Next in Tech | Ep. 189: Human Resources Technology

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Eric Hanselman   00:00:00

Welcome to Next in Tech, S&P Global Market Intelligence Podcast with the World of Emerging Tech Lives. I'm your host, Eric Hanselman, Chief Analyst for Data and Insights at S&P Global Market Intelligence. And today, we're going to be talking about HR Technologies. And to discuss it with me today is Conner Forrest, part of our analyst team. Conner, welcome back to the podcast.

Conner Forrest   00:00:21

Hey, Eric, thanks for having me.

Eric Hanselman   00:00:22

Well, thanks for being on. You are just back from the HR Tech Conference, and it sounds like there's a lot going on there.

Conner Forrest   00:00:29

Absolutely. Yes. HR Tech is, I think with Unleashed and maybe 1 or 2 other conferences represents some of the largest events around HR Tech. And I think in this year's iteration, we could call it, I think we saw a lot of things come to fruition that we've been seeing in our data that we've been hearing about in our research, and it's really starting to hit the show floor, so to speak, in terms of how companies are presenting themselves, what types of companies are there and really how features and products are evolving to meet emerging needs for both the HR practitioners that are buying these software tools and the employees and managers that are using them. So it's a really exciting time to be in the space and had quite a bit of fun there.

Eric Hanselman   00:01:15

Well, and actually, before we get too far along, maybe it'd be worthwhile just doing a little background into when you talk about human resources technology, really, what's that scope and in terms of defining it across the research that we're doing.

Conner Forrest   00:01:28

Absolutely. Human resources technology, when people start to think about what tools or software comprise the HR toolkit. A lot of what they think about refers to what we call core HR. So that is your HRIS, human resources information system, which is the system of record for all the people data, who works for the company, what do they do, where do they live? And then you also have payroll tools. You've got benefits administration and workforce management, how do I schedule shifts and people into certain teams. But it really has expanded beyond that to include both tools for addressing employee experience. Those would be employee experience platforms, which typically have some sort of wellness component and an employee communication channel to understand what's going on in the company and employee engagement surveys for measuring sentiment analysis, how are employees feeling, what's going on, as well as kind of performance management for employee growth and development, tracking things beyond Employee 360s on to people analytics, intelligent skills analysis, dynamic workforce management, talent intelligence platforms using HR and people data to make decisions about building teams, but also decisions about intelligent headcount planning and how the business connects back into employee and HR decisions. So it really starts from soup to nuts at the talent acquisition piece. So hiring, onboarding, managing through to core HCM. Then we talk about the employee culture pieces, that's engagement and experience. And then through to the business impact technologies, the analytics, the data platforms that help us operationalize this people data, not only to create a better experience for employees and HR, but to make sure that we are managing and supporting people in a way that is aligned with whatever business outcomes we're trying to achieve. So it's really not your grandparents' HR anymore. It is not the legacy of compliance and bid admin that it once was. That's still a core piece of it, but it has expanded so much further into culture, into intelligence and into business outcomes.

Eric Hanselman   00:03:47

Well, as we've talked on previous episodes, this really is a much more holistic approach to be able to leverage all of the operational data from the people side of the business so that you can optimize, manage -- get the most out of both the teams that you're building, but also ensure that the employees -- from the employee experience side that you're building teams of people who are doing what they want to do, who are happy in their experiences, who actually are feeling fulfilled about what they're doing and manage the information around how the company in that much broader sense is really operating from that people perspective.

Conner Forrest   00:04:29

Absolutely. And I think that is where we're seeing a lot of the dynamism in the market is around the data and around the intelligence in an area we call people analytics. So we recently completed our HR Technologies Market Monitor, which is a bottom-up market sizing exercise that we've built out to understand where is kind of the total overall growth of the HR tech market, but also how does that total growth break down and average out among the kind of subsequent segments that comprise that overall market. And what we found is that People Analytics as the segment which defines any way we leverage that HR and people data is the fastest-growing segment with a compound annual growth rate or CAGR of around 15%. Now to put that into perspective, if we look at core human capital management, which is the benefits administration, payroll, workforce management elements of the business, that's at 7.8%. So we're almost doubling the potential growth in People Analytics. And we saw that reflected in the kind of technologies we saw represented, the breakout sessions that were happening. It was really all analytics all the time, all intelligence all the time as businesses are fighting to make known not only what their software does, but what insights can it provide, what intelligence can it imbiew on the business and what visibility can it offer to its users beyond the core value propositions that it may have initially started with. Now people analytics is interesting because there are very few kind of stand-alone people analytics tools. There are quite a few large platforms out there that do this with a variety of models, but people analytics, we're seeing almost as a feature or identity set built into other technologies. So in employee experience, for example, you may see analytics framed around employee sentiment analysis and performance. to try to understand, okay, what's the attrition risk of a potential segment of employees? And where can a manager step in and mitigate that problem, right? We would consider that people analytics, but it's people analytics impacting or evolving employee experience. Same thing with performance management. We talk about things like intelligent skills gap analysis. That's one of the biggest demands in the industry now, whereas employees want to know what skills do they need to grow to advance in their career. Managers want to know what are the skills we're missing to kind of impact projects and move the needle forward on outcomes. And then talent acquisition teams want to know internally, are there employees that maybe have the proclivity to an organizational role but are lacking a skill, can we upskill them into this role and kind of access them internally through my kind of talent program. And so we're seeing people analytics or HR data analytics really start to not only evolve as its own subsegment, but really be this rising tide that lifts all boats as we see things like employee experience as the second largest growth segment at 13%. And then we see performance management, skilling, learning and development as well, stepping up as these segments that are growing both with and without the help of people analytics. And I think that really reflects in our kind of quantitative data as well. You and I have talked about our voice of the enterprise data, where we found that the biggest investment areas HR is making over the next 12 months are in those areas of employee experience, performance management, learning and development, all of which are benefiting from massive investments in people analytics. So to me, that's the theme of HR Tech now as an industry, but it's also the theme of the conference where I think people are really making a name for themselves, not only in the features or functionality of their product, but -- and how it drives visibility and opens up new outcomes, both inside and outside of HR.

Eric Hanselman   00:08:37

And it sounds like this is an area that has that double benefit of both benefiting the employee in terms of how they want to grow, benefiting the organization in terms of ensuring that they've got the skills they need and managing that skills pipeline. I think we can probably have a healthy debate about what the current hiring climate is. I think in tech and certainly in my neck of the woods, in security, there always seem to be gaps. There's this little thing called AI that seems to be now creating a whole new set of concerns about skills and requisite skills across what is now a much faster swath of employees. So lots of different things in terms of ensuring that you actually have an understanding of what are the capabilities you have? What are the gaps you need to fill?

Conner Forrest   00:09:26

And that's a really critical point because part of it is about filling the gaps from the management perspective. They want to have the team in terms of the requisite skills that comprise the team that can deliver on the outcomes that managers are in charge of. But it's also really a part of market competitiveness. One thing that we look at is what is the -- a question we ask rather in our survey data is what's the top benefit to a progressive learning and development strategy. And one of the top answers is always along the lines of benchmarking my skills for competitive differentiation, making sure that I can remain competitive. I have the skills that I need to compete with my kind of top cohorts or my top peers in the market. You and I both remember Web 2.0, everything was Ruby on Rail for a hot nimit and then everything wasn't. But back then, we didn't have this level of visibility of what were people training toward, what were they training in, what's coming down the pike in terms of the skills that will define the architectures and the technologies that build the next generation of business. And I think the challenge for HR and People Analytics is telling the value of these analytics across multiple stakeholders. You have employees who want to know what skills they need to learn to grow up in their role or adjacently into another role. They want the visibility into their career. You have managers who want to know what skills gaps need to be filled to solve the business outcomes they're responsible for, but then you have executive leadership that want to know that their business is not falling behind in terms of the skills it needs to compete in the market. And we have the ability, in many cases, to tell those stories with these technologies, but it still puts that pressure on HR to be able to tell that story across those different users without seeming like they're telling 3 different types of people, 3 different things. Interestingly enough, we've got our macroeconomic data run by Malav on the CXC side. And we asked the question about what are kind of the global macroeconomic trends that are a threat to your business. And we've asked that a few times toward the middle and end of last year. And in the top 5 or the top 3, interestingly enough, skills and headcount shortages emerged as a top threat to global sales. Now these are business leaders who are answering this question. And in some cases, the skills and headcount shortage sat ahead of information security, which was a shock to me, Eric, because at one point in history, have businesses been more concerned about growing their skills inventory than they have about protecting their information security. Now these are not one at the behest of the other, right? It's not mutually exclusive. But the fact that the priority from a business leader perspective is so heavily focused on skills and headcount tells me that HR is going to have an increasingly new pressure, not only bottom-up from employees demanding that career progression, but from the top down as business leaders bring HR into those conversations to say, are we competitive? What do we need to do to remain competitive or to get out ahead of our competitors? There were a couple of vendors I talked to at the event, for example. that talked about intelligent talent design or talent architecture, trying to understand and interpret based on the skills that are being learned, what are the roles of the future? What would your competitors be hiring for in 12 months? Is it a role that even exists? And how do we define that role based on the requisite skills we see in demand in the marketplace or being pursued in learning and development platforms. So we're really starting to get to a granular analytical approach in terms of making businesses defensible in terms of their skilling inventory, but also in terms of kind of their role definition and job descriptions, which is a really fascinating approach to the space with intelligence and analytics.

Eric Hanselman   00:13:24

And it makes me ponder the extent to which a foundational technology change like AI raises that visibility of having to go manage skills when you suddenly get this rapid transition that needs a skill set that is not broadly distributed. This isn't, hey, I've got O 365 skills. I can wrangle spreadsheets like crazy. This is really a broad skill shift that is changing fundamentally an awareness of how organizations have to fill these gaps and the fact that there are now markable gaps in terms of what this transition looks like. I mean it seems like that's raised awareness. It's raised importance. It's really started to shift some of that focus and point out the fact that this really is something that organizations have to much more actively work on achieving.

Conner Forrest   00:14:23

Absolutely. And I think that skills inventories or skill strategy, people and skill strategy are going to become a standard nomenclature. We start to think about HR strategies in the next 5 to 10 years. One of the things we asked the question in our data is, how are skill sets changing for HR? And of course, winning the war for talent, HR is becoming much more involved in talent acquisition, which used to be separate in a lot of organizations, but the cultural impact, the retention benefits there, it's really becoming more aligned. But we also see right under that is a couple of things. One, becoming more consultative and partnering with the business. We started to see that at the start of COVID with HR defining remote work practices. But in 2024 and beyond, it's going to be about, I think, skills differentiability, skills competitiveness and market landscapes for skills. But another thing, you mentioned that is that -- these skills are not broadly distributed. A lot of times, they're specialized. They might be difficult to understand or grock if you're not in that industry. And how do you also measure not only is the skill present, but is it, one, a skill that has been gained or used in context of your organization? I start to think that we should begin measuring skills not only by I have this skill, but I have maybe feedback on that skill or I've used that skill tied to potential client projects because you and I well know that skills exist, you can have the proficiency of a skill as measured by taking a test. But using that skill in the culture of your organization, what it means to be a full stack developer in a certain industry might be slightly different than another, right? What it means to use strategic portfolio management in one industry or role is going to be slightly different than another. And so I think that's going to be another challenge is not only finding and optimizing for these skills, but it is proving them out. It's validating them. That was another trend. We saw skills validation not only from a TA perspective, a talent acquisition perspective from the recruiting process, but it's also for internal mobility and people management, it is validating the skills relative to the context of how they're used in an organization. Do you have colleagues that will go to bat for you that have given feedback on your ability to use that skill? Do you have a manager who's given positive sentiment about your skill in the context of a project you've completed? Can you tie that skill in the resource management framework to a project outcome? And that's going to be a whole other set of challenges as we get further along in this journey is quantifying the requisite value of a skill once we understand its proficiency and context, what is it worth? And also how much does it cost to acquire. There's kind of a whole separate submarket that's kind of popping up in terms of helping businesses start to understand what is the cost to acquire a particular skill, but also what's its staying power and what value does it represent both benchmarked in your industry, but also within your organization in terms of the projects you're completing. So it's really fascinating to me how deep the rabbit hole goes and how granular the data is getting. Eric, there's a big problem that pops up to me in that as we start to get more and more quantified in how we talk about people and skills, we're reverting back to an old problem, age-old problem in HR is that we spent years getting away from HCM, human capital management, right? We've seen probably so many organizations shift to being a "peeople function because we want to get away from the idea that people are capital, people are a resource. We're starting to try to honor the personhood of the people who work for a business. But the challenge is how do you do that but also understand the quantifiable aspects of their skill set or the business outcome of the -- what they bring to bear in their role. And that's really difficult. There's a balance. There's a line that really needs to be delicately towed by HR. And as we start exploring this kind of skills analysis piece to say, yes, we honor the people for who they are and their personhood and when we build out culture and experience to support that. And things like DEI and ESG show that. But there is something to be said about quantifying skills and skill proficiency and connecting that to business outcomes. And I think that's going to be part of that delicate balance of not only diving into this technology, riding the wave of evolution and skills analytics, but also telling the story to these requisite stakeholders to support whatever their needed outcome is, but also not revert back to the ways of kind of people less human capital.

Eric Hanselman   00:19:17

Well, it sounds like it's having the data tempts you into the -- putting people in the boxes kinds of activities. But it sounds like what you're talking about is that if you've got depth, if you've got understanding that an individual is dynamic as opposed to a static entity because it sounds like you're talking about learning integration, all of the sort of prospects for job growth, skills fill, all these kinds of advancement pieces. It sounds like as long as you go into that with an expectation that this is a dynamic environment that people can learn and grow and shift into new roles that those kinds of things are the aspects that help you really maximize it and to stay out of the human capital trap. Is that a fair statement in terms of how people are actually leveraging those capabilities?

Conner Forrest   00:20:06

Absolutely. And I think that it really is -- the technology is just the technology, right? It has no moral compass. But you're right, the more data you have, the more tools you have at your disposal, the easier it is to try to play money ball with the people on your teams. And I think to your point, there is a lot of value in trying to take a step back, add in the context of the individual. And I think you can in one fell swoop will support the business outcome, but also support the employee. And I think if you have that in mind and you're going at it from a perspective of both the employee experience and the business outcome, I think there's a lot of opportunity for growth in both directions. One example, we talked to a vendor that looks at skills validation and skills proficiency tied to internal mobility opportunities, right? But they also look at the individuals like performance plan, what they want to do in the organization, what they value about their current role. And for example, if they found 2 people that might be a good opportunity for a role, one of whom has all the skills but has no desire to be in management, they can tell the business, hey, don't put this person in management because you'll probably burn out leave, right? On the flip side, they might see a second person that has maybe most of the skills, but they know they learn quickly and they have a desire expressed to be in management through performance management that person might be a better overall fit to move into that role because they have that desire and they've got that ability to learn. So you're not going to burn out the person that doesn't want to be in management. You possibly improve their retention because you're not throwing them into a role they don't want. And you're given the other person an opportunity and a path to grow in that direction. So you increase their kind of buy into the business as well, right? You are giving them an ability to see that, hey, the business and my HR function not only values its ability to affect change and business outcomes, they also value my desires, my growth plan, what I want to do in my career. So I think if you can take that perspective, that is bifurcated where we're supporting the individual and the business. I think you have a lot of opportunities to win.

Eric Hanselman   00:22:20

It does seem like this is more like, I guess, a dynamic game of Tetris as opposed to a jigsaw puzzle and trying to pound the right pieces into the right places because it is a situation that is dynamic and constantly moving.

Conner Forrest   00:22:33

Without a doubt.

Eric Hanselman   00:22:35

So I'm interested from the market monitor perspective, it sounded like you're seeing some echoes across both what you were seeing for the market itself, some of the study work that we've been doing and what you were seeing at the HR Tech Conference. Where do you see that headed? And what are the directions that you see this moving towards, both looking at the data and what you saw at the show?

Conner Forrest   00:22:59

Well, I think that from a high-level perspective, I do think the investment in people and analytics is kind of this rising tide that lifts all boats. I do know that things like what we would consider modern or the progressive people management stack, so employee experience, performance management and people analytics, that's going to be the high-growth nucleus, whereas your core HCM and talent acquisition, it already has the market saturation. It's already growing. There's not a ton of opportunities for high-growth movement there. It still is growing, but the year-over-year growth kind of defining that long-tail CAGR is going to be a little bit slower. And so I think that a lot of the dynamism is going to be in that culture focus, that employee-focused tool set, but I don't think we can discount what's happening in core. So for example, one of the things we noticed in talent acquisition, typically, as you start to see market saturation happen, obviously, in the opposite direction, your year-over-year CAGR will drop, right? It kind of happens almost like in the shape of an , where as the market grows and saturates, the opportunities for kind of year-over-year growth slow, right? But what's interesting from 2023 to about 2025, in talent acquisition, we see the year-over-year growth actually going up by a percentage or 2. And as I sat down with Greg Zwakman, who runs the market monitors and some of the other analysts, we kind of had this question where we're saying, hey, this is not normal. What's happening here? What is the story? And I think that's one of the examples where the modern approach to people analytics is going to impact some of the longer-term or like legacy scale aspects of HR and level them up even as they're kind of approaching market saturation. So from 2023 to '25, we see this year-over-year growth go from 7.9% to 8.7% and 9.5% even as the market is heading in that growth direction. So it's growing with the growth pattern, which is odd. But 2023 is really where talent intelligence platforms, which is the people analytics approach to TA, which is the intelligence AI-focused candidate matching to open skills or particular job descriptions that are in a requisition that we call that talent intelligence platforms, right? They take an AI-based approach to managing candidate evaluations and matching to a framework of open jobs and skills that are connected to business outcomes. And there's been a massive growth in stand-alone vendors that do this as well as kind of legacy ATS players and recruiting tools adding in analytics features. And because they are segmented both in a TA talent acquisition segment, but also they're a people analytics vendor to a degree, they're benefiting from the investment or interest in AI and it's throwing them uphill as the market saturates, which is typically -- you typically don't see that, right, over a multiyear growth period, which is super interesting.

Eric Hanselman   00:26:11

And just in terms of how that gets built, well, and what -- it seems like it's also one of those things that as your HR processes march up that ladder of sophistication, you then have greater opportunity to consume it, you have more need for it. You wind up having that sort of virtuous circle of needing more once you actually get the -- with the practices put down.

Conner Forrest   00:26:33

Absolutely. And it adds kind of new feature sets within that tooling to where even if, for example, you're not in a big hiring push, maybe the great resignation shifted to the big stay or whatever we want to call it, as people have kind of settled into their new roles, you have more opportunity or more of more channels through which you can engage with the product and its feature sets. So maybe you want to do a skills inventory, maybe you want to start redefining your TA strategy based on the skills that you have in your taxonomy and you need more licenses to do that. You need different licenses. You need more seats, you need a broader license to be able to engage with those tools within that platform. That -- you're absolutely right. It gives you kind of more interest in diving into that tool from a slightly different angle or perspective. And I think that's kind of one of the interesting pieces there for sure.

Eric Hanselman   00:27:32

Fascinating. Well, you mentioned the work that Malav Parikh and the customer experience team has been doing and looking at some of the complex dynamics there, it sounds like on the employee side, this is even deeper, even broader, so much more to be able to dig into.

Conner Forrest   00:27:49

Absolutely. And the great thing about that, and I think us operating as what we call the experiences group is that there are little moments where you can see that total experience. I'm not sure if anyone even calls the total experience, but that total experience peaking through where investments in the employee experience, we get a return on the customer experience, right? Having the right headcount, having the right skills, building the right products, that gives a better customer experience. The customer having more of what they need from self-service, they bring, I think, fewer mundane or kind of manual challenges to the employees, that improves the employee experience as well. So I think what we're seeing from the employee and candidate side is this consumerization where the investment in the employee experience parallels and impacts the investments we're seeing on the CX side really greatly, where things are built for a journey. They're data-driven, they're built with feedback in mind, and they're built with the ultimate goal of retention, right? On the customer side, we call it churn. On the employee side, we call it attrition or if it's high-volume hiring, we call it churn. But it's the same goal. It's keeping people around for longer and giving them the best way to interact with the business. Now employees, they interact with the business to drive revenue and create better opportunities for growth. Customers interact with the business to get a product or service they need. But ultimately, there are so many parallels here that we're seeing that it makes me excited to be in the space because I have people like Mo Park and Sheryl Kingstone that I can brainstorm with and try to decide, hey, what's the parallel here from the customer side? Are all employees customers and vice versa? Who knows?

Eric Hanselman   00:29:31

We're getting existential here.

Conner Forrest   00:29:34

Eric, I'm about to go down a rabbit hole. It's about to get deep. I might lose my mind in the process, but hey, we'll get some good research and content out of it for sure.

Eric Hanselman   00:29:41

But you'll have fun getting there.

Conner Forrest   00:29:43

I'm always having fun. Always having fun.

Eric Hanselman   00:29:46

Well, this has been great, Conner. I appreciate all the perspectives. I will point our listeners to a lot of the research that you've been digging into and a lot of these synergies across experiences, both employee and customer side. But thank you.

Conner Forrest   00:30:01

Yes. Thanks for having me. I enjoyed it.

Eric Hanselman   00:30:03

So much more that we could have talked about, but we are at time. That is it for this episode of Next in Tech. Thanks to our audience for staying with us. And thanks to our production team, including Sophie Carr, Feranmi Adeoshun, and Kyra Smith