• Monday, December 11, 2023
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Business transformation through AI – opportunities and legal risks

Business transformation through AI – opportunities and legal risks

The advent of Artificial Intelligence (AI), an area of computer science designed to emulate human intelligence, marks a revolutionary turning point in our modern era. From its beginnings as rudimentary rule-based systems in the 1950s to the sophisticated machine learning and deep learning systems that currently dominate today, AI continues to evolve. Leveraging AI’s foundational infrastructure – massive data, advanced AI algorithms, and super fast computational power – corporate titans such as Google, Amazon, Baidu, Netflix, and Uber have successfully automated tasks, enhanced operational efficiency, and improved decision-making processes, in an almost invisible manner.

Particularly intriguing is the rise of Generative AI, a significant advancement in this evolution. This form of AI moves beyond “extractive” AI, which solely selects and combines existing pieces of information. Instead, Generative AI innovatively creates new content based on the learned understanding from historical data. This paradigm shift is best demonstrated by ChatGPT from OpenAI and Google’s Bard.

AI’s transformative power has often drawn comparisons to the advent of electricity. Once a new power source, electricity rapidly became integral to various applications, revolutionizing society as we know it. Similarly, Generative AI, beginning with Large Language Models (LLMs) and chatbots, is set to revolutionize business operations and human interaction, heralding a new era of corporate innovation. However, embracing AI transcends the mere integration of a technological tool; it entails rethinking business models and recalibrating operations.

AI and business transformation
The influence of AI is undeniably profound across various industries. In healthcare, AI aids diagnostics, automates patient care, and predicts disease trends. Financial institutions leverage AI for risk assessment, fraud detection, and customer segmentation. In retail, companies like Amazon have harnessed AI to create personalized customer experiences, manage inventory, and predict consumer behaviour. AI’s remarkable applications aren’t exclusive to Big Tech; startups are also leveraging AI, innovating and transforming their operations to provide unique customer experiences and drive growth.

AI’s transformative potential is immense, far beyond automating repetitive tasks. It reshapes business models and creates competitive advantages. Reflecting on Amazon’s AI journey provides a clear example: AI served not merely as a productivity tool but as the bedrock of a disruptive business model that revolutionized retail. The question leaders should grapple with now is: How can they reimagine their business processes and operating models, given the new capabilities made possible by AI?

embracing AI transcends the mere integration of a technological tool; it entails rethinking business models and recalibrating operations.

A new era of business innovation
Beyond organizational transformation, AI is fundamentally reshaping businesses, driving new forms of innovation, and transforming the competitive landscape. As explained in Karim Lakhani and Marco Iansiti’s book “Competing in the Age of AI”, AI’s transformative power transcends mere task automation or efficiency improvement. AI presents an opportunity for businesses to fundamentally rethink operating models and value propositions. The billable hour business model in legal services as an example, seems ripe for disruption.

Incorporating AI into an organization’s core operations can yield novel business models and competitive advantages previously unattainable. It allows firms to enhance customer experiences, discover new markets, and tailor their products and services to meet individual consumer or client needs.

However, this transformation also carries its share of risks and challenges, especially in the legal and ethical realms. As organizations venture into this new era of AI-driven business innovation, it is vital to strike a balance between opportunity and risk.

The corporate leaders’ role in embracing AI
Leadership is pivotal in navigating the adoption of AI within organizations. Leaders must champion AI use, foster an AI-ready culture, and ensure seamless integration of AI into business strategies and operations. Beyond driving the AI strategy, leaders need to foster an environment of AI literacy, provide their teams with the necessary resources to understand the technology and encourage continuous learning to keep pace with the rapidly evolving AI landscape.

Read also: The Finance Act 2023: Changes to tax legislation and the FIRS’ stance

AI adoption also brings a wave of change that leaders must manage adeptly, including upskilling employees, addressing fears of job displacement, and redefining roles. Beyond these practical considerations, leaders must ensure the ethical use of AI, balancing the benefits of the technology with potential risks and societal implications.

The role of leaders also extends to understanding and navigating the complex regulatory landscape surrounding AI. Developing organizational AI Ethics and governance principles is critical. Grasping foundational data privacy and security regulations and staying aware of industry-specific compliance measures are fundamental.

Leaders must be aware that engaging with AI can be complex. Whether it involves purchasing applications, integrating third-party APIs, or building custom AI models, each approach carries legal implications.

AI policy-making, governance, and organisations
As organizations embark on AI-driven transformations, the formulation of comprehensive AI governance policies becomes paramount. These policies lay a robust foundation for the ethical and responsible application of AI within an organization. They provide a framework for key principles such as transparency, fairness, privacy, security, accountability, and human oversight in the application of AI.

They offer guidelines for the development, procurement, and use of AI, ensuring adherence to legal and ethical standards. A well-articulated governance policy acts as a guiding light, helping organizations navigate AI-related risks

The implementation of AI governance policies represents a strategic endeavour, reinforcing an organization’s commitment to ethical AI practice. It serves to instil confidence in stakeholders, from employees to customers and regulatory bodies, ensuring that AI systems are being used responsibly, ethically, and securely. In this era of AI-driven business innovation, where opportunity and risk are tightly intertwined, such policy-making and governance play a critical role in striking the right balance.

Mitigating legal risks of AI in business
The dynamic nature of AI technology, its complex applications, and the ever-evolving regulatory landscape present unique legal challenges for businesses. These challenges encompass data privacy, intellectual property rights, cybersecurity, liability issues, and compliance with various upcoming international and local regulations. In addition to AI Governance policy development, an integral part of harnessing AI’s transformative potential is the proactive mitigation of its associated legal risks.

A major step towards mitigating these legal risks is conducting a thorough risk assessment. Organizations need to identify potential legal vulnerabilities associated with their AI applications. This includes understanding the nature of the data being processed, the jurisdictions it traverses, the security measures in place, and the potential impacts of a data breach. In terms of intellectual property rights, businesses need to establish clear agreements that determine the ownership of AI-generated content and innovations. The use of third-party AI technologies also calls for careful scrutiny of vendor agreements to ensure clear terms regarding data use, protection, liability, and compliance with relevant laws and regulations.

AI is more than a disruptive technology; it’s a catalyst for business transformation and innovation. As businesses increasingly integrate AI into their systems, it becomes a strategic imperative to mitigate the potential legal risks associated with this adoption. Understanding, accepting, and strategically utilizing AI, while proactively addressing the legal dimensions, can empower corporate leaders to redefine their businesses and carve a competitive edge in the market.

Implementing AI responsibly, ethically, and legally can bring significant benefits to businesses and society. This necessitates comprehensive due diligence, continuous monitoring of AI systems for compliance with laws and regulations, and the cultivation of an organizational culture steeped in AI ethics. These measures contribute to a world where AI is harnessed for the common good while minimizing potential legal pitfalls.

The emergence of AI, and particularly Generative AI, ushers in a new phase in computing platforms, reminiscent of the revolutions sparked by operating systems, browsers, mobile devices, and App stores. AI stands as the latest revolution, offering a more human-like form of computing that promises immense potential for business transformation, innovation, and societal impact. However, to fully realize AI’s transformative potential, businesses must adopt a proactive approach to managing the legal risks associated with AI integration.


Rotimi Ogunyemi, Partner at Johnson&Wilner LLP, is a business and technology lawyer