Editorial
2023 has been a challenging year for HR tech. As Crunchbase reported, global venture funding declined 51% in the first half of the year compared to the same period in 2022. Acquisition activity continues to remain low as well. Vendors also reported a slowdown in sales activity as companies cut budgets and put a hold on spending to prepare for an expected financial downturn. The same has been true for the People Analytics Technology (PAT) market.
As covered in a recent article, PAT vendors in the space expect a lower growth rate in 2023, compared to 2022, due to a slowdown in investments, longer sales cycles, lower conversion rates and layoffs in some industries.Vendors are addressing this by making changes to their business approach, such as building new solutions or products, shifting their target customer segment, adjusting their marketing strategy and changing their product roadmap.
But are these the right changes? Findings from Redthread Research reveal that PAT vendors should focus on two areas.
In times of financial belt-tightening and slow sales cycles, vendors can drive long-term growth by ensuring continued usage by their current users and scaling usage and adoption beyond their primary users.
Ensuring Continued Usage by Current Users
According to our data, the primary users of most PAT solutions are people analytics practitioners (PAPs) and the broader HR team. Last year, usage by these two user groups declined from 2020 (Figure 1). This year, both groups’ usage further declined by eight percentage points and five percentage points, respectively, to 85% and 58%. It’s possible that these tools are failing to meet the audiences’ needs in the way they did during the pandemic, as evidenced by the lower customer satisfaction rates. Our data showed that the average customer NPS for PAT vendors has also been on a decline (from 67 in 2020, to 58 in 2021 and to 50 in 2022).
PAT vendor solution usage by PAPs and broader HR teams has declined over the past few years.
A decline in PAP usage could mean that the solutions are no longer providing the same value as they did in the past. It could also be a result of layoffs that have left companies without a people analytics team or leader. It’s likely that this decline in PAP usage impacted HR team usage, as PAPs can often play the role of a champion in encouraging broader use of PAT and help HR teams get value out of the tool, especially in companies where people analytics sophistication might be low. To expand usage among PAPs and broader HR teams, vendors should:
- Enable data integration from different HR sources to help users understand specific HR areas.
- Pull in data from non-HR sources such as operations and finance to provide more holistic people insights.
- Provide real-time, accurate and robust data in an easy-to-consume manner through dashboards and visualizations.
- Enable self-service by allowing PAPs to export the data into other tools, such as Power BI or Tableau, for additional analyses.
A PAT solution is unlikely to see continued usage within a company if its primary users no longer leverage it, unless it sees a rise in usage among other groups, which brings us to our next point.
Related Article: 3 Ways People Analytics Technology Is Evolving to Meet the Moment
Scaling Usage and Adoption Beyond Primary Users
Our analysis revealed that expanding data access beyond primary users positively impacts NPS. Specifically, we found two items that correlated with NPS:
- People managers: Providing the ability to analyze historical data with current data.
- Employees: Providing access to insights based on data collected actively (via surveys).
Unfortunately, solutions are only partially doing this. While most vendors (86%) provide people managers with the ability to analyze historical data with current data, only 35% give data access to employees. As shown in Figure 2, there was little change in the number of vendors who provided these capabilities in 2021 and 2022.
More solutions provide data access to managers than to employees; these numbers were relatively unchanged year over year.
It’s no surprise then that while PAT solution usage by people managers has risen from 51% in 2020 to 56% in 2021 and 58% in 2022, usage by employees has declined significantly from 30% in 2020 to 23% in 2021 and 18% in 2022 (Figure 3).
PAT vendor solution usage by people managers has increased, while by employees has declined since 2020.
Adoption by non-HR groups like people managers and employees can drive long-term growth for PAT vendors. They should focus on meeting the needs of these groups and provide education to encourage greater adoption. Some of the ways vendors can do this include:
- Continuing to invest heavily in features and functionality for people managers. Forty-two percent of vendors are still not seeing extensive usage by this group. A likely reason could be that even though managers have access to data, they are not sure what to do with it. Vendors should develop resources that enable better decision-making by managers.
- Working with customers to design policies around data access and security. A big reason companies hesitate to share data with employees is due to privacy and security concerns. Vendors should see this as an opportunity to drive greater usage by working with customers to address their concerns and challenges around broader data democratization.
- Building trust by ensuring data integrity. Often non-HR users are hesitant to use the solutions due to a lack of trust in the data. Vendors can build trust and drive usage among non-HR users by ensuring they provide real-time, accurate data consistently.
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Related Article: Building a Successful Partnership Between DEIB and People Analytics
As customers’ maturity in people analytics has grown over the years, their needs from vendors have changed. This is evidenced by the fact that customer satisfaction levels are down, and the typical primary users of the technology are no longer using the solution to the same level as they did in the past. To meet these shifting needs and drive long-term growth, vendors need to expand their user base while figuring out how to continue providing value to their typical users.
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