Strategies for Controlling Risks in Artificial Intelligence: Your Business SWOT Analysis

The Artificial Intelligence (AI) Revolution presents challenges and opportunities for businesses of all sizes and at all phases of the business life-cycle from startup to growth to M&A consolidation and exit.  Adopting AI can be costly and risky.  AI usage may result in unpredictable liability if mismanaged.  This article is a tech and corporate lawyer’s view of strategies for controlling or mitigating risks of legal liability  when developing (as licensor) or using (as licensee) new Generative AI tools.  Let’s take a “SWOT” perspective to address new strengths, weaknesses, opportunities and threats.  

Strengths: Identify AI as a Tool for Better CX and EX.  By definition, “generative AI” generates narrative output by logically inferring conclusions from training data. Think about Customer Experience (CX) and Employee Experience (EX): Ask customers and employees to share their wants and ask your AI how to satisfy them. 

Weaknesses: Be Alert to All the Risks of Harm from AI.  Artificial intelligence poses the risks of many harms, with or without AI “hallucinations.”  Such harms can include physical, psychological, legal, societal or economic harm, including misappropriation of trade secrets and copyrights, invasion of privacy and personal and business reputations.  To limit potential liability, business owners and managers should become informed on such risks as well as opportunities to achieve competitive advantage using AI tools.

Be Aware of AI Risks Created by Your Customers.  As a service provider or supplier, you will owe duties of prudent decision-making and legal compliance when accessing or using customer data.  Current privacy regulation will become more complex.  Be aware of your value-chain’s risk and compliance matrices.  Adopt AI governance policies that fit the needs and expectations of your customers. 

Manage AI Risks across Your Supply Chain.  AI regulations will not always address outsourcing to third-party service providers or the principles of prudent supply chain management. For compliance and risk management, every business that uses AI indirectly should mandate AI compliance and applicable limitations in supply chain contracts. 

Opportunities: Train Your Employees for Effective Prompting.  AI tools answer questions (“prompts”).  Your business processes and knowledge management depend on asking the right questions and building your own library of smart answers, solutions and processes.  Use AI to inspire human development of trade secrets and service delivery.  

Be Trustworthy and Responsible: Disclose and Govern Your AI !  As AI and other digital transformations become more pervasive, businesses will need to constantly build and update policies and procedures for safe and legally compliant AI uses.  Governance of AI tools will be a key to compliance with the emerging myriads of laws and regulations on AI.  The U.S. federal government agencies are issuing rules at the behest of President Biden, while the federal National Institute for Science and Technology’s AI Risk Management Framework: Generative AI  Profile outlines the four organizational functions “Govern,” “Map,” “Measure,” and “Manage” for “trustworthy and responsible AI.”  Any planning for any new business, business continuity of an existing business and disaster recovery should include AI risk management.  Ongoing AI-based operations should be audited for ethical risk, effective governance, bias, and disparate impact.

Let Informed Humans Decide.  Managers and business owners must ensure that AI does not supplant human decision-making by fully qualified, informed decision-makers.  As basic literacy, every citizen should become informed about how AI works, its limitations and biases and how to make informed and prudent business judgments and personal decisions without relying solely on AI.  Stay independent of mind.  Otherwise, your business will have no compliance, continuity, reputation or marketable value.

Identify and Use Limited-Scope AI Tools to Protect Trade Secrets.   Large language models and machine learning tools may require users to allow the AI tool to train on proprietary data, protected private data and trade secrets.  Find an AI tool that does not expose to others the confidential information of your customers, clients, users and subcontractors.   

Threats: Remember You are an Investor in your Own Business: Think like a “Startup” Investor; Adopt a Strategy for Investing vs. Divesting your Business based on AI SWOT and Financial Analysis.  For many knowledge-based industries, service providers will be challenged to compete with larger enterprises that can invest in and use AI effectively to deliver work product “better, faster and cheaper.”  Well-financed businesses will be able to accelerate efficiencies and improve service delivery better than laggards who do not adopt some fundamental AI tools.  This is a scenario that invites business owners to think like private equity strategists.  If you can invest, you can use your business as a platform to roll-up and consolidate competitors who are underfunded and “under-AI’d.”  You could buy up non-AI-driven competitors using deferred payments or discounted stock with buyout rights.   If you can’t invest, consider getting out of the business by selling now (before substantial investment) to a platform “roll-up” entity that has invested in AI training and next-generation AI-driven services.  

If you would like to explore strategies for corporate transactions, technology licensing or legal compliance for AI-related business operations, please reach out to attorney William or the Bierce & Kenerson, PC attorney with whom you most frequently work.  

This alert is not a substitute for advice of legal counsel on specific legal issues.