2024 has been another big year for HR technology, packed with headline-grabbing acquisitions and technological innovation.

As of September 30, there had been more than 800 HR technology transactions with $7.2 billion of equity invested, with AI adoption rising fast and acting one of the key trends driving growth in the sector, according to the Drake Star Global HR Tech Report Q4 2024.

Consolidation was rife throughout the year, with notable deals including SD Worx’s acquisition of Italian HR and payroll provider F2A, Mimecast’s acquisition of Code42, while Deel hoovered up Hofy, Zavvy, and PaySpace in separate deals.

But what does this all mean for HR leaders that are looking to take advantage of the latest innovations and achieve their own ambitions?

In an exclusive interview with UNLEASH, Drake Star Managing Partner and Co-Founder, Ralf Hofmann, explains what the latest results and the ongoing emergence of AI means for HR leaders, as well as what the future holds for 2025 and beyond in the HR tech world.

Ongoing consolidation serves up benefits and drawbacks for HR leaders

Given the volume and value M&A activity throughout the year to the end of September, Hofmann states the market displays a “dynamic growth trajectory, with a clear shift towards both innovation and consolidation.”

“The robust deal flow and substantial deal values underscore the market’s strength, particularly in the face of broader economic challenges. Within a relatively uncertain economic environment, the HR tech sector remains resilient,” he tells UNLEASH.

The continued growth of investment in the growth indicates the likelihood of continued innovation, and it will be pivotal for HR leaders to actively seek out opportunities to partner with, or invest in, emerging technology that can “enhance efficiency and employee engagement.”

He adds that the trend is fostering the “development of suite solutions” as technology providers seek to address most, if not all, of client needs through a single platform.

Drake Star’s report found HR technology powerhouses Dayforce, Workday and ADP as the most active consolidators throughout 2014, racking up 16 acquisitions between them by the end of September.

This shift reflects a rise in ecosystem thinking, where platforms integrate various tools to offer seamless, unified user experiences, reducing reliance on multiple solutions. Additionally, the focus on scalability ensures these platforms are better positioned to serve global enterprises, addressing regional compliance requirements and providing support at scale.

At the same time, Hofmann notes there is also a “growing appetite” for specialized solutions, reflecting the market’s “ongoing push towards a flexible HR ecosystem that can adapt to specific business needs.”

It will also be important to maintain vigilance on M&A activity, he explains, as market consolidation may bring about new, advanced solutions that hold the potential to transform the way in which HR functions.

“This trend toward consolidation will likely continue as companies seek solutions that can offer seamless integration across multiple HR functions,” Hofmann details.

“However, consolidation also reduces competition, which may stifle innovation as small, agile start-ups struggle to compete with established giants. Niche needs may be deprioritized in favor of broader, more generalized solutions.”

What’s more, in order to navigate an increasingly dynamic landscape, Hofmann states it will be crucial for HR leaders to “align technology adoption with strategic organizational goals” – an objective that most are currently unable to achieve, according to recent Eightfold research.

AI will demand adaptability and strategic thinking from HR leaders

Ralf Hofmann, Co-Founder and Managing Partner, Drake Star.

A significant part of achieving harmony between technology adoption and strategic objectives will be investment in AI, especially in areas such as talent acquisition and performance management.

According to Drake Star’s research, one in four (25%) of organizations are already using AI in these areas, as well as personalized training. However, this means there is still significant potential for further growth of use.

Hofmann says investment in this area from HR leaders will be “crucial” to ongoing strategies: “HR leaders should prioritize the adoption of AI-driven technologies to streamline operations, reduce costs, and improve employee experience.”

The ongoing consolidation of HR technology, twinned with the advancements in AI, means HR leaders will also need to be adaptable to changing requirements on their departments and at an organizational strategy level.

“HR leaders play a critical role in bridging the gap between technological innovation – like (generative) AI – and its impact on people and processes within a company” and there are several ways in which HR leaders can address this, Hofmann explains.

Firstly, measuring and monitoring the impact of AI within their organizations will be critical, and HR leaders should push for metrics that “assess AI’s effects on employee satisfaction, productivity, and overall organizational culture”.

Regular reviews will help to identify unintended consequences early, Hofmann says, allowing for timely adjustments to ensure that AI adoption is both effective and aligned with the organization’s goals.

HR leaders should also be looking to spearhead change management efforts, using their expertise in organizational behavior to design strategies to prepare employees for the adoption of AI technologies and alleviate concerns.

This involves promoting transparency about how AI will impact jobs and emphasizing how it complements, rather than replaces, human contributions,” Hofmann says.

Meanwhile, they can also “facilitate cross-functional teams to ensure that both technical feasibility and human impact are considered” and advocate for “ethical AI practices by ensuring that AI tools align with established ethical standards and comply with regulations.”

“HR leaders can also lead discussions around fairness, diversity, and inclusion, making certain that AI does not amplify biases in critical processes like hiring, promotions, or performance evaluations,” Hofmann concludes.

With M&A activity showing no signs of slowing down, consolidation expected to continue into 2025 and AI set to become a fundamentally radical and transformative part of HR technology innovation, HR leaders will need to be more adaptable and strategically-minded than ever before – how will you approach it?