A Typhoon Is About to Hit the HR Tech Market
These last few months have been a whirlwind. I recently wrapped up a global roadshow during which I talked with HR and vendor executives in Paris, Moscow, Amsterdam and Romania. In September, I also had the honor of participating in the 2018 HR Technology Conference in Las Vegas—probably the best conference yet. Buyers were knowledgeable and tech-savvy but eager for more information, and vendors had impressive innovations to discuss and demonstrate.
All these conversations formed a clear forecast: A typhoon is about to hit the HR-tech market. In a typhoon, thermal energy comes together, resulting in a swirling cyclone that sucks everything into its path. That’s what appears to be happening there.
According to the latest research by Sierra-Cedar, HR technology spending increased by an astounding 10 percent this year. This is a very high number, considering that globally HR tech spending is well over $40 billion. And according to CB Insights, in the last two years $12 billion of new investment capital also entered the market, most of which goes to start-ups and growth-focused vendors.
To give you a sense of the coming disruption, I’m now tracking more than 1,400 global-HR tech companies—most of which range from start-ups to midsized vendors selling solutions to HR departments around the world. Almost two-thirds of these companies are less than three years old, and most are focused on new segments of the market, such as advanced use of AI or cognitive technologies or the redesign of talent and HR applications.
Why all the growth? It’s quite simple: The global economy continues to grow; companies are looking for new tools to attract, recruit, engage and manage people in new ways; and organizations are operating in a more digital way, changing how people are managed. Companies are also changing how they pay people, implementing new solutions for wellbeing and team management, and purchasing even more powerful tools for analytics and detailed reporting.
Underlying these factors is a desperate need to improve the employee experience. Every executive I talk with is trying to find ways to make the work experience simpler, healthier and more engaging for people. Consequently, technology vendors are trying to make their tools become invisible to users by fitting functionality into the flow of employees’ day-to-day work. (One of the biggest trends in HR tech we’ll be seeing in the coming year is what I call “HR in the flow of work.”)
We also have some new user-interface paradigms to embrace. Today, voice recognition, chatbots, nudges, augmented analytics and location awareness are standard features, again raising buyer and user expectations and prompting new vendors to enter the market.
Where is this all going? Can the innovation and buying frenzy continue?
Certainly, there are real challenges ahead. First, it’s harder than ever to figure out what to buy. On average, large HR departments now have 11 systems of record, and L&D departments work with as many as 22 different vendors. CHROs are very confused about what to invest in, which tells me there is a market consolidation ahead.
Second, due to market churn, corporate buyers must accept the fact that some technology purchases may be useful for only a few years. In some cases, the tools could become outdated due to more innovation. In other cases, the vendors selling the tools could be acquired or fail. The purchase of short-lived technology can pose a career risk to executives involved in the selection, to say nothing of the problems a technology switch brings to managers, employees and the business itself.
Third, technology disruption is putting new stress on IT departments. Big IT vendors such as Google, Microsoft, Facebook, Salesforce and LinkedIn are all pouring money into the HR technology market. Since corporate IT departments are already doing business with one or more of these companies, HR executives need to be very current on their offerings and understand how they may complement or replace some of the specialized, expensive HR tools already in place or being considered for purchase.
Finally, we need new forms of integration. I believe platforms such as Microsoft Teams, Office 365, G-Suite and Slack are going to be transformational in work productivity, so HR tools must behave more like plug-ins to these platforms and less like standalone systems.
This is an exciting time for HR and the HR-technology market, and change is inevitable. More than ever, it’s important that executives involved in technology strategy and purchasing decisions take the time to understand the market. Success will depend on ensuring the tools acquired are mature and likely to scale and are built on an architecture that fits into the new world of IT. Those who are aware of the market’s disruptions and associated trends can harness the technology typhoon and keep their companies moving ahead.