Global skills shortages fuel innovative HRTech solutions

Richard Latner, Neha Ramchandani

The HRTech sector is more active than it has ever been before with the pandemic accelerating the adoption of technology across all HR processes. No longer seen as an administrative function, HR is now viewed as a strategic business unit focusing on the mission critical challenge of identifying and recruiting top talent but also retaining them.

Whilst this challenge is not new, the problem has escalated due to the pandemic, with businesses experiencing the “Great Resignation.” Since the beginning of 2021, employees have been quitting and switching jobs in record numbers, further driving a global skills emergency, and acting as a significant risk to growth for many companies.

Amazon has a 150%+ turnover rate in its distribution centres and needs to rehire a quarter of its workforce every month to stay in business

Therefore, best in breed HRTech solutions and next-gen technologies that address the employee lifecycle and enable successful talent attraction (recruitment) and talent development (training and retention) are on the watch list for all the larger acquisitive players in the market.

In 2021, more than $12 billion in venture capital poured into the HR technology market, with the rate of investment more than tripling from 2020 to 2021. As investors continue to back innovation in this space, the focus is increasingly on talent attraction and development; in Q2 2022 alone, 70% of global HCM M&A deals were across these two components of the value chain.

Below we look at some of the key capabilities in these hot areas that are attracting buyers and investors in large numbers:

  1. Recruitment: Leveraging AI

As companies compete for talent, hiring people faster, better and cheaper by streamlining the recruitment process is key. Nowadays, companies need to be able to quickly source and connect with potential candidates as well as screen their skills ahead of time using automation. Whilst in its nascency, AI-based algorithms are increasingly being leveraged to effectively match skills to individual roles and also enable employers to better ‘outbound’ target (reverse recruitment) specific individuals by drawing from a variety of sources including social media activity.

With only 9% of companies actually using AI today, the growth opportunity is large

Gamification is also used in the hiring process, screening candidates by turning tests of critical skills and cognitive abilities into a competitive game format. Behind these recruitment games sit algorithms tracking key metrics, providing hiring managers with a bank of data to help determine the suitability of candidates efficiently. This also has the added benefit of reducing bias in the recruitment process which is increasingly critical to an organisation’s commitment to diversity and inclusion.

Selected Transactions in 2022

  1. Training: The rise of hyper-personalised e-learning experiences

Hybrid working and technological advancements have changed the nature of work, and this is very evident in corporate learning where the market has never been so vibrant and healthy. The most competitive businesses are those that successfully identify skills gaps and respond by reskilling and upskilling their employees. This is only achieved through adopting digital learning and development strategies to foster a culture of growth in the workplace. As automation assumes more repetitive tasks, soft skills are more critical, and this trend will likely increase in importance.

HR technologies that personalise learning and development content continue to be on the rise whilst the existing more traditional LMS systems (Workday, SAP, Oracle) are deemed not fit for purpose. There is a new breed of ‘micro-learning platforms,’ modernised LMS systems, and new AI-based systems that hyper-personalise learning and offer mobile solutions to make content more accessible. These ‘experience platforms,’ such as Degreed, Udemy and Articulate have become increasingly popular as they provide a learning experience employees are engaged with, drawing parallels from on-demand content services like Netflix or YouTube.

The more traditional HCM vendors (Oracle, SAP, Workday) have been less successful in L&D but the likes of Microsoft (Viva Learning), LinkedIn Learning Hub and Cornerstone Xplor have continued to innovate

Selected Transactions in 2022

  1. Retention: The employee experience

A surge in employee expectations for a healthier and more inclusive working culture has motivated companies to implement initiatives such as agile working and place holistic employee well-being at the top of their agendas – the complete package is now just as important as the salary. Not only is it expensive and difficult to hire externally but if the company is ‘leaking’ people it will never be able to hire fast enough.

Tracking employee sentiments through feedback platforms and monitoring productivity metrics and performance allows businesses to better address employee needs and improve engagement and retention. AI-powered, user-friendly, HR technology tools that enable on-demand access to curated data and visualisations, easy analysis and actionable insights will be a high priority.

In a recent survey, 77% stated that they are more likely to stay at the company if they have received training, with retention rates 14% higher for employees receiving training

Selected Transactions in 2022

  1. Introduction of Virtual Reality to the corporate landscape

The adoption of VR technology in the recruitment and training process to elevate the employee experience is an emerging trend and will continue to reshape the corporate environment. Thought has been given to virtual careers fairs, immersive training experiences, and digital meetings and these capabilities have the potential to cut costs as well as provide employers with real-time information and deep insights.

Selected Transactions in 2022

The role of HR today continues to evolve and adapt to changes in trends and constant innovations. This combined with the pandemic and the mass adoption of remote and hybrid working has created a range of differing tools and disconnected solutions for individual aspects of the value chain. We are therefore likely to see continued consolidation in the market with providers seeking to acquire emerging HRTech solutions to expand capabilities and maximise customer wallet share. For example, Workday recently acquired Peakon ($700M), a tool to measure employee sentiment and engagement, and Vndly ($510M), a cloud-based hybrid workforce ‘gig’ management solution.

The next 18 to 24 months will be a crucial window for providers to solidify their positions. HRTech that offers smarter best in class point solutions in the areas of talent attraction and development will likely continue to be the most attractive to potential investors and strategic buyers.