European enterprise software market focusing investment on talent shortage and customer relations - IDC

Customer relationship management and human capital management applications are predicted to outpace the overall market

The talent shortage and improving customer relations are key drivers of investment in the European enterprise software market, according to IDC.

In its Software Semiannual Tracker H2 2022, IDC reports the European enterprise software market grew by 13.1 per cent year on year in 2022 despite economic turbulence and global instability.

This represented the highest growth in the past 20 years, demonstrating the resiliency of demand for software in the face of major macroeconomic factors.

The growth was primarily driven by increased price of software licenses (reflecting high inflation), customers locked in with existing partners that were unable to cancel subscription (unless for significant additional costs), and contracts signed for longer time periods than was standard in previous years.

According to IDC's research, the enterprise software market in Europe is expected to record a 2022-2027 compound annual growth rate (CAGR) of 9.2 per cent, reaching a value of $115.5bn (£89.42bn) by 2027.

Key drivers of enterprise apps will be customer relationship management (CRM) and human capital management (HCM) applications, which are predicted to outpace the overall market, with CAGRs of 12.0 per cent and 11.5 per cent, respectively.

While CRM applications and collaborative applications peaked as investment areas during the COVID era, high demand remained for CRM due to continuing remote work and recent widespread AI enablement.

The introduction of OpenAI's ChatGPT to developers and the general public in November of 2022 allowed everyone to experience the technology.

AI with voice integration will further aid in consistent channel handling, especially for complex and high-value interactions.

"Customer service applications continue to be growth markets as we emerge from the pandemic into the 'resiliency' phase of COVID recovery," said Tomas Doktor, research manager at IDC European Software.

"The associated personnel remain in a fluid work environment requiring additional software functionality."

In comparison to the CRM segment, where Salesforce holds a dominant position, the HCM market showcases a far more varied array of vendors, from historical players to disruptive niche vendors.

"Growth in the HCM space will be strong, and major European players are making a significant number of acquisitions," noted Ivan Oz, senior research analyst at IDC European Software.

"For example, Visma acquired 42 companies in 2022, and Workday unlocked $250m (£193.56m) in a venture fund to invest in HCM and finance startups."

European organisations are struggling with ongoing talent shortages and are increasingly seeking tech solutions to streamline their talent acquisition and management processes.

Besides a shortage of skilled workers, but other factors such as a growing focus on employee experience, the changing role of HR departments, and substantial investments in talent development and reskilling are expected to drive HCM market growth in the near term.

Earlier this year, CRN spoke to Gartner's Mbula Schoen about this very topic and he claimed talent shortage was not on its way out and that it would take at least 12-18 months before things picked up again.

Westcon CEO David Grant also commented on this claiming that while the talent shortage is still a prominent issue, the recent big tech layoffs we've seen would provide an opportunity to bring talent into the channel.