Human resources technology spending grew by almost 35 percent over the last three years and nearly every company is looking to spend more. A recent study by Sapient Insights found that more than half of all organizations are increasing their HR tech budgets, and fewer than 15 percent are cutting back.
There is a good reason for this. Over the last decade, historic amounts of venture capital have gone into this space, all focused on making work more productive, giving employees better information and tools, and helping HR departments better manage skills, recruiting, engagement and retention.
It’s time for a major realignment: category consolidation
As a result of all this growth, companies now have too many tools. In fact, according to OKTA, the average employee now uses 88 different systems. Companies have dozens of systems for learning, recruiting, benefits and multitudes of tools for collaboration, document sharing and even feedback. As the economy slows, buyers are simply saying ‘slow down’, and this will force the HR tech space to become more rational.
During the 2008 slowdown, we saw similar caution, and what we can expect is what I call ‘category consolidation’. Rather than buy ten tools for corporate training, ten for recruiting and dozens for other applications, vendors start to run out of money, investment dries up and the larger vendors buy the smaller ones. I expect this to happen next year.
The winners will be larger vendors with strong recruitment platforms (Eightfold, Beamery, iCIMS, Phenom), those with strong learning platforms (Cornerstone, Docebo, Microsoft), those with strong career systems and AI platforms (Gloat) and major players in employee experience (ServiceNow, Oracle, Workday, and Microsoft).
The human capital management (HCM) vendors (ADP, Workday, Oracle, SuccessFactors) are all likely to be consolidators, and they are each trying to compete. Consider Workday’s recent acquisition of survey and assessment vendor Peakon (for a very high multiple). Workday simply decided it was faster and easier to buy its way into employee listening than to try to build it itself. I expect we’ll see more of this in the year ahead.
I believe that the talent intelligence concept is taking off across HR, as well as more use of artificial intelligence in recruiting. In the last year we’ve seen that AI has proven itself in recruiting far more than in any other part of HR.
Get set for next-gen HCM
In parallel with consolidation, get ready for next-gen HCM. Most companies replace their core HR platforms every seven to ten years or so, and when there’s a disruptive change it can sometimes happen faster. Well, disruption has arrived.
Most core HR systems are designed as massive data management and workflow-based transaction systems. They manage payroll, employee record-keeping, organizational hierarchy and all sorts of historic data about people.
The problem they have is they were all designed around hierarchical job architectures, with workflow, security and reporting aligned this way. While this is often the way companies operate, more and more companies now operate as ‘project teams’ and ‘cross-functional teams’, rendering much of this hierarchy less important. How do you model a company filled with projects and teams in your core HR system? There’s little or no information about it at all.
Cisco once found that the company had more than 4,000 different teams operating around the world. When they looked in their core HR system they realized that none of these ‘teams’ were really represented. This means that most of the important things Cisco managers wanted to do, such as select a team, start a team, set goals for a team, manage a team, understand the skills of a team, decide a bonus for a team, had to be done outside the HCM platform. So the real utility of this class of system has declined.
Coming next are a new wave of HCM platforms that focus on team enablement and management, let the company set up many teams and manage them in many ways, support conglomerate companies and companies with different overlapping organizations, and offer native support for goals, projects and mobility that crosses hierarchical boundaries.
Today new tools like Darwinbox, ADP Next-gen HCM, HiBob and the new release of SuccessFactors are designed for this. Oracle and Workday have yet to release such features, but we have to believe they will be coming. What else can we expect in 2023?
I expect skills tech to continue to play a big factor in all our lives. In every company skills tech is not only a part of the learning infrastructure, it’s part of the talent mobility and talent marketplace infrastructure, and increasingly being embedded in recruiting and sourcing, and beginning to incentivize people based on skills.
I believe that the talent intelligence concept is taking off across HR, as well as more use of artificial intelligence (AI) in recruiting. In the last year we’ve seen that AI has proven itself in recruiting far more than in any other part of HR. I believe there will be a lot of consolidation in a crowded market.
And we’ll need AI’s help in supporting another seismic shift in modern HR: the rise of internal mobility and the internal company marketplace. The reason the internal marketplace concept is taking off is why Airbnb does so well; it facilitates a way for people to move to where they and the CEO wants them to go without significant investment. In the past, you designed a career path and told people here’s your career path – every two or three years you’ll get a promotion, and we’ll take care of you from pre-hire to retirement.
That’s not how careers work anymore, and we need ways for people to move around companies that are intelligent, beneficial for them and that we can leverage for the strategic change and reorganization 21st century business is defined by. And the right career path is more likely to be discovered by AI than invented by managers sitting around a meeting room.
The last trend I want to call out is more of a business trend than a tech one, though it will need technology to make it work: the rise of the career pathway. A career pathway is a branch to a new career based on skills as opposed to a current career. I expect a huge growth in organizations re-training people in danger from automation to address gaps in the skills base or working with external parties to re-skill employees into a completely new occupation.
There’s more to look out for in 2023, from new directions in learning and development content, performance management and the rise of the Metaverse. I hope you agree that for all the strong headwinds the economy is facing, HR remains an amazing place to make the difference for a company.