Summary of findings

1. Employee engagement and experience vendors continue to dominate the PAT market. A full 42% of vendors in this year’s people analytics technology (PAT) study are in the employee engagement and experience category. In 2020, this percentage was 34%—but even then, it was still the dominant category.
2. The PAT market size and level of are at their highest levels to date. The market grew at an unprecedented rate, with a 53% growth rate between 2020 and 2021, and an 80% CAGR (compound annual growth rate) for the past 5 years. We estimate the overall market value at just over $3 billion. Almost half (47%) of vendors reported receiving investment in 2021, while 30% were acquired, bought another company, or experienced an ownership change.
3. Vendors differentiate themselves as new challenges arise. Vendors helped customers meet their data challenges in 2021 by focusing on data engineering, collection, and integration capabilities. This contrasts with 2020, when most vendors differentiated themselves on the methodology, expertise, and science they brought to the table.
4. Use cases are shifting, but vendors are likely not responding fast enough. In 2021, vendors continued to focus on serving people analytics practitioners (PAPs). However, our analysis reveals that, as customers’ level of data sophistication increases, the value of PAT is often in the scaling of insights outside the people analytics team. Vendors need to provide capabilities for non-PA practitioners or risk losing the ability to expand their offerings. Today, only 56% of vendors report people managers as current end users, 51% report business and C-suite leaders, and only 23% say the same for employees.
5. Customers are less satisfied than before, but that might change in the future. The average Net Promoter Score® score (based on customer responses) dropped to 58 in 2021, as compared with 67 in 2020. The good news is that vendors are actively responding to customers’ needs in 2022. Fifty-seven percent of vendors said that they built new solutions or products for customers, or adjusted their product roadmap. More than 30% of vendors now offer greater technical and administrative support and resources to meet customer needs.

Introduction

2021 brought its own set of challenges beyond the continuation of COVID-19: a rise in job resignations, the beginning of high inflation (which is still perniciously present), and the start-stop pattern of planning for hybrid work. Now that we are fully in 2022, we continue to manage those challenges, which are exacerbated by the persistence of COVID and its variants, the war in Ukraine with its far- reaching impacts, and a rise in commodity prices. Leading a business is never easy, but the past few years have been especially volatile.

To address this volatility, leaders have turned to people analytics like never before. When workers were’t physically present, people analytics provided insights into their needs. When organizations needed to pivot to meet changing customer needs, people analytics helped leaders identify staff with the skills and capabilities to lead those efforts. And when leaders needed to understand why employees were leaving in droves, people analytics provided insights and helped stem the tide. In short, people analytics has been a beacon of rationality and calm in a world that had little of either during the past few years.

For these reasons, understanding the people analytics technology (PAT) market is more important than ever. These tools are helping millions of leaders make better decisions about their people in a time when uncertainty and confusion can cloud decision-making capabilities. Therefore, understanding what’s happening in this market—and what needs to come next—isn’t just interesting, but critical to leaders’ ability to manage the next phase of volatility and uncertainty.

This executive summary contains some of our main findings from this year’s study. We share more details in our People Analytics Technology Report that RedThread members can access on our website. We also plan to launch an updated PAT tool on our website with much content available for both members and nonmembers.

We hope the findings in this executive summary provide you with better clarity about the evolving market, its areas of focus, and how your organization can solve your people-related challenges.

Thank you to all the vendors and customers who participated in this year’s study. Your support is critical to us being able to do this work. Thank you, also, to our research members; without your support, our work would not be possible.

Employee engagement & experience continue to dominate the solution market

This year’s study is composed of 58 solution vendors, although we know there are more than 125 vendors in this market. Within our study, the largest vendor category (42%) serves the employee engagement, experience, and voice space. This was also the dominant category in 2020 as well, although it then had just 34% of vendors (see Figure 1).

The dominance of this category wasn’t surprising for a few reasons:

• Employee engagement and experience was a critical area of concern for companies during the pandemic, giving vendors an even greater impetus to focus on it.
• The employee engagement and experience software market has traditionally been a crowded space and many vendors (primarily survey providers) have quickly added analytics capabilities recently, thus moving into the people analytics space.

The percentage breakdown for the remaining categories was similar to what we saw in 2020, suggesting that vendors continued to focus on their areas of expertise and, as our data shows later in this report, doubled down on differentiating themselves within their submarkets.

2021: Biggest market size yet

The PAT market grew at an unprecedented rate in 2021.* We calculated market size at just over $3 billion for 2021 (see Figure 2). Overall, the market grew at the following rates:

• 53% growth rate for 2020-2021
• 80% CAGR (compound annual growth rate) for the past 5 years

Vendors indicated that growth was driven by both new and established customers which had expanded their user base beyond people analytics practitioners (PAPs).

These growth sources align with other research that found organizations requested talent metrics to a greater extent than before the pandemic and planned to increase the size of their people analytics teams in 2021.

For those who read our 2020 research, you may notice that we’ve updated the revenue numbers for 2017-2020. This is because we have several new participants in our study and a number of older participants provided us with updated figures for previous years.

2021: A busy year with significant investment

Market growth was at least partially driven by significant investments in the space. As Figure 4 shows, almost half of the vendors that participated in our study received funding in 2021. About one-third of the vendors reported undergoing a merger, an acquisition, or some type of ownership change. Our findings align with the trends in the overall HR tech market, which saw a surge in investments during 2021.

In addition, vendors expect to see continued growth in this area well into the future. Specifically, for 2022 (see Figure 5):

• All vendors expect growth of at least 6% or more
• More than half of vendors expect growth greater than 31%

Our briefings revealed that vendors expect this growth to be driven by a few factors. Specifically, customers are:

• Using people analytics to implement and manage hybrid work
• Exhibiting a growing emphasis on using data and metrics for diversity, equity, inclusion, and belonging (DEIB)
• Preparing for more SEC reporting requirements around human capital metrics

A crowded marketplace

We continue to use our matrix approach to classifying the PAT market, for which we compare 2 aspects of solutions’ capabilities: usage frequency and data sources (see Appendix 1 for more details; note that a firm’s placement up and to the right in the matrix is not necessarily better).

The number of logos on our matrix (see Figure 6) has almost doubled since our first PAT study in 2019. A few things caught our attention this year:

• The majority of new vendor participants have surveying capabilities. We’ve particularly seen a crowding of vendors in the 2 quadrants to the right of the Y axis, indicating a greater focus on more continuous analysis driven by employee listening.
• More vendors are integrating data than before. We’ve observed the addition of vendors above the X axis, meaning a larger number of vendors are:
  • Pulling disparate internal organizational data (e.g., sales, CRM, learning data, etc.) as well as external data (e.g., labor market data)
  • Combining active data collected directly from employees with passive data, such as metadata or data from collaboration tools (Slack, Teams, etc.)

2021 necessitated different approaches

Similar to 2020, vendors were quick to respond to customer needs last year. The pandemic, growing resignation rates, and a shift from remote to hybrid work meant that leaders needed insights based on real-time data from multiple sources to make informed decisions.

Our data reveal that vendors responded to these needs. Compared to previous years, in 2021, vendors had a much clearer understanding of their strengths and what set them apart from other vendors.

As we see in Figure 7, in 2020 vendors focused on differentiating themselves based on their domain expertise and methodology. In 2021, they differentiated themselves based on their data integration, collection, and engineering capabilities, while keeping the solutions flexible and easy to use.

However, while these capabilities met a critical need of the primary users of the solution, they fell short of meeting the needs of other users, as our data show on the next few pages.

Use cases are shifting over time

Over the course of our conversations, it became clear that there is a change in how organizations are using people analytics technologies, depending on the organization’s PA sophistication and the type of user. Figure 8 is a simplified depiction of how many organizations are using these technologies:

• Phase 1: PAPs use vendor tools for understanding a specific HR area (e.g., engagement), integrating data from other HR data sources (e.g., HRIS), and presenting it in dashboards; senior leaders begin to leverage dashboards.
• Phase 2: PAPs use vendor tools to integrate a broader set of people-related data and some operational data, and provide a continuous stream of data; other leaders increasingly use these more robust dashboards and insights.
• Phase 3: PAPs use vendor tools to export the integrated data, and add it to a data lake or to run additional analysis on the tools of their choice, such as Tableau and Power BI; leaders broadly adopt the dashboards and other capabilities to answer business questions.

As shown in Figure 8, once PAPs move to Phase 3, the level of usage of the tool declines for them. Importantly, though, this is when the tools can achieve broader scalability via adoption by business, HR, and people leaders—if the tools target those non-PAP audiences. Unfortunately, most do not.

Vendors may not be responding quickly enough to changes with end users

The vast majority of vendors (93%) continue to focus on PAPs as their primary end user (see Figure 9). Additionally, when compared with previous years, there’s a decline in usage frequency by all other groups except people managers.

This growing gap is indicative of what we heard during our vendor briefings and found in our surveys. Vendors now understand the value propositions their solutions can provide for different users—but they’re not doing enough to attract greater usage from non-PAP users.

We heard from numerous vendors about their efforts to design user experiences around a specific set of users and provide them with targeted capabilities. However, given the significant gap in usage between PAPs and all other users, clearly vendors need to do more. For example, vendors should consider:

• Surfacing relevant insights for HR and HRBP users that tie in directly with business priorities, benchmarking those against other business units and making it easy to share them more broadly
• Giving tool access to employees so they can see insights based on data collected about them and compare their own historical performance with that of other teams

For years vendors have said they would expand their end-user focus: We’re still waiting

In our first study in January 2019, we asked vendors the extent to which different users were current users and the extent to which those users would use the solution in 3 years’ time.

Well, it’s nearly 3 years later. When we compare vendors’ predictions from 2019 about usage rates at the end of 2021 with the actual rates from the end of 2021, it’s a bit dismal (Figure 10):

• Business & C-suite leaders: The estimate from 3 years ago was 72%; actual usage is 51%.
• People managers: The estimate from 3 years ago was 81%; actual usage is 56%.
• Employees: The estimate from 3 years ago was 54%; actual usage is 23%.

Here’s the really depressing part: All of those actual usage percentages for 2021 are lower than the actual usage numbers given in 2019.

With the near stagnant levels of usage by non-PA leaders and the shifting use cases we discussed earlier, vendors could face a real challenge if they don’t start providing value to non- PA leaders and thereby increase their usage.

Customers are not as happy as before

We saw a dip in customer satisfaction levels for 2021 when compared with 2020. Specifically, we saw a decline in NPS from 67 in 2020 to 58 for 2021 (see Figure 11). This NPS is based on the 21 vendors with 5 or more customer responses.

A few potential reasons for the decline in NPS include:

• Some vendors may not be doing enough to cater to the needs of non-PA leaders, resulting in a poor experience for them

“The concept and idea is good, the analytics is good—but the content and features are not attractive for users.”
—Large technology company for an employee solution experience / engagement solution

• The pandemic made everything urgent, which means customers needed solutions to deliver on their promises and provide updates in a much shorter This may have been challenging for many vendors

“Flexibility is good for what you can build / do in the application, but for Strategic Workforce Planning it needs to be more robust and aligned to the overall WFP process if it wants to be a successful player in this competitive market.”
—Midsize transportation company for a workforce planning solution

• With an increasingly crowded market space and rapid growth, there’s growing competition, along with customers’ high expectations of vendors to provide unique and differentiating capabilities

“They do not deliver the roadmap and are way behind what the competition can offer.”
—Large technology company for an employee solution experience / engagement solution

Vendors made business changes for 2022

Even though customer satisfaction levels were lower in 2021, we expect to see improvement in the future as vendors make investments to better meet customers’ needs in 2022.

Specifically, our findings reveal that in 2022 vendors (Figure 12):

• Adjusted their products, roadmap, and / or marketing strategy to meet the needs of the changing 2022 environment
• Offered greater technical and admin support as well as resources to customers as part of their subscription
• Changed their sales and pricing models

This is good news. Vendors are applying a multipronged approach to making business changes. Our briefings also revealed that vendors are actively engaging with the wider customer community to understand emerging issues, and are working creatively to help customers solve them through better data capabilities, partnerships, and expansion into other talent areas. As customers face more nuanced challenges while navigating the complexities of hybrid work, we expect to see more vendors make such in-house business changes.

Conclusion

Events of the past 2 years have made people analytics vital for organizations. Leaders relied on people analytics for various efforts, including:

• Improving employee safety, health, and experience as they worked remotely during the pandemic
• Planning current and future workforce, and understanding attrition from large numbers of resignations
• Planning for hybrid work

This is reflected in how this market is thriving, with its impressive growth rate and the high number of investments made in vendors during 2021.

That’s not to say the market doesn’t face challenges. The crowded landscape means vendors will find it increasingly difficult to set themselves apart from the competition in the future. Additionally, as we saw, customers are less satisfied when compared with our 2020 findings.

As we move ahead, vendors will have to become much more distinct in their value propositions, especially for non-PA end users. If they don’t, then vendors may be unable to grow at the rates they (and their investors) are hoping for. The challenge for 2022 is to bring the right insights at the right time to the right audience. We look forward to seeing how vendors fare during the next year.

Appendix 1: Methodology

This study is a culmination of 5 months of qualitative and quantitative research. We kicked off our People Analytics Technology study early in 2022 by launching our Vendor and Market surveys. In order to

participate in our study, vendors had to complete both surveys. They were also asked to share case studies, representative screen shots of their technology, and logos, and complete a 60-minute briefing and demo with us. The vendors had the option of providing prerecorded briefing videos if they preferred. The briefings took place from January to April 2022. A total of 43 vendors completed our surveys. In addition, publicly available data for 15 vendors were included in the dataset, bringing the total n to 58.

On the practitioner side, we launched a short People Analytics Technology Customer Poll in January 2022. Customers were asked to share the challenges they’re using the solution to solve, give feedback on the vendor’s strengths and areas of improvement, and provide a Net Promoter Score and any other feedback. Each vendor was required to receive a minimum of 5 customer reviews to have customer information be included in our study; there was no limit on how many reviews they could receive. We received 5 or more customer reviews for 21 vendors as of the end of March 2022.

2×2 matrix

Once our qualitative and quantitative data collection and analysis were complete, we revisited the 2×2 matrix that we introduced in our 2019 report. Our matrix compares 2 aspects of vendors’ capabilities: usage frequency and data sources. This approach allows us to identify some points of differentiation and categorize vendors in different, meaningful segments.

Understanding the X-axis

Starting with the X-axis, (see Figure 13), we range from solutions that users tend to use / access on a frequent basis (e.g., quarterly, monthly, or bimonthly) on the left side of the matrix to solutions that are used on a continuous / always-on basis (e.g., weekly, biweekly, or daily) on the right. Please note: We’re specifically thinking about how frequently users tend to utilize the solution, not the frequency with which it’s updated or can give insights. We focused on user frequency because it allows us to understand, from a practitioner’s perspective, how frequently a solution tends to be used—which can help us understand how and by whom it’s used.

For example, the solutions on the left side of the model tend to be used to consistently check in on specific areas of interest. These are leveraged by HR, people analytics, and other business leaders looking to make strategic talent decisions.

As we move to the right, we see solutions that are trying to both provide analysis for strategic, organizational decision-making, and inform users about themselves or their team. Many of these solutions’ typical primary users are people analytics or HR, but the vendors have expanded or are in the process of expanding their users to senior leaders, managers, and employees.

On the far-right side of the graphic are solutions that tend to be used more continuously, which lend themselves to more operational (nonstrategic) adjustments, and alert individuals about their own or their team’s behavior. Obviously, when this type of data is pulled together and analyzed longitudinally, it could inform strategic decision-making as well. These vendors tend to focus more on providing greater accessibility to data and sharing insights directly with employees in the form of nudges, individual reports and dashboards, and notifications.

Understanding the Y-axis

On the Y-axis, we classify solutions as follows—from whether vendors collect (via any method) and “create” the data themselves, as shown at the bottom of the graphic, to whether they integrate the data from other sources (e.g., government data, other third-party solutions, or other internal technologies), shown at the top of the graphic. Note that almost every vendor in our study pulls data from the HR information system (HRIS) for basic demographics, hierarchy, location, and other facts, so we don’t “count” integration with HRIS as one of the integrations on this axis.

Figure 14 indicates how the scale changes. At the bottom of the model, we have solutions that “create” data primarily by collecting it directly from employees (i.e., engagement, onboarding, or exit surveys, etc.). Moving up the axis, we add in solutions that collect data as well as integrate other data they capture on employees, such as wellbeing or performance management data, via their own tools. Moving up further (closer to the X-axis), we have solutions that still capture data but also integrate a wide range of data sources (e.g., 360-feedback data, financial / business outcome data, work productivity data like email or Slack / Microsoft Teams, and customer experience data).

Finally, toward the top third of the Y-axis, we have solutions that primarily integrate data from others. Unlike those on the bottom, the majority of these solutions don’t offer the capability to collect data. A number of them work in tandem with those lower down on the matrix as part of the bigger people analytics technology ecosystem.

When we put all of this together, we end up with 4 different quadrants with distinct characteristics.

• Accumulated Vendors in this quadrant rank high in their ability to provide users with a longitudinal view of data, with insights that enable strategic talent decisions. Data tend to be aggregated and integrated from several sources, including external data. The insights from these vendors can be used by teams on a frequent basis to track specific areas of interest.

• Snapshot Vendors in this quadrant are data collectors and provide insights that are reviewed for strategic talent decisions on an event-driven basis. These vendors are primarily focused on active data collection, though they may also have some newly introduced data integration capabilities.
• Targeted This quadrant includes vendors that focus on a specific talent area (e.g., engagement /experience, performance management, wellness). They collect data directly from employees, which enables both quicker deployment and adoption, and access to insights and analysis by multiple teams on a very frequent or continuous basis. Several of them push insights directly to employees to promote faster action.
• Guiding analytics. This quadrant includes vendors that integrate data from several different sources and are used very frequently to continuously. The combination of elements means that users can frequently access deep and broad information which can guide strategic organizational decisions, operational decisions, and individuals’ decisions about themselves or their Our mental model for solutions in this section is like a guided missile—they can give insights that can change the trajectory quickly.

It’s important to note that none of these quadrants is superior to the others. In fact, there’s likely a place for all of them in an organization’s people analytics technology ecosystem. However, by putting technologies into these boxes, we can start to think about what that ecosystem might look like and how organizations might begin to build them.

Appendix 2: Vendor demographics

This year, a total of 43 solutions participated in our study. We included publicly available information for an additional 15 vendors, bringing the total to 58. The demographic breakdown of survey participants by year founded, number of employees, and HQ location is shown in Figures 16-18.

 

 

Appendix 3: Customer demographics

We received a total of 128 customer responses. Figures 19-21 show the demographic breakdown for customer respondents by industry, roles, and number of employees.