HR Tech Startups Focus on Diversity Solutions

Machine Learning

They say diversity & inclusion is good business. That’s increasingly true for HR tech companies that build tools to help companies reach their D&I goals.

In a new report, RedThread Research and Mercer say that the market for D&I solutions is growing—it’s now worth about $100 million—but fragmented. Most of the vendors at work in the space are young, small companies, meaning they’re less than four years old and have fewer than 50 employees. Their customers are found mostly in finance and banking, technology and professional services.

The greatest number of these firms, 43 percent, are pursuing products focused on talent acquisition. Another 26 percent are working on analytics solutions, while 19 percent create development and advancement tools and 12 percent work in engagement and retention.

They say #diversity is good business. That’s increasingly true for #HRTech companies that build tools to help companies reach their D&I goals. Share on X

Business is good in the space. A quarter of the vendors reported year-over-year revenue growth of 100 percent or more. That’s not surprising given the spotlight #MeToo has shined on gender discrimination.

“We know that companies are renewing their focus on D&I,” said Stacia Garr, principal analyst at RedThread. “As a result, we’ve seen a flood of new entrants into this market sector.”

Carole Jackson, a senior principal in Mercer’s Diversity & Inclusion consulting practice, observed that D&I has long been a priority for many employers. However, CEOs see a difference between “priorities” and “business priorities.” While many organizations consider D&I efforts to be “the right thing to do,” executives don’t often give them a high level of backing. The C-suite might say it supports DE&I initiatives, but it rarely gives them much of a budget.

That may be changing as more research traces a direct link between improved diversity and business results, Jackson said. As more evidence of that link emerges, “CEOs are putting real budgets in place” to eliminate bias in both talent acquisition and the workplace environment. “This is proving to be the fuel for change, and creating space for these technologies to grow,” she said.

Diversity’s Challenge Is Human

When it comes to D&I, vendors face a tough challenge, many diversity experts say. Tools are often focused on flagging bias when it becomes evident, such as in the text of a job posting or the wording of a performance review. Uncovering biased language isn’t the same thing as softening real bias where it lives—in the hearts and minds of both employers and workers.

Last year, recruiting platform provider Greenhouse launched a “holistic” solution to help companies integrate inclusive practices into their recruiting and hiring processes. The feature’s goal is to “operationalize” behavior change and minimize bias.

By strengthening—or perhaps building—a structure around the hiring process, Greenhouse is designed to press HR and managers to evaluate all candidates consistently. By standardizing the hiring process and having someone accountable for every stage, the system is meant to limit the impact of irrelevant information or hidden bias, the company said. Many analysts thought it was a promising approach.

However, later in the year Amazon demonstrated how difficult it can be to build tools that rely less on a manager’s actions and more on the technology itself. According to Reuters, the company spent years developing a machine-learning tool to review resumes dispassionately. However, the system based its learning on patterns found in resumes submitted over a 10-year period. Since the tech workforce includes many more men than women, the system inevitably taught itself that male candidates were stronger than their female counterparts.

For Ken Lazarus, CEO of Scout Exchange, a platform that connects employers with search firms, the project’s failure confirmed “that direct candidate matching cannot (currently) be effective due to the lack of objective unbiased data in resumes and job descriptions.”

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