The intersection between HR strategy and HR technology


Talk About Hewitt

systematicHR Avatar

There’s been a lot of it lately.  Our own Donald Glade wrote about it here, and Jason did here.

First off, my response to Jason Corsello:  ADP should not buy Hewitt.

  • ADP does not have a proven track record integrating acquisitions into their business model.  They acquire and then try to turn every acquisition into an ADP.  It doesn’t work when the services you provide are so dependent on the people doing the work.
  • ADP does not understand the large employer market (defined as the Fortune 1000).  While they may be able to scale services for HR, payroll and benefits up to 50K employee and maybe even more, their business model of highly transactional, repeatable services has not combined well with the consultative services that are required for a good business partnership.
  • Hewitt has lost too much of their consulting talent.  What made them valuable once no longer exists.
  • Hewitt isn’t a profitable enterprise.  And the collary to that:  ADP is all about profits.  Except for the ProBusiness acquisition a few years ago, ADP doesn’t generally acquire a business knowing they are going to have to turn it around.
  • ADP doesn’t know enough about HRO to turn the business around.  In fact, it’s possible nobody knows enough about HRO to really turn Hewitt around.


The implications for the HRO market will be interesting to watch.  First off, Hewitt’s pipeline is undoubtedly suffering and they will have to work hard to win sales.  Not only is their balance sheet and turnover going to cost them sales, but as the mood in the organization worsens and sales suffer, they will probably have an exodus of their best salespeople.

Second, we’ll probably see the HRO buyers giving the HRO vendors a bit more grief about their cost model.  While buyers will be driving for lower costs, they’ll have it in the back of their minds whether the vendor can provide quality services, make money and deliver a mutually agreeable pricing contract all at the same time.  Never has this been more of a concern.  If Hewitt can have these issues, any of the other vendors can as well.

There’s been a lot of speculation that Hewitt might spin off the HRO portion of it’s business.  I simply can’t see that happening since the consulting side of the business has also been significantly weakened due to their focus on HRO.

In the end, I’ll agree with your (Donald Glade’s) analysis.

In the final analysis, we may very well see that the Hewitt-Exult merger did indeed change the way the market views HRO, but not in the way in which people may have thought only one year ago.

Tagged in :

systematicHR Avatar

10 responses to “Talk About Hewitt”

  1. Talk About Hewitt July 17, 2006 on 2:00 am | by Systematic HR There’s been a lot of it lately.  Our own Donald Glade wrote about it here, and Jason did here. First off, my response to Jason Corsello:  ADP should not buy Hewitt. ADP does not have a proven track

  2. Thomas Otter Avatar

    Hello all..
    I’d agree with all of what you have said about Hewitt. It is tough to build applications and run a service business at the same time.

    I do think almost everyone underestimates ADP. They only do business with people that buy the standardization message, and it seems there are enough of them out there.

    With globalview they are getting some serious traction. If someone as global, big and “different” as IKEA can do a deal with ADP for global HR processing, then I think we need to stop this talk of ADP cant do the big guys…

    drop me a note if you want to talk more about this. I may need to refresh this post

  3. systematicHR Avatar

    I think you are right that there is a definite transition going on with ADP. Their SAP GlobalView platform is definitely targetted towards large MNC types, and has gotten quite a bit of traction in the marketplace.

    In the traditional ADP models that require ADP AutoPay to process payroll with a more traditional HR application sitting next to it, the implementation teams associated with that type of installation may not have been sophisticated enough to delve into the complex requirements that organizations over 25K employees. While ADP has had successful installations in traditional outsourcing models up to 75-100K employee counts, these are few and far between.

    The SAP Globalview model is clearly their platform to attack the large employer market. First of all, SAP is the right platform. Second of all, the implementation of SAP requires a different level of implementation diligence. Globalview is young, and I just haven’t seen the track record at this time.

  4. Donald Glade Avatar

    Thomas, I am not one of those who don’t believe ADP can’t service the big guys. They can and do.

    That being said, they are at thier best when they don’t diverge from thier model for service delivery. When they get into a one off situation, it doesn’t always end well. This is the same reason Hewitt is having trouble with the Exult model of HRO. It is outside thier model.

    For Hewitt to be succesful, I believe the Hewitt Proprietary Platform (HPP) is the key. The HPP is based on Cyborg, so it may be a long shot and very costly. They have to get out of the business of taking over legacy systems for thier clients. It is costing them way too much and quality, service, profitability, and reputation are all suffering as a result. Getting back to the base of what they do will be the best thing for them.

    Selling off the one-off Exult business can let that happen.

    What they would retain is the TBA business and the HPP business that is just growing. The only other option for them will be to quickly (within the next two years for example) get all HRO clients on the HPP.

  5. Thomas Otter Avatar

    Why would Cyborg work now as a hosted option when it couldnt cut it in the open market as an application 10 years ago, at least globally? What is Hewitt’s core competency? Build software, run transactions, or do HR advisory services. I dont think one firm can do all three….

  6. Thomas Otter Avatar

    one more thing. ADP Globalview has been running successfully in Asia Pac for about 2 years now. I think they have nearly 50 customers and well over 500 000 live records now. I guess they arent spending their money briefing analysts and doing advertising…

  7. Chris Brown Avatar
    Chris Brown

    Thomas — because the “10 years ago” Cyborg is used for payroll only. The Hewitt HRMS architecture looks much more like the benefits platform (tailor made for global, hosted, one-to-many).

  8. Thomas Otter Avatar

    loosing 120 odd million through HRO deals is not a sustainable business anyway you look at it.

  9. Chris Brown Avatar
    Chris Brown

    @Thomas — that’s certainly true, but I was addressing your question about Cyborg specifically, not the business model in general. Appreciate the dialog though!

  10. Donald Glade Avatar

    The core to the discussion of whether or not Hewitt (or anyone for that matter) can make money in BPO is the delivery model.

    In the traditional (if we can call anything so young traditional) model, BPO is a lift and shift or your mess for less. A provider takes on all people, process and technology, and guarantees a cost savings. Cost minus 15% for instance.

    By definition, with this model, the provider will lose money initially. The key to making money is the introduction of better process, scalable technology, and frankly better people. Also critical is leveraging the service delivery across multiple clients (directly tied to the technology platform). The leverage of one to many is much easier when a technology solution can be a 90% solution or more: for example, transaction processing of paychecks. It becomes more difficult as servicing becomes less transaction oriented and more high touch (the HR services areas other than on boarding and employee data maintenance).

    The faster a provider can transition, the faster they can begin to make money. The more new implementations a company has, the more they lose (by definition) during the implementation/transition period. Cycle speed, or speed to transition becomes critical.
    Hewitt had success in new sales early on after the Exult acquisition. Of course, the success also doomed them to serious hits to profitability. While Hewitt has a great history in making money by putting companies on the TBA system and providing world class service, this (BPO) turned out to be a very different animal for them.

    Going public demanded growth and realistically speaking sacrificed profitability. To get back to profitability, they need to get back to the one to many model by either selling off the BPO model business they have (retaining the highly profitable TBA business), or speed the cycle time to the new people, process and technology.

    That will depend on their ability to use Cyborg effectively. It\’s a long shot, and the market (shareholders) may not be patient or kind along the way.

    Oh, and by the way, ADP got a 10 year jump on this notion of proprietizing ERP when they bought the source code to PeopleSoft. Many thought they were crazy at the time, and the early days weren’t kind (think CSS/HRizon). What they had, however, was a MUCH more profitable cash cow of a business to fund the development (core payroll). And they are poised to be THE dominant player globally with SAP, I aree with Thomas on that point.

    The deep, deep pockets argument is why I also look to Fidelty to be an even more dominant player in the business in the future.

    By the way, for a blast from the past, check out this link which talks about the ADP/PS deal. It was struck in 1994 for $22 million. I’d say that based on what each company got, ADP definitely got the better of that deal as they are now a huge thorn in Oracle’s side as they grab business from the in-house upstream market.