Digital human capital management booms across Western Europe

20 October 2020 5 min. read

Human capital management (HCM) applications are amassing popularity in Western Europe, currently adding up to nearly $5 billion in market size. This is according to new research from merger & acquisition consultancy IMAP.

HCM applications are digital tools that automate or enhance various human resource functions that make up “the relationship between organisations and their employees” – according to IMAP. These functions stretch across recruitment, talent management, learning & development, performance management, and optimisation of the talent within a business.

In Western Europe, the HCM applications market has been climbing at a compound annual growth rate (CAGR) of 8%, which currently puts it a touch under $5 billion in market value. By 2023, the same rate of growth will take the market size beyond $7 billion according to the researchers.

Western Europe HCM application market size by segment

Driving this growth is a widespread migration to cloud-based operating models, which makes it easier to deploy HCM applications. Consider the numbers. On-premise HCM applications have been pegged steadily at a market size of just under $3 billion since 2018, and will remain at the same level till 2023.

By contrast, HCM applications housed on the public cloud have grown from a market value of $2 billion in 2018 to nearly $3 billion this year, and IMAP expects a jump to more than $4 billion by 2023. Clocking a growth rate of more than 16%, public cloud applications are being preferred for their ability to work in tandem with on-premise applications while also delivering a host of innovation and scaling opportunities.

Cloud-based HCM applications are a mark of advanced digital transformation, where technology is not only being used to simplify operations and cut costs, but is also being deployed as a driver of business purpose and growth.

“Human resource technology solutions are being implemented in many day-to-day activities, typically automating those time-consuming and costly processes such as sourcing and hiring new employees, but to a larger extent also reviewing, training and managing talent. We believe the growth potential for technology in this space is huge,” explained Guillaume Petit, partner at IMAP’s team in the Netherlands – which compiled the report.

Western Europe HCM application market size by segment

As digital transformation matures, so too will the range of HCM solutions deployed. An example is the market share of payroll applications. So far, payrolling applications have been dominant in the HCM market, currently occupying nearly a third of the market share. However, the payrolling market is saturating, while businesses continue to explore a whole range of new HCM applications.

As a result, other HCM applications are expected to grow at a CAGR of nearly 10% in the lead up to 2023, surpassing the $5 billion mark and occupying nearly three-fourths of the market. Payrolling applications will struggle to keep pace, growing at just over 4% and flattening out at short of $2 billion over the next three years.

The bigger picture is that HCM applications are not only growing in popularity, but also in sophistication. “Technology is changing the way we work and how we think about human capital management (HCM), which is experiencing a technology boom, rapidly turning human resources into more tech-savvy departments,” said Petit. These digitally advanced departments are soon becoming drivers of business value.

Regional breakdown

No doubt, the rate and scale of adoption is based on several factors that play out at both the micro and macro levels. While the HCM applications market is on the rise across Western Europe, distinct variations are visible among countries.

Germany, for instance, accounts for nearly 30% of the Western European HCM applications market, leading the way by some distance. The country is likely to maintain this dominant position for the foreseeable future, given its CAGR of nearly 9%, with second placed UK’s HCM application market clocking a CAGR of less than 8%.

Western Europe HCM application market by country

France and Italy follow by some distance in third and fourth respectively, bogged down with low growth rates as well. France’s CAGR of less than 6% is the lowest in the region, followed by just over 6% for Italy. That being said, Italy is well ahead of its fellow Southern European markets, which don’t feature anywhere near the top.

While only fifth in terms of market share, the HCM applications market in the Netherlands is growing faster than any other country in Western Europe, at a CAGR of 11%. “In the Netherlands, the continuous economic growth up to 2019, along with the relatively low unemployment rate has led to intense skill shortages, forcing employers to refocus investment on recruitment and learning applications in order to attract and retain talent,” explained Balthazar Den Breems, also a partner at IMAP Netherlands.

Switzerland and Sweden also feature in the mix of the largest HCM application markets, with the former’s CAGR of more than 9% placing it among the fastest growing markets in the region alongside the Netherlands, Denmark and Norway.