ADP: Analyst Day Priorities

Last week, ADP held its annual industry analyst day in NYC. Its priorities for the event included communicating its identity and progress as a global HCM company, its innovations in talent management, and its benefit services. Of course no ADP analyst day would be complete without product demos.

To begin the day, Carlos Rodriguez, CEO, spoke about the company’s vision to become the global HCM market leader. With workforces expanding globally, talent shortages, and the need to be more strategic, the international HCM opportunity is huge and ADP is determined to be at the center of it all. Given its large client footprint for its payroll and time and attendance solutions, integrating talent management functions including learning, compensation, and performance will be paramount for global domination in the HCM market.

Well-timed with the analyst event was ADP’s announcement that it launched an integrated end-to-end platform for talent management. In addition to talent acquisition, compensation and performance management, and succession, the talent management suite now leverages advanced learning management tools, learning content from Bersin and Associates, and an enterprise competency framework, and will be available for both its GlobalView and Vantage platforms.

ADP’s HCM toolbox is loaded and ready to be used. The GlobalView platform is available in 81 countries; the general availability date for Vantage has moved up to June; and WorkforceNow, which includes integrated HR, payroll, time and labor management, benefits, and talent management will soon support Canada. On the back-end, it would be great to see some HR BPO opportunities beyond payroll arise, and the company has been busy making enhancements to this portfolio as well.

In addition to its acquisition of the The RightThing, which brought in RPO capabilities, ADP has been quite busy building up its benefits business. There is great potential for benefits outsourcing due to changing regulations and complexities, not to mention the fact that an HCM market leader would not be complete without a strong benefits offering. Investments began with the Workscape acquisition, and continued with Asparity (for decision-support tools, analytics, and reporting) and SHPS (for reimbursement account administration and absence management). Finally, it added a Strategic Advisory Services offering to provide value-added analytics and advice to clients.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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Benefits Administration Poised for a Good Year: Part 2

Earlier this week, I highlighted revenue growth reported by benefits administration service providers. In addition to the positive earnings reported, there are other signs indicating that 2012 will be good to benefits administration including acquisitions, hiring, and surveys.

There have been a few strategic acquisitions that will boost benefits administration revenues for vendors this year. For example, ADP’s benefits administration business will see a nice increase from SHPS, which had annualized revenues of ~$80m. Morneau Shepell’s acquisition of SBC Systems Company will modestly increase its revenues, and more importantly will strengthen the company’s presence in the U.S. Finally and most recently announced is Towers Watson’s acquisition of Extend Health, which will enhance its benefits administration offering by adding exchange services for retirees.

Another positive sign of expected future growth is the hiring of personnel. Towers Watson announced that it will be hiring employees within all of its segments. The benefits segment, specifically, will get an additional 172 employees, 60 of which will be for technology & administration solutions (TAS).

Finally, regardless of the constitutionality of the PPACA, benefits administration will likely flourish as compliance becomes increasingly complex as new regulations are issued or as older ones are amended for other federal laws such as COBRA, HIPAA, FMLA, etc.

A recent study by ADP cites that health care reform and compliance complexity are expected to lead to more benefits administration outsourcing. The survey, which included input from 504 HR and benefits decision makers in the U.S., found that ensuring compliance is one of the top reasons cited for outsourcing benefits administration.

In a recent article, Mercer is also advising employers to act to ensure compliance and to implement cost-control strategies now regardless of health care reform. It recommends the following, which are all dollar signs for benefits administration service providers:

• Managing the cost of dependent coverage, which will strengthen demand for dependent eligibility audits and verifications
• Shifting to CDHPs, which will lead to an increase for reimbursement account administration services including FSAs, HSAs, and HRAs
• Offering cost-competitive health coverage, which will boost demand for private health care exchanges for both active and retired employees
• Encouraging a healthier workforce, which will lead to the implementation of wellness programs (i.e., health assessments, biometric screenings, etc.).

Benefits administration is one of the oldest foundations of HR business process outsourcing and it is also one of the largest segments in revenues and yet it remains vital, adaptive, competitive, and ready for continued growth!

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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Benefits Administration Poised for a Good Year: Part 1

If last quarter’s earnings reports are an indication of what will continue in 2012, then benefits administration service providers will have a good year.

Some of the financial highlights include Morneau Shepell’s record growth for Q1 of 22% year-over-year (y-o-y). Modest growth was reported elsewhere, but it’s significant in light of the economy and pending health care reform legislation. Providers with modest growth include Aon Hewitt, Towers Watson, Mercer, and T. Rowe Price.

Aon Hewitt’s outsourcing segment reported 3% y-o-y growth, 3% organic growth. Its organic growth began last quarter after four consecutive quarters of either flat or negative organic growth. New client wins are for its retiree health care exchange offering, dependent eligibility audits, and absence management services.

Towers Watson’s benefits segment reported 2% y-o-y growth, 3% organic growth. Its technology & administration solutions (TAS) line of business, which incorporates majority of its benefits administration revenues, had mid-single digit constant currency growth. Towers Watson also reported some new client wins for pension administration services within its retirement business.

Mercer’s outsourcing segment reported 0% y-o-y growth, 4% organic growth. The good news is that its outsourcing segment has recovered from its steady decline of organic growth that began in Q3 2011; the bad news is that growth was from 2011 client wins that came on this quarter, so this positive level might be temporary.  However, Mercer’s health & benefits consulting segment reported strong growth of 7% y-o-y, 6% organic, as did Towers Watson, which reported low double-digit constant currency growth for its health & group benefits segment. This is significant in that this strategy work may flow downstream and result in benefits administration contract awards later this year.

T. Rowe Price, although not a TBO service provider, reported 3% y-o-y growth for its administrative segment, which includes revenues from retirement plan services (RPS). RPS consists of DB, DC, and non-qualified plan administration services.

A new company to monitor is WageWorks, a H&W service provider offering reimbursement account and COBRA administration services. It commenced its IPO of 6.5m shares of common stock for $9 per share on May 10^th.

Tune in later this week to learn about the additional signs pointing to a good year for benefits administration service providers.

Amy L. Gurchensky, Research Analyst, HRO, NelsonHall

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