{"id":623,"date":"2006-11-14T05:02:44","date_gmt":"2006-11-14T13:02:44","guid":{"rendered":"https:\/\/systematichr.com\/?p=623"},"modified":"2006-11-14T05:02:44","modified_gmt":"2006-11-14T13:02:44","slug":"hewitts-financial-results-what-do-they-mean","status":"publish","type":"post","link":"https:\/\/systematichr.com\/?p=623","title":{"rendered":"Hewitt’s Financial Results – What Do They Mean?"},"content":{"rendered":"

Hewitt\u2019s very public financial difficulties continue today, days after announcing quarter-end September 30, 2006 financial results<\/a>.\u00a0 It is not my intention to single out Hewitt by writing about them again.\u00a0 Rather, as the recognized leader in HRO, Hewitt can be viewed as the industry bellwether and can provide insight into the dynamics of the industry.<\/p>\n

Taking a look at the results<\/a> as reported by workforce.com<\/a>, we see that Hewitt posted modest (0.9%) revenue gains year over year while net income was down 43%.\u00a0 Surprisingly, net income was only $23 million on $727 million in revenue.\u00a0 A deeper dive reveals that the outsourcing arm of the business (over half of the business) experienced declining revenue, income and profitability.<\/p>\n

The workforce.com article goes on to report on Hewitt\u2019s declining market share according to an EquaTerra study.\u00a0 Take a look at the article<\/a> if you have the time.<\/p>\n

As a bellwether, I would also look to see what else is being said about the market in general.\u00a0 Are we in fact seeing declining revenue, profitability and income industry wide?\u00a0 An interesting (un-attributed) article published<\/a> the end of last month by HRO Today<\/a> provides some interesting insight.<\/p>\n

The article, citing a NelsonHall<\/a> study, points out that the growth in the industry has definitely slowed and is not meeting analyst expectations.\u00a0 In fact:\u00a0<\/p>\n

\u201cThe value of BPO TCV (total contract value) awarded has declined by approximately 50 percent in North America from a peak of $15.4 billion in the 12-month period ending September 2004 to $7.5 billion for the 12- month period ending September 2006\u201d<\/strong><\/em><\/p>\n

So while Hewitt\u2019s<\/a> revenues are down, clearly the industry is still growing: albeit at a slower pace than expected or previously enjoyed.\u00a0 By definition, Hewitt\u2019s market share must be slipping.\u00a0 But what about profitability and the reasons growth is slowing?\u00a0 According to HRO, \u201cContracts are not awarded in 30 percent of instances where BPO is evaluated.\u201d<\/strong><\/em>\u00a0<\/p>\n

There seems to be a disconnect in the general market between supply and demand.\u00a0 The market is demanding something that is seemingly in short supply: a proven ability to deliver high quality services with operational expertise at cost-reduced levels.<\/p>\n

These quotes from the article are telling:<\/p>\n

\u201cEighty percent of U.S. sourcing managers state that lack of process operations knowledge within the vendor has led to rejection of BPO.\u201d<\/em><\/p>\n

\u201cSuperior process capability is essential for BPO vendor success and needs to be more widely demonstrated than at present.\u201d<\/em><\/p>\n

\u201cVendors frequently fail to justify the levels of cost reduction promised during the bidding focus. Vendors are offering cost savings but two-thirds of sourcing managers have rejected BPO as a sourcing option because of a lack of belief in the vendor’s ability to deliver the cost savings promised\u201d<\/em><\/p>\n

So it would seem that while companies look for better process and cost reduction, vendors are falling short of the mark.\u00a0 \u201cLift and shift\u201d can be one reason for this.\u00a0 It\u2019s not unreasonable to ask how a vendor can do it better and cheaper if they use the same people, process and technology.\u00a0 We have consistently seen that the productivity gains are slow to come.\u00a0 The market seems to be noting this more than ever as the HROToday article title states: Many Potential Buyers Stay out of Market over Concerns about Delivery<\/em><\/strong>.<\/p>\n

So as the market demands change in delivery, and change seems to be the key to provider stability, growth and profitability it comes as no surprise to see Russ Fradin make the following statement last week: \u201cOur attention in the near term will be on accelerating the growth of the benefits outsourcing and consulting businesses, and redefining our approach to the HR BPO business.”<\/em><\/p>\n

I would caution Mr. Fradin to take care not to put the cart before the horse.\u00a0 Redefining the approach to HR BPO will be critical to the future success of Hewitt and the market in general.<\/p>\n

About the author<\/strong> \u2013 Donald Glade<\/a> is President and Founder of Sourcing Analytics, Inc.<\/a>, an independent consulting firm specializing in helping companies optimize their HR \/ benefits \/ payroll service partnerships through relationship management, financial analysis, and process improvement.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Hewitt\u2019s very public financial difficulties continue today, days after announcing quarter-end September 30, 2006 financial results.\u00a0 It is not my intention to single out Hewitt by writing about them again.\u00a0 Rather, as the recognized leader in HRO, Hewitt can be…<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","footnotes":""},"categories":[33,6,17,22,31,3],"tags":[],"class_list":["post-623","post","type-post","status-publish","format-standard","hentry","category-finance","category-hewitt","category-hro","category-industry-news","category-outsourcing","category-vendors"],"_links":{"self":[{"href":"https:\/\/systematichr.com\/index.php?rest_route=\/wp\/v2\/posts\/623","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/systematichr.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/systematichr.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/systematichr.com\/index.php?rest_route=\/wp\/v2\/users\/5"}],"replies":[{"embeddable":true,"href":"https:\/\/systematichr.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=623"}],"version-history":[{"count":0,"href":"https:\/\/systematichr.com\/index.php?rest_route=\/wp\/v2\/posts\/623\/revisions"}],"wp:attachment":[{"href":"https:\/\/systematichr.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=623"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/systematichr.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=623"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/systematichr.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=623"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}