Enterprises Accelerate Shift to AI and SaaS for Strategic HR Transformation, ISG Report Reveals
A new report from Information Services Group (ISG), a leading global technology research and advisory firm, highlights a dramatic shift in how enterprises are modernizing their human resources (HR) operations. The 2025 ISG State of HR Technology and Service Delivery report reveals that organizations are increasingly adopting software-as-a-service (SaaS) and leveraging artificial intelligence (AI) to drive strategic HR services. This transformation reflects a growing focus on maximizing business value through advanced technologies, with significant implications for workforce management, cost efficiency, and operational insights.
SaaS and Hybrid Cloud Dominate HR Technology Landscape
The report underscores a tipping point in enterprise migration to the cloud for HR operations. Currently, 69 percent of organizations globally rely on SaaS or hybrid cloud models as the foundation of their HR technology. By the end of 2027, this figure is expected to rise to 83 percent, with half of all companies planning to adopt SaaS solutions exclusively. These platforms replace legacy systems with unified suites or HR ecosystems that integrate core functions such as HR management, payroll, and talent acquisition.
“HR modernization has entered a second act, focused on maximizing business value,” said Stacey Cadigan, partner at ISG Human Capital Management and Enterprise Transformation, and co-author of the study. “Leading organizations are realizing the potential of new technologies, especially AI, to enhance efficiency, reduce costs, and deliver actionable business insights.”
While many enterprises have embarked on HR transformation initiatives—more than half are actively implementing changes, and about one-third have completed them—the survey indicates that not all organizations are seeing immediate benefits. Only 52 percent of respondents report quantifiable value from their HR technology investments. Persistent challenges, such as budget constraints, legacy system complexity, and poor data quality, continue to hinder progress. However, companies that have adopted integrated platforms combining HR, finance, and workforce planning are reaping rewards, achieving nearly twice the ROI compared to those relying on siloed systems.
AI Investment Skyrockets as Enterprises Prioritize Innovation
One of the most striking findings in the report is the explosive growth in AI budgets for HR. Average AI spending is projected to reach $1.6 million per enterprise by 2026, representing a tenfold increase since 2023. More than two-thirds of organizations rank AI adoption among their top three HR priorities, signaling its critical role in shaping the future of work.
AI is already delivering measurable productivity gains, with early use cases showing improvements of 10 to 15 percent in selected processes. For example, AI-assisted tools are streamlining tasks like job postings, document creation, and onboarding automation—areas characterized by high data availability and relatively low risk. However, applying AI to more complex functions, such as workforce planning and payroll, remains challenging due to the intricate nature of these processes.
“The pressure is on to implement AI at scale and achieve measurable HR outcomes,” Cadigan noted. “Organizations must extract value from current HR tech investments while operationalizing AI in ways that address persistent cost pressures and heightened ROI expectations.”
Transforming HR Service Delivery Models
The rise of AI is also reshaping how enterprises deliver HR services to employees. Companies are increasingly turning to shared services, refining outsourcing strategies, and deploying AI-enabled support to provide employees with access to help through the most effective channels. According to the survey, 84 percent of organizations plan to make sourcing changes within the next two years as part of broader HR optimization efforts.
These shifts reflect evolving considerations about how employees access support, the role of AI, where work should be performed, and how processes align with business outcomes.
“The most successful organizations will use AI and platform investments to create repeatable, scalable business impact,” said Stanton Jones, distinguished analyst at ISG and co-author of the report. “This requires careful alignment of HR processes with broader organizational goals.”
Enterprises are exploring various models, including shifting work to internal shared services, outsourcers, or hybrid arrangements. This flexibility allows organizations to tailor their HR service delivery approach to meet specific needs while optimizing costs and enhancing employee experiences.
Data Security Remains Top Priority
Despite the rapid adoption of AI and SaaS solutions, data security and privacy remain the primary concerns for companies evaluating new HR technologies. In fact, the survey shows that data security has retained its position as the top priority since 2023.
At the same time, the ability to integrate solutions into a core platform ranks second in importance, underscoring its critical role in driving HR performance. Notably, the cost of ownership, which was the lowest priority two years ago, has risen to third place amid growing economic pressures.
Methodology and Key Insights
For the 2025 ISG State of HR Technology and Service Delivery report, ISG surveyed over 200 executives worldwide who hold decision-making responsibility for HR programs and technology within their organizations. The participating companies span a diverse range of industries, geographies, and sizes, from organizations with 1,000 employees to those with more than 100,000 employees.
The report provides valuable insights into enterprise priorities, digital transformation maturity levels, and broader market trends. Among the key takeaways:
- Cloud Migration: Nearly all organizations are moving toward SaaS or hybrid cloud models, with exclusive SaaS adoption set to double by 2027.
- AI Investment Surge: AI budgets for HR have skyrocketed, reflecting its growing importance in driving efficiency and innovation.
- Service Delivery Evolution: Companies are rethinking HR service delivery models to better leverage AI and shared services.
- Security and Integration: Data security and seamless integration remain top priorities, even as cost considerations gain prominence.
A New Era for HR Technology
The findings from the ISG report highlight a pivotal moment in HR technology evolution. As enterprises embrace AI and SaaS, they are not only modernizing their HR operations but also positioning themselves to unlock greater business value. While challenges remain, the organizations that successfully navigate this transformation stand to gain significant competitive advantages.
By integrating advanced technologies, optimizing service delivery models, and prioritizing data security, companies can create HR ecosystems that are both efficient and future-ready. As Cadigan and Jones emphasize, the most successful organizations will be those that harness AI and platform investments to achieve scalable, repeatable impacts across the enterprise.
To learn more about the 2025 ISG State of HR Technology and Service Delivery report, visit ISG’s website.
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.
