Rocket-Hire Talent Assessment Market Overview 2014-2015

Talent Assessment 2014/2015:

Market Analysis, Vendor Classification, and Market Opportunity October 2014 CREATED BY :

Charles A. Handler, Ph.D. President/Founder Rocket-‐Hire LLC www.Rocket-‐Hire.com

T H O U G H T L E A D E R S H I P I N T A L E N T A S S E S S M E N T

©2014 Rocket-‐Hire, LLC • www.rocket-‐hire.com October 2014 | 2

A B O U T T H E A U T H O R Dr. Charles Handler is a thought leader, analyst, and practitioner in the Talent Assessment and human capital space. Dr. Handler is the only analyst in the Talent Assessment space with technical training in psychometrics and experiencing in the development and implementation of global Talent Assessment systems. Through his prolific writing for media outlets such as ERE.net, his work as a pre-‐hire assessment analyst for Bersin by Deloitte, and worldwide public speaking, Dr. Handler is a highly visible futurist and evangelist for the Talent Assessment space. Throughout his career, Dr. Handler has been on the forefront of innovation in Talent Assessment; applying his sound foundation in psychometrics to helping drive innovation in assessments through the use of gaming, social media, big data, and other advanced technologies. Since 2001 Dr. Handler has served as the president and founder of Rocket-‐Hire, a vendor neutral consultancy dedicated to creating and driving innovation in Talent Assessment. Through his work with Rocket-‐Hire, Dr. Handler has served as a strategic advisor with virtually every large assessment provider as well as a large number of start-‐ups entering the space. Dr. Handler has also worked extensively with end users of Talent Assessment systems such as Intuit, Wells Fargo, KPMG, Scotia Bank, Hilton Worldwide, and Humana, helping them to create and implement their assessment strategies. Dr. Handler holds a M.S. and Ph.D. in Industrial/Organizational Psychology from Louisiana State University.


Executive Summary .......................................................................................... 4 Overview of Report Sections ............................................................................ 5 Part I: Talent Assessment Market — Size and Growth ...................................... 9

Figure 1-‐ Talent Assessment Within HCM ........................................ 10

Table 1-‐ Recent M&A in Talent Assessment .................................... 13 Part II: Talent Assessment Market — Vendor Classification Scheme .............. 16

Figure 2-‐ Four Quadrants for Classifying Vendors ........................... 19 Part III: Market Opportunity .......................................................................... 23 Conclusion ........................................................................................................ 28 Sources ............................................................................................................ 31

TABLE OF CONTENTS


Exe cu t i v e Summary Why is This Briefing Important?: Talent Assessment is a Different Animal Talent Assessment is a rapidly growing and often misunderstood segment of the HR Technology/Human Capital Management (HCM)1 market that has tremendous potential for continued growth. Talent Assessments differ from many other areas within HCM because they are highly specialized scientific tools that are created and curated by experts. Their development and refinement is an ongoing process that is data intensive. Developing a solid product offering in this space requires a good deal of time and customer data. While the complexities of Talent Assessment have caused it to be misunderstood by those not trained in its technical aspects, the value of Talent Assessments to end users is well documented. There is an increasing amount of evidence that companies with solid, well-‐executed Talent Assessment programs outperform those who don’t2. Unfortunately, most end-‐users lack the understanding and experience required to reap the value-‐add of Talent Assessments. In our experience, most Talent Assessment programs are clumsily executed bolt-‐ons that seem more like afterthoughts than true strategic initiatives. However, this is slowly changing as the adoption of integrated talent management3 continues to grow. The HCM industry is marked by consolidation and ongoing integration4, as providers acquire new technologies that will provide the componentry needed to support integrated talent management. Talent Assessment is an area that is not highly built out within most larger HCM suites, but of late there has been a great deal of interest in assessments by providers who are building out new product suites. Due to its highly specialized nature, the fastest way for HCM vendors to add assessment functionality is via partnering with or acquiring Talent Assessment providers who have content, customers, and data. This is consistent with the overall pattern of consolidation that marks the industry. Mature Talent Assessment products have very large margins, making acquisition a preferable option for larger providers with mature distribution channels because it allows them to own the entire revenue stream.


Ove r v i ew o f R e po r t S e c t i o n s Having established the importance of Talent Assessment as a key practice within HCM, this briefing highlights the value and expected growth of Talent Assessment via the following: Section I: Market Size and Growth Section I of this report provides a market overview supporting a position that the Talent Assessment market will undergo strong growth in 2015. However, we believe that the most significant increases in market size will occur closer to 2020-‐ as critical new technologies mature. Section I of this briefing provides the following details around the Talent Assessment market:

§ Estimated Market Size (2014-‐2015) • $3 billion – across both Talent Acquisition and Talent Management • $1.25 billion – within Talent Acquisition alone

§ Estimated Market Growth (Talent Acquisition and Talent Management combined) • 5-‐10% in 2014/15 • 15-‐20% by 2020 – with growth to approximately $5 billion

§ Key Drivers of Growth • Market consolidation and increased distribution channels • Integrated talent management (e.g., linking pre-‐ and post-‐hire data) • Social sourcing as an emerging and much-‐needed area • Increasing focus on analytics to drive ROI • Globalization • Niche vendor specialization

Section II: Market Classification While it is hard to ignore the impact the evolution of HCM is having on Talent Assessment, it is important to understand that Talent Assessment is its own industry that has been steadily growing for almost 50 years. There are literally hundreds of vendors operating in this space, many of whom have been highly profitable for decades.


Understanding the Talent Assessment marketplace is difficult because it is extremely fragmented. There are many types of Talent Assessment tools and there is great variation amongst vendors when it comes to methodologies, product quality, and product maturity. In order to better understand the differences between these vendors, Section II of this report provides a two-‐part classification scheme. It is important to note that we have chosen not to use assessment type (i.e., personality testing, assessment centers, etc.) to classify vendors. This is because the majority of vendors offer a variety of tools, many of which are highly similar. We believe what truly differentiates vendors is their methodology and use of technology. Our classification scheme includes the following key elements: 1. Quadrants We provide a scheme centering on the manner in which vendors manage the tradeoff between speed of implementation (e.g., “fluidity”) and predictive accuracy (e.g., “power”). These two parameters are used to define four quadrants that support a visualization of the current and future state of the Talent Assessment market (see Figure 2, page 19). This scheme clearly identifies the potential impact of advances in technology and assessment science on the ability to quickly deploy highly accurate assessments. 2. Categorization Scheme We suggest that vendors can be placed into three basic categories based on their core methodologies and approaches. These include:

A. Consulting Firms — Low Fluidity, High Power — Represent the most traditional manner in which Talent Assessments have been deployed. These are high-‐touch firms that rely on professional services to support and implement Talent Assessments. Firm types within this category include:

• General HR consulting firms • Talent Assessment consulting firms • Developers of custom assessment content

B. Product Firms — Fluidity and Power both range from high to low — Represent the

largest area within the current market. These firms use a variety of approaches, all of which center on reducing the professional services required to implement and support assessments. These firms represent the highest degree of variation in methodology and product quality, making differentiation difficult. Firm types within this category include:

• Test publishers


• Solution providers • Providers of specialized assessments

C. Technology Firms — High Fluidity, High Power — Represent market opportunity via

the ability to support rapid precision at scale. These are firms that are creating change and disruption within the space via a blend of technology and psychology. Firm types within this category include:

• Measurement innovators • Integrated HCM platform providers • Predictive social sourcing providers

Note: This report does not name specific vendors within categories or quadrants. This information is available via separate engagement with Rocket-‐Hire. Section III: Market Opportunities Talent Assessment methods have been relatively resistant to technological change, but new technologies are slowly entering the space and creating growing tension between the old and new. Technology is creating great opportunity for disruption in some segments of the Talent Assessment market (e.g., sourcing and social recruiting) while others, such as executive assessment and custom built assessments, are likely to change much more slowly. While revenues from traditional assessment tools will remain a significant factor in the growth of the market, there is a shift coming in which technology will drive incremental growth via its ability to increase precision. We identify the following five areas as representing the most significant opportunities over the coming five years (and beyond).

§ Optimized sourcing – The sourcing process is broken and the friction that exists is detrimental to the overall goal of making good hires. Socially driven sourcing platforms that use both AI and psychometrics represent the most significant growth area within the talent acquisition (and Talent Assessment space).

§ Embedded psychometric measurement – HR technology providers will begin to figure

out that outsourcing Talent Assessment to a third party vendor is both expensive and unwieldy and will increasingly seek to own their own assessment content. Larger HCM providers will continue to integrate assessment at deeper levels. When coupled with advanced analytics, embedded Talent Assessments will allow new levels of predictive


insight that can be translated directly into the metrics needed to support strategic and tactical business operations.

§ Interactivity and gamified psychometric assessments – Engagement is becoming a

critical driver of success in the hiring process and beyond.

§ Driving Precision at Scale – There is significant opportunity for transactional Talent Assessment products that use technology to drive mass customization. SMBs represent a large, and mostly untapped, potential market for this type of assessment.

§ Niche Based Simulations – There is tremendous value in simulating unique work

environments to support measurement and prediction. Specialized simulations have value for both talent acquisition and talent management.


Part I: Talent Assessment Market — Size and Growth While Talent Assessment is its own industry, its use as a key component in a variety of HR related processes ties it directly to the HCM market. Understanding the market size and expected growth of the Talent Assessment industry first requires understanding its place within the context of the larger market into which it is nested (i.e., the HCM/HR Technology market). Growth of the Human Capital Management/HR Technology Market Talent Assessment is a subset of the Human Capital Management (HCM) space. While this space is dominated by SaaS based providers, most Talent Assessment is not sold as software largely due to two factors, the technical (i.e., scientific) complexity of implementing it and the lack of technology development capabilities amongst most of the mature vendors in the space. Talent Assessment continues to evolve however, and it is increasingly becoming viewed as a SaaS offering-‐ joining it more closely to the overall global HCM market. The global HCM market continues to grow as it supports the movement of HR technology from an administrative role to a strategic one. Estimates of the market size for global HCM vary somewhat but all identify it as a large and growing industry. For instance:

§ Gartner sizes the HCM market at $8.3 billion in 2014 and $8.8 billion in 20155.

§ According to IDC Research6, the global HCM market is expected to grow 8 percent annually, hitting $13.5 billion in 2017.

§ According to Bersin by Deloitte this market grew by 17% in 2013 and is now over $5 billion in size7.


Talent Management, Talent Acquisition, and Talent Assessment Talent Assessment is part of the talent management and talent acquisition areas within global HCM (see Figure 1). Figure 1: Talent Assessment’s Position Within the HCM Market Talent Assessment is relevant across all areas of talent management, serving both as a pre-‐hire predictive tool (for talent acquisition) and a post-‐hire tool to support employee development and succession planning (for talent management). Increased movement by HCM technology providers to support integrated talent management is setting the stage for the value of Talent Assessments as link that unifies pre and post hire talent processes. The talent management industry has also grown quite rapidly in lockstep with the overall HCM industry, and has seen significant investment and growth across key areas, such as performance management, talent acquisition, and learning.


Talent Acquisition Talent Acquisition is a subset of talent management that is seeing a disproportionate increase in growth and investment when compared to other areas of talent management. This is because talent acquisition is the area of talent management that is best suited for disruption by new technologies. For instance, social and mobile technologies are having a profound impact on recruiting and sourcing. Advanced souring technologies are providing a gateway to the rapid development of social based recruiting and applicant tracking functionality, providing the entire recruiting process with an increasingly sharp set of new teeth. Beyond these advances, Talent Assessment will continue to play a key role in all phases of the talent acquisition process because it introduces a science-‐based toolset that can have a measurable impact on quality of hire. Talent Assessment Market Size While there is significant reason to believe Talent Assessment’s value as a key component of HCM, there is little published information available about its market size. The reasons for this include:

§ Few Talent Assessment companies are public – in fact, the majority are very small § Vendors who sell Talent Assessments often sell a range of other products so revenues

from assessment are hard to isolate § The Talent Assessment market is very fragmented – there is huge variation in product

type and quality and it is difficult to define, break down, and track the market Published estimates of market size:

§ According to CEB (in 2012) -‐ Talent Assessment is a $4 billion global market growing annually at seven to ten percent8.

§ According to Bersin by Deloitte, the size of the market (in 2012) was approximately $2 billion9.

Rocket-‐Hire’s estimates of market size:

§ We estimate that the overall global market for Talent Assessment in 2014 and 2015 across both Talent Acquisition and Talent Management is likely somewhere around $3 billion.


§ When focusing on Talent Assessments used pre-‐hire, we feel the market is around $1.25 billion — or slightly less than half (around 40%) of the overall market for Talent Assessments.

While there is higher volume of usage for pre-‐hire assessments, post hire assessments have a higher price per unit and are often easier for vendors to sell because they tap into larger budgets (i.e., learning and development), are less scrutinized for their ability to deliver ROI, and come with fewer concerns over legal compliance.

Breaking Down the Pre-‐Hire Talent Assessment Market Given the fragmentation of the pre-‐hire assessment market, the simplest way to break down the market is by firm size.

§ Large firms — The largest 7-‐10 firms account for about $450 million (or slightly more than one-‐third of the entire market). These are mostly established firms, with global presence and mature distribution. Note that SHL, by far the largest global provider of Talent Assessments, had revenues over $200 million in 2012.

§ Medium firms — There are 15-‐20 firms that account for about $500 million (40% of the

total market). These are established firms that are often global and use leveraged distribution to drive profits while keeping overhead low. This also includes the assessment practices of larger professional services firms (i.e., AON-‐Hewitt, Mercer, PWC) and HR consulting organizations.

§ Small firms — There are well over 100 small firms that account for about $300 million in

revenue (or about 25% of the market). This segment is a catch all that includes small content development, smaller consulting firms, specialty vendors (i.e., skills tests, simulations, etc.), and start-‐ups that are not generating any revenues at present. This area of the market presents significant opportunity. Many smaller firms are niche players that either have innovative blends of science and technology that will be disruptive and drive rapid adoption or have solid products but lack good distribution channels.


Expected Market Growth for Talent Assessment We expect to see significant growth in this market over the coming years due to the following trends:

§ Market consolidation and partnerships open distribution channels – We believe that this will be the #1 trend that will drive the market in 2015. Larger firms with complimentary products and significant distribution are able to offer their existing client base Talent Assessment as an additional value added product. The sales cycle for Talent Assessment is unusually long (and growing longer), so leveraging existing client relationships makes a great deal of sense. The fastest way in will be to ride the coattails of vendors who already have a trusted relationship, a foot in the door, or an existing master services agreement. Given the technical nature of Talent Assessments and the time needed to build a mature Talent Assessment product, it makes more sense to purchase assets than it does to build new ones. This position is supported by the following noteworthy M&A activity in the space over the past five years (as summarized in Table 1, below).

Table 1: Recent M&A in Talent Assessment

COMPANY ACQUIRED YEAR DEAL SIZE Mercer Censeo 2009 NA – $3-‐5 million (est.) Symphony Technology Group (PE)

First Advantage (testing assets – not whole company)

2010 $265 million

CEB SHL 2012 $660 million CEB Valtera 2012 NA – $5-‐10 million (est.) IBM Kenexa 2013 $1.3 billion PeopleMatter PeopleClues 2013 NA – $3-‐5 million (est.) Korn Ferry PDI 2013 $80 million with $15 million earn up Infor PeopleAnswers 2014 NA – $100-‐150 million (est.) Wiley Profiles International 2014 $51 million Hay Group Talent Q 2014 NA – $5-‐10 million (est.)

§ Integrated talent management provides a framework for uniting pre-‐ and post-‐hire functions — The maturation of HCM products is providing a significant platform for the continued uptake of Talent Assessments. An increasing number of HCM suite providers are finally turning their attention to the value-‐add that a unified assessment process has across entire talent lifecycle. Expect to see HCM providers begin to solidify their assessment strategies over the course of 2015.


§ Investment in start-‐ups and new technologies is creating a disruptive force —Traditional

Talent Assessment vendors have a poor track record with the use of technology and have struggled mightily with innovation. The mature vendors in the space have felt little pressure because they remain highly profitable doing things the same way they have been done for decades. The real innovation in this space is coming from a host of start ups and early stage companies that are blending advanced technologies and Talent Assessment content to create new tools that will eventually replace more traditional Talent Assessments.

§ Psychometrics supercharges social recruiting — Sourcing and recruiting will be the

highest growth area within HCM over the coming years. There is tremendous friction in the sourcing space due to the imprecision of current methods for matching people with job opportunities to which they are best suited. The targeted delivery of qualified candidates reduces the friction in the entire hiring process by increasing the probability of successful hires. The combination of psychometrics and AI within SoLoMo10 (social, local, mobile) technologies is set to fundamentally change talent acquisition by pushing the value of Talent Assessments further up the funnel where their cost is folded into sourcing budgets.

§ Increasing focus on analytics plays to Talent Assessment’s strengths —The movement to

create new tools that leverage big data and analytics to support decision-‐making are a dream for the Talent Assessment industry. Talent Assessment tools are designed to support predictive decision-‐making. The ability to show the value of Talent Assessments as decision-‐making tools requires a commitment to providing job performance data from those who have been assessed. It has traditionally been hard to obtain such data, making it very hard to show the value of Talent Assessments. A rapidly increasing number of end users of assessments are creating internal HR analytics functions whose job it is to collect and curate data. At the same time, HR technology providers are adding their own analytics functionality to platforms that collect both pre and post hire data. When combined with advanced analytics, the ownership of data across the entire employee lifecycle supports an entirely new level of sophistication in business intelligence. These things are setting the stage for the vendors of Talent Assessments to demonstrate the value add their tools can provide and fuel the continued optimization of their products.

§ Closing gaps in preparedness around talent requires good measurement tools —

Certainly CEOs realize the value of talent to achieving their mission. But the general consensus is that they are unprepared to meet the talent challenges that will define the success of their businesses. Recent surveys of business leaders by PWC11 and Deloitte12 both identify major gaps between the perceived value of talent and the readiness of


organizations to manage it. Talent Assessment is an essential tool for closing these gaps and as such, it will continue to gain interest from business leaders over the coming years.

§ Underserved areas still exist — Expansion into areas that remain underserved by Talent

Assessment tools has the potential to drive significant profits. These include SMB and managerial professional jobs, both of which suffer from a lack of innovative tools and methodologies. This is because in both cases, most of the tests used are off the shelf and are not dialed in to specific, localized job requirements. Technology is allowing providers the ability to create more targeted tests that can be delivered transactionally, filling a huge need when one considers the massive number of persons employed by SMBs and/or are in professional managerial roles.

§ Niche players are thriving – Talent Assessment remains a cottage industry populated by many smaller shops that have distinct specializations. Many vendors in the space serve well-‐developed niche markets, either by vertical (i.e., healthcare) or by technology (i.e., simulations). These companies will experience upticks over the course of 2015.

§ Talent Assessment is a global business – While the most profitable Talent Assessment

firms are based in the US or UK, Talent Assessment is used worldwide. There remains tremendous opportunity for increased use of Talent Assessments in emerging markets. While US-‐based firms have had trouble charging Western prices for assessments in developing nations, the opportunity for scale is greater than in the West.

Expected Market Growth Rocket-‐Hire believes that the overall Talent Assessment market will experience growth of only 5-‐10% in 2015. However, we expect a significant uptick in the range of 15-‐20% over the coming five years as new technologies find their way into the space and distribution channels continue to open up. Based on the very real and present trends outlined in this briefing, we expect the overall Talent Assessment market to top $5 billion by 2020. Our estimates are also based on the fact that the existing market for assessments is not even close to meeting the total addressable market for these tools. At present assessment is likely used for much less than half of the 50 million total hires made in the US yearly13, leaving tremendous space for additional uptake. When one considers that over 50% of all workers in the US are employed by SMBs, simply adding wider use of assessments within this segment will provide scale that will lead to significant increases in market value. Due to SMB opportunities, increased investment in talent acquisition technology, and increased focus by HCM vendors, we believe that the pre-‐hire Talent Assessment market will experience the most growth (vs. the post-‐hire market) over the coming 5 years. We estimate this market


for pre-‐hire assessments to grow to well over $2.5 billion by 2020 and move past post-‐hire Talent Assessment to represent over 50% of the overall market for Talent Assessments by 2020.


Part II: Talent Assessment Market — Vendor Classification Scheme A Fragmented Market It is difficult to easily understand and classify the Talent Assessment market because it is highly fragmented. The main reasons for this fragmentation include:

§ Broad definition – There is absolutely no “market standard” for what a Talent Assessment is or should be. Even within the boundaries of accepted conventions, there are literally hundreds of ways that one can measure or assess talent. In many cases, methodologies may expand outside the boundaries of what has traditionally been labeled as Talent Assessment.

§ Variation in methodologies – “Talent Assessment” is a term that covers a wide range of

vendor methodologies. The term “methodology” refers to the manner in which the assessment content is configured, deployed, and evaluated. Methodologies are most commonly not bound to any one type of content. For instance, personality testing can be implemented using a number of different methodologies. The methodology used by a vendor is a major determinant in their ability to support accurate decision-‐making. It is often difficult for those not trained in the technical aspects of Talent Assessment to differentiate between the methodologies available, a fact that makes it more difficult to understand the market as a whole.

§ More new vendors – The market continues to expand at a relatively rapid pace. There

are significantly more firms now than there were a decade ago. Most new firms are focused on leveraging technology to enhance the ability to quickly create highly accurate tests, thereby disrupting the market. There are relatively few new vendors who are entering the market with a business model that relies on traditional methodologies.

§ Talent Assessment is getting absorbed into other offerings – While there are many new

firms emerging, established firms continue to be absorbed by larger companies seeking both content and an established customer base. Consolidation in the marketplace and the injection of Talent Assessment into ancillary HR technologies (e.g., ATS, 360 degree feedback, sourcing) make it more difficult to directly track the direct role of Talent Assessment in generating revenue.

§ Talent Assessment cuts across both talent acquisition and talent management – TA and

TM are very different functions and the manner in which Talent Assessment is sold and used can differ dramatically between them. Tracking the market for assessment requires


understanding the differences between Talent Assessment across both TA and TM. This is not an easy task.

Talent Assessment Vendor Classification This report provides a two-‐part classification model that can be used to differentiate and classify Talent Assessment vendors. It is important to note that our model does not use assessment type (i.e., personality, assessment center, etc.) to classify vendors. Many vendors offer a range of assessment types that are similar in nature, making content a poor method of differentiation. Instead our scheme uses two heuristics. First, we provide a quadrant-‐based scheme that places vendors according to their ability to manage the tradeoff between ease of implementation (referred to as “Fluidity”) and accuracy of their solutions (referred to as “Power”). Secondly, we support the quadrant scheme with a simple categorization model that facilitates the placement of vendors within quadrants based on their implementation approach (i.e., methodology) and use of technology. Note: This report does not include the names of specific vendors within the classification scheme. This information is available via a direct engagement with Rocket-‐Hire. Categorizing the Market – A Quadrant-‐Based Scheme Fluidity vs. Power The effective use of Talent Assessment requires the management of many tradeoffs, all of which boil down to one key focus-‐ balancing the time and expense required to achieve predictive accuracy. Traditionally, achieving higher levels of accuracy requires more time and expense in the development, configuration, and implementation of an assessment. While more traditional assessment methodologies focus almost entirely on driving precision via a very labor intensive model, technology and market demand for less expensive, easy to deploy tools have led to the development of methodologies designed to increase the speed and ease with which an assessment can be implemented. No matter what specific type of assessment content is involved, vendors are continually searching for the formula that will support both ease of implementation and accuracy. The wide range of different approaches to the tradeoff between speed and accuracy has resulted in the development of a significant number of differing methodologies. In many cases a focus on speed results in a methodology that deviates from core best practices. On the other


hand, traditional best practices based methodologies can drive high levels of accuracy but require a great deal of time and expense to configure and implement. Our classification schema (see Figure 2) is comprised of two parameters — fluidity and power — that create four quadrants. These key parameters are defined as:

§ Fluidity – The ease and speed at which an assessment can be deployed. Fluidity represents the labor intensiveness of a vendor’s methodology for configuring, implementing, and evaluating an assessment.

§ Power – The predictive accuracy of the assessment (AKA, validity). Power represents the

extent to which the assessment measures things that it is supposed to and can deliver outcomes that create value.

Figure 2 – Talent Assessment Quad Scheme


The Four Quadrants In Our Model Include: Quadrant 1 – High Fluidity, High Power è Disruption and the Future of Talent Assessment Vendors in this space are using technology and assessment science to disrupt the market by offering tools that are both fluid and powerful. This is the quadrant will continue to expand as vendors find ways to support the ability to quickly drive precision at scale. Quadrant 2 – High Fluidity, Low Power è A Crowded Space This quadrant is crowded as many vendors offer products that lead with ease of implementation but sacrifice predictive accuracy. Vendors in this quadrant vary quite a bit based on their methodologies. It is often difficult for consumers to understand the difference between vendors in this quadrant and those offering solutions of higher quality. Quadrant 3 – Low Fluidity, Low Power è Dead Zone There are almost no vendors working in this space, few vendors fit this model as it represents the intersection of two undesirable parameters. Vendors in this quadrant have little of value to offer and should be avoided. Quadrant 4 – Low Fluidity, High Power è Traditional Methods This quadrant includes vendors who take a careful, more handcrafted approach to ensuring that Talent Assessments are “dialed in” precisely for a given client situation. Even with currently available technologies, driving high levels of accuracy requires a good deal of effort. This quadrant will remain filled with strong offerings and represents the core of the market at present, but will slowly erode as technology continues to drive change in methodologies and the market moves towards Quadrant 1. Vendor Categories – Placing Vendors in the Quad Scheme Given the number of methodologies and ways in which Talent Assessment can be sold, it is difficult to create clearly defined vendor categories into which vendors can be cleanly placed. However, in an effort to simplify the classification process, we present a simple categorization structure that includes three categories that are not mutually exclusive (many vendors fit into more than one category). Note that our categorization model does not focus on the specific type of content sold by a vendor (i.e., personality tests). Outside of niche vendors specializing in only one type of


assessment content, we feel that assessment type does not provide the ability to truly differentiate vendors. We feel that vendors are best differentiated via the process by which their content is deployed (e.g.., methodology) and the use of technology to support deployment. The remainder of this section summarizes our placement of each firm type within the quad scheme (this information is depicted in Figure 2). A. High-‐Touch Consulting Firms

Quadrant 3 – Low Fluidity, High Power While many Talent Assessment methodologies require some consultation, firms in this category are differentiated because they lead with a high-‐touch approach marked by a heavy reliance on professional services. Talent Assessment has traditionally focused on a heavy level of engagement between provider and consumer, thus this category is comprised of firms that use more traditional methods. These methods require consultative partnerships with clients and often sync with the development of people processes across a wide range of scenarios. High-‐touch firms focus on the development of strategy with their clients while also providing the services needed for execution (i.e., the development, implementation, and evaluation of customized Talent Assessment tools). There are three types of vendors found within this category:

1. General consulting firms with an HR practice area – Large consulting firms often create and use Talent Assessment as part of the toolset needed to serve their clients. Talent Assessment is rarely the only tool these companies provide to their clients, rather it is part of a more comprehensive partnership.

2. Talent Assessment consulting firms – These firms consult only on Talent Assessment.

They often use a core set of tools that are customized for clients. These firms heavily leverage professional services when working with their clients. Most of these firms have an I/O psychology background and use more traditional methodologies.

3. Developers of custom assessment content– These firms develop bespoke

assessments for clients. They focus less on strategy and more on the test development process. These firms often specialize in the development and maintenance of certification exams, licensure exams, and knowledge tests.


B. Blended Approach – Product Firms

Quadrants 1,2, and 3 These quadrants represent the most crowded segment of the market and differentiating the vendors found within can be difficult. Firms in this category take a more transactional, productized approach that focuses on reducing the time to deploy assessments. Due to the complexities associated with Talent Assessments, product firms often must support their offerings with a full slate of professional services. Vendors in this category are differentiated from consulting focused firms because any professional services required to support their products don’t center on customization of assessment content. There are three types of vendors within this category:

1. Test publishers/transactional solutions – Includes firms that create discreet tests that measure specific traits or are packaged for a specific job. This area includes traditional vendors who have been selling the same basic content for decades. Most vendors in this category offer solid products that have been proven to work. Despite the quality associated with it, the test publisher model is starting to fade as an increasing number of firms have been purchased for their content and integrated into larger entities. There are also an increasing number of companies offering transactional solutions for sale directly with no human intervention or consulting to support. Both test publishers and transactional sellers are increasingly focused on supporting the SMB market.

2. Solution providers – At present, this is the largest area within the entire Talent

Assessment space. There are a rapidly increasing number of companies offering technology based assessment platforms that can be used to quickly and easily support implementation. This is one of the main entry points into the market as firms continue to create technology-‐based solutions that attempt to be both highly fluid and highly accurate. Most of these firms are product focused and any required consulting services focus on supporting the product rather than creating custom content. There is a tremendous amount of variation within this category – making it hard for non-‐experts to differentiate the quality of a given vendor.

3. Providers of specialized assessments– This area includes firms that provide a highly

specialized assessment product or solution. Many of these providers offer highly specialized tools (i.e., call centers, job specific simulations, etc.), or work exclusively within an industry vertical.


C. Technology Firms – Leading with True Innovation

Quadrant 1 This category includes firms that were created around technology as opposed to a specific Talent Assessment method or model. These firms are using combinations of assessment content, AI, mobile, social and big data to create a new brand of measurement products that represent a departure from traditional methods and products. There are three types of vendors within this category:

1. Measurement innovators – Includes companies using Talent Assessment as the core of a market offering that is disruptive or highly novel. This includes a range of firms that may use AI and big data based solutions to predict job success. Some of these firms use non-‐traditional approaches such as neuroscience based assessments or games.

2. Integrated platform providers – This is a rapidly growing area within Talent

Assessment that includes HR technology and HCM providers who are adding assessment functionality in combination with analytics to drive new levels of insight around talent.

3. Sourcing and predictive matching tools – There are an increasing number of

providers that are using psychometrically based tools to support enhanced sourcing, moving assessment outside of the funnel in an effort to reduce the friction that plagues this area. These providers are creating talent marketplaces in which assessed candidates are matched with job openings based on a combination of both AI and psychometric data. Sourcing is also well suited for the use of social data and connections to support a more quality focused sourcing process that is a win-‐win for candidates and employers alike. This is an area where we expect to see the significant growth and innovation over the coming years.


Part III: Market Opportunity This section frames market opportunity via a summary of trends and technologies that will create disruption within the Talent Assessment space. It closes with the identification of the five areas that represent the most significant market opportunities for Talent Assessment as we move towards 2020. Trends and Technologies Trends Limiting Strong Growth 2015–2017 While the overall outlook for Talent Assessment in 2015 is favorable, the following trends will continue to limit the size of market increases over the coming few years.

§ Assessment continues to be a hard sell at the enterprise level – Traditionally long sales cycles are getting even longer. Most end users still don’t understand the value of Talent Assessments and will continue to put it off as secondary to the adoption of new systems such as Applicant Tracking Systems (ATS). As HCM providers’ Talent Assessment strategies mature, uptake at the enterprise level will increase significantly.

§ Assessment is becoming commoditized – The proliferation of new vendors entering the

space, the difficulty of fielding quality solutions at scale, and the consolidation of Talent Assessment into larger HCM systems are threatening to commoditize the industry. This is driving prices down and creating increased confusion amongst consumers.

§ The value of Talent Assessment will remain obscured by lack of quality, reliable

performance data – To truly show the value of Talent Assessment, its relationship to key performance indicators must be demonstrated. End users will continue to struggle to provide the data needed to clearly show the ROI of their assessment programs. As vendors provide improved tools and processes for better collection and curation of performance data, dramatic increases in the predictive accuracy of assessments will result and the uptake of assessments will increase.

§ Assessments still look (mostly) old fashioned – Change is slow to come to the assessment

industry. While the coming year will see the continued rise of new start ups with fresh ideas, it will take some time for their products to mature. The norm in the industry is still tests that are not user friendly and often receive push back from end users who feel it is a sandbag in the workflow of the hiring process.


§ Increasing pressure for mobile assessments remains unmet – Talent Assessment is still a

research-‐science based discipline that remains conservative. While all the big providers have some mobile offerings, there remains trepidation around the equivalency of mobile assessments to more traditional methods. On top of this, changes in mobile technologies are happening very fast. Eventually new item modalities will be created that are in sync with mobile capabilities, we expect this is still several years out.

Looking Towards 2020 As we approach 2020, the trends below will have a significant impact on the Talent Assessment market and will be largely responsible for the additional market growth. These are the trends that will shape the future of the Talent Assessment space.

§ HCM suite providers’ offerings mature – Talent Assessments will be much more mainstream by 2020, creating more market penetration for providers and driving significant increases in revenues. Growth will come via HCM providers’ ability to support integrated talent management with predictive data and analytics that will support insight that is directly linked to business operations and strategy.

§ Increasing number of non-‐traditional predictive tools compete with Psychology based

Talent Assessments – Predicting success in hiring is no longer the sole domain of I/O Psychologists. There are a growing number of non-‐psychological tools that are being touted as scientifically sound ways to model hiring success. These are mostly AI based predictive tools, but also include neuroscience based assessments. We can expect to see growing tension between the traditional ways and advanced technologies that threaten to marginalize them.

§ Increasing focus on “fit” – The ability to determine the level of “fit14” between the values

of applicants and those of employers is a universally popular idea. At present, its execution has been limited. Increased mobile and social recruiting technologies using AI and crowdsourcing combined with psychometrics will provide a winning formula.

§ The candidate voice will begin to force a change – Increased social connectivity is placing

bottom up pressures on companies to adapt or die. Increasing pressures on corporations to view their hiring process as an extension of their corporate brand will force a change. The candidate experience for Talent Assessment is notoriously poor and companies are slowly putting pressure on assessment providers to create a better candidate experience.


§ SMB market for assessments begins to heat up – Quality transactional tools that can be quickly targeted for specific jobs or populations will continue to become available. The ability to leverage taxonomic tools such as O*NET15 to localize and optimize assessment content will help assessments become more widely used.

§ Social and AI forever change sourcing – Social job matching is pushing Talent Assessment

up the funnel16-‐ making it easier to leverage the benefits of quality psychometrics to help job seekers find jobs (and vice versa).

§ Credentialing begins to mature – There is no doubt that credentialing will be a major

force in the future of hiring and that credentials will be at least partially based on assessments. The coming changes in learning and the higher education system will demand it. Once LinkedIn and Facebook field trusted badging systems, everything will change. The ability to use digital merit badges to verify important information will be the deathblow to traditional methods such as resumes.

§ Interactivity moves closer to mainstream – Gamification is already starting to be a

significant pressure in the assessment industry. There are still significant measurement issues with games and simulations, but they are on the forefront of research in the space and it is an eventuality that assessments will become more interactive as time goes on.

Technologies On Which Change Will Be Built These are the ingredients that will/are bring change to the Talent Assessment landscape by allowing assessments to be shorter, more accurate, more engaging, and more socially connected.

§ Crowdsourcing/Collective intelligence § Machine learning17 § Gamification § Mobile technology § Sentiment Analysis18 § Speech recognition/text to speech § Supercharged AI & Analytics § Natural language processing19 § Writing content analysis § Content authoring systems


Summary of Major Talent Assessment Market Opportunities All of the trends and information summarized in this report suggest that there will be an increasing opportunity for Talent Assessment as a revenue engine for a variety of different types of business. While traditional methods will remain lucrative due to their high profit margin and history of success, there is tremendous opportunity for disruption within the Talent Assessment space. This disruption will leverage the use of technology and science to simultaneously drive both speed (e.g., Fluidity) and accuracy (e.g., Power). The increasing ability of technology to increase fluidity and power of Talent Assessment has placed us on the edge of a major shift in the field. The future of the space will be defined not by I/O psychologists, but rather by multi-‐disciplinary collaboration between psychologists, sociologists, data scientists and computer scientists. The increased role of analytics and hard data within HR practices will drive new levels of insight that will raise the bar for accountability amongst Talent Assessment vendors, forcing them to adapt or die. Based on our thorough review of the Talent Assessment market, opportunity and growth will center around the following:

§ OPTIMIZED SOURCING – The existing sourcing process has been broken since the days of the first job board. There is a tremendous amount of friction in the sourcing area and a tremendous amount of value to be extracted via reducing it. The highest growth area within the overall market will center on the use of socially based sourcing tools that combine AI, psychometric measurement tools and advanced predictive analytics. The data collected in the sourcing process will continue to have value across the entire employee lifecycle, driving increased value for those who can support both pre and post hire needs. Moving psychometrics to the sourcing area will also support the value of psychometrics without all the adoption hassle currently marking the enterprise sales of Talent Assessments. Keywords: Fit, cultural fit, social job matching, social sourcing, talent communities

§ EMBEDDED PSYCHOMETRIC MEASUREMENT – HR technology providers will begin to figure out that outsourcing Talent Assessment to a third party vendor is both expensive and unwieldy and will increasingly seek to own their own assessment content. Ownership of content provides an economic advantage creating pure profit once the sunk cost of obtaining content has been paid off. Ownership of content also ensures more control over how assessments are delivered and complete ownership of assessment data. Data ownership is significant because it allows more latitude in the


analysis of data across the entire employee lifecycle, thus supporting deeper levels of insight for clients. The next five years will see significant increase in the number of HR technology vendors who invest in owning and embedding assessment content. Once this content is paid off, these firms will be able to drive significant increases in revenue as they provide their owners a key ingredient in using data to show direct value to their clients’ business line. Keywords: Integrated talent management, HCM platform, predictive analytics, data warehousing, employee lifecycle

§ INTERACTIVITY AND GAMIFIED PSYCHOMETRIC ASSESSMENTS – Engagement is becoming a critical driver of success in the hiring process and beyond. The current assessment experience is looking increasingly old fashioned. Generational pressures will demand that assessments change to look and feel similar to current user experiences. The space is wide open for increases in engagement around the measurement experience. We can expect to see many user experiences becoming measurement tools via the ability to harvest data that can be analyzed and interpreted to make predictive decisions. Firms that can create engaging tools that are also scientifically sound will have a significant opportunity to gain market share. Keywords: Engagement, Mobile, Social, User experience, employment brand, social data, credentialing

§ DRIVING PRECISION AT SCALE – There is tremendous opportunity for mass customizable transactional Talent Assessment products. The inability to customize an assessment for a given situation results in decreases in accuracy. The alternative has traditionally required significant time and money to manually calibrate an assessment. Advances in AI, job taxonomies, and analytics provide the foundation for a new breed of tools that support both fluidity and power. These tools are well positioned to tap into the SMB market, a segment that has been largely underserved when it comes to quality Talent Assessment products. Keywords: SMB, O*NET, transactional, mass customization, individual contributors

§ NICHE BASED SIMULATIONS – When it comes to predicting job success, work samples and simulations are hard to beat. However, these tools are often very expensive and are unable to replicate many work environments. Advances in technology are allowing


the creation of work samples and simulations that are flexible and engaging, while remaining relatively inexpensive. There are certain niche jobs or industry verticals (i.e., nursing, financial analysis, etc.) that will benefit from the use of accurate and engaging simulation tools. As time goes on, expect to see more simulations that serve the needs of both hiring and training. These simulations will be delivered via engaging platforms that can be used across the entire employee lifecycle. Keywords: Manufacturing, work sample, industry verticals, serious games, authoring systems, branching logic, sentiment analysis


Conclusion While it can be extremely complex in its execution, Talent Assessment represents a component that has significant value to both talent acquisition and talent management platforms. It is expected to be a high growth area over the coming years, with the most significant growth coming as technology becomes more deeply blended with the science of psychological measurement. As time goes on, approaches that are based purely in psychology will fade in favor of a range of new methodologies. The most significant growth in the use of assessments will come in two areas. The first is sourcing, as AI and measurement combine to reduce the friction that has plagued this area. The second is via their integration into HCM platforms that house both predictor and outcome data. Owning both data streams will support new levels of business intelligence — allowing companies deeper levels of insight into the value of their human capital.


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3 http://www.bersin.com/lexicon/Details.aspx?id=12860

4 http://www.slideshare.net/JeffMonk/human-‐capital-‐management-‐software-‐market-‐overview

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6 http://www.idc.com/getdoc.jsp?containerId=241032

7 http://www.forbes.com/sites/joshbersin/2014/06/26/the-‐talent-‐management-‐software-‐market-‐surges-‐ahead/

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10 http://searchconsumerization.techtarget.com/definition/SoLoMo-‐social-‐local-‐and-‐mobile 11http://www.pwc.com/talentchallenge

12 http://dupress.com/articles/human-‐capital-‐trends-‐2014-‐survey-‐top-‐10-‐findings/

13 http://www.bls.gov/opub/ted/2014/ted_20140701.htm

14 http://www.ere.net/2004/05/20/the-‐value-‐of-‐person-‐organization-‐fit/


15 http://en.wikipedia.org/wiki/Occupational_Information_Network

16 http://www.ere.net/2014/06/05/why-‐social-‐job-‐matching-‐will-‐replace-‐talent-‐assessment-‐tests/

17 http://en.wikipedia.org/wiki/Machine_learning

18http://en.wikipedia.org/wiki/Sentiment_analysis

19http://en.wikipedia.org/wiki/Natural_language_processing

Rocket-Hire Talent Assessment Market Overview 2014-2015

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