were 13%. Through 2025, for the most recent quarters reported, which is really calendar Q3, it's 19%. That's a pretty significant difference, and maybe another two points to come in 2026. So technology is having a big impact. To your question, I'm actually not sure that's even AI driven at this point. I think that's technology driven, which is people are bringing technology into their company, figuring out a way to automate processes, figuring out a way to become more productive and more efficient. So let's not act like there's not been a ton of progress. There has. You can see it's very deflationary. Absolutely. But for AI, that's a different question. And as I tell most clients I meet with, you are not going to get an ROI by having AI draft your emails and then when somebody receives it, having it be summarized by AI. And I think 95% today check the box on that basis. That's not going to be what this is about.
Yeah, it makes sense. I admit I might do summaries, but I don't have to write my emails. I have not crossed that bridge. I still think the human element matters, but I digress. When it's not delivering inside of an enterprise, are you seeing it primarily as an execution issue, a technology issue, or a people issue, or something different?
First and foremost, it's culture more than imagination. Meaning, do we have the mentality to be aggressive, to try things, and to disrupt ourselves? Because done right, AI is going to disrupt how you operate as a business. It will change your processes. It will eliminate processes. So, do you have the courage to take that on? That's why I start with culture because it's going to be a massive change management exercise. A lot of people ask me about this and they say, 'Well, shouldn't our teams be doing this?' I think this has to be tops down in the short term to give people the confidence that we're going to try this and we know it may not be perfect. I hear a lot of people make the excuse of, 'Well, AI got something wrong.' I'm like, 'Look, the humans get a lot of stuff wrong.' I don't know about you guys, but my experience is humans get a lot of stuff wrong. So the fact that AI makes a mistake is not a valid excuse. I think it has to be tops down taking on the cultural and the change aspects and being willing to change completely how you operate in some cases.
You get a lot of that where people talk about the cars like, 'Oh, the Tesla had an accident.' It's like it had an accident. I'm like there was like 50 times more by humans in that given day. That kind of analogy or even worse are some of the people like, 'Oh, I used ChatGPT and it hallucinated something one time so you never used it again.' I mean, look at how fast and how exponential this is changing. They get things wrong and then a week later they ship new updates and it's better. So if you're a business or an employee of a business and you're being tasked with this, I want to drill into this culture one really quickly. How do you get, because that's a big part of your job, the IBM consulting side, getting people to change their mind? How are you getting them to change their mind and really drive ROI and drive adoption, drive behaviors that make this work in their business?
I walk in with a point of view and I say actually AI is best used for boring tasks because you want to kind of catch people's attention. People are like, 'What does that mean?' I'm like, let's not go for we're going to put people on the moon or we're going to fundamentally create a new business. Let's go after the boring repetitive tasks in the company and let's say can AI make you more productive? Can it reduce the amount of repetitive tasks that you have to do? Can it increase your cycle times? Normally that starts with what I would call the back office of an enterprise. It's customer support. It's HR, supply chain, procurement, finance, operations. I think if people are willing to start there and the experience that we've had, you'll find an ROI actually quicker than you think, at least to build some confidence and get going. But if you start with we're going to use AI to double our revenue, I would say maybe there's a lot of different factors that go into that. So control what you can control which is the operations of the company.
Makes me laugh. You guys seen on X those people that'll post something like, 'Claude, grow me a billion dollar business, make sure that it makes 90% margins and make no mistakes.' That's the new Claude prompt that everybody makes. How quickly people are thinking that the technology is anything, 'I want 10 times my revenue.'
And the ideas are good, like create a PDF-based business. That's great, but there needs to be demand for it. Yes. Which is why I say I would not start necessarily with the revenue piece. Start with the cost piece. And kind of back to what I shared at the top, if operating margins have improved like that without AI, that's actually a proof point that this is very doable because technology itself has always been able to do this. Now we can take a next step.
So Rob, I love boring is beautiful and backend, probably more front end in the future, but maybe not because we're dealing with customers. I've heard that use cases have been hard to define. I'm curious related to use case definition and metrics. What are some of the best practices that you're seeing with your clients that are delivering the goods?
I think so in terms of KPIs, you've got to look at two things. One is can you reduce the cost of an existing process. That's pretty much all that matters. Secondly, and I would say almost equally important, is can you increase cycle times? Because if you can reduce the time that it takes to deliver something to one of your constituents, supplier, partner, customer, and you can take it down by 100x, that's value. That creates velocity in the business. So an efficiency play, then I would always start with one of those two because if you build enough confidence on we can use AI to increase productivity, then that gives you the option to go do anything else. So think about what are the things as you look at your company that take entirely too long to do in the year 2026. I think we all have examples of that.
