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As 2023 nears its end, corporate belts at technology companies remain tight. Large layoffs earlier this year affected multiple sectors but hit technology the hardest, resulting in the largest workforce reduction of tech workers since 2001. Amid the slowing in spending and diminished engineering capacity, CTOs are being challenged to adapt. There are, however, hopes for better times ahead. More than half of <a target="_blank" href="https://visionfund.com/survey/cto-survey-on-economy-tech-engineering-talent">CTOs in our recent survey</a>, fielded in October, told us they were more optimistic about the state of the economy than a year ago. Additionally, the competition for tech talent remains strong, with many companies saying that <a target="_blank" href="https://visionfund.com/insights/chro-survey-despite-layoffs-talent-is-still-king">recruiting top talent is a priority</a>. And then there’s the global technology shift that finally went mainstream: generative AI. As CTOs from the 69 companies who participated in the survey implement and experiment with various uses and applications for generative AI, many continue to see productivity gains. A majority have changed product roadmaps because of generative AI, while 30% have adjusted their strategy, and 40% shifted talent priorities for their teams. As some CTOs lean into generative AI while others hedge and observe, one thing is clear: As the technology itself evolves, so will its potential use cases. Here’s a closer look at what’s top of mind for CTOs, including how they’re approaching generative AI and talent, closing out 2023. You can explore the full survey results, and filter by region, sector, and stage, via <a target="_blank" href="https://visionfund.com/survey/cto-survey-on-economy-tech-engineering-talent">Sōzō Pulse</a>.

<h2>1. Harnessing AI in different ways — and iterating</h2>As companies have been racing to embrace AI, they are choosing to <a target="_blank" href="https://visionfund.com/insights/generative-ai-for-analytics-sales-marketing-ecommerce">deploy artificial intelligence technology</a> in a variety of ways. Over the next two years, the heterogeneity in AI activities and applications will continue, but the composition of the mix will shift. Generative AI will have a sharp surge in usage, and natural language and conversational interfaces will also grow.

<h2>2. CTOs are pursuing various approaches to AI — and getting results</h2>As companies engage with generative AI, valuable insights from the survey show that some are more prepared than others: Just over one-third of CTOs said they are already steeped in the technology and ready to leverage it in their products. Not quite half are enthusiastic about generative AI and note that their tech teams need more training. A small segment of CTOs said they are interested in generative AI but unsure where to start.When it comes to how companies deploy generative AI inside their companies, no single approach dominates. Around one-third said they use third-party AI-based tools and services, while 19% said they are adapting open-source models to their own needs. Over half said they use a combination of the two approaches. Meanwhile, just 6% of companies are building their own foundation models, with the rest roughly evenly split between using general purpose language models like ChatGPT, fine-tuning commercially available models based on internal data, and a combination of the two. Additionally, a majority of CTOs are experimenting with both open-source and closed-source LLMs.Overall, CTOs are encouraged by the results they’re seeing, saying that generative AI has improved their companies in a number of ways.

<h2>3. A new challenge for CTOs: Investing in AI amid contracting tech budgets</h2>Although AI has put a spotlight on engineering, technology budgets shrank in 2023 at 38% of companies. They stayed flat at 32% of companies, and grew at the remaining 30% of companies. But within the companies whose budgets grew, only 13% of CTOs said the increase was primarily driven by AI. Looking ahead, just 9% of CTOs said that generative AI is a significant part of their budget, while 42% said it’s a small part of their budget. But more are planning on increasing that spend. More than one-third will start investing in generative AI in the next two years. Meanwhile, 10% of the CTOs surveyed said they have no plans to invest in the technology at all.

<h2>4. A changed tech talent market </h2>The current scramble for AI talent — whether for AI/ML engineers or data experts — comes with little surprise. The engineering category in highest demand, according to the survey, is AI/ML experts at 57%. Back-end and full stack engineers are close behind at 52% each. The need for those specialties is expected to grow more acute over the next couple of years. The trends line up with what Rishi Khosla, co-founder and CEO of <a target="_blank" href="https://visionfund.com/portfolio/oaknorth">OakNorth</a>, said recently: “<a target="_blank" href="https://visionfund.com/insights/generative-ai-for-analytics-sales-marketing-ecommerce">Getting data analysts has always been hard. The interest in generative AI has made that harder</a>.”

While the expected growing demand for AI/ML engineers could spark a new talent war, some CTOs believe it will be tempered thanks to training and professional development. “There is a shortage of talent in regards to the people who have actually worked on the problem statement that you really wanted,” said Vara Kumar, co-founder and CTO of <a target="_blank" href="https://visionfund.com/portfolio/whatfix">Whatfix</a>. “But I don&#039;t believe deep learning is such a very hard skill for engineers to pick up, with a couple months of effort. A good software engineer is still required, but I think they can learn very quickly.”

<h2>5. Challenges and concerns remain</h2>Along with its promise, generative AI’s rise has come hand-in-hand with a series of concerns that range from hallucinations and accuracy to privacy and regulation. CTOs cited accuracy and data privacy as their top concerns today. Another issue — cost — ranked third. But CTOs also showed optimism that some of the issues will get solved over time. Conversely, issues that have not yet surfaced as a major concern, such as regulation, access to talent, and vulnerability to cyberattacks are expected to grow in importance.

CTOs are exploring pathways to AI success

CTOs - Q3 2023

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