Tuesday, June 27, 2006

Shake up at Hewitt

The rumors have been around in the market for some time now, but this past week it showed up in print:

What does surprise Pramuk and other experts, however, is that Hewitt doesn’t have a successor in place for Salvino. “That certainly could be hinting at a sale of its HRO business,” he says.

Marc Pramuk, v.p. of research at Everest Group, was referring to the announced departure of Michael Salvino, co-leader of Hewitt Associates’ HR outsourcing sales and accounts group. The quote appears in an article on workforce.com by Jessica Marquez. The announcement comes on the heels of the announced resignations of Hewitt’s CEO Dale Gifford and Bryan Doyle, president of the HR outsourcing business.

By any standards, the three departures signal a major shakeup at the recognized leader in total benefits administration and major player in the HRO market only two years after the merger of Hewitt and Exult was announced. At the time of the announcement, the merger was regarded as nothing short of a defining moment in the history of HRO. HRO Today magazine had this to say at the time:

“For prospective HRO buyers, Hewitt’s acquisition of Exult makes convincing management to endorse HRO a much easier task with a combined Hewitt/Exult HRO business, than it was to select either separately. And as a combined entity, the new company represents a much more formidable competitor than they previously did.”

And only one year ago, Brian Doyle had this to say:

“I don’t think HRO really took off until Hewitt and Exult merged. I think before then, we were only seeing some early adopters and a steady but lumpy increase of HR BPO deals, that was certainly the case in 2004. In 2005, we’ve seen a significant uptake in the number of deals.”
And now, while the marriage is still intact, the honeymoon is clearly over. While the union may yet last longer than a typical Hollywood wedding, if the paparazzi could stalk companies, they’d be all over this relationship. I haven’t seen the Las Vegas line, but put the over/under at 18 months and take the under.

When the merger first took place it appeared to be the perfect marriage. Hewitt was regarded as the gold standard in benefits outsourcing; setting the paradigm in how total benefits administration was delivered. Over time, they were offering more and more outsourcing of HR programs such as service award administration and employee discount programs.

Exult on the other hand had the most mature of the practices and model of BPO for HR. Hewitt would be able to expand its brand into broad HR outsourcing and gain significant market share.

The orders started pouring in! It would appear, however that the orders came in too fast as the linked articles on workforce.com suggest. Reportedly (and allegedly) implementation became more and more difficult, and now, perhaps Hewitt isn’t competing effectively for the current
HRO opportunities.

The rumors had been that Hewitt might be looking to jettison the HRO business, and that Accenture would be the taker. This last article brings ADP and Fidelity into the mix. The thinking is that another major market player will have better luck in turning the Exult HRO model to profitability. If Hewitt couldn’t turn a profit with it, however, I don’t think ADP or Fidelity could either.

Hewitt was the best at turning administration into profitability. Fidelity and ADP are the best at turning high volume transaction processing into profit. The real problem, in my opinion, is that HRO, or BPO for HR is neither solely administration nor high volume transaction processing.

When Hewitt offered services outside of its core model, the troubles began. Now, it is hard to tell what the model is. Is it HRO based on Cyborg? Is it a lift and shift of your PeopleSoft or SAP platform? Is it a one to many or a one off model?

Mike Hager, of Hager Strategic, defines HRO as. “Transformational outsourcing where the client’s existing systems and processes are completely replaced by the vendor who migrates all HR processes currently being supported by HR internally, to the vendor’s proprietary technology and service platform.” The market seems to be defining it differently these days, but that was always Hewitt’ strength. It’s what it got away from with the Exult model.

Defining its model for the future is the question that will need to be answered by the new leadership as Hewitt tries to respond to shareholder demands. In the meantime, the market needs to answer the question of how BPO applies in the HR space. Can it be a profitable service offering for the providers thereby providing clients with a stable, efficient, quality, and risk mitigated alternative or will it evolve into something totally different in the years to come?

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.

About the authorDonald Glade is President and Founder of Sourcing Analytics, Inc., an independent consulting firm specializing in helping companies optimize their HR / benefits / payroll service partnerships through relationship management, financial analysis, and process improvement.

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