Think:Act Magazine explores how artificial intelligence is impacting our work and our workplaces with insights from labor economist Daron Acemoğlu and professor of ethics and technology Joanna Bryson.
AI in HR: Challenges, use cases and key success factors
By Jann Oetken
How AI tools can help to achieve efficiency gains and impact in human resources
HR is changing. Digitalization and a skills shortage are turning it from a largely administrative function into a smarter, more strategic function with the potential to drive efficiency and transform the future of work. So where does AI fit in, and what benefits – and challenges – does it bring?
For decades, the human resources (HR) function has been perceived by outsiders as a more or less administrative department. HR dealt with job adverts, sick leave and maternity pay. This was always wrong, but today this view is completely outdated.
Several trends are driving a major shift in HR. Primarily, digitalization is fundamentally changing its role. New technologies and automated solutions – especially those based on (generative) artificial intelligence – are transforming HR from a transactional into a strategic function offering value-add services.
At the same time, talent is becoming scarcer. As demographics and in-demand skills change, companies must work harder to secure the best people amongst fierce competition. They are also having to adapt to modern perspectives of the workplace. Today’s workers now often expect more flexible, employee-oriented employers, for example. Lastly, macro-economic uncertainty is requiring flexible adjustments of workforces. While dealing with these challenges, HR must continue to provide necessary functions and capabilities.
As a result, companies must adjust and redefine the future of work. Two points will be key to these changes. First, HR needs to transform as a function, becoming smarter and more efficient. Second, HR must support the transformation of business, providing the right people and culture.
AI has an important part to play in this transformation. In our report “AI in human resources: Mastering the transformation of HR – From transactional to strategic”, we assess AI’s role in effecting the change.
"The growing need to succeed in the never-ending transformation journey calls for transformational leadership at all levels."
High potential for efficiency gains
We surveyed more than 100 global companies, from tech players to auto giants and leading manufacturers, to gauge the impact of AI in HR, identify use cases and provide key success factors for using the technology.
The report finds that new HR technologies are already well-established and growing fast. In Europe, for example, the HR tech market is expected to double in size to more than USD 9 billion by 2032, fuelled by investment in AI (USD 25 billion in the past two years alone).
The potential impact of these new technologies is stark. As well as hastening the shift of employees' focus from transactional to strategic and analytical tasks, such as the development of long-term strategies, AI can enable end-2-end and automated execution of processes through self-service platforms, including intelligent case processing. It can also optimize HR processes and ways of working, for example, by eliminating bottlenecks in E2E processes. These shifts are freeing up HR staff to work on value-driven activities.
The report found that AI use cases exist across the eight steps of the employee lifecycle. Generative AI tools, such as ChatGPT, are increasingly common, while other examples include automated skills analysis, mentoring tools and self-service dashboards. But how effective is AI in such HR use cases?
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"For many HR departments, an effective way to begin the AI journey is to start with a small pilot – focused on a single country, specific process, or function – evaluate its success, and then scale it up."
Key success factors for AI in HR
Our survey focused on three questions in particular to determine effectiveness: potential efficiency gain (time vs. cost); impact on employee experience (does AI improve job satisfaction?); and impact on talent decisions (does AI enhance decision making?).
The results, assessed in detail in the report, show that AI tools have significant potential for efficiency gains, especially in the lifecycle steps of HR Administration and HR Reporting. However, their impact so far has been mixed, with a high effect in Recruiting & Onboarding but little effect in Labor Relations, for example.
The survey results, combined with our significance client experience on HR projects, show that only a few companies – mostly large firms – have started using AI at a strategic level in HR. In the report, we look in detail at what lessons in strategic implementation can be learned from their experience. These include starting with small pilots and employing in-house technical experts.
Th report also identifies several key success factors to help leaders build on these lessons and navigate their AI transformation. For more information, and to find out how Roland Berger can help with any size of AI transformation project, please download a copy of the study. Or feel free to contact one of our experts.
Request the full PDF here
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