Enterprises Shift to AI and SaaS to Drive Strategic HR Services, ISG Survey Finds
MWN-AI** Summary
A recent report by Information Services Group (ISG) highlights a significant shift among enterprises toward artificial intelligence (AI) and software-as-a-service (SaaS) solutions in the realm of human resources (HR). According to the 2025 ISG State of HR Technology and Service Delivery report, HR budgets for AI have surged tenfold since 2023, with an average projected expenditure of $1.6 million by 2026. This trend aligns with a broader migration to SaaS or hybrid cloud models, with 69% of organizations currently using these technologies, expected to rise to 83% by the end of 2027.
As companies strive to modernize their HR processes, approximately half are currently undergoing transformation efforts, though only about 52% report measurable value from their HR technologies. Barriers such as budget constraints and the complexities of legacy systems continue to hinder progress. Enterprises leveraging integrated platforms for HR, finance, and workforce planning yield significantly better returns on investment compared to those with isolated systems.
Moreover, with over two-thirds of organizations ranking AI adoption as a top HR priority, early applications in job postings, document automation, and onboarding are demonstrating productivity gains of 10% to 15%. However, implementing AI solutions for more complex tasks like payroll and workforce planning remains challenging.
The survey also indicates that companies are increasingly reshaping their HR service delivery models, with 84% planning sourcing changes in the next two years. Data security and privacy are paramount concerns when selecting new HR technologies, followed by integration capabilities and cost of ownership. This clear trend underscores the growing emphasis on efficiency, business value, and enhanced analytics in HR operations driven by technology reform.
MWN-AI** Analysis
As enterprises increasingly shift towards AI and Software-as-a-Service (SaaS) solutions for Human Resources (HR), strategic investments in these technologies are becoming critical for maintaining competitive advantage. The recent ISG report highlights a significant tenfold increase in AI budgets for HR since 2023, underscoring a growing recognition of AI's potential to drive efficiency and business insights.
The data reveals a clear trajectory: by the end of 2027, 83% of companies plan to adopt HR SaaS or hybrid cloud solutions. The transition from legacy systems to unified platforms is not just a trend but a necessity in an increasingly digital landscape. Enterprises that integrate HR, finance, and workforce planning not only unlock enterprise-wide analytics but can also expect much higher return on investment—roughly double that of competitors relying on siloed systems.
However, despite these promising findings, over half of the organizations undergoing HR transformation report struggling to achieve tangible benefits, often hindered by budget limitations and poor data quality. This suggests that while the intent to modernize is strong, execution remains a challenge that needs addressal through strategic planning and investment.
For investors and market strategists, the focus on AI and SaaS in HR presents an opportunity not only to invest in technology firms leading this space but also to observe which enterprises effectively navigate their transformations. Those that successfully operationalize AI at scale are likely to yield significant benefits and improved service delivery models, particularly as 84% of companies plan sourcing changes within the next two years.
In conclusion, while the shift to AI and SaaS in HR is promising, stakeholders must critically evaluate the execution capabilities of organizations and their plans for overcoming existing barriers. This could guide smarter investments and partnerships in the evolving market landscape.
**MWN-AI Summary and Analysis is based on asking OpenAI to summarize and analyze this news release.
New ISG report finds AI budgets for HR have increased tenfold since 2023
83 percent of companies will adopt HR SaaS or hybrid cloud solutions by year-end 2027
Enterprises, seeking to modernize their human resources technology, have migrated decisively to software-as-a-service (SaaS) and launched AI tools for HR, according to results of a new biennial report released today by Information Services Group ( ISG ) (Nasdaq: III ), a global AI-centered technology research and advisory firm.
The 2025 ISG State of HR Technology and Service Delivery report finds that SaaS or hybrid cloud models form the core of HR technology at 69 percent of organizations globally, marking a tipping point in enterprise migration to the cloud for HR operations. Survey results indicate a further shift in this direction by the end of 2027, when 83 percent of companies say they will have moved to SaaS or hybrid cloud approaches and half will be using SaaS solutions exclusively, replacing legacy cores with unified suites or HR ecosystems that integrate HR, payroll and talent.
“HR modernization has entered a second act, focused on maximizing business value,” said Stacey Cadigan, partner, ISG Human Capital Management and Enterprise Transformation, and co-author of the biennial study. “Leading organizations are realizing the potential of new technologies, especially AI, for efficiency, cost reduction and business insights.”
More than half of enterprises are carrying out HR transformation and about one-third have completed it, but not all have benefited yet, according to the survey. Only 52 percent of organizations see quantifiable value from HR technology. Barriers such as budget constraints, legacy system complexity and gaps in data quality still prevent many companies from realizing value from HR systems. However, enterprises using integrated HR, finance and workforce planning platforms, which help to unlock the power of enterprise-wide analytics, have gained roughly twice the return on investment of peers with siloed systems, ISG says.
Organizations are also aggressively investing in AI for HR operations, the report says. AI budgets for HR will average $1.6 million in 2026, a tenfold increase since the 2023 survey. More than two-thirds of enterprises rank AI adoption among their top three HR priorities. AI is already delivering productivity gains of 10 percent to 15 percent in selected processes. Early use cases include AI-assisted job postings, document creation and automation of onboarding processes, all of which benefit from high data availability and relatively low risk. Using AI for applications such as workforce planning and payroll have proven more complex.
“The pressure is on to implement AI at scale and achieve measurable HR outcomes,” Cadigan said. “Organizations must extract value from current HR tech investments and operationalize AI while navigating persistent cost pressure and heightened ROI expectations.”
AI adoption is contributing to changes in how enterprises deliver HR services to employees, ISG says. Companies are expanding their use of shared services, refining outsourcing strategies and using AI-enabled support to allow employees to access help through the most effective channels. Most organizations are changing their HR service delivery model in some way, shifting work to outsourcers, internal shared services or another model. The survey shows 84 percent plan sourcing changes within the next two years as part of overall HR optimization efforts.
“Most HR organizations are making some level of change within their HR service delivery model, reflecting how employees access support, the role of AI, where work should be done, and how processes align with business outcomes,” said Stanton Jones, distinguished analyst, ISG, and co-author of the report. “The most successful organizations will use AI and platform investments for repeatable, scalable business impact.”
Data security and privacy, the primary focus for companies evaluating new HR technology solutions in 2023, remains their top priority, the survey finds. The ability to integrate solutions into a core platform ranks second, seen as a driving factor in HR performance. Cost of ownership, buyers’ lowest priority two years ago, has risen to third place amid growing economic pressures.
For the 2025 ISG State of HR Technology and Service Delivery report , ISG surveyed more than 200 executives around the world with decision-making responsibility for HR programs and technology within their organization. Participating companies represent a cross-section of industries operating across geographies and ranging in size from 1,000 employees to more than 100,000 employees. The report tracks enterprise priorities and plans, examines digital transformation maturity levels and reveals broader market trends.
About ISG
ISG (Nasdaq: III ) is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world’s top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth. The firm, founded in 2006, is known for its proprietary market data, in-depth knowledge of provider ecosystems, and the expertise of its 1,600 professionals worldwide working together to help clients maximize the value of their technology investments.
View source version on businesswire.com: https://www.businesswire.com/news/home/20251117550740/en/
Press Contacts:
Laura Hupprich, ISG
+1 203 517 3100
laura.hupprich@isg-one.com
Julianna Sheridan, Matter Communications for ISG
+1 978 518 4520
isg@matternow.com
FAQ**
How is Information Services Group Inc. III positioning itself to capitalize on the tenfold increase in AI budgets for HR as reported in the latest study?
What strategies can Information Services Group Inc. III recommend to organizations facing barriers such as legacy system complexity while transitioning to SaaS or hybrid cloud HR solutions?
In what ways might Information Services Group Inc. III assist enterprises in achieving measurable HR outcomes with AI technologies, given the current economic pressures?
How does Information Services Group Inc. III plan to address the growing priority of data security and privacy in HR technology solutions as highlighted in the recent report?
**MWN-AI FAQ is based on asking OpenAI questions about Information Services Group Inc. (NASDAQ: III).
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