Are the Walls Starting to Crack at Hewitt?
I started working on a post earlier this week about why ADP should buy Hewitt when I got news (and an early phone call) this morning of big changes at Hewitt. Today, Hewitt announced some significant changes to their organization including the retirement of the CEO and resignation of the head of their HRO business, Bryan Doyle. You can always make assumptions into these type of announcements and therefore I will not speculate. What I do think, though, is that Hewitt is a victim of their own success. Hewitt has closed 14 new HRO deals since the merger with Exult. While many HRO providers have struggled to gain traction, Hewitt continues to win large deals and gain share in the market. It is not a sales issue.
Operationally, though, many would consider Hewitt’s HRO operation a disappointment. Hewitt has really struggled to efficiently and cost-effectively implement and manage clients. The complexities and change management processes have been a real challenge for them and the financial targets for the business have been severely compromised in process. Additionally, the resource bottlenecks due to much of the business have created a combustible environment with the steam beginning to become out everywhere. They have yet to make HRO a scalable business practice especially when it comes to the technology side. I don’t mean to single out Hewitt—none of the other providers have figured out this Rubik’s cube of HRO yet. The challenge as a "pioneer", though, is that your weaknesses begin to get exposed as the cracks start to show in the foundation. This is not fatal for Hewitt. They are still the recognized market share leader in HRO and a visible force in the market. This does show that significant work is still ahead for the entire vendor landscape to ensure the market and the model has legs and is viable in the long term.
June 15th, 2006
5 Comments Add your own
1. Phil Fersht | June 15th, 2006 at 2:58 pm
Hewitt really pushed the boat out and made a brave play into HRO when they acquired Exult.
However, the events of today are more evidence that HRO is not making money and has been underpriced. The one-to-many model has yet to be seen functioning in HRO and the service providers in this business need to think seriously about how they sell and price the HRO value proposition in future.
The models being developed by ADP and Fidelity are giving the industry hope that one-to-many platforms based around payroll, benefits and self-service tools will begin to bear fruit in the mid-market. The current high-end deals are still too similar to the old Exult model…. we can but hope Hewitt will stabilize and work through it’s current issues.
2. Double Dubs | June 16th, 2006 at 1:51 am
Had to comment on the ADP buying Hewitt piece. Even if this were a reality, I’m not so sure it would be a great idea. ADP is gaining great traction in the mid market (5-25K employee) space. They know how to operate in that market segment well and efficiently. They have also proven that they can’t provide the level of technology and process customization to be effective in larger markets - it’s just not their business model.
-Dubs
3. Phil Fersht | June 16th, 2006 at 8:34 am
Dubs,
Agree with your point that ADP has yet to tackle enterprise-level customers with its solution. However, it’s Globalview offering running on SAP is the closest solution the industry currently has to a “one-to-many” in HRO platforms. The Exult model proved that buidling common HR standards across multiple high-end clients is a tough task to achieve, and today’s wave of new “second generation” HRO deals are still tackling the issue.
My key thinking today is that HRO has been oversold and underpriced, and needs to focus on the systematic transactional processes. Interestingly, we’re seeing payroll increasingly being tackled with F&A deals now as the integration points are stronger in many cases. ADP’s biggest mistake might be throwing all its eggs into HRO and ignoring the fact that payroll typically reports to the finance/procurement functions outside of the US.
PF.
4. Bud | June 16th, 2006 at 2:23 pm
Actually I think ADP does a horrible job in this market. They are fortunate to have a big name and the payroll function that everyone already uses. They dump a few fees and sucker people into taking the HRO. Unfortunately, it’s a disaster more often than not, but most people don’t know that they should be better than they are.
5. Phil Fersht | June 18th, 2006 at 2:56 pm
HRO is all about service delivery to a basic standard at the moment (forget the bells and whistles) - the key issues are for the suppliers to build common standards across their clients and turn a sufficient profit to make Wall Street happy. Forget about brands and products at the moment, we just need a few of the smarter suppliers to get their delivery models off the ground and become profitable, or the industry’s going to hit the skids again.
ADP have a track record of astute financial management and patient decision making. If you look at their record with their early forays into HRO, they have outperformed (and outlived) many of the earlier entrants into this market.
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