Governance in the age of automation

It’s a crucial time for boards to improve their digital literacy and understanding of the risks and opportunities that artificial intelligence brings, writes Kirsten Patterson. 

Late in September Air New Zealand released its second artificial intelligence product, a digital human called “Sophie”, powered by IBM Watson. Designed to help travellers through the onboarding experience, Sophie demonstrates that artificial intelligence is no longer the fodder of science fiction. 

From personal predictive assistants such as Siri or Google Now, to chatbots and purchase prediction on sites such as Amazon, artificial intelligence is rapidly transforming our daily lives. 

The impact of automation and artificial intelligence on the future of work was a hot topic at Davos this year, where the impact of the so-called “Fourth Industrial Revolution” was debated by world leaders and business luminaries.  

For business, the benefits of machine learning and automation are significant in terms of greater efficiency and productivity, freeing up staff from routine tasks and allowing companies to focus more on culture. 

On the flipside, the World Economic Forum’s Future of Work report estimates that in the years 2015-2020 there will be a loss globally of 7.1 million jobs due to automation. 

Unlike other countries such as the United States, Canada, the UK, Japan, Singapore and South Korea, New Zealand has not yet established a “whole of Government” approach for dealing with the onset of artificial intelligence.

Last year the Institute of Directors released a “call to action” paper called Determining our future: Artificial Intelligence together with Chapman Tripp. 

The goal of this paper is to encourage Government and New Zealanders to begin planning for the impact that artificial intelligence will have on our workforce, business and the economy.  

Managing this technological shift requires the influence of a strong board, capable of guiding companies through complex cultural, economic and regulatory changes.  

However, many New Zealand businesses are not equipped to deal with the radical disruption that rapid developments in technology will bring.

Our 2016 Survey of Director Sentiment found that only 35 percent of boards felt they had the right skills and experience to lead their organisations through this period of technological change. 

So what can boards do to strengthen their governance? Two areas that boards need to consider are risk management, and the development of workplace culture.  

The rapid uptake of artificial intelligence creates an environment of technological disruption where all industries are vulnerable to shocks. 

Even industries that were traditionally viewed as too specialised to be automated have been affected. An example of this is the accounting industry, where Software as a Service companies like Xero are enabling small companies to operate at scale by accessing specialised resources at a fraction of the cost.

The increased automation of data through algorithmic processes also raises ethical and privacy concerns. For the financial, health and insurance industries, these include the legal liability of decisions made by machines. The amount of data that companies now hold on individuals also poses risks of a cyber breach, and the reputational damage and cost of lost data.

It is essential that boards account for these changes and ensure they have access to expertise that can manage and understand these risks. 

In terms of workplace culture, the impact of artificial intelligence is placing pressure on processes of talent acquisition and retention. We are already seeing the impact of technological disruption in the composition of our workforce, as we shift towards a “gig economy”, where companies shift towards using temporary and contract staff for project based work.  

The Hays Salary Guide found that 21 percent of New Zealand employers now use temporary or contract staff on a regular and ongoing basis, and another 46 percent bring in “gig” workers for specific projects.  

At the same time as the gig economy provides companies with greater access to talent, it also places pressure to compete for limited resources. 

Boards play a crucial role in helping to set the organisational structure, vision, tone and reporting structure of a workplace culture that supports talent retention.

 In a time of uncertainty and rapid change, setting this vision provides strong and stable leadership. 

There has never been a more crucial time for boards to improve their digital literacy and understanding of the risks and opportunities that are available to business in this environment.

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Kirsten Patterson is the CEO at the Institute of Directors. 

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