Artificial Intelligence in Strategic Human Resources Management
Introduction: The Rise of the Cognitive Era
The rise of artificial intelligence (AI) in business is expected to have a profound impact on human resources management. The change will include both how the HR function is managed and approached (HR management) by companies, and how the function is practiced (HR practice). Since the advent of AI implies that machines will compete with human work, human and organizational transformation is at the core of the change. Strategic human resource management (SHRM) focuses on organizational performance and, in the new cognitive era, the practice of SHRM will undergo major changes. Both aspects of human resource management—HR practice and HR management—are discussed in light of the upcoming cognitive era.
When it comes to AI, human resources departments need to make the following two assessments:
- How will the advent of AI improve the function of human resources management (HRM)?
- How would the dawn of AI change the responsibility, function, and role of human resources?
The first assessment can be restated as a concern or inquiry into what technologies and systems can be used to manage and improve the existing functions of human resources. With the new cognitive technologies coming out, this will become a constant struggle to select, adopt, and implement new technologies.
The second reflects on how human resources will need to realign, reinvent, and reshape itself as a function for the new era of AI. This implies that expected changes will be structurally significant and therefore their impact will be broad and deep.
In this chapter, both issues are covered. The terms cognitive era, cognitive revolution, and AI will be used interchangeably.
The word “rise” is meant to signify the following: (a) the AI technology has matured; (b) AI is being applied in products and services; (c) AI is capable of creating and sustaining competitive advantage for companies; (d) AI is expected to have a significant impact on the economy; and (e) AI is something that executives and professionals should pay attention to.
Since the term AI was coined in 1956 at a conference at Dartmouth, the AI field struggled to become mainstream and gain wide acceptance (Chen et al. 2016). The unfortunate cycle of Optimism > Invest > Disappointment > Pessimism got repeated at least three times and is known as the winters of AI. In the down periods, investment dried out and even government pulled funding from research. More recently, however, the field has rematerialized as a formidable and powerful force and its reemergence is being considered as permanent and sustainable. Specifically, improvements in four factors, processing power, algorithms, data management, and global connectivity, have set the irreversible course of AI (Naqvi 2017a). Understandably, in the last few years the field has received significant attention and significant investment is flowing into the field (White House 2016).
While the technology is being applied in almost all industries and functions, its impact on the human resources function is particularly important. First, human resources departments focus on “humans” and clearly the advent of AI poses a clear challenge to the skill set, competence, and capability of humans. Second, human resources plays a major role in the overall strategy of a firm and as such it is important to understand the impact of AI.
What makes AI different and far more powerful than any other technology we have ever experienced as civilization is that it is “cognitive.” In other words, unlike machines that can only respond to human command and that have no mind of their own, AI-based machines will and do have the ability to learn, adapt, make decisions, accumulate experience, and even take actions as humans do (Naqvi 2017b). These machines go beyond the physical work automation and can now automate mental or cognitive functions performed by humans.
While the potential and future of such machines can force us to draw out numerous scenarios that can include the rise of killer robots to a world run by AI, for the purposes of this chapter we will focus on the technologies that are currently available, in the works, or whose induction can be reasonably foreseen in the next five-year period.
The HR Management: Realigning the Department
Human resources management is a vibrant and fast-developing field. SHRM is considered as a subfield of HRM. The word “strategic” in SHRM signifies that it focuses on organizational performance and not on individual performance and that human resources systems are approached as part of solving the broader business problems (Becker and Huselid 2006). Becker and Huselid argued that the way human resources contributes to the competitive advantage of a firm is when HR architecture is aligned with the strategic capabilities and business processes of a firm. To create that alignment, one of the specific configurations stems from the five-P model of human resources (philosophy, policies, programs, practices, and processes) whereby the five elements are systematically linked with the strategic needs of the firm (Schuler 1992). Schuler explains that the strategic needs reflect management’s overall plan for survival, growth, adaptability, and profitability.
SHRM can be approached from many theoretical angles (Wright and McMahan 1992) and it is well established that the function is strategic and its practitioners need to make sure that it is approached strategically. Additionally, modern developments clarify that the focus on the internal resources rather than the external perspective (e.g., industry structure and so on) is becoming a greater source of competitive advantage and leading to a convergence between SHRM and strategy of a firm (Wright et al. 2001).
Thus, the AI systems for SHRM need to be approached from the perspective of creating competitive advantage for a firm. As such, the top alignment of SHRM AI infrastructure needs to be such that the architectural layer captures the strategy of the firm. Given that the competitive dynamics of the cognitive era are different than the old era of industrial and information age, it is important to establish that link between the firm strategy and its human resources systems. Beyond the core strategic link, the functional aspects of human resources cannot be ignored.
One of the powerful aspects of SHRM is that it focuses on the organizational performance and the individual performance is aligned with the overall firm’s performance. In that regard, the cognitive era technology plays a key role in connecting and clarifying the organizational strategy and constantly aligns it with the functional aspects of HRM. This means that the new model offers an incredible opportunity to link organizational goals with employee goals and to be able to manage them at a very detailed level. As the organizational goals change, they are rapidly reflected in the individual performance goals.
From the functional aspects of HRM, we know that factors such as recruitment, retention, development, staffing, benefits management, and so on are important aspects of running a human resources department. In fact, from the cognitive capability perspective one can think of HRM as a function that automates human work and provides information. Using this simple framework, Strohmeier and Piazza developed a model that integrated the automated and information capabilities with the functional aspects of staffing, performance management, development, and compensation (Strohmeier and Piazza 2015). Defining the major AI techniques as knowledge-related techniques, thought-related techniques, and language-related techniques, they proposed a conceptual architecture for the cognitive era human resources.
Developing the above further, we can study HRM from the aspects of the SADAL® framework. The SADAL® framework explains the capabilities of cognitive systems and SADAL is an acronym for sense, analyze, decide, act, and learn. Specifically, it implies that the cognitive technologies can use these five elements to interact with and influence their environment. When applied in the HR frameworks, one can take the major processes or the functional areas and determine what would constitute as the SADAL® features. For example, recruitment is an expensive and time-consuming process that requires significant amount of human effort. When SADAL framework is applied, one can determine the following about the recruitment process.
The important questions are: What sensors will be needed to screen the information embedded in the environment? How will that information be analyzed? What will be the decision trigger points and how will those decisions be made? What will be the actions taken once decisions are made? What experiences will accumulate and what learning will take place in the software agent?
For example, recruitment is triggered by the resource needs of an organization. That need can arise as a new position is created or due to an existing vacancy. An existing vacancy can happen because someone left the firm, got fired, got promoted, or changed jobs internally. Software agents can be designed to not only quickly identify such vacancies but also project based upon existing data. The process of sensing and analyzing thus involves both identifying and determining based upon given information but also projecting or predicting. For example, a software program can predict that a vacancy will be created in a certain department due to retention failure and therefore it can preemptively plan for filling that vacancy. This implies that the agent was able to determine and predict the retention failure. This retention failure could have been detected based upon the historical data acquired from the firm. Using various features the system could have determined that the current employee will leave within four months and therefore a decision will be triggered to determine if the search for a replacement should begin now. At the very least, the system will be able to identify potential candidates to fill the job both internally and externally.
The recruitment agent will do the search and bring data back for the HR to make sure that ideal candidates are preemptively identified. In addition to bringing the resume, the agent can also provide relevant information about the prospective candidate that can be used to configure the package or even the interview for the candidate such that it increases the likelihood of the candidate accepting the job. For example, assuming that the candidate is considered fit for the job and the firm is trying to land the candidate, if the data shows that the candidate is motivated by environmental and sustainability issues of the world, having the head of environmental management of the firm interview the candidate would be a better idea instead of the head of legal affairs. That way, the candidate may get attracted to the environmental commitment and record of the firm and hence the likelihood of landing the candidate can be increased significantly. Could such use of information be considered invasion of privacy is a topic that will require a separate analysis, however the discussion is active and hotly debated (Captain 2016).
Similarly, many types of cognitive use cases can be designed and processes automated. For example, there is notable impact on performance evaluation (Gürbüz and Albayrak 2014).
The HR Practice: Reinventing the Profession
The second challenge for assessment was to understand how to realign, reshape, and reinvent the profession. The underlying reason for this part of the challenge is that the AI change is no ordinary change. Technological changes tend to impact the core structures of the economy and cause major shifts (Perez 2002). Nothing remains as before and the same is true for departments and functions.
For the HR function the following will be relevant and timely: (1) understanding the strategy of the firm; (2) developing a machine-human scenario; (3) developing a strategic transformation plan; (4) evaluating the performance requirements and incentives; (5) development; and (6) developing an ethics framework.
The starting point is understanding the strategy of the firm. While it can be argued that SHRM, by definition, focuses on the strategy of a firm and hence why is it important to repeat this requirement in practice management? The important distinction here is that this aspect of a firm’s strategy includes its cognitive transformation strategy (Holtel 2016) and not just any strategy. Holtel argues that just as steam engine’s invention created an immense, unprecedented, and often unpredictable change, the advent of AI will do the same. In this cognitive transformation, the company switches to an entirely new way of doing things, reinventing its core processes, and carefully allocating them between humans and machines. This is no easy task.
This work will require a detailed analysis of how the strategy of a firm will be manifested in its various departments and how the needs of the departments will change. This means that the HR professionals would need to develop a keen and powerful understanding of each and every function and its emerging needs. Thus, the plan for HR will be tightly integrated with the plans of all other functions since the uncertainty prevalent in other functions will impact the HR plans. The HR function would need to keep immense flexibility in its operation.
Developing a Machine-Human Scenario: HR departments are well equipped to develop resource requirement plans for humans—but now they would need to develop scenarios that will include the machine-human plans. This implies that the human-machine interaction should be considered when designing work processes. The human-machine interaction will impact not only incentive plans and motivation, but also self-esteem and dignity of a human being. The human-machine scenarios also imply that HR would need to determine plans for retraining employees, reallocating them to other jobs, or laying off. In simplest terms, HR departments would need to recognize that they are now responsible for managing two types of work resources: human and machine.
Developing a Strategic Transformation Plan: From an internal firm perspective, the cognitive transformation is centered upon human augmentation or replacement. Thus, the cognitive transformation will mostly be about, and relevant to, the human resource and hence HR departments will be fundamental to driving and leading the change.
Evaluating the Performance Requirements and Incentives: One of the greatest contributions and challenges of the HR departments will be developing performance expectations and incentive systems for human employees. The problem with defining the performance expectations will be that, as soon as performance expectations are defined, they will become a moving target since machines will be competing for human work. This scenario implies that incentive plans would need to be flexible.
Development: HR departments will have new and perhaps never-seen-before responsibilities to develop human employees. The upcoming cognitive revolution has placed, and will continue to do so, such an immense pressure on human workers that employees will have to constantly reinvent themselves. This reinvention implies that HR departments would need to help orchestrate training programs. Some companies have chief learning officers and others do not. In both cases, HR departments will need to help develop employee transformation programs—which may include significant retraining.
Ethics: One of the most important challenges that human resources will need to incorporate will be that the departments will be required to constantly reevaluate and reassess ethics. John Summer has pointed out some very interesting issues (Summer 2017), including:
- Who owns the employee data?
- How do you disagree with computer decision?
- What is the liability of human decisions?
- How to tell the difference between manipulation and motivation?
The reason ethical question will constantly challenge employers is systems will continue to evolve and learn. Organizations will be confronted with new ethical dilemmas and HR departments will need to constantly enhance and adjust to these challenges.
Commentary
Human resources is about managing organizational performance. Organizations experience and manage change but in the process dynamically change themselves (Tsoukas and Chia 2002). Organizations also evolve and can be viewed as complex adaptive systems (Dooley 1997). As the article shows, companies will be confronted with significant change. The future is both complex and at times unpredictable. What makes this change different is not only the fact that it will display characteristics of major technological transformation; it will force companies to adapt quickly. Competitive advantage in an environment like that is a moving target, often short-lived, and subject to constant revision. Competition emerges from unexpected areas and in ways that are hard to imagine. For example, tech firms like Google have interest in entering the auto sector and Amazon acquired a grocery chain Whole Foods.
HR departments need to be open to change and prepared for leading it. Leading change in this respect implies that HR leaders would need to reequip their departments with powerful new technologies while simultaneously redesigning and realigning their functions to the new challenges.
Humans have never encountered a situation in which they had to compete with a cognitive technology. This technology is different. It is a thinking machine and it is designed to learn. No other department will have a greater challenge than the HR department.
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