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An economic downturn can spell trouble for the HR tech market, especially for startups. But it's a reality that users say they prepare for, and it starts with a thorough assessment of a vendor's financial health.
"There's so much money going into HR tech," said Loren Shuster, chief people officer and head of corporate affairs at the Lego Group. "I can't begin to tell you how many emails I get from different vendors with a lot of interesting solutions."
In bringing on new HR tech, Shuster tries to "assess the longevity of the solutions out there." That includes a financial analysis of a vendor's resources and its user base.
Has a vendor's technology "been deployed in companies of our scale or bigger?" Shuster asks. The toy manufacturer employs more than 20,000 globally and is headquartered in Billund, Denmark.
Shuster was speaking at a roundtable at Irresistible 2022, a recently concluded conference sponsored by the Josh Bersin Co. and the University of Southern California Marshall School of Business.
"The HR tech market is pretty much in a bubble," said Josh Bersin, an industry analyst and the founder and CEO of the Josh Bersin Co., during the roundtable discussion. "If the economy continues to go the way it is, a lot of our smaller HR tech companies might go away."
VC investors have been "throwing money" at startups, and investors often tell CEOs to hire as many people "as fast as you can because we want you in the market taking some dominant position," Bersin said. Many of these companies overhired, he said.
Indeed, investments in HR tech reached more than $9.2 billion in 2021, a 130% increase from 2020, according to market research firm PitchBook Data Inc.
Rhonda MorrisVice president and chief human resources officer, Chevron Corp.
The effects of the COVID-19 pandemic have driven investment in HR and collaboration tools. For instance, in January, whiteboard vendor Miro LLC in San Francisco raised $400 million, and Globalization Partners, a Boston-based firm that provides compliance services for companies hiring globally, raised $200 million.
But investors are now getting nervous, and the message to startups is, "You got to get profitable as fast as you can," Bersin said.
Rhonda Morris, vice president and chief human resources officer at Chevron Corp., said it uses a similar approach to Lego in evaluating HR tech startups.
"I never imagined that Chevron and Lego would have so much in common," Morris said, adding that her company uses a similar financial analysis of HR vendors. The economic climate isn't making her nervous, but she described it as a watch point.
Two HR tech areas getting a lot of attention from Chevron and Lego, as well as Walmart Inc., are learning and development and collaboration tech.
Lego is building what it calls Lego University on top of its Workday HCM platform. Shuster said the goal is to provide customized learning opportunities for employees depending on the skills they should be cultivating and those they would like to learn.
At Chevron, the HR team is in the process of creating iLearn, a platform that acts as an aggregator or a single interface of the company's other learning systems. "We're trying to create almost a Netflix-like learning experience," Morris said.
Walmart's training includes use of augmented reality and virtual reality. But one technology that might have a future with Walmart that can be used for training as well as collaboration and community building is the metaverse, according to Donna Morris, the retailer's executive vice president and chief people officer. The metaverse is a technology approach for creating virtual worlds that enable people to interact in a way that mimics the real world.
Morris said that the metaverse has potential in recruiting and creating communities, possibly as a hangout for employees. Although Morris didn't explain how the metaverse helps recruit candidates, some experts see virtualization as a means to give job seekers a better understanding of what a job could entail.
Patrick Thibodeau covers HCM and ERP technologies for TechTarget. He's worked for more than two decades as an enterprise IT reporter.