#116: “CEOs and organisations are going all-in on Agentic AI.” Dr. Nicola Hodson, Chair, IBM UKI

0:00CEOs and organizations are going all in on Gentic AI and that's a real shift. And when we polled them, 65 % of CEOs said that they were scaling AI agents across their enterprise. 64 % said that the productivity increase justifies the risk. And nearly 60 % of them are accelerating gen AI adoption beyond what they would say is their comfort zone. The stats are pretty impressive. So we are way beyond hype into things being real in the enterprise.

0:38IBM stands out as one of the most influential technology companies in history, pioneering breakthroughs that have shaped everything from mainframe computing right through to AI and quantum. Today's guest is one of the UK's most respected and influential technology leaders. Dr. Nicola Hodgson is the chair of IBM UK in Ireland. Nicola has spearheaded large-scale transformation programs and played a pivotal role in shaping how enterprise technology is adopted, governed, and scaled across some of the world's most complex and influential organizations. In this conversation, we explore Nicola's personal journey from being inspired by Concord as a child to becoming a prominent voice in the UK tech industry.

1:28Nicola shares what she's learned about leadership along the way and why she believes authenticity is one of the most undervalued traits in modern business. We also explore the evolution of AI regulation and hybrid cloud alongside IBM's bold commercial shift towards value-based pricing, enabling smarter IT asset management. We also unpack how enterprise organizations are adapting their asset strategies amidst all this AI innovation that we're experiencing right now and how the UK is positioning itself in the global race for enterprise AI adoption. This was a really compelling conversation. Nicola's composed presence and thoughtful perspective was refreshingly insightful, especially in light of all this innovation and change that most organizations are experiencing right now.

2:18I think you'll really enjoy this one. It is Dr. Nicola Hodson.

2:26Nicola, thank you so much for coming on the Tech Leaders podcast. I've been really looking forward to this one. Thanks so much for having me. Really looking forward to it. Let's start off with a bang. The question we always start off with, what does good leadership mean to you, Nicola? To me, good leadership means creating an environment where I can do my best work and other people can do their best work. So you might say create an environment where people can thrive. So that's the top level. That's what good leadership means for me. I would just add a couple of things. I think it's really important to get to know people.

3:03Who are you and what do you bring? What motivates you? What makes you stay? What would make you leave? And just to get under the skin of that so that you start to build a good basis of trust. And I think that, you know, that sort of empathy and trust together creates that environment in part where people can thrive and do their best. Absolutely. I think engaging with your team on an emotional level is as important as engaging on a professional level, isn't it? And I think you encapsulated that really well. So I once heard you say, Nicola, that you were inspired when someone showed you a photograph of Concord back in your younger days.

3:42Can you tell us a little bit about that and how you ultimately went in the direction of IT and technology as a vocational endeavor? How did that? Tell us about that path. Concord used to fly over my house. And so I would stand in the garden pointing up at the sky with my father. And he kindly bought, it makes me sound very old, but bought an entire copy of Encyclopedia Britannica. And on one of the pages was Concorde. And, you know, we used to spend ages sort of looking at Concorde, talking about Concorde, etc. Way before I was taking career decisions. My father worked for a company called ICR.

4:26I know it, yeah. Which younger listeners may not have heard of, but was a very large chemicals company in the UK. And subsequently split, a chunk of it became AstraZeneca and chunks went to Ineos and other places. But he was obviously involved in the chemicals and manufacturing industry. So if I went to see his work, it was big plant, big engineering. And, you know, getting an understanding of that from a relatively early age and then came to choosing what to do at university, decided to ultimately study chemistry and material science. I stayed on to do an engineering PhD. I was sponsored by industry.

5:09It was the automotive industry. And I was researching engine valves and how to make them last longer, basically. So these things are bashing up and down in an engine thousands of times per second. Especially in a Concorde. Especially in a Concorde. You know, in a combustion engine, they wear very quickly when they wear. If one fails, it's catastrophic for the engine. And so we were looking at ways to make them last longer. There was a new professor. he had a big laboratory with lasers and I got to sort of play with lasers and model the heat flow of these metals we were melting powder onto the surface and modeling the heat flow and seeing what happened so engineering surface sort of laser surface engineering and that sort of stayed with me kind of off and on throughout my career but I worked in the nuclear industry for about nine years I was in R &D.

6:05I was doing sponsored research with universities and partners and then moved into a role where I was assessing whether to make or buy effectively. Should we research and develop something? Should we partner or should we just buy something that already exists? The company was very inward looking at the time. And so we spent a lot of time, I did, personally looking outside and helping to make some of those big financial decisions and taking new ventures to market and things. So it was good. It was very expansive. I wound up leading what was the UK's largest transformation programme when we had a new chief executive join the company.

6:44And I was working for one of the ex-com members who was responsible for re-looking at the strategy. How do we make money? You know, what's our purpose? How do we organise ourselves? So I went to implement the changes working for him, who was leading a couple of the big divisions. Did that for about three years. We were busily taking out costs from the business, about a quarter of the cost base, in fact. And once that was done, I decided to move on and I joined EY, Management Consulting, in the energy and utilities sector. And then I left with a team of people to set up an energy and utilities practice.

7:25It's what was CSC, is now DXC after a couple of changes, but it was basically a big outsourcing systems integration. So DXC came out of that then, yeah? Yes, that's right, apps management company. And it was fabulous. I got to work on some extremely large bids, global ones, European ones, and UK. Got to build some BPO propositions from scratch, got to work on some nice juicy systems integration deals, SAP, PeopleSoft as was. And then I was headhunted. I went to Siemens. Siemens had an IT company basically that did systems integration outsourcing, business process outsourcing. So used to run things like the production of passports, all of the back office activity, and some of those chunky big deals.

8:15And I'd gone in as a sales and marketing director, UK and Ireland, to get the business back to growth. So that was fun. I was there for about five years. We doubled the business in size, more than doubled it. And we acquired a whole bunch of different companies as part of Siemens consolidating its IT businesses. I then left to join Microsoft, big Xbox launches, painting London green, huge Windows launches, as well as all of the B2B stuff. It was a very fast growth time for the company and lots of fun. And then when hyper growth started in the cloud business, I went to work for the leader of our entire go to market across the globe and did a transformation program for four or five years where I was driving the changes in the entire go to market model.

9:08Three years ago, I came to IBM as chief executive for the UK and Ireland and bringing all of that transformation experience to bear here on a company that's itself been going through some transformation over time. And in January, I became chair of IBM UK and Ireland. I've maintained in the background a non-executive career. So if that becomes relevant as we carry on the conversation, we can talk about that too. Yeah, absolutely. So transformation is something you've obviously been heavily involved with through your career then, in terms of leading transformation programs, obviously at Microsoft, IBM, and prior to that.

9:45So can I just get your sort of high level view on how do you approach driving change in large, complex organizations without losing momentum or buy-in? What are the sort of overriding pillars of how you approach a large transformation program in a big, complex beast? The first thing you've got to do is get really clear on why are you changing? Yeah. What's the compelling event that's making you think that the world is different and you need to change what you do? Because that sets the scene for how you explain it to people. It sets the scene for people to start to think about what this means for them.

10:23secondly I would say it's super important to get clear or get clear executive leadership to drive the transformation if you don't have that in place it's really difficult so that would be the second thing I think third is then to really think about the from to what are you changing and how is it going to change and to really think through how does it operate and that sounds quite simple but it really isn't because you have to think through to each role what are the new dimensions of the role how's it going to work how's it going to work with the one next to it how do all those team roles sit together and then how do you design go to market so that everyone in the in the team knows what to do can measure themselves and has some incentives that drive the behavioral outcomes that you want so that's the sort of pre making things happen if you like, then it's really important to plan the change properly.

11:20What will be communicated to whom, how and when? And how do you do that in a way that ignites motivation at different levels of the organization? So starting with the leadership level, and then through to the first line managers, the first line managers are critical in any change. That's your day to day experiences, the person you talk to in your management chain, spending time and giving sort of gestation time for them to understand the change and be able to explain it to their people and create the right energy and motivation around it. Part of that is important to think about what's in it for me, for the individual, when they hear about it so that they can get on board and make it happen.

12:03And then obviously you've got to make sure you're measuring it properly. I guess the final thing I would say is that all of these changes, they can be more or less successful. And if you don't pay attention to shifting the culture then you will not succeed and so really thinking through on a cultural side how your organization needs to make a shift and helping people to understand that and the sorts of behaviors that you want to exhibit and reward through your performance management systems is really important too. Yeah no absolutely some really good points there I think one thing about getting everyone bought into the transformation getting bought into the change and if everyone feels like they've got a stake in it do you know what i mean and it's not somebody take being autocratic and it's kind of their thing and you know what i mean they're just sort of nagging people to get bought into their narrative and their playbook you need to basically instill in everyone who is involved that it's their this is the change is going to benefit them and therefore they need to drive the change and own the change themselves because i think there's art to that though nicola isn't it it's difficult to do that you've clearly done it yourself but organizations get that wrong?

13:14They do and there is an art to it. The main thing is to really think about that and think about how is it going to land with the individual and how can I help the individual to understand it in ways that are meaningful because the further away from the top in an organization you go, the less context people have and so you can assume people have that context, you've got to really spend time to explain it and to make sure that they can understand it. And then, you know, on the day to day, what does it mean for me in my day to day job? I've heard you describe yourself as a, I don't know if you remember this, but you describe yourself as a bit of a polymath in terms of you've got interest in a diverse array of things, these varied interests outside of tech.

13:59Do they influence your approach to leadership and problem solving, do you think? Yes, I think you are richer as a person. I feel I'm richer as a person from having experiences in different sectors, in different walks of life, with different humans. It enables you to do a few things, not least of which is a people thing. So I will happily spend my Sunday in a biker's cafe. I'm chatting to people who are not from my walk of life on a day-to-day basis, but they're just different humans doing different things from all different walks of life. So that I think is important. It gives you range. It gives you a sense of understanding.

14:43It gets you outside of your bubble. And I think that perspective is important. I think then when you think about sectors, there are things in one sector. Let's take financial services, for example, there's been a heavy push on operational resilience and risk management that's coming to other sectors. So being able to understand that and then to help other sectors think through how do you manage for operational resilience? How do you manage for cyber? How do you make sure your essential services can get back up and running and things? And then I'd like to read pretty widely. I think, again, you pick up concepts, ways of explaining things, different levels of understanding that can bring to what you do and make it richer.

15:25So I'm a big fan. And most of my life heroes are polymaths. And I think it's a really important muscle. By the way, Nicola, if you ever are looking for a good biker's calf around by Cardiff, I know a great one. I can fill you in on that at the end. Okay. Who have you been inspired by then? Who are you inspired by? Oh, gosh, I could give you a super long list. So I give you a couple and then I'll talk about maybe a couple of leaders that I've been inspired by for different reasons. But the obvious polymath is Leonardo da Vinci. Oh, wow, yeah. Outstanding in art, outstanding in science. That interplay, I think, is incredible.

16:05His depth of knowledge across different disciplines. So rich. I've been to his museum or one of the exhibitions, and I just could not believe how diverse his expertise lay. It was ridiculous. Yeah, exactly. It's a great choice. Exactly. So that would be one. I think if I go back to what I was talking about earlier in the nuclear industry, I worked for an incredible guy who was on the XCOM, was leading the transformation, leading the strategy and ultimately led a big chunk of the business. But, you know, an incredible guy, trained concert pianist, outstanding academic, worked in the nuclear industry, but had the most incredible communication skills.

16:48I learned a lot from him around how do you get people on board with change because he was just incredible at being able to talk at all different levels and different levels of complexity, but to be able to explain things in really simple, understandable terms. And I think that's important because we can get snowed in management speak. And to the average person, it's really not always meaningful. And so being able to translate some of that complexity into what does it mean? What does it mean for you? What am I trying to say here? I think is a really good discipline. So those are the sorts of things that inspire me.

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18:18IBM, you're another chair for IBM UK. Can you talk us through your top priorities for the business in the UK over the next 12 to 18 months? What's top of your agenda right now, I think a few things from a business and tech point of view, the market moves really fast, right? Always the top priority is growth and how you continue to grow the business and develop it as economic conditions change. But the overriding thrust is about how do you meet your customers' needs in a way that helps you to grow your business? And so in a tech business, you know this at least as well as I do, Gareth. The tech world's all about innovation.

18:57It's part of what makes it really interesting and exciting. And it's therefore important to be able to meet customers' current needs, but also to anticipate what lies ahead for them and help them get ahead. If you start there, how do you satisfy and have happy customers? How do you meet there? And that's partly by meeting today's needs and helping with what's coming next. And therefore, driving growth. There are a few other things and we'll talk about some of the innovation in a second. I'm spending a lot of my time externally working with the government. So we've been putting time and energy into the industrial strategy from a tech perspective, the digital and tech pillar of the strategy.

19:40You know, it's important as the government thinks through its industrial strategy that tech plays its part in all of the pillars. You don't have great life sciences if you've not got great data and tech has got a very big role to play there. And so we've been working with each of the sectors as well to bring that forward. And then we'll perhaps talk some more about quantum and the work we're doing. So I'm doing a lot to support our R &D team in the UK and Ireland market and then working with some of our bigger customers on their own business challenges and how we might solve them. Yeah, I've got to quickly ask you, quantum, obviously, We've been talking about quantum for years.

20:18We had Simon Phillips on from Oxford Quantum Group about a year ago. And I know the government have recently announced they're spending a lot of money on quantum research. Are tangible use cases realistic now? Are we seeing quantum computing actually solving real world problems today? Or if not, how far away are we? You may have seen, I don't know if you saw, we announced a couple of weeks ago that by 2029, We expect to have the first large scale fault tolerant quantum computer. So it's not that far away. Very excited about the progress that's been made to date. There are already, by the way, thousands of users of quantum computing.

20:59IBM has quantum computing available in the cloud. And so people are there doing experiments, doing a lot of research and testing what's possible. So we expect to see several major advances over the coming years. We did a really interesting piece of work with Oxford Economics, a report that we commissioned, and that was around how does the UK capture the benefits of quantum computing for the economy. But it was interesting because it said that it's got the potential to deliver economic gains, i.e. increased productivity across the UK economy by around 7 % by 2045. So over the next two decades. And that's over£200 billion of GDP for the UK.

21:46So there's a lot to do to orchestrate that ecosystem and make sure we capture those benefits, but a lot of potential gain to be had. We think the main sectors where you'll see those gains would be things like pharma, the pharmaceuticals industry, defence, potentially in the energy and financial services sectors as well. And what we're seeing there is live scenarios of people testing, how do we permutate to develop drugs in a faster way and better drugs, same with vaccines, same with new fuels, same with advanced materials. So some of those problems of biology and chemistry, we think will be the first use cases to be solved and there's a lot of work going on there particularly in the life sciences sector where it's really quite exciting.

22:37Not that far away and I would also say that one of the other things we're working on is how do organisations make sure they protect themselves and they're taking care of their post-quantum cryptography so that they're protecting themselves from data that is harvested now that could later be decrypted at some point in the future. From a sort of playing offense, if you like, and finding the new scenarios, new materials, new permutations, a lot going on in the banking world as well around risk models, calculations that would not be solvable on a classical computer or would take too long are the ones that people are focusing on.

23:17That confluence of quantum and AI is very exciting when we eventually get there. and its progress is actually accelerating. So we're probably not far away. I want to come back to AI, obviously. But you mentioned, I just want to pick up on something you mentioned there around customer needs changing. And I want to tie that to your commercial side of what you do. So from subscription pricing to sort of AI-led value models. But what I want to ask you is, how is IBM evolving its pricing to reflect customer outcomes instead of just consumption? Do you see what I mean? What are you doing to meet the demands of the modern enterprise in light of all of this change that's being stimulated by AI innovation, predominantly, but other innovation as well?

24:02IBM's got multiple businesses. So we have a technology business that is lots of software, hardware, some hardware, and then we have a consulting business. And so across different parts of the business, different things. And obviously, we've got R &D, which also enters contracts with customers. So, you know, as it relates to the tech world, we are following the same shift that everyone else has been going along to, you know, much more demand for products that are subscription based, that are SaaS based, that are operated by the provider rather than in the customer's own data centers. We work a lot in regulated sectors, so that's not true in all cases.

24:46But in general, that shift in the market continues and everyone's moving in that direction. So the ability to provide those services from IBM data centers or for the customers to operate them themselves. So that's one shift. The other is a lot of customers are under pressure on costs or they're under pressure to grow. and it is important for them to be able to have partners, often strategic partners, who understand that pressure and can help them to make necessary changes in their business. And it's quite common in the consulting world across all of the consulting firms to have outcome-based contracts.

25:27As long as you can define clearly what you're looking for and what the outcomes are, then that's a good thing. We and others see sometimes outcome-based contracts tied to technology. Let's say, for example, with some great software that allows you to basically do your FinOps. So understand your cost base, charge it out to your departments, manage your cloud costs, all of those sorts of things. There is typically, you know, in the tens of percentages of business gain to be had there by reducing costs. And so Sometimes customers might see something like that and think, I'd like to assure that I get that payback in a fixed time window and I can strike an outcome based contract.

26:09And we would do those with our own consulting business or with the many GSIs with whom we work. So it is more common. It is maybe a little less common in the public sector, but definitely another trend. And then the third one I would probably highlight is we think about the development of AI and agentic AI and how that world's moving at pace. The ability to provide labor and digital labor and a trend towards asset based consulting is also pretty alive and kicking. So they would be the three big ones, I think, would answer the question you said. But I'm sure there are others, but they're the top of mind.

26:48Yeah, no, I think they cover most of it, don't they? but you obviously deal with enterprise organizations all the time. Have you seen a shift in attitude towards IT asset management? It's such a complex picture these days with the move to hybrid cloud and these consumption-based models. Are you seeing a shift in how organizations manage their assets? Because in the past, a lot of organizations haven't really had much governance in place for that type of thing. Are you seeing that change, Nicola? Yeah, definitely. And I would say, if you think about those trends we just talked about, The other trend is for customers, certainly the larger customers, to want fewer rather than more suppliers.

27:30So trying to manage the complexity of tens of suppliers in your supply base is difficult, especially when you're trying to keep the lights on and drive change at the same time from an IT perspective. That sort of trend to fewer means opportunities to consolidate, means you can think about more simplified solutions and means that you can have suppliers or partners who are really focused on your outcomes and help you drive those. The other shift, there is still an ongoing shift to cloud. And as that continues, that sort of is over time dealing with some of the legacy issues that maybe haven't been dealt with in the past.

28:11I mentioned earlier the shift towards more operational resilience in financial services. So there are a lot of external factors which are driving customers to think differently and to make sure they've got a handful of strategic partners that they can work with, that they are robust and resilient, that they've passed on those requirements for cyber integrity and operational resilience all the way through the supply chain. So you start to see a little bit more maybe of pockets of operations outsourcing that can take some of that workload off customers. You know, in many customers, and we'll talk hybrid cloud in a second, but in many customers, you have a situation where the board is pushing pretty hard.