Human Capital Management in the Age of AI and the New Role of the CHRO　Part 1: Maximizing Intellectual Capital Through “Augmented Human Resources”

In the past, the role of technology was to support the “streamlining of operations.” Today, however, generative AI is reconstructing the very nature of decision making and value creation. We are thus entering a phase of “extending” human intellectual productivity.

These trends have reached into every area of management, and human capital management is no exception.
Traditional human capital management put the focus of operations on “how to leverage human resources.” With the rise of AI, however, the extension perspective, which asks, “how do we maximize intellectual capital by combining human resources with AI,” has become essential.

In this Insight series (spanning six parts), we put forward the new concept of “augmented human resources,” which aims to go beyond merely streamlining operations to combine AI and human knowledge, and thus perform strategic decision making faster and more accurately, based on the rapidly advancing current of human capital management. We will also present directions for maximizing the value of human capital by redefining the roles required of the CHRO in the era of AI.
In Part 1, we will summarize the present state of human capital management and the directions it should advance in, before presenting the idea of augmented human resources.

Reference: What Is Human Capital Management? An easy-to-understand explanation of the background to and advantages of an approach that is in the spotlight, and how to put it into practice and make relevant disclosures

About the Author

Kazuki Sato

Director
Tomohiro Yamamoto

Senior Manager

Where Human Capital Management Is Now and Where It is Heading

In recent years, Japanese business has been confronted with major changes in two aspects in the domain of human capital management. The first of these has been a movement promoting the alignment of corporate and HR strategies by reimagining human resources as a form of capital that acts as a source of value creation, with this movement being symbolized by the “ITO Report for Human Capital Management.” The second is the mandating of disclosure of human capital information in securities reports. Amid the growth of ESG investment, companies are being required to present numerical indicators for things like personnel development, diversity and engagement, and to be accountable to stakeholders in these areas.
In response to these demands, companies have been linking various systems such as HR information systems, talent management systems, learning platforms, attendance management and BI tools, and efforts to aggregate and visualize KPIs have spread. On top of this, companies have made progress on preparing key indicators such as engagement survey results, trends in personnel composition, and hiring, resignation and transfer figures, to the point that they are now referred to in management conference and Board of Directors meeting materials. Human capital management is, at the very least, becoming a standard which “allows people to look at the state of a company using the same measure.”

Decision-Making Challenges

With that said, though progress has been made on visualizing human capital, issues remain in the decision-making mechanisms that tie directly into value creation.

Disconnect Between Strategy and Data
The figures being disclosed are not being incorporated into management decision making, so measures are not being compared objectively. Decision making remains dependent on experience and implicit knowledge.

Non-Use of Unstructured Data
Because the sources of observations, such as recordings of discussions about careers between managers and their subordinates, or the open-ended responses to engagement surveys, are difficult to compile, they go unused.

Insufficient Linking to the Language of Finance
Human capital management does not show return on investment (ROI) for human resources investments, and fails to incorporate the financial indicators and language used by CFOs.

As a result, at present, human capital management finds itself in a transitional period going from “visualization” to “utilization.” What management needs, however, is not a list of items that allows it to understand the status quo, but mechanisms that give end-to-end support for the process of comparing future options in combination with their justifications, for setting priorities and for incorporating this into measures. Their task is thus to build those mechanisms.

Generative AI as a Catalyst

Generative AI is an effective catalyst which holds the potential to bridge the gap to utilization. We can summarize this potential in two key points.

1. Broad Integration of Diverse Data and Contextualization

AI can collect diverse information coming in different formats (open-ended survey responses, interview recordings, learning history, work hour data, etc.) using natural language processing and reorganize it to suit management challenges. This lets leadership get insights without waiting for the perfect model.

2. Building and Comparing Visions of the Future, and Presenting Measures for Getting There

AI can build up multiple potential scenarios and present the effects, risks and necessary resources for each, as well as the options that management should take together with the justifications for this. In doing so, AI does not take the place of management in drawing conclusions, but, rather, its role is to expand the scope of management’s assumptions and perspectives and increase their comparability.

In terms of specific examples, AI could design interventions for when it detects the early signs of employee resignations, automatically present learning pathways in line with the aspirations and strengths of employees, and propose team compositions by matching project requirements and the characteristics of personnel. What matters here is not that generative AI performs individual optimizations, but that it enables a way of working in which future vision and specific measures can be considered on the same foundations.

Championing Augmented HR

It is in this context that we champion the idea of “augmented HR,” which treats AI as a catalyst. In the West, approaches are already being implemented in which AI and other technologies are used to augment HR functions, thus increasing strategic value. Meanwhile, even in Japan, some leading companies have begun similar initiatives.
At ABeam Consulting, we champion the idea of augmented HR as a management model that integrates the three elements of AI insight, human capital data and corporate strategy.
Specifically, AI visualizes employee skills, experience and career aspirations in real time, and automatically generates outputs such as optimal personnel deployments, forecasts of skill supply and demand, and simulations of change in organizational culture, while aligning organizational structure with performance data. This allows leadership to use the results of these simulations to immediately consider which human resources investments will raise corporate value in the future.

The core of augmented HR is the idea that AI augments human capabilities rather than substituting them. This approach allows AI to do the heavy lifting on complex analytic tasks such as building and comparing future scenarios, while leaders, beginning with CHROs, concentrate on higher order roles such as strategic interpretation of those results, ethical judgments and empathetic communications.
For example, let us suppose that among the multiple future scenarios presented by the AI, in one scenario, “the risk of young specialists resigning will increase,” while in another scenario, “the investment in developing digital personnel will push up performance in three years.” Taking this, the CHRO then chooses measures that integrate corporate culture and employee buy-in, rather than stopping at simple numerical optimization. In other words, the approach is a collaboration in which AI presents the “logic,” and humans contribute the “meaning.” This model is thus a comprehensive framework that promotes a complete transformation away from traditional HR based on experience and intuition and towards HR as a truly strategic management function that visualizes the future based on data and insights.

The Role of the CHRO in the Age of AI and Approaches to Decision Making

Augmented HR will fundamentally redefine the role of the CHRO and approaches to decision making. To date, HR decisions have depended, in large part, on “experience” and “feeling”, but through the use of generative AI, HR systems have become capable of instantly analyzing massive amounts of data and presenting multiple scenarios. Amid this context, the role of the CHRO is shifting from being the “decider” who makes judgments based on experience to being “the person designing questions” for the AI. The analyses proffered by AI are not “answers,” but “options.” The new decision making of CHROs consists of taking these options and deciding which to adopt in light of their company’s strategy, culture and social context.
As an emblematic example, there is a company that trained an AI on years worth of Board of Directors and corporate strategy council meeting minutes, internal data and the latest external data, then had AIs set to have dozens of different personalities sit in a management meeting. These AIs had mutual discussions with one another in advance, and organized and presented multi-dimensional discussion points and future scenarios based on those discussions. Leadership then took those multiple options and, from there, drilled down to “the path the company should go down.” In this example, AI did not replace decision makers, but, rather, functioned as an “additional line of intellectual support” augmenting leadership’s assumptions and perspectives. Prior to the diverse future visions presented, CHROs design which scenarios to select, which groups of personnel to invest in and which skills to redeploy. In other words, the ability to refine questions and improve the quality of decision making is the core of leadership in the era of augmented HR.

This change in the decision-making approach will significantly change the role of the CHRO itself. CHROs need to evolve in the direction of being “architects of strategy” who create corporate value using data and AI, rather than leaders of human resources management and operations. It will be essential for CHROs taking on this new role to have the ability to use AI to predict the HR portfolio that will be needed in future, simulate the ROI of human capital investment and design and execute measures optimized to the individual level. As a result, CHROs will be able to present data-backed business cases such as, “this re-skilling investment will improve productivity by Y%, which we forecast will deliver Z dollars in revenue,” rather than making qualitative assertions to CEOs and boards of directors.

This change also represents a change in dynamics within leadership. Traditionally, CFOs wielded significant influence through the shared language of “financial data.” By contrast, CHROs would struggle to quantify the human resources and organizational cultures that they dealt in. Augmented HR offers CHROs the tools to “quantify” such intangible assets. In other words, “quantification of human resources and organizations” has the power to give CHROs a new language for dialogue with CFOs and to push human capital to the center of corporate strategy.

What’s to Come in This Series

In this Insight, we present the state of play in human capital management, the transformation being brought about by generative AI and the idea of “augmented HR,” which we champion. This model fundamentally transforms the role of the CHRO, granting them unprecedented “decision-making ability” based on data and insight. The progress of augmented HR has reached the point where it is no longer an option for getting a competitive advantage, but, rather, a requirement that companies need to address in order to continue growing sustainably.

This Insight is the introduction to a six-part series. CHROs, who are charged with driving these transformations, are faced with an extensive number of questions to answer. In the following entries in the series, we will go deeper from a variety of angles on multiple points of discussion that comprise human capital management in the era of AI. These include HR portfolios, engagement, recruiting, development and deployment of technology.
Throughout the coming articles we will describe the changes that will be brought to business management by the collaboration of people with AI, and the path towards putting these ideas into practice. Taking on these questions one by one will form the path to maximizing the value of human capital and forging the way towards the future of business.

ABeam Consulting redesigns the strategic human resources management of companies through the promotion of the augmented HR approach that combines AI and human capital management. We offer end-to-end, side-by-side support to clients from strategy formulation to preparing data platforms and carrying out cultural transformation aimed at making companies AI native. By doing so, we hope to help companies exhibit new value on the whole-of-company level in the age of AI.