Studies HR Technology Spending Still Growing

Two new studies that speak to the state of the HR software market agree that spending on HR technology is likely to keep growing this year.

The reports, from advisory firms Towers Perrin and AMR Research, indicate that a tumultuous, sluggish economy isn’t crimping sales of applications for such tasks as tracking basic employee data, recruiting new workers and managing compensation.

Thomas Keebler, leader of Towers Perrin’s global HR function effectiveness practice, was surprised to see that just 15 percent of organizations surveyed by his firm expect to reduce spending this year on HR technology—a category that includes HR software expenses plus internal and external staffing costs. Last year, that figure was 18 percent.

“I had expected to see much more contraction,” Keebler says.

Factors behind investments in human resource software include greater recognition of the importance of talent and looming demographic shifts in the workforce.

In recent years, HR applications have been one of the fastest-growing fields of business software. AMR Research says that in 2007, the market grew a faster-than-expected 13 percent, to $7.2 billion.

In its 2008 human capital management market-sizing report, AMR upped its projection for the pace of growth in HR software. Last year, AMR predicted a compound annual growth rate of 11 percent from 2006 to 2011, to a total of $10.6 billion. This year, AMR expects a rate of 12 percent from 2007 to 2012, to a total of $12.8 billion. 

“While the bulk of this market to date has been in core HR records, benefits and payroll administration transaction automation, the scales have tipped significantly this year into the strategic HCM process areas of workforce acquisition, management, development and assessment,” AMR wrote. “Together, these areas represent 62 percent of the market.”

For 2008, AMR expects the HR software market to grow 13 percent again.

AMR’s conclusion, based partly on a survey of vendors, differs a bit from findings in the Towers Perrin report, which stems from a poll of end-user organizations. The Towers Perrin HR service delivery survey suggests growth in the HR software market may slow this year.

Thirty percent of organizations polled expect to increase their spending on HR technology this year, while 55 percent plan to keep it the same. That compares with 42 percent last year who planned to ramp up spending and 41 percent who said they were keeping it the same.

The more modest growth indicated for this year is partly a function of companies steadily increasing spending on HR technology for several years, Keebler says.

“Some of that is a natural leveling off,” he says.