HR Leaders Say Tech Spending Will Slow, Despite Digital Transformation Needs

​Human resource executives plan just a 1.8 percent increase in IT spending in 2023, down from 8.7 percent in 2022, according to The Hackett Group's HR Key Issues report.

The reduction in IT spending is occurring at a time when HR organizations are being asked to fill gaps in productivity and efficiency—gaps that have increased since last year's study, the report states.

The findings come from a survey that included HR, IT, finance, procurement and other executives at 350 midsize and large enterprises across the globe.

The poll, which was conducted in November and December 2022, showed that approximately two-thirds of respondents across all business functions said an economic downturn or recession would be the top risk this year.

More than half of the respondents cited concerns about talent shortages and inflation, and more than a quarter said an inability to successfully transform the business and related functions was a key concern.

HR executives said HR's workload will increase by 10.5 percent.

"The job has not gotten easier," said Anthony DiRomualdo, senior research director at The Hackett Group. "We are sensing a little bit of exhaustion in terms of recognizing all of the things that the business needs from HR and that employees need from HR and then recognizing where they are and the fact that there are gaps."

While HR executives say IT spending will drop this year, it should be noted that they also say they've spent more on technology in previous years. For example, 60 percent of survey participants said they adopted tools enabling hybrid meetings prior to 2022, and 20 percent said these tools were adopted in 2022. However, only 7 percent said they plan to implement these tools in 2023.

In the employee wellness solutions segment, a similar story is playing out, with 53 percent of respondents saying they implemented these tools prior to 2022, 7 percent saying they adopted them in 2022 and 10 percent planning to implement them in 2023. 

Interestingly, 27 percent of participants said they plan to implement internal talent marketplaces in 2023. That is the technology solution projected to receive the highest adoption rate this year. However, 20 percent of respondents said they implemented internal talent marketplaces before 2022, and 10 percent adopted these marketplaces in 2022.

Only 13 percent of respondents plan to implement onboarding chatbots in 2023, while 3 percent said they plan to adopt manager-employee instant feedback tools this year.

The report also said the projected growth rate for cloud-based, core human capital management application suite solutions is 20 percent, and the growth rate forecast for business process management and workflow tools is 18 percent. The projected growth rate for HR point solutions is 13 percent. 

"Spending on HR technology will continue to be robust in 2023, it just won't grow as fast as it did in 2021 and 2022," said Mike Brennan, chief service officer at Leapgen, a company that helps customers digitally transform their human resource functions. "The hottest areas will include those supporting the priorities covered in the Hackett report."

Brennan said he's not surprised the report found that HR executives' top seven priorities and planned improvement initiatives for 2023, which are all critical development areas of high importance to their companies, are priorities that respondents said they doubt they'll be able to achieve.

The top seven priorities and planned improvement initiatives for 2023 are:

1. Develop executives who can lead effectively in a changing business environment.

2. Recruit and retain staff in key business positions and with critical skills.

3. Act as a strategic advisor to the business.

4. Enable enterprise growth strategies and initiatives.

5. Create and/or maintain a high-performing organizational culture.

6. Address key talent and critical skills shortages.

7. Improve talent management capabilities.

Brennan said many HR leaders he speaks with are overwhelmed by the magnitude of the transformation needed to adapt how they operate to deliver value to both the business and workforce in a tumultuous macroeconomic and geopolitical climate.

"Many are reactive, and they are reacting to many different demands, which, when taken as a whole, they simply can't face head on," he said. "That explains why so many in the study

indicated they are neither confident they will achieve their strategic objectives nor even have an initiative in 2023 to address them."

DiRomualdo put it this way: "I think for at least the foreseeable year, the conditions are going to still be such that there is going to be wariness on the part of HR in terms of their outlook."

As HR executives address the problems they face, the report recommends several actions that focus on how technology should be used to improve HR business processes:

Leverage digital technology. Digital technology allows HR organizations to improve the performance of their tasks while creating greater business value. The report recommends HR executives utilize the capabilities of existing platforms, as well as implement new tools and applications.

Build data management and analytics capabilities. HR executives should create data-driven organizations that analyze employee-related information and develop insights that are critical to future success. The report recommends companies leverage existing analytics and reporting capabilities and start mastering advanced techniques.

Transform the HR operating model. The report recommends that HR operating models change to align high-level HR business partners with business unit leaders. Companies should also focus centers of excellence on creating innovation programs and effective implementation. Emphasize delivering a great employee experience through digital channels and shared service centers.

In assessing HR's strategy for 2023, Brennan said digital is at the heart of every business transformation occurring in virtually every industry sector across the global economy. 

"If a business is to be adaptable, so must its people. It stands to reason that HR needs to change its own operating model in order to perform in sync with the rest of the business. It needs its own digital transformation, and many HR functions are ill-equipped to change. For those who do not act decisively, they'll never scale, which will put their organizations' performance at risk," Brennan said. 

Nicole Lewis is a freelance journalist based in Miami.