HRtech a Snapshot
The pandemic has changed how most of us work and collaborate. But, unfortunately, many companies were not prepared for it. Therefore, they had to quickly solve multiple business problems such as communication, employees' mental health issues, workforce planning, etc. It led to that the Human Resource Department moved more into the spotlight. HR professionals had all of a sudden to deal with a much more extensive range of challenges.
The increased complexity in management, team structure, and collaboration combined with the rising working population (3.3B) positively impacts the market and fuels further growth. Thus, it is no surprise that many companies accelerated the adoption of HR technology and that the industry moved into the focus of many Venture Capitalists.
Global HRtech Market
The global market size of the HR and Recruitment Services Industry is $478B. In 2020 the HRtech market size was around $23B. The industry is expected to grow to about $39.5B by 2028, with a CAGR of almost 7%. Some sources predict a CAGR of 5%, others nearly 10%.?
Given the accelerated digital transformation and the uncertainty in the market, a CAGR of 7% is considered reasonable. Companies spend on average $40 per month/employee on HRtech. COVID led to a $4 increase to support remote work.
Businesses prioritise investments in AI/technologies to optimise business processes, reduce costs, increase analytics capabilities and the employee experience. The employee experience has become one of the key metrics for enterprises. Therefore, many companies implement and/or improve their HRtech stack to proactively detect and manage issues to keep employee productivity, satisfaction and retention high. However, unlike corporates, many SMBs struggle to invest in advanced HR technologies due to significant lower budgets.
The market offers still many opportunities for new startups since according to Gartner 90% of the HR leaders plan to maintain at least the current systems (56%) or even increase investment (34%) into HR technology. Furthermore, 48% mentioned that their current HR technology stack hinders rather than improves the employee experience in the survey.
Market Insights and Trends
The CHRO's and human capital leaders survey by PwC shows the two main challenges of CHRO's. The first challenge is that 65% of the employees are looking for a new job.
Employees stated in PwC US Pulse Survey this year that they are looking for a new job since they are not satisfied with their #1 wages/salaries, #2 benefits, #3 career advancement and #4 flexibility. The survey also reveals that females are more likely than males to seek a higher salary (f: 46%, m: 34%).
The second challenge is the new world of hybrid work. Therefore, HR professionals strongly focus on creating a better employee experience through leadership development (36%), hybrid work models (32%), career development and progression (29%) and mental health and well-being (28%) etc. A better employee experience will address both challenges and therefore lead to better retention.
The PwC HR Technology Survey from 2020 (600 HR professionals) showed last year that talent acquisition and retention is on top of the agenda of HR professionals, followed by learning and development and employee experience. Therefore, it is no surprise that many HRtech startups aim to address the talent acquisition problem.
The application experience becomes more critical since candidates criticise that the current processes are time-consuming. Some choose not to apply for roles if the process is perceived as lengthy and complex. Australian startups such as Curious Thing AI, Schabu, PredictiveHire, and LiveHire are addressing this problem already. Further growth is expected since recruiters aim to increase the degree of automation over the years to come.
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The new hybrid work models also create a market opportunity. It is estimated that around 20% of the employees would prefer to work fully remote even after the pandemic, and around the same amount of people would like to work mainly from the office. However, companies see challenges in keeping the corporate culture with a mix of on-site and fully remote teams. Furthermore, they remain also concerned about cybersecurity issues related to the hybrid and remote work model and want to increase automation to increase efficiency.
Venture Capital
HRtech is hot for a few years. However, investments are, as always in the startup landscape, fragmented tracked.?
According to Chris Mentiko, investments in HRtech in Q1 and Q2 in 2021 ($3.6B) already surpassed the total amount of investments from 2020 ($2.2B) based on the data available on Crunchbase. Interestingly, the average deal size went up during the period from 2017-2019, slightly dropped in 2020 and soared to $13.8M in 2021. Investors are bullish about HRtech that shows the $300M investment in Workrise and the $220M in Eightfold and Gympass. The Sydney based company, Employment Hero, also raised more than $100M a few months back and is on its way to becoming another Australian unicorn.
Worktech reported a total of $7B in investment in HRtech for Q1 and Q2 for 2021. The average deal size for Q2 is almost $54M. Worktech also tracked 9 HRtech unicorns. I added Go1 to the list, which also reached unicorn status with its $200M raise. These companies raised on average $146M at a $1.5B valuation. It highlights again how bullish investors are on HRtech and how big the opportunities are.
Australia seems to be an HRtech hub. GO1 and SafetyCulture are just the tip of the iceberg. Employment Hero, Enboarder, Earnd, Schabu, Vpply, The Curious Thing, OKPulse, Leanmote and many more have set out to improve HR. Keep it up, mates!?
Conclusion
The publicly available surveys, reports and data show that the HRtech market got even hotter during the pandemic. Many leaders are not satisfied with their current HR technology stack, are facing issues with the employee experience and the new hybrid work world. Entrepreneurs and investors aim to help businesses to tackle these challenges.
I expect the HRtech market to continue to grow over the next few years despite the budget constraints. However, I also expect to see a consolidation within the market since HR professionals are looking for a comprehensive solution rather than having various SaaS, PaaS etc. New players can increase their chances of success by ensuring that their solutions are easy to integrate with the HR technology stack. Furthermore, analytical and predictive tools will continue to gain popularity since they help HR professionals to manage the new fragmented workforce.
Solutions that improve the employee experience will show the biggest growth since HR professionals agree that companies need to develop outstanding employee experiences to create excellent customer experiences. It can only be achieved by choosing a holistic approach instead of just launching the next HR initiative. I think HRtech is even the wrong word since it implies that HR is responsible for it. Creating a fantastic employee experience requires every department and individual of a company to contribute. Therefore, PeopleTech, as some people already call it, is in my opinion, a better word for it since people still operate businesses for people. In the end, the best technical solution is worthless if employees have a poor experience. Given that 65% of the employees are looking for a job, I would say companies have to act now. Otherwise, they will continue to lose talent and eventually get crushed by competitors who look after their employees.