Ultimate Software Puts Employees First

By Ed Frauenheim

Jul. 2, 2009

To Karen Sones, HR software provider Ultimate Software passed the 3 a.m. phone call test with flying colors.

Sones, senior vice president and HR strategic project director at financial services firm First Horizon National, says that a few years ago customer services representatives from Ultimate worked with her in the wee hours to fix a payroll glitch caused by First Horizon itself.

One Ultimate Software rep talked through the problem until about 2 a.m., giving out her home number in case Sones needed to call for additional help.

“I had to,” Sones recalls. “And she was still pleasant to me.”

Above-and-beyond customer service—which contributes to a nearly 100 percent customer retention rate—is one of the priorities at Weston, Florida-based Ultimate.

So is a commitment to employees.

Ultimate has been honored as the best medium-sized company to work for in America each of the past two years. It pays 100 percent of health and dental coverage for its roughly 950 employees and their families. Chief executive Scott Scherr hasn’t laid off any workers in the 19 years since he founded the firm, despite some tough times.

And Scherr, who likens his company to a sports team, has no plans to cut players from his squad this recession.

Part of what gives him confidence is a steady revenue stream from customers paying monthly subscription fees to access Ultimate’s software via the Internet. Ultimate was one of the first software firms to adopt this increasingly popular “software as a service” approach, and the regular payments help insulate the company against a chilly economy, Scherr says.

“We’re going to grow every quarter,” he says. “It’s impossible for us not to grow.”

But even as Ultimate’s revenue grew at double-digit rates last year and in the first quarter of this year, it posted losses. And the vendor faces other challenges, including lower subscription payments from customers with downsized workforces and competition from a range of HR software and service vendors.

Still, Ultimate’s state-of-the-art technology strategy and its traditional focus on service and employee loyalty could prove to be a winning combination as HR software firms are tested by the recession.

Lisa Rowan, analyst at research firm IDC, says Ultimate has built a nice set of capabilities around talent management to support its “core HR” system for managing employee data. She also credits the firm for creating an improved user experience in its software.

“I think Ultimate is doing a terrific job on many levels,” Rowan says.

Living off ADP’s losses
Ultimate was founded in 1990. Scherr worked as an executive at ADP in the 1980s, but felt the payroll outsourcing giant lost too many clients because of less-than-stellar customer service.

By selling software that automated HR tasks, Scherr figured he could “live off ADP’s losses.”

Ultimate initially resold another product, with a focus on Florida. In 1993, the company developed its own product, UltiPro, for the national market. The company went public in 1998.

Inspired by the way his father treated employees as head of a data-processing firm, Scherr, 57, turned the reigning obsession with shareholder value on its head. Employees are priority No. 1, followed by customers, followed by shareholders.

That formula is reflected in compensation packages at Ultimate. Besides generous health care coverage, all employees receive stock options in the firm, and Ultimate chips in 30 percent of what employees contribute to 401(k) plans.

In June, the Great Place to Work Institute and the Society for Human Resource Management gave Ultimate the top spot on their list of the best medium-size companies to work for in America for the second straight year. Ultimate has ranked in the top three spots each year since 2006. (It ranked 12th in 2005.)

These victories fit into a company culture of playing to win.

Ultimate concentrates on hiring only “A” players, Scherr says. And it devotes a lot of energy to fostering teamwork.

Team building starts with a two-day orientation period. It includes monthly group birthday celebrations, free tickets to Florida Marlins baseball games and a basketball court in the company lobby that Scherr built a few years ago when the firm hit $100 million in annual revenue.

Employees also get copies of basketball coach Pat Riley’s book Winner Within: A Life Plan for Team Players.

Scherr himself is a hands-on coach.

During a recent interview, he knew the precise number of Ultimate employees: 934. To him, that sort of attention to the team is vital for handling the hard patches.

When hit with a crisis, people either choke or have a breakthrough, Scherr says. The key is solidarity.

“You stick together,” he says. “The company doesn’t quit on the employees, and the employees don’t quit on the company.”

Winning new customers
UltiPro comes in two flavors: one for organizations with 700 or more employees and another for firms with 200 to 700 workers. The software handles essential HR and payroll tasks such as tracking job and salary information and calculating paychecks.

Customers can pay extra for features such as talent management tools like recruitment, onboarding and performance management software.

In a report last fall, Forrester Research analyst Paul Hamerman named Ultimate the clear leader in the U.S. midmarket for HR management systems, ahead of such competitors as Lawson Software, Ceridian, ADP and Workday.

Ultimate also fared well in Forrester’s evaluation of HR management systems for large, multinational organizations. Forrester rated it as one of four leaders, along with Oracle, Lawson and SAP.

Customer wins for Ultimate over the past few years include prominent names such as Internet search king Google and restaurant chain P.F. Chang’s China Bistro, which has about 30,000 employees. Another organization that chose Ultimate is the San Diego Convention Center.

The nonprofit, 600-employee firm signed on with Ultimate in late 2007, began using the basic HR and payroll functionality in March 2008, and later adopted recruiting, performance management and time-and-attendance features.

One reason the convention center went with Ultimate over rivals including Ceridian, Lawson and ADP was the software’s user-friendliness, says Thomas Mazzocco, vice president for HR and labor relations at the convention center. Ultimate’s accolades as a great employer also influenced Mazzocco’s thinking.

“When you have an environment that rates as the best place to work, you have employees that are motivated and very productive,” he says. “And that attitude is reflected in their product.”

Mazzocco also has been very satisfied with Ultimate’s customer service.

Not long ago, in the wake of a software upgrade, Mazzocco’s HR staff couldn’t access an UltiPro feature for recording employee information such as grievance events. So the convention center submitted an online help ticket.

“I had a call within 15 minutes,” Mazzocco recalls. “And the issue was resolved within 45 minutes.”

Ultimate’s service record is not spotless. Sones of First Horizon says that one year, it took more than 24 hours for the vendor to process some benefits enrollment elections. But Ultimate fixed the problem overnight and prevented it from occurring the following year.

Sones chalks up the dedication to Ultimate’s care for its employees.

“They get a commitment and loyalty out of their people that you just don’t see,” she says.

First Horizon, which has about 6,000 employees, has been using Ultimate’s software since 2002, and is pleased with its vendor.

“They listen to their customers,” Sones says. “They build relationships.”

Thanks to customers like First Horizon, Ultimate boasted a customer retention rate of 97 percent last year.

Tough competitive landscape
Still, Scherr and crew have their challenges.

Chief among them is a tough competitive landscape. HR software giants SAP and Oracle have been trying to make inroads in the midmarket that has been Ultimate’s bread and butter. Lawson and Workday tout new on-demand HR software products that have gotten favorable reviews.

While Ultimate’s software is sometimes faulted for having limited international capabilities, Lawson’s new core HR product is designed for global organizations. And Workday, led by industry guru and former PeopleSoft founder Dave Duffield, was persuaded by customers to create a payroll product.

“Workday is on a path to challenge the established HRMS leaders,” Hamerman wrote last fall.

HR outsourcers, for their part, have upped the ante by enhancing talent management offerings.

ADP, for example, recently announced a partnership with software firm Cornerstone OnDemand that will give ADP customers access to tools such as performance, compensation and learning management applications.

Roughly half of Ultimate’s customers continue to be former ADP clients. But ADP says it has ramped up its service quality over time. The average large U.S. ADP client remains a customer for almost 20 years, says Greg Secord, ADP vice president for marketing and strategy.

“We believe this is primarily due to the immense improvements we have made in client service and the technology that enables us to deliver it,” Secord said in a statement.

Another hurdle for Ultimate is its customers’ jobs cuts. Ultimate’s subscription accounts involve charging companies by the number of employees they have. The employee count of Ultimate’s existing customer base fell by 2.7 percent from the end of December to the close of March.

Amid massive job losses in the U.S., equity analyst Pat Walravens of JMP Securities predicted more bad news for Ultimate regarding “employee churn”—that is, the drop in workers at existing Ultimate customers.

“At this rate, we estimate that Ultimate’s annual employee churn in 2009 would be 10.4 percent,” Walravens wrote in an April report.

Ultimate, though, disagreed with Walravens.

“For 2009, in our financial model, we accounted for a 4 percent reduction in numbers of employees in our client base,” the company said in a statement. “However, because of the way our contracts are written … that doesn’t translate into a direct reduction in our recurring revenue.”

Ultimate has guaranteed minimum fees built into contracts should headcount at customers drop below a certain level.

Still, the company has been bleeding red ink recently.

After profitable years in 2005, 2006 and 2007, Ultimate lost $2.9 million last year on revenue of $179 million. It lost $413,000 in the first quarter of 2009 on revenue of $49 million.

Competent coaching staff
The recession at hand has given rise to predictions of a shake-out among HR software and service vendors.

A more desperate playing field amounts to a contest akin to the playoffs of the National Basketball Association. If so, one of Ultimate’s strengths is a competent coaching staff, suggests Jim Holincheck, analyst at research firm Gartner.

“Generally speaking, it’s a pretty well-managed company,” he says.

Scherr is confident his squad will keep advancing.

“It’s like a sports team,” he says. “You keep having to make your team better and better.”

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.


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