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The Growing HR Software Market
The HR software market is one of the largest technology markets in the world, with an estimated worth of $250 billion. The market consists of payroll systems, core HR platforms, recruiting, training, benefits, and hundreds of other applications. Over the last five years, the market has exponentially grown as companies are adapting to hybrid work and the pandemic. The HR platforms have radically changed over the last two decades, evolving from back-office tools designed for payroll administrators, HR managers, and IT staff to becoming work tools. Today, almost every work activity, from scheduling a meeting to analyzing a spreadsheet, touches HR systems. The progress of cloud architectures has made this easy, and modern HR platforms have crossed the line into “platform” instead of just an application. ServiceNow and Microsoft have joined the league, and big HCM players like Workday, SuccessFactors, ADP, and Oracle now have partner ecosystems to integrate and simplify all these tools.
The Need for Adaptable and Flexible Systems
The HR software systems have aged, and their architectures have become somewhat legacy. While Workday, SuccessFactors, and other vendors have modernized and updated their data structures and architectures in many ways, their core system remains rigid. Companies must make workflow and hierarchy decisions that may force them to “reimplement” the systems gradually as their businesses grow and change. According to JPM Chase research, more than 75% of companies go out of business or are acquired within 15 years. So, any HCM systems a business buys have to be adaptable, flexible, and easy to change. But none have been very good at this, making it much trickier to collect and analyze HR data. Companies have struggled with these data issues since they have dozens of recruiting, training, compliance, wellbeing, survey, benefits, and payroll systems, so that it is challenging to get a single view of all your employees’ various HR data elements—their job history, performance ratings, feedback, pay, benefits—so IT departments do a lot of work to bring this together.
AI as the Future of HR Architecture
AI may finally bring the “new architecture” needed for the HR software systems. Although no vendors have built a full AI-centred HCM system yet, it is likely to come. AI solutions fall into three families, those that have AI “added on,” those who built “AI features within” their platform, and those that are “built on AI.” The third category of platforms is built with LLMs and Neural Networks at their core. By looking at tokens (words) or numbers, these “voracious data analyzers” find relationships between them in profound and fascinating ways. They give companies clues to why one person outperforms another at work. Commercial vendors sell LLMs as products and web services, making these platforms easier and more accessible. Although existing transactional systems store hundreds of data elements with complex workflow management, security, user interfaces, and integrity checks, HCM and talent management systems are becoming increasingly inflexible over time. These systems need to be adaptable to handle changing businesses, and this is where AI can help.
The Slow Transition to AI-Centric HCM Systems
Core HCM vendors are slowly transitioning towards AI-centric HCM systems. While SuccessFactors is building a new HXM Graph system based on a graph database designed to model a highly decentralized, agile company, Workday sees AI models as extensions to their sound architecture. Big vendors like Workday, SuccessFactors, ADP, and Oracle have partner ecosystems to merge these tools, and they’re experimenting with AI models to add value to their massive applications.
Conclusion
AI is the future of the HR software market. As HR platforms have grown, they’ve evolved into work tools. AI-centric HCM systems can become adaptive, flexible, and easy to change, enabling the industry to keep up with rapidly growing businesses. By transitioning towards AI, vendors can build HCM systems with LLMs and Neural Networks at their core. AI can analyze data in complex ways to provide companies with clues as to why a person may be under-performing compared to others.
FAQs
What is the worth of the HR software market?
The HR software market is worth an estimated $250 billion.
How have HR platforms evolved over last two decades?
HR platforms have radically changed over the last two decades, evolving from back-office tools designed for payroll administrators, HR managers, and IT staff to becoming work tools. Today, almost every work activity, from scheduling a meeting to analyzing a spreadsheet, touches HR systems.
What are the three families of AI solutions?
The three families of AI solutions are added-on AI solutions, platforms built with AI features, and platforms built on AI.
What is the future of the HR software market?
The future of the HR software market is AI. By transitioning towards AI, vendors can build HCM systems with LLMs and Neural Networks at their core. AI can analyze data to provide companies with clues as to why a person may be underperforming compared to others. AI-centric HCM systems can become adaptive, flexible, and easy to change, enabling the industry to keep up with rapidly growing businesses.
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