The Future of Talent Acquisition
Five Talent Acquisition Trends to Watch
With a billion dollars coming into talent acquisition from the venture capital community within the last two years, they have to be seeing something, right? Well, yes and no. For one, there’s always an appetite for talent acquisition. It’s a problem that’s easily understood yet difficult to solve. Not just that, but there’s also a consumer-facing component to hiring issues that people identify with. Everyone has had a bad hiring experience or knows someone who has.
Many are easy problems to identify, but most of them are hard to fix. This cyclical nature of identifying and then (mostly) failing to find solutions continues to churn new investment into recruiting.
What trends actually matter to investors and what problems should vendors be solving if they’re looking to gain market share and investor interest? Here are five you should be paying attention to:
1. Predictive Data and Recruiting
The robots aren’t taking over — yet. Until they do, computational power and algorithmic sophistication continue to help us make smarter decisions. “Big data” was the catchphrase just a few years ago. Infusing timely and useful data into the hiring process is happening across all areas of talent acquisition and it isn’t slowing down — though, in the case of big data sourcing engine Gild, it may have shown that it isn’t growing as fast as many suspect.
While newer vendors are thinking deeply about better decision-making at critical steps in the recruiting process and rolling it out as an integral part of their products, the old guard of talent acquisition solutions isn’t moving so quickly. Brand-new companies like Restless Bandit are doing really interesting work by mining applicant tracking systems for new information and insights. Entelo, an early entrant in this space, continues to quietly roll forward with new functionality. For others, like in the case of Indeed, they may have the data and are using it but aren’t getting the message into the market clearly.
Perhaps the question on everyone’s mind is: What’s going to happen with all of that LinkedIn data? Although the spigot had been slowly closing for some time, it always seemed like it would be tough for them to cut it off completely. With Microsoft in the driver’s seat, what happens to data that feeds everything from CRMs to recruiting systems?
2. ATS Isn’t Enough
There was a time when an ATS might be the only technology a recruiting department used. Now? ATS is essentially payroll for recruiting: You need to have it and you need to get it right, but other technology is starting to take control.
Bombastic thought leaders in talent acquisition love to tell the story of the coming death of the ATS almost as much as they love to tell you about the end of job boards. We see a big connection point from the ATS back through the talent management system that so many recruiters love to hate. For example, if you could get the characteristics of the top-performing salespeople in a particular role and map that to candidate characteristics, that could be a huge opportunity. We believe that’s where the next big innovation may come from. If we can truly benchmark and discover what a great hire may look like, that could be a truly amazing technology. JazzHR and others are pursuing this vision.
That doesn’t exist yet, so all of the truly interesting things are happening around the ATS. Candidate management isn’t going away, but it might be getting too burdened by process to truly make a difference.
3. Matters of Scale
How many people do you need to hire this month or this quarter? For most organizations, the answer varies wildly. Dealing with these fluctuations — scaling up to meet seasonal or growth demands without taking on cost or overhead that can’t throttle down — is a challenge rarely faced by other HR and HCM functions. How can technology help? And how can a mix of internal and external resources assist?
To compound the problem, the rise of the gig economy has recruitment departments looking beyond traditional FTEs and contractors. As a result, tight integrations beyond recruiting technology are required, including payroll, benefits, and forecasting tools. It’s still early days, but people in the recruiting and workforce management functions are going to get to know each other a lot better.
Few organizations handle any of this well. We see organizations taking a sophisticated approach of mixing in-house recruiters with staffing and RPO organizations — as well as tapping into workforce management data to better anticipate the more predictable aspects of it. In our opinion, long-term partnerships with RPO organizations are the best way enterprise organizations are coping with the ups and downs of recruiting.
4. A Disappearing Services and Technology Divide
Are you a technology company or a services company? The answer used to be you were one or the other — never both. However, pure services and pure technology models are slowly going away. In its place is a model where tech companies are offering more and more consulting and services, and service firms are enabling their solutions with deep technology.
The play for RPO is clear. Staffing used to force a clean handoff to an internal team. Now RPOs are embedded so deep in that technology that the handoff can happen anytime — if it happens at all — before onboarding.
The real question is for everyone else. Buyers want more guidance from vendors, and — like it or not — tech companies are not in a position to say no. “Customer success” can be a virtuous cycle that improves satisfaction, reduces churn, and generally increases the stickiness of the software. But investors and shareholders are more dubious. It’s tough to scale, hard to monetize, erodes profit margins, and doesn’t enhance valuations.
The real opportunity is to provide a base level of service, then use more advanced and “higher touch” options as upsells to drive revenue. The trick is managing expectations and margins. It’s easy to say but tougher to do.
5. Market Confusion
Talent acquisition providers are trying to figure out the bounds of market categorization. We are, too. It would be much easier to just neatly fit everything in a box with a tidy bow and call it a day. That’s not the case at all.
That leaves buyers not limiting themselves to a particular solution category and instead looking at specific solutions and outcomes that can change the competitive landscape for vendors from deal to deal. A company like iCIMS might be in a bake-off between a SuccessFactors suite and Jobvite at one company and SmashFly and Avature at another.
There’s something for everyone, and that spreads the market pretty thin. Even if you’re more bullish on the size of the market — like we are — there are still hundreds and hundreds of companies out there, and talent acquisition is where we see the highest number of investments (but a lower dollar figure per deal).
So what do these trends mean?
For all the talk about how fast-moving talent acquisition is, we’d be remiss if we didn’t mention how there hasn’t truly been a revolutionary approach in talent acquisition yet. The value proposition is largely the same across the major categories as it has been for decades. Newspapers turned into job boards, file cabinets turned into ATSs, and background checks don’t take weeks. Pat yourselves on the back.
Artificial intelligence (the real, honest-to-goodness kind) has the ability to dramatically shift this conversation, of course. But the bigger question is what do we do with all of these people? Candidates want a better overall experience, but for the most part, they aren’t getting it. The Candidate Experience Awards has a global presence and the history of the awards shows that even organizing a solution around this shift is still a relatively novel and rare achievement — one that is super-appreciated by everyone.
This massive leap forward only happens when technology and services are working hand in hand. That still feels like a distant goal. At least directionally, all the pieces are there to make this jump.
The talent acquisition category as a whole is squarely in the “mature” market stage. However, subcategories within talent acquisition — like candidate connection technologies or some of the newer candidate intelligence solutions — are “early adopter” and “early mainstream” solutions. How is this possible? While everyone has a talent acquisition solution, not everyone has the talent acquisition solution they’ll be using tomorrow. Established players are all playing catch-up — and in some cases, are being left behind.
To understand how the talent acquisition market is changing, it helps to take a snapshot of where the market is today. Here, you’ll see how the categories are starting to overlap.
These solutions facilitate the discovery of candidates, typically job boards, sourcing tools, and recruitment marketing applications.
These solutions connect organizations and candidates in a more holistic manner or let organizations tap a community of like-minded individuals.
Example: Stack Overflow
These solutions manage the process of hiring employees, rejecting candidates, and nurturing relationships.
These solutions vet candidates, especially focused on background screenings and assessments.
Recruitment Process Outsourcing (RPO)
These solutions and services supplement organizations’ hiring initiatives with a strategic and ongoing approach.
Our Call on These Categories
We are bullish on …
Candidate Discovery. There are more channels, not less, to find and connect with candidates these days. The momentum in this category will continue to grow. The real question is whether anyone can move in on the tremendous spend that LinkedIn and Indeed are pulling from the organizations.
RPO. Organizations are seeing significant value in the long-term relationship and reasonable cost structure and predictability that RPOs offer. Now, organizations are getting very specialized recruitment skills and tools that add significant value and stickiness to the solution.
Candidate Intelligence. Unstructured interviews are among the least reliable ways to evaluate and hire employees. Especially for assessments, there’s a big market opportunity going forward in this area.
We are bearish on …
Candidate Management. An absolute necessity for organizations, but it’s become less important what you use for candidate management and more important what you surround it with. CRM was supposed to help, but no company has done a great job differentiating itself here.
Niche Solutions. Where we saw dozens of video interviewing solutions a few years ago, now we see that capability being added natively to some candidate management platforms. Niche recruiting tools have a couple of paths to success, but none of them will make much noise staying put.
We see high potential in …
Candidate Connection. Candidate experience is becoming ultra-important across a number of diverse organizations. There has to be a better way to create an experience that’s sustainable and affordable.
Vendor Management. Human resources is starting to take more responsibility for total workforce management — including temporary and contract staff. That means talent acquisition needs solutions to manage staffing contracts.
Onboarding. Fixing the handoff between recruiting and HR is critical for the candidate experience and onboarding solutions — both stand-alone and those incorporated as part of a suite — can be a strategic part of a talent management strategy.
No surprise: Talent acquisition is a huge category and criminally underestimated by many market followers. The Starr Conspiracy Intelligence Unit estimates the size of the current total addressable market in talent acquisition at $74 billion dollars, with just under 30 percent current market penetration — a number that is just over $20 billion dollars.
The breakdown across the categories shows that Candidate Discovery solutions lead the way, thanks to a big boost from LinkedIn, along with RPO and candidate management technology. The other talent acquisition category, representing everything from talent acquisition solutions driven in talent management suites to niche solutions, makes up the rest of this substantial market.
When you break down each of the major categories covered in this brandscape, there is a wide range of market penetration. Candidate intelligence leads the way, with nearly 40 percent market penetration — primarily due to the number of background checks already taking place. Candidate connection, our newest category, has the most potential market ground to gain, but somewhat surprisingly, we still see a lot of room for growth in candidate management solutions.
Talent acquisition is a mature category, but that doesn’t mean there isn’t significant room for the right solution to grow market share without necessarily going for a dollar-for-dollar replacement. Part of the pent-up demand is because there has simply been a lack of significant innovation on the product side, but another issue is the investment profile for talent acquisition technologies. Investors have spent a lot of time spreading money around the market, making small bets on many talent acquisition technologies.
The end result is predictable. There aren’t a lot of big winner or losers. Instead, solutions can’t get all the traction they need to make a market impact, but they don’t get underfunded enough to fail right away. That leaves many solutions struggling to grow in a crowded and confusing market.
Evaluating market share in talent acquisition is relatively straightforward, but there are complications. For example, some companies cross over into multiple categories (such as recruitment marketing platform SmashFly, which is also a pretty well-regarded CRM solution). For this evaluation, we use the categories where each company primarily competes to measure market share.
No shock, LinkedIn is a market share leader, gobbling up nearly a quarter of the current market. With the recent acquisition by Microsoft, it’s debatable how solid that footing is. That being said, there aren’t a lot of strong competitors in this space. CareerBuilder continues to drive primarily talent acquisition revenue, even as its job site traffic slags compared with Indeed. But that might change, as its recent acquisition of WORKTERRA hints at continued diversification of its business. Glassdoor could be another insurgent here as it challenges Indeed with a quality-over-quantity approach. We’d say this category is up for disruption, but who is going to get the resources they need to challenge the status quo?
This subcategory is still too small to measure market share, but we’re looking at Stack Overflow, Elevated Careers, and randrr to take the leadership mantle early in the formation of this category. They all take a more holistic approach to connecting candidates and organizations in different ways — through a community approach, matching, or radical transparency of the recruitment process. This might be less about finding a winner and more about figuring out which approaches organizations have an appetite for.
iCIMS is the stand-alone category leader in candidate management and has been for several years since the emergence (and subsequent acquisitions) of the comprehensive talent management suite. This category is ripe for disruption because category leaders took their foot off the pedal a bit and were happy to step back into a more comfortable marketing cadence. Bullhorn will make waves outside of talent acquisition and Greenhouse and Lever are the current darlings of the category. But we have to wonder: Is this it? A maturing category is one thing, but it feels like the whole category might need a shake-up.
Candidate Intelligence is dominated by background check providers. Sterling Talent Solutions has pursued an aggressive acquisition strategy, similar to the one HireRight followed a few years ago. We hope it goes more smoothly. There will continue to be consolidation in this market — everyone who needs a background check provider has one, so growth comes from squeezing more margin or building out ancillary services. We’re excited about the assessment market, where we see HireVue starting to really shine — along with companies like HackerRank and Wonderlic. We see such broad potential in this category because hiring is still such a crapshoot, and testing and interview tools help add a little more structure to that process.
Recruitment Process Outsourcing
Unlike many of these areas, recruitment process outsourcing has been studied by more than its fair share of analysts in the business outsourcing community. From what we can tell, our numbers line up fairly well with what other analysts have found, with PeopleScout, ManpowerGroup, and Randstad Sourceright leading the pack. What’s more interesting to us is just how close it is. Across market share and brand awareness numbers, the top 10 global firms are all pretty tightly bunched. Firms like Cielo have punched above their weight class in the branding awareness category, but it has to — after all, many of these brands rely on their staffing or technology offering to help give them brand lift.
Within the $51 billion addressable market opportunity in candidate discovery, candidate connection, candidate management, candidate intelligence, and RPO, we predict plenty of cannibalization, cross-pollination, and growth. For smaller market share players, 100 percent year-over-year (YOY) growth will be the minimum. For the largest competitive players, 15 to 20 percent YOY growth will be possible. Explosive growth will be the rule, with an average compound annual growth rate (CAGR) of 12 to 15 percent for all players.
We believe candidate management has the biggest upside in this category, but the candidate discovery total addressable market is, as a total number, enormous. Next-generation candidate management has to be more than just a basic candidate system of record, tracking records from one database to the next. This category is long overdue for a breakthrough that brings valuable ATS solutions more solidly into the small and midsize markets. As a result, we believe that the total addressable market for the measurement category could increase as much as six times within five years.
Where Is the Market Headed?
Our crystal ball is still a little hazy, but barring a major global recession, talent acquisition should continue its double-digit CAGR growth. The biggest players in this market — LinkedIn and the folks from the major talent management suites with talent acquisition solutions — have all hedged their bets beyond talent acquisition. The rest of the market still has a volatile landscape to contend with.
With All of This in Mind, Vendors, Buyers, and Investors Need to Consider …
For HCM vendors …
For mature solutions, the need to continually stay fresh will always be there, and in talent acquisition, it’s very easy to look old compared with the constant flow of new entrants. Beyond product, though, brand leaders need to continue their investment in brand-building activities. One of the most recognized brands in talent acquisition is one that isn’t actively being marketed: Taleo.
For emerging vendors, we want to see serious investment in brand in this market. Given the number of solutions out there, growth and brand power should be top priorities as early as possible. We’ve seen companies like Lever do it with success.
For HCM investors …
First of all, thanks for the heavy investment in this market. That said, the hedging in talent acquisition by spreading money around a mile wide and an inch deep seems like an opportunity for some strategic big bets. There are a lot of investors interested in recruiting, and there’s investor churn that keeps the investment community competitive. That won’t change.
Every entrepreneur or founder has had an issue finding the right talent. Most of them don’t have a compelling solution to solve it. The brands that make it out of incubation have a hard row to hoe and need more resources upfront to get a better product to market and put together a brand blitz once they have something worth selling.
For HCM buyers …
One enterprise organization we recently spoke with has more than two dozen talent acquisition systems. We won’t suggest this — they didn’t, either. You can have multiple tools in your talent acquisition arsenal, but most of the ones we see today are poorly thought out and put together.
The time to start re-evaluating your recruiting technology stack is now. Start with your core needs and outcomes and work outward from there. Talent acquisition buyers in particular aren’t going to abandon a best-of-breed approach to technology, but integrations have to start taking a greater precedent outside of, “We’ll figure that out … later.”