Hewitt Shake-Up Shows That Winning Clients Isn’t End-Game in HRO

June 15, 2006
Hewitt Associates’ announcement that CEO Dale Gifford and Bryan Doyle, president of the HR outsourcing business, are resigning may signal that winning deals doesn’t spell success in the HRO world.

Analysts speculate that both Gifford, 56, and Doyle, 45, were pushed out because of Hewitt’s problems with implementing deals. Many thought that Hewitt would be the clear winner in the HRO space when it announced it was acquiring Exult in 2004, but that hasn’t been the case, says Phil Fersht, an analyst at Everest Group. "It’s very apparent that they have been struggling to balance the consulting organization and becoming an HRO organization," he says.

Hewitt spokeswoman Jennifer Frighetto says Gifford had been planning to retire for some time and "we announced it now as part of the succession management process." She says that Doyle left for other opportunities.

Hewitt announced that it was reviewing its earnings guidance for the third quarter and full year in connection with a review of its HRO business. In May, the Lincolnshire, Illinois-based company projected third-quarter revenue to be flat compared with sales of $712 million a year earlier and core earnings of $36 million to $39 million.

For the year, the firm projected flat revenue compared with sales of $2.8 billion the previous year and core earnings to be $145 million to $150 million. But analysts polled by Thomson Financial expect third-quarter sales to be $711 million, with earnings of $36 million, and full-year sales of $2.8 billion, with earnings of $146 million.

Hewitt has won 14 HRO deals since it merged with Exult, but the challenge the company has struggled with is on the implementation side, says Yankee Group analyst Jason Corsello. "This [reorganization at Hewitt] exposes some of the challenges with implementing these large HRO deals," he says.

Evidence of Hewitt’s struggles surfaced earlier this year when British Petroleum, which originally had a five-year HRO contract with Hewitt that was scheduled to expire this year, only renewed it for two years, Fersht says. Another industry expert, who requested anonymity, says that of 20 large HRO deals in process, Hewitt is not on the shortlist for any of them.

Frighetto says that Hewitt has a "active and strong" pipeline of business in the works.

Hewitt has named Julie Gordon, its chief business excellence officer, to replace Doyle, and is looking for a new CEO. Gordon was unavailable for comment.

What Hewitt needs to do now is focus on ramping up the people and technology on the implementation side, analysts say. Some experts wonder whether the reorganization may signal a possible sale of Hewitt’s entire business or just its HRO division.

"I’m sure they would like to be a stand-alone company, but that hasn’t provided returns to shareholders," says Naomi Bloom, an HRO analyst.

Frighetto declined to comment on rumors.

Jessica Marquez