HR Technology Spending Rebounds, Vendor Satisfaction Up

Venture capital investment in workplace tech shatters previous records

Roy Maurer By Roy Maurer December 10, 2021
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​Employer spending on HR technology this year bounced back after dropping sharply in 2020, according to a recent analysis. Organizations' tech spending is up by 57 percent in 2021 compared with last year and is above the totals from recent pre-pandemic years as well.

"HR tech buying patterns show a continued increase in spending plans," said Stacey Harris, chief research officer and managing partner at Sapient Insights Research Group in Atlanta, which produced the comprehensive 2021-2022 HR Systems Survey. "And HR technology budgets are projected to go up again next year, especially among larger employers."

The latest Sapient Insights data was collected in the summer of 2021, covering over 2,100 organizations of various sizes and from multiple industries across 52 countries.

The enduring COVID-19 pandemic and shift to remote work are driving the spending, Harris said. "We saw a pullback in spending when the pandemic hit in 2020, and some tech implementation was delayed, leading to an uptick this year," she explained. "In addition, COVID-19 has broadened the scope of what is considered HR technology. It was narrowly seen as applications to hire, pay or develop someone, and now there is increased attention paid to communication tools, for example."

She said things like virtual communication technologies and surveying tools, as well as skills management platforms that might have previously sat in an operations budget, are increasingly included as part of HR technology spending. 

Madeline Laurano, who studies the talent acquisition technology landscape, said spending on recruiting solutions also accelerated in 2021. "Spending on TA [talent acquisition] tech had been on the rise previously, but during the pandemic, 62 percent of companies increased their investment," she said. "I expect that to continue in 2022."

Laurano, founder of Aptitude Research, an analyst and advisory firm in Boston, said employers have especially shown interest in replacing their applicant tracking system and candidate relationship management platform.

"Maybe they had a little time in 2020 to rethink their technology options, then hiring ramped up in 2021, driving the need for new systems," she said. "Increased turnover on TA teams—especially TA leaders—may have also contributed to the uptick, because new leadership often wants to build their own tech stack." 

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Harris said spending shifted in 2021 from the typical big-ticket items—human resource management systems (HRMS) and payroll modules—to talent management tools like learning and recruiting platforms and emerging technology like artificial intelligence, machine learning and robotic process automation software.  

Spending increases in 2021 were earmarked for recruiting and learning technology at small and midsize firms, while large employers have been focused on HR analytics tools, according to Sapient Insights. 

"Learning tools continue to be the leading applications to be replaced or evaluated for replacement, followed closely by HR service delivery applications such as help desks, portals, feedback tools and more," Harris said.

She added that most learning and development funds went to content, "as well as ways to share that content with a distributed workforce."

Within talent acquisition, there's been significantly more investment in assessment tools, Harris said.

Laurano said the market for virtual recruiting and hiring solutions has exploded. "Remote work was a game changer. Spending on video interviewing was actually going down a little bit before the pandemic, and then that spiked over the last two years."

She added that adoption of conversational AI technology like chatbots has continued to attract interest, along with AI-matching tools, programmatic job advertising technology and internal mobility platforms.

"Internal mobility has received a huge increase in investment and is becoming a more valued piece of the talent acquisition tech stack, which it wasn't five or six years ago," she said. 

Laurano noted that part of the growth in these areas comes from wanting to improve the recruiter experience.

"It's hard to find recruiters right now, and there's a lot of turnover," she said. "Employers need to be able to provide better technology to provide a more positive experience to keep their recruiters."

She added that conversational AI reduces the amount of time a recruiter must spend scheduling calls or responding to simple questions from candidates; automated matching of applicants with open roles saves recruiters' time; and programmatic ad buying eliminates the need for manual monitoring and purchasing.

The average number of HR systems being used at today's organizations has grown from 10 in 2020 to 16 in 2021, according to Sapient Insights. There were nine HR systems on average in 2019.  

"This dramatic growth in the number of HR systems in the workplace is most recently being driven by employers' need to support a virtual workforce and adopt employee tracking solutions required for contact tracing or health and wellness," Harris said.

"As employers are adopting more technology, we are also seeing more investments in the resources to support the tech, such as new hires in support roles," she added.

Happier Users

Employers were happier with their HR products and vendors in 2021, according to the report.

There was a 12 percent increase in overall user experience ratings and a 15 percent increase in overall vendor satisfaction ratings.

"Some of that is because this was the year of being grateful," Harris said, meaning there was a "halo effect" associated with an organization's HR tech providers that offered critical support and services during the COVID-19 crisis.

Employers also found that the technology achieved better business outcomes than people expected, she said. "There was a large increase in organizations that told us their HR tech was being used to inform their enterprise workforce decision-making or their business strategy."

Vendors with some level of managed services or HR support capabilities in their products excelled even in an outperforming market, Harris said.

Unprecedented Investment

End users aren't the only ones excited about workplace technology. Venture capital investment in the space skyrocketed in 2021. HR tech vendors are set to close nearly $17 billion in investment this year, more than tripling the 2019 record of about $5 billion.

"Pre-pandemic, investment was on the rise, with HR tech getting more attention from investors," said George LaRocque, workplace technology analyst, advisor and founder of WorkTech by LaRocque LLC, an advisory and insights firm in the New York City area. "The total for 2020 was just under $5 billion. This year has been unbelievable—quarters are exceeding previous years."

LaRocque described the reasons for the spike as being "the perfect storm," beginning with what was already a hot market, some pent-up demand from 2020, inexpensive capital and a global pandemic that irrevocably shifted how work is done.  

"Think about all of the trends that emerged during the pandemic that have put HR and employers right in the center of a need for new solutions," he said. "Investors are looking to find a place for their money, the number of startups to address new challenges has increased and companies are looking to upgrade their systems, creating a feeding frenzy."    

Incumbent vendors have also been innovating, LaRocque said, and they are introducing new products to the market.

He said the top HR categories for investment in 2021 were learning and development, payroll, and job boards. "Employers are also grasping at ways to feel more connected," LaRocque said. "Solutions dealing with collaboration and team building are clunky right now. That capability will evolve and drive more investment. Interest in mental health and wellness has been booming, for good reason, and I expect to see more of that."

LaRocque said he predicts another banner year for investment in 2022. "It's hard to imagine exceeding $17 billion, but we'll probably hit a similar pace," he said. "If HR thinks the market has been noisy during the last two years, wait until next year when a lot of what has been funded comes to market aggressively or the startups get their series A rounds and start selling their products."

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