Discover more from Thomas Otter's Acadian Ventures newsletter and blog
AI is too important to be just left to the tech-bros.
Time for the CHRO to step up?
Back in 2003 I was doing quite a bit of pre-sales work. Whenever big companies came to SAP in Walldorf for the “touch the ball” session, I’d often be the one positioning the HR products. Usually the HR session was the last one, so I would get to sit in the sessions with other C level executives too. The level of interrogation and detailed questioning that the CFO and Manufacturing executives provided was fascinating. These leaders were genuinely, deeply interested in how technology could revolutionise their jobs and functions. ERP was exciting stuff. Most HR leaders weren’t nearly that engaged. For many of them, technology seemed to be less relevant, getting in the way of the serious business of people management. Some HR leaders were really excited about the potential of technology to change how HR is done, but most just saw it as admin tooling, and left it to the CIO and one of their reports.
Fast-forward twenty years: Last month I had long chat with the CHRO of a leading French bank, she clearly explained the benefits of SaaS. Her gripes about integration were well founded and she was able to articulate the role of tech in enabling her HR function and a better employee experience. She’d developed a programme to work with start ups too. She was curious and well on the way to being deeply informed about the risks and opportunities for AI.
This is the subscribe button bit, someone clever at substack reckons it should be here.
We have come a long way. Many universities now include technology in HR teaching programme. Most HR leaders are much more technology savvy than their predecessors, and the best HR leaders take an active and proactive interest in technology.
I often ponder about the role of HR and the CHRO, and I’ve probably read 100s of books, blogs, papers, articles and tweets about this. I’ve talked with many CHROs over the years, both in business and academic contexts. The academics and consultants that analyse the HR function almost all point to the increased importance of technology for HR. The latest work by Ulrich and others has a much stronger technology component than his earlier work. See what makes an effective HR function. Lynda Gratton’s work on design thinking and how to redesign work is fascinating, and and aligns nicely with the “small a” agile concept. Jeffrey Pfeffer’s work has significantly influenced our investment thesis at Acadian. Elizabeth Altman’s research into workforce ecosystems echoes our position on the shifting boundaries of the firm, and the importance of the extended workforce. I’ve just ordered her new book.
I’ve been impressed with McKinsey’s and Deloitte’s HR research of late. I generally view consulting firm research with a solid dose of circumspection, but over the last couple of years McKinsey have definitely stepped up their focus on HR, and their research output reflects this. This recent report on the HR operating model is well worth closer examination. I’ll quote liberally from the report. It has the following suggestions.
Adopt agile principles to ensure both strict prioritisation of HR’s existing capacity and swift reallocation of resources when needed, enabling a fundamentally faster rate of change in the business and with people and how they work.
Excel along the employee experience (EX) journey to win the race for talent in the time of the Great Attrition, enabling both employee health and resilience.
Re-empower frontline leaders in the business to create human-centric interactions, reduce complexity, and put decision rights (back) where they belong.
Offer individualised HR services to address increasingly varied expectations of personalization.
‘Productize’ HR services to build fit-for-purpose offerings with the needs of the business in mind, and to enable end-to-end responsibility for those services through cross-functional product owner teams in HR.
Integrate design and delivery with end-to-end accountability to effectively address strategic HR priorities, reduce back-and-forth, and clarify ownership.
Move from process excellence to data excellence to tap into novel sources of decision making using artificial intelligence and machine learning.
Automate HR solutions to drive efficiency and capitalize on the power of digitalization in HR.
All of these 8 points have a significant technology dimension. I’d argue that you can’t excel along the employee experience journey (2) without individualised HR services (3() frontline empowerment (4), or productisation (5) accountability (6) data excellence (7) or automation (8). I also think you can’t do data excellence without process excellence, as data is a derivate of process.
All these points could be used a framework to assess your HR systems readiness and effectiveness. If I was a CHRO I’d develop a framework similar to this, and use it engage with my key vendors. I ask them how are you helping me improve assess these dimensions? Other consulting firms have frameworks too, let me know which ones you like.
The best CHROs engage with their key technology vendors at this sort of level. They don’t concern themselves with function-feature discussions, but they really want to understand how technology can really help them move the function forward. The best vendors encourage and establish strong dialogue with CHROs.
On innovation and what’s next?
Any CHRO that builds an HR organisation that can effectively deliver on the above 8 points will have built something quite remarkable. But I can’t help thinking that isn’t quite enough. The role of the CHRO is more than just someone that runs the HR function well.
Focusing on the large, established enterprise for a moment, I’d argue that the single most important role of CHRO is to cultivate a culture that enables innovation. Without innovation, large companies wither and fade over time. I’ve been reflecting on organisation culture recently, in part triggered by the passing of Edgar Schein, arguably the most significant researcher of organisation culture.
When large organisations fail to innovate, it is rarely because of a lack of invention. (Kodak invented the digital camera) It is because the organisational culture stifles that innovation and disruption. I’m a big fan of Tushman and O’Reilly’s work on the ambidextrous organisation, solving or at least coping with the exploit / explore paradox.
I think of CHRO as the custodian of the organisation culture. They need to monitor it, address anti-patterns, and foster the pockets of excellence into broader norms. The systems and processes HR puts in place to hire, reward, develop, promote, organise etc have a direct and lasting impact on the organisational culture.
The best CHROs examine and understand both the endogenous and exogenous forces. And I’d suggest CHRO spend some time with scenario planning, exploring the long term implications of skills shortages. On the one hand the demographics are inescapable, there are fewer workers entering the workforce in many countries than are leaving it (Anita Lettink has done some excellent research on workforce demographics). On the other hand, the nature of work is changing, and understanding demand is going to take a lot of effort from HR and business leaders. A major driver of that demand dynamic is going to be AI.
On skills and AI
After several years of over-hyping from both analysts and vendors, skills are becoming a viable method to understand and perhaps even predict what is required to get work done. Understanding what skills people have, and what skills the organisation requires now, and might require in the future is not simple. While at first, the process of matching people to work seems straightforward, it is one of the harder challenges in machine learning (trust me, I have the scars). The job object alone is not granular enough to adequately define work, and it has implicit assumptions that often no longer apply.
The leading HR tech vendors have now been at it for a long, long time, and have learnt a lot along the way. I think we are at a point now where the promise and the reality of the technology begins to align. One of the problems I’ve seen with a lot of the attempts to “own skills” is that the vendors come from a single angle. Recruitment vendors see skills as a better way to hire, Learning vendors see skills as a better way to match people with courses. A second challenge is actually deriving the skills data in the first place, as there are many sources, with differing levels of granularity and providence. The mix of vendors that most large organisations have means that developing a coherent skills picture is challenging. It is unlikely that one vendor will solve it all, either.
The core system of record will play a vital role in bringing coherence and structure to the data. Workday began this journey about a decade ago, establishing both a strong ML team, and the contractual frameworks to use customer data safely and appropriately. They saw the opportunity for skills relatively early. I’ve long thought the Peakon acquisition was as much about well curated data as it was about surveys and listening itself.
The best core systems will have strong machine learning capabilities and robust and open APIs, that encourage other vendors to connect and share data and processes. They’ll also build out robust use cases to actually use the skills data for something useful, such as internal mobility.
As a VC, our firm has made a couple of bets on skills.
Firstly, with Techwolf. We think there is a ginormous opportunity for a solution that can effectively derive, organise, categorise skills irrespective of the data source, and the ultimate business process outcome. Think of this as a headless skills engine, able to enrich what’s in your core HR system, ATS, LMS, project systems, and any other application requiring robust skills data.
Secondly, with AG5, they have a thriving solution solving skills and worker deployment at a plant/machine level. So much HR tech is office worker centric, so solutions that solve the needs of the factory, on the factory shop floor are a welcome development.
We see both these vendors working tightly with the broader core vendor ecosystems.
CHRO and the future of work
The CHRO should be the leader most focused on the future of work. This is stating the blindingly obvious. What is perhaps not so obvious to some of those leaders is that the future of work is going be fundamentally altered by advances in AI and ML. Basic logic then holds that if you are going to be the leader most focused on the future of work, then this means you are going to have to learn more about AI, and the opportunities and threats its use creates than you may have ever imagined. Understanding how SaaS works is useful, but it is no longer enough.
I’ve some scepticism and concerns about chatGPT, but I’m very bullish on the longer term impact of LLM on the future of work. It will be massively disruptive. The most intriguing position I’ve seen is from Paul Kedrosky. Read Society’s Technical Debt and Software’s Gutenberg Moment.
The current generation of AI models are a missile aimed, however unintentionally, directly at software production itself. Sure, chat AIs can perform swimmingly at producing undergraduate essays, or spinning up marketing materials and blog posts (like we need more of either), but such technologies are terrific to the point of dark magic at producing, debugging, and accelerating software production quickly and almost costlessly.
If Paul and his co-author Eric are even half right, we are in for a massive shake up. You find the slide deck that supports this research well worth a read too.
I’ve mentioned Gianni Giacomelli’s work before, I worked with him years ago at SAP, and he has since gone on do great things with Genpact, MIT, and now with supermind. He explores how AI and creativity might work together. I find it fascinating, and just a little scary too.
AI has the potential to do harm, undermining worker rights, unfairly discriminating and creating negative brand impact as result. James Farrar is the founder of the Worker Information Exchange, who have recently (this week) published a damning report into AI automated worker firing at Just Eat.
The vast asymmetry in power has emboldened managers to use faulty and crudely designed automated management tools to control workers on the platform. Because of the abundance of workers on stand-by, unpaid, and the lack of available recourse, platforms have resorted to robo-firing workers with impunity. They fail to exercise the basic HR due diligence of conducting a proper investigation and hearing an appeal from because they do not want to spend the resources to do even that.
There is/will be a Cambrian explosion of vendors positioning all sorts of AI based solutions. Existing vendors will be reacting with their own offerings. The cacophony will be deafening. Josh Bersin’s recent post illustrates this repositioning shift.
Your challenge, should you accept it, is to figure out what’s real and what’s just powerpoint, and more profoundly, what is the human-machine collaboration opportunity. If I were a CHRO, I’d be all over trying to understand AI and its potential impact and opportunity for the workforce. I’d be insisting that my organisation develops a strong position on ethical AI and compliance, while creating the safe spaces and sandboxes for experimentation. I’d be collaborating with marketing, finance, operations and other functions to build internal expertise, keeping vendors honest.
The narrative to date has been vendor, analyst and tech driven. It is my hope that HR leaders will really get to grips with AI and its implications for the future of work, positive and negative. I’m not sure what the future of work is going to be, but I’m spending as much time as I possibly can figuring it out. I’d urge you to do the same. Develop and continuously refine your opinions, and make sure they are heard by your fellow leaders. AI is too important to be left to the tech bros.
As is my usual practice, here’s a tune for your listening pleasure. Kraftwerk’s Mensch-Maschine. Kraftwerk pretty much started the whole electronic music thing. The stuff they did in the 1970s still sounds remarkable.
If you have read this far, consider sponsoring my bike ride in aid of Warchild and the Amani House.
It is also fascinating to see the product management discipline penetrate the HR vocabulary and practice. HR vocabulary until relatively largely reflected the the managerial practices of the mid to late twentieth century. The percolation of software development methods and metaphors into HR practice is to be welcomed. Agile and design thinking are powerful methods that have application far beyond coding.