Hello. This is Alex Bakker standing in for Stanton Jones with what’s important in the IT and business services industry this week.
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HR Technology
Perhaps the number one headline of 2025 is that, while AI interest and use are only growing, enterprises are still grappling with how to get value from the technology. For the business, the AI mandate is clear: drive cost savings and improve productivity. But, for this to happen, IT must get enterprise data ready and define effective KPIs for use cases. According to our recent Market Lens HR Technology Study, the greatest challenges organizations are facing have to do with organizational change management (OCM) and demonstrating ROI back to the business. (see Data Watch)
Data Watch
Overview
The 2025 State of HR Technology and Service Delivery report highlights three core findings:
- AI is the priority for new investment. More than two-thirds of enterprises rank AI adoption among their top three HR priorities – an area barely visible in 2022. What was framed as agility and employee experience in 2023 is now table stakes for competitiveness.
- Companies are rearchitecting HR service delivery. It’s not just HR technology that’s undergoing transformation, but also the way HR delivers services. We’re seeing firms expand shared services, sharpen outsourcing strategies and deploy AI-enabled support to optimize how employees access help, where work is done and how processes align to business outcomes.
- Fundamentals still hamper ROI. Budget constraints, limited capacity, legacy complexity and data challenges remain the biggest constraints on progress. This is largely unchanged from 2023, but the urgency is heightened by AI requirements.
In this context, the challenges highlighted in the Data Watch above make sense. AI struggles because it is layering on top of an already substantial and continuous change in HR tech. And – as with most technology investments – ROI is difficult to measure; the technology outcomes for business operations functions are only indirectly attributable to the productivity of the overall business.
The Organizational Change Management Imperative
Despite the promise (and hype) around AI, OCM stands at the top of the list of challenges for AI adoption in HR technology. This result comes on the heels of several similar results and challenges across trends we’ve studied this year. Our research on GCC use, data modernization, AI use cases and SAP upgrades all show that OCM is a significant challenge.
The first part of the problem is that IT is under pressure to adopt AI into a legacy technology stack with flat budgets. In that environment, the spending for AI is being driven by technology displacement and budget redirection. Essentially, two things are happening: the decommissioning of old systems and the addition of AI.
The second is that, to drive the productivity from technology, organizational change relies more on effective process and training than on technical deployment. Organizations with poor change management practices see slower adoption of new processes and slower retirement of legacy tools – both situations that reduce the ROI for any technology investment.
Organizational change will always be a challenge when OCM follows technology. But, when it leads – with design, communication and training built in before adoption – it creates the conditions for AI to deliver real, measurable value.
ISG Index Insider will be off next week due to the Thanksgiving holiday in the U.S.
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