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.

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New ISG research says AI budgets for HR will average $1.6 million in 2026, a tenfold increase since a 2023 ISG survey. More than two-thirds of enterprises rank AI adoption among their top three HR priorities.