Hewitt Pledges Commitment to HRO Buisness

By Staff Report

Aug. 27, 2006

Despite rumors that it was considering selling off its HRO division, Hewitt Associates says it’s staying in the business.

Rumors peaked after a number of executive departures. In June, CEO Dale Gifford announced he was retiring, while Bryan Doyle, president of the HRO business, and Michael Salvino, co-leader of HR outsourcing sales and accounts group, left the firm.

Then on August 3, Hewitt announced that it was delaying filing its third-quarter financial results to August 14 from August 9 “to allow for completion of the previously announced review of its human resources business process outsourcing contract portfolio.”

But on August 14, the company sent out a notice assuring analysts that it was staying in the HRO business.

“Our board of directors and our leadership remain firmly committed to our direction,” the company said in its statement.

The assurance came on the same day that the Lincolnshire, Illinois-based company posted its third-quarter earnings, which included a $249 million noncash charge related to the company’s HRO business. A $70 million loss provision based on the expectation that one-third of its 2005 contracts and two earlier contracts would lose money was part of the $249 million charge.

“It is clear with the benefit of 20/20 hindsight that we underestimated the complexity and therefore the cost of taking on multiple contracts,” Gifford said on the earnings call.

Gifford and CFO John Park attributed Hewitt’s troubles largely to taking on too much too quickly. Specifically, they cited payroll and recruiting as two areas where Hewitt was facing significant challenges.

All of the major HRO providers are struggling with offering recruiting services because they require an in-depth knowledge of the buyer’s needs, says Mark Azzarello, director of HR operations at International Paper in Memphis, Tennessee, which is in the fifth year of a 10-year HRO contract with Hewitt.

Hewitt’s assurances that it is staying in the business came as a relief to him. Gifford and Jim Konieczny, the head of Hewitt’s HR business process outsourcing division, had met with Azzarello in June and delivered similar assurances then, he says.

“They made it clear that [the rumors] were unfounded … and that they have every desire to stay in the business,” Azzarello says.

But things may change in the next few months. On September 5, Russ Fradin, former president and CEO of the Bisys Group, starts as Hewitt’s new CEO, and analysts expect that he will do his own due diligence of the business.

“I for one don’t see how they avoid at least considering a breakup or sale as a whole,” HRO consultant Naomi Bloom says. “They lost a lot of talent when they failed to elevate the very capable people they acquired with Exult.”

Jessica Marquez

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