Niko Mohr, global leader of McKinsey’s quantum technology practice, is interviewed by Yuval Boger. Niko provides an overview of the findings from McKinsey’s annual Quantum Monitor report, highlighting the sustained intensity of investments in quantum technology and the existing talent gap in the field. He delves into the strategic implications of quantum technology across industries, discusses his perspective on the hype and reality of quantum technology, and much more.
Full Transcript
Yuval Boger: Hello Niko, and thank you for joining me today.
Niko Mohr: Hey Yuval, great to be here.
Yuval: Happy to have you. So who are you and what do you do?
Niko: Who I am. So I’m Niko Mohr. I’m an expert partner at McKinsey out of our Dusseldorf office, and I’m leading our quantum technology practice globally.
Yuval: I understand that one output of your quantum technology practice is the quantum monitor, which I guess serve as the state of the industry and that there was a new one that recently came out. What are the key findings from it? What should the audience know if they read the report?
Niko: Yeah, so that’s our, let’s call it lighthouse report. We publish once a year and we try to actually better understand how this, let’s call it ,newly arising ecosystem is maturing. Because many people are asking us, “What the hell is going on there? And does anybody understand the situation and how is that impacting my industry? what does that technology mean to me and so on. And with this report, we really try to understand what is really going on here. And so basically there are a couple of things we want to track.
There is of course the overall development of the ecosystem itself, which means basically how much money is going into quantum technologies, which includes quantum computing, quantum sensing and quantum communications.
The second point is related to the fact, how is that impacting the different industries segments and what kind of economic value might be produced if I’m able to use this kind of new technology.
The third area is creating a kind of an understanding of how the technology is evolving and when does this technology might reach the point of becoming commercialized or industrialized.
And the fourth bucket is related to the overall context factors related to that ecosystem, which means research, patents, talent, and so on. So this is basically shown in that report.
Yuval: And since the report is annual, if I understand correctly, what’s new? What have you learned, what has McKinsey learned on quantum and on these dimensions over the last six or 12 months that was not obvious before then?
Niko: So what is new is, we have seen still a very high intensity of investments and fundings moving into that kind of area. And that is a continuous flow which we have seen over the last couple of years, which has continued last year as well.
The second point, I think what we have discovered in this year’s report is that we see a kind of a flattening of the investments. So after years of continuous steep growth of investments, the difference between the2021 investment and the 2022 investment is just marginal. It’s still at a very high level and there is a slight increase, but it’s a marginal increase and not as expected or as we have seen it the years before.
I think the third area is related to talent. When it comes to talent, we still see a huge talent gap here, or we discovered a huge talent gap between job offers or job postings being out there and credit with relevant QT skills. So those are some of the findings. And of course we updated all the numbers and the investment and the figures and then whatever.
Yuval: And the report is publicly available and I’ll have it for our listeners at a link so they can enjoy all the hard work that you did there. When you mentioned that funding is still at a high level but has flattened compared to last year. Why do you think that’s the case? Is it that there’s just enough funding to satisfy the need? Is that investors are worried about time to maturity? I mean, what do you see as the reason for this flattening?
Niko: That’s a great question. And we discussed that internally and also with a number of different experts. And of course, there is this kind of, let’s call it, systematic effect, which is not just only being seen in the quantum technology area, which is seen in all tech areas in those days. We are seeing a kind of, let’s call it, reduced activity in spending a lot of money into new kind of companies.
The second one is, or the second effect is probably one which we call a focus on scale-ups. So, whereas in former days most of the money went into startups, now people are looking more into the quality of the company itself and are willing to invest into something which is already there and which has proven some kind of effect and impact and whatever. So this is also a tendency we see here.
And the fourth one is that, especially when it comes to quantum computing, most of the money went into quantum technologies hardware or quantum computing hardware. And here, there is a continuous flow of money needed, but the huge investments or huge funding rounds have been closed. So there is already some money in the system.
Yuval: And how about the source of the money? Is it private investors? Is it primarily governments? Do you see a change in where the money is coming from?
Niko: There’s actually not much change in when it comes to where is the money coming from. So what we see is that most of the money is coming from private sources and also venture capitalists.I think they are counting basically for about more than 40% of the money which goes into that space. So when I even add private and venture capital, it’s in the range of 70% of the QT investments. Then the other large bucket is basically coming from corporates and then it’s coming from public. And this has some differences depending on which country you are looking at. If you look into the United States, it has a different split compared to the UK or to the European Union. So far, that has been the case. We need to understand that over the last maybe one or two years, especially governments have seen this as becoming strategic and have announced huge amounts of money to be spent into that ecosystem. So for example, if you look into China, China has announced in the range of 15 to 17 billion being invested coming from the government into that ecosystem. The European Union has announced in the range of 7 billion. Even Germany has announced something in the range of 3 billion. India has announced something in the range of 1 to 2 billion. Though there is expected some more money being pushed into that system coming from public and governmental sources.
Yuval: You mentioned earlier the workforce gap, that there is greater demand and supply in quantum-specific workforce. Do you feel that we’re making progress as an industry in closing that gap?
Niko: The gap is based on our figures and we are trying to really keep track with all the developments. Based on our figures, the current job postings are in the range of 800,000.We are not probably fully aware of what is happening in China, but for a moment, excluding China, it’s in the range of 800,000 job postings per year, tendency growing. When it comes to graduates, we see currently something in the range of 350,000 graduating with QT-relevant skill sets or in QT-relevant fields and the tendency growing as well. So we see more and more, you know, decrease and study possibilities coming up at universities, touching those fields. So what we see is there is activity to close the gap, but the gap is still there.
Yuval: What does this gap mean for companies? Does it mean that if they don’t hire quantum talent now they may find that it’s very difficult to get high quality people when they decide to start. What is the implication of this talent gap for companies?
Niko: Yeah, that’s also a great question because we looked into this and we compared it to what has happened in the artificial intelligence space years before and we had a similar situation. And for companies, it really means that companies who are interested in that field and see also some areas of impact in that space, also some opportunities or potential in that space, they need to get started now and they need to start building their capabilities now, meaning hiring at least a small team of experts in that space to have a kind of a core basis for building next steps.
The second implication is, and that’s also important, what we see right now is that only looking into universities will probably not be enough. Companies who are really heavily investing into this and are realizing that this might be even disrupting certain areas of their business, they need to also invest on their own into capability building, into maybe fields like information systems or engineering, so people with those degrees can also be qualified into that space of quantum technologies.
Yuval: When you speak with C-level executives, CEOs, CTOs, CIOs, do you feel that there’s a competition inside the company between AI and quantum, maybe a budget competition or an attention competition, or is it really two different time horizons and they’re not substantially overlapping?
Niko: Yeah, so for the moment I think they are on different time horizons. AI is currently in everybody’s mind, especially with everything happening around generative AI at the moment. So this is in every border, whereas quantum is still, let’s say, the more exotic topic on the table. Over time, this will change as more as the ecosystem is maturing and the more use cases become available, we will see quantum technologies, you know, or becoming relevant in boardroom discussions as well. In the end, both areas belong together. So there will be no use case in quantum technologies or especially in quantum computing without perspective AI involvement.
Yuval: When we spoke about talent, you mentioned that companies should probably start now thinking about this if they haven’t done so already. You obviously advise very many companies across very many verticals. And I gather each company in each vertical is different, but in general, what are you advising companies to do in quantum technology? Are you advising, and maybe you can give me something that’s vertical-specific or geography-specific, something that’s beyond the generic quantum is interesting.
Niko: Yeah, and you know, I think we are over that pointthat quantum is interesting. Yeah, there are a couple of questions which are coming to us usually. There is one bucket of questions which is related to, let’s say, a strategic positioning regarding quantum technology. So what does that mean to my industry? What does it mean to my business? Is there an opportunity or a threat? So a classical, let’s say, strategy study in that context, which is not a surprise as we are, I think, pretty much known for this kind of studies.
The second area is related to, let’s say, funding. And here, you know, we have funding and also contextual areas in that ecosystem. And here we are usually receiving questions from governments, institutions, but also from companies, also from financial services companies. Either where to invest, shall I invest into a certain company, shall I even buy a certain or when it comes to contextual topics, where shall I build educational institutions or establish certain areas of education? Do I need to change something here and topics like that. So those are also very, very relevant topics for growing that ecosystem.
The third area is then related to use cases. And here it’s not just a theoretical exercise anymore. It’s more, let’s say, test and learn kind of thing when it comes to certain use cases, which we are doing together with certain companies in our quantum technologies lab.
Yuval: Do your recommendations end up being more horizontal or vertical? And what I mean by that is sometimes it’s mentioned that key applications for quantum computing are simulation, machine learning and optimization, which cut across many industries. But then of course we could look at it vertically at logistics or financial services or pharma. Do you feel that the interest is focused on the application or on the vertical in most cases?
Niko: It depends whom you’re asking. When you’re asking, you know, a pharmaceutical company, then of course they are looking into this vertical and they are trying to understand what it really means to their business and when it comes to topics like truck discovery or so, it’s a very specific topic to a certain industry. When you are talking to companies in that ecosystem, like startups or even large tech companies who are currently developing that ecosystem from the more technology angle, they are looking into this also from a horizontal kind of perspective, to really understand what might be the next possible feasible kind of area which needs to be addressed.
Yuval: As we get close to the end of our conversation, I wanted to ask you a question about almost overzealousness. I mean, there was a lot of quantum hype. Do you see a lot of organizations that have started investing and maybe pulled back saying, well, actually it’s going to be farther out than we originally thought or that’s more of a rare occurrence.
Niko: It’s coming to the topic of hype versus reality. And I fully agree with you. There is a tendency of being a hype. We are more on that angle saying, okay, look, having a real quantum technology age will take us another five to 10 years, maybe even longer, because there are a couple of technological hurdles to be overcome until we are there. So when anybody is telling you, okay, look, quantum is already there. It’s of course from a physics kind of statement that might be correct, but when it comes to industrialization, when it comes to commercialization, it’s a different topic. So it really needs some time until we have this kind of, let’s say, fault tolerant quantum computer who is in the end giving us what we expecting when we think about that vision of this quantum computer doing great things, which we are not able to do right now. But that does not mean that companies are pulling back investments. They are, let’s say, more thoughtful and when they are investing, they are trying to understand whether the timing is right now to really go all in or whether it is the time for, let’s say, test and learn. So it differs.
Yuval: And last, I wanted to ask you a hypothetical question. If you could have dinner with one of the quantum greats dead or alive, who would that person be?
Niko: That’s a funny question. And I can tell you, of course, you could say it’s probably Albert Einstein or it’s Niels Bohr or one of those guys. But quite honestly, I would love to have dinner with Scotty from Star Trek and talk about teleportation because that’s probably the next big thing.
Yuval: Niko, thank you so much for joining me today.
Niko: Thank you, Yuval.