The HR Tech market has been on fire for the last few years. More than $15 Billion of venture and PE money was invested and the number of startups is astounding. The average large company now has more than 80 different employee-facing systems (OKTA), and this number has increased by more than 40% over five years.
There were two reasons for this growth. First, the low-interest rate investing environment unleashed billions of dollars to entrepreneurs, so there are hundreds of new tools. Second, we’ve had a massive need to manage, hire, and support employees during the pandemic. Remote and gig workers need scheduling systems, remote payroll platforms, onboarding, and more. So HR buyers have had a blank check, shopping for tools and platforms with almost no limitations.
Well all that is about to change: 2023 is going to be a year of slowing growth, market consolidation, and new category definition. So let me give you my thoughts, and also thank Stacey Harris for publishing the 25th Sapient Insights HR Tech survey, which contributed to my analysis.
1/ The HR Tech Market Is Slowing Down.
As much as I’m an optimist, I believe HR Tech spending is going to slow. While roughly half of companies plan to increase their spend, the number cutting back almost doubled (from 5% to 8%), and I expect that trend to continue. And as hiring slows, so does the need for more HR software.
The number of product categories continues to expand (more below), but the “per-employee” spend will moderate. Areas likely to slow include software for recruiting, learning (old systems are going to bear more load), core HR (I see a shift in value creation from HCM platforms to employee experience and talent intelligence systems), and ongoing systems for wellbeing. Generally speaking, Employee Experience software is a massively growing, early-stage category, as are other white hot areas below.
I also have a feeling the price of cloud-based HCM systems may come down. Workday remains the darling of the market, but even their customers are buying alternative talent tools on a regular basis, forcing Workday to further open up its platform.
2/ HCM Vendor Satisfaction Remains Mixed.
While the fit and finish of core HCM systems has improved (Workday, Oracle, SAP, ADP, UKG, Ceridian have all upgraded their platforms), the Sapient study shows an overall 7% drop in vendor satisfaction. Why this gap? Vendors are stretching themselves thin. HCM vendors are trying to do everything, and the study shows overall average satisfaction is around 3.5 out of 5, not a spectacular number. (This is not true, by the way, for next-gen HCM platforms like Darwinbox and HiBob, which are loved by their clients.)
For the big HCM vendors, this is an ongoing management challenge. Workday, Oracle, SAP, UKG, ADP and others have large product management teams with visions of transforming employee experiences. Yet despite this investment, it’s harder to build an “Interlocked” solution than a standalone one, so their innovation has slowed. Just last year Oracle and SuccessFactors announced major architectural overhauls, and Workday released Workday Extend, essentially opening up the entire system.
Smaller, more focused vendors (Eightfold, Beamery, Degreed, LinkedIn Learning, Docebo, Gloat, BetterUp, CoachHub, SoundingBoard and others) have significantly higher customer satisfaction (averaging 3.7-3.8) because they offer a more focused product. What that means, if the market slows, is that these companies could be acquired. Time will tell but I’ve seen this trend before. In one twelve month period Taleo acquired Learn.com, Oracle acquired Taleo, SuccessFactors acquired Plateau, SAP acquired SuccessFactors, and SumTotal acquired several companies.
Two big vendors to watch next year are Cornerstone (the largest LMS company) and UKG (the largest mid-market HCM and workforce management platform). Both these companies are multi-billion dollar businesses likely to continue their acquisition paths. iCims, Docebo, and Phenom are also looking for acquisitions.
3/ Despite Slowdown, Many Categories Are White Hot.
There are still many categories which will be white hot this year. They include Talent Marketplace (Gloat, Fuel50, Eightfold, Workday, Phenom, ServiceNow, others), Capability Academies (I call these “mastery platforms” and include vendors like Corise, Modal, Nomadic, Hone, Sana Labs, Growthspace, LearnIn-Degreed, and others), Employee Experience Platforms (Microsoft Viva, ServiceNow, FirstUp, Applaud, and dozens of others), and mid-market talent suites (Lattice, CultureAmp, 15Five, WorkTango).
Other hot spaces include Employee Listening (Perceptyx, Qualtrics, Medallia, Workday Peakon, Glint, Visier), Wellbeing and Rewards Platforms (Fond, Alight, Gympass, Lifeworks, League, mEquilibrium, and many more), Coaching and Leadership Platforms (BetterUp, CoachHub, SoundingBoard, Torch), and Talent Intelligence and Skills Tech platforms (Eightfold, Beamery, Skyhive, SeekOut, Retrain, Techwolf), as well as Pay Equity tools (Syndio, Payscale, Salary.com, Trusaic). Each of these categories is growing so we should see lots of innovation and consolidation as a result.
4/ We Are Ready For Some New Market Categories.
Back in the mid 2000s we saw a market for “Integrated Talent Management Suites,” which squashed together the LMS, ATS, and Performance Management spaces. It was a bloody battle and vendors like Cornerstone, Taleo (Oracle now), SuccessFactors (SAP now), and a few others (iCims, PeopleFluent, Employ Inc.) survived. Once this wave of redefinition took place, every vendor scrambled to redefine themselves, leaving many in the dust to be acquired (or grow on their own).
Some companies stay focused or create “supercategories” by acquiring their competitors. They stay in their lane and deepen their functionality to try to dominate their space. High growth examples include SmartRecruiters and Docebo, both of which are category leaders. And in many ways this is what made Cornerstone so successful.
And then there are the PE-backed rollups. In the last few years Jobvite, JazzHR, Lever, and NXTThing RPO were combined into one company called Employ, and LTG Group acquired PeopleFluent, GP Strategies, Bridge, Breezy, Gomo Learning, Rustici and more. Cornerstone has acquired Saba, SumTotal, Halogen, Grovo, and dozens of others. These rollup vendors are not creating categories, they’re creating bigger businesses so they can grow and survive over time.
Some rollups do well, but many times they slow. It’s not easy to integrate and market many branded products, so while these companies generate massive amounts of cash, they often fall behind in product and category leadership.
So what are the new market categories? Here are a few I can bet on.
First, there is a big and well established market for Employee Experience Platforms. Popularized by ServiceNow and Microsoft Viva, this has become a massive, high-priority product category and these features will never be fully offered by the HCM providers. If you look at all the energy going into hybrid work, employee listening, onboarding, and custom career and development tracks today, we need a place to put all this and manage it as a set of workflows. This is deep functionality that ERP/HCM vendors simply have no time to build.
Second, there is a new and massive market for Talent Intelligence Platforms. These are not “recruiting tools” but rather AI-powered data platforms that help companies with sourcing, internal talent matching, intelligent succession management, and data driven solutions for assessment, job design, and skills analysis. These systems (Eightfold, Gloat, Beamery, Phenom, SeekOut, iCims) are exceptionally different and very high value new offerings. And their ERP counterparts (Oracle, SAP, Workday, UKG) simply are not there.
A subset is the very hot market for Talent Marketplace and Career Pathway solutions. Here vendors like Gloat, Fuel50, Guild Education, and EdAssist are offering amazing new solutions, touching the urgent need for intelligent career management, internal mobility, job matching, mentoring, and other talent intelligence solutions. This is a “blue ocean” and we’ll see lots of activity here.
In many way these are the “new talent management platforms” of the future, because they connect employees to learning, mentors, developmental assignments, and jobs. And unlike the old “prehire to retire” systems that tried to do this with competency models (Cornerstone, Saba, etc), these are highly dynamic systems that can infer and import new skills, content, and assessments by design. I’ll tell you more as the year goes on.
Third I believe there is a changed market for Lifecycle Employee Listening Systems. If you look at survey platforms like Qualtrics, Perceptyx, Medallia, Glint, and Workday Peakon, you quickly realize they are really “data analytics platforms” first, survey platforms second. They collect data from many sources (including passive data from email traffic, calendar schedules, voice feedback, and even video) and they give companies a “complete view” of employee sentiment, satisfaction, engagement, and ultimately productivity.
Recently BetterUp acquired Motive, Visier acquired Yva.ai, and Perceptyx acquired Cultivate: all building out better passive listening systems. And Microsoft Viva Insights is moving in this direction with some exciting new stuff in Q2. I have high hopes for this space because it’s really core to understanding productivity and employee retention.
Fourth, is the exciting market for what I call Capability Academies or Mastery Learning Platforms. Let’s face it, we all need an LMS but it doesn’t really “teach anyone anything.” Where do people go to browse content, find experts, take a course, get an assignment, and really “learn” something significant and new? We need a platform for all this, and I call this the Capability Academy or Mastery Learning space. I have a big article coming on this space and it’s more significant than you think.
(Check out The Josh Bersin Academy for a good example of a Capability Academy for HR. The HR Tech Workshop is one of our most popular programs.)
Coupled to this, by the way, is the space for Creator Platforms for learning (Udemy, 360Learning) and what many call cohort-based or collaborative learning systems, and the explosive growth in AI-enabled coaching networks, led by BetterUp.
Fifth, is the redefinition of the Talent Acquisition Suite. Yes the recruiting market will slow this year, but that hasn’t slowed down the innovation in this space. Tools that provide Interview Intelligence, video interviewing, technical skills assessment, and soft skills assessment are advancing at light speed. These are “must-have” addons to the ATS and I have to believe many of these vendors will thrive or become acquisition targets. Vendors include Modern Hire, Paradox, HireVue, OutMatch (acquired Pymetrics and Harver).
Will there be a “next-generation” Talent Management Suite? This is starting to happen. In the mid-market vendors like HiBob, ADP, Lattice, and WorkTango are getting there. For big companies it’s still a pretty bloody war between the HCM Platforms (SuccessFactors just launched team management and a whole new performance and learning products) and fast movers like Gloat, who just launched a recruitment product and Eightfold, who is expanding into more learning solutions.
Sixth is the emergence of a clear category of Contract Worker Management platforms. For many years I’ve studied the emergence of “gig work” or “vendor management systems” and wondered when, if at all, these systems would ever be integrated into HR. And for the most part they have not: these platforms are run by purchasing and they house as much as 40% of the workforce in a contingent work application.
I believe in 2023 we will finally start to see these systems come together with the core HRMS. Why? Because the growth in hybrid, contract, and gig work is astronomical. Most of the pharma companies, tech companies, and distribution companies we talk with have 40-60% of their workers on contract. These individuals need scheduling systems, payroll, and various forms of onboarding, benefits, and information security. Now that more full time workers want to work on a gig basis (baby boomers in particular), this may be a year that this category collides with core HR. I know many companies operate this way now.
Let me point out a few hot vendors here: Magnit (formerly ProUnlimited, the largest contract workforce management company), Legion (one of the most exciting new workforce management platforms), VNDLY, a Workday Company, and SAP Fieldglass, which is now integrated into SuccessFactors. Our corporate members can read all about Intelligent Workforce Management in our latest series of case studies.
Seventh is the growing role of Conversational AI. If you’ve every checked out Paradox, you’d be amazed. Their chatbot system, Olivia, can market, screen, and even hire people with almost no human involvement necessary. (McDonald’s uses it very successfully.) Take that type of technology, add the AI engine of GPT-3, and we have a huge new set of tools for HR service delivery, case management, recruiting, and eventually coaching and learning. GPT-3 is almost as good at “analyst work” as we are (kind of scary). Vendors like ServiceNow, Microsoft, Workday, Oracle, SAP, and most other platform providers will beef up this tech in 2023 and you have to take it seriously. (You trust Siri don’t you? Why not apply it to HR?)
And one more I want to add: there is a soon-to-be explosive market for Workspace Management (or Intelligent Workspace Management). Now that hybrid work is here, companies need a way to schedule a room, arrange equipment, find the team, and set up all the audio-visual or other tools for meetings. Space planners want tools to look at room and location utilization, and better plan for hybrid work needs. And HR teams want to look at productivity issues, helping employees find the right spot and work in the most effective way. In the past we considered real-estate a “dumb asset.” Imagine if you could get intelligent information about utilization, scheduling, employee location, and equipment all in one, AI-enabled app? Vendors like ServiceNow, Cisco, and Microsoft are getting seriously interested in this massive new market.
5/ Metaverse and Web 3.0: Not!
I am a big fan of technology in general, but I do not expect the Metaverse or Web 3.0 to impact HR much this year. While the VR training market is very hot (it’s now called Immersive Learning), there are very few winning use cases for the Metaverse so far (I’ve talked with a few companies using it for virtual meetings and recruiting, but far from mainstream) and I see no value from Web 3.0. If Microsoft or Apple announce something big it could grow in importance, but I wouldn’t hold your breath.
On the topic of distributed computing, blockchain, and Crypto I remain skeptical. These are underlying technologies, not applications. I implemented distributed computing at IBM in the 1980s (it was called SNA at the time) and we used it to network together application servers into virtual computing farms. I know startups who are trying to build Credential services using the blockchain (ie. keep track of your education, training, skills) but honestly I’m not sure you need the blockchain to do this.
Also, despite the political appeal of “distributed authority,” centralization has a big benefit. I, for one, like to know that I can call my bank and they are accountable for my money and my credit card security. If you want to trust a network of “actors” to manage your financial and employee data then you’re more of a risk-taker than I am. There are other ideas for the blockchain, but now that FTX has blown up I think we can put it aside for a while.
If you are a vendor and have a cool application or idea, let us know and we’ll look at it.
PS: VR training is definitely hot. So that implementation of the Metaverse is something you should absolutely pay attention to.
6/ HR Tech Teams Must Invest Time Next Year
The next big topic is about you, the HR Tech buyer or implementer. It’s no longer ok to ask your global systems integrator what to do – you have to invest your time and energy into understanding this market. The best HR Tech solutions come from companies who study the market, engage with firms like us, and ask others what advanced systems are working. There simply is not alternative to really understanding the market.
Remember, most companies are going to have dozens of HR Tech platforms and tools. So you’re essentially stitching together a whole employee-experience and financial management architecture for your company. If you don’t know the vendors well, simply issuing RFPs wont get you to the right solution.
(Corporate Members can read our HCM Success Series of research reports (and videos) where we detail highly successful HCM implementations at companies like Allianz, Microsoft, Mastercard, HSBC, Schneider Electric, Air Asia, McDonald’s, ING Bank, BT, JP Morgan Chase, and many others.)
The Sapient report notes a 33% drop in HR Tech buyers with more than ten years of experience. That means a lot of you are making huge decisions without a lot of deep background. This may work out fine but I urge you to invest time in this space. Every large company should have an HR Tech architect: someone who goes to trade shows, talks with vendors, looks at case studies, and really gets to know this crazy space. (PS. The Josh Bersin Academy is a great place to start.)
7/ HR Tech Value Remains High, Yet Sometimes Fleeting.
We talk with hundreds of buyers all year, and it always amazes me that some companies get massive ROI from their HR Tech while others seem to be frustrated year after year. In fact every few days we run into a big Workday, Oracle, or SAP customer who is just pulling their hair out with the system. Why does this happen? Quite simply it’s a matter of investment. These tools take people, time, and management to be used well. Successful companies build a multi-year roadmap, they understand where to innovate, and they invest heavily in what we call “Change Agility,” not “Change Management.”
Every HR Technology platform brings two value propositions to your company: (A) they automate a lot of junk work, and (B) they transform the way you operate.
If you look at HR Tech as primarily the first value proposition, you’ll see much a lot of time saved, but you may not wind up a “better company” as a result. If you really want to improve recruitment effectiveness, internal mobility, growth, or employee engagement, you need to think about these systems as Business Transformation Platforms. And this means understanding how the platforms work and redesigning your business and HR processes to leverage the technology well.
Lots More To Come
Let me leave it there for now: there’s a lot more to come in 2023. Keep in touch with us and join our Corporate Membership to get access to our hundreds of case studies, vendor analyses, and change agility tools to help.
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