Topics:   Featured,Risk Management,Strategy,Technology

Topics:   Featured,Risk Management,Strategy,Technology

December 3, 2019

Board Oversight of Dynamic Workplaces Undergoing AI Transformation

December 3, 2019

The future of work is being shaped by the division of labor between people and artificial intelligence (AI)-enabled technologies. How can boards help management navigate technological advances that are expected to significantly reduce the number of human workers required to perform certain types of work?

Protiviti met with a group of active directors during a roundtable at an NACD event earlier this year to discuss their experiences and perspectives in this area. Here are some of the important takeaways from that discussion:

Every director should ask two key questions. Two powerful forces are shaping the workplace of the future. The first is the shifting composition of the workforce to include talent both on and off the balance sheet, with the latter group including the “contractual fringe” (specialized organizations and self-employed individuals who help the broader mission of a company by performing work on a project-by-project or outsourced basis while compensated on results, not hours) and the temporary “flexible labor force.” The second is the growing adoption of robotics, advanced analytics, machine learning, deep learning, natural language processing, and other trends making AI applicationsa mainstay in the workplace.

In this evolving environment, two questions are fundamental to the board’s oversight of workplace dynamics: What changes are in store for the workplace, the workforce, and the nature of work itself in our industry—and how do those changes affect our company? Even more importantly, how can we be sure that as a board and as a company, we’re doing what we need to do to remain competitive?

The nature of labor and the workforce are in transition. Using the three components of Charles Handy’s “shamrock model” for context, companies are shrinking their “professional core” as they tap into the contractual fringe and flexible labor force. Regarding this transition, the directors at the roundtable agreed that the board should ensure that management has an eye on relevant demographic, social, and technological trends: What is happening in our industry, what are competitors doing, and how do we know? Are we getting the talent we need to execute our strategy and business model, and if not, how are we closing the gaps? Do we have access to the right human resources (HR) partners?

Organizations should continue to focus on optimizing the inevitable blend of technological and human resources for the benefit of the workforce. For HR, the board’s role has traditionally been about oversight of overall organizational health, succession planning—especially at the CEO and upper management level—and using tools such as surveys to gauge employee morale and the organization’s overall culture.

But many boards have not focused on ethical AI and related issues. Some directors at the roundtable asserted that the board needs to advocate for the development of training and other activities to encourage employees to embrace new technologies and seek ways to enhance their value and productivity in other job roles. Boards should encourage management to set strategies for reskilling and upskilling workers as they bolster their long-term succession planning efforts. Organizations are also evolving toward an amalgamation of humans and AI-enabled technologies, and directors should accordingly work to understand whether management is aware of these technologies, evaluating their impact on the workforce, and deploying the appropriate tools within their businesses.

Boards should encourage management to redefine the organization’s HR and talent management programs. Historically, boards have been hesitant to immerse themselves in what the organization does to manage the workforce below the executive level. Considering the forthcoming changes in the workforce, the board should rethink this approach.

Roundtable participants expressed the prevailing opinion that the board should encourage the organization to take the long view strategically on talent management to envision the changes it must make to source, develop, and retain talent successfully in the future. The board’s focus on the workplace for smaller, growing companies might be quite different than its focus would be for large, sophisticated companies with ample resources and advanced digital capabilities, leading to different questions of management. However, regardless of the company’s size and complexity, the board should encourage management to think more broadly about work­place issues that they may not be considering on a daily basis.

Boards may need to step up to help their compa­nies redefine their compensation programs as the workplace evolves. Several directors pointed out that the traditional HR focus on compensation and benefits may need revisiting as organizations, the nature of work, and the requisite skills to perform that work change. Many companies face a multigenerational workforce with varying financial and lifestyle priorities. As the workplace changes, the board should shepherd the creation of a compensation program that reflects new concepts and designs, placing a premium on reimagining rewards and benefits that are effective in recruiting and retaining a diverse workforce in the evolving digital economy. Organizations need to think about innovative ideas, such as sabbaticals, reduced workweeks, and flexible and remote work options, while also offering attractive compensation packages beyond traditional pay models (e.g., life insurance and supplemental health and disability benefits for Generation X employees and student loan repayment assistance to Millennials).

The board should support the organization’s focus on corporate social responsibility and outreach to the communities in which the business operates. As talent grows more scarce and intelligent machines become fixtures in the workplace, the day-to-day nature of work could change for nearly everyone. The traditional labor model will come under pressure, and the traditional HR management model is likely to undergo a sea change. The board can expect these developments to intensify the war for talent. Given these factors, a sustainability mindset in dealing with environmental and social issues—particularly those affecting the communities in which the company operates—can help it differentiate itself in its quest for the best and brightest talent. This mindset can also help boards bring a big-picture, principled approach to their oversight of human capital management.

Directors may have to drill deeper than they are accustomed to in order to help management navigate changing workplace dynamics. Several directors noted that boards should not confine their perspectives and input on workplace dynamics to the macro level. This is an area where everyone is learning; the potential magnitude of the disruptive environment is virtually unprecedented and executives are searching for answers in a changing world not contemplated by traditional HR playbooks.

In drilling deeper, directors should rely on their own experiences and be reluctant to accept, without challenge or inquiry, traditional standards and historical mores and requirements that may no longer fit in the digital age. The board has an important role to play in helping management embrace new ways of thinking and operating.

For a more complete look at this roundtable, including key takeaways, read Protiviti’s full summary of the event. This summary includes a framework for questions that directors should consider given the size, maturity, and sophistication of the companies they serve.

Comments

Glenn GowDecember 06, 2019

Jim highlights many critical elements of the interaction of AI in the workplace, and the board’s oversight responsibilities.

Of the many points he makes, I’m going to highlight two here.

1) As it relates to AI: What changes are in store for the workplace, the workforce, and the nature of work itself in our industry—and how do those changes affect our company?

The workforce will be radically changed and will fall into three categories:
Workers will be replaced and will need to be retrained to do new work, or leave the company altogether. Think of the robots that pick packages in warehouses. This is a good use of AI and a poor use of human capital.

Workers will be able to provide higher-level services because AI will augment their capabilities by taking on the simple tasks for them. Think of a chatbot handling simple queries with a customer service agent working on the more complex customer issues. This is a benefit to employees.

Building and supporting AI systems. New jobs will be created to help AI provide specific value within any company. Not all of these jobs will be technical. Think of the expert Wall Street trader. Their expertise is needed to train the AI system to understand how to trade with them. Humans and AI together will be a powerful force.

2) As it relates to AI: How can we be sure that as a board and as a company, we’re doing what we need to do to remain competitive?

I believe this is the most important question a board can ask related to AI. In most industries, the first-mover advantage is real and can be game-changing. AI is unlike any other disruptive technology because once it gets going, it gets better every day, all by itself. If you feed it enough quality data and you do that better and faster than your competitors, you can create an insurmountable lead.

Think of Tesla's autonomous driving capabilities. It has collected data from billions of miles driven by Tesla cars, using all of that data to get smarter and smarter about self-driving. And, every day, it's collecting more data enabling the autonomous system in every car to get better. Tesla has created what I call the "AI flywheel effect," and if they continue to execute, no one will be able to stop them.

What is your board doing to create the strategy to take advantage of the “AI flywheel effect?”