Summary
While it is true that there is a significant need for Human Resource (HR) services in the Major Account segment (50-999 employees), there are many other services offered in the National Account segment (1000+ employees) and in the Small Business Services segment (1-49 employees) that ADP must expand and sell to their client base in addition to new prospect sales to continue their growth and profitability as the major player in the payroll outsourcing industry.
Analysis
ADP's Workforce Management Solution in the Major Account marketplace will be well received by the clients and prospects in that segment, but is only one piece of the puzzle ADP must continue to solve to maintain it's leadership in revenue and profit growth. ADP has done an excellent job of defining the markets and segmenting them with unique groups for selling and servicing them individually.
On the lower end of the scale, ADP's Small Business Services (SBS) was designed to service small businesses and compete directly with Paychex and other local and regional competitors. Paychex has built their business mainly through CPA channels, establishing ongoing relationships with CPA firms and getting referrals for new clients through those firms. ADP has emulated that model, and has made large strides in recent years.
While the public generally views the service in this segment as Payroll and Tax Filing, there are many add on products and services that contribute to the revenue growth and act as an exit barrier to improve client retention. These services include, but are not limited to Time and Labor systems, Direct Deposit and Pay Card options, Applicant Screening, Child Support and other Garnishment Payment Services, Employee Leasing, and Unemployment Cost Management. These services become increasingly valuable to the small employer as they become more burdened with federal, state, and local statutory requirements.
The introduction of the Workforce Management Solution in the Major Account (MA) segment is an important additional offering, but is one of only many offerings that contribute to that segment's continued growth. Major Accounts offers all of the services mentioned in the SBS segment, with expanded offerings for the more complicated needs of the MA clients and prospects. ADP faces stiff competition from Ultimate Software and Ceridian in this segment, as well as some in house software on the higher end.
In the National Accounts (NA) segment, ADP competes with Ultimate Software, Ceridian, and a host of in house solutions such as Oracle/Peoplesoft, SAP, and others. In addition to the add on services mentioned above, ADP offers two entirely unique payroll systems for clients and prospects in this segment that can be tailored to meet the complex needs of large national and international clients. ADP has also partnered with a major in house software company to take advantage of their multinational statutory solutions, making it much easier for ADP to enter new countries. In addition, ADP offers Comprehensive Outsourcing Solutions (COS) where ADP can assume complete control of the Payroll and HR departments of their clients.
The sales forces for the three segments described above have very similar quotas, and it is critical that all three succeed in selling not only new business, but the vital add on services to their vast client bases. The three segments provide ADP a comfort level in tough economic times, as while one segment may be struggling, the other two may pick up the slack until recovery is accomplished.
So, while the Workforce Management Solution is important in the MA segment, it is imperative that ADP continue to expand their penetration of all products in all segments, and continue to introduce new additional offerings.
