HR Tech Trends: The State Of The Digital Transformation In HR
Digitalization, digital transformation, and the ever more advanced technologies are now ubiquitous in every industry, from hospitality to healthcare. But what do the companies from all these industries have in common besides the use of technology? They all have HR departments.
Naturally, with millions of employees to be managed in the US alone, the question of digital transformation in HR has been one of the most pressing ones for years. And it’s now safe to say that HR digital transformation is well underway. Learn more about digital transformation in HR, how it can benefit your business, and what other HR tech trends are worth your attention.
Managing human resources: What are the current options?
It’s easy to think that with all the technology available today, companies are transforming their HR operations and moving them to the digital realm at a rapid pace. However, the reality is different. As of 2023, only 58% of companies use technology to manage human resources. So what are the options modern companies have when it comes to HR management?
- Manual. Managing human resources manually is how it has been done for decades until companies began adopting digital technologies. Manual HR management is associated with large amounts of paperwork, and it’s also prone to error. Moreover, even storing the paperwork and finding the necessary data can often prove challenging.
- On-site digital. An HR department operating in a medium to large-sized company may find that a custom-built, on-site HRM solution is the best option for their needs. This solution will always incorporate every single feature requested by the HR department, which means it will fit the company’s needs better than an out-of-the-box solution. The downside is that on-site solutions require a lot of on-site computing power.
- Cloud digital. In 2023, for most industries and companies, a shift to digital means a shift to cloud computing. Cloud-based digital HR solutions are typically available as SaaS services, which have countless advantages over traditional, on-premise software. Moreover, SaaS can be a more cost-effective option for small businesses that don’t want to invest in building a solution from scratch.
How the HR management system has changed over the years
Although less than 60% of companies have adopted HR technology to date, the very concept of HR tech solutions companies are using to strengthen their HR processes has existed for over five decades.
The first HR software was mostly dealing with the financial side of operations: in the early 1970s, large companies were already using software to manage payroll. However, this software required bulky and expensive mainframes, which few companies could afford. Moreover, the software still typically produced basic printed reports, so it wasn’t a fully digital solution as we know it today.
The introduction of ERP technology to HR management became the next big milestone for the industry. Specifically, the release of a product called SAP R/2 in 1979 allowed organizations to entrust even more daily tasks to the software solution. SAP R/2 was a much more versatile tool compared to the early days of HR tech.
Less than a decade later, in 1987, the HR tech industry got another big push thanks to the PeopleSoft solution. This was the first major HR-related software product that required a client-server rather than a mainframe for its operation. PeopleSoft also became the first software solution developed specifically for the HR industry and according to the HR business requirements, as opposed to previously popular solutions that were distributed as part of an ERP package.
In the following decade, human resource management technology evolved further, with large-scale software industry players such as Oracle and JD Edwards releasing their own versions of HR ERPs with more robust functionality and more flexibility when it came to installing and using the software.
However, the most revolutionary stage of the HRM adoption process was probably the shift from client-side applications to the web. With the software no longer requiring installation on each user’s computer, companies got even more freedom in assigning HR-related tasks. Even employees outside of the HR department could now successfully interact with the software. And the HR tech industry has only gotten more powerful and more interesting to watch from there, with modern HRM solutions assisting with pretty much everything regarding human resources.
Digital transformation vs. digitalization: Are they the same thing?
At first glance, the terms “digital transformation” and “digitalization” look pretty similar, so much so that some use them interchangeably. A third term, “digitization,” is also often linked to the first two. So how similar are these concepts and what does each of them mean?
Digitization is the narrowest concept out of the three. It simply means a switch from manual to digital ways of doing things. For example, a company may introduce digitization by going for an online scheduling tool instead of printing a shift schedule every day for its frontline employees.
However, digitization is hardly possible without digitalization, which is the process of switching to a digital business, to the point where the whole business model changes. The same digital shift schedule is not going to be worth much without the technology to support it and to realize all the benefits of the move. Digitalization requires a much deeper involvement from the management, a change in the operational framework, and a precise alignment with the overall business objectives.
Finally, digital transformation is the process of introducing digital solutions to the company’s operations with the goal of improving both employee and customer processes. Two things separate digital transformation from other digital changes outlined in this section: first, it happens on a much larger scale; second, it is people-centered, meaning that it serves the company’s human resources first and foremost.
How to know it’s time for a digital transformation
Companies go for a digital transformation of their HR operations for all kinds of reasons. Surprisingly enough, many companies fall victim to peer pressure: with so many of their fellow organizations digitalizing their HR processes and seemingly benefiting from it, the pressure to also go digital is felt across companies of all sizes and maturity stages. However, the golden rule of digital transformation is that it needs to happen only when it makes business sense for the company.
At the same time, there are some criteria an organization has to meet before embarking on a digital transformation journey. Here is a checklist you’ll need to complete if you want the transition to be smooth and bring your company the anticipated benefits:
- 50+ employees. When the company has fewer than 50 employees, the effect of a digital transformation may not be as visible as it is with a larger staff. Moreover, the return on investment of the transformation may not live up to the expectations.
- An existing HRIS. As we’ve covered earlier in our article, the HR digital transformation is not the beginning of a digital journey — it’s merely an important milestone. In order for the transformation to be successful, the company needs to have a robust HRIS in place and already manage digital employee data that will then be transferred to the new software.
- A strong IT department. While the process and the goals of a digital transformation are typically outlined by the HR department, the IT department is a vital part of the journey. They will be responsible for establishing the infrastructure, installing and managing the software, and assisting other departments in adopting the new technology.
- Data management capabilities. Digital transformation in HR revolves around data, but the numbers alone won’t be enough to ensure effective digitalization. You also need to make sure that either your team members are capable of handling large amounts of data or that you have an external data expert to help you with this task.
- Clearly defined goals. Going on an often expensive, resource-intensive journey of an HR digital transformation just because other companies are doing it is hardly a good strategy. And “modernization” is also too broad of a concept to be a real goal of digital transformation. Your organization needs to know why exactly they are doing it. A well-defined goal would be something like “to increase employee retention by 30%” or “to speed up the hiring process by 20%.”
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Example of an HR digital transformation
The task of leading a digital transformation in HR may seem daunting at first, but the truth is that the transformation does not necessarily involve every single department or every single HR operation. Digital transformation can happen locally and concern any aspect of human resource management the company wants to take to the next level. Here are some of the possible ways to introduce HR transformation at your organization.
1. AI-based recruiting chatbots
Transforming the recruitment process is meant to save time not only for the HR department, but also for the applicants. This is why recruiting chatbots, which utilize AI technology, are now growing in popularity. With the help of a chatbot, a potential candidate can get answers to their questions about the job and the company, apply for a position, get guided through the next steps of the process, schedule interviews, and more. Chatbots can also be used on job fairs and other career events, where it’s important to screen many candidates quickly.
2. Applicant tracking system
On average, one corporate job opening will attract 250 applicants, and only 4 to 6 of them will get invited to an interview. This means that while a large number of the applicants (up to 88% to be precise) are unqualified for the job, it can take around 23 hours just to screen all the resumes manually before a suitable candidate is found. An innovative applicant tracking system can significantly speed up the selection process and save valuable time for the HR team.
3. Digital onboarding
The current popularity of remote and hybrid work has countless benefits that we are not going to talk about right now. But what new remote hires are often missing out on is a proper onboarding process. With limited onboarding opportunities for remote employees, they can feel a disconnect between themselves and the company, and the retention rate can also go down. This is where digital onboarding solutions come in handy. By creating a personalized onboarding journey for each new employee, the HR department can make them feel like part of the team.
4. AI-based HR chatbots
Once a candidate becomes an employee, there is still a place in the HR management system for AI-powered chatbots. With their help, the HR department can provide answers to the most frequently asked questions without actually spending time talking to every employee. HR chatbots can also prove helpful for companies that embrace remote work and asynchronous communication but still need to collect data from employees or engage in other HR-related activities.
5. Self-service employee platform
In many companies, employees have to go to HR for a variety of tasks, including requesting paid time off, finding out how many days off they have left, and obtaining various forms and paperwork. A self-service platform can save a lot of time and effort both for the employees and the HR department. Plus, the functionality of such platforms can be expanded significantly to include performance management, training, company surveys, knowledge sharing, and more.
Benefits of a digital transformation in HR: Is it worth it?
Digital transformation in HR has been going on for years and still remains one of the hottest topics in the community. With 97% of companies planning to invest more in the digitalization of their HR processes, it’s clear that the subject of HR transformation is what thousands of managers are at least considering. And it’s not just because digital transformation is a trendy thing to do, but also because it brings some sizable benefits to the organization. Here are the biggest reasons to embark on an HR digital transformation journey.
1. Informed decision-making
By using the processing power of a digital HR solution, the team can make better decisions at every stage of HR operations. From identifying the most urgent positions that need to be filled and selecting the candidates who are the perfect fit for the organization to tracking employee effectiveness and projecting the company’s HR-related moves for the near future, digital HR tools are capable of it all.
2. HR system consolidation
The majority of companies already use digital solutions, at least for some aspects of their HR operations. The problem is that companies often use single-purpose tools for each task, such as recruitment, attendance tracking, benefits, and payroll. The typical outcome is that the employees are sometimes confused when using multiple tools, which can lead to errors and loss of data. A universal HR solution helps consolidate all HR operations in one convenient tool.
3. Better execution of the company’s strategy
A well-selected, well-built HR system can help the company better align its short-term and long-term goals with human resource operations. For example, when the company is planning to venture into a new industry or market, the data obtained from the HR system can instantly indicate the employees with the most relevant skills for the new venture, or employees who need additional training before they can make the career move.
4. Automation of repetitive tasks
When the HR team is busy doing manual, repetitive tasks day in and day out, it can have a string of negative effects on the organization, including loss of productivity, growing dissatisfaction, and human error. Digital HR solutions allow the HR department to automate most of those tasks. As a result, the HR team can focus on more strategic tasks in front of them and reduce the probability of human error where it can hurt the most.
5. Higher employee satisfaction
A digital HR solution can improve the experience of each employee before they even become an employee. Companies can streamline and speed up the hiring process, making it more convenient for the candidate, introduce better onboarding practices, achieve transparency when it comes to compensation and benefits, and track other aspects of employee satisfaction to see what can be improved.
Possible challenges of an HR digital transformation
In an ideal world, digital transformation in HR would be smooth sailing regardless of the company’s size, the level of expertise of its employees, or other factors that can influence the success of the whole venture. However, things don’t always happen according to the ideal scenario. An HR digital transformation project can pose certain challenges for the organization, although most of them can be avoided with careful planning. Here are a few of the most common challenges companies can face when adopting HR digital transformation.
1. Lack of technical expertise
Although digital transformation is not just about technical knowledge, the lack of in-depth technical expertise can significantly slow down the adoption of the new approach or even stop the project in its tracks. A firm grasp of technical details is essential at every stage of the process, from selecting the tools to helping other employees get the hang of them.
2. Resistance from the employees
People tend to get attached to the way they are doing things, even if it’s outdated or simply not the most comfortable method. This is why employees can often feel scared of the digital transformation and therefore display zero enthusiasm for the change. The most effective solution for this problem is for the senior team members to lead by example and demonstrate the benefits of switching to new technology for everyone to see.
3. Resistance from the management
While the resistance to change in regular staff members can be understandable and relatively easily resolved, the resistance to change in the management circle and the company’s C-suite can do a lot more damage than it initially appears to. There are different reasons why senior employees can oppose digital transformation, from being unprepared for the new level of transparency to the lack of desire to invest in the upgrade. The best way to convince them is to show all the possible resource-saving and profit-increasing opportunities.
4. Limited budget for transformation
When done right, HR digital transformation will bring significant benefits, both financial and otherwise, in the long run. But in the moment of adopting the transformation, the company will inevitably face certain expenses, which can include the cost of new software, the cost of training, the cost of upgrading the existing infrastructure, and so on. This is where the HR team’s ability to outline the business benefits of the transition will prove instrumental.
5. Lack of clear goals and leadership
One of the most vital requirements for the success of the digitalization process is the presence of a leader. This is typically the HR Director of the company or someone with a similar senior-level position and deep knowledge of the HR processes. This person will be able to avoid many of the problems linked to inadequate leadership, lack of clearly defined roles, and the situation where the whole transformation is happening just for the sake of transformation, not because of solid business goals.
Trends in human resource management we will witness in 2023
The transformation and modernization of the HR industry is an ongoing process, but every year brings us new trends in HR that can potentially change the whole landscape. Here are the biggest HR tech trends of 2023.
1. AI-based analytics tools
The ubiquity of Artificial Intelligence in 2022 and 2023 did not go unnoticed by the HR industry. Organizations are now beginning to use AI technology for a variety of purposes. One of its key uses is measuring employee satisfaction in real time through listening platforms and other sources of insights. By getting timely feedback and information on employee happiness, the management team can take appropriate action to increase employee retention.
2. Digital management of hybrid work
With 63% of high-growth businesses opting for hybrid work instead of traditional in-office or fully remote employment, it becomes even more challenging for companies to ensure an equally engaging and productive work environment for every employee regardless of their location. This is why technology is now playing a more vital role in hybrid work. Tools are helping organizations provide better communication opportunities, allocate tasks more effectively, and even do minor things like office space reservations and health checks.
3. Hyper-personalization
Hyper-personalization is a technology that is typically used by businesses to better connect with the customers through marketing, but it’s also now used in HR to increase the efficiency of the employees and make them happier at their job. Most employees thrive when performing certain duties but lose their mojo when facing other types of tasks. This is the problem that hyper-personalization is here to solve. By analyzing the employee’s performance in different work environments, a specialized HR tool can identify the areas where a particular employee can truly shine and the conditions that need to be met to ensure their maximum productivity.
4. AR and VR use in training
AR and VR technologies are steadily gaining popularity in dozens of industries, including HR. Specifically, one of the key 2023 trends in human resources is using these technologies for onboarding and training employees. With their help, the company can facilitate stronger brand loyalty, faster mastering of new skills, and higher employee buy-in at every level, so this technology is definitely worth investing in.
5. Mobile HR technology
Businesses are adopting mobile platforms for their HR-related needs at a fast pace. 71% of companies are now using mobile solutions for core HRMS tasks, but the potential uses of mobile HR services go beyond that. Other increasingly popular ways to employ mobile solutions in daily HR operations include sourcing and tracking applicants, onboarding and training on-site, performance management, collaboration between remote or hybrid teams, and employees spending time together outside of work.
Bottom line
The HR industry is currently going through one of the biggest transformations in history, and it’s all thanks to the advancement of technology and HR leaders finding more uses for technology within their organizations. Whether you are thinking about a complete HR digital transformation or simply want to upgrade certain aspects of your HR operations, technology is your friend.
Stay tuned for our next article on how to develop an HR management system that will meet all of your goals.
Frequently asked questions
What does HR tech mean?
HR tech, or human resource technology, is a cumulative term for all the software and connected hardware that is used for managing different tasks regarding human resources. This can include systems for sourcing candidates, tracking applicants, onboarding new employees, as well as managing payroll, benefits, and evaluating the performance of the employees.
What are the HR tech trends in 2023?
Some of the biggest tech trends of the HR industry we will get to see in 2023 include using technology for employer branding, the use of predictive analytics for more effective HR management, increased use of AI and VR at all stages of the hiring, onboarding, and training process, and employing technology to bridge the gap between in-office and remote work.
What is an example of digital transformation in HR?
The trend of introducing a digital transformation has been getting more and more popular in the past decade or so, and not just among tech companies, where such changes are completely natural, but also among companies working in completely different industries. Some of the well-known companies that have successfully gone through a digital transformation include Google, IBM, and Shell.
What are the benefits of HR digital transformation?
When done right, digital transformation can bring sizable benefits to every aspect of human resource management. Specifically, digital transformation can help with more efficient decision making, faster hiring and more effective onboarding, higher employee satisfaction and retention, stronger employer branding, and lower cost of HR in the long run.
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