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The modernization of human resources technology is accelerating, with enterprises making a decisive shift toward cloud-based solutions and significantly increasing their investment in artificial intelligence. According to a new biennial report from Information Services Group (ISG), AI budgets for HR are set to average $1.6 million in 2026, a tenfold increase since 2023.
AI budgets for HR have increased tenfold since 2023, averaging $1.6 million for 2026.
83% of companies will use SaaS or hybrid cloud HR solutions by the end of 2027.
Over two-thirds of enterprises rank AI adoption as a top-three HR priority.
AI is already delivering 10-15% productivity gains in selected HR processes.
Only 52% of organizations currently see quantifiable value from their HR technology.
Data security and integration capability are the top priorities for new HR tech solutions.
The report identifies a clear tipping point in enterprise HR technology strategy. SaaS or hybrid cloud models now form the core of HR technology at 69 percent of organizations globally. This migration is expected to intensify, with 83 percent of companies planning to use SaaS or hybrid approaches by the end of 2027. Half of all organizations will be using SaaS solutions exclusively, replacing legacy systems with unified suites that integrate HR, payroll, and talent functions. Stacey Cadigan, partner at ISG, stated, “HR modernization has entered a second act, focused on maximizing business value."
The surge in AI investment is one of the most significant findings. With more than two-thirds of enterprises ranking AI adoption among their top three HR priorities, the technology is moving from experimentation to implementation. Early use cases delivering productivity gains of 10 to 15 percent include AI-assisted job postings, document creation, and automation of onboarding processes. However, the report notes that using AI for more complex applications like workforce planning has proven more challenging. Cadigan added, “The pressure is on to implement AI at scale and achieve measurable HR outcomes."
This technological shift is directly influencing how HR services are delivered. The survey shows 84 percent of organizations plan sourcing changes within the next two years, shifting work to outsourcers, internal shared services, or other models. AI-enabled support is allowing employees to access help through more effective channels, refining overall service delivery. Stanton Jones, distinguished analyst at ISG, noted, “The most successful organizations will use AI and platform investments for repeatable, scalable business impact." Despite this momentum, barriers remain, as only 52 percent of organizations currently see quantifiable value from their HR technology investments, hindered by budget constraints and legacy system complexity.
The widespread adoption of SaaS and the strategic infusion of AI are fundamentally reshaping the HR function. As enterprises move beyond initial digital transformation, the focus is now on leveraging these technologies to unlock operational excellence, drive tangible ROI, and create a more agile and insightful human resources operation.
About ISG
ISG 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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