HCM is Back! Why AI Means The HCM Market Is Poised for Growth.

0:00Okay, everybody. Today, I'm going to give you an audio preview of what I'm going to be presenting at the Unleashed Conference in Paris next week. And the theme is the HCM market is back in a big way. So here's my thesis and something that I think everybody needs to think about, especially technology people, but basically all HR executives, HR leaders, and HR professionals. There are five huge trends going on in the HCM market. And we just met with SAP, UKG, Workday, Oracle's meetings are coming up, Dayforce, Infor, others. And so these are very, very generalizable trends across the market. These trends are changing the value proposition of these platforms and the potential of the market as a whole.

0:51And they're changing the economic model as well. So the world of HCM is about to get very different and much, much bigger, in my opinion. If you look at the products coming out, let me go through the five major changes. Number one, these systems are going to become systems to execute multifunctional workflows. If you look at the agents that are coming to market, they don't just do one little thing, even though they may be called assistants. They really handle multifunctional process automation. So multiple steps of recruiting, multiple steps of learning, multiple steps of onboarding, multiple steps of expense management, multiple steps of leadership development, multiple steps of talent mobility.

1:38Now, they're all at various different levels of maturity of this, but within a year, for sure, you'll have agents in your HCM platform that can do the work of multiple COEs in HR. And this is all about HR 2030 and the scenarios. We have 200 of them that are pretty much common across most companies. And they're scenarios that enable growth and adaptability and general company health on an ongoing basis. Number two, these new HCM platforms have incredibly easy to use conversational interfaces. So the old days of going to the HR business partner and asking the HR business partner to look something up for you because it's too hard to find it, are going to disappear, not overnight, but pretty quickly.

2:25If you look at Sana Core in Workday or Jewel Work from SAP, it's extraordinarily easy to do what you need to do. And employees will be spending more time in these HCM platforms, getting access to information, getting coaching, getting training, trying to figure out what to do next in their career, etc., scheduling their day, changing their shift, etc., than they ever would have in the past. And those interfaces are personalized and they manifest themselves in the platform or in a personal agent that might be something like the Microsoft Copilot. Number three, the HCM platforms of the future have embedded workforce benchmarking, labor market data in them.

3:10Now this is new. This isn't happening completely yet, but it's coming. In other words, once a company like Workday or SAP has agents running on behalf of you as an individual or you as a company, you're going to ask questions like, how does my pay compare to benchmarks in this city? Or what are the skills of the outside market in this job that I should be looking for? Now, that data will come from companies like us through Galileo, and we're now embedding Galileo into Workday and High Bob and other platforms, or, and it will come from labor market data providers. And these HCM companies, as much as they don't really operate like data companies, will become more and more focused on data.

3:55ADP, for example, has a data cloud that's incredibly extensive on pay benchmarking for small companies, all sorts of interesting things, including employee engagement data and more. Number four, these platforms will be application development platforms to help you build your own agents. No vendor will ever build all of the stuff that you need. It's just not going to happen, but you will be able to go into the system, whichever one you run, and easily build an agent of your own for yourself or for your company. And again, HR 2030 has a very good roadmap on how to do that and the characteristics and how to structure that and how to build an architecture around it.

4:35Josh Bersin: But you're going to be, as an HR department, building stuff very quickly. You may build it in Cloud, you may build it in Copilot, you may build it in ChatGPT, but it'll connect in an interface with the HCM platform. Number five, these HCM platforms will have integrated governance, security, alignment tools, monitoring tools, and all sorts of management tools for these agents. Now, that stuff will also be available for the rest of the organization and general tools that the company has as a whole. But the HCM platform is going to have a particularly good number of them because the agents running in the HR domain are like workers.

5:15They're like employees. So the HCM platform itself is not just a platform to manage people. It's a platform to manage highly intelligent, enduring, either static or dynamic or what we might call ambient agents that do work. So these platforms are now, in a sense, doing more things. Now, there's a couple of major, major industry-wide implications of this. First is, I actually think the market is going to consolidate. If you're a vendor with an employee engagement platform, a survey platform, a training platform, a coaching platform, an assessment platform, you may have a very, very creative, pioneering, extremely powerful tool.

6:01But if the customer is using one of these integrated platforms and they have all of this data in their HCM platform that is now well organized for these kinds of applications, they're going to bake you off as a functional software company against their ability to either build on their own what you have or use the tools from the vendors. Now, each of the big vendors is at different stages of evolution in this, so they haven't all built out all these peripheral applications yet. But if it's that easy to build applications for us, it's even easier for them. I talked to Joel Hellmark at SANA this last week at Workday,

6:41Josh Bersin: and he said they're building production agents in a week or two, which they can sell as products. So these days of the third-party small startup market moving faster than the big HCM vendors may be coming to an end. And I'm not saying the innovation is going to stop, but I think more and more of you that work or start small companies are going to have to look at being acquired or ganging together with mid-sized market vendors because it's going to be easier and easier for them to build things. And for you as a corporate buyer who is looking at an average of 104, 105, 110 different HR systems, you're going to be able consolidate a lot more of these into this much more open, functional, data-rich, agentic platform.

7:28The second massive implication of this fundamental change is if this happens, and I'm very sure that it will, the HCM vendor's revenues are going to go up a lot. You are going to pay more money

7:43Josh Bersin: for your HCM stuff, but you're also going to get more value. See, the problem we've had for all of my career in this space is these software tools are or have been primarily really good record keeping systems. And so you do need them. You need the ATS, you need the LMS, you need the HRMS, you need the payroll system, you need the workflows, but you can't monetize the value of them. So every dollar you spent on a software vendor or a consultant to run this thing was pretty much a cost, an expense, and it was very hard to compare one vendor or another for value. So you tended to try to go to the one that was either the cheapest or the easiest to use and the easiest to implement that had the most integration with your company.

8:28Josh Bersin: And even though a lot of them come from vendors that have cross-functional suites, the cross-functional integration has been very, very light. You know, in fact, until this year, I really never saw SAP clearly demonstrate the value of success factors with the rest of their suite in very many use cases. Now they're starting to do that now that they have AI. Same thing from Workday, same thing from Oracle, same thing from the others. UKG, for example, can show you how an employee who's trying to reschedule their shift or wants to make more money can look into the system and look at other roles and jobs to get promoted and take certain shifts that will help them move on a path to a higher hourly wage.

9:09Josh Bersin: That's a cross-functional application right there. Okay, so then you say to yourself, well, how much money is this going to cost and what is the return on investment likely to be? Now, in HR 2030, we've modeled this all out. And the use cases for higher cost of HCM tend to be in the area of growth, not cost reduction. There's some in cost reduction, reducing the size of a call center, for example. But then that tends to be more of a one-time saving. But if you look at faster time to market, faster time to productivity for employees, higher quality of hire, deeper skills, better understanding of critical capabilities and high performers, faster adoption of new leadership models.

9:52Josh Bersin: Those are growth scenarios that help your company to grow. Now, I did a little bit of analysis of this, and it's a very back-of-the-envelope calculation, but just to give you a sense of the numbers here. In the United States, there are 165 million roughly workers, and this is just U.S. Around the world, there's three or four times that many. So you can scale this up as much as you'd like. Let's assume that there's some kind of a theoretical transaction where an employee goes into the HCM, an employee I'm talking about, not an HR person, and says, I want to book my time off and do a few administrative things.

10:25Josh Bersin: And while I'm here, I'd like to know what I can do to advance my career in this company and possibly either get promoted or make more money. And the system goes in and it handles those transactions. And then it looks around at the person's job and their performance history and says, you know, here's a couple of career paths for you. If you took this type of work and this kind of assignment, you could have this kind of career path. If you take these kinds of courses and certifications and licenses, you could have this kind of a career path. Here's some people you could use as mentors. What would you like to do?

10:56Josh Bersin: And the employee says, well, I'd like to take an assignment in this kind of department. Would you please take a look at what's available? And also, I'd like to take some of these courses. And the system does that work for the employee. Forget about the manager. The manager use cases are even bigger. That transaction will probably cost the HCM provider in terms of token cost around 20 to 40 cents, maybe more, maybe less, depending on how well their routing works and what their infrastructure relationships are like. But it's in the dollar or less. And so they will and then they will charge you, let's assume, twice that to make up their cost of engineering and marketing and sales and all the stuff that costs them to bring you the whole product.

11:38Josh Bersin: So your price that you will pay for that might be 80 cents, might be a dollar. You know, it'll be something around those lines. Now, take the 165 million people. By the way, a lot of those people will not use these systems for that, but they'll use it for workforce scheduling or they'll use it for well-being issues or they'll use it for complaints or they'll use it for grievances or they'll use it for looking up policies or things like that. So you take the 165 million people, and let's assume people go into the system twice per week and they do this kind of stuff. That is about an$8 to$9 billion new revenue market.

12:19Josh Bersin: New revenue, because these are going to be consumption costs that you're going to pay that you're not paying today. Because the software vendors, at least today, are going to charge you a license fee to have the platform, and then they're going to charge you a consumption fee for these AI use cases. Now, the cost of that compute is going to go down. We talked to Garrett at Workday about it just this last week, and he thinks the engineering of the cost delivery of this has barely started and it's going to go down a lot. This new tool called JEV, which is a new family of high-performance, very low-latency interaction tools for more simple transactions, And even Jupiter from Galileo is optimized to reduce the token usage by, I don't know, a factor of 10 or 100.

13:06Josh Bersin: So much, much less compute will be used because of all these software innovations. But nevertheless, this is a lot of new revenue. Now, I don't think the financial community understands this yet because the stock price of Workday, for example, has been flat. It hasn't done much. And they haven't really proven they can monetize this yet. But I think this is going to happen. I just don't see any way around it. Now, for you as a customer of this, you're probably already saying to yourself, I don't have any budget for any of this. I don't have any budget for price increases. I don't have any budget for usage costs.

13:40Josh Bersin: I don't have any budget for runaway tokens. And my company is telling me to cut HR right now and to be more productive. Well, that gets back to HR 2030 and all the work we've been doing for the last year and a half or two years. You're going to have to look at these agentic solutions as business improvement tools, business performance improvement tools, not productivity tools to make an individual worker slightly more productive. And that's a very, very different way of thinking about AI. And it's something we've been talking about a lot. And we talk about it a lot in our new book is the real benefit of AI is not cutting headcount, which I don't think is going to happen, by the way, you're going to you're going to need people and there's going to be a labor shortage.

14:25Josh Bersin: It is the growth of your company or faster customer service or better deployment or better customer experience for your customers. Suppose you're a hotel chain and there's a big tornado or a storm or some kind of an interaction that's unpredictable and you want to do something special for all of your guests and you want to make more hotels available to fill more beds, etc. and you need to redeploy people. Let's suppose you're a hospital and there's a massive accident on the freeway and all sorts of people come rushing into the hospital and need help, and you can faster, hire, deploy, reshift people to meet those demands, that's a revenue opportunity.

15:03Josh Bersin: The way Chipotle uses a paradox from Workday to faster, hire into their burrito stores, that's a revenue opportunity. So the cost justification or benefit of these agentic platforms is very, very different. We're in the growth enablement business. dynamic enablement for growth. So the HCM market, to me, is going to really, really change. Now, one of the maybe a little bit sad parts of this is, and I don't want to overstate this, but I think it's going to happen, is the level of innovation from small companies is probably going to go down because the actual cost of building a full stack HCM AI agentic system is actually pretty high.

15:46Josh Bersin: It may seem like you can just whip together an agent and go out there and sell it. But if you're a provider, you have to deal with data management issues, security, integration with other systems, making sure your agent is trained for different use cases in different industries, quality of service, and all of the engineering innovations that are going on in AI. You're stuck with all that stuff now. So just because you can whip something up on cursor or one of these lovable tools and make it look good doesn't mean you're going to be able to sell it to lots and lots of companies. If you look at the actual engineering going on under the covers at SAP or Workday or Oracle, it's pretty extensive.

16:24Josh Bersin: So I think we're going to move back towards a more consolidated market. And you're going to be buying companies like High Bob or Darwin Box or Oracle or Workday or SAP or whichever ones you decide are the best for your company or UKG or Infor or Dayforce or whatever. And they are going to be business platforms. I mean, I really see this as business 2030, not HR 2030, as I talked about a couple of podcasts ago. And this is going to be good for the big vendors. And it's a natural evolution of this market. Now, maybe three, four, five years from now, when this becomes a little more mature, there'll be new startups that can compete with the big vendors that exist.

17:05Josh Bersin: But I don't have a lot of personally confidence that somebody's going to build an HCM platform from scratch and two years from now they're going to overtake Workday. I just do not see that happening with the rate of investment needed here, the rate of expertise needed, and the rate of value they create. You know, the final thing I'll just mention along this topic is you've been using HR platforms for many years. You've considered them to be kind of administrative systems. You have learning management and applicant tracking, and you have engagement tools, and you have skills models, and you have payroll and you have transactional workflow, compliance and all this stuff, these business rules that you've built into there.

17:44Josh Bersin: And, you know, it's been sort of a little bit like a boat anchor. It's something you know you need. It's hard to manage it. It's expensive. You need a lot of staff. And we never really thought of it as a ROI type of system at all, really. It was just something we had to have to run our company, period. And we asked for new features like skills models and task analysis, but that wasn't really the main thing it was there for. It was just there to help the company do whatever the company is trying to do. I think that's going to change a lot. I think these systems are inevitably going to be capacity development and capacity management systems.

18:23Josh Bersin: If you're a pharmaceutical company and you build a bunch of research agents that can do extraordinarily high-powered, genetic-oriented research in R &D, and they can go out into the outside world, as I mentioned in another podcast, and they can benchmark the work that you're doing inside your company against third parties, and you're training these month by month, year by year, and these agents are getting smarter and smarter. these are very valuable employees, these agents. We need to take track of them. We need to use them. We need to tell people about them. We need to connect them together.

18:58Josh Bersin: We need to harness them in the right bigger workflows. I mean, we're barely beginning to scratch the surface of the very industry-specific business applications you're going to use for these custom agents that you build inside your company. Forget about the ones that come from the vendors. And you're going to need a platform to manage that stuff. So even though the size of the human workforce in your company may not grow as much as it has in the past because we have more productivity and super worker effect going on, the actual amount of capacity work going on is going to be higher and it'll take the form of agents and super agents.

19:35And so the HCM platform is going to do more work and be more valuable at training and monitoring and aligning and utilizing and planning this agentic part of your workforce.

19:49Josh Bersin: So those of you that are financial investors or stock market types or CFOs who want to invest in HCM, I think the HCM providers are going into a new world here that's actually pretty cool from their standpoint as a software company and a data provider, but also as a value in the stock market. Now, that will open up more and more opportunities for new companies and new innovations for sure. But this is a big, big change in the market. So I'm going to talk much more about this. I only have 45 minutes at Unleash. And any one of you who are either investor or software company or HR professional or corporate CHRO or IT professional want to talk about it, just reach out to us, you guys.

20:36Josh Bersin: This is a very exciting time, and we are here to help you. Thanks a lot. Have a good weekend.