On the HR Horizon: Takeaways from HR Tech 2024

Industry Growth Poised to Rebound

During our team’s numerous conversations with CEOs across all categories – payroll, workforce management, talent acquisition, learning, employee engagement – most lamented a noticeable slowdown in growth in the wake of recent U.S. domestic economic uncertainty. Since 2022, customer budgets have been stressed and CHROs have been forced to reduce their overall spend. While it’s been no secret that demand has faced headwinds recently, “celebrating” 15% growth for a sector that historically aims for 30%+ was a sobering refrain that underscored just how difficult the environment has been across the board.

There is little coincidence in the timing of this performance slowdown and the initial rate hikes initiated in 2022. However, it’s that exact same logic that has CEOs cautiously optimistic that fortunes will begin to turn on the heals of the most recent rate cut. While little consolation for the last 24 months, companies are finally seeing their second-half pipeline growing at an accelerated clip, portending signs of a rebound.

It’s with this renewed optimism that we expect the sector to see a reversion to historical growth rates over the next 12-18 months. Additionally, we believe today’s more constrained budgets and shifting priorities are likely to drive consolidation for a period with a focus on new innovation to leverage advantages from AI.

What’s Driving Outperformance

Through our conversations, we uncovered a handful of common denominators among outperformers that have bucked the slower-growth trend. Of note, the best performing companies (from a growth perspective) have solutions that were able to demonstrably check one, if not two of the following boxes: i) mission criticality, and ii) tangible ROI, if not both. 

Traditional HR solutions that serve as systems-of-record (payroll, workforce management) are mission critical and have generally been more market resilient. The well-established resilience of these models, particularly the earlier-stage vendors, has been on full display since 2022.

Second, employee productivity solutions that deliver tangible, measurable ROI (higher productivity, lower employee attrition, higher customer satisfaction) continue to receive wallet share from procurement departments (see next section for further discussion on this topic).

All Eyes on Employee Productivity Solutions

The hiring environment has slowed down over the last few years and many companies have laid off portions of their workforce. In this new environment, companies are forced to drive greater productivity from their existing employee base. As Josh Bersin identified in his preview of the 2024 HR Trends at the beginning of this year, this is one of the biggest challenges facing the industry. The two areas that will benefit most from this dynamic are: i) learning and development (L&D) and ii) workforce optimization platforms. 

L&D solutions have been the beneficiaries of numerous exogenous events (Covid, the Great Resignation, continued labor shortage, etc.) over the last few years and continue to see strong adoption. In the new “normal” of reduced hiring, now more than ever companies are dependent on upskilling / reskilling their existing workforce to fill the ever-growing skills gap (estimated to reach a talent deficit of 85 million workers by 2030). 

Workforce optimization is an emerging category that combines L&D capabilities with more specific skills gap assessments to drive performance/operational improvements. These solutions often deliver better employee productivity and better employee engagement, while at the same time improving customer satisfaction. We have seen some interesting vendors addressing this category across a broad range of corporate functions from sales, IT, operations and more. We expect to see continued emergence of vendors focused on both the L&D market and workforce optimization.

Increasing Focus on Skills Matching / Talent Analytics Solutions

Given the continued global labor shortage and ever-growing skills gap mentioned above, the entire talent acquisition industry is focused on how to find the “right fit” employee given the high cost of poor hiring decisions. Our conversations with numerous CHROs indicates that CVs today are being “gamified” with ChatGPT to attract recruiters. Consequently, recruiters are more than ever needing to improve their approach to screening candidates and going beyond the CV with third-party solutions to better assess candidates’ true vs. reported skills and determine their cultural fit.  

Leveraging third-party data along with their proprietary skills taxonomy (talent analytics), numerous vendors are squarely focused on this pain point and creating enhanced candidate profiles that are focused on skills-matching and skills-mapping. While most use cases today for these solutions are being used across the talent acquisition category, we have started to see L&D players also leveraging this skills technology to drive better learning outcomes and facilitate internal talent mobility. 

Emerging Opportunity: Solutions for the Frontline Worker / Deskless Economy

Another consistent theme for investors and solutions providers is around the frontline worker or deskless economy. These are the decentralized workers that don't work in a typical office and don't sit behind a computer. As a result, traditional HR solutions that were designed around corporate offices are less applicable and sometimes not applicable at all for these “disconnected” workers. However, this constituency represents the largest part of the workforce, estimated at roughly 80% globally, and so creates a massive multi-billion-dollar market opportunity. As a result, we have seen several vendors focus on this market specifically across learning, employee engagement, employee communications and workforce productivity.

AI Remains Central Talking Point

Unsurprisingly, AI was a key fixture at HR Tech this year – but there was a meaningful uptick in companies highlighting impressive AI capabilities, a step change in what was demonstrated even 12 months ago. Specifically, there was a noticeable focus on AI agents and broad automation of routine interactions or processes within the talent acquisition ecosystem. Numerous vendors demonstrated truly powerful solutions aimed at reducing time to hire, conversing with candidates and employees (i.e., answering benefits questions, etc.) and personalization of learning content.

We are in the very early innings of experiencing how AI will ultimately impact the HR tech landscape. However, it is clear that investment in these HR-centric solutions continues to accelerate, driving increased sophistication, quality and depth of impact. We dove further into this topic earlier this year in our webinar, “Inside the AI Transformation.”