The State of Performance Management and Employee Engagement — A 10-Year Loathe Story is Over!

In 2007, Josh Bersin predicted the death of the performance appraisal. Earlier this year, he suggested that we have wasted the last ten years talking about performance ratings. While the rumor of its death has been greatly exaggerated, the reinvention of performance management is alive and well.

For nearly a decade, many companies have been experimenting with new ways to manage employee performance with a greater focus on feedback, professional development, and recognition. In addition to greater focus on the employee development, individual performance ratings are now taking a back seat to better understanding team performance, the inventory of skills within an organization, and managing the culture which influences employee engagement.

Based on our recent research, spending on technology that supports performance management and employee engagement will approach $2.5 billion in 2019.

The evolution of performance management is now quickly accelerating to embrace a new world of work. Within the next 3 years, the tools that support employee engagement — real-time performance feedback, engagement surveys, OKR (objective and key results) tools — will surpass the spend on traditional performance management application (performance reviews, goals, succession planning.). After many years of frustration and calls to action to reinvent performance management and employee engagement 3.0, the market has arrived.

Today, the market is comprised of three types of vendors:

Big ERP solutions — SAP SuccessFactors continues to claim market share leadership but has become stagnant in overall market growth. Workday has been growing rapidly as they continue their “one throat to choke” approach and successfully attach talent applications at large enterprise clients. Oracle continues to lose ground as they struggle more broadly in their cloud strategy.

Best-of-breed talent suites — Cornerstone OnDemand is #2 in overall performance management market share. Along with other incumbent performance management solutions such as Saba (with the Halogen acquisition), and Peoplefluent, they are beginning to lose market share as the market shifts to employee engagement applications. The incumbents have been slow and limited with new innovation that matches the new market entrants.

Best of breed employee engagement apps — The early employee engagement leaders in the clubhouse appear to be Qualtrics (acquired this year by SAP), Culture Amp, and Glint (acquired last year by LinkedIn). In the case of Qualtrics and Glint, both are now well-capitalized to grow market share and tap into their parent company’s customer base. Venture investment is spurring innovation in employee engagement and we expect venture capital investment to continue. Venture capital nearly doubled in the last 12 months and the top 10 startups have raised almost $500 million. Culture Amp, along with another dozen venture-backed companies including Reflektive and Peakon, have an opportunity to separate themselves from the pack.

For more information on the Performance Management and Employee Engagement market, including market growth, market share and market trends, please check out Acadian Advisory and our most recent report, 2019 Performance Management and Employee Engagement Market Overview.