Human Capital Services

Transcription

1 Human Capital Services Comprehensive Guide to Human Capital Services 201 public and private companies/divisions profiled 14 sub-sectors analyzed description, perspective, and trends Perspective on short and long-term factors driving this secular growth industry Business Services Research February, 2008 Mark S. Marcon, CFA Sean P. Connolly, CPA Jeffrey P. Meuler

2 Robert W. Baird s Comprehensive Guide to Human Capital Services Mark S. Marcon, CFA Sean P. Connolly, CPA Jeffrey P. Meuler This report provides Baird s comprehensive guide to the growing human capital solutions sector. In this report, we attempt to layout the landscape of the space. We also attempt to provide a perspective on near-term and longer-term trends impacting the overall space, profiles of 14 sub-sectors within human capital services as well as a description of 201 providers that compete in the space. In describing human capital solutions, we are referring to companies that help organizations more effectively or efficiently address their human capital needs. These human capital needs range from human capital planning, to recruiting, to deployment, to performance management, as well as routine HR functions such as administering payroll and benefits. Looking out over the near term, as well as long term, we believe that the human capital solutions space will provide many compelling investment opportunities. We believe that these investment opportunities will be a function of several factors: First, due to several secular drivers outlined within the report, we believe this broad sector will experience well above average growth over the next 10 to 15 years. Second, many of the business models in the space are highly scalable with the potential for very high margins. Third, capital requirements for organic growth are relatively low resulting in high returns on invested capital for many companies. While the sector is likely to achieve solid secular growth, there are many sub-sectors that are cyclically sensitive, being tied to the employment cycle. As such, the sector will likely continue to experience wide (often illogical) cyclical variations in valuation that will provide attractive entry points to both public and private investors. As we enter a period of cyclical slowing, we are seeing what we consider very attractive valuations for investors with longer-term horizons. This is occurring before what we believe will likely be the best long-term period for many human capital service providers. The projected acceleration in retiring baby boomers and associated talent shortages and churn in the U.S. and Europe starting in 2009 and increasing through 2022 is likely to create a favorable environment for many companies in the space. We also note that in certain sub-sectors, barriers to entry are relatively low with low capital requirements. The combination of a perceived growth sector, along with low barriers to entry, and an accelerating pace of technological change will lead to many new entrants in many of the emerging sectors, some that will be huge successes, while some will turn out to be spectacular flops. Within the report, we outline the following: Long-term secular trends Short-term trends Long-term investment themes The HR challenge Profiles on 14 human capital solutions sectors Profiles on 201 providers

3 February 2008 TABLE OF CONTENTS Summary of Long Term Secular Trends Summary of Short Term Secular Trends. 8 Long Term Investment Themes The HR Challenge: An Overview..11 Business and Investment Opportunities in the Human Capital Continuum.. 26 Staffing and Work Force Solutions Executive Search Recruitment Process Outsourcing (RPO) e-cruiting Assessment and Verification Talent Management Suites/Systems HR Vendor Management Systems (VMS) HRMS Software Solutions Time & Attendance HR Outsourcing Professional Employer Organizations (PEO) HR Consulting Human Capital Point Solutions / Miscellaneous Services Human Capital Separation / Outplacement Services Staffing and Work Force Solutions. 93 Global Staffing Providers Adecco SA The Goodwill Group, Inc. Kelly Services, Inc. Manpower, Inc. Randstad Holdings NV Robert Half International, Inc. Vedior NV Major Staffing Providers Allegis Group, Inc. Aquent CBS Personnel Holdings, Inc. CDI Corporation COMFORCE Corporation Comsys IT Partners, Inc. CORESTAFF Services EmployBridge Global Employment Holdings, Inc. Hudson Highland Group, Inc. Kforce, Inc. MPS Group, Inc. Nelson Family of Companies RCM Technologies, Inc. Resources Connection, Inc. The Select Family of Staffing Companies Spherion Corporation Staffmark Robert W. Baird & Co. 2

4 Comprehensive Guide to Human Capital Services Technisource, Inc. TrueBlue, Inc. Veritude Volt Information Sciences, Inc. Westaff, Inc. The Day and Zimmerman Group, Inc. (Yoh) Healthcare Staffing Providers Allied Healthcare International, Inc. AMN Healthcare Services, Inc. CHG Healthcare Services Cross Country Healthcare, Inc. Medical Staffing Network Holdings, Inc. On Assignment, Inc. U.S. Nursing Corporation Executive Search 116 CTPartners Egon Zehnder International Heidrick & Struggles International, Inc. Korn/Ferry International CDI Corporation (Management Recruiters International, Inc.) Russell Reynolds Associates, Inc. Spencer Stuart Whitehead Mann Partnership LLP Recruitment Process Outsourcing (RPO) Accolo, Inc. The Goodwill Group, Inc. (Advantage Human Resourcing) Alexander Mann Group, Ltd. Capital Consulting CRI, Inc. Korn/Ferry International, Inc. (Futurestep) Hyrian, LLC Kelly Services, Inc. (Kelly HRfirst) Kenexa Corporation Volt Information Sciences, Inc. (Momentum) Novotus, LLC Pinstripe, LLC Omnicon Group, Inc. (Recruitment Enhancement Services) The RightThing, Inc. Spherion Corporation Adecco SA (TalentTrack) The Day and Zimmerman Group, Inc. (Yoh) e-cruiting Job, Inc. Adicio, Inc. Arbita CareerBuilder.com ComputerJobs.com Craigslist, Inc. Dice Holdings, Inc. DirectEmployers.org equest Experience, Inc. Business Services Human Capital Services 3

5 February 2008 Google, Inc. (Google Base) Yahoo!, Inc. (HotJobs.com, Ltd.) Indeed, Inc. Jobing.com, LLC Jobster, Inc. LinkedIn Corporation TheLadders.com Monster Worldwide, Inc. NationJob, Inc. Net-Temps, Inc. NowHiring.com SearchEase.com Corporation SelectMinds, Inc. SimplyHired.com SnagAJob.com, Inc. StepStone Vault, Inc. Assessment and Verification..146 Acxiom Corporation (Acxiom Information Security Services) Automatic Data Processing, Inc. (ADP Screening and Selection Services, Inc.) Manpower, Inc. (CareerHarmony) ChoicePoint, Inc. Development Dimensions International, Inc. employeescreeniq First Advantage Corporation General Information Services, Inc. HireRight, Inc. Marsh and McLennan Companies (Kroll, Inc.) Reed Elsevier, PLC (LexisNexis Authentication & Screening) PreVisor, Inc. Sterling Testing Systems, Inc. TALX Corporation U.S. Investigation Services Verifications, Inc. Verified Person, Inc. Talent Management Suites/Systems Automatic Data Processing, Inc. (ADP VirtualEdge) AIRS Authoria, Inc. Kronos, Inc. (Deploy Solutions, Inc.) Halogen Software, Inc. Kenexa Corporation Kronos, Inc. (Kronos Talent Management) Peopleclick, Inc. Plateau Systems, Ltd. Softscape, Inc. SuccessFactors, Inc. Taleo Corporation VCG, Inc. Vurv Technology, Inc. Workstream, Inc. Robert W. Baird & Co. 4

6 Comprehensive Guide to Human Capital Services HR Vendor Management Systems (VMS) 165 MPS Group, Inc. (Beeline) MPS Group, Inc. (Chimes) ework, Inc. Fieldglass, Inc. IQNavigator, Inc. PrO Unlimited Taleo Corporation Nelson Family of Companies (WorkforceLogic) HRMS Software Solutions 170 Infor Global Solutions Lawson Software, Inc. Oracle/Peoplesoft Sage Software, Inc. SAP AG Ultimate Software Group, Inc. Workday Time and Attendance CyberShift, Inc. Kronos, Inc. Paychex, Inc. (Stromberg) Valiant Infor Global Solutions (Workbrain) HR Outsourcing..179 Accenture HR Services Affiliated Computer Services, Inc. ARINSO International NV Automatic Data Processing, Inc. Capita Group, PLC Ceridian Corporation Citigroup and Statestreet (Citistreet, LLC) CompuPay, Inc. Convergys Corporation E-Duction, Inc. Electronic Data Systems and Towers Perrin (Excellerate HRO, LLC) Empagio Fidelity Employer Services Company (FESCo) Genesys Software Systems Hewitt Associates, Inc. IBM Business Consulting JAT Computer Consulting, Inc. Mercer LLC PAI Group, Inc. Paychex, Inc. Paycor, Inc. PayCycle, Inc. PayFlex Systems USA, Inc. Payformance Corporation The Sheakley Group of Companies SurePayroll, Inc. USI Holdings Corp. (Univers Workplace Benefits) WageWorks, Inc. Business Services Human Capital Services 5

7 February 2008 Professional Employer Organizations (PEO) Administaff, Inc. Automatic Data Processing, Inc. (ADP TotalSource/ ADP Resource) Advantec Ambrose Employer Group, LLC Barrett Business Services, Inc. Gevity HR, Inc. Oasis Outsourcing, Inc. Paychex, Inc. (Paychex Premier/Paychex Business Solutions) SCI Companies Strategic Outsourcing, Inc. TriNet Group, Inc. HR Consulting 201 Aon Corporation Affiliated Computer Services, Inc. (Buck Consultants) Capital H Group Guardian Life Insurance Co. of America Hay Group, Inc. Hewitt Associates, Inc. Mercer LLC Towers Perrin, Inc. Watson Wyatt Worldwide, Inc. Human Capital Point Solutions / Miscellaneous Services. 207 Automatic Data Processing, Inc. (ADP Employease, Inc.) Intuit, Inc. OneClickHR, PLC Saba Software, Inc. Salary.com, Inc. SHPS, Inc. SkillSoft, PLC Workscape, Inc. Human Capital Separation / Outplacement Services Drake Beam Morin, Inc. Adecco SA (Lee Hecht Harrison) Manpower, Inc. (Right Management Consultants) Please refer to Appendix - Important Disclosures and Analyst Certification on page 215. Robert W. Baird & Co. 6

8 Comprehensive Guide to Human Capital Services pìãã~êó=çñ=içåöjqéêã=péåìä~ê=qêéåçë= Major drivers and trends that will impact demand for human capital solutions over the long term include: Demographic shifts are likely to lead to talent shortages. Significant demographic shifts across the Western industrialized nations and Japan will lead to a marked increase in retirements, increased replacement hiring, and lower growth rates (and in some cases declines) of the labor force in a number of major economies. Due to the upcoming retirement of the baby boom generation, the overall growth in the labor force should slow dramatically, particularly in the number of prime workers (ages 25-44). Retaining existing human capital will also become increasingly difficult due to a trend in declining worker tenure driven by a decline in worker loyalty and increased information about alternative employment options brought about by the internet. Talent management is the engine that drives wealth creation. This statement may appear to be hyperbole at first glance, but it is increasingly true as Western economies continue to shift more towards knowledge-based economies. In prior decades, the largest companies in the S&P 500 tended to be traditional manufacturing, energy, and consumer products whereas now more companies are from the technology, pharmaceutical, and services industries. Companies in these industries tend to derive their competitive advantages more from their ability to leverage intellectual or human capital than from achieving economies of scale. Globalization. Multinational companies have been expanding globally much more so than they did a decade ago. In our opinion, this is a trend that will likely continue. As a result, multinational companies are increasingly looking for products with the technology to support global operations as well as service providers with geographic footprints large enough to meet their global demands. This also creates opportunities for companies that help to build or support multinational work forces. Technological Change. There are two aspects of technology that are likely to impact the usage and demand for Human Capital Solutions. First, the pace of technological change is increasing, which increases the cost and risk for organizations that develop and maintain their own HR systems. Often it is better to rent HR systems and software, and replace them with new packages as new technology is developed. Second, in previous years, some HR departments felt that relying on outside vendors for the delivery of HR services could diminish service quality, reduce the access to information for employees, result in loss of control and potentially damage corporate culture. However, these have been mitigated with the advent of the internet as services can be delivered seamlessly to clients in a manner that is transparent to employees. Increasing Regulatory Burdens. HR is charged with complying with an ever-increasing number of new government laws, rules, and judicial rulings. The HR department within a corporation is usually responsible for compliance with a wide range of legal areas such as compensation policies, discrimination, employee benefits, hiring policies, medical time off, occupational safety and health, payroll administration and workers compensation insurance. Each of these broad legal areas may cover tens or hundreds of specific regulations which are often subject to change. Within the past two years, there has been significant new legislation, legal rulings or interpretations affecting retaliation claims against employers (a section of the Civil Rights Act of 1964), the Family and Medical Leave Act, and the Pension Protection Act of Managing the regulatory environment becomes even more complex as companies expand internationally and have to manage workforces across multiple geographies with different legal structures. Constant need for HR to be more efficient. Although more organizations are beginning to view HR as a fundamental operation underlying their long-term success rather than merely a cost center, corporations overall focus on maximizing economic profit will likely result in the HR function in most organizations continuing to be constrained by budgetary pressures, thereby forcing them to become more efficient. Business Services Human Capital Services 7

9 February 2008 pìãã~êó=çñ=püçêíéêjqéêã=péåìä~ê=qêéåçë= Major drivers and trends that will impact the demand for human capital solutions over the short to medium term include: Cyclical slowing. Over the near-term, economists have mixed opinions whether the U.S. economy is in a mid-cycle slowdown or entering a more pronounced macroeconomic downturn, including a potential U.S. recession. Equity markets, at this time, are certainly concerned about the possibility of a recession. U.S. job growth has slowed, especially in more cyclicallysensitive industries, but still remains slightly positive on both a year over year and sequential basis; however, other data points have been more concerning, as has been the recent tightening in credit markets. Demand for many human capital services is cyclically sensitive. A significant slowdown or recession will reduce demand in many sectors over the near term. Emergence of a new generation of public companies. Previously, a majority of the public companies in the human capital services space were staffing companies such as Manpower and Robert Half, or outsourcing companies such as ADP, or larger HRMS providers like PeopleSoft/Oracle. There has recently been an emergence of public companies that focus on providing technology solutions to assist with human capital management. Such companies include Taleo Corporation (TLEO), Kenexa Corporation (KNXA), SuccessFactors, Inc. (SFSF) and Salary.com, Inc. (SLRY). Emergence of Software as a Service (SaaS). There will likely be a continued shift towards human capital solutions providers delivering their services via a Software-as-a-Service (SaaS) model. Many of the solutions delivered via a SaaS model are configurable and are often easily integrated with ERP systems. As a result, HR departments that employ software delivered via a SaaS model can address non-core, routine business processes such as payroll processing and benefits administration using superior software without the cost of having to build and maintain their own software or undergo costly integrations with their existing systems. Blurring of the lines between industry sub-sectors. Our observation is that many HCS players used to focus on specific HR functions but are now merging into other adjacent sub-sectors. For example, ADP used to be a provider of payroll processing but now offers pre-employment screening, applicant tracking and outsourcing services as well. This shift has blurred the competitive landscape. For example, Kenexa (KNXA) competes against SuccessFactors (SFSF), which is a pure SaaS provider focused on performance management, as well as staffing companies such as Manpower and Spherion in terms of recruitment process outsourcing. The bloom is off the rose of comprehensive HR outsourcing. There will likely be a continuation of outsourcing; however, there has been a shift away from full, comprehensive HR outsourcing arrangements for large companies. Instead, contracts are becoming smaller in nature and entail outsourcing only specific functions such as payroll, benefits, learning & training and recruiting (RPO). Early comprehensive HR outsourcing arrangements resulted in significant losses for many service providers as many of the contracts were inadequately priced (from the providers perspective) and took longer to implement than expected often due to unforeseen complexities and skills shortages at the providers. There is an ongoing shift towards consumer-driven healthcare. According to the Kaiser Family Foundation and the Health Research and Education Trust s Employer Health Benefits 2007 Annual Survey, premiums for family health coverage have increased 78% since 2001 while wages have increased 19% and inflation has increased a total of 17%. Due to the rapid rise in healthcare costs, many companies are shifting to consumer-directed healthcare plans which tend to have much lower premiums but higher deductibles in order to reduce healthcare costs. In addition, companies are also offering more tax-advantaged programs such as health spending accounts (HSAs). Rising healthcare costs and the availability of alternative forms of healthcare Robert W. Baird & Co. 8

10 Comprehensive Guide to Human Capital Services plans should help spur demand for the services of HR and benefits consultants. In addition, there is the potential that companies could shift to using more temporary workers in order to reduce healthcare costs as these workers often do not accrue full benefits. Legislation is continually changing and becoming increasingly fragmented. In the U.S., states are becoming increasingly impatient in terms of waiting for legislation to pass at the federal level. As a result, many states are beginning to pass their own legislation on key issues resulting in a fragmented legal system which makes adhering to the law more time-consuming and difficult for larger companies that operate in numerous states. A prime example of this is the failure of the Federal Government to pass comprehensive immigration reform. During 2007, every state debated immigration issues and 41 states adopted immigration laws. For multinational companies, issues are even more complicated. Potential for M&A to increase. A cyclical slowdown will likely stress a number of players. Credit tightening will further exacerbate the stress. This will create an opportunity for larger players with strong balance sheets to consolidate some sub-sectors at attractive prices. Eventually financial markets will normalize which will also create opportunities for financial buyers. Business Services Human Capital Services 9

11 February 2008 içåöjqéêã=fåîéëíãéåí=qüéãéë= Talent Shortage: Investments in staffing and recruiting companies represent one potential avenue to capitalize on the expected talent shortage in upcoming years. Staffing, executive search and recruitment process outsourcing companies are naturally positioned to help solve this issue as their candidate databases, geographic expertise/presence, advanced technologies, reputation and use of best practices position them to be intermediaries in the hiring process. With respect to staffing companies, we believe the best long-term areas for investment are: (1) large, well capitalized global staffing firms, (2) professional staffing firms (finance and accounting, legal services, IT, engineering, etc.), and (3) companies with a small- and middle-market focus. For executive search firms, we believe the best long-term investments are in those companies with: (1) established records and strong reputations, (2) functional or geographic expertise, (3) the ability to attract the strongest recruiters, and (4) sophisticated IT/technology and global networks that enable search firms to compete globally and to maintain databases on past candidates. We believe that the best long-term areas for investments in RPO providers are those with: (1) significant scale to their operations, (2) enhanced technology, and (3) an international presence. Global workforces: Given the recent trends towards globalization, which we believe will likely continue, multinational companies are increasingly looking for products with the technology to support global operations as well as service providers with geographic footprints large enough to meet their global demands. There is a high level of investment required to build out global networks, open international offices, understand the legal environments in numerous countries, and development technology capable of servicing global clients. Therefore companies that have already made these investments have an advantage in that replicating these efforts are often cost prohibitive for smaller competitors. Global capabilities can be a key differentiating factor between staffing, executive search, RPO, technology and outsourcing providers. Technology Enablement: HR departments are continually under pressure to improve efficiency and lower costs and, as a result, HR departments are increasingly utilizing technology to do so. In addition, in tight labor markets where candidates are scarce and may be receiving competing offers from firms, the speed at which a company is able to source qualified candidates, perform the necessary screening and interviewing, and issue an offer is critical. Delays in these processes can result in companies not finding qualified candidates or losing potential candidates to competitors. As a result, we believe that a long-term area for investment is in companies that provide specific HR technologies that help to improve efficiency of the HR function such as applicant tracking systems, job boards, vendor management systems and performance management systems. In addition, staffing and recruiting providers that are more technology enabled than their competitors are likely to have an advantage in terms of sourcing candidates and reducing time to hire. Lastly, service providers that are integrated with ERP/HRMS systems have an advantage as companies can implement their product/services while avoiding integration costs. Outsourcing: We continue to believe that HR departments need to focus on core competencies such as recruiting, retaining, and optimizing the right talent as well as other value-added functions while outsourcing non-strategic functions. Preparing a payroll run or administering benefits are not core competencies of most firms nor do they provide strategic value. We believe HR departments will continue to turn to outsourcers to address non-core, routine business processes in an effort to improve efficiency and at the same time reduce their costs. As mentioned previously though, future demand for outsourcing services will likely be for individual HR processes as opposed to comprehensive HR outsourcing arrangements given the implementation difficulties in the larger deals. Robert W. Baird & Co. 10

12 Comprehensive Guide to Human Capital Services qüé=eo=`ü~ääéåöéw=^å=lîéêîáéï= Human Capital Management (referred to as HCM or more generally the HR function) encompasses the acquisition, development, and administration of a firm s employees, or human capital. A typical U.S. company spends approximately % of revenue on traditional HR functions, excluding the actual compensation and benefits costs for employees that are usually the biggest expense items for many corporations. Typical processes within the HR function include: Workforce planning -- consistent usage of one form or the other Recruiting and staffing Employee on-boarding Training and development Payroll processing Pension and 401(k) administration Employee administration Health and welfare administration Compensation policies Employee guidelines and communication Legal compliance Separation administration The HCM model has changed significantly over the past 100 years and continues to evolve. Major changes within the past decade have been driven by technological innovation and by corporations overall focus on efficiency improvement and maximizing economic profit. Many HR departments have historically been viewed as cost centers that increase overhead while offering little added value. As a result, a primary focus of corporations was minimizing the cost of their HR departments through automation and cost cutting. In our opinion, a significant shift is underway in terms of how the most progressive and successful organizations view HCM. Many progressive organizations are increasingly viewing HR as a fundamental operation underlying their long-term success rather than merely a cost center. This change in mindset is driven in part from the transition of the U.S. and other developed economies away from manufacturing towards more knowledge-based services. We believe this important shift will occur in HR in conjunction with the following trends: Outside The Firm New human capital will become increasingly difficult to acquire due to the slowing growth rate of the labor force and changing population demographics which will decrease the number of available prime workers. Complexity will increase. HR departments will continue to be charged with maintaining compliance with an increasing number of new laws and regulations imposed by the federal and state agencies, as well as an increasingly active judiciary system. Managing the regulatory environment becomes even more complex as companies expand internationally and have to manage workforces across multiple geographies with different legal structures. Inside The Firm Retaining the right human capital will become increasingly difficult due to a trend in declining worker tenure driven by a decline in worker loyalty and increased information about alternative employment options brought about by the internet. Technological and legislative changes have the ability to dramatically affect the demand for certain kinds of specialized labor for short periods of time. For example, following the adoption Business Services Human Capital Services 11

13 February 2008 of the Sarbanes-Oxley Act, there was a significant increase in the demand for accounting professionals in 2004 and 2005 to assist public companies and auditing firms with the initial rounds of compliance with the Act. However, demand for accounting professionals due to SOX compliance fell off significantly in 2006 and Similarly, there was a significant rise in demand for IT professionals prior to Y2K as well as during the earlier days of web development; however, these periods of high demand were short-lived. Such dramatic rises and falls in demand for certain skill sets result in a need for companies to utilize more flexible workforces in order to have the right people at the right time. The HR function in most organizations will continue to be constrained by budgetary pressures thereby forcing them to become more efficient. These dynamics give rise to what we call The HR Challenge (see Figure 1.1). FIGURE 1.1 The Human Resources Challenge War for Talent Administrative Burden External Drivers Low Unemployment Complexity of HR Internal Drivers Employee Turnover Budget Pressures Responses to the HR Challenge Focus on Strategic Objectives Attract & retain quality people Improving Organization Effectiveness Adopt Technologically Sophisticated Systems to Help Achieve Objectives Outsource Nonstrategic Functions Adopt Progressive Human Capital Management Practices Increasingly Using International or Flexible Workforces Source: Baird In response to these challenges, we believe that four main actions will occur as companies focus on their strategic objectives: first, HR departments will continue to focus on recruiting, retaining, and optimizing the right talent as well as other value-added functions in order to help corporations thrive. Second, organizations will increasingly utilize technologically sophisticated products and systems to improve efficiency. Third, organizations will either outsource non-core, low-value-added HR functions to outside vendors that can perform the functions more efficiently or employ new software products, often delivered through a Software-as-a-Service (SaaS) model, to automate many HR functions. Fourth, organizations Robert W. Baird & Co. 12

14 Comprehensive Guide to Human Capital Services will increasingly adopt progressive management practices such as using international or flexible workforces to help meet their demand for labor. The HR Challenge: Low Unemployment On a seasonallyadjusted basis, the unemployment rate declined gradually from a peak of 6.3% in 2003 to a cyclical low of 4.4% in both October 2006 and March 2007 (Figure 1.2). FIGURE U.S. UNEMPLOYMENT RATE Source: Bureau of Labor Statistics Over the near term, economists have mixed opinions whether the U.S. economy is in a mid-cycle slowdown or entering a more pronounced macroeconomic downturn, including a potential U.S. recession. U.S. job growth has slowed, especially in more cyclicallyensitive industries, but remains positive on both a year over year and sequential basis. However, some economic data points, such as new home construction have been more concerning, as has been the recent tightening in credit markets. However, taking a longer-term view, we believe the economy is poised for an escalation in the war for talent due to several reasons, which we discuss below. There has been declining severity of economic downturns in recent years. Unemployment peaked at 6.3% in June 2002 compared to 7.3% when the recovery began following the recession. During the next recession, we anticipate that the unemployment rate will most likely peak at a lower level than it has in previous U.S. slowdowns. Companies appear to have been cautious in their hiring practices over the past few years. Often times, companies cut staffing levels excessively when there is a slowdown and then have difficulty recruiting capable staff once the economy rebounds. The reverse can also be true, as exhibited by the over-hiring of employees (many of whom had long-term contracts that subsequently drained the firms financial resources) by some firms in the late 1990s. Currently, we have not observed this phenomenon thus far as most firms appear to have retained a more cautious approach to hiring this cycle. Companies that derive competitive advantage from intellectual and human capital are prominent in the top ranks of the S&P 500. As shown in Figure 1.3, in prior decades the largest companies were traditional manufacturing, energy, and consumer products companies whose competitive positions were in part determined by their ability to achieve economies of scale. In 1980, 17 of the 20 largest market cap companies came from these industries compared to 12 in 1990 and only seven in In their place are companies from the technology, pharmaceutical, and services industries. Companies in these industries tend to derive their competitive advantages more from their ability to leverage intellectual or human capital than from achieving economies of scale. We believe that this shift in market valuations supports the argument that human and intellectual capital is replacing property, plant, and equipment as the most Business Services Human Capital Services 13

15 February 2008 critical assets for most U.S.-based organizations. It is also interesting to note that GE, the second-largest company by market capitalization, is an old-line industrial company but is also widely noted by HR professionals and academics as being one of the leaders in HCM. FIGURE 1.3 LARGEST U.S. PUBLIC COMPANIES BY MARKET CAP June 2007 Company Mkt. Cap ($B) Company Mkt. Cap ($B) Company Mkt. Cap ($B) IBM $39.6 IBM $64.6 Exxon Mobil $474.4 AT&T $36.1 Exxon $64.4 General Electric $385.3 Exxon $34.8 General Electric $50.1 Microsoft $292.8 Amoco $23.3 Philip Morris $47.9 Citigroup $269.6 Schlumberger $22.3 Bristol Myers $35.1 AT&T $250.7 Shell Oil $18.0 Merck $34.8 Bank of America $225.4 Standard Oil $17.7 Wal-Mart $34.6 Wal-Mart $204.4 Mobil $17.2 AT&T $32.9 Procter & Gamble $199.9 Chevron $17.0 Coca-Cola $31.1 Pfizer $194.3 Atlantic Richfield $15.1 Procter & Gamble $30.0 American International Group $188.9 General Electric $14.0 Bellsouth Corp. $26.4 Johnson & Johnson $183.5 General Motors $13.3 Amoco $26.3 JPMorgan Chase $177.3 Texaco $12.9 Chevron $25.5 Chevron $176.7 Eastman Kodak $11.3 Du Pont $24.6 Cisco $162.6 Haliburton $9.8 Johnson & Johnson $23.9 IBM $158.2 Phillips Petroleum $8.9 Mobil $23.3 Google $155.3 Gulf Corp. $8.5 Bell Atlantic $21.1 Altria $151.0 Unocal $7.7 General Motors $20.8 Intel $129.3 Union Pacific $7.6 Pepsico $20.5 ConocoPhillips $128.9 Getty Oil $7.5 Atlantic Richfield $19.6 Verizon $124.9 Source: FactSet Studies dating back to the late 1990s reveal the increasing importance of human capital. Studies by the consulting firm McKinsey & Co. point to the increasing influence of human capital on corporate performance. In fact, McKinsey is credited with coining the phrase War for Talent. The company s studies not only point to the coming demographic shortage of human capital, but also indicate the following: 1. Superior human capital leads to superior corporate performance; 2. A level employees contribute significantly more to corporate performance than B or C level employees; 3. Human capital is a generally undervalued production factor; and 4. Only in a few select professions (private equity, asset management, professional sports, investment banking, hedge fund management, law, and medicine) is human capital rewarded in a manner that is consistent with its incremental contribution. Demographic and cultural changes have caused a scarcity of human capital resulting in lower unemployment levels than in previous cycles. In both 2000 and 2007, the unemployment level in the U.S. reached levels not seen since early In addition, the unemployment rate during the 2001 recession was lower than in the previous four recessions. Despite the rapid rise in the unemployment rate in 2001, the peak in unemployment was still well below the levels reached during the , 1980, , and recessions (See Figure 1.2). The data presented in Figure 1.2 disguises the fact that the labor supply for educated professionals is much more limited. Figure 1.4 shows that unemployment among professionals with a four-year degree has been in the % range over the last 15 years, well below the overall unemployment rate. Robert W. Baird & Co. 14

16 Comprehensive Guide to Human Capital Services FIGURE 1.4 UNEMPLOYMENT RATE OF COLLEGE GRADUATES (VS. OVERALL UNEMPLOYMENT RATE) U.S. Unemployment Rate College Educated UE Rate UE Rate Source: Bureau of Labor Statistics Although the overall unemployment rate may again rise modestly in the near term (it is a lagging indicator), we believe it will likely not pass the prior peak of 6.3% (June 2003). We note that 6.3% is well below the 7.8% and 10.8% peaks reached in the recession and recessions, respectively. Lastly, as we have also seen during the 2001 downturn, a weakening labor market would likely have much less of an impact on highly skilled professionals. The overall growth in the labor force should slow dramatically. Over the past four decades, the U.S. economy has benefited from a labor force that has doubled in size and has become increasingly more educated. At the center of this growth was the influx brought on by the addition of the baby boom population as well as two other significant factors: (1) a rapid increase in the number of women who work outside the home, and (2) a rise in immigration. The labor force grew 50% from 1980 to 2000, with the majority of growth occurring in workers aged and a disproportionate share of them being women (source: The Aspen Institute). This is likely to change significantly. As illustrated in Figure 1.5, the compound annual growth rate for the U.S. labor force has been slowing significantly, and growth over the next 50 years will almost certainly be well below the growth rate achieved over the last 50 years. In particular, growth in the aged population has been slowing and will continue to slow as baby boomers age. Additionally, participation rates for women in the workforce have leveled off around 60%, nearly doubling from roughly 30% following World War II. In addition, as discussed later on, the growth in immigration is likely to slow, although this is much more difficult to project. However, one factor that could partially offset the aforementioned headwinds to labor market growth is a rise in the participation rate of individuals aged 55+ (which will likely be most pronounced for those aged 65+). Business Services Human Capital Services 15

17 February 2008 FIGURE 1.5 U.S. COMPOUND ANNUAL LABOR FORCE GROWTH (% PER DECADE) 3.0% U.S. Prime-Aged (25-54) Labor Force vs. Population Growth 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Labor Force CAGR Population CAGR Source: Bureau of Labor Statistics We believe the number of prime workers will decline. The number of prime workers (ages 25-44) is forecasted to decrease in coming years. Within the HR community, workers in the age bracket are considered to be prime because they make up the broad pool that is normally targeted by corporations. Generally, this group is viewed as committed to a career, while possessing maturity, savvy, energy, and ambition. The prime worker group is also the group from which management talent is usually selected and groomed for future leadership positions. Also, labor participation rates peak between ages As Figure 1.6 indicates, the number of prime workers in the United States is forecasted to fall 4% to 79 million between 2000 and Based on historical trend lines, we estimate that real GDP will be in the 2-4% range over the next ten years. Obviously, there is a large disconnect. This trend has important ramifications for the human capital industry since the talent pool of prime-aged workers, which drove much of the growth throughout the 1990s, will likely shrink. FIGURE 1.6 U.S. PRIME WORKERS Source: Bureau of Labor Statistics We believe the growth rate of mature workers will decline. Not only is there an absolute decline in the number of prime workers, but there will also be a significant decline in the growth rate of the number of mature workers in general. For example, Figure 1.7 shows that the year-old age group is not Robert W. Baird & Co. 16

18 Comprehensive Guide to Human Capital Services large enough to maintain the growth rates that the United States has experienced over the past 20 years. Again, there is a relatively dramatic slowdown in the projected growth rate of the civilian labor force for this group. FIGURE e Civilian Labor Force Aged (MM) % Change 33% 13% 5% CAGR 2.9% 1.5% 0.5% Source: Bureau of Labor Statistics We believe companies will face an older workforce and an increasing number of retirees. Another factor that organizations are expected to deal with is the increasing age of the workforce and, ultimately, the large increase in the number of retirees. According to the BLS, the median age of the labor force is projected to hit 40.6 years in 2010, due to the aging of the baby boomers. This is up significantly from a median age of 34.6 in 1980 and 36.6 in 1990 and highlights the potential for brain drain in our economy. The brain drain phenomenon simply refers to the loss of knowledge and experience without replacement, which could occur to a certain degree when the aging baby boomer population starts retiring or changing careers. Currently, the BLS is actually assuming that worker participation rates will increase significantly for the boomer generation versus previous generations. Current assumptions are that labor participation rates for adults 55 and older will jump to 37.1% by 2010, versus 30.1% in 1990 and 32.3% in Even assuming these higher participation rates, the number of retirees is projected to increase significantly (see Figure 1.8). FIGURE 1.8 US Population Age 62 by Year 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000, Source: Bureau of Labor Statistics Wages are rising for skilled professionals. The demographic shortages of skilled labor and the increasing recognition of the importance of superior human capital are leading employers to bid up the wages of superior talent. This is reflected in the increasing number of Americans who are joining the top ranks of the wage scale. According to the latest data available from the IRS, there was a significant increase in the number of tax returns filed by individuals earning more than $100,000 in adjusted gross income in 2005 (see Figure 1.9). We suspect that future releases of data will confirm that these trends have continued and will continue in the future. Business Services Human Capital Services 17

19 February 2008 FIGURE 1.9 Taxpayers Earning % Increase Between $100,000-$200, M 7.10M 8.42M 10.81M 134% Over $200, M 2.43M 2.41M 3.57M 135% Source: Internal Revenue Service There will be a significant slowdown in the educational attainment of the labor force. According to the Aspen Institute and the BLS household survey data, the percentage of the labor force over age 25 that had attained a college degree increased from 21.6% to 33.7% from 1980 to During this period, the actual number of individuals over age 25 with a college degree increased approximately 156%. It is widely expected that the percentage of the labor force with college degrees will rise at a much slower rate going forward, assuming that there are no significant changes with respect to immigration. A change in the immigration policy could alleviate pressure, but is difficult to predict. Of course, if labor markets in the United States become too tight in the future, our immigration policies could be altered to alleviate the pressure. However, net legal immigration is already near record highs. Also, immigration is a hot button politically. Post September 11, immigration restrictions tightened. Also, we note how difficult it was to change H-1B visa quotas during the 2001 employment peak in order to alleviate the shortage of information technology (IT) workers in the United States. Much more significant changes than those made to H-1B quotas would be needed to address the upcoming demographically driven shortages. Considering how tough those changes were to enact and the political cost (former Senator Spencer Abraham was the chief sponsor of the bill that the AFL-CIO opposed), we believe that it could be difficult to make deep changes to our immigration policy in the future. Over the last several years, the U.S. Congress has voted against several immigration bills that have included material amendments to guest worker programs, as well as a range of border security and enforcement provisions and citizenship rights for illegal aliens currently residing in the U.S., among other issues. The rejected bills include the Secure America and Orderly Immigration Act (S. 1033; proposed May 2005), the Comprehensive Enforcement and Immigration Reform Act of 2005 (S. 1438; proposed July 2005), the Comprehensive Immigration Reform Act of 2006 (S. 2611; proposed May 2006), and most recently the Comprehensive Immigration Reform Act of 2007 (S. 1348; proposed May 2007). The bills have been rejected despite receiving bi-partisan support from key legislators and the Bush Administration making comprehensive immigration reform a top priority. The Comprehensive Immigration Reform Act of 2007 s last vote on cloture (June 28, 2007) failed 46-53, after three votes on cloture on June 7 failed, obtaining at most only 45 votes (60 affirmative votes were required for passage). If passed, the bill would have provided legal status and a path to citizenship for roughly 12 million (some estimates are as high as 20 million) illegal aliens currently residing in the U.S., increased border security and monitoring of immigrants, and an increased number of foreigners legally allowed in the U.S. through the guest worker program. However, the number of guest workers that would have been allowed in the U.S. was gradually reduced as the bill was amended in Congress. Given the failure of the Federal Government to pass comprehensive immigration reform, there has been significant action at the state level. According to a New York Times article citing a report by the National Conference of State Legislatures, states considered 1,404 immigration measures in 2007 (through the time the article was published on August 6) and enacted 170 of them (through August 6, 2007), reflecting two and a half times as many immigration bills considered versus During 2007 every state debated immigration issues and 41 states adopted immigration laws. One of the most comprehensive bills at the state level came in Arizona where Governor Janet Napolitano signed the Legal Arizona Workers Act on July 2, which went into effect on January 1, 2008 and is applicable to employers of all sizes. Under the law, Arizona employers that knowingly hire illegal immigrants face temporary suspension of their business license for a first offense and a three-year Robert W. Baird & Co. 18

20 Comprehensive Guide to Human Capital Services suspension for their second offense. The Arizona law also requires Arizona employers to confirm the work eligibility of all new hires through the Federal Government s E-Verify (formerly Basic Pilot) Program, also known as the Employment Eligibility Verification Program. Ironically, Illinois lawmakers barred the state from requiring employers to verify job applicants through the E-Verify Program, given their concerns that it may be unreliable and error prone. According to the U.S. Department of Homeland Security s Citizenship and Immigration Services Education Branch Verification Division, the system can only handle 25 million queries at one time, while there are 52 million new hires in the U.S. each year. Other examples of recently passed state immigration laws include a law in Tennessee that suspends business licenses for knowingly hiring illegal immigrants (similar to the Arizona law). Colorado and Oklahoma passed laws that prohibit state agencies and political subdivisions from entering into service contracts with contractors that knowingly employ illegal aliens. Georgia passed a law requiring public employers and contractors to verify employee eligibility through the Federal Government s Basic Pilot Program. In addition to the states already mention, numerous other states have enacted legislation denying state assistance to illegal immigrants and/or barring illegal immigrants from obtaining driver s licenses. The Department of Homeland Security also took separate action, and announced new rules to make employers liable for submitting a letter with an incorrect social security number and then not taking the proper steps to address the discrepancy. Essentially, the DHS rule encourages the use of the Basic Pilot Program, which may be in part a response to the actions by the various states. The DHS also plans to increase the fines for companies that hire large numbers of illegal workers, including potential criminal fines. In general, the immigration legislation shows that when the U.S. Congress fails to act on an issue that is arguably better addressed at the federal level, state legislatures and even other branches of the Federal Government will respond with their own, potentially more cumbersome and costly legislation. As in the case of the Basic Pilot Program, it also appears that the state actions may ultimately encourage the Federal Government to take action. The HR Challenge: Employee Turnover Cultural changes such as decreasing tenure rates mean that companies will have to replace more workers in the future. The downsizing of organizations in the early 1990s and 2000s coupled with reengineering and global competition has changed the attitudes of many employees with regard to company loyalty. During this decade we have seen accelerating growth combined with falling unemployment and small increases in wages. This unusual combination of strong growth with limited wage increases has made it easier for employees to rationalize switching jobs more often. This job hopping is reflected in the numbers provided by the BLS on job tenure in Figures 1.10 and 1.11 below on the next page. Business Services Human Capital Services 19

21 February 2008 FIGURE 1.10 Median Years of Tenure -- Overall Ages Source: Bureau of Labor Statistics FIGURE 1.11 Median Years of Tenure -- Men Ages Source: Bureau of Labor Statistics As noted in Figures 1.10 and 1.11, average tenure has declined among the nation s workers over the past 23 years. Among men aged 35-44, the average tenure has fallen to 5.1 years in 2006 from 7.3 years in Particularly interesting is the fact that tenure rates for prime workers continued to decline during the 2001 recession, though there is likely some effect attributable to the rising number of layoffs that occurred in 2001 and However, in general, we still believe the average tenure among men aged is a key metric because it provides an apples-to-apples look at mid-career employees over the past 19 years. The statistics for individuals more than 45 years old show the same trend. Among workers aged and 55-64, the average tenure has fallen to 9.1 from 12.8 and to 10.2 from 15.3, respectively. This decrease in employee tenure bodes well for the segments of the human capital industry which provide recruiting solutions and place executive talent. Clearly, tenure rates are on a long-term decline. Once the labor markets rebound, what may end up being particularly disruptive to organizations is the possibility that the younger half of the work force may fail to change its job-hopping behavior significantly as it ages. In other words, those individuals who are currently years old continue to change jobs every 3-5 years, even as they grow older and replace people in the year-old age group (which still remembers the corporate man ethic) as they retire. Several well-regarded consultants in the HR space, including those from McKinsey, have suggested this dynamic. Robert W. Baird & Co. 20

22 Comprehensive Guide to Human Capital Services Of course, the primary implication is that, in the future, companies will have to recruit more and more workers just to stay even. Imagine the implications for a company with 1,000 employees if its tenure rates declined to four years from six and two-thirds years. That company would have to increase its new hires to 250 from 150 just to stay even in one year. In order to increase its head count by 10% annually over a three-year period, this same 1,000-person company with a 25% turnover rate would have to hire approximately 1,159 new employees in order to reach a goal of 1,331 at the end of year three. The HR Challenge: Increasing Complexity of HR In the future, similar to the not so distant past, we believe the stress of low unemployment and high employee turnover on Corporate America s HR departments will be significant. Another area that is arguably as challenging is the increasing administrative burden placed on HR departments. Sources of an increasing burden stem from increasing regulation, globalization, and mergers and acquisitions. Increasing Regulatory Burden HR is charged with complying with an ever-increasing number of new government laws, rules, and judicial rulings. The HR department within a corporation is usually responsible for compliance in the following legal areas: Arbitration Compensation policies Contract and temporary worker policies Discrimination Drug and alcohol policies Employee benefits Employee representation and unionization Family leave Harassment Hiring policies Hours worked and overtime Immigration Insurance Layoffs and terminations Maternity policies Medical time off Occupational safety and health Payroll administration Personnel administration Privacy policies Retirement planning and benefits Suspension and probation Workers compensation insurance While this may appear to be a long list, it is actually a summary with tens or hundreds of regulations affecting each area. In order to highlight the need to keep up with these new regulations, we have outlined a small sample of some new regulations for which HR would normally be responsible for ensuring compliance. Below we present several examples of changes in HR law that have occurred as a result of new legislation or legal rulings that have occurred in the last year: There have been several employment-related risks that have increased significantly in recent years. One potentially costly claim that has become increasingly common is retaliation claims. Title VII of the Civil Rights Act of 1964 forbids employment discrimination against any individual based on that individual s race, color, religion, sex, or national origin. A separate section of the Act covers Retaliation claims by employers. Business Services Human Capital Services 21

23 February 2008 Retaliation claims entail an employee filing a claim under the belief that they were fired, demoted, harassed, or otherwise retaliated against for filing a charge of discrimination, participating in a discrimination proceeding, or otherwise opposing discrimination. Retaliation claims are currently the third most common type of discrimination claim behind only race and sex claims, accounting for roughly 30% of all discrimination claims, up from 16% in 1993 (EEOC). There were several claims during 2006 that highlight just how expensive retaliation claims can be for an employer. For example, a California jury awarded $18 million to James Stevens, an African American male that had been sexually harassed by a coworker and then been fired as a result of the situation, and a New York city jury awarded $16 million to Kimberly Osorio, the former Editor-in-Chief of The Source after she was retaliated against for filing a gender discrimination claim. The retaliation provision of Title VII was recently challenged on several fronts by a U.S. Supreme Court ruling in Burlington Northern and Santa Fe Railway Company v. Sheila White. The Supreme Court set the precedent that an employer can be held liable for causing harm to an employee outside of the workplace through retaliatory practices. The court also found that just because an employee receives back pay for a suspension does not mean that the individual has been made whole. In the case of Burlington Northern v. White, the court ruled that since the employee had to live during the suspension period without income and did not know if or when they would be allowed to return to work, they endured an additional hardship, and were entitled to both compensatory and punitive damages. While it clarifies several issues with regards to retaliation claims, the White case leaves the question of material adversity (deciding whether or not the retaliatory actions had a material negative impact on the employee) to the jury. In a presentation at the 2007 SHRM Annual Conference, Mary E. Pivec, a partner in the employment practice at Keller and Heckman LLP, presented several retaliation risk management recommendations. They include: ensuring that discrimination and harassment policies prohibit retaliation; providing a hotline for reporting EEO, harassment and retaliation claims; investing in ongoing interactive/behavioral harassment and retaliation training for supervisors and managers; establishing EEO investigative procedures and addressing retaliation complaints promptly and credibly; making EEO management performance a factor in compensation and promotion; monitoring complaintants work areas for signs of retaliation and intervening promptly when it occurs to correct it; auditing past incidents for lessons learned; and, considering adopting a pre-dispute arbitration policy. In addition to some resolution being brought over the past year regarding retaliation law, Sarbanes-Oxley whistleblower statutes continue to be more clearly defined. Effectively the scope of Sarbanes-Oxley whistleblower cases have been narrowed to cases where employee communication definitely and specifically relates to fraud or securities violations, while generalized complaints about how the company runs its business are not protected. Additionally, the alleged fraud must be of the type to adversely impact shareholders interests and the amount of potential loss must be significant and material to reasonable shareholders. Another notable change in employment law came in the U.S. Supreme Court decision in Ledbetter v. Goodyear regarding claims of pay discrimination. Under Ledbetter, in order to receive restitution for pay discrimination, employees must assert wage discrimination claims within 180 days of the alleged discriminatory wage being set. Furthermore, the court ruled that the claim must be filed within 180 days of the original instance of pay discrimination and noted that a new violation does not occur, and a new charging period does not commence, upon the occurrence of subsequent non-discriminatory acts that entail adverse effects resulting from the past discrimination. While the Ledbetter decision provides employers a means to defend themselves against untimely-filed pay discrimination claims (given the change relative to the previous legislation), the relief may be only temporary with several senators suggesting that they plan to introduce legislation to amend Title VII to give workers more time to file a complaint. Robert W. Baird & Co. 22

24 Comprehensive Guide to Human Capital Services In addition, numerous laws and regulations already in existence are often subject to new rulings or interpretations. One example is the Family and Medical Leave Act, which has been the subject of multiple court rulings with varying interpretations. Strict compliance with these ever-changing rules, regulations, and judicial interpretations is important because of the potential for material court rulings against companies for not closely following the rules. There have been thousands of individual rulings with relatively high negative consequences for companies. More significant is the potential for class-action suits. Not only are these suits expensive, they usually limit the operating flexibility of the company after the suits are settled. Another key piece of legislation that was recently passed and is having a drastic impact on companies from an HR perspective is the Pension Protection Act of The Pension Protection Act of 2006 establishes new funding and disclosure rules for pension plans, representing the most meaningful pension legislation in the U.S. in roughly 30 years (since ERISA). Globalization Multinational companies have been expanding globally much more so than they did ten years ago. In our opinion, this is a trend that will likely continue. The majority of activity to date has been U.S. and Western European-based companies expanding abroad in order to increase their customer base and capitalize on untapped resources. The U.S. and Western European companies have been focusing heavily on expanding in to China, India and Eastern Europe. Recently, multinational companies based abroad in areas such as China are beginning to expand globally as well. The continued expansion of companies overseas poses significant challenges to the HCM function. Various issues from regulation to compensation, to organizational structure and management, are complicated by an increasing international presence, which also increases the burden of the HCM function. As a result, multinational companies are increasingly looking for products with the technology to support global operations as well as service providers with geographic footprints large enough to meet their global demands. Mergers, Acquisitions, and Restructurings Probably the most challenging corporate events for the HCM function to deal with are mergers, acquisitions, and restructurings. Head count, organizational structure, integration of systems and personnel, rationalization of duplicate facilities and functions, and the meshing of corporate cultures are all incredibly difficult issues. Over the past several years, the influx of money into private equity funds as well as generally loose credit markets has boosted the level of mergers and acquisitions. To the extent that the number of these events continues to increase, this too would place an increasing burden on the HCM function. The HR Challenge--Budgetary Constraints While more effective HCM is likely to become a key corporate issue during this decade, the HR function within an organization is likely to face increasing cost constraints. In large part, we believe that this is due to the failure of many HR departments to establish themselves as true business partners offering strategic added value. As a result, many HR departments are viewed as cost centers with limited ability to enhance corporate performance. These cost pressures have put extra stress on HR departments thereby exacerbating the current HR challenge; however, it was not always this way. HR and HCM in previous decades used to be much simpler. Evolution of the HCM Function--Baby Steps until Now The HCM function has evolved from the early days of the industrial revolution to the present. This evolution is typified by increased complexity and regulation, as well as a rapid pace of technological change. Highlights of this evolution follow. Business Services Human Capital Services 23

25 February 2008 The late 1800s to 1930s. The industrial revolution spawned giant manufacturing complexes that replaced the small business, cottage industry model that had been the focal point of commerce during previous centuries. As the giant oil, electrical, and railroad companies grew, they spawned the first staffing departments, one of the first of which was the personnel department. The personnel department was formed to recruit and pay thousands of people to work the new machines of the new age. The industrialists of the age focused on new ways of manufacturing therefore the human capital of the organizations was not highly valued. Employees were treated as if they were production parts, and those in the personnel department were treated as if they were inventory clerks. This system stayed largely in place through the end of World War II. The 1940s and 1950s. The personnel function within organizations began to develop into more than just an offshoot of payroll. More sophisticated compensation and training technologies were developed. Personnel remained a reactive service and labor was considered an adversary to management. The 1960s. Government intervention through passage of the Civil Rights Act, ERISA, American Disabilities Act, and OSHA forced companies to place responsibility on personnel departments to meet new government requirements. The 1970s. Baby boomers moved into the workforce, demanding meaning and satisfaction from their jobs. New laws required organizations to provide welfare benefits and social activities in addition to employment. The first large-scale, automated HR information systems (HRIS) were deployed. The 1980s. Personnel departments became involved in designing new pay plans, training, and organizational development interventions. Personnel became HR, a factor in the management of large, complex organizations, focused on running internal programs. Following painful layoffs during the recession, HR led the drive to use staffing companies strategically to build flexibility into a company s workforce. The 1990s. Organizations began to turn to their HR departments for help in running their businesses. There was more recognition that HR was a truly critical variable. HR directors began to transform their departments into business partners, establishing partnerships with their internal customers and developing the ability to track the effect of their work on the outcomes of internal customers. HRIS systems became more sophisticated and valuable; they moved from the data processing department to the HR department. Sophisticated HR departments began to outsource non-core processes to dedicated resources in order to focus on more strategically important functions. Overall, the HCM function has evolved significantly with the key areas of evolution including the following: (1) human capital has replaced plant, property, and equipment as an organization s most critical asset, (2) the death of the organization man, (3) the development of sophisticated HRIS packages, (4) the growing acceptance of outsourcing business processes, and (5) the increasing scope of responsibilities that fall under the auspices of HCM. While these changes have been material, the level of sophistication and progress that HCM has achieved falls far behind the evolution that has transformed other corporate activities such as inventory management, manufacturing, distribution, marketing, and finance. HCM in the 21 st Century We believe that the escalating war for talent as well as other elements of the HR challenge will require successful companies to improve the efficiency and cost effectiveness of their HCM functions. Metrics are increasingly being adopted by organizations that pinpoint many areas for improvement. While precise data is difficult to obtain, many studies suggest that large companies spend between $800 and $2,000 per employee per year for HR administration. As outlined in Figure 1.12, we estimate that a company that operates at the 25 th percentile in terms of efficiency incurs HR administration costs of approximately $125 million for 50,000 employees; fa company operating at the 75 th percentile of efficiency incurs HR administration costs of approximately $40 million. As a result, by improving its efficiency level, organization with 50,000 people could potentially generate $85 million in annual savings. Robert W. Baird & Co. 24

26 Comprehensive Guide to Human Capital Services FIGURE 1.12 HR ADMIN COST FOR 50,000 EMPLOYEES $125MM $40MM 25th Percentile 75th Percentile Source: Saratoga Institute, Exult and Baird estimates The rapid rate of technological change causes organizations that develop and maintain their own HR systems to incur additional cost and risk. It appears increasingly less prudent for companies to develop their own systems to address HR needs, given the rapid pace of technological change. Often it is better to rent HR systems and software, and replace them with new packages as new technology is developed. The internet makes a seamless, transparent delivery of outside services possible. In previous years, HR departments felt that relying on outside vendors for the delivery of HR services would diminish service quality and reduce the access to information for employees. Furthermore, there were concerns that relying on outside vendors would be readily visible to employees and could potentially damage corporate culture. The advent of the internet equipped providers with an avenue to deliver these services seamlessly to clients in a manner that is transparent to employees. There was also a concern about loss of control of the data, which remains a concern. While most providers have a pretty good record in this regard, there have been several high profile data breeches at human capital services companies, including ChoicePoint, ADP, and Monster.com. Companies need to focus on core competencies. It is a cliché, but we believe it is true: successful companies will focus on their core competencies and outsource non-strategic functions. Preparing a payroll run or administering benefits are not core competencies of most firms nor do they provide strategic value. It also is not advisable for a firm to develop its own software package to manage HR programs when there are superior packaged and customizable systems available. We believe HR departments will turn to outsourcers or employ packaged software delivered via a Software-as-a-Service (SaaS) model to address non-core, routine business processes such as payroll processing and benefits administration in an effort to improve efficiency and at the same time reduce their costs. There will likely be a continuation of outsourcing; however, there has been a shift away from full HR Outsourcing. There continues to be solid demand for outsourcing; however, the recent trend has been away from large contracts that entail full HR outsourcing (especially for very large organizations). Instead, contracts are becoming smaller in nature and entail outsourcing only specific functions such as payroll, benefits, learning & training and recruiting (RPO). A part of this trend towards smaller outsourcing arrangements is due to the difficulties encountered by many service providers with their earlier HRO contracts. Many of the contracts were inadequately priced (from the providers perspective) and took longer to implement than expected often due to unforeseen complexities, skills shortages at the providers as well as the unwillingness by clients to allocate sufficient funds to cover transition costs. As a result, many service providers have announced that they are generating losses on their earlier contracts which they are in the process of trying to renegotiate. As a result of these difficulties, service providers have become more reluctant to enter large, global HRO deals and instead have focused more on arrangements with smaller scopes. Business Services Human Capital Services 25

27 February 2008 _ìëáåéëë=~åç=fåîéëíãéåí=lééçêíìåáíáéë=áå=íüé=eìã~å= `~éáí~ä=`çåíáåììã= In the following pages, we profile a spectrum of providers of human capital solutions that help companies improve their efficiency and effectiveness. We believe that HCM is best described as a continuum or a series of processes that have a meaningful order. Figure 1.13 illustrates this continuum and its major segments: (1) acquiring human capital, (2) integrating and maintaining human capital, (3) optimizing human capital, and (4) human capital separation. FIGURE 1.13 HUMAN CAPITAL CONTINUUM Source: Baird In this section, we briefly explain the types of processes that occur in each of the major divisions of the human capital continuum. We also provide a detailed discussion of the categories or types of companies that address these processes. In doing so, we present a view of HCM that captures the types of activities that occur in an organization (typically the HR department), grouped into categories that make sense from both a HCM perspective as well as an investor perspective. We also attempt to logically categorize the companies that operate in this space. We hope to demonstrate how the role of HCM has expanded significantly beyond just payroll and benefits to include all areas of recruiting, deploying, retaining, and optimizing human capital. The categories we profile under each area of the continuum are as follows: Human Capital Acquisition Staffing and workforce solutions Executive search Retirement process outsourcing (RPO) e-cruiting Assessment and verification Talent management suites/systems HR vendor management systems Human Capital Integration and Maintenance HRMS software solutions Time & Attendance HR outsourcing Robert W. Baird & Co. 26

28 Comprehensive Guide to Human Capital Services Professional employer organizations (PEO) Human Capital Optimization HR consulting Human capital point solutions / Miscellaneous services Human Capital Separation Human capital separation Outplacement services Key topics that we cover include the following: Notable companies in the category A description of the category The revenue model Demand drivers Sources of competitive advantage The economics of the business Size and market structure Conclusion At the end of this research report, we provide profiles of many of the companies that offer human capital solutions, grouped according to category. We acknowledge that many companies could fit into multiple categories; therefore, we have attempted to provide a best-fit categorization. Business Services Human Capital Services 27

29 February 2008 pí~ññáåö=~åç=tçêâ=ñçêåé=pçäìíáçåë= Leading Companies Notable companies in the staffing and workforce solutions industry include Adecco SA, Manpower, Randstad, Vedior, Kelly Services, Robert Half International, The Goodwill Group, Allegis Group, MPS Group, Volt Information Sciences, Spherion, The Select Family of Staffing Companies, TrueBlue and Kforce. Description Staffing and workforce solutions companies are among the most mature in the human capital services space. The typical services they provide include contingent staffing services, contract services, and employee training and testing services. From a supply side point of view, employees seek traditional staffing services for economic, career, and lifestyle reasons. For some temporarily unemployed individuals (especially the seasonally unemployed), the major driver behind contingent work is the opportunity to adjust to the temporary unemployment. For others, the hope may be that the temporary employment will lead to a permanent offer with the firm. According to a study by the American Staffing Association, 88% of staffing employees believe that temporary work makes them more employable and 77% believe that temporary staffing is a good way to obtain permanent employment. Another motive that leads employees to choose contingent work is the comprehensive training programs provided that help develop their skills and experience. This is especially pertinent to younger applicants and those transitioning between careers. Lastly, people may enjoy the lifestyle that a temporary position provides, as a flexible schedule helps individuals coordinate work and personal activities, as well as the extra potential income that it affords. Client demand for staffing services comes from several sources of need. Ranked by order of importance, the four top factors encouraging the use of contingent workers are (see Figure 2.1 below for a full list of factors): (1) Variable work levels (2) Rapid growth of client organization (3) Difficulty finding quality people (4) Cost comparisons of permanent vs. temporary workers A primary concern for organizations of all sizes is the ability to cope with fluctuating or unpredictable work flows. Whether induced by seasonal changes or a sudden spike/fall in demand for a particular service or product, corporations have to adjust their resources to meet the varying demand. Temporary staffing is naturally positioned to solve that issue by providing flexibility to employers. For instance, during peak sales, firms can hire more employees on demand, but they retain the ability to cut their workforce as well when business is slow. Secondly, organizations may experience secular growth that requires greater investments in human capital. In situations such as overseas expansion, companies may need a massive infusion of labor to manage the new business venture. When the burden becomes too complex for internal HR departments, staffing firms can use their large candidate data bases and geographic expertise to quickly fill the positions. A measurement of success preeminent in any recruitment effort is the quality of the employee hired. The largest staffing firms in the world have millions of candidate profiles in their databases, many of whom already have relationships with the staffing firms. By comparison, the HR department at a small-to-midsized business, or one entering a new geography, may be hard pressed to locate suitable matches. As a result, they turn to staffing and workforce solutions companies as intermediaries in the hiring process. Robert W. Baird & Co. 28

30 Comprehensive Guide to Human Capital Services Finally, a major advantage of temporary staffing is that the wages for contingent workers may be lower than those of permanent positions. Although the hourly wages for temporary and full-time employees are generally comparable, temps typically do not receive the benefit packages offered to regular workers (although several large staffing companies have begun offering some benefits, including paid time off and health insurance to temporary employees). Thus, it becomes cheaper to hire from a staffing agency rather than search for permanent staff. Finally, utilizing contract labor enables a company to try before they buy ; in other words, it allows companies to assess temporary employees on the job before hiring them on a more permanent basis. FIGURE 2.1: Factors Encouraging Use of Contingent Workers Offshore staffing 6% Net % Encouraging Organizational culture Use of a VMS Benefits/healthcare costs Shedding of non-core competencies Fully loaded costs of perm vs. contingent Difficulty finding quality people 12% 12% 23% 26% 30% 35% Rapid grow th of your organization 64% Variable or unpredictable w orkload levels 74% Source: Staffing Industry Strategic Research, Staffing Industry Analysts, Inc. Revenue Model 0% 10% 20% 30% 40% 50% 60% 70% 80% The revenue model for a staffing and workforce solutions firm varies according to the type of service it renders. However, a simplified version of it can be illustrated as follows: Revenue = (Bill Rate Hours) + (Perm Fees) When a staffing firm fills a temporary position for a client, it generally receives a single payment that includes the fee covering the cost of training and maintaining the employee on the payroll and a markup for the placement service. Payments are based on billable hours for the length of an employee s service. These charges will vary according to the type of positions filled. Apart from offering temporary human capital, most staffing companies also conduct permanent placement (or direct hire) searches for clients. Like executive search firms, staffing firms receive a percentage of the placement s annual salary upon hiring. There are no employee maintenance fees (payments made to candidates) associated with permanent placement except recruiter salaries. A related revenue source is the conversion of an employee from a temporary to permanent hire. Typically, when a client decides to hire a temporary employee on a permanent basis, the staffing company obtains a one-time payment based on that employee s annual salary. This proportion will vary depending on the length of employment prior to the conversion (i.e., the longer the working relationship, the more time the staffing firm has to recoup its investments, and thus the lower the conversion fee). A notable exception to this rule is a staffing company that places low-wage, low-skill workers as there are typically no fees for such conversions. Other fees generated by staffing and workforce solutions firms may be more fixed in nature, such as exclusive arrangements to manage all placement searches for a client. In addition, a corporation might enter into a nonexclusive arrangement with a staffing firm that fixes either the pricing or the markup within a country or region. Business Services Human Capital Services 29

31 February 2008 General Trends The staffing industry underwent a rapid transformation during the 1990s in terms of size and service. Temporary employees in the U.S., as a percentage of total non-farm payroll jobs, increased from 1.06% in 1990 to 2.03% in After bottoming out at 1.64% during the 2001 recession, it continued to fluctuate along an uptrend, reaching 1.97% in December 2005, before gradually declining to 1.87% in December 2007 (Bureau of Labor Statistics). In addition to the U.S., there are only four other major markets where temporary staffing accounts for roughly 2%+ of the total workforce: United Kingdom (4.0% estimated penetration rate), The Netherlands (4.0%), France (2.4%), and Belgium (2.3%) (Randstad company presentation). In most other countries around the world, including Japan (1.2%), Germany (1.0%), Italy (1.0%), and Spain (1.0%) temp staffing remains significantly underpenetrated, only having been legalized in many of those countries within the last 10 years. Temp staffing is also currently a nascent market in the world s two most populous countries, China and India. Importantly, temporary help services still constitutes a relatively small portion of the American workforce, despite expanding from a $25 billion market to a $95 billion market between 1991 and 2006, with an estimated global staffing market of only $210 billion (Figure 2.2). The same figure also highlights a second industry trend: diversification of services. During 1991, office and clerical staffing led the industry comprising approximately 34% of the market. The temporary employment market for professional services was still at a nascent stage, representing only 7% of the U.S. staffing revenue. In 2006, the market has become more diversified with office/clerical accounting for only 18% of the market while professional staffing tripled its presence to 22% of the market. The service diversification in the U.S. has been coupled with the globalization and integration of the staffing market. Overseas staffing markets now compose 61% of the world staffing market, where the EMEA region (Europe, Middle East, and Africa) is now almost as big as the U.S. The largest players in the industry have used this geographical expansion to reduce business risk, as will be explained shortly. FIGURE 2.2 U.S. Staffing Market 1991 US Temp Staffing Market $25 Billion 2006 US Temp Staffing Market $95 Billion Industrial 22% Office/Clerical 34% Industrial 29% Office/Clerical 18% Healthcare 11% IT/Technical 22% Professional 7% Healthcare 15% IT Staffing 20% Other Professional 22% Global Staffing Market Global Staffing Market $210 Billion Rest of World, 14% US, 39% EMEA (ex- France), 34% Source: Staffing Industry Report, by Manpower Inc. France, 13% Robert W. Baird & Co. 30

32 Comprehensive Guide to Human Capital Services Recently, the biggest staffing companies have begun to assume a greater control over clients human resources functions. The services they provide range from planning and forecasting of personnel requirements to business process outsourcing concerns. This trend has blurred the distinction between HR outsourcing and staffing companies Industry Drivers With the exception of healthcare staffing, the staffing and workforce solutions industry is heavily impacted by the ebb and flow of the U.S. economy. As described earlier, companies use temporary workers to help cope with the variability of labor demand. Consequently, temporary staffing has become an important instrument in reducing costs during the early and late stages of the employment cycle, where demand is less certain. Important academic research has demonstrated that firms that increased their reliance on temporary workers experienced increased operating earnings (before depreciation and amortization) and gross margin (which translated to higher stock returns) without any increase in systematic risk (Source: Decision Sciences, Fall 2001). At the onset of recessions, temporary employees are usually the first to be laid off, as a company gauges the market conditions and keeps their core, permanent personnel intact. During a recession, staffing normally suffers from the systematic labor cuts. Nevertheless, during difficult times staffing companies may be compensated to an extent by outplacement activities. As the economy comes out of a recession, temporary hire becomes more attractive for several reasons, including: Client companies are uncertain of the length of recovery. Therefore, they tend to utilize temps more than a permanent workforce to meet a pickup in business activity, not knowing whether or not the trend will be short lived or establish itself. The pool of available workers is greater, ensuring the selection of competitive candidates. When the economy finally reaches a boom stage, the demand for temporary staffing is generally at its peak. The clients may be at the peak of their sales and require a large temporary workforce to solve the sales constraints. Similarly, they will also explore prospective candidates for long-term hire and will prefer to draw them from the temporary pool. Not surprisingly, many staffing firms stepped up their recruitment effort in permanent placements in such situations in the past. Figure 2.3 summarizes the relationship between unemployment rate (a proxy for economic activity) and temporary employment. FIGURE 2.3: TEMP HELP EMPLOYMENT VERSUS NATIONAL UNEMPLOYMENT Temp Help Workers (000s) 3,000 2,500 2,000 1,500 1, Source: Bureau of Labor Statistics; based on seasonally adjusted September data for each year 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Unemployment Rate Business Services Human Capital Services 31

33 February 2008 In addition to facing the cyclical influences of the economy, the staffing industry is strongly affected by the regulatory environments at all levels of government. In the past, legislations such as the Equal Opportunity Act have created new services for staffing companies as their clients sought help with workforce diversity requirements. Regulation is a particularly key factor in Europe, where many countries recently relaxed laws restricting flexible staffing services. On a more granular level, specific staffing segments are affected differently based on the stage of the economic cycle. Typically, as the employment market recovers, the cycle starts with a pickup in the light industrial and clerical market segments likely a result of the smaller investments involved. Next, as firms sense a recovery is taking root, they start building their professional workforce (e.g., IT, F&A and etc.), which is often aided by the use of temporary workers. Finally, when the recovery is firmly in place, they eventually begin to hire permanent employees. Thus, the macro impact of the economy on staffing firms will depend on both the skill levels and types of services they provide, although the overall trend in staffing indicates that companies are rapidly diversifying their business mix to reflect changing economic conditions. The branching of the staffing and workforce solutions industry into comprehensive HR management is a growing movement within the segment. The trend has been concurrent with clients increasing desire to outsource non-core functions (such as non-executive recruiting and staffing services) and to expand internationally. First, staffing firms become natural contenders for HR-outsourcing because of the ease in transition from hiring to other HR solutions. Second, large staffing companies like Manpower and Adecco maintain an extensive network of global offices and employees that can be leveraged to assess the human capital needs of their clients, who are developing increasingly international operations. Healthcare staffing companies have different drivers than most other staffing companies which tend to be more impacted by the overall economic environment. In general, the demand for healthcare staffing is driven by an increasing need for healthcare services combined with an ongoing shortage of physicians, nurses and other allied professionals. Whereas the underlying demand for other types of staffing such as light industrial, IT and F&A tends to move in line with economic growth, the demand for healthcare staffing tends to lag economic growth and can often appear countercyclical. One of the key drivers of future demand for healthcare services is the pending wave of baby boomers that is nearing the age of retirement (see Figure 1.8). As individuals tend to require more healthcare as they grow older, the aging of the population is likely to increase the census at hospitals (census is a point in time count and characterization by a hospital of all its admitted patients and/or patients currently on a waiting list). However, in our opinion, there are several factors which may temper the growth in hospital census relative to the growth in the population of individuals over age 65. First, due to improvements in technology, many surgical procedures are becoming less invasive which helps to reduce healing time as well as the chance for infection or complication. As a result, many procedures that used to require overnight hospital stays are now being performed on an outpatient basis. Second, cost containment initiatives by managed care providers are promoting the use of hospitals for acute treatment with much of the recovery occurring elsewhere. The impact of both of these factors can be seen in the trends in average length of hospital stays. According to the National Center for Health Statistics, the average length of stay in a hospital for individuals over age 65 (for all diagnoses) has decreased steadily from 12.6 days in 1970 to 5.6 days in In addition, the average health of individuals at all age levels may improve relative to prior generations due to a greater awareness and understanding of health issues (i.e., understanding the threats of smoking as well as the need to exercise, maintain a healthy diet, monitor cholesterol, etc.). Lastly, more managed care providers are now covering preventative care procedures to promote healthy living and the treatment of problems before they become major issues that could require hospital stays. Another key driver of future demand for healthcare staffing is the predicted shortages in the supplies of registered nurses and physicians. Despite the expected increase in the demand for healthcare, the number of M.D. degrees conferred between 1980 and 2005 has remained fairly steady. In addition, the Robert W. Baird & Co. 32

34 Comprehensive Guide to Human Capital Services number of nurses graduating from colleges with nursing degrees has remained flattish while the entrance of foreign nurses into the U.S. has been hindered due to visa issues. As these shortages of qualified professionals persist, we anticipate that healthcare providers will look to staffing companies to help fill the demand. Even within the healthcare staffing industry, demand drivers among the four main sub-segments (per diem nursing, travel nursing, locum tenens (physician staffing) and allied services) can vary as well: Per Diem Nursing: According to Staffing Industry Analysts, the per diem nursing market generated approximately $4.1 billion in revenue during 2006 and is the largest and most penetrated segment within healthcare staffing and therefore tends to have a lower growth as well as lower margins. Also, given the large number of players in the market and the relative ease of entry for new competitors, we expect the per diem nursing market to remain tough. Travel Nursing: The travel nursing segment, which is estimated at approximately $2.3 billion in 2006 according to SIA, is dominated by larger players with more significant resources that are capable of managing the additional expenses such as housing that are associated with travel nursing. One of the keys for the travel nursing market going forward will be the ability to manage rising housing costs which have negatively impacted margins recently. Locum Tenens: We anticipate that the locum tenens market should continue to be strong as the market is in the earlier stages of adoption relative to per diem and travel nursing. Locum tenens, which totaled approximately $1.4 billion in revenue in 2006, is offered by fewer than 100 staffing companies as estimated by Staffing Industry Analysts. The locum tenens market should continue to benefit from the continuing shortage of doctors as well as the high margins and high barriers to entry that exist. In order to provide locum tenens, recruiters must have specific knowledge of numerous medical specialties as well as the ability to recruit individuals that often have different motivating factors compared to many other professions. Physicians are often not driven by financial returns but instead are more concerned about providing care in a good environment with many physicians looking for the opportunity to avoid the malpractice insurance costs, financial risk and hassle of managing their own practices. Allied: Allied is similar to locum tenens in that allied staffing is also at the earlier stages of adoption relative to nurse staffing. The $2.9 billion market for allied staffing is likely to remain promising given the extremely low unemployment rates for professionals such as occupational therapists, physical therapists, lab/imaging technicians and dental hygienists. These occupations also have some of the highest vacancy rates. Economics of Business Combining the revenue model derived earlier and a basic cost analysis, we arrive at the following equation: less: equals: less: equals: Revenue Gross Costs (wages, benefits, SUTA, workers' comp, etc.) Gross Profit SG&A (salaries (base and commissions), rent, overhead, etc.) EBITDA There are essentially two approaches to generating solid returns on invested capital in the staffing business. One approach adopted by most large, commercial staffing operations is the low-margin, highasset-turnover model. This model requires competitive pricing in order to gain and maintain market share, having a low enough cost structure so that an acceptable margin can be generated, and maintaining control on days sales outstanding so that capital requirements do not inflate. The other approach involves Business Services Human Capital Services 33

35 February 2008 less focus on volume, but a concentration on specialty markets with higher margin. Such practices focus on maintaining a strong recruiting engine to provide a quality match, providing high-value-added services, and targeting less price-sensitive clients. A normalized operating margin (in a normal, growing labor market) for pure staffing enterprises (excluding permanent placement) typically is in the 2-5% range for the large national players focused on commercial or light industrial. Firms that concentrate on specialty areas have a normalized operating margin in the 8-12% range. Market Size and Structure The staffing and workforce solutions industry is highly fragmented, consisting of thousands of participants in the national and foreign arena. The largest firms have revenues in excess of $1 billion and include publicly traded firms such as Adecco, Manpower, Randstad, Vedior, Kelly Services, Kforce, Robert Half International, Spherion, MPS Group, and CDI Corp. The industry is characterized by low structural barriers to entry. Capital costs are generally minimal for small operations, such as a local temporary help agency, and are easily recoverable as computers and desks can be converted to personal and/other uses. However, there are some barriers associated with the network effect and brand recognition. The most mature companies in this industry are able to create a distinction between themselves and their competitors by utilizing their large resource bases to launch large marketing campaigns. Regulatory bodies represent a third barrier to entry, as laws may prevent certain companies from establishing part or all of their businesses. Collective bargaining agreements may also prevent a corporation from using temporary help. The regulations differ depending on industry and geography. As displayed in Figure 2.2, the market for staffing and workforce solutions more than tripled between 1991 and The Manpower estimate of $95 billion for 2006 is potentially conservative relative to some other estimates where other analysts have placed the figure as high as $ billion. While cyclically sensitive, as illustrated by the recession, the secular growth of the industry remains strong. Among the various staffing segments, legal services, IT, technology/engineering and accounting led the way in terms of growth in 2006 (Figure 2.4). The growth in accounting and legal services was fueled by the increasing regulatory pressure many corporations are operating under, most notably Sarbanes-Oxleyassociated events. The technology segment s growth is secular as well, as advancements in that area remain the key competitive advantage for many industries. There can also be some supply constraints experienced in certain sectors of the staffing sector. The retiring of well-educated baby boomers will accelerate this problem for the intermediate future. One segment wellpositioned for that development is healthcare staffing, which will be experiencing a serious supply squeeze in registered travel nurses. At the same time, the aging population will push the demand for healthcare staffing, especially nurses. This should present huge opportunities for this staffing segment. Robert W. Baird & Co. 34

36 Comprehensive Guide to Human Capital Services FIGURE 2.4: 2006 U.S. Temp Staffing Growth By Segment Legal Tech/Engineering Accounting Healthcare IT Staffing Indsutrial Office/Clerical Source: Staffing Industry Analysts, Inc. February 2007 Forecast Competitive Advantages 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% The leaders in the staffing and workforce solutions industry are able to effectively realize some or all of the following competitive advantages (in order of importance): (1) The precision and speed of temp and client matching (2) Price (scalability is desired to reduce cost) (3) Worldwide presence (4) Technology and advanced services Primarily, clients differentiate staffing companies on the basis of their service quality. Firms that consistently find matches between a client s needs and the temporary candidate it provides build a strong reputation for service and attract more customers. To facilitate the matching process, companies can use technology to screen candidates to fit an assignment s requirements. In addition, they can train their recruits for a specific job opening at a client firm. Many firms have specialized in niche environments to more effectively match candidates and temp job openings in those markets. In an ultra competitive market such as staffing and workforce solutions, price often becomes a significant force. When a company is unable to differentiate its services from those of its competitors, prices become the crucial selling point for a potential client. To achieve a lower price, cost must be reduced to maintain a profit. As a result, the mature staffing market in the U.S. has experienced numerous consolidations, leading to the creation of such large companies as Manpower and Kelly Services. These firms are able to use economies of scale to lower average cost and price of service. Smaller firms which do not meet the scale requirements frequently concentrate on particular segments of staffing to differentiate themselves. In addition to price, wide geographic coverage is important in order for a company to be able to compete for national and international accounts. This is particularly important for companies servicing the Global Finally, as the human resource demands of clients grow increasingly sophisticated, technology-savvy firms like Adecco and Manpower will command an even greater appeal to companies worldwide. Business Services Human Capital Services 35

37 February 2008 Positioning for the Future The staffing and workforce solutions industry is a cyclical industry experiencing strong secular growth. Temporary-help services in the U.S. are still highly underutilized according to the BLS, and other countries have just begun to realize the benefits of using temporary staffing. Due to secular trends, we believe the best long-term areas for investment are: (1) large, well capitalized global staffing firms, (2) professional staffing firms (finance and accounting, legal services, IT, engineering, etc.), and (3) companies with a small- and middle-market focus. Relative Size of Staffing Firms Given the number of staffing firms profiled in this research report as well as the varying size differences between them, Figure 2.5 below ranks the staffing companies based on their last twelve months (LTM) revenue through the third quarter of The list includes all companies profiled in this research report but is not intended to be all-inclusive. Robert W. Baird & Co. 36

38 Comprehensive Guide to Human Capital Services FIGURE 2.5: Staffing Firms by Revenue LTM Revenue Thru Calendar Q3-07 LTM Rank Name Revenue Notes 1 Adecco SA 27,946,869 2 Manpower, Inc. 19,577,100 3 Randstad Holdings NV 11,973,883 (7) 4 Vedior NV 11,004,214 (7) 5 Kelly Services, Inc. 5,602,280 6 The Goodwill Group, Inc. 5,225,166 7 Robert Half International, Inc. 4,485,832 8 Allegis Group, Inc. 4,400,000 (2) 9 MPS Group, Inc. 2,087, Volt Information Sciences, Inc. 1,970,935 (4) 11 Spherion Corporation 1,933,784 (8) 12 Express Services, Inc. 1,550,000 (2) 13 The Select Family of Staffing Companies 1,500, TrueBlue, Inc. 1,370, Hudson Highland Group, Inc. 1,369, CDI Corporation 1,173, AMN Healthcare Services, Inc. 1,161, Kforce, Inc. 1,017, AppleOne, Inc. 857,000 (3) 20 Act 1 Group 717,814 (3) 21 Resources Connection, Inc. 764, Comsys IT Partners, Inc. 744, Cross Country Healthcare, Inc. 712, COMFORCE Corporation 591, Westaff, Inc. 589,374 (1) 26 On Assignment, Inc. 491, Medical Staffing Network Holdings, Inc. 438, CHG Healthcare Services 405,209 (5) 29 The Day and Zimmerman Group, Inc. (Yoh) 380, Nelson Family of Companies 377, Allied Healthcare International, Inc. 277, Technisource, Inc. 265,000 (8) 33 RCM Technologies, Inc. 219, Global Employment Holdings, Inc. 158,733 Aquent - (6) CBS Personnel Holdings, Inc. - (6) CORESTAFF Services - (6) EmployBridge - (6) Staffmark - (6) U.S. Nursing Corporation - (6) Veritude - (6) Results in Euros were converted using avg. exchange rates for the period. Results in Yen were converted using avg. exchange rates for the period. (1) LTM revenue based on results through Q2-07 as Q3 results have not been issued. (2) 2005 revenue as reported by Hoover's. (3) 2005 revenue as reported by Staffing Industry Analysts. (4) Volt revenue includes only net staffing revenue (ex directory, computer systems, etc.) (5) 2005 revenue per the company's S-1 filing. (6) Revenue not provided. (7) Randstad has publically announced an intention to acquire Vedior; expected to close in Apr. '08. (8) Technisource has since been acquired by Spherion. Source: Company reports, filings and press releases except as noted above. Business Services Human Capital Services 37

39 February 2008 bñéåìíáîé=pé~êåü= Leading Companies Notable companies in the executive search sector include Korn/Ferry International, Heidrick & Struggles, Spencer Stuart, Egon Zehnder International, and Russell Reynolds. Description Executive search firms recruit senior-level individuals for client organizations. Typical search services offered by these firms include CEO and other C-level officer placements (CFO, CIO, etc), board search, and mid-level management search. In addition to recruiting, some executive search firms also have leadership development programs to train a client s management team. The latter can be a supplementary service to search services. Based on fee structure and the targeted position, executive search firms are generally separated into two broad categories: retained search and contingency search firms. A retained search firm focuses on identifying, evaluating, assessing, and recommending highlyqualified candidates for the top tiers of management at client corporations. A typical position filled by retained firms entail a first-year compensation of $150,000 or more. In contrast, contingency search firms typically focus on placing skilled professional and mid-level managers with annual compensations usually ranging between $50,000 and $150,000. The distinguishing factor between the two search types is that clients must pay the former a retainer for conducting the search whether or not the candidate is successfully placed, whereas the latter s compensation is dependent on the search firm filling the position. The fee arrangements in executive search firms have key implications for how the two types of firms conduct their business. The retainer given to a retained search firm pays for the process of conducting a search. As a result, retained search firms generally spend much more time and other resources on any particular commitment, since they have a greater control to influence the placement decision (The Association of Executive Search Consultants). In contrast, a contingency search firm is likely to use a partiallyautomated screening process to find matches between the job descriptions and individuals in a large candidate pool. Similarly, contingency firms tend to use a transaction-oriented method to match as many jobs and candidates as possible due to the likely failure of some placements. Compared to a contingency search firm, a retained firm is more deeply involved in the search process. It works closely with the client to identify a position of need, assess what qualities will be required of a candidate, and make a dedicated effort to fill the position. To aid the selection process, a retained firm will generally draw from the expertise of its research and recruitment staff, as well as internal databases that contain candidate profiles. Once an appropriate candidate is identified, the placement firm will then organize the various contacts between the candidate and the client company. Finally, the retained firm may also advise clients on compensation design and executive integration. The entire process is often safeguarded to ensure the highly personal nature of the search. Revenue Model Upon the successful placement of a candidate, both contingency and retained search firms typically charge 20-33% of the new employee s expected first-year cash compensation. This fee is then collected in equal portions over three months. In addition, if the individual eventually makes more than the expected amount, the search firm receives an up-tick payment to rectify the difference. Retained firms are paid regardless whether their candidates are chosen. On the contrary, contingency firms are typically not compensated if the search fails to place the prospective employee. Certain firms also provide training and development for clients employees; they are typically recompensed on a per-case basis. Robert W. Baird & Co. 38

40 Comprehensive Guide to Human Capital Services General Trends From 2000 to 2003, the executive search industry withstood one of the worst slumps in history. During that period, revenues from two of the largest firms, HSII and KFY, halved from about $1.2 billion to $570 million (Figure 3.1). During the pre-2000 boom, many search firms lured recruiters with guaranteed contracts; however, when the business environment slowed in subsequent years, search firms found themselves overstaffed but unable to shed some employees due to the guaranteed contracts. After 2003, the executive search industry experienced an ongoing rebound in business activity in conjunction with the economic expansion. Combined Korn/Ferry and Heidrick & Struggles Executive Search Revenue Revenue ($000s) 1,200,000 1,000, , , , ,000 - FIGURE 3.1: North America Rest of World Source: Annual reports of Korn/Ferry International and Heidrick & Struggles The current and long-term growth of the industry is underscored by the following trends: Increasing number of high-paying employees Wage inflation Globalization of business Shortening of executive tenures According to the latest IRS statistics, 2.63 million Americans made $200,000+ in 2005, as compared to 2.08 million in 1998 (Internal Revenue Services Data Book 2005 last Data Book with information on $200,000+ filers). Historically, unemployment at the top has stayed relatively low. Since the BLS began reporting the unemployment rate for individuals with a college degree in 1992, it has been below 3.5% in every month, and has been as low as 1.5%. With the baby boomers retirement and a need to find their replacements at the senior management levels, search firms should experience continued demand for their services. In addition to shift in U.S. employment toward more professional positions, wage inflation has also helped drive the number of U.S. workers earning at least $200,000 per year. Wage inflation is especially pronounced for senior executives. The globalization of business has impacted nearly all large corporations. Firms are finding that to compete in an international environment, talented executives who can effectively operate in a global economy are an essential ingredient. Executive search firms with significant foreign presence, such as Egon Zehnder, Heidrick & Struggles, Korn/Ferry, Russell Reynolds, and Spencer Stuart have made large gains from this trend. In addition to the long-standing trend of firms from developed countries expanding their operations into new countries, companies based in developing countries, such as China, have more recently begun to expand their operations internationally and have been using executive search firms to help fill the positions. Business Services Human Capital Services 39

41 February 2008 A shortening executive tenure is also propelling the growth of the industry. Several factors may be responsible for this trend, including a restrictive legal environment, a decline in loyalty to a specific firm, and a desire to explore other areas of work. Today, many industries face a mercenary culture among the company s elite whereby executives move from job to job in search of prestige and higher compensation. At the same time, in-house recruitment efforts have been relatively unproductive due to the aforementioned loyalty decline. This development has increased the opportunities available to executive search firms. Industry Drivers In a constantly evolving market, companies find themselves competing on various fronts, including size, technology, advertising, and globalization. However, human capital can be an important advantage for a firm. A seasoned and versatile leader can guide the company through regulatory challenges, earnings losses, and market booms by making the best uses of a firm s resources. Thus, there will always be a durable demand for an outstanding executive. On the supply side, technology is transforming both the size and depth of the recruitment process. IT and the internet have enabled executive recruiters to develop and maintain vast databases of potential candidates around the world. Most large search firms also hire researchers whose main responsibility is to find appropriate candidates that match a job description and provide recruiters with the information they need to initiate contact. Researchers also produce proprietary programs that profile the typical behavioral traits of successful executives and screen the database for individuals with such characteristics. Apart from these long-term drivers, a strong near-term driver also exists for the executive search industry. In recent years, there has been a transition from stock-based executive compensations to cash compensations, due in part to the implementation of SFAS 123(R), which requires stock options to be expensed under GAAP accounting. The disclosures about stock option backdating in 2006 accelerated that process. This change directly increases the fee an executive search firm receives because their revenues are based on a first-year executive s cash compensation. Economics of Business The executive search industry is not very scalable. Although contingency firms may utilize the transactionbased model to an extent, firms in this industry will ultimately be judged on the quality of their placements, more so than the speed or scale they conduct their business. Moreover, clients in each industry and locality place different needs on the search firm. Thus, it becomes difficult to leverage operations in one technical or geographical area with another. There is little recurring revenue in this marketplace; however, the most reputable firms often receive offers from satisfied customers to place other top-level employees. Although the industry is cyclical, the retainer (in the case of retaining firm) and the 20-33% placement fee a firm gets in a strong economy often overcompensates it for any losses it encounters in tough environments. Because executive compensation varies by industry and by position, the operating margins for executive search firms vary greatly, but typically range from 10% to a high-teens percentage. Market Size and Structure Globally, executive search is roughly a $ billion market that consists of a fragmented group of more than 5,000 participants (Figure 3.2). Five firms have gained preeminent positions within the industry, including Heidrick & Struggles, Spencer Stuart, Egon Zehnder, Russell Reynolds, and Korn/Ferry International. The large players receive many contracts from Fortune 500 companies and typically help place top-tier executive officers. Many smaller, regional firms also exist that specializes in specific industries or geographic areas. Robert W. Baird & Co. 40

42 Comprehensive Guide to Human Capital Services FIGURE 3.2: Executive Search Market Global Executive Search Market - $7.5 Billion Global Executive Search Market by Industry Latin America 8% Asia Pac 14% North America 42% Professional 4% Other 3% Financial 22% Industrial 19% Tech 18% Europe 36% Non-Profit 3% Healthcare 13% Consumer 18% Source: The Association of Executive Search Consultants Competitive Advantages Major sources of competitive advantage for executive search firms are as follows (in order of importance): (1) Reputation (2) Functional or geographic expertise (3) Quality of recruiters (4) IT/Technology Obtaining high-quality leadership is of vital importance for all large organizations. Consequently, most boardrooms and executive committees will turn to search firms with established records. For many directors and executives, reputation becomes the determining variable, especially in an era of rising potential liability issues. A few well-known and respected firms dominate the market for executive-level placements at large companies. One-man operations exist because of low barriers to entry, but they will likely serve only niche markets. Reputation often interacts with functional or industrial expertise to create powerful drivers. Smaller players in the executive search industry often build reputation by concentrating on serving a particular geographic or industrial market. On the other hand, larger players will build strong practices that span multiple industry segments. In order to build industry expertise and a reputation for success, executive search firms must compete aggressively for the best recruiters. Some firms build their recruitment team by directly promoting researchers within the firm who are wellinformed about the industry he/she will cover; alternatively, firms may hire talented professionals with either search experience at other firms or experience in a given industry. The ability to attract the strongest recruiters often separates the successful search firms from the mediocre ones. Lastly, the need to build global networks and sophisticated technology has erected important barriers to entry for smaller firms. Over the past decade, the most successful search firms have invested heavily to expand information infrastructures and technical platforms that enable them to efficiently identify, assess, and manage new candidates from around the world, as well as to maintain databases on past candidates. Positioning for the Future The executive search industry is more diversified across verticals and geographies than it was in 2001, likely helping to cushion against a cyclical downturn. In addition, the debilitating guaranteed contracts (for recruiters) that had strained the industry in 2001 were revised, mitigating the chances of a repeat event. We expect the industry to experience double-digit annual revenue growth over the next 5-10 years. Business Services Human Capital Services 41

43 February 2008 oéåêìáíãéåí=mêçåéëë=lìíëçìêåáåö=eomlf= Notable Companies Notable companies in the recruitment process outsourcing segment include Alexander Mann Group, Hyrian, Kelly Services (Kelly HRfirst), Kenexa, Korn/Ferry (Futurestep), The RightThing, Spherion, Adecco (TalentTrack), and The Day and Zimmerman Group (Yoh). Description As a subcategory of Human Resource Outsourcing (HRO), Recruitment Process Outsourcing (RPO) is the third-party management and/or execution of a company s recruitment function. An RPO service can be performed on an event-driven or day-to-day basis, and can be achieved on- or off-site as desired by the client. Given the wide range of functions associated with hiring employees, the services provided by an RPO provider can include: Workforce planning support: consulting with clients regarding their current employment situation to determine client staffing needs; Budgeting support; Determining the attributes of ideal candidates; Requisition management; Advertisement creation and placement; Sourcing potential candidates using internal and public databases, online searches and networking; Performing or coordinating any required background screening and assessments to verify that the candidates possess the required qualities for the position; Interview scheduling; Performing interviews on behalf of the client company; Offer management which can include presenting potential candidates to the company and even deciding which candidates should receive offers; Negotiating with the client and the candidate on various post-hire arrangements, including compensation, office location, etc.; Managing any on-boarding procedures such as benefits enrollment and I-9 form collection; and Reporting and metrics analysis for staffing/hiring operations. A full-service RPO provider can perform almost all of the components outlined above; however, some providers may only specialize in one or more specific recruiting functions such as sourcing or screening candidates. In addition, many companies prefer to perform certain functions such as determining staffing needs or interviewing candidates in house and choose to outsource only non-core processes. Given the wide variety of services offered by providers as well as differing service levels required by clients, there is no clear cut definition as to what constitutes an RPO provider or a typical RPO contract. Some RPO providers may focus solely on one particular industry whereas other providers may service numerous industries. Generally speaking, RPO services are better suited for larger organizations with 5,000 or more employees as the hiring needs of smaller firms are unlikely to offer the RPO provider the scale necessary to reduce costs. Instead, such firms are better suited for tailored solutions such as temporary staffing or a complete outsourcing of all their HR functions. Revenue Model Recruitment process outsourcers generally charge an upfront fee as well as a performance-based fee over the life of the contract. Payment terms may vary but tend to be on a monthly basis. Typical contracts last from six months to three years but can be renewed upon expiration. Although multiyear contracts have some elements of a recurring revenue stream, the performance-based fees earned by service Robert W. Baird & Co. 42

44 Comprehensive Guide to Human Capital Services providers are impacted by hiring levels at the client companies and therefore can be impacted by cyclicality and macroeconomic factors. General Trends Historically, the hiring and retention of new employees has been the role of an HR department. The concept of utilizing an external RPO provider to perform recruiting functions did not fully materialize until the dotcom boom of the late 1990s, when a widespread shortage of human capital forced companies to search for alternative ways to attract talent. As a result, recruitment process outsourcing is in the early development stage and represents one of the fastest growing segments within the human capital services sector. Some notable statistics from the 2007 Baker s Dozen report published by HRO Today include: 73% of RPO customers have been using their current provider for less than one year. Most RPO arrangements are smaller in scale as approximately 58% of RPO contracts entail hiring between people annually. Only 4% of RPO contracts entail filling more than 5,000 jobs annually. The most utilized RPO services include sourcing (92% of all contracts), screening (96%), interview scheduling (78%), requisition management (71%) and reporting/metrics (70%). Industry Drivers Demand for recruitment process outsourcing will be driven by several factors including: (1) Cost/efficiency savings (2) Speed of placement (3) Improved quality of candidates through use of best practices (4) Reduced turnover due to improved on-boarding (5) Demographic changes in the U.S. workforce The foremost reason most businesses choose to outsource their recruiting functions is to lower hiring costs. Due to the scale of their operations, RPO providers are able to spread their expenses across a larger customer base and can therefore pass along cost savings to their customers. For example, an outsourcer can use a single call center to answer calls from all its client companies. Some of the more efficient RPO providers can reduce client recruitment costs by 20% or more. Despite some of the recent technological developments in HR, many firms still rely on manual, paperbased processes. Companies that rely on older, inefficient methods tend to have more difficulty in effectively managing the recruiting process and can often fail to identify high-potential candidates and move them through the hiring process quickly. Companies are beginning to utilize RPO providers for their recruiting as they are experts in recruiting and tend to use the most up-to-date technologies which helps improve the time to hire. Some of the larger RPOs are also staffing industry leaders and maintain databases of candidates which are powerful instruments in reducing the time to placement. In addition, many companies would prefer not to dedicate additional resources to build out or improve their recruiting functions as they would prefer to focus on their core competencies. An additional benefit of using an RPO provider versus building up an internal recruiting function is that there is reduced training time for internal recruiters. Improving time to hire is especially important in tight labor markets as the highest caliber talent may be lured away by another company that is able to extend an offer faster. HR departments often fail to discover the most-qualified applicants for a position due to a lack of resources or best practices. Also, oftentimes companies employ HR generalists instead of dedicated recruiters. Companies are turning to RPO providers to supply higher-quality candidates through their use of best practices such as background screening, administering skills and/or behavioral assessments and coordinating on-boarding procedures. By utilizing these best practices, RPO providers are able to more easily identify top candidates and at the same time eliminate poor candidates earlier in the recruiting process. Business Services Human Capital Services 43

45 February 2008 RPO providers also help to reduce recruiting costs at client companies by reducing employee turnover. Companies often focus on recruiting the right talent but ignore the adjustments new employees must make to acclimate to their new work environment. Not surprisingly, an inordinate number of new hires leave within the first year of employment because they did not feel comfortable in their new surroundings. By assisting in the on-boarding process, many RPO providers are able to reduce employee turnover by helping new employees transition smoothly to their new roles. Apart from segment-specific drivers, the macro environment within the labor force has accelerated demand for RPO. First, the profile of the population is changing dramatically as more seniors reach retirement age. According to BLS projections, the number of U.S. residents who are age 62 or older will increase by approximately 50% in the 15-year span from 2006 to 2021 (Figure 4.1). By 2010, the BLS estimates that there will be a shortage of more than 10 million skilled workers in the U.S. At the same time, a cultural trend towards higher turnover should translate into a higher demand for recruitment help (Figure 4.2). FIGURE 4.1: US Population Age 62 by Year 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000, Source: Bureau of Labor Statistics FIGURE 4.2: Median Years of Tenure -- Overall Ages Source: Bureau of Labor Statistics Robert W. Baird & Co. 44

46 Comprehensive Guide to Human Capital Services Economics of Business RPO providers usually absorb large initial costs due to establishing new facilities (mainly in the case of off-site outsourcing), integrating with the client s existing HR infrastructure, and setting up information networks. Due to the initial setup costs, RPO providers tend to generate losses at the onset of a client relationship. Nonetheless, the contract becomes much more profitable as the business relationship matures and more fee revenue is generated. As noted previously, there are numerous types of players in the RPO space in terms of the types of services they provide and their methods of delivery (i.e., onsite vs. offsite). There are also variations between providers in terms of the technology that they use. Some providers such as Kenexa utilize their own recruitment automation system whereas other providers are technology neutral and will adopt whatever technology their clients choose. The economic models vary between RPO providers depending on the services they provide as well as the technologies they use. Given that the RPO industry is still in its development stage, it is too early to tell which of these models will ultimately prove to be the most successful. Market Size and Structure Recruitment outsourcing is a nascent industry with a few significant players. The larger firms place over 30,000 employees annually, while the smaller participants orient their services toward a limited number of industries and/or geographies. Public information regarding the exact size of the industry remains limited. Competitive Advantages Several metrics are used by clients to measure an RPO s performance. These include: Time to fill Cost per hire Diversity index Pay negotiation Employee retention rate Client satisfaction Clients may use any combination of these metrics to assess their RPO provider. But to achieve results, the outsourcers must compete on three main fronts: (1) Scale of operations (2) Technology (3) International presence Compared to the staffing industry, the RPO market has a high barrier to entry. Because an RPO firm must be prepared to handle all the recruitment activities of its clients, it must make substantial investments in human resources and in technology. Existing human capital services firms are naturally positioned to leverage their resources for building the RPO infrastructure. In a business where pricing and service is key, the scalability of their offerings is a prominent source of advantage. Closely associated with the high investment in economies of scale is the importance of technological leadership in the RPO industry. In an environment where clients are constantly looking for ways to enhance their human resource acquisition model, technology advancements that introduce novel ways to obtain talent and reduce cost will be significant assets for an RPO provider. This technological leadership entails a large financial commitment as well, likely favoring the largest companies in this space. Another source of competitive advantage for RPO providers is a worldwide footprint. There is an increasing demand for global RPO deals as firms opening up new offices around the world are seeking the expertise of RPO firms to administer the recruitment process for foreign locations. Companies like Business Services Human Capital Services 45

47 February 2008 Alexander Mann Group and Korn/Ferry International that have large international footprints are particularly wellpositioned to gain from such developments. Positioning for the Future The RPO industry is still in its nascent stages and the market penetration rate is still modest. The demand drivers for RPO firms are promising and the high capital requirements hinder the entrance of new service providers. We anticipate that the larger providers are likely to expand their international footprint through acquisitions, partnerships and alliances. Robert W. Baird & Co. 46

48 Comprehensive Guide to Human Capital Services ÉJ`êìáíáåÖ=pçäìíáçåë Leading Companies Notable companies in the e-cruiting sector include Monster Worldwide, CareerBuilder, HotJobs/Yahoo!, and Dice. Description An e-cruiting firm in its basic function serves to connect job seekers and potential employers online. In that capacity, e-cruiters closely resemble traditional newspaper help-wanted ads, which still capture roughly two-thirds of the recruitment market with $4.7 billion in revenues for 2006 (see Figure 5.1). However, compared to newspaper advertising, e-cruiting portals have superior value propositions given that: (1) the e-cruiting business model is extremely scalable and therefore is able to spread small capital expenditures over a large subscriber base; (2) print help-wanted ads offer much more limited reach than online recruitment advertising; (3) employers can quickly search through many more resumes through online portals than they can with print media, likewise, employees can apply to more positions as well; (4) whereas newspaper ads must wait at least a day before re-publication, employers can make immediate modifications to their online ads. Because of these advantages, we expect that the e-cruiting market will soon replace print media as the dominant player in the multibillion dollar market. The most traditional e-cruiting form is the job board, which posts job advertisements for employers. In addition to the basic job listing, many job boards also offer resume databases that are available for review by potential employers, staffing agencies, and search firms. Also, there are numerous variations among the portals in terms of career content and online training, as well as other service offerings. Another variant includes firms that use advanced search agents to extract either job advertisements or job seeker resumes from other career portals. Finally, since most employers have established their own career sites for prospective individuals, some e-cruiting firms also serve as intermediaries or job posting agents between employers and other e-cruiting portals. The recent development of the.jobs domain, which allows employers to register a webpage using makes it easier for potential employees to locate job postings on an employer s website. The range of job types that are represented online is wide ranging and expanding quickly, but the most common occupations are personal care and service, legal, military specific, business and financial operations, and clerical (Monster survey). The current major players in the e-cruiting space such as Monster, CareerBuilder and HotJobs represent the first wave of entrants into the market. These initial job boards were the early players of the internet age and tended to have a large, national focus. However, the proliferation of the internet and the ability to search for highly specified information has resulted in a large expansion of the websites targeting individuals with specific interests. The e-cruiting market has also continued to evolve along these lines in that there has been a significant expansion in the number of job boards that specifically target certain professions, geographies or classes of workers. For example, Dice.com has emerged as a leading job board for IT and Technology professionals, TheLadders.com is a specialty website targeting jobs with $100,000+ in compensation, while SnagAJob.com is the largest job site for part-time and full-time hourly positions. The e-cruiting market continues to evolve as more sites that focus on networking, such as LinkedIn and Facebook, as a means of recruiting passive candidates gain popularity. Business Services Human Capital Services 47

49 February 2008 FIGURE 5.1: EMPLOYMENT ADVERTISING EXPENDITURES (in $ billions) Print Internet Source: The Newspaper Association of America, Baird Estimates Revenue Model Most e-cruiting portals (like Monster or CareerBuilder) get paid on a per job posting basis. For a fee, employers post a job or a batch of jobs for a specified period of time, usually a minimum of 30 days. However, HotJobs and more recently Monster have begun offering editable posting slots of various lengths of time. Some sites charge additional fees according to the placement or length of the employment ad, while other sites charge fees for premium services such as graphics, highlighting, etc. Another source of revenue growth stems from the fees charged to employers for access to a career portal resume database. For example, Monster (the site with the largest number of resumes with over 75 million and adding roughly 40,000/day) typically charges around $9,995 annually for access to its national resume database, when it is purchased on a stand-alone basis. However, the price varies depending on the length of time and the geographic footprint of the desired access. While the vast majority of e-cruiters derive their revenues from employers, a few require payments from job seekers for the service, such as TheLadders.com. By charging a monthly subscription fee to each applicant, these sites eliminate unqualified candidates from the selection pool. There are other sources of revenue from job seekers as well. Some of the more developed sites offer a significant amount of career content, such as rankings, articles, and message boards, and therefore require payment from job seekers on either a periodic or per-item basis. Finally, another, but usually smaller, source of revenue stems from advertising (display advertising and lead generation), which is becoming an increasingly important source of revenue for the largest job boards. General Trends The employment advertising industry is currently in the 55th month of a labor cycle (expansion started in June 03). The industry experienced a drastic decline during the last recession between 2000 and 2003, averaging annual decreases of 20% CAGR (Figure 5.1). Help-wanted advertising was especially hard hit by the downturn, having reached a 40-year low in the Index of Newspaper Help-Wanted Ads (Figure 5.2). Robert W. Baird & Co. 48

50 Comprehensive Guide to Human Capital Services FIGURE 5.2: Help Wanted Advertising Index 30% 20% 10% 0% -10% -20% -30% -40% -50% Help Wanted Advertising Index y/y Chg. Source: The Conference Board However, the current recovery has relieved much of the demand depression, as shown by the trend of the Monster Employment Index (Figure 5.3). Nonetheless, the development of the online recruiting segment has greatly outpaced the recovery in newspaper recruiting due to the market share shift that is occurring driven by the enhanced value that provided by online job boards. We believe this is a secular evolution that will continue well into the future, but there is also currently a cyclical headwind that is negatively impacting both print and online employment advertising trends. FIGURE 5.3: MNST Employment Index 35% 30% 25% 20% 15% 10% 5% 80 0% Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 MNST Employment Index y/y chg Source: Monster Worldwide Although there was a decline during the most recent recession, from 1999 to 2006 internet recruiting grew at an average CAGR of roughly 24%, but has been roughly flat on an annualized basis since The sector benefited from cost reductions, service proliferations, and greater internet usage. The rise in the number of resumes that employers receive driven by e-cruiting has also helped adjacent products develop. Many job sites have implemented applicant tracking systems and prescreening technologies that selectively filter job seekers based on skill, aptitude, and behavior. This process saves employers/recruiters precious time and paperwork by pinpointing the applicants most likely to qualify for the job. Business Services Human Capital Services 49

51 February 2008 Another trend that has emerged in recent years is the increase in the number of sites that offer referral and/or networking services. According to a survey conducted by the Direct Employer Association in 2005, organizations rated employee referrals as the most important source for locating quality applicants (see Figure 5.4). Realizing this fact, web-based job boards have adopted several products that are more personal in nature, including message boards, chat rooms, and virtual career fairs. Through these networking devices, employees can submit referrals to recruiters rapidly and anonymously. Furthermore, this system allows recruiters to initiate contact with the sought after, but difficult to source, passive candidates who are often more qualified than active job seekers. FIGURE 5.4: Source: Direct Employer Association Survey, 2005 Industry Drivers Many factors have helped drive the growth in e-cruiting; however, the top catalyst for the industry remains the rise in internet usage itself. Internet penetration rates in both the home and the workplace rose rapidly from the mid-1990s through the beginning of this decade. According to the Nielsen/Net Ratings, over 75% of the U.S. population has access to the internet from their home. The amount of time that the average user spends on the internet has also been advancing rapidly (Nielson/Net Ratings estimates that users spent an average of roughly 32 hours on the internet in November 2007). Finally, in recent years there has been rapid growth in the number of individuals that have internet access through handheld devices such as PDAs and cell phones, which will likely become an increasingly important way for e-cruiters to connect with job seekers. With more Americans surfing the net than ever, they inevitably bring their job search online as well. Today most job seekers turn to the internet as the first channel for employment searches. Apart from the long-term penetration of internet usage, there are also several other factors that have contributed to e-cruiting s growth. First, internet recruiting is one of the least expensive ways for companies to find top talent. The average cost per hire for online recruiting is a fraction of the classified advertising cost in newspapers in most large employment markets. Second, online recruiting provides a real-time, 24/7 medium for employers and job applicants to interact. For employers, the internet provides a medium that can be continuously updated and distributed in a real-time manner, as opposed to traditional newspaper advertising which was relatively expensive and could be updated only on a periodic basis. As a result, online recruiting can reduce the cycle time for candidate hiring significantly. Whereas employers historically spent days combing through paper resumes, they now have the ability to prescreen candidates electronically in a fraction of the time. Robert W. Baird & Co. 50

52 Comprehensive Guide to Human Capital Services Economics of Business In our view, the e-cruiting business is an extremely attractive business model. At its most basic level, the model is as follows: less: less: equals: Revenue from Job Posting Sales Cost Advertising Expense Incremental Profit per Post The model is highly scalable with a relatively fixed base of technology-related expenditure. Variable costs result from (1) revenue generators (salespeople) used to drive job postings and resume searches and (2) marketing expenditure used to drive job seekers and employer postings. Both of these are controllable expenses. A key attraction of the model is that employers pay to provide content. As a result, the margin potential for the winners that develop the network effect in this space is significant (which is exemplified by Monster Worldwide s 34.5% Careers-North America operating margin in 2006). Also, the potential for recurring revenues in e-cruiting is significant in a tight labor market given the churn that typically occurs as labor markets tighten. Market Size and Structure Thousands of job portals have come and gone due to acquisitions or poor performance since the industry was born in the mid-1990s. Although consolidation trimmed the diverse market, a recent claim by NAS Recruitment Communications still identified over 40,000 job boards in existence today. The daunting number of firms shrinks, however, with the realization that a quarter of the unique visitors in the market flocked to three main sites: CareerBuilder, Monster Worldwide (MNST), and HotJobs (Yahoo!). Figure 5.5 lists the top 10 competitors in the U.S. e-cruiting space according to data provided by Media Matrix from December Source: Media Matrix FIGURE JOB SEARCH VISITORS BY FIRM Total Unique Visitors % Reach (000) 1 Yahoo! Job Search 8, CareerBuilder Network Job Search 7, CareerBuilder LLC Job Search 7, CareerBuilder.com Job Search 6, Monster.com Job Search 4, Indeed.com Job Search 3, Yahoo! HotJobs Job Search 2, Monster Worldwide Job Search 1, SimplyHired.com Sites MSN Careers by CareerBuilder.com Job Search Although site traffic to the top three job portals is dominant, many niche players exist that are specialized in either specific verticals or geographies. Employers generally will enlist these firms service (often at a premium) because of their industry- or region-specific knowledge. Notable companies that focus on those markets include Dice.com (IT), JobsInTheMoney.com (Accounting/Finance) and Jobing.com, which posts exclusively community-related materials. Most major cities also have at least one dedicated job board (i.e., MilwaukeeJobs.com). While we expect the industry to continue to evolve, we continue to believe that Business Services Human Capital Services 51

53 February 2008 there is room in the market for national job boards, geographicallyfocused job boards, and verticallyfocused job boards. According to the Newspaper Association of America, online recruiting still only occupies a minor, but growing portion of the employment advertising market (Figure 5.6 offers a different look at the development of the sectors). We forecast that this secular trend will persist and that the e-cruiting revenue total could exceed 50% of the market by FIGURE EMPLOYMENT ADVERTISING EXPENDITURES 1999 Size of Market: $8.2B E-cruiters 1.9% 2000 Size of Market: $9.3B E-cruiters 5.8% 2001 Size of Market: $6.4B E-cruiters 10.9% New spaper 98.1% New spaper 94.2% New spaper 89.1% 2006 Size of Market: $6.9B E-cruiters 31.9% New spaper 68.1% Source: Newspaper Association of America and Baird estimates. Competitive Advantages The most important success factor for e-cruiting portals involves building critical mass between employers and job seekers in a manner that optimizes job matches. As a result, profitable e-cruiting sites must drive both applicant and employer traffic, although network effects generally allow one party to drive the other in an ever-expanding cycle. Thus, to attract and retain site visits, the dominant players in the space generally make substantial investments in marketing and sales. The top three job portals (Monster, CareerBuilder and HotJobs!) attract the vast majority of all visitors. In our opinion, these firms have attained a franchise value, which is due to their transaction volume and reputation among existing and prospective clients. Having constructed some barriers to entry due to the franchise value, these more established firms then compete further on the basis of candidate quality, and product offerings, such as resume database. While the top three job portals continue to receive the majority of traffic, our sense is that more progressive job seekers and recruiters are beginning to utilize more specialized sites as well as networking sites such as LinkedIn. These geographically and verticallyfocused niche sites are able to compete with the larger, general job boards given that they tend to attract more relevant job seekers and job seekers are more likely to find jobs that interest them. The ability to make a quality match between a candidate and an employee is the ultimate driver of returning traffic to a job site. Whether through technological leadership or global capabilities, portals that aggregate a larger and superior pool of candidates generally stand out among their competitors. As the virtuous cycle of job seeker/employer traffic takes off, greater leverage will be created and costadvantaged companies can offer a lower price than other firms in the industry. Robert W. Baird & Co. 52

54 Comprehensive Guide to Human Capital Services Sites that offer the most comprehensive services will be attractive for employee/employers that seek career content other than, or in addition to, job search. To that end, the internet has transferred many physically accessible services online, such as networking and career counseling, etc. Subsequently, brand recognition will become a strong catalyst for incremental revenues as a site s reputation builds up. Finally, the quality of a job search experience for a recruiter is largely measured by how quickly talented candidates can be identified (to save time and avoid expenses). Consequently, supplying clients with an extensive database of resumes is a priority for e-cruiting companies. Although many recruiters still receive resumes through job fairs or employee referrals, job boards provides a much more convenient way to source resumes. With many job sites offering automatic uploads of personal documents, employers can quickly locate millions of resumes with the click of a button. Moreover, if a general search returns an overwhelming number of entries, recruiters can screen them by keywords as well. Thus, the job boards can differentiate themselves further by customizing the search and screening functions for their clients, optimizing the results while eliminating non-matching returns. Positioning for the Future We believe that e-cruiting is an attractive investment area, given the following: (1) Job classifieds is already a large and well-established market; (2) e-cruiting is a superior solution to traditional advertising; (3) Internet usage continues to increase and consumers/job seekers are connecting to the internet more often and for longer periods of time often using new devices; (4) e-cruiting has the potential for strong margin expansions due to scalability. While we expect the online medium to make additional market share gains in recruiting technologies/online recruitment and eventually become the dominant medium, given that recruiting is still based on the paper-based resume, we expect recruiting technologies to continue to evolve. Niche sites will likely continue to gain share. In addition, networks such as LinkedIn will continue to gain in popularity. We also believe that web 2.0 trends which will make the web far more interactive will continue, particularly in the e-cruiting field. Business Services Human Capital Services 53

55 February 2008 ^ëëéëëãéåí=~åç=séêáñáå~íáçå= Leading Companies Notable companies in the Assessment and Verification sector include ChoicePoint, ADP Screening and Selection Services, First Advantage Corp., General Information Services, HireRight, TALX Corp., PreVisor, and U.S. Investigation Services (USIS). Description Arbitrarily combined into one sector for simplicity s sake, assessment and verification encompasses two categories of companies. Assessment companies evaluate a candidate s fit for a particular employer or position, while verification firms provide information services primarily designed to validate personnel background information. Broadly speaking, assessment firms offer job candidate screening services. These services range from online assessment tests designed to test a candidate s skill set necessary for an open position to psychoanalytic interviews that gauge a candidate s match with a client company s culture. The knowledge needed to devise these inquiries is based on years of research into the relationship between employee aptitude and performance outcome. Verification services are usually obtained prior to a candidate s employment and consist of a review of criminal records, driving records, worker s compensation histories, credit histories, prior names and residences, social security number validation, education and credentials, past employment, and personal references (among other things). Companies providing verification services use both external and internal information sources to screen candidates, including public filings, federal, state and other governmental authorities, information companies, online search systems, healthcare providers, credit card companies, and proprietary databases. Firms in the assessment and verification space serve employers from many industries. Additionally, because many agencies and commercial entities are required by law to report independent authentication, verification companies often act as third-party verifiers for lenders, social service agencies, credit issuers, and pre-employment screeners as well. The fees generated from these activities are collected on a transaction basis. Revenue Model The method of payment for assessment services varies, but often involves a cost per head, a fee per assessment, or a flat fee per time period of access to a library of tests. Payment for verification services is usually based on a per-usage or per-report basis. The prices of background checks range from less than $20 to a few hundred dollars, depending on the depth and type of check, as well as the quantity purchased. General Trends The assessment and verification industry developed significantly during the most recent employment cycle. Despite the recession, most of the leading companies in this industry managed doubledigit revenue growth between 2000 and 2006, including TALX (36% CAGR for The Work Number Services), First Advantage (25% CAGR from ), HireRight (73% CAGR from ), and ChoicePoint (19% CAGR). The most recent expansion can be attributed to both a secular trend towards assessment and verification usage and the economic recovery. Robert W. Baird & Co. 54

56 Comprehensive Guide to Human Capital Services Industry Drivers Although there may be some consolidation of competitors, we believe that the assessment and verification market will continue to expand over the next few years. Demand will be driven by multiple factors, including: Increasingly litigious society; Increased workforce mobility; Increased awareness of and the need to minimize the risks of poor hiring decisions; Legislation that necessitates the use of various verification services (Patriot Act, SOX, FDIC); Long-term trend towards uniform usage of assessment and verification; Accelerating demand for ongoing screening; Accelerating demand for international screening as well as extended workforce screening. The fundamental reason for screening and assessing applicants/employees is the desire to find the most productive employees and to eliminate the destructive ones. Although some companies may be unwilling to address the latter due to potentially negative perceptions, the rising costs of employee misbehavior provides compelling evidence to support the utilization of assessment and verification services. Some notable statistics are: SHRM estimates that 45% of all resumes contain major fabrications; 40% of all small business failure is caused by employee theft (U.S. Chamber of Commerce); U.S. Department of Justice believes that 2 million incidents of workplace violence occur annually; and On average, lawsuits filed against employers result in out-of-court settlements of $500,000 and jury verdicts of $3,000,000 (Workplace Violence Research Institute). Faced with these serious consequences, firms are making greater use of assessment and verification services to minimize poor hiring decisions, and reduce turnover, poor fit, fraud, theft, and liability. Moreover, in some circumstances, prescreening is no longer an option, but a legal requirement. In light of the September 11 attack, the Federal Government has passed numerous laws (ie.g., the Patriot Act) that require employers to perform certain background checks on employees. Assessment services offer an attractive value proposition to recruiting professionals by providing them a means to eliminate unqualified candidates early in the recruitment process. This proposition is extremely cost effective and value-added to overburdened HR and recruiting professionals, who can use consistent and proven methods to determine a candidate s potential fit prior to devoting the time and money to interview unqualified candidates. Most assessment solutions are now web-based which results in 24-hour accessibility from anywhere in the world as well as instant feedback. Additionally, the growth of the industry has benefited from several labor management cases against major employers. The most prominent lawsuit involved the nation s largest private employer, Wal-Mart, which paid millions to settle class-action suits that alleged its employees assaulted, sexually harassed, and discriminated against many customers. Subsequent investigations revealed that many of these workers had checkered criminal histories, and could have been avoided through simple background checks. As a result, Wal-Mart, as well as other large corporations such as Home Depot, has adopted uniform screening and assessment procedures that are completely automated and integrated into one system. Apart from pushing the general trend towards the usage of verification and assessment services, the same well-known trials are also generating demand for the ongoing screening of existing employees. Studies have shown that employers may not be aware of illegal activity committed by employees during their employment as well as illegal acts committed prior to employment due to some convictions taking months or years to surface. As a result, a simple prescreen may be ineffective in detecting problem candidates. In addition to the increasing demand for ongoing screening, companies are also beginning to expand their screening requirements to include international employees as well as their extended workforces (e.g. consultants, temporary staff, maintenance crews, etc.) that often have access to areas of Business Services Human Capital Services 55

57 February 2008 the company containing sensitive information or data. We believe these relatively new developments should provide additional sources of top-line growth within the assessment and verification space. Economics of Business We believe assessment services companies have the potential for solid recurring revenue. The continued migration of recruiting functions to the web has quickened the maturation of this sector, as evidenced by the present growth rates of 5-10% (Baird estimates). Assessment services companies should generate solid incremental margins due to the inherent operating leverage in their business models. Similar to online training (which is not profiled in this report), online assessments are typically developed once and then used repeatedly resulting in highly scalable businesses. However, the assessment marketplace is still small, and we expect the consolidation and penetration rates to increase. Some industries such as health care and transportation have historically benefited more from background screening than others; however, we expect the verification market to enjoy healthy growth over the next several years across many industries due to heightened risk awareness and a greater adoption of employee prescreening as part of the overall hiring process. Background screening has been around for quite some time, albeit in a much less streamlined form than today. Previously, most background screens were performed manually whereas today much more of the processes are automated. An increasing number of screening companies are providing their services via the web which facilitates quicker turnaround time for customers. In addition, more court documents are being made available online which is reducing the costs paid to individuals to search through records manually. The scalability of assessment and verification services is evidenced by the high operating margins exhibited by mature companies in this space. Firms such as CPS Authentication Services and TALX- TWN generate margins of around 20-30%. We estimate that operating margins will stabilize to around 20% through the next few years. Market Size and Structure According to the National Association of Professional Background Screeners, the total screening market was estimated at approximately $4 billion in 2006 and consists of over 1,000 service providers. Although still fragmented, the market for verification services has consolidated over the past few years. Another visible trend gathering momentum is the international expansion of domestic companies. The prominent leader in that area is First Advantage Corp, which has reached into China, Japan, India, Australia, and New Zealand. We project that both consolidation and growth in emerging markets will continue to gain momentum. Competitive Advantages There are several general factors affecting share shift among assessment and verification providers: The degree to which providers use technology is a source of competitive advantage as increased use of advanced technology can increase the speed of delivery, improve accuracy due to the elimination of human error, and generally results in higher functionality and greater ease of use. In a competitive hiring environment, employers may be unsuccessful in attracting top talent if they are unable to make offers quickly. As a result, employers need a quick turnaround time from assessment and verification providers in order to move top candidates through the recruiting process as quickly as possible. The ability for service providers to offer clients turnaround times of three days versus one week can be an important differentiator. Most functions related to HR and recruiting continue to migrate to the web. Those providers that offer web-based services are likely to have an advantage over companies with traditional delivery methods. Many service providers have entered into alliances or partnerships with applicant tracking systems (ATS) and HR outsourcing providers. Under these arrangements, the assessment and verification providers will integrate their systems and services with the ATS or HRO providers Robert W. Baird & Co. 56

58 Comprehensive Guide to Human Capital Services systems and become the preferred provider to the ATS/HRO companies. Partnerships and alliances such as these typically result in increased client wins due to referral and backing of the ATS/HRO provider. Many large companies are increasingly focusing on vendor consolidation. Therefore, assessment and verification providers that provide superior service and have greater global reach should have an advantage. For assessment services providers, a key barrier to new entrants and source of competitive advantage is the knowledge and skill level of the specialists that design the assessments. A library of assessments is developed using the knowledge gained from years of research into the relationship between employee aptitude and performance outcome. This research cannot be easily replicated in a short amount of time without sacrificing quality and therefore acts as a barrier to entry. The knowledge and skills of those who design the assessments is naturally a key determinant of the quality of the assessments and therefore is a key differentiator between firms. Within the verification market, we note that some verification services are aggregators of publicly available information while others are resellers of other screening firms information. As a result, a company s positioning within the industry can depend on the extent of its databases and the value it adds to candidate screening and evaluation. Positioning for the Future We believe the online assessment and verification marketplace will achieve healthy revenue growth (15-20% CAGR) over the next 3-5 years as recruiting continues to move online and employers increasingly use assessment and pre-screening products. These businesses are highly scalable, which should lead to continued strong margins. Business Services Human Capital Services 57

59 February 2008 q~äéåí=j~å~öéãéåí=pìáíéëlpóëíéãë= Leading Companies Notable companies within the talent management segment include ADP VirtualEdge, Authoria, Kenexa, Kronos (through Unicru and Deploy Solutions acquisitions), Oracle/Peoplesoft, SAP, SuccessFactors, Taleo, Vurv, and Workstream. Description The talent management industry has its roots in helping companies automate the historically manual processes surrounding human resources such as approving requisitions for open positions, receiving resumes from candidates, filling out paperwork for recent hires, providing performance appraisals to employees and designing compensation policies and packages. Talent management products have evolved from being focused primarily on expense reduction via automation to helping companies improve recruiting effectiveness, employee development and retention. Historically, talent management firms tended to focus on one aspect of the employee lifecycle such as recruiting. For example, some of the early players in what was initially known as the recruitment automation systems (RAS) marketplace were Restrac (now Webhire/Kenexa) and Resumix (now part of HotJobs.com). These companies focused on providing hiring solutions that handled aspects of the sourcing and processing of job candidates such as: Creating and managing job requisitions; Posting job requirements to internal and external job boards; Tracking resumes; Selection and assessment analytics Sharing detailed candidate information (for example, interview notes); Organizing interviews; Managing candidate correspondence and relationships; and Providing detailed reports tracking the effectiveness of employed recruiting mediums. However, the market has begun to mature with some leading providers offering more comprehensive solutions. For example, RAS providers began branching into other areas of the talent management suite while some legacy providers of learning management and compensation management have begun offering recruitment management systems. Many talent management solutions now address the complete life cycle of an employee from recruitment to termination. As talent management providers are now competing on a broader basis, the functionalities that are included in many talent management suites include the following: Workforce planning; Sourcing and recruitment; On-boarding; Workforce optimization; Performance management; 360 multi-rater surveys; Career management; Compensation management; Succession planning; Leadership development; Talent analytics; and Exit interviews and off-boarding. Robert W. Baird & Co. 58

60 Comprehensive Guide to Human Capital Services The rapid evolution of technology has transformed the talent management industry. Presently, many leading talent management solutions are offered through a Software-as-a-Service (SaaS) platform, and many industry experts believe that SaaS is becoming the preferred delivery platform. Revenue Model Talent management providers charge clients in a variety of ways. Some companies charge a flat fee per month, while others charge annual licensing fees. With the increased use of SaaS models, subscriptionbased software packages are now commonplace. In those cases, the customer does not purchase a software product, but instead rents it for a defined period (upgrades during the subscription period are often free). In addition, talent management providers may charge on the basis of the volume of resumes processed or transactions completed within the application. Also associated with resume processing may be fees associated with the type of resume processed (faxed, scanned, ed, etc). In addition, talent management providers charge fees associated with the hosting environment. For example, a SaaS solution may charge a fee for each user that has access to the application. For hosted solutions, clients usually pay ongoing hosting and maintenance fees. An initial setup fee is common to all these methodologies; the fee may range from a few thousand dollars to tens of thousands of dollars, depending on the size and complexity of the organization. General Trends Talent management suites have evolved from being focused primarily on expense reduction via automation to helping companies improve recruiting effectiveness and employee retention. An increased emphasis on effectiveness metrics (in addition to the historical focus on efficiency metrics) such as timeto-productivity, quality of hire, and employee contribution measures has coincided with the increasing importance of human capital in a services-based economy and the tightening of labor markets (especially for professional/skilled employees). We believe that recruitment automation and broader talent management suites in general will both continue to benefit from the focus on human capital effectiveness metrics. One of the most notable developments within the talent management space from an investor/industry visibility perspective is the 2005 initial public offerings of Taleo Corp. (TLEO) and Kenexa Corp. (KNXA), two of the industry s largest players, and the more recent initial public offering of SuccessFactors (SFSF) in Kenexa s acquisition of BrassRing was also a significant development for enterprise clients. ADP, a leading provider of outsourced payroll, benefits and HR services, entered the recruitment automation space in October 2006 with its acquisition of VirtualEdge. Additionally, Kronos, the leading time and attendance systems provider, entered the recruitment automation market through its acquisition of hourly ATS leader Unicru in July 2006 and then enhanced its position in the space with the acquisition of Deploy Solutions in October The implications of these events are significant, considering the vast resources that ADP, TLEO, KNXA, and Kronos currently have. Additionally, we can now measure the growth of the leading providers in the market during the past few years. Figure 6.1 illustrates this expansion by visualizing the revenue gains of Kenexa and Taleo in the last four years. From , Kenexa and Taleo more than tripled their sales on a consolidated basis, averaging in excess of 30% CAGR (which we believe is above the market s overall growth rate). Another ongoing trend among leading companies in the talent management market is the drive to provide centralized solutions that solve nearly all the human capital needs of an organization. Not coincidental with the rise of RPOs (indeed, KNXA is by some accounts the largest supplier of RPO service as measured by worksite employees placed) is the expansion of recruitment automation systems into broader talent management suites due to large corporations desire to outsource various HR functions. Currently, we estimate that approximately 75% of the Fortune 1000 utilizes services from talent management providers, compared to less than 40% just four years prior. However, the middle-market and international markets remain significantly less penetrated, although are areas that we believe will be important growth drivers over the next 3-5 years. Business Services Human Capital Services 59

61 February 2008 FIGURE 6.1: KENEXA & TALEO COMBINED REVENUE 250,000 Revenue ($000s) 200, , ,000 50, Kenexa (KNXA) Taleo (TLEO) Sources: the annual reports of KNXA and TLEO Lastly, we view the adoption of Software-as-a-Service offerings positively because it suggests that employers are turning to a more configurable, subscription-based delivery model. This model is attractive to both large corporations given the ease with which companies can implement, integrate and upgrade the technologies (a significant portion of the costs associated with new talent management software are generated post installment), as well as middle-market companies that may lack extensive internal IT staff or capital. Industry Drivers Most HR and recruitment functions are moving online and the rise of talent management suites is a natural by-product of this change. The past few years have witnessed a widening adoption of these systems, with demand being driven by several factors: (1) Electronic systems are more efficient and cost-effective than paper-based systems; (2) Improved candidate sourcing and time-to-fill by helping screen and sort the large number of resumes that recruiters receive electronically; (3) Improved employee time-to-productivity and retention; (4) Improved employee retention by helping to ensure that employees are being properly evaluated, trained and compensated; and (5) Enhanced mechanisms for measuring the success of the recruiting and retention process. Many HR and recruiting functions traditionally consisted of paper-intensive processes or low-tech, transactional resume processing systems. Talent management suites streamline these inefficient systems while helping improve the effectiveness of hiring managers. With e-cruiting poised to take over traditional help-wanted advertising as the top job sourcing destination, companies in developed markets worldwide are depending on the internet to fill openings. Talent management systems complement the portals well by managing most aspects of recruiting. Though the internet has been a blessing for the hiring manager in many ways, it also presents several new challenges. For example, resume volume has skyrocketed. The result is a resumess that is compounded by an onslaught of applicants who are using a variety of online and traditional media for correspondence (fax, , and letter). Many talent management suites and products have addressed this issue by using assessment and screening techniques (either through partnerships with a best-ofbreed provider or internal development) to eliminate unqualified candidates. Leading providers also offer robust search technologies to further screen candidates. Furthermore, a majority of the talent management suites tie their SaaS competencies to an integrated delivery interface so that clients no longer need to directly interact with multiple vendors for workforce acquisition and management. Robert W. Baird & Co. 60

62 Comprehensive Guide to Human Capital Services As recruitment automation systems expand into broader talent management suites, many companies offerings are addressing on-boarding. Talent management systems are helping improve the efficiency of HR departments by automating on-boarding processes such as benefits enrollment and I-9 form collection. By helping to ensure that the necessary on-boarding processes are completed in a timely manner, talent management systems also help to reduce the time-to-efficiency for employees. In addition, talent management suites also help to reduce recruiting costs at client companies by reducing employee turnover. Companies often focus on recruiting the right talent but ignore the adjustments new employees must make to acclimate to their new work environment. Not surprisingly, an inordinate number of new hires leave within the first year of employment because they did not feel comfortable in their new surroundings. By assisting in the on-boarding process, many talent management providers are able to reduce employee turnover by helping new employees transition smoothly to their new roles. While talent management products historically focused on one aspect of the employee lifecycle, many of the current products are being expanded to address the entire employee lifecycle such as performance management, learning management, compensation management and succession planning. Automating the performance review and learning management processes helps to improve HR efficiency and at the same time helps to ensure that employees are being appropriately evaluated and developed which should lead to greater worker efficiency. Automating the compensation management process helps to improve HR efficiency and also helps to improve employee retention by ensuring that fair and equitable compensation rules are being applied. Finally, technology and the internet have ushered in a new age of talent management, one that is quantifiable and measurable. In tight labor markets, the time it takes to fill open positions and employee retention become increasingly important given the scarcity of qualified candidates available. This means that hiring managers demand the ability to capture and manage candidates more quickly than their competition. Talent management suites have the ability to measure time-to-fill and cost-per-hire, as well as the effectiveness and costs of various advertising media (job boards, print help-wanted, employee referrals, etc). Some of the better systems also help companies measure and improve other recruiting effectiveness metrics. In addition, talent management systems that address performance management in addition to recruiting are better able to identify the qualities and characteristics of employees that tend to perform above their peers and use this information to refine their recruiting processes. Economics of Business Companies providing talent management solutions employ scalable business models that are dependent on software technology and systems infrastructure. As a result, we believe providers are highly scalable and have significant margin potential. Industry leaders Kenexa and Taleo both have been achieving solid, expanding operating margins. In addition, talent management solutions providers generate significant recurring revenue and cash flow streams. With scale, we believe that providers have the potential to generate significant returns on equity and invested capital. Market Size and Structure Currently, we estimate that there are over 100 companies offering talent management solutions, but we believe that there are only roughly 15 major players that have the potential to remain among the meaningful providers if the industry consolidates (although companies with related offerings continue to enter the space). Given the growth of the internet and the migration of recruiting from traditional print media to the web, we expect the talent management market to grow rapidly over the next several years. We estimate that the talent management market is currently approximately $600 million $1.2 billion (depending on how the market is defined), and growing at roughly 15-20% annually. As noted earlier, enterprise-wide, wall-to-wall talent management suites have attracted a growing number of sophisticated, large companies, including approximately 75% of the Fortune 1000 (although there is the potential for many of these firms to continue to add services, or to add existing services in new geographies). Business Services Human Capital Services 61

63 February 2008 In addition, ERPs like Oracle and SAP have attempted to move aggressively into this space and continue to invest in talent management functions that are integrated with clients back-office systems. While ERP providers remain active in the space, most market participants do not view them as the threat to dominate the space that they did a few years ago, although providers continue to closely monitor the ERPs given their extensive resources and enviable client lists. Finally, we believe the mid-size and small market opportunity is still in its infancy. Many firms are already transitioning their offerings towards smaller customers by either condensing their enterprise solutions or acquiring/developing separate solutions. Competitive Advantages We believe that the talent management market will continue to grow at a double-digit annual rate for the foreseeable future with market share gains at several of the leading firms. In a consolidating environment, perhaps the most likely determinant of ultimate success involves a company s financial muscle and ultimate staying power (especially given HR s experience with providers getting acquired or going out of business), as well as the superior functionality of its product. Ultimately, HR managers are seeking a product or service with good functionality that can scale with their organization as well as a provider that they are confident will have staying power. We believe that there are some major differences in the product offerings in the talent management marketplace, and that the greatest sources of competitive advantages stem from the following: Perception of market leadership; Solid business model and staying power; Compatibility with existing HRIS systems; Speed of installation and ease of maintenance; Scalability of the product; Ability to provide substantial reporting capabilities; and Ability to use advanced search or screening capabilities. With regard to compatibility, talent management products must be able to interface with existing human resource management systems/information systems (HRMS/HRIS). It appears that there is a mix of open and proprietary systems on the market that have a varying degree of interoperability with existing systems from Oracle and SAP. We also note that these enterprise resource planners (ERPs) also have talent management modules. In part due to the interoperability issue previously mentioned, company IT professionals seem to either prefer (in our opinion) add-on (ERP) modules or systems that were developed to operate in partnership with leading ERPs (i.e., Taleo), while HR professionals tend to favor best-of-breed, third-party providers. In today s ultra-competitive businesses, speed is a crucial source of advantage versus competition. Consequently, even though a talent management system provides many useful tools for the HR manager, its value would be limited if the implementation procedure becomes overly drawn out, if it is not user friendly and does not get employee buy-in, or if the system breaks down and has frequent outages. With regard to scalability, firms like Taleo, Kenexa (via Brass Ring), and Vurv have built solutions targeting the Fortune 500 enterprise-wide talent management function. Historically, different departments or offices within companies often used separate or distinct recruiting processes due to the lack of a robust company-wide solution. With the increasing prevalence of the web and its importance as a recruiting medium, this is changing. In our opinion, vendors that can develop a sophisticated system that centrally automates the recruitment process have an opportunity to significantly outpace their competition. We noted previously that the demand for talent management products was at least a partial result of companies striving to quantify and measure their recruiting capabilities. In this regard, measurement is another significant differentiator in the marketplace. There are some systems with few reporting capabilities, while leading providers often offer extensive reporting capabilities ranging from hire by source metrics (which measure the effectiveness of various recruiting media) to equal employment Robert W. Baird & Co. 62

64 Comprehensive Guide to Human Capital Services opportunity (EEO) reporting. Ultimately, we believe that most successful solutions will enable hiring managers to do the following: Specifically measure the success of their employed recruiting mediums; Benchmark internal and external supplier performance; Track the efficiency of the hiring process of their organization; and, Produce standard reports for legal and regulatory compliance. Perhaps the greatest source of competitive advantage for a talent management product involves its ability to identify, deliver, develop and retain better candidates. Many of the smaller providers fail to go beyond basic searches to processes that use some type of intelligent screening. Also, another important aspect is the up-front screening. Increasingly, talent management systems are offering assessment services and products that test and pre-qualify the candidate during the application process. Logically, we ultimately see talent management and assessment solutions as part of a larger HCM marketplace. Since we believe that the talent management market is moving toward a comprehensive end-to-end solution and view vendor consolidation as an important trend, partnering, merging, acquiring or developing another type of solution (e.g., vendor management, assessment, etc.) will be, in our opinion, a necessary course of action for survival. Positioning for the Future While it has come a long way from its early days when talent management was focused on automating previously manual processes with a focus almost exclusively on cost savings, talent management is still a developing market. Some early entrants have been unable to keep pace with technological changes or to gain traction in the marketplace, though the market remains fairly crowded with leading ERP providers, dedicated RMS providers, and talent management suite providers. Ultimately, we believe the most successful companies in this sector will round out their service offerings to provide a more comprehensive human capital supply chain/management solution. In the long term, we believe talent management should be a lucrative market for a small handful of players. Business Services Human Capital Services 63

65 February 2008 eo=séåççê=j~å~öéãéåí=póëíéãë=esjpf= Leading Companies Notable companies in the HR Vendor Management Systems marketplace include MPS Group (Beeline), Comsys IT Partners, Taleo Corp. and IQNavigator. Description HR VMSs are similar to talent management systems in that they attempt to assist the process of identifying, procuring, and managing human capital. The primary difference is their focus on sourcing from staffing and workforce solutions companies. Specifically, VMSs attempt to do the following: Coordinate the negotiation, procurement, and management of contract and temporary staffing across multiple staffing vendors; Enable hiring managers to quickly identify and procure skilled personnel from preferred vendors; Ensure compliance with company policies, supplier contract terms, and regulations; Handle the timekeeping and expense management online; Provide automated tools for evaluation of contract resources; and Provide automated invoice processing and payment tracking. Currently, corporate managers are coordinating the procurement of staffing resources across many suppliers with very few tools to manage procurement, time keeping and billing, and performance measurement. In addition, this process tends to be paper based and cumbersome. Vendor management systems serve to eliminate paper and automate the staffing supply chain, resulting in decreased costs and quicker time-to-fill. The major merit for quality HR vendor managers is their ability to properly assign staffing suppliers to customers in a way that maximizes the match between the needs and the solution. As a result, many VMS providers have industry-specific consultants that understand the client s particular HR requirements. For example, a VMS may recommend MPS as the provider of IT personnel and nominate Robert Half for accountant openings. The key is to maximize productivity and to reduce costs simultaneously. Revenue Model Vendor management providers are typically paid a percentage of the fee paid to the staffing supplier by the client company. The fees are usually % of the fees that are paid to the staffing supplier. However, monthly subscription fees may also apply for software-as-a-service products delivered on demand. General Trends Like the talent management industry, the vendor management marketplace has seen its share of corporate takeovers and restructurings in the past five years. White Amber transferred its ownership to Taleo, making two of the largest VMS companies (MPS/Beeline and TLEO) public entities. More importantly, however, the top vendor managers have built enough critical mass to popularize VMS usage across many firms. According to the Staffing Industry Strategic Research conducted by the SIA, the percent of companies using vendor management systems tripled from 2003 to 2006 (Figure 7.1). We remain confident that the industry is at a relatively early stage of development and expect the market penetration to trend up, albeit at a moderate growth rate. Robert W. Baird & Co. 64

66 Comprehensive Guide to Human Capital Services FIGURE 7.1: 60% Vendor Management Usage Climbing 50% 40% 30% 18% 25% 20% 10% 0% 21% 24% 24% 8% 2003 Survey 2004 Survey 2006 Survey VMS in place today VMS in 2 years Source: Staffing Industry Strategic Research, Staffing Industry Analysts, Inc. Industry Drivers VMS offers a compelling business proposition that can significantly reduce the costs of contingent labor force procurement. The industry surged forward as temporary staffing recovered during the upturn (Figure 7.1). Although VMS systems and processes are still relatively new and sales cycles are relatively long (six-plus months), it has gained traction with a number of large corporations that adopted these systems (e.g. Hewlett-Packard, United Health Group, and Lehman Brothers). Given the strength of the economy over the last few years, demand has strengthened. This bodes well for VMS, as the secular improvements in the contingent labor market should lead to improvements in the VMS marketplace. In addition, we believe demand should grow rapidly as more and more clients are exposed to the concept. Continued demand for vendor management solutions should be driven by the following: The increased use of flexible staffing arrangements (especially in areas like IT), which has increased the number vendors and contractors that must be managed by hiring organizations; The desire to reduce the cost of hiring; Improvements in technology, which has transformed a paper-based process into an online, paperless environment; The desire to speed up time-to-fill; and, The desire to reduce the administrative costs of managing a cumbersome process. In recent years, either due to increased competition or growing dissatisfaction with services, customer loyalty within staffing firms has declined. Based on the most recent survey, only 77% of clients would actually refer their staffing vendors to friends or colleagues (Figure 7.2). The same report also highlights the reasons behind low grades (Figure 7.3), which calls into question the value that staffing firms add to a client s workforce. Business Services Human Capital Services 65

67 February 2008 % of Respondents 20.00% 18.00% 16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 1.90% 2.60% 2.00% FIGURE 7.2: Customer Loyalty 6.00% 10.00% 7.00% 18.00% 19.00% 15.00% 19.00% Likelihood of Referral (10 = highly likely to recommend) Source: Staffing Industry Strategic Research FIGURE 7.3: Customer GPA of Primary Providers by Factor Breadth of Value Added Services 2.29 Workforce Strategy/Consulting Expertise 2.38 Skills Breadth Low Cost Factors Worker Quality Geographic Coverage Speed Industry Know ledge Relationship Focus GPA: A = 4.0, F=0 Source: Staffing Industry Strategic Research Ease-of -Use GPA Ultimately, no matter how many people a staffing firm can supply or how advanced their technologies are, staffing firms have to make the appropriate placements for a given job. When multiple vendors exist for a client organization, VMS providers can deliver a systematic approach to managing supplier-customer and inter-supplier relationships, thus reducing cost for clients. Previously, corporate managers had to coordinate the procurement of staffing resources across many suppliers with very few tools to manage procurement, time keeping and billing, and performance measurement. That process tended to be paper based and cumbersome. However, vendor management systems have served to eliminate paper and automate the staffing supply chain, resulting in decreased costs and quicker time-to-fill. Robert W. Baird & Co. 66

68 Comprehensive Guide to Human Capital Services Economics of Business Vendor management systems, like other workforce management systems, are very scalable. Their revenue stream, once established with a base of clients, can be fairly predictable, due to their role as a middleman between employers and staffing suppliers. As previously noted, they generate their revenue by taking a percentage of the fees paid (by the client) to the staffing company (usually bps). As a result, VMS services end up costing the client little, if anything. Also, this model means that VMS services are exposed to the macroeconomic factors that drive the temporary help market. Also, some of the largest staffing firms in the industry have already developed their own web-order management systems unique to their own firm (for example, Manpower s UltraSource). For the rest of the staffing industry clients, VMS is the next logical step in the evolution of the temporary help supply chain. Market Size and Structure The VMS marketplace is small, with only a handful of market participants. Some of the key players in the space are MPS Group (Beeline), Comsys IT Partners, Taleo Corp. and IQNavigator. We estimate that MPS is the largest player in the industry after it recently bought Chimes. In total, we believe the entire market is less than $100 million. However, in some cases, clients are receiving VMS services at or below cost as an inducement to try the service. The U.S. temporary staffing industry is estimated to have generated approximately $95 billion during 2006 (Baird). Assuming that every staffing company placed its personnel through a vendor management application (and was charged a conservative 1% for each placement), the market could potentially exceed $950 million. However, less than 50% of Fortune 1000 firms utilize VMS services and those that do, do not typically use them for all of their staffing needs. Therefore, we believe that VMS will remain a smaller component of the HCM space. Overall, we think the future market structure of this business is still uncertain for smaller independent players. We note the recent problems of Axium/Chimes which was recently bought by MPS. The more likely scenario is that providers will partner with staffing companies. Another possible outcome would be a consolidation between the VMS and talent management spaces, such as Peopleclick s acquisition of itiliti. Competitive Advantages The VMS marketplace has yet to reach prime and, like the talent management marketplace, only the strong (with financial resources) will survive, in our opinion. Some key areas of differentiation are: The ability to integrate with existing HRMS/HRIS; The ability to scale; and The ability to handle complicated agency hires. The first two items are habitual themes throughout HCM solutions, while the third item perhaps apply more to vendor management solutions. Specifically, companies that primarily source lower-level candidates (i.e., secretaries, administrative assistants, etc.) strive to offer straightforward, low-cost solutions. On the other hand, a few companies have tried to differentiate themselves by managing the most complicated agency hires. In the end, we believe that a competitive VMS should integrate all facets of the staffing supply chain and provide back-end analytic capabilities that minimize bad hires and increase time-to-hire (this is extremely important when your contractor is highly paid). These systems should offer hiring managers the ability to mine a pool of staffing resources intelligently for needed skills and experience, conduct candidate assessments and background checks online, compare prices across multiple staffing vendors, hire candidates online, measure performance after the hire, and develop ongoing metrics that help facilitate future hires and the establishment of preferred vendor relationships. Business Services Human Capital Services 67

69 February 2008 Positioning for the Future Similar to the outlook for the talent management market, we believe the most successful companies in the VMS sector will need to expand their service offerings to provide a more comprehensive human capital supply chain solution or to partner with staffing providers that are financially stable. In the long-run, the industry will be battling external variables that will determine its growth (Figure 7.4 shows the main actions that customers take to manage multiple staffing suppliers). However, due to its diverse offerings and value proposition, we believe the vendor management industry should be a profitable market for a small handful of players. FIGURE 7.4: Alternatives for Managing Vendors Outsource Recruiting 3% 8% Use Master Staffing Supplier 29% 7% Use VMS 24% 25% Use Approved List of Suppliers 46% 21% Consolidate Staffing Suppliers 25% 42% 0% 10% 20% 30% 40% 50% 60% 70% 80% Now 2 years from now % taking or planning each action Source: Staffing Industry Strategic Research Robert W. Baird & Co. 68

70 Comprehensive Guide to Human Capital Services eojp=pçñíï~êé=pçäìíáçåë= Leading Companies Notable companies in the HRMS include Oracle/Peoplesoft, SAP, Infor, Ultimate Software, ADP/Employease, Ceridian, Sage Software, Workday and Lawson. Description A human resource management system (HRMS) is a central IT system that integrates HR activities and processes. They are also referred to as a human capital management system (HCMS), or human resource information system (HRIS), among other names. They typically handle a range of HR functionalities such as payroll, time and labor management, benefits administration, and HR management. The systems integrate with information and other applications including financial management, customer relationship management, and supply chain management applications, et cetera. HRMS are provided both as a module from a large ERP provider such as Oracle/Peoplesoft or SAP, as well as HR-centric providers such as ADP, Ultimate Software, Ceridian, etc. The HRMS industry is rooted in expense reduction by automating transactional processes; however, over the last few years, HRMS applications have been enhanced to include strategic processes aimed at improving a company s business processes. Transactional processes typically include payroll functionality, time & attendance solutions, benefits administration, and modules for compliance with various legislation and regulatory bodies. Some of the strategic applications often available with HRMS solutions include recruitment/applicant tracking, performance management, talent management, learning management, compensation and rewards, and succession planning. HRMS providers continue to enhance their solutions by adding new modules, although oftentimes companies will purchase one or more of the modules from a specialized, best-of-breed provider. An HRMS is used by all of the personnel in a company in their varying capacities, including employees, human resources/payroll, finance & accounting, executives, and staff managers. For example, an employee might use a self-service portal to enroll in benefits, manage payroll deductions, and complete self evaluations. A manager/executive enters through a similar, but distinct portal in which they can oversee their employees, generate reports, complete performance reviews, and help manage their employees compensation. Human Resources personnel also log in to oversee the entire HR function from hiring to succession planning, including day-to-day HR operational needs such as payroll processing. An HRMS can also serve as the central internal business portal/communications hub for a company. Revenue Model The HRMS revenue model is largely dependent on the service delivery methodology on-premise versus SaaS/hosted. On-premise delivery requires a large upfront, one-time fee plus additional maintenance fees. In contrast, SaaS requires a smaller upfront implementation fee, but larger recurring fees (typically monthly) which cover software costs, IT support and hosting, in addition to typical maintenance fees associated with on-premise. General Trends There are two main general trends impacting the HRMS market vendor consolidation and increasing utilization of the software-as-a-service delivery methodology. In general, many large companies are looking to consolidate their vendors for a wide range of services. With regards to the HRMS market, vendor consolidation benefits companies with broader offerings, such as the global ERP companies. It has also resulted in companies such as ADP and Ultimate Software adding new functionalities through both acquisition and organic development. Business Services Human Capital Services 69

71 February 2008 Software-as-a-Services (SaaS) has been gaining increasing acceptance, especially among mid-market firms. For instance, Ultimate Software changed its business model from an on-premise delivery methodology to SaaS/hosted in While the company continues to support legacy on-premise clients and even continues to offer on-premise deployment for new clients, over 80% of its new clients have recently been selecting SaaS delivery. ADP and Ceridian also offer SaaS/hosted delivery, although Oracle continues to prefer on-premise delivery. Industry Drivers We believe that the core HRMS market is a fairly mature, slow-growth market in the U.S. While increasingly smaller companies may implement a basic HRMS, most large companies already have a system in place. However, we believe that HRMS providers have the potential to broaden their offerings, most likely in conjunction with the growth of demand for talent management applications. As with many areas of HR, international markets tend to be less penetrated, and represent a potential growth opportunity for HRMS providers. Economics of Business We believe that the HRMS industry has several attractive investment characteristics. Solutions are highly scalable, allowing for high operating margins and returns on invested capital. Additionally, providers have the potential for recurring revenue (especially through SaaS delivery). Market Size and Structure Given the number of large software providers, such as Oracle and SAP, that offer HRMS applications but do not disclose their revenue contribution, it is difficult to ascertain the size of the market. One market estimate from Forrester estimates that the HRMS industry included roughly $4.5 billion in worldwide revenues including $1.5 billion in software licenses and subscriptions in 2006, and is growing at roughly 3% per year. According to IDC, the greater HCM software market will reach $6.5 billion by 2009, growing at a 6.2% CAGR. The market has consolidated considerably over the last five years, highlighted by Oracle s acquisitions of Peoplesoft and JD Edwards, ADP s acquisition of Employease, and Infor s acquisitions of Workbrain, SSA Global and Extensity. Competitive Advantages There are several potential sources of competitive advantage in the HRMS industry, including breadth of offering, ease of implementation/integration, degree of configurability, delivery methodology, profitability/staying power of providers, and geographic reach. With regards to breadth of offering, while most providers offer functionalities to address the more transactional aspects of HR, they vary in their strategic HR capabilities. Furthermore, there is a dispersion regarding how well the companies provide the various functionalities. For example, payroll is a notoriously difficult function to perform well, which provides an edge to payroll-centric providers such as ADP, Ceridian, and Ultimate Software. Ease of implementation/integration is important both to quickly address pain points and because HRMS need to be integrated with several other applications. It is also important to have systems that are highly configurable to reduce customizations, which also allows for a smoother integration. Offering SaaS as a potential delivery methodology is also becoming increasingly important as the adoption/penetration rates for SaaS increase. Also, given the significant time and expense associated with deploying a new system, profitability/staying power of providers is also important. Lastly, geographic reach is important for large enterprises and most providers other than Oracle/Peoplesoft and SAP lack a global reach. Robert W. Baird & Co. 70

72 Comprehensive Guide to Human Capital Services Positioning for the Future We continue to expect HRMS to be a core application for almost all companies with at least 100 employees. The industry will likely continue to consist of ERP providers, payroll service bureaus, and other HR-centric companies. Our sense is that Ultimate Software will likely continue to gain share and we believe that Workday represents one of the most notable potential threats. One of the key differentiators going forward, in our opinion, will be the enhancement of providers talent management capabilities, or the ease with which they integrate with dedicated best-of-breed providers. As with many applications, we believe that there will likely continue to be a gradual migration to SaaS, which many of the leading providers have begun to offer. Business Services Human Capital Services 71

73 February 2008 qáãé=~åç=^ííéåç~ååé= Leading Companies Notable companies in the Time and Attendance marketplace include Kronos, ADP, and Paychex (Stromberg). Description Time and attendance solutions providers are a type of transaction processor within the broader category of outsourcing. This segment is defined by functions that are administrative in nature and involve very little interaction from the client s HR management. As one of its names suggests, the major service that HR management systems provide is in the area of time and attendance monitoring. A typical software suite from a time and attendance provider could include the following features: Flexible, computerized time trackers; Automated attendance enforcement that reduces absenteeism and associated costs; Leave administration in compliance with FMLA or other government mandates; and Events scheduling and operational planning aligned with company goals Revenue Model Fees for time and attendance system tend to be structured on a per-employee, per-month basis, with an initial setup fee, as well as ongoing maintenance fees. Also, some of these firms derive part of their revenues from recurring licensing fees as well. For example, Kronos offers its Workforce Central Suite software to ADP for a fee, but the latter then re-brands the terminal and delivers it to ADP customers. In addition, ADP bought its own platform which it uses for smaller clients. General Trends Like the secular trends of the talent management providers, the time and attendance industry grew steadily from 2001 to 2006, as demonstrated by the revenue of Kronos, the industry s leader (Figure 8.1). The company s stellar performance is reflective of the general transition from paper-based back-office transactions (e.g., timekeeping) to electronic systems that reduce processing time and cost. FIGURE 8.1 KRONOS REVENUE Kronos (KRON) 800,000 Revenue ($000s) 600, , , Kronos (KRON) Sources: annual reports of Kronos, Inc. Robert W. Baird & Co. 72

74 Comprehensive Guide to Human Capital Services Industry Drivers Although the companies that provide transaction-based processes like time and attendance are well developed, we expect the market for these services to grow at a CAGR of 10-15% for 3-5 years. Aside from the general trend toward outsourcing, demand for time and attendance systems is driven by the following factors: Transaction-oriented tasks are routine and repetitive in nature, and relatively easy to outsource to expert providers; Transaction processors can easily expand capacity and scale operations without the need for massive capital investment; Time and attendance providers are usually more accurate, timely, and cost effective (since these services are their core competency) than HR departments; and By outsourcing this function, it allows the HR function to focus on strategic areas in which they can add significant value. Time and attendance systems providers are not immune to the cyclical nature of the economy. However, even in the relatively bleak years of the 2001 recession, time and attendance systems providers registered positive year-over-year growth. We expect the market for payroll and other transaction services to be relatively robust because these services offer an attractive value proposition for companies looking to cut costs in any economic environment. Given the potential for attractive margins and the high recurring revenue of the business, we believe that time and attendance firms are very attractive from an investment perspective. Economics of Business Significant investments in fixed costs like technology and infrastructure have yielded the benefits of a highly scalable business model. We note that the largest firm in this space, Kronos, had an operating margin of 15% when publicly available information was available. In addition, as we are witnessing greater consolidation across industries (e.g., Kronos buying talent management provider Unicru), crossselling opportunities should expand across multiple client bases, thus helping time and attendance firms to leverage their fixed costs and enhance their offerings. Market Size and Structure There are two well-established players in this market, including Kronos and Workbrain. As noted previously, Workbrain was acquired by Info Global Solutions. Both firms are software providers that rely on scale and breadth of offering to elicit critical mass. Lastly, the market also encompasses ERPs (such as PeopleSoft) that offer services in this space. Competitive Advantages Traditionally, the largest time and attendance companies have competed on price, scale, and, most important, service quality. For the most part, these companies invested heavily in technology and infrastructure, which enables them to process a high volume of transactions with a high degree of accuracy and timeliness. Because of this scale requirement, the potential for significant new entrants is limited. Also, we note that the line between traditional transaction processors and discrete or comprehensive HR outsourcers is becoming increasingly blurred. For example, ADP and Ceridian are significant players in both comprehensive HR outsourcing and time and attendance (ADP also resells Kronos products in addition to its internal offerings). Business Services Human Capital Services 73

75 February 2008 Positioning for the Future This is an attractive area for long-term investors, in our opinion, given the following: 1. Recurring revenue streams; 2. Solid 10% growth; 3. High margins (15+%); 4. Strong free cash flow generation; and 5. High returns on invested capital. Robert W. Baird & Co. 74

76 Comprehensive Guide to Human Capital Services eo=lìíëçìêåáåö= Leading Companies Notable companies in the HR Outsourcing marketplace include Accenture, ACS, ADP, ARINSO, Ceridian, Convergys, Fidelity Employer Services, Hewitt Associates, and Paychex. Description HR outsourcing (HRO) involves the processing, management, and/or administration of one or more HR processes or functions by another company. Organizations outsource the responsibility for a variety of HR functions to third-party providers, including benefits administration, payroll processing, workforce management, and recruiting, etc. The HRO space is vast, consisting of both discrete outsourcers (DOs) that engage in one or more related services and comprehensive outsourcers (MP HRO or HR BPO) that strive to manage several processes, or even the entire HR function for a client. There are several potential benefits to outsourcing including expense reduction, streamlining a company s focus on its core competencies, improved services, freeing up internal resources, etc. An HR outsourcer typically develops and executes less-strategic HR and other back-office functions for a client, leaving more strategic functions such as policy setting and labor relations for the client company s internal staff. Outsourced HR services include the following areas (the different segments are ranked by approximate frequency of inclusion with an HRO package in Figure 9.1): Payroll; Benefits administration; Employer liability management; Tax consulting, preparation, and filing; Performance monitoring/assessment; Workers compensation; Government compliance; Personnel administration; Recruiting and hiring; Learning and training administration; Organizational goal setting and implementation; and Outplacement services and others. Business Services Human Capital Services 75

77 February 2008 FIGURE 9.1: THE HRO PACKAGE Frequency of Inclusion of HR Functions in Outsourcing Deals Payroll HRMS Benefits Regulatory Compliance Compensation Recruiting & Selection Performance Management Training & Development HR Strategy 21% 48% 42% 36% 32% 67% 83% 81% 87% Source: the Everest Group 0% 20% 40% 60% 80% 100% The HR outsourcing (HRO) market began to gain prevalence with the unwinding of the diversification strategy that gained prominence in Corporate America in the 1950s and 1960s as companies sought to become more flexible and focus on their core business. In the early days of HR Outsourcing, payroll processing and health insurance were the functions most commonly outsourced. Administration of defined benefit plans was (and is) also commonly outsourced. By the time the Revenue Act of 1978 was passed with a provision for 401(k) plans, the trend of large U.S. companies outsourcing non-core, transactional HR functions was well underway, and many of the companies began outsourcing 401(k) record keeping immediately after the Internal Revenue Code was amended to account for the plans. The outsourcing of HRMS functions started more recently with the adoption of ERP systems. Since the HRO market was first established, it has expanded both to include more functions and a wider range of potential client sizes. Originally, HR outsourcers targeted the human resources departments of Fortune 500 companies. The headcounts at such companies frequently exceed 50,000 with many of the companies operating offices outside of the U.S. Understandably, workforces of this magnitude and diversity encounter many complications involving business unit integrations, information centralization, and communications coordination. The market has continued to develop and has become more penetrated, encompassing large multi-national companies as well as small businesses. The HR Outsourcing market began to expand significantly with the 1990s general wave of services outsourcing (call center, IT, security, etc.) to include a wider range of HR services. HR outsourcers help relieve burdens because of their expertise in handling specific HR tasks as well as their integrated approach. For example, one area in which HR outsourcers add significant value is regulatory compliance as some corporate HR departments are simply unable to efficiently deal with constantly changing regulations. Other responsibilities such as payroll processing and benefits administration can also be performed efficiently by HROs. While the HR outsourcing market continues to evolve and expand, the market reached an inflection point in 1999 when Exult (which has since been acquired by Hewitt Associates) signed a comprehensive HRO/HR BPO contract with BP Amoco. PEOs/ASOs, which we profile in a separate section, actually first appeared in the 1980s; however, the comprehensive HR outsourcing market for large companies was virtually nonexistent just a decade ago. Today, this market is undoubtedly more established, although it continues to evolve and mature. Due to the importance of effective HR management and the ease with which transactional functions can be scaled, there continues to be demand from companies of various sizes for HR outsourcing. Many formerly Robert W. Baird & Co. 76

78 Comprehensive Guide to Human Capital Services discrete outsourcers have built on their core competencies to form extensive bundles of services such as human resource administration, payroll, benefits administration, and others. Firms have typically broadened their offerings in one of three ways: developing the missing parts internally, strategically acquiring other companies, or licensing another firm s products or services. While a few years ago there appeared to be a strong trend in the HRO industry towards comprehensive outsourcing, this trend appears to have moderated significantly in recent years, especially for mega contracts. While the trend has moderated and deal signings have slowed, several high-profile players remain active in the space and client demand remains solid. Most notably, Convergys, Accenture, and IBM have been gaining share while Hewitt has re-centered its business to focus more on HR consulting and discrete outsourcing, while being very selective about signing new HR BPO contracts. While we believe that companies will continue to outsource their entire HR function, our sense is that discrete outsourcing of one or a few HR functions will be the more prevalent alternative. Within this report, we define HR outsourcing in general terms (including MP HRO), but we profile RPO, PEO, time and attendance, and HRMS separately because these industries are focused on specific outsourcing services (recruitment outsourcing and workforce management). While not without exception, some prominent firms in the outsourcing sector have broadened their services to meet the secular demand for multi-process HR outsourcing (even though the secular shift has moderated significantly the last few years). Lastly, even though the services of professional employer organizations and comprehensive HR outsourcers mirror each other, we distinguish the two to highlight the differing employment relationships and typical client sizes. Revenue Model Revenue models for HR Outsourcers can vary widely based on the services provided. Discrete outsourcers contracts are often negotiated through a cost-plus contract whereby the outsourcer receives a payment that covers both the cost of service and a reasonable markup. Payroll processors typically earn revenue through recurring fees for services, which is based on the number of clients, checks or transactions per client per pay period, and the utilization of ancillary services. Payroll processors typically receive direct fees and also generate revenue from interest income on float balances held for clients. For benefits administration outsourcing, revenue is typically based on the number of client employees, but also on transaction frequency resulting from client employee turnover and hiring activity, annual benefits enrollment, year-end calculations, etc. Comprehensive HRO arrangements typically consist of a fixed monthly fee per covered employee, as well as initial setup fees and ongoing maintenance charges. Other arrangements are similar to discrete outsourcers, where contracts may be negotiated through a cost-plus contract. These arrangements can also include built-in efficiency targets that change the percentage of the markup based on whether certain efficiency savings are achieved. An alternative or additional payment variety is a gain-share arrangement that pays the HRO a portion of the cost savings achieved after paying for the cost of service. In addition, HR BPO contracts may have provisions whereby the provider is required to share further savings with the client in a gain-sharing arrangement after it has achieved a negotiated minimum return. General Trends It is not a coincidence that the acceleration in the services outsourcing market, including HR outsourcing, overlaps the rise in popularity of the internet. The internet enhances the HRO delivery model by serving as an exchange for interactive and real-time communications among large groups of individuals in diverse locations. The rise of globalization has also given companies access to a more global labor pool, allowing them the option to outsource HR functions overseas, and given HR outsourcers a new means of executing lowcost deals. Business Services Human Capital Services 77

79 February 2008 Another contributing factor to the development of the comprehensive HRO business is the growing cost awareness among organizations worldwide. As competition intensifies on both domestic and foreign fronts, the opportunities for margin expansion become more dependent on cost reduction. The confluence of these factors contributed to HROs growth in recent years, as illustrated by the chart below (Figures 9.2): FIGURE 9.2: Outsourcing Revenue Trends $3,750,000 $3,000,000 $2,250,000 $1,500,000 $750,000 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08E 14% 12% 10% 8% 6% 4% Revenue Avg Yoy Org CC Rev Gth Source: Includes ADP Employer Services, Ceridian HRS, HEW Outsourcing, and PAYX Industry Drivers Aside from focusing on core competencies and reducing costs, HR departments are also focused on improving service quality, reducing the burden and implementation time of adopting new technologies, and consolidating vendor relationships. We believe that the key factors driving the HRO industry include the pending retirement of baby boomers in the United States, Western Europe, and Japan, rapid growth in health care expenses, regulatory/legislative changes, a continued emphasis on cost savings, increased use of technologyenabled solutions, and vendor consolidation. Another demand driver, especially for smaller companies, is the need to attract and retain quality employees. For example, a small business may not have the recruiting resources necessary to market itself to a wide candidate base. On the contrary, HR outsourcers can accommodate the demands of such firms and assist clients in all aspects of candidate sourcing, including searching, prescreening, and onboarding. HR outsourcers also bring indirect benefits as well. For instance, they may provide small companies with the high-quality benefits and services needed to attract talented professionals. Also, while ERPs continue to represent an attractive solution for many companies, the adoption rate of ERPs has slowed as many companies prefer not to purchase ERP systems due to the constant upgrades required. For such companies, we believe that HR outsourcing represents an attractive alternative. Economics of Business There are several aspects of HR Outsourcing that makes it a potentially attractive business model. For example, HR Outsourcing agreements typically provide a recurring revenue stream and many of the HR services that are outsourced are required to run a business (e.g., payroll processing and benefits administration), and therefore demand is not cyclically sensitive. Also, the economics of the business are dependent on building scale and increasing the efficiency of services provided to the client. Therefore, Robert W. Baird & Co. 78

80 Comprehensive Guide to Human Capital Services once scale is achieved, HR outsourcing providers often achieve operating margins in excess of 20%. The business also has high barriers to entry given that it is difficult to compete on price with a provider that has already achieved significant scale. Despite nearly a decade of development, the comprehensive HR business outsourcing model is still being defined. In general, the agreements have the potential to benefit from many of the same characteristics as discreet outsourcers, including recurring revenue and high margins. However, some of the less transactional, more strategic aspects of HR (such as recruiting) have been difficult for HR BPO providers to perform cost effectively. Similarly, HR BPO providers have had difficultly delivering services that they do not have expertise in or in geographies where they previously did not have a presence. As a result, comprehensive HR outsourcing arrangements have been harder to implement and execute than many had originally planned and have not been as profitable as originally anticipated. Many of the early HRO arrangements resulted in significant losses for the service providers and are being, or have been, renegotiated. Market Size and Structure The overall HR outsourcing market is a very large, highly fragmented market, with many discrete outsourcing providers, as well as a few large players within the comprehensive HRO space. The former include time and attendance, e-hr, payroll administration, and other firms that deliver only a subset of services within comprehensive HRO. Many of the comprehensive HRO providers also provide discreet outsourcing services. While market growth rates vary widely depending on the service being outsourced, in general, the industry continues to experience solid growth and the penetration rate is fairly low. Even in payroll processing, which is one of the oldest areas of HR outsourcing, we estimate that only about 25-30% of U.S. businesses with less than 50 employees outsource their payroll function. While the penetration rate is higher for larger businesses, given that the majority of employees in the U.S. are employed by small and medium-sized businesses and that payroll processing is one of the more developed HR outsourcing markets, we believe that there remains a significant opportunity to grow the market through additional penetration. As noted previously, the morphing of some discrete outsourcers into comprehensive HRO began in the late 90s. Since then, consolidation and shake-up have transformed the industry s competitive landscape. Chief among those changes was Hewitt s purchase of Exult in 2004, followed soon by the 2005 formation of ExcellerateHRO, a joint venture between consulting firm Towers Perrin and software provider Electronic Data Systems. Meanwhile, payroll processing giants ADP, Ceridian, and Paychex have all entered the HR and benefits outsourcing spaces, further intensifying the competition. However, companies have pulled back in terms of entering the comprehensive HRO space as well as signing new HRO arrangements given the difficulties implementing some of the initial contracts. Instead, many providers are increasingly focusing on providing only the services where they have a competitive advantage. According to Everest Research Institute, the HR BPO market growth rate (measured by the total contract value of new contracts) slowed from a 35% CAGR in to 17% in According to EquaTerra, HR BPO (as defined by HRO deals comprising 5+ core HR processes) is currently a $15 billion market (as measured by total contract value). EquaTerra estimates that over 2.5 million employees are currently supported by HRO providers, suggesting roughly $6,000/employee in annual revenue or $500/employee/month. IDC forecasts the market will grow at a CAGR of 16% in the United States to reach $18.9 billion by Competitive Advantages HR Outsourcing providers are measured by their ability to meet HR demands at a lower cost per employee while, at the same time, improving customer service. In short, these companies must offer additional value that offsets the concerns of outsourcing. Much of this added value stems from better technology and economies of scale. In addition, prospective clients will often have preferences regarding Business Services Human Capital Services 79

81 February 2008 whether the services will be managed on- or off-site. The ability to offer both arrangements can be a significant advantage. Solutions targeting larger enterprises are often focused on the development and implementation of HR best practices, which serve to integrate and facilitate the HR function. The trend toward best practices is logical, in our opinion, since most companies that choose to outsource do so in order to focus on their own core competencies and best practices. Data privacy has also been an issue, with several high-profile data breaches at human capital services companies, including ChoicePoint, Monster, and ADP. Another key source of competitive advantage stems from the providers that have broadened their service offering given the trend toward vendor consolidation. Providers have been expanding both organically and via acquisition to add adjacent services. Positioning for the Future The trend toward outsourcing at least some HR functions is well established, but many services are still provided in house. One of the key drivers, in our opinion, will be further penetration of the HR outsourcing market for international and small companies. The impending wave of retirements in developed economies also bodes well for HRO providers. Given the benefits of scale, we believe a select group of players will represent attractive long-term investments, benefiting from rapid growth, recurring revenue streams, and solid margins. = Robert W. Baird & Co. 80

82 Comprehensive Guide to Human Capital Services mêçñéëëáçå~ä=bãéäçóéê=lêö~åáò~íáçåë=emblf= Leading Companies Notable companies in the professional employer organizations market include Paychex, Administaff, Gevity HR, ADP Total Source, Oasis Outsourcing, and Barrett Business Services. Description The professional employer organization (PEO)/administrative service offering (ASO) industry is a subsegment of HR Outsourcing, and resembles comprehensive HRO, although the focus is typically on serving small and medium-sized businesses (typically firms with <500 employees with an average of 17 employees). PEO/ASO firms enable clients to outsource HR management, benefits administration, payroll and worker s compensation, and every other HR process, allowing clients to focus on their core competencies. The distinguishing factor between PEOs and ASOs is that PEOs operate under a coemployment relationship through which client employees are legally employees of both the PEO firm and the client firm. In contrast, worksite employees in an ASO firm are legally employed by only the client firm, and not the ASO, resulting in the client firm retaining the employer-related risks such as workers compensation insurance, payroll and employee tax compliance, etc. Services provided under PEO/ASO contracts varies, but typically include: General human resources management; Employee benefits including insurance and retirement services; Payroll and workers compensation responsibilities; Tax and government compliance; Recruiting and selection services; Performance management; Training and development; and Employer liability management, etc. Organizations benefit from PEOs/ASOs in much the same way they do from comprehensive HROs. Outsourcing non-core functions enables PEO/ASO clients to concentrate on their core competencies, which should help drive revenue growth. Client firms also benefit from cost efficiencies generated from economies of scale through pooling (with other clients of the PEO), and reduced employment costs. Larger PEOs are also often equipped with management insight and performance analysis capabilities, and help maximize workforce productivity by instilling best practices in recruiting and performance management. Their status as co-employers can help their clients make beneficial personnel changes that the client organizations are reluctant to make. Professional employer organizations target smaller-sized organizations with less than 1,000 employees. According to the National Association of PEOs (NAPEO), the average customer of a PEO is a business with 17 employees. This focus is mostly a result of demand forces since larger companies are more likely to be able to cost-effectively offer HR services internally. Unlike larger competitors that have ample capital and headcount to fund defined benefit and/or defined contribution pension plans, small businesses cannot afford such plans, either monetarily or temporally. Subsequently, many smaller firms fail to grow because they cannot attract strong candidates or if they do adopt a benefit plan, cannot maintain it for the long-run. A successful PEO bridges this growth gap by accumulating the contributions from many firms and administering the plan for a fraction of the cost due to scale. A second reason small enterprises seek PEOs is a desire to outsource compliance functions. Within the increasingly complex regulatory environment, smaller businesses are often overwhelmed by increasingly complex legal requirements. PEO firms work closely with government authorities to understand employment regulations and leverage that knowledge to respond to potential issues across their worksite employee base. With the financial and compliance burdens now relieved (presumably resulting in a more satisfied workforce), the client can concentrate on developing its businesses. Business Services Human Capital Services 81

83 February 2008 Revenue Model Because of the co-employment relationship, a PEO contract usually becomes a protracted list of legal jargon and scenario-specific regulations. To complicate matters further, such contracts vary widely depending on factors such as the type of work employees perform and the location of the work. Most contracts, stipulate that a PEO is responsible for the business of employment, whereas the client retains the responsibility for operations, marketing, sales, and service. A helpful illustration can be found in the different payments to employees. Under PEO contracts, the employer organization typically pays the costs associated with hiring client employees, but the client is accountable for commissions, bonuses, paid leaves of absence and severance payments, which are the result of operational activities. In addition to compensation, PEOs and their clients share legal control of employees, although compliance responsibilities depend on case-specific circumstances. Similar to HRO firms, PEOs charge a setup as well as recurring fees for the duration of the contract. For each invoice, however, firms generally submit a comprehensive bill that includes payroll-related taxes, workers compensation coverage, costs for other benefits and a gross markup. The gross markup encompasses the costs associated with non-payroll HR services. General Trends Industry consultants conjecture that the first PEO opened business in California in Since then, the segment underwent a series of advances and setbacks, although has generally experienced growth. During the 1990s, the PEO industry was the fastest growing business service in the United States according to the Harvard Business Review. However, the industry was negatively impacted by the 2001 recession and the end of the workers compensation arbitrage game, which had an outsized impact on small businesses, which comprise the majority of PEO clients. The PEO market has since recovered, and has recently been experiencing rapid growth, as exemplified in Figure 10.1 by the revenue growth of the five largest public firms with PEO services (although we note that revenue recognition practices vary widely across firms in the industry): FIGURE 10.1: THE PEO INDUSTRY Revenue ($000s) 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, , ASF GVHR ADP BBSI PAYX Source: Company Reports, Baird estimates PEOs are regulated at the state level. Although PEOs operate in all 50 states, currently only 31 states have enacted legislation recognizing PEOs or requiring licensing. As a result, the industry is still relatively unregulated. We expect additional states to enact similar legislation in coming years. Robert W. Baird & Co. 82

84 Comprehensive Guide to Human Capital Services Industry Drivers The continued development of the PEO industry predated the emergence of most forms of HR outsourcing, and it is not a stretch to say that PEO growth accelerated public acceptance of the idea of the business of employment. As presented previously, PEOs benefit client organizations and employees alike. Specifically, demand for PEO services is driven by four main factors: (1) Increasing legal burdens; (2) High cost of employee benefits administration; (3) Insurance providers general neglect for small and mid-sized employers; and (4) Employers desire to attract quality candidates. One of the leading reasons that small employers seek PEOs is their inability or unwillingness to deal with legal burdens associated with employment. Employers are required to comply with various types of federal and state regulation, including economic, workplace, environmental, and tax compliance. Currently, employers are saddled with well over 60 employment regulations in the U.S. Compliance with these legal items is often beyond the technical and/or financial capacities of small employers, and given the potential economies of scale, compliance is often more costly on a per employee basis for small employers. Therefore PEOs/ASOs have become a logical substitute for a client s internal compliance department, giving clients state-of-the-art monitoring technologies and teams of expert consultants. In addition to fostering a compliance-friendly environment, PEOs provide small enterprises with the opportunity to offer a Fortune 500-style benefit plan at deep discounts to what they would independently be able to offer a similar plan for due to scalability. Additionally, commission-seeking insurance agents frequently avoid small employers or demand a higher charge, either because of relatively high sales and marketing costs or fear of adverse selection. Nonetheless, corporations are required by law to provide workers compensation coverage in 49 states (Texas being the exception). PEOs alleviate that burden instantly by leveraging a large client employee base to offer various benefits programs at low costs, as well as helping their clients reduce accident incidence and severity rates. Finally, having a complete set of benefit and pension plans from PEOs positions a small firm competitively in drawing talented recruits. Moreover, PEOs also offer many HR services as attachments to its benefits administration. Similar to comprehensive HROs, PEOs frequently provide payroll administration, recruiting services, performance analytics, and outplacement activities. These solutions help solve two key HR issues: acquiring the best talent and increasing productivity. Both strategies align the workforce to improve operational efficiency and, therefore, competitive positioning. Economics of Business PEOs handle many employee-related tasks and expenses, such as: Paying and filing Federal and state payroll taxes and reports; Paying and reporting on workers compensation and workers injuries; State unemployment tax assessment wage reporting; Benefits claims handling; and Other human resource issues. Workers compensation is one of the largest indirect costs to professional employer organizations. Among other indirect costs, social security and Medicare are fairly predictable. However, there is also a large, uncertain component of workers comp related to injury settlements. The PEOs are shielded somewhat from paying the full compensation if the injury is largely due to the neglect of the client s operational approach. Nonetheless, liabilities for workers injuries can amount to millions of dollars for a single firm. Cost accounting in the PEO industry varies across firms, but direct costs usually include payroll wages and taxes. Operating costs then would include the likes of benefits and workers compensation fees. Business Services Human Capital Services 83

85 February 2008 Depending on the company and accounting practices, PEO gross margins typically range from a highteens percentage up to 30%, with operating margins of 3-10%. PEO accounting is sometimes confusing to investors due to the nature of their pass-through costs. Specifically, gross revenue includes the direct pass-through of the salaries, wages, benefits, and payroll taxes of worksite employees. Therefore, operating income relative to revenue is not a very useful measurement. Instead, investors should consider operating income relative to gross profit. Using this measure, the margins are generally in the range of 20-35%. Market Size and Structure PEOs by their nature aggregate insurance underwriting risk (although ASOs do not, instead acting as a broker to help facilitate their client s purchase of insurance). A PEO faces enormous underwriting risk unless it is able to aggregate a large, well-diversified risk pool and efficiently price the risks. Prior recessions forced a number of small firms into bankruptcy. In contrast, most of the larger firms, with the exception of Team America (a public company that failed due to over-leverage), were able to survive and actually grow WSEs and remain profitable during the downturn. The top seven PEOs are listed below by order of worksite employees (Figure 10.2): FIGURE 10.2: MAJOR COMPETITORS PEO/ASO MARKETS Paychex 401,000 ADP 165,000 Gevity HR 135,500 Administaff 112,496 Oasis Outsourcing 70,000 SCI 30,000 Barrett Business Services 25,300 Sources: Company reports NAPEO estimates that there are approximately 700 professional employer organizations total in the U.S., with the largest five serving roughly one-third of total WSEs. The industry s core potential market, businesses with less than 50 employees, employ roughly 50 million workers total, with another 45 million employed by companies with employees, according to the BLS. Utilizing NAPEO s estimated average gross pay of a PEO worksite employee of $31,000/year, the market is approximately $ trillion in gross revenue. However, as noted in prior sections, much of the gross revenue for a PEO comes in the form of pass-through payroll wages and thus is an unreliable measure of revenue. Rather, if we use a net revenue (which is devoid of wages) of approximately $1,000 per employee, the market size is a more conservative, but still significant, potential market of $50-95 billion. That said, some PEOs exclude struggling businesses and those with significant employment risks from their target markets. Currently, the market is less than 5% penetrated, which should change rapidly over the next decade as more small companies gain a better understanding of the advantages of PEOs. Competitive Advantages The shakeup within the industry during the last recession forced the exit of many small PEO firms that lacked either quality client bases or the financial savvy to survive a difficult market. On the flip side of the coin, stricter regulations have also limited the number of new entrants into the market. Among the 700 existing players, the top 10 (in terms of worksite employees) have clearly differentiated themselves from smaller participants in three areas: (1) the economics of benefits administration, (2) their adeptness at dealing with compliance issues, and (3) the superior technological platform. The first two topics have been covered thoroughly, though it is worth noting that the largest PEOs have been the most aggressive and influential entities in designing and implementing PEO laws. Not surprisingly, the new restrictions (particularly capital requirements) will likely secure the top 10 s standing within the industry. Robert W. Baird & Co. 84

86 Comprehensive Guide to Human Capital Services The last advantage that large PEOs have is their sophisticated technological platform. Some of the larger PEOs are investing millions of dollars in multi-functional, web-based tools, powerful back-office databases, and other related automation software. This is creating new opportunities for these firms, as they can grow faster, provide more services, and generate superior value by using completely automated systems to handle the needs of hundreds of clients with tens of thousands of employees (NAPEO). Evidence suggests that customers generally stay with their PEO partners as retention rates for the top firms often exceed 70%, and in some cases exceed 80% (which are significant higher if client losses due to M&A activity and bankruptcies are excluded). Reasons for stickiness include: (1) the cost of switching (exiting the old system and implementing a new one) would be too great, (2) PEOs generally offer homogeneous products, and (3) the original contracts are long term in nature. Ultimately, we expect PEOs will compete mostly on price, which would further help the large players that have already built scale into their operations, but acknowledge that service quality is also an important factor. Positioning for the Future With solid demand driven by a compelling value proposition, we believe that professional employer organization services will be one of the fastest growing areas within human capital services for established players. We conservatively project that the largest PEO players will grow revenue at an annual pace of 10-15% for the next five years. Business Services Human Capital Services 85

87 February 2008 eo=`çåëìäíáåö= Leading Companies Notable HR consulting companies include Watson Wyatt Worldwide, Mercer, Hewitt Associates, Towers Perrin, Affiliated Computer Services, Hay Group, and Aon. Description Like many of the other sub-segments in the HR marketplace, defining an HR consulting firm is complicated. HR consulting firms tend to offer services that address the following strategic and tactical issues: Leadership; Workforce planning and development; Health care management; Pension actuarial valuation; HR administration; Retirement administration; Performance management; Compensation management; Global HR services; and Organizational design. For example, a client company may want a consultant to help improve its recruiting process. As a result, the consultant will review the demographics of the company s employee base, suggest strategies for improving hiring, and assist in the development of an enterprise recruiting solution or recommend another third-party provider. HR consulting firms and HR outsourcers sometimes operate across an ambiguous line since some firms offer both services. Some HR consulting firms offer discrete outsourced HR services much like comprehensive HR outsourcers. For instance, Hewitt Associates is a well-regarded HR consulting company and is also a well-regarded benefits outsourcer. Revenue Model Consulting services are usually arranged on a project-by-project basis. HR consultants are paid in a variety of ways, depending on the type of services provided. For consulting services, consultants typically bill by the hour or have a fixed fee for a specific deliverable. For outsourcing solutions, fees are generally levied on a per-employee, per-month basis or on a cost-plus basis. General Trends The HR consulting market grew steadily throughout the 2000s, powered by an overall increase in human capital spending. Because of high international exposure and service diversification, the largest players within the group fared particularly well through the recession and subsequent recovery. We remain optimistic about the overall health of the HR consulting market due to the recurring nature of certain projects as well as constant changes in rules, regulations, demographics and technology that require outside expertise. Revenue growth has recently benefited from several legislative/regulatory changes, which we discuss below. Figure 11.1 depicts this trend by showing the revenue growth of Mercer, Watson Wyatt, and Hewitt Consulting. Robert W. Baird & Co. 86

88 Comprehensive Guide to Human Capital Services FIGURE 11.1: Revenue ($000s) 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, Mercer Consult. WW HEW Source: Annual reports of HEW, WW, and MMC One specific example of recent legislation impacting pension plans was the passage of the muchanticipated Pension Protection Act of 2006 in August 2006 following a prolonged revision process. The 907-page report outlines several important changes to existing pension laws: (1) All companies must fund 100% of their pension plan targets by 2011, albeit at a staggered pace: 92% in 2008, 94% in 2009, 96% in 2010, and 100% thereafter; (2) The new laws established thorough disclosure rules that require companies to report pensionrelated financials and/or projections; and (3) Non-traditional (e.g., cash-balance) plans are properly defined and legalized. The third point is in response to the August 7, 2006 decision of the 7 th Circuit Court which reversed an earlier District Court ruling that struck down the legality of IBM s cash balance pension plans. A cash balance pension plan features elements of both traditional employer-funded defined benefit plans and 401(k) plans. A cash balance plan is a defined benefit plan that defines the benefit in terms of a hypothetical account balance, which is more characteristic of a defined contribution plan. In a typical cash balance plan, a participant's account is credited each year with a pay credit (a percentage of compensation from the employer) and an interest credit (either a fixed rate or a variable rate that is linked to an index such as the one-year Treasury bill rate). Increases and decreases in the value of the plan's investments do not directly affect the balances of the participants accounts. Thus, the investment risks and rewards on plan assets are borne solely by the employer. Another key difference between a cash balance plan and a traditional defined benefit plan is that participants in a cash balance plan generally have the option to transfer at least a portion of their account balance to an IRA or to a new employer s plan if they change jobs. The original court ruling stated that the credit system used in a cash balance plan discriminated against seniors because younger employees have more time to accumulate credits. However, the new decision dismissed the notion of discrimination on the basis of the time value of money. In our opinion, these reforms represent a monumental shift in the government s view towards market forces. It is widely speculated that the new pension laws will open inroads for consumer-directed healthcare. Consequently, pension and healthcare plans will be more subject to market forces which should promote more efficient plan administration. We believe that these policy overhauls will create new catalysts for HR consulting firms that are broadly exposed to the retirement and healthcare plan services. Specifically, as firms move towards fully funding their pension plan targets (as required by the new law), demand for actuarial services at HR consulting firms should increase significantly. Business Services Human Capital Services 87

89 February 2008 Industry Drivers Similar to discrete and comprehensive HR outsourcing, demand for consulting services is highly dependent on the nature of the services. For example, HR consulting related to health and welfare is growing rapidly due to the reasons mentioned previously whereas more discretionary consulting services (particularly people-related consulting) are experiencing weaker demand in the current economic climate. We expect HR consulting to experience continued growth from a long-term perspective. Aside from pentup demand, we believe demand for consulting services will increase due to the need by companies to increase the efficiency and effectiveness of their human capital programs. At many companies, the HR department is staffed by administrators who are not familiar with best practices; therefore, they turn to consultants to assist with their strategic and tactical issues. Many of the demand drivers for the outsourced solutions provided by HR consulting firms are the same as those for discrete and comprehensive HR outsourcers. Specifically, employers are seeking new ways to optimize their HR function in order to reduce cost, increase service levels, and focus less on the dayto-day administration of HR and more on strategic functions such as recruiting and employee retention. Economics of Business For the most part, HR consulting is a head count business with low capital requirements. We temper this by noting that the larger HR consultants in the industry develop products (software, studies, etc.) that, once developed, can be leveraged by selling to new parties. Similar to other consulting businesses, HR consulting can generate high margins provided that the utilization of consultants is high. Current operating margins for the industry typically run in the 10-20% range. Market Size and Structure The HR consulting market is one of the most established in the HCS space. Many reputable players (such as Hewitt, Towers Perrin, and Mercer) can trace their roots back to the early 20 th century. The larger, global HR consulting firms have traditionally billed themselves as HR consultants (Mercer, Watson Wyatt, Hewitt, etc.). Other firms such as the Big Four and IT outsourcers (EDS, PricewaterhouseCoopers/IBM, etc.) have moved into the HR fray by offering either consulting or outsourcing solutions. Overall, the HR consulting marketplace is bifurcated into large, national and international consulting firms and hundreds of small, regional or boutique consulting firms. The larger consulting firms tend to offer some outsourcing solutions (such as health benefits or 401(k) administration) in addition to strategic HR consulting services. Currently, we believe that benefits and HR consulting is a $14-18 billion market, with the top three generating $6.6 billion alone (Figure 11.1). While we anticipate 4-6% annual revenue growth in a normal operating environment, recent regulatory changes could drive above-trend growth in the near term. Competitive Advantages Large HR consulting firms tend to compete on a number of fronts. Reputation is often a powerful guiding force behind a client s selection of a consulting partner as some consultants have very well-developed franchises in certain areas (e.g., benefits administration or actuarial work). In addition, large consulting firms tend to have broader geographical presence which allows them to address the needs of even the largest multinational companies. Furthermore, some consulting firms offer a broad array of services within HR as well as across other, non-hr areas such as finance, accounting, or logistics. On the other hand, small HR consulting practices tend to compete on the basis of price or regional expertise. These firms may have a strong regional presence or a narrow focus in a particular HR segment. A few large HR consultants such as Hewitt Associates offer outsourced solutions due to their ability to leverage their HR expertise into an outsourced solution. HR consulting firms have been designing and optimizing HR departments for years. Having the expertise in managing the day-to-day administration of Robert W. Baird & Co. 88

90 Comprehensive Guide to Human Capital Services HR is a source of competitive advantage within the HR outsourcing marketplace. Experience in systems design and integration is an additional source of competitive advantage for consulting firms. Consulting firms that possess this expertise are better able to facilitate the smooth consolidation and integration of disparate HR applications. Since 2001, multinational companies have been expanding globally much more so than they did ten years ago. In our opinion, this is a trend that will likely continue. As a result, multinational companies are increasingly looking for service providers with geographic footprints large enough to meet their global demands. As such, HR consulting firms that have a wide geographic footprint are likely to have an advantage. Finally, as the provisions of the Pension Protection Act go into effect, consulting firms that excel in this area will benefit the most from the changes. As a result, we expect retirement and healthcare plan specialists such as Watson Wyatt, Hewitt, and Towers Perrin have the potential to modestly increase their market share. Positioning for the Future We believe that blue chip HR consulting firms can be attractive investments given the combination of solid growth and high margins. Furthermore, we project that demand for HR consulting services will enjoy a strong secular upturn as the pension plan legislation runs its course. Business Services Human Capital Services 89

91 February 2008 eìã~å=`~éáí~ä=mçáåí=pçäìíáçåë=l=jáëåéää~åéçìë=péêîáåéë= Leading Companies Notable human capital point solutions providers include ADP (Employease), OneClickHR, Saba, SHPS, Skillsoft, and Workscape. Description Human capital point solutions ( point solutions ) are an amalgamation of various segments of the HR continuum that do not neatly fit into the other HCM categories. Generally speaking, point solutions are applications or processes that automate key business activities, streamline decision-making processes, or make these processes more effective through the automatic dissemination of best practices. Examples of point solutions can include the following: Human capital deployment; Performance management; Compensation management; Employee Relationship Management (ERM); Professional services automation; and elearning/etraining modules. While some of these solutions are enterprise applications, the majority of these point solutions are increasingly offered under a SaaS model. Revenue Model The human capital point solution providers derive revenue through various channels including: subscription and hosting fees; software licensing; software maintenance; professional services related to software implementation, customization and training; and per-usage fees related to certain programs (elearning materials, for example). For example, customers at Workscape typically pay for an implementation fee for its compensation management module ($250k-400k). Additionally, they will be expected to pay service and support fees that range from 150 to 200% of the licensing fee. Other services, such as e-learning programs, may be obtained on a per-curriculum basis. Contract duration is typically one to three years of service with monthly billing. In cases where professional services are rendered, vendors generally bill clients on a per-contractor and per-time basis. General Trends In terms of recent trends, performance management has been one of the hottest areas within HCM and has garnered a lot of attention recently. More generally speaking, consolidation has been a recurring theme within the entire HCS space, but has been particularly pertinent within point solutions. Two of the largest players within this sector, ebenefits and ebenx, were bought out by healthcare providers HUB International and SHPS, respectively. OneClickHR, the leading European e-hr company, has also restructured internally in an attempt to turn around disappointing earnings. The heightened M&A activity is a sign of maturation within the industry; however, and we believe that the leaders emerging from the wave of consolidations will be in a position to produce sustained growth. Industry Drivers Historically, point solutions have fallen within the domain of HR and IT consulting firms that offer strategic consulting services and/or custom enterprise solutions for a client s particular needs. With the advent of the web, numerous other players, including startups and previously smaller niche firms, have begun to combine HR best practices with sophisticated web technology to create solutions that add significant Robert W. Baird & Co. 90

92 Comprehensive Guide to Human Capital Services benefits and efficiencies at lower cost per employee and are easily scalable between large and small organizations. This has enabled some point solution providers to enter previously under penetrated markets (small to mid-size companies). There are several distinguishing features of point solutions. First, these services are often ready out of the box, which translates into lower start-up costs and quicker implementation. Second, point solutions are often built on the premise of employee self-service where employees have access to manage their own benefits and personal information online. This is appealing to employers because it usually results in the need for less back-office support. Finally, point solutions often have the potential to heighten the level of connectivity and communication between employers and employees. A good example of this is Workscape, which offers a comprehensive employee portal solution that serves as the desktop interface connecting employees to self-service benefits administration, employer news and communications, online payroll administration, and a myriad of other products and services. Economics of Business Similar to web-based HCS vendors, the operations of point solutions firms often exhibit high amounts of leverage. Designing software results in large initial costs; however, once the software is designed it can be deployed repeatedly on-demand with few additional costs (occasional upgrades and repairs). Moreover, once established with a meaningful client base, these firms can leverage their infrastructure to achieve higher margins. In some situations, the point solutions tools have gained enough traction such that they are viewed as industry standards, similar to what ERP providers have done. Market Size and Structure Given that human capital point solutions is a very broadly defined market, estimates of market size vary widely depending on which solutions are included. The revenue of the largest publicly traded player in the space, Skillsoft, is approximately $225 million. However, there are a large number of smaller firms that specialize in specific service/product segments. Furthermore, most of the companies in HCPS are privately held. Competitive Advantages Point solutions derive their competitive advantage primarily by providing best-of-breed solutions. Many of the companies within this category offer unique products that are technologically advanced or make unique use of the technology. Positioning for the Future Point solutions offer best-of-breed services that often are cutting edge and offer a unique value proposition. We believe several companies in this space will emerge as attractive long-term investments, due to the potential for rapid growth, combined with highly scalable business models. However, some of these solutions may need to partner with other major solution providers in order to gain traction in a consolidating HR marketplace. Business Services Human Capital Services 91

93 February 2008 eìã~å=`~éáí~ä=péé~ê~íáçållìíéä~åéãéåí=péêîáåéë= Human Capital Separation is the final portion of the human capital continuum and includes retirement benefits administration and outplacement. Source: Baird Given the overall investment thesis, we are not providing a detailed discussion of this area; however, later we do profile three outplacement firms (Right Management Consultants, Lee Hecht and Harrison, and Drake Beam Morin). Many of the companies providing retirement benefits administration services in this area are HR consultants and outsourcers and have been discussed previously in other parts of the continuum. While retirement benefits administration is included in this portion of the continuum, we recognize that a substantial portion of retirement administration occurs throughout the tenure of the employee. We summarize the services offered in the human capital separation portion of the continuum as follows: Retirement benefits administration involves the administration of 401(k) plans and defined benefit plans. Outplacement services involve consulting on termination pay, benefits, and processes, as well as employee programs for transitioning to post-employment. Robert W. Baird & Co. 92

94 Comprehensive Guide to Human Capital Services Staffing and Work Force Solutions Companies Profiled: Global Staffing Providers Adecco SA The Goodwill Group, Inc. Kelly Services, Inc. Manpower, Inc. Randstad Holdings NV Robert Half International, Inc. Vedior NV Business Services Human Capital Services 93

95 February 2008 Adecco SA (SWX/VIRT-X: ADEN, Euronext: ADE) Founded 1957, Glattbrugg, Switzerland; Staffing & Work Force Solutions Major Business Segments Office; Industrial; Finance & Legal; Engineering & Technical; IT; Medical & Science; Sales Marketing & Events; Human Capital Solutions Adecco SA is the world s largest staffing company (by revenue) with 7,000 branches in more than 60 countries. The company places roughly 700,000 temporary associates at 150,000 clients daily. Adecco is organized into three divisions: Adecco Staffing (88% of revenue) provides temporary staffing and perm placement services to a broad range of businesses and industries, mainly in banking, electronics, retail, pharmaceuticals, manufacturing, and telecom; Aijon Professional (11%), offers more specialized staffing and permanent placements in IT, F&A, legal, engineering, and high-end clerical support; and Lee Hecht Harrison Career Services (1%) aids clients outplacement, restructuring, and talent needs. In 2007, Adecco acquired Tuja Group, a leading provider of staffing services to the automotive, aerospace and metal industries in Germany. In 2006 Adecco completed its acquisition of the majority of DIS Deutscher Industrie Service AG (DIS), a leading provider of professional staffing solutions in Germany. Adecco de-listed its American Depositary Shares (ADS) from the NYSE in June Adecco is one of two staffing companies (the other being Manpower) that can provide staffing services for its clients in almost every area around the globe (Adecco targets a 25%+ market share in all its service regions). The company s size enables it to competitively negotiate national and international contracts. Diversification across geographies and industries reduces cyclical exposure and positions the company to benefit from the increasing adoption of flexible staffing globally, favorable demographic trends, and the increasing importance of countries such as China and India to the global economy. The Goodwill Group, Inc. (TSE: 4723) Founded 1995, Tokyo, Japan; Staffing & Work Force Solutions Major Business Segments Human Resources Services; Nursing and Healthcare Support; Impression The Goodwill Group (GWG) is a provider of staffing and HR outsourcing services. The HR services segment provides temporary staffing and permanent placement services with a focus on light industrial, manufacturing, office and engineering as well as various HR consulting and outsourcing services. In October 2006, GWG acquired American Crystal Holdings, Inc., which changed its name to GW Premier America, Inc. and is now the North American subsidiary of GWG. Through its four operating companies, GW Premier delivers temporary staffing, permanent placement, payroll and project outsourcing solutions to 2,000 customers in the U.S. and Canada, including over half of the Fortune 500 companies. TAC, which comprises GW Premier s core staffing business, provides skilled contract professionals for IT, hardware & software engineering, manufacturing, technology deployment, and contact center environments. GW Premier s Advantage Human Resourcing division is a leading provider of direct-hire and contingent workforce management solutions. The Impressive segment (Food Scope) provides restaurant management, consulting services and food sales. In June 2007, The GWG announced that it was assigning its nursing and healthcare business (COMSN) to an operator outside the group. GWG has articulated a desire to become the largest staffing provider in the world. The acquisition of American Crystal provided GWG with some well-known brands such as TAC Worldwide and Talent Tree. Robert W. Baird & Co. 94

96 Comprehensive Guide to Human Capital Services Kelly Services, Inc. (KELYA, KELYB) Founded 1946, Troy, MI; Staffing & Work Force Solutions Major Business Segments Americas Commercial; Americas Professional, Technical and Staffing Alternatives (PTSA); International Commercial; International PTSA Kelly Services is a provider of temporary staffing services, outsourcing, vendor on-site services and fulltime placement. Kelly has approximately 8,800 employees in 2,600 company-owned offices in 33 countries and provides employment to more than 750,000 employees annually. Kelly s revenue breaks down as follows: 53% in Americas Commercial, 20% in Americas PTSA, 25% in International Commercial and 3% in International PTSA. Kelly s commercial segments offer staffing in many disciplines including office services, education, marketing, electronic assembly and light industrial whereas the PTSA segments focus on automotive, engineering, personnel with security clearance, F&A, healthcare, IT, law and science. Kelly also offers perm placement (KellyDirect), recruitment process outsourcing (Kelly HRfirst), HR consulting, outsourcing (Kelly Management Services), vendor management solutions and outplacement services (The Ayers Group). The international segments also offer assessment services (KellyAssess), recruiting & HR services (Kelly MultiHire) and contact center service (KellyConnect). Kelly recently sold its home care services and staff leasing businesses in an effort to divest non-core assets. Kelly is one of the oldest staffing firms in the US and commands unique brand awareness. Furthermore, the company is expanding rapidly outside of the U.S., having recently established footings in Japan, India, the Czech Republic and Poland. This enlarged network should allow Kelly to better serve its large, global accounts (its client base includes over 90% of the Fortune 500 companies). Manpower, Inc. (MAN) Founded 1948, Milwaukee, WI; Staffing & Work Force Solutions Major Business Segments U.S.; France; Other EMEA; Italy; Jefferson Wells; Right Management; Other Operations Through organic growth and select key acquisitions, Manpower has become the second-largest staffing agency in the world (third largest following the merger of Randstad and Vedior). During 2006, MAN assigned over 4.4 million contract, temporary, and permanent workers with 400,000 employers. With 4,400 offices in 73 countries, the company serves six major geographical markets: U.S, France, Italy, Other EMEA (Europe, Middle East, and Africa excluding France and Italy), the U.K., and Asia-Pacific. The company engages in the full spectrum of the employment cycle, from recruitment and temporary staffing to outplacement. MAN s five brands include: Manpower (light industrial, clerical staffing), Manpower Professional (IT, e-commerce, F&A, engineering, clinical and lab sciences staffing), Elan (IT staffing, managed services), Jefferson Wells (accounting, tech, internal audit, and tax services) and Right Management (career transitioning & consulting). In October 2007, MAN became the first foreign multinational company to receive a license to perform temp staffing in China. MAN is positioned to benefit from: 1) the secular growth of the staffing industry internationally (roughly 87% of MAN s revenue is generated outside of the U.S.) especially in major economies such as Germany, Italy, Spain, and Japan that are in the early stages of adopting staffing, 2) tightening global labor markets, especially in non-u.s. countries that are in earlier stages of their labor market expansions, and 3) increasing margins resulting from an improving business mix due to more focus on perm placement and higher value-added service offerings such as training and assessment and risk consulting. Business Services Human Capital Services 95

97 February 2008 Randstad Holdings NV (Euronext: RAND) Founded 1960, Diemen, the Netherlands; Staffing & Work Force Solutions Major Business Segments Mass-Customized; In-house Services; Interim Professionals; Search & Selection; HR Solutions Randstad is one of the leading staffing firms in the world. Based in the Netherlands, the company generated 36% of its 2006 revenue domestically. Randstad provides services through a network of 2,736 branches in 20 countries in North America, Europe and Asia. Based on revenue, Randstad leads the markets in the Netherlands, Belgium, Germany, Poland and the Southeastern U.S. The Mass- Customized segment (76% of 06 revenue) provides temp staffing and perm placement. Specialty staffing comprises 30% of Mass-Customized revenue. In-house Services (15%) provides on-site HR management including recruitment & selection, training, planning and retention. The Interim Professionals and Search & Selection segments (6%) fill middle and senior management positions on interim and permanent bases in engineering, IT, finance, HR, legal and marketing. HR Solutions (3%) provides HR project management and consulting services ranging from outplacement, payroll and career management for small and medium companies to major HR outsourcing services for large corporations. Randstad has roughly 317,800 staffing employees and 16,670 corporate employees. In November 2007, Randstad announced an agreement to combine with Vedior to create the second-largest staffing company worldwide. Randstad has an efficient branch development program whereby each unit starts with two consultants who grow the unit to maturity with the help of a third consultant. Once the unit matures, a fourth consultant is added and the unit is split in to a start-up unit and a mature unit. Randstad uses this method to quickly expand across different regions. Robert Half International, Inc. (RHI) Founded 1948, Menlo Park, CA; Staffing & Work Force Solutions Major Business Segments Accountemps; RH Finance & Accounting; RH Management Resources; OfficeTeam; RH Technology; Legal; Creative Group; Protiviti Robert Half is a diversified leader in specialized staffing and risk consulting. During 2006, RHI had approximately 13,400 full-time employees working from over 400 global offices (99 in Europe and Asia, and Australia) and placed approximately 242,000 employees on temporary assignments. RHI s flagship division, Accountemps, is the world s largest temporary staffing service targeted exclusively at the placement of accounting and financial professionals. Other staffing segments include Technology, Legal Services, OfficeTeam (office administration and operational personnel), RH Management Resources (key senior-level F&A professionals), and RH Finance & Accounting (the firm s permanent staffing division). In 2002, the firm launched Protiviti, an internal audit and risk management business built by over 700 consultants formerly associated with the risk consulting and internal audit practices at Arthur Andersen, LLP. The division has since grown to generate over 10% of RHI s revenue. For nearly 60 years, RHI has been recognized as a leader in providing superior service and personnel and therefore has exceptionally strong brand recognition. RHI is also well disciplined and generates strong metrics in terms of running its branches efficiently. RHI has historically focused on organic growth and should benefit from international opportunities as its foreign offices (>20% of revenue) have been growing rapidly. RHI is also well positioned to service small and medium-sized businesses which are generally at the early stages of adopting temporary staffing and tend to be less price-sensitive. Robert W. Baird & Co. 96

98 Comprehensive Guide to Human Capital Services Vedior NV (Euronext: VDOR) Founded 1973, Amsterdam, the Netherlands; Staffing & Work Force Solutions Major Business Segments Temp & Perm Staffing; Project-Based Outsourcing; Recruitment & Selection; Workforce Management; Payroll; International Contracts Vedior is one of the world s largest providers of temporary and permanent recruitment as well as a number of complementary employment-related services such as outplacement, vendor management, HR outsourcing, e-recruitment, payroll and training. The company operates through 2,486 branches in 50 countries including Europe, North America, Australasia, Africa, South America and Asia. Most of Vedior s placements are made in administrative/clerical positions (65% of 06 revenue), but other segments such as IT (10%), healthcare (6%), engineering (6%) and accounting (5%) are gaining momentum. Geographically, Vedior is concentrated in Europe, with France (41%), the U.K. (13%) and the Netherlands (8%) being the top revenue drivers. The U.S. currently only accounts for 9% of the company s revenue. In November 2007, Randstad announced an agreement to combine with Vedior to create the second-largest staffing company worldwide. Despite a steady flow of M&A activity, Vedior has retained the original firms brands, which allows the firm to reach more customers. Moreover, many members of Vedior s management team have equity in their local brands, which should encourage more entrepreneurship among them. The breadth of Vedior s services and geographic coverage makes it an attractive partner for a diverse range of employers offering them a wide range of recruitment services to enhance their flexibility, productivity and quality. Vedior believes that its multi-branded and decentralized structure enables it to better service the needs of clients with varied recruitment requirements recognizing the various cultural and legislative differences between markets. Business Services Human Capital Services 97

99 February 2008 Staffing and Work Force Solutions Companies Profiled: Major Staffing Providers Allegis Group, Inc. Aquent CBS Personnel Holdings, Inc. CDI Corporation COMFORCE Corporation Comsys IT Partners, Inc. CORESTAFF Services EmployBridge Global Employment Holdings, Inc. Hudson Highland Group, Inc. Kforce, Inc. MPS Group, Inc. Nelson Family of Companies RCM Technologies, Inc. Resources Connection, Inc. The Select Family of Staffing Companies Spherion Corporation Staffmark Technisource, Inc. TrueBlue, Inc. Veritude Volt Information Sciences, Inc. Westaff, Inc. The Day and Zimmerman Group, Inc. (Yoh) Robert W. Baird & Co. 98

100 Comprehensive Guide to Human Capital Services Allegis Group, Inc. (Private) Founded 1983, Hanover, MD; Staffing & Work Force Solutions Major Business Segments Aerotek; TEKsystems; Allegis Group Services; Stephen James Associates; MarketSource; Thingamajob.com Allegis Group is the largest private staffing agency in the world with over 220 offices in North America and Europe. The company s operating units include: Aerotek, TEKsystems, Allegis Group Services, Stephen James Associates and MarketSource. Aerotek is a leading provider of technical, professional and industrial recruiting and staffing in the U.S. and has a client list that includes 95% of the Fortune 500. TEKsystems provides staffing and workforce management services to the Communications, Financial Services, Government, and IT industries. Allegis Group Services provides solutions ranging from Workforce Management Solutions (WMS) and Business Process Outsourcing (BPO), to web-based recruiting and outplacement services. Stephen James Associates provides contingent search services to place accredited F&A professionals in banking, accounting, financial reporting and planning positions. Complementing Allegis staffing expertise is MarketSource, which implements sales programs for Business-to-Business, Business-to-Customer, and Direct channels. Finally, Allegis is also the parent of the online recruitment site Thingamajob.com which acts as an internal sourcing portal for the company s candidates. In total, Allegis Group has approximately 5,200 internal and 70,000 contract employees. Aerotek is a leading provider of engineering and technical staffing services to the automotive industry, and has won Supplier of the Year awards from both GM and Ford. The company is led by an experienced management team that is essentially unchanged since Aquent (Private) Founded 1985, Boston, MA; Staffing & Work Force Solutions Major Business Segments Creative Staffing; Marketing Staffing; Marketing IT Services; Healthcare Consulting; Financial Services Aquent is one of the world s largest marketing staffing companies. Aquent maintains a network of 400,000 marketing professionals with experience in brand management & planning, graphic design, print production, advertising & communication, interactive marketing & design, content development, data analytics & research, and business support. Aquent offers marketing organizations a wide range of services including consulting, studio solutions, project management, and translation/localization. In the U.S., Aquent s extended network of businesses includes IT staffing and solutions, security-cleared personnel, healthcare consulting, and financial services. Aquent Financial Services is a non-hr unit that provides debt-free financing and credit/collection services to small businesses (Aquent FastCash). Aquent has 70 offices in 17 countries with over 11,000 professionals working at more than 3,000 companies. Approximately two-thirds of the Fortune 500 and 90% of the Fortune 100 are Aquent clients. Instead of relying on simulated standardized tests like many staffing firms, the company has developed its own real-world skill assessments based on actual client projects, which greatly increases the accuracy of placements. Aquent s tests measure proficiency in applications like QuarkXPress, Adobe Illustrator, and HTML coding. On the sales side, Aquent was the earliest (and as far as we know, the only) staffing agency that offers customers 110% money back guarantee. Business Services Human Capital Services 99

101 February 2008 CBS Personnel Holdings, Inc. (Private) Founded 1972, Cincinnati, OH; Staffing & Work Force Solutions Business Segments Temporary Staffing; Permanent Placement CBS Personnel Holdings, Inc. (CBS) is a multi-regional provider of temporary staffing, permanent placement and executive search services in the U.S. The company currently has 30 offices in 16 states, primarily in the eastern half of the US as well as in TX, CA, and WA. CBS has over 800 professional staff members and places upwards of 22,000 temporary associates each week. CBS operates under the brand names of CBS Personnel Services, Venturi Staffing Partners, and Columbia Staffing and Health Care Services. CBS primarily serves the industrial, engineering, IT, healthcare, legal, accounting, administrative, clerical, financial, technical and transportation verticals. The company has implemented its Expert Program which is designed to target and recruit mature candidates who would like to reenter the business community. Focusing on this demographic section has increased the number of talented and qualified associates available to CBS clients. In December 2007, CBS announced an agreement to acquire Staffmark, a provider of light industrial, administrative and transportation staffing, and management solutions. CBS markets itself against national competitors as having greater understanding of its markets, greater longevity of service in its markets, and superior customer service capabilities. CBS On-Site Performance Management (OSPM) program offers clients an enhanced level of service by keeping a manager or a team on site at all times. CDI Corporation (CDI) Founded 1950, Philadelphia, PA; Staffing & Work Force Solutions Major Business Segments Business Solutions; AndersElite (temp/perm staffing in construction); Todays Staffing (temp/perm staffing in office, legal, and financial areas); Management Recruiters International (executive search and recruitment) CDI is a single-source provider of high-value engineering, IT and professional staffing solutions to Fortune 1000 companies. CDI has more than 50 years of experience in the industry and generates annual revenues in excess of $1 billion. Through its CDI Business Solutions group, CDI offers tailored business solutions to the following markets: aerospace, government services, IT services, IT outsourcing, life sciences and process & industrial. CDI also offers specialized business solutions through its subsidiaries. CDI AndersElite Limited is a professional staffing firm focusing on the construction and engineering markets in the United Kingdom. Management Recruiters International, Inc. (MRI) is one of the world s largest executive search and recruitment organizations with 1,100 MRINetwork offices in over 35 countries. Todays Staffing, Inc., which was sold to Spherion in October 2007, provides temporary and perm placement services for the administrative, legal and financial staffing markets. CDI and its operating units place over 40,000 executive, technical, professional, managerial, and administrative people in permanent and temporary positions each year. In its relatively long history, the company has forged a reputation for delivering well-qualified personnel and engineering expertise in solving clients technical needs. As a result, CDI has formed strong relationships with a wide range of Fortune 1000 customers in the aerospace, process & industrial, IT and life sciences sectors as well as the U.S. Government. Robert W. Baird & Co. 100

102 Comprehensive Guide to Human Capital Services COMFORCE Corporation (CFS) Founded 1954, Woodbury, NY; Staffing & Work Force Solutions Business Segments Human Capital Management Services; Staff Augmentation; Financial Outsourcing Services CFS is a provider of staffing, vendor management and payroll solutions. The Human Capital Management Services segment (59% of 2006 revenue), through its PrO Unlimited subsidiary, provides outsourced staffing management services that enable employers to consolidate, automate and manage the staffing, compliance and oversight processes for their contingent workforces. PrO s services include the selection, procurement, management and tracking of the contingent workforce through its webenabled proprietary software system. PrO also offers payroll services and compliance advisory services. The Staffing Augmentation Segment (40% of revenue) provides staffing, consulting and vendor management services (RightSourcing) in the following areas: healthcare, IT, technical, engineering, governmental and telecom. The Financial Outsourcing segment (1% of revenue, 7.5% of operating income) supplies funds and back-office support services to other staffing companies. CFS operates roughly 37 branch offices and places over 20,000 temporary employees on assignment annually. KEY DRIVER AND COMPETITIVE ADVANTAGES The trend of companies utilizing more temporary help to manage costs should result in stronger demand for PrO s services. In addition, through more than 50 years of operation, CFS has built an extensive network of contract employees. Comsys IT Partners, Inc. (CITP) Founded 1972, Houston, TX; Staffing & Work Force Solutions Major Business Segments Staffing; Project Services; Project Partners; Vendor Management; Network Solutions; Government Services Comsys IT Partners is a leading IT staffing provider (fifth-largest U.S. IT staffing company based on 2006 revenue). The company provides a range of short- and long-term IT staffing services on-site across the entire IT infrastructure, including project management, application programming and development, business analysis, quality assurance and testing, network infrastructure and business intelligence. The company also offers business services that add to its IT competency, including project solutions, vendor management, and permanent placement. In 2004, Comsys greatly expanded its size by combining with Venturi Technology Partners, a similarly sized IT staffing firm. Comsys serves over 800 commercial and government clients (30% of Fortune 500 and 68% of Fortune 50 are CITP clients). Comsys employs roughly 5,000 consultants on assignments each year across 44 offices in the U.S. and the U.K. In May 2007, Comsys entered into the broader professional staffing market by acquiring PlumRHINO Consulting, a provider of high-level specialty finance and accounting professionals to the financial services industry. More recently Comsys acquired several small IT staffing, RPO, and HR consulting services. As one of the largest providers of IT staffing, Comsys is benefiting from the secular trend of larger corporate clients consolidating their vendor lists with larger providers. In addition, after spending 2005 integrating its operations and reducing its expense base, CITP has been leveraging its efforts to drive margin expansion. Business Services Human Capital Services 101

103 February 2008 CORESTAFF Services (Private) Founded 1993, Houston, TX; Vendor Management Systems (VMS) Major Business Segments TeleSec CORESTAFF; Leafstone Staffing; Technology Group; CareerTrust; InfoCurrent; AccountCORE A subsidiary of British staffing agency The Corporate Services Group, PLC, CORESTAFF is a leading provider of temp, temp-to-hire, contract, and direct hire staffing services in the U.S. The firm employs a multi-brand strategy that includes TeleSec CORESTAFF (specializing in librarian placement in the mid- Atlantic region), Leafstone Staffing Services (specializing in banking and financial staffing in the New York City metropolitan area), Technology Group (IT staffing); CareerTrust (general staffing), and InfoCurrent (library and records management). CORESTAFF manages contingent staffing through COREtrack, a Windows-based tool that streamlines tracking, reporting and billing. The company also equips employers with other HR management tools such as Staff Advisor (end-to-end workforce management) and Time Advisor (time/attendance). CORESTAFF was formed from the combination of 12 staffing companies. As a result, the company has the ability to choose from its proprietary list of staffing units in order to best meet the needs of its clients. EmployBridge, Inc. (Private) Founded 1997, Atlanta, GA; Staffing & Work Force Solutions Major Business Segments ResourceMFG; ProLogistix; ProDrivers; Medical Solutions; Resource Accounting; Personnel One; EBS Group EmployBridge is a national provider of branded, industry-specific staffing and workforce solutions. The company, originally formed as Staffing Resources Inc., was created from the combination of several staffing organizations during the mid-to-late 90s. The company currently operates in 143 locations throughout the U.S. For over 30 years, EmployBridge s specialty companies provided temporary and contract staffing services within the following verticals: manufacturing (ResourceMFG), logistics (ProLogistix), transportation (ProDrivers), medical (Medical Solutions), accounting (Resource Accounting) and administrative (Personnel One). The company s EBS Group focuses on professional and executive search within education, logistics, manufacturing, engineering, banking and IT. EmployBridge operates its different divisions as separate business units focused on dedicated specialties in order to deliver a superior level of service to its candidates and clients. Robert W. Baird & Co. 102

104 Comprehensive Guide to Human Capital Services Global Employment Holdings, Inc. (OTC BB: GEYH) Founded 1974, Lone Tree, CO; Staffing & Work Force Solutions Major Business Segments Staffing Services; PEO Services On March 31, 2006, Global Employment Holdings acquired the outstanding shares of Global Employment Solutions, Inc., a Colorado corporation. Global Employment Solutions (Global) was founded in 1998 with the merger of several staffing firms in major metropolitan areas. The operations of the five founding companies date back as far as The firm has grown to 35 offices throughout North America and has approximately 4,460 internal employees. Through its staffing segment, Global provides temporary staffing and permanent placement services with a focus on accounting & finance, clerical, financial services, healthcare, light industrial, IT, legal and engineering. The company also operates a PEO service which had approximately 15,250 worksite employees as of March 15, Effective February 15, 2007, Global expanded its staffing operations in the Northeast with its acquisition of Career Blazers for approximately $10.25 million. Global markets itself against competitors as having greater understanding of its markets due to over 30 years of experience as well having superior customer service capabilities. Global has a unique screening process that includes a pre-application, medical questionnaire, drug screen, client-specific tests and a job trial where candidates actually try out the job for half a day. Hudson Highland Group, Inc. (HHGP) Founded 2003, New York, NY; Staffing & Work Force Solutions Major Business Segments Hudson Americas; Hudson Europe; Hudson Asia Pacific Hudson is one of the world s largest specialized professional staffing and talent management solutions providers. Hudson was created through the combination of 54 acquisitions between 1999 and 2001, which became the eresourcing division of Monster Worldwide, before being spun off in Hudson provides mid-to senior-level professional personnel on a temporary or contract basis as well as mid-level ($50-150k annual compensation) search in finance & accounting, IT, legal, engineering, and healthcare. Hudson also provides organizational effectiveness and development services which encompass candidate assessment, competency modeling, leadership development, performance management, and career transition. The company operates in North America (mainly the US), Europe (mainly the UK), and Asia Pacific (mainly Australia and New Zealand). Hudson employs approximately 3,600 employees who serve 8,850 clients through 104 offices in 22 countries. Hudson sold Highland Partners, its executive search business, to Heidrick & Struggles in October More recently, Hudson sold its Trade and Industrial business in Australia and sold its Dutch Reintegration business. Hudson s operations are well diversified between North America, Europe, and Asia-Pac with each representing roughly 1/3 of total revenue. Tight labor markets for professionals should provide a boost for the company as it is heavily focused on high-margin perm placement. The company also has a leading position in Australia, which is experiencing a record economic expansion. Hudson recently completed its restructuring initiative, shed its low-margin business and divested non-core businesses which should improve profitability. Business Services Human Capital Services 103

105 February 2008 Kforce, Inc. (KFRC) Founded 1962 (Inc. 1995), Tampa, FL; Staffing & Work Force Solutions Major Business Segments Technology, Finance and Accounting, Health and Life Sciences and Government Staffing Kforce is a leading specialty staffing firm offering contract (under Flexible Staffing Services) and permanent (Search Services) staffing solutions. In 2006, Flex accounted for 92% of revenues while Search brought in the remainder. The functional breakdown of the revenue is 50% IT (in 2007E), 23% F&A, 22% Health & Life Sciences and 6% Government. Kforce has roughly 2,160 employees and 10,300 consultants in 68 offices in the U.S which serve approximately 3,000 clients. In addition to its staffing resources, Kforce also offers innovative resume reviews, job postings, interactive interviews and job placements, and career management strategies. Kforce acquired Pinkerton Computer Consultants, Inc. in January 2006 which expanded its presence in technology staffing in both the Federal government and commercial sectors. In October 2006, Kforce acquired Bradson which has been a contractor of F&A professional services to the Federal Government for over 20 years and served as the platform for Kforce Government Solutions. Kforce s focus on professional staffing is an advantage as we consider the professional segments of staffing to possess the highest growth potential over the long term, while its diversification between different aspects of professional staffing positions the company well in the event of cyclical downturns. The Pinkerton and Bradson acquisitions have provided Kforce with exposure to government staffing which has a high growth potential and lower cyclicality relative to private sector staffing. MPS Group, Inc. (MPS) Founded 1992 (Inc. 1994) Jacksonville, FL; Staffing & Work Force Solutions Major Business Segments North American IT Services; European IT Services; North American Professional Services; European Professional Services MPS Group is an international provider of professional staffing, consulting, and business solutions. The Professional Services divisions focus on staffing professionals with specialties including: accounting and finance (Accounting Principals, Badenoch & Clark), legal (Special Counsel), engineering (Entegee), and healthcare (Soliant Health). The Beeline division (which recently acquired the assets of Chimes) provides workforce solutions to help companies manage recruitment, development, and retention of talent. MPS IT Services divisions provide IT staffing as well as IT solutions and integration in Europe and North America through its Modis and Idea Integration brands. MPS employs 2,800 full-time employees and 17,300 consultants and temporary employees in over 200 offices in the U.S., Canada, the U.K., and continental Europe, ranking it among the largest specialty staffing companies in the world. Geographically and operationally diversified, MPS stands to gain profitably from favorable long-term industry trends in professional staffing. Likewise, MPS should also benefit from its name recognition as many of its brands like Modis, Beeline, and Special Counsel are well known in their various industries. Going forward, MPS margins should benefit from further expense leverage, the reduction of low-margin business and growth of high-margin perm revenue. Over the past several years, management has strengthened the balance sheet and consistently delivered on expectations. Robert W. Baird & Co. 104

106 Comprehensive Guide to Human Capital Services Nelson Family of Companies (Private) Founded 1970, Sonoma, CA; Staffing & Work Force Solutions Major Business Segments Nelson & Associates; Nelson Technology; Nelson Staffing; NelsonJobs.com; WorkforceLogic; HRhome The Nelson Family of Companies is the largest independently held provider of staffing services and workforce management solutions in Northern California and was rated one of the fastest growing staffing companies in the U.S. according to Staffing Industry Analysts. The company generated record revenues of $377 million in Nelson Staffing provides temporary staffing and search services with a focus on: administrative, HR, marketing, accounting, light industrial, healthcare, legal, winery operations, and game software testing. Nelson & Associates and Nelson Technology provide staffing and search services targeting the finance & accounting and technology industries. NelsonJobs.com is the company s job board for Northern California. WorkforceLogic provides software and services focused on risk mitigation, talent acquisition management, and contingent workforce planning. HRhome is an online resource for HR professionals. The company attributes much of its growth over the past few years to the success of its dual strategy to provide market leading staffing services in Northern California while simultaneously developing global workforce management software and services for companies with large contingent workforces. Nelson s staffing business units grew 10% in 2006 while WorkforceLogic grew by 40% over the previous year. WorkforceLogic continues to extend its range of offerings, including supplier management services as well as expanding its global offering to the European Union in RCM Technologies, Inc. (RCMT) Founded 1971, Pennsauken, NJ; Staffing & Work Force Solutions Major Business Segments IT; Engineering; Commercial RCM is a provider of solutions designed to enhance the operations of its customers through the adaptation and deployment of advanced IT and engineering services. The Company's IT segment provides e commerce, enterprise management, application lifecycle management, regulatory compliance solutions and vertical market specific offerings. The Engineering segment provides engineering design, technical support, and project management and implementation services. The Commercial Services segment provides healthcare, clerical and light industrial personnel on a contract or temporary basis. During 2006, 50.2% of revenues were from IT, 28.5% from Engineering, and 21.3% from Commercial. RCM serves clients in the financial services, aerospace, healthcare, pharmaceutical, utility, technology, manufacturing, distribution, and government sectors. RCM has 37 offices throughout North America. RCM s growth strategy entails promoting a full life cycle solution capability with the goal of fully addressing a client's project from conceptualization through design, execution and maintenance. RCM continues to selectively assess opportunities to make strategic acquisitions to broaden the scope of services and technical competencies. Business Services Human Capital Services 105

107 February 2008 Resources Connection, Inc (RECN) Founded 1996, Costa Mesa, CA; Staffing & Work Force Solutions Major Business Segments Professional Staffing Resources Connection is an international professional services firm. Operating under the name Resources Global Professionals, the company provides experienced finance and accounting, risk management and internal audit, information technology, human resources, supply chain management and legal professionals to clients on a project basis. The company became independent in 1999 when it separated from Deloitte & Touche, LLP. Working from 88 offices worldwide, RECN s staff of over 3,300 billable associates provides service to more than 2,100 clients including more than 75 of the Fortune 100 and half of the Fortune Global 100. Core business segments include F&A, which accounts for over half of total revenue and Resources Audit Solutions (RAS) which accounts for approximately 20%. RECN is unique in that it combines the efficiency and cost structure of a staffing company with the talent of a higher-end professional services firm. RECN provides seasoned, highly qualified professionals but at a discount relative to consulting firms and the Big Four. Based upon a 2005 internal survey, approximately 47% of RECN associates were CPAs, 43% had advanced professional degrees, and the average years of professional experience was approximately 23. RECN should continue to benefit from tight labor markets for skilled professionals, strong market demand for high-end F&A professionals as well as international expansion opportunities. RECN s reputation for value-added service has propelled the company to the forefront in such areas. The Select Family of Staffing Companies (Private) Founded 1985, Santa Barbara, CA; Staffing & Work Force Solutions Major Business Segments Staffing Solutions Select was formed in 2006 through the acquisition of RemedyTemp, Inc. by Select Personnel Services. Select offers workforce management services, including recruiting, screening, payroll, time & attendance management, on-site supervision, safety programs, and specialty staffing solutions to a variety of client companies, including manufacturing, industrial, clerical, administrative, accounting, finance, IT, and professional services. In May 2007, RemX acquired Princeton Staffing Group, a New Jersey-based staffing company focused on F&A and admin professionals. In June 2007, RemX Financial acquired Fortress Staffing Group, a Denver staffing company focused on F&A and technical professionals. In June 2007, Select acquired Ablest Inc. (AIH), a provider of clerical, industrial, and IT staffing, managed services, and vendor-on-premise programs. In October 2007, Select Staffing acquired Tandem Staffing Solutions, which specializes in temp staffing and direct placement for light industrial, logistics, and manufacturing positions. The combined entity will have annual sales of nearly $1.5 billion and will serve more than 10,000 customers in 35 states from 300 offices. The company operates under the Select StaffingSM (includes Ablest and Tandem), Select Staffing, Remedy Intelligent Staffing, RemX Financial Staffing, RemX IT Staffing, RemX OfficeStaff, and other national brands. Select utilizes RemX Verify, its exclusive, web-based assessment tool, to attempt to ensure that only appropriate candidates are sent to clients. RemX Verify offers over 650 assessments to determine the specific knowledge, software proficiency, business skills and financial analytical ability of its staff. Robert W. Baird & Co. 106

108 Comprehensive Guide to Human Capital Services Spherion Corporation (SFN) Founded 1946, Fort Lauderdale, FL; Staffing & Work Force Solutions Major Business Segments Staffing Services (Temp, Managed, and Perm Placement); Professional Services (Temp and Perm Placement) Spherion provides temporary staffing, managed services and perm placement services through 660 locations in the U.S. and Canada (not including locations from recent acquisitions). As of December 31, 2006, SFN had 486 company-owned offices, 93 licensed locations and 81 franchised locations. During 2006, SFN employed approximately 273,000 people. Spherion s temp staffing (86% of revenue) and perm placement (4% of revenue) services focus on placing personnel in the following skill categories: clerical, light industrial, IT, F&A, legal, engineering, sales and marketing, HR and administrative. In 2006, 75% of revenue came from clerical and light industrial and 25% came from professional. Managed services (10% of revenue) involve SFN managing certain aspects of a customer function such as recruiting, admin services, and data center or network operations. SFN also provides integrated solutions, workforce management solutions, and human resource consulting. SFN operates one of the leading recruitment process outsourcing units in the U.S. In October 2007, SFN acquired Todays Staffing which has over 60 locations in the U.S. and Canada and provides temp, temp to perm and perm clerical, administrative, legal and financial staffing. In December 2007, SFN acquired Technisource which provides IT and engineering temp staffing and managed services. In 2004 and 2005, SFN streamlined its operations, selling its international operations, job board, court reporting and executive search businesses to focus on North American staffing and recruiting. SFN should benefit from focusing on higher-margin professional services and small to mid-sized clients. Staffmark (Private) Founded 1996, Little Rock, AR; Staffing & Work Force Solutions Major Business Segments Staffmark; Staffmark Transportation; Staffmark Executive Search Staffmark, which was founded in 1996 by the merger of six regional staffing firms, has grown to become one of the nation's leading staffing companies, with over 250 offices around the country. The company provides temporary staffing, on-site managed services and perm placement services with a focus on light industrial, administrative, call center, logistics, distribution, electronics, automotive, accounting & finance, IT and hospitality. The Staffmark Transportation segment focuses solely on providing qualified Class A, B, and C professional drivers to its customers on both a temp and permanent basis. The Staffmark Executive Search segment specializes in permanent placements in accounting & finance, administrative, banking, HR, IT, biotech, pharmaceutical, legal, logistics, construction management, manufacturing, engineering and medical. In December 2007, it was announced that Staffmark would be acquired by CBS Personnel Holdings. Staffmark has a strong commitment to customer service, quality and continuous improvement. The company s quality management program is currently certified to the ISO 9001:2000 standard, and all of its processes and procedures are audited twice a year by an independent, third-party audit firm, to ensure compliance across all offices. Staffmark also assesses all branch and on-site offices annually to ensure compliance with its quality program. The benefit of ISO certification to its customers is a higher standard of operation across all offices and an ongoing commitment to continuous improvement. Business Services Human Capital Services 107

109 February 2008 Technisource, Inc. (SFN) Founded 1996, Little Rock, AR; Staffing & Work Force Solutions Major Business Segments Consulting & Recruiting; Solutions & Outsourcing Technisource provides IT and engineering services in more than 30 markets across the United States. The Consulting & Recruiting segment provides technical consulting as well as contract staffing and perm placement services for IT professionals at virtually every experience level and technical position. The company s Solutions & Outsourcing segment specializes in IT assessments & outsourcing, application development & support, project management, quality assurance & testing, embedded software engineering, network integration, deployment and helpdesk services. The company s customer base of Fortune 500 and middle-market companies represents a wide variety of industries including: insurance, banking and finance, telecommunications, health care, manufacturing, retail and government. Technisource was acquired by Spherion Corporation in November Technisource believes that its recruiting and screening process, which includes in-person interviews, reference and background checks, drug screening, soft skills assessments and technical proficiency testing, is one of the most comprehensive in the industry and allows it to source higher-quality professionals. TrueBlue, Inc. (TBI) Founded 1989, Tacoma, WA; Staffing & Work Force Solutions Major Business Segments Day Labor (Labor Ready); Light Industrial Staffing (Spartan Staffing); Construction Staffing (CLP Resources) TrueBlue (formerly Labor Ready) is the largest provider of day labor temporary staffing in the U.S., operating 919 offices worldwide. Through its Labor Ready brand, the company provides temps in functions such as lifting, hauling, cleaning, assembling, digging, and painting, to small and medium-sized businesses in the US, Canada, and the UK. TBI also operates light industrial (Spartan) and construction (CLP) staffing businesses. During 2006, the construction and landscape staffing businesses comprised 36% of the company s revenues, followed by manufacturing and hospitality (18% each). In general, the hourly wages for construction services are higher than other forms of day labor ($12-18 vs. $7-9). In 2006, TrueBlue serviced over 300,000 clients, at average revenues of roughly $4,500 annually. In April 2007, TBI expanded its construction staffing business by acquiring Skilled Services Corporation. In December 2007, TBI diversified its operations within skilled trade services by acquiring PlaneTechs, a provider of aircraft maintenance staffing. TrueBlue is by far the leading provider of on-demand blue collar staffing services. Although most of the placements are made within a day s notice, the company connected nearly 600,000 temporary employees with clients in TBI estimates that it controls 20% of the day labor market, whereas its top five competitors control only 10% combined. TBI also has a very cost-effective model, as each Labor Ready branch is generally staffed with two full-time employees: the branch manager and a customer service rep. There is also minimum training, and the firm receives a reasonable markup for each temp s billable rate. Robert W. Baird & Co. 108

110 Comprehensive Guide to Human Capital Services Veritude (Private) Founded 1986, Boston, MA; Staffing & Work Force Solutions Major Business Segments Staffing; Recruitment Process Outsourcing (RPO); Managed Services; Consulting Veritude, a Fidelity Investments company, began in 1986 as the internal staffing provider for Fidelity Investments but then commercialized the business in Veritude offers a full suite of services including, Recruitment Process Outsourcing (RPO), staffing, managed services and consulting. The staffing division offers temporary staffing, temporary to permanent, direct hire and executive placement. The company focuses on staffing candidates with specific skills in IT, call center, professional, clerical, manufacturing, light industrial, engineering and clinical/scientific. Veritude services all industries but specializes in financial services, healthcare, insurance, life sciences, technology and manufacturing. Veritude generated total revenue of $450 million in The company employs approximately 266 fulltime and 6,538 contingent staff through seven offices in the US and one in Canada. Veritude focuses on providing outstanding customer service through its collaborative, hands-on approach. The company also performs rigorous evaluations and comprehensive background checks on candidates to ensure that only the most qualified candidates are recommended. Volt Information Sciences, Inc. (VOL) Founded 1950, New York, NY; Staffing & Work Force Solutions Major Business Segments Staffing Services; Telecommunications and Information Solutions Volt Information Sciences, Inc. provides staffing services and telecommunications and information solutions to over 10,000 client companies worldwide (including 50% of the Fortune 500). Volt s Staffing Services segment (84% of 2006 revenue) provides staffing, IT and e-procurement solutions to customers throughout North America and Europe and has commenced operations in Asia. Volt s staffing services include managed staffing (VoltSource), temporary/contract personnel employment, direct hire placement and workforce solutions. Volt fills approximately 40,000 job openings per week with individuals who possess skills in F&A, administrative/clerical, call center, engineering, HR, IT, light industrial, technical and professional. Volt also provides recruitment process outsourcing through its Momentum group. Volt s IT solutions include consulting, outsourcing and turnkey project management in the product development lifecycle, IT and customer contact markets. Volt s e-procurement solutions (ProcureStaff) provide global vendor-neutral human capital acquisition and management solutions by combining web-based tools and business process outsourcing services. The company maintains a network of over 300 offices. Volt s strategic positioning comes from the wealth of information it has collected over the years. Not surprisingly, the one million candidates in its database attract a strong following among corporations looking for well-qualified candidates. Business Services Human Capital Services 109

111 February 2008 Westaff, Inc. (WSTF) Founded 1948 (Inc. 1954), Walnut Creek, CA; Staffing & Work Force Solutions Major Business Segments Domestic Business Services; United Kingdom; Australia; New Zealand Westaff provides staffing services primarily in suburban and rural markets ( secondary markets ), as well as in the downtown areas of certain major urban centers ( primary markets ) in the United States, the United Kingdom, Australia and New Zealand. The company services small and medium-sized companies as well as divisions of Fortune 500 companies and local, state and Federal Government agencies. As of the end of its 2006 fiscal year, WSTF operated through 239 offices, 75% of which were company owned and 25% were franchised or licensed. WSTF services include temporary staffing, perm placement, onlocation managed staffing, payroll services and e-procurement. Westaff employs more than 175,000 flexible, part-time and full-time staffing associates annually, with skills ranging from administration, accounting, and call centers, to light industrial and light technical. Westaff utilizes a number of proprietary tools focused on screening potential candidates for skills and behavior (Talent Trak) and on tracking performance measurements of its temporary employees (Time Trak). These integrative technologies allow the customer to select and maintain a superior workforce. WSTF should also benefit from its continued focus on increasing permanent placement services. Yoh (Private) Founded 1940, Philadelphia, PA; Staffing & Work Force Solutions Major Business Segments Talent Services (Staffing, Direct Hire, 1099 Managed Services); Outsourcing Services (Yoh HR Solutions (RPO), Managed Staffing, Yoh Exchange, Help Desk Solutions) Yoh, a Day & Zimmermann company, is one of the largest providers of talent and outsourcing services to customers in the United States. Yoh operates from more than 75 locations and generates over $380 million in total sales (including talent and outsourced services). Yoh s Talent Services unit provides temporary and contract staffing as well as permanent placement of technology and professional personnel for the IT, scientific, clinical, engineering, health care and telecommunications communities. Yoh s 1099 management services help clients avoid the administrative burden of hiring, managing and paying 1099 independent contractors. The 1099 services include handling all paperwork, navigating through complex IRS and state tax laws, as well as assuming the employer relationship for independent contractors. Yoh s Talent Services unit utilizes ReferencePoint, Yoh s proprietary skills assessment and qualifying service, to ensure that all candidates have the proper skills and experience and have been thoroughly screened in a consistent manner. Yoh also guarantees that if a client is dissatisfied with a contractor in the first five days of an assignment, Yoh will replace the individual and only ask the client to pay what they believe is warranted. Robert W. Baird & Co. 110

112 Comprehensive Guide to Human Capital Services Staffing and Work Force Solutions Companies Profiled: Healthcare Staffing Providers Allied Healthcare International, Inc. AMN Healthcare Services, Inc. CHG Healthcare Services Cross Country Healthcare, Inc. Medical Staffing Network Holdings, Inc. On Assignment, Inc. U.S. Nursing Corporation Business Services Human Capital Services 111

113 February 2008 Allied Healthcare International, Inc. (AHCI) Founded 1981, New York, NY; Staffing & Work Force Solutions Business Segments Staffing (Allied Healthcare Group, Allied Staffing Professionals, Nightingale Nursing); Respiratory Therapy (Allied Respiratory, Medigas) AHCI is a leading provider of temporary healthcare staffing to the U.K. healthcare industry with a network of approximately 100 branches as of September 30, The staffing segment, which comprised 95% of fiscal 2006 revenue, focuses on placing nurses, nurses aides and home health aides on a per diem basis in hospitals, nursing homes, care homes (which provide assisted living without medical services) and homes. The company maintains a pool of over 22,000 nurses, nurses aides and home health aides and generally places about 7,000 individuals per week with customers. The respiratory therapy ( oxygen ) segment, which comprised 5% of revenue, supplies medical-grade oxygen, oxygen concentrators and unified oxygen services to the U.K. and Ireland. In October 2007, AHCI announced the sale of its respiratory therapy group to Air Liquide Group (Paris: AI) for approximately $74.7 million in cash. The close relationship between AHCI and NHS gives the company a strategic lead in the large U.K. Healthcare staffing market. There has also been a trend towards industry consolidation (over 2,100 small healthcare staffers in UK) since the passage of the National Framework Agreement, which should benefit larger players such as AHCI. AMN Healthcare Services, Inc. (AHS) Founded 1997, San Diego, CA; Staffing & Work Force Solutions Business Segments Nurse and Allied Healthcare Staffing; Locum Tenens Staffing; Physician Permanent Placement AMN Healthcare is the largest temporary healthcare staffing company in the U.S. (by revenue) and is a leader in travel nurse staffing, locum tenens and physician perm placement services. AHS serves two major customer bases: healthcare professionals and hospital and healthcare facilities. To market itself, the company uses an 11-brand strategy that includes names such as American Mobile Healthcare and RN Demand. In addition, AMN Healthcare has a presence in all 50 states, which enables the company to attract a larger number of healthcare staff. As of the end of 2006, the company had temporary healthcare professionals on assignment at over 2,000 facilities. During recent quarters, the company has had an average of over 7,000 nurses and allied healthcare professionals out on assignment. In May 2007, the company acquired Rx Pro Health, Inc. and Pharmacy Choice, Inc. ("Rx Pro Health") which are providers of pharmacy staffing, workforce technology solutions, and online educational services for hospital-based and retail pharmacies and pharmaceutical companies. Industry-wide revenue drivers include: 1) an aging U.S. population and medical technology advances which result in longer life expectancy are likely to increase the demand for medical services, 2) the ability of temporary staffing to cut nurses costs to hospitals, 3) a pronounced shortage of physicians and nurses, which is expected to increase significantly in the future, could lead hospitals to use temporary staffing to fill open positions. Robert W. Baird & Co. 112

114 Comprehensive Guide to Human Capital Services CHG Healthcare Services (Private) Founded Inc. 1979, Salt Lake City, UT; Staffing & Work Force Solutions Business Segments Locum Tenens; Allied Health Professional/Nursing Temporary Staffing; Permanent Placement; Credential Verification CHG Healthcare Services is one of the largest providers of healthcare staffing in the United States. The company provides both temporary and permanent placement of physicians, allied health professionals and nurses to hospitals and healthcare organizations in all 50 states. The six principal operating units are: CompHealth, Weatherby Locums, Destination Healthcare Staffing, RN Network, Foundation Medical Staffing and Destination Locum Tenens. CompHealth provides temporary and traveling healthcare staffing as well as permanent placement for physicians (50 physician specialties), nurses, and over 30 other types of allied health professionals. The company also delivers independent verification services through its Credentialing Services division which checks for the accreditations of healthcare professionals. Weatherby Locums and Destination Locum Tenens provide temporary and traveling staffing of physicians. Destination Healthcare Staffing provides temporary staffing of traveling physical therapists, physical therapist assistants and occupational therapists. Foundation Medical Staffing provides temporary staffing services for dialysis professionals, nurses, managers, dieticians, patient care technicians and traveling rehabilitation therapists. CHG Healthcare Services strives to provide first-rate healthcare professionals in all areas of practice. The company offers a 48-hour guarantee which permits employers to cancel the contract fee if they are not satisfied with the placement within two days of hire. In addition, as one of the oldest firms in healthcare staffing, the company is an established player in locum tenens staffing. Cross Country Healthcare, Inc. (CCRN) Founded 1999, Boca Raton, FL; Staffing & Work Force Solutions Business Segments Healthcare Staffing; Human Capital Management Services CCRN is one of the five largest healthcare staffing firms in the U.S. based on revenue and supported over 5,400 full-time equivalent (FTE) employees in Its national client base consists of 4,000 hospitals and other healthcare providers. The healthcare staffing segment represented 93% of 2006 revenue and is comprised of travel and per diem nurse staffing, travel allied health staffing and clinical research staffing. Travel nurse staffing is the core business and represented 70% of total revenue. The other human capital management services segment represented 7% of 2006 revenue and consists of education and training as well as retained search services for physicians and healthcare executives. In August 2006, CCRN acquired Metropolitan Research, a full-service pharmaceutical consulting firm providing clinical trials staffing, drug safety monitoring and contract research services to the pharmaceutical, biotech and medical device industries. The population of working RNs in the U.S. is aging and is projected to decline while the supply of new nurses is low as the nurse education system is constrained by an aging faculty and a lack of teaching facilities. CCRN believes that its internal educational and training capabilities through Cross Country University, gives it a competitive advantage by enhancing both the quality of its working nurses and the effectiveness of its recruiting efforts. Business Services Human Capital Services 113

115 February 2008 Medical Staffing Network Holdings, Inc. (MRN) Founded 1998, Boca Raton, FL; Staffing & Work Force Solutions Business Segments Staffing in Per Diem Nursing, Travel Nursing, Anesthesia, Allied Health, Clinical Research, Pharmacy, and GSN MRN is a leading healthcare staffing company and the largest provider of per diem nurse staffing in the U.S. The company derived approximately 75% of its 2006 revenue from per diem nurse staffing. MRN is also a leading provider of allied health staffing including radiology and diagnostic imaging specialists, clinical laboratory specialists, rehabilitation specialists, pharmacists, respiratory therapists, and physical and occupational therapists. Allied MRN has an extensive client base that includes over 7,000 healthcare facilities, including leading for-profit and not-for-profit hospitals, leading teaching hospitals and regional healthcare providers. As of December 31, 2006, MRN s database contained profiles of over 24,000 active healthcare professionals. MRN has over 100 offices throughout the U.S. In July and September 2007, MRN completed the acquisitions of InteliStaf Holdings, Inc., and AMR ProNurse, respectively. Both companies provide nurses, allied healthcare and other medical professionals to healthcare facilities as well as vendor management services. MRN offers RNs benefit packages and same-day payment options, which is quite rare in the industry and should help with recruiting nurses. MRN is also one of the largest healthcare staffing providers to earn the Joint Commission s Gold Seal of Approval at all of its locations for a second year in a row. MRN hopes to capitalize on this certification as a differentiator in the marketplace. In the long run, MRN should benefit from healthy revenue growth in nurse staffing, especially in the more profitable allied health segments. On Assignment, Inc. (ASGN) Founded 1985, Calabasas, CA; Staffing & Work Force Solutions Business Segments Life Sciences; Healthcare (Nurse Travel and Allied Healthcare); Physician; IT & Engineering On Assignment is an international staffing firm that provides flexible and permanent staffing solutions in specialty skills. Prior to 2007, the company operated through two segments: Lab Support and Healthcare Staffing. Lab Support connects clients with professionals from industries including biotechnology, pharmaceuticals, medical devices, chemical and consumer products. Healthcare Staffing encompasses the Nurse Travel and Medical Financial & Allied lines of business. The Healthcare Staffing division specializes in placing professionals within the disciplines of Nursing, Therapy, Medical Business Office, Clinical Laboratory, Respiratory Care, and Diagnostic Imaging. In 2006, the Healthcare Staffing segment contributed 59.2% of revenue, while Lab Support contributed 40.8%. The firm has approximately 460 fulltime employees located in 60 branch offices in 23 states and three foreign countries. During 2006, ASGN employed approximately 13,300 contract professionals at 4,800 clients. In January 2007, the company acquired VISTA Staffing Solutions, a provider of physician staffing (locum tenens) and search services, and Oxford Global Resources, a provider of IT and engineering staffing. ASGN now reports its segments as Life Sciences (previously Lab Support), Healthcare, Physician (Vista), and IT & Engineering (Oxford). ASGN consultants are typically professionals that were recruited from within specialized industries and then trained to become staffing consultants. As a result, the consultants industry experience and knowledge allows them to better understand and meet their clients specialized staffing needs. Robert W. Baird & Co. 114

116 Comprehensive Guide to Human Capital Services U.S. Nursing Corporation (Private) Founded 1989, Greenwood Village, CO; Staffing & Work Force Solutions Major Business Segments Nurse Staffing Since 1989, U.S. Nursing has been working with healthcare facilities and nursing professionals to provide staffing solutions during labor disputes. According to the company, U.S. Nursing has staffed or helped avert more than 95 percent of all healthcare labor disputes nationwide, and is the only resource for comprehensive services throughout strike preparation and implementation. U.S. Nursing offers a turnkey solution with services for pre-strike planning, temporary replacement staffing, and post-strike integration. In the event of a job action, U.S. Nursing will provide a core group of proven healthcare professionals to help facilities ensure continuous, quality patient care. U.S. Nursing has worked with facilities of all sizes, from staffing a multi-site job action for five hospitals in a major metropolitan setting, providing close to 1,000 nurses, to staffing a remote, single facility with less than 50 nurses. The company holds a dominant position within its niche. According to U.S. Nursing, no other company has helped to avert or staff as many strikes as U.S. Nursing. The company also benefits from a state-ofthe-art, computerized order fulfillment system which allows it to instantly match open positions with qualified personnel. U.S. Nursing also maintains an extensive database of healthcare professionals, many of whom have worked job actions for years, in order to fill its needs. Business Services Human Capital Services 115

117 February 2008 Executive Search Companies Profiled: CTPartners Egon Zehnder International Heidrick & Struggles International, Inc. Korn/Ferry International CDI Corporation (Management Recruiters International, Inc.) Russell Reynolds Associates, Inc. Spencer Stuart Whitehead Mann Partnership LLP Robert W. Baird & Co. 116

118 Comprehensive Guide to Human Capital Services CTPartners (Private) Founded 1980, New York, NY; Executive Search Major Business Segments Association/Not-for-Profit; Board Services; CIO; Financial Services; Global Security/Risk Management; HR; Inclusion; Healthcare; Private Equity; Professional Services; Government; Retail; Technology, Media & Telecom CTPartners is a leading provider of executive search services to Fortune 1000, FTSE 100 (London), DAX (Frankfurt) and CAC 40 (Paris) companies as well as private equity and venture capital firms and their portfolio companies. According to the company, during 2006 CTP had a successful placement rate of 80% and was the first firm in the industry to measure its candidate stick rate of 94%. CTP had an average placement time of 125 days in 2006, with 90% of their placements taking 101 days. The company s web portal directs traffic from both employers and candidates through the ClientNet and Candidate Central interfaces, respectively. ClientNet provides clients with critical candidate information, compensation records and interview assessment results. Candidate Central provides candidates with real-time information about inquiring companies. CTP continues to develop its search activities across all major industry sectors and geographies. CTP has recently opened offices in Hong Kong, Singapore, Bogotá, Caracas and Lima. CTP currently employs approximately 135 consultants. Through its analysis of over three years worth of client surveys and 1,200 specific searches, CTP has developed a methodology that outlines the time for: developing a search strategy (48 hrs), strategic meeting to discuss research/spoken to 20 prospects (14 days), contact 50% of targeted base/present at least three candidates (40 days), 80% completion of candidate contact (75 days), and presentation of final candidate (100 days). Egon Zehnder International (Private) Founded 1964, Zurich, Switzerland; Executive Search Major Business Segments Executive Search; Board Consulting; Talent Management/Management Appraisal Egon Zehnder is an international executive search firm with 350 consultants in 62 offices across 37 countries. The executive search group specialize in filling openings for financial officers, HR executives, legal professionals and IT officers for companies in the following sectors: financial services, technology/telecom, life sciences, consumer, industrial, services and private capital. The board consulting group provides board-level searches and consulting services including reviewing board member performance and advising on appropriate corporate governance practices and board structures. Egon Zehnder also offers a management appraisal system which provides clients with a comprehensive analysis of their management resources by evaluating them against their peers. Unlike most executive search firms, the firm utilizes a fixed fee structure rather than charging a client a third of the placement s salary. As a result, there s no incentive to recommend only high-salaried candidates or exclude internal candidates. The company also operates on a single-profit basis, removing competitive barriers among offices. All consultants have significant prior business or consulting experience and postgraduate qualifications. Many consultants are multilingual and multicultural and therefore are well prepared to assist businesses operating in the global economy. Business Services Human Capital Services 117

119 February 2008 Heidrick & Struggles International, Inc (HSII) Founded 1953, Chicago, IL; Executive Search Major Business Segments Americas; Europe; Asia Pacific Heidrick & Struggles is one of the world s most prestigious executive search firms. HSII has approximately 1,550 employees (including 393 executive search consultants) working in 64 global offices spread across 26 countries. The company serves seven practice areas including financial services (34% of 2006 revenue), consumer (19%), industrials (18%) and tech (10%). In addition to executive search, the company provides leadership consulting, talent management, board building, and executive on-boarding services. The search group focuses on placement services for C-level positions (such as CEO and CFO) as well as board searches. Prospects for recurring revenues are facilitated by integrating account services for each client and assigning one consultant to each account. The firm s leadership consulting services include succession planning, top team effectiveness, executive assessment, talent management, executive development, and M&A human capital effectiveness. HSII acquired Highland Partners, the executive search business of Hudson Highland Group (HHGP), in October HSII is one of the oldest executive search firms in the U.S. For more than 50 years, the company s seasoned consultants have given Heidrick & Struggles a premier brand in C-level and board placements. The firm s effort in recruiting at the top has produced outstanding name recognition, as high-level positions now account for over two-thirds of its searches. Korn/Ferry International (KFY) Founded 1969, Los Angeles, CA; Executive Search Major Business Segments Executive Recruitment; Futurestep Korn/Ferry International is the world s largest provider of executive search. The company also provides outsourced recruiting and leadership development solutions. The executive search segment (87% of fiscal 07 revenue) focuses on filling board-level, CEO, and other senior executive positions (annual compensation >$150,000) for clients predominantly in the consumer, financial, industrial, life science, and technology industries. KFY uses a proprietary technology called Search Assessment to match candidates against a set of best-in-class profiles. Included within the executive search segment is the company s leadership development services (LDS) group which provides human capital consulting services for executives, including coaching and assessment. KFY expanded its LDS product/service offering through the acquisition of Lominger in August The Futurestep segment (13% of revenue), focuses on middle-management search (annual compensation $75, ,000) and recruitment process outsourcing (RPO) services. KFY ended fiscal 2007 with over 1,900 employees, including 490 executive search consultants, located in more than 70 offices in 40 countries. Given its 38-year track record of focusing on executive-level recruitment, KFY is a premier brand in the industry. KFY s name, reputation and large geographical coverage provide an advantage over the vast majority of competitors in attracting top-level clients, candidates, and consultants, while maintaining consistent pricing power. KFY is also well positioned in growth markets such as Asia which are experiencing secular growth. Futurestep and LDS are significant differentiators which should lead to future growth. KFY is also a leading player in the emerging recruitment process outsourcing (RPO) market with its Futurestep division. Robert W. Baird & Co. 118

120 Comprehensive Guide to Human Capital Services Management Recruiters International, Inc. (CDI) Founded 1965, Philadelphia, PA; Executive Search Major Business Segments Perm Placement; Contract Staffing; Large-Scale Recruitment Solutions; Ancillary Solutions Management Recruiters International, Inc. (MRI), branded as MRINetwork, is a subsidiary of CDI Corp. (CDI). With a network of over 1,100 independently owned offices in over 35 countries, MRI is one of the world s largest executive search and recruitment organizations. MRI offers a range of services including permanent placement, contract staffing, large-scale recruitment solutions, and ancillary services. MRI performs both retained and contingency searches with a focus on middle- and senior-range positions. MRI s contract staffing focuses on providing highly skilled professionals from a range of disciplines including IT, F&A, life sciences, engineering, legal and construction. MRI s large scale solutions group represents a new service model aimed at reducing the total cost of acquiring talent for global organizations by consolidating and standardizing the recruitment effort in order to accelerate the rate of fulfillment across geographic markets. MRI ancillary solutions include assessment tests, background checks, a client activity management system (online system that offers real-time exchange between hiring managers and recruiters), relocation assistance, and salary surveys and evaluation. MRI recruiters are subject matter experts, often having real-world experience in their respective industries, which enables them to provide specialized and targeted advice to clients. MRI s system is unique in that it is designed to bring the efficiencies of a boutique operation together with the reach of its global network of offices to execute a high-touch and streamlined approach to recruitment on a large and global scale. With MRI continually and actively pursuing placements in over 70 countries, the group is uniquely positioned to assist multi-national companies. Russell Reynolds Associates, Inc. (Private) Founded 1969, New York, NY; Executive Search Major Business Segments Executive Search; Executive Assessment Russell Reynolds Associates is a leading global provider of executive search and assessment services. The company employs over 275 consultants through 38 company-owned offices in 21 countries. Russell Reynolds has 46 practice areas that focus on certain functional areas or certain sectors such as consumer, financial services, healthcare, industrial/natural resources, not-for-profit and technology. In terms of functional expertise, the company focuses on executive-level positions including CEO/board level, financial officers, government affairs, investor relations, corporate security, HR, legal and supply chain. The company also provides executive assessment services to determine how an organization s key executives compare with their peers in terms of their experience, track records, capabilities and future potential. Russell Reynolds has significant presence in Asia, Australia, and Europe, where it receives approximately 50% of its assignments each year. Russell Reynolds ability to consistently place well qualified candidates is demonstrated through its high level of client retention. Each year, roughly 70% of the firm s revenue comes from returning clients. Business Services Human Capital Services 119

121 February 2008 Spencer Stuart (Private) Founded 1956, Chicago, IL; Executive Search Major Business Segments Executive Search; Board Services; Strategic Leadership Services Spencer Stuart is one of the more prestigious management consulting firms specializing in board and executive services and leadership development. Spencer Stuart operates out of 50 offices in 26 countries and serves clients across a range of industries and size, from large multinational organizations to medium-sized businesses and entrepreneurial start-ups. The executive search segment, the company s core business, focuses on retained searches for senior-level executives, including chief executives, subsidiary and divisional executives as well as functional heads of finance, marketing, technology and legal. In 2006, the company s 320 consultants conducted approximately 4,600 assignments around the world. The board services segment provides director recruitment services as well as consulting on issues such as CEO transition, mergers & acquisitions, succession planning, best practices, and board evaluation. The company s strategic leadership services focus on leadership assessment and executive benchmarking and are designed to provide boards and CEOs with an accurate picture of the individual and collective strengths of the organization s leadership team. The global reach of the company s operations allows it to draw from an ample pool of candidates and consultants who possess not only the knowledge, but also the cultural backgrounds that fit their clients needs. Spencer Stuart also is one of only a few search firms with a reputation for performing Fortune 100 CEO searches. Whitehead Mann Partnership LLP (Private) Founded 1977; Executive Search Major Business Segments Executive Recruitment; Leadership Solutions Whitehead Mann is an international search firm engaged in the placement of high-profile employees in the consumer, retail, financial services, private equity, healthcare, government, technology, media and telecom sectors. The company conducts searches on a client-by-client basis and can involve comprehensive sector screens or focused searches based on specific criteria. The company also leverages its search expertise into assessment and coaching programs that match talent potential with organizational goals. In October 2006 Whitehead Mann Group underwent a management buyout which took the firm private. Whitehead Mann selects its consultants from a range of industry groups so that the consultants possess the deep knowledge and experience that can be applied to different searches. From this diversified consultant pool, the company is able to draw a specialized and complementary team that can best serve its customers needs. The company has served over 90 of Europe s top 200 companies. Robert W. Baird & Co. 120

122 Comprehensive Guide to Human Capital Services Recruitment Process Outsourcing (RPO) Companies Profiled: Accolo, Inc. The Goodwill Group, Inc. (Advantage Human Resourcing) Alexander Mann Group, Ltd. Capital Consulting CRI, Inc. Korn/Ferry International, Inc. (Futurestep) Hyrian, LLC Kelly Services, Inc. (Kelly HRfirst) Kenexa Corporation Volt Information Sciences, Inc. (Momentum) Novotus, LLC Pinstripe, LLC Omnicon Group, Inc. (Recruitment Enhancement Services) The RightThing, Inc. Spherion Corporation Adecco SA (TalentTrack) The Day and Zimmerman Group, Inc. (Yoh) Business Services Human Capital Services 121

123 February 2008 Accolo, Inc. (Private) Founded 2000, Larkspur, CA; Recruitment Process Outsourcing Major Business Segments: RPO Accolo is an innovator in the Recruitment Process Outsourcing (RPO) industry. The company uses a patented combination of professional expertise, technology, and social networking to deliver high-quality candidates to meet hiring managers specific needs. Accolo services range from supplementing a client s existing recruiting capacity on a project or pilot basis to providing clients with an end-to-end recruitment solution under a multi-year service agreement. For each job, Accolo provides a dedicated consultant, a detailed recruitment plan specific to that job, documented screening and pre-interviewing of every applicant, complete EEO data capture and applicant tracking, and its web-based Hiring Manager Console that automates workflow. Accolo s enabling technology and its use of all available sources to search for candidates (e.g., postings, referrals, networks, and professional organizations) allows the company to improve clients hiring processes along four key metrics: quality of hire, quality of the hiring process, time to selection, and per-hire recruiting costs. According to the company, its average time-to-hire is 15 days and its per-hire recruiting cost based on the staffing.org Recruiting Efficiency Index (total recruiting costs/ total compensation recruited) is less than 9% compared to the national average of 15.2%. Accolo was named the Best RPO of the Year at the 2005 HRO World Conference. Accolo is affiliated with Vedior NV and is partnered with TriNet, the Career Company, Link Silicon Valley and Assessment Leaders which provides an extensive network of clients that Accolo can cross-sell to. Accolo firmly believes in the value of referrals in hiring. The company s Referral Source Engine creates a referral community of people for each job. An Accolo professional then contacts the referrals via to generate potential candidates. Thus far, this method has contributed 10,000 referrals from a membership of over 400,000 people. Advantage Human Resourcing (TSE: 4723) Founded 1983, Stamford, CT; Recruitment Process Outsourcing Major Business Segments Talent Services; Workforce Management Services In October 2006, the Goodwill Group (GWG) acquired American Crystal Holdings, Inc., which changed its name to GW Premier America, Inc. and is now the North American subsidiary of GWG. Advantage Human Resourcing, one of GW Premier s operating companies, provides talent services (temporary staffing, direct-hire search) as well as a myriad of workforce management solutions. Under its contingent workforce management solution, Advantage manages all contingent workforce activities including requisition, approval, selection, assignment, management, quality assurance, time capture, invoicing reporting and multiple supplier relationships. The company also manages the recruiting and hiring of fulltime employees. Through its payroll and compliance solution, Advantage manages the on- and offboarding processes and administers payroll, benefits and statutory requirements for clients that hire their own talent. Advantage also offers function-specific outsourcing of an entire job function or department area such as administrative, customer service, reception and accounting. In addition to formal interviews, detailed reference checks and validation of background information, Advantage uses its Work Style Guide to qualify talent on the basis of skill, motivation and fit. Advantage s eight-step process helps to ensure that it achieve, the right fit for its clients and talent. Robert W. Baird & Co. 122

124 Comprehensive Guide to Human Capital Services Alexander Mann Group, Ltd. (Private) Founded 1985, London, U.K.; Recruitment Process Outsourcing Major Business Segments: RPO Similar to Korn/Ferry, the Alexander Mann Group (AMG) was founded in 1985 to specialize in the provision of executive search services but then expanded into the RPO market in The executive search business, Alexander Mann Financial Markets, was sold in September The remaining business, Alexander Mann Solutions (AMS), is a leading recruitment outsourcer that helps clients to recruit, retain, and release employees. Its offerings include permanent and temporary recruitment management, MBA and campus ( emerging talent ) recruitment, internal mobility management, redeployment and outplacement services. The company currently operates in 50 countries. The company employs approximately 900 people worldwide and serves 28 clients including several blue-chip companies such as Prudential, NES, TMP Worldwide and CSC. In December 2007, Graphite Capital, a UK mid-market private equity specialist, backed the 100 million management buy-out of AMS from Advent International. Alexander Mann was the first RPO in Europe making it one of the most experienced companies in the industry. Alexander Mann is also one of the largest international recruitment process outsourcers to be based outside of the U.S. Capital Consulting (Private) Founded 2000, London, UK; Recruitment Process Outsourcing Major Business Segments Recruitment Outsourcing Capital Consulting is the UK s leading recruitment outsourcing provider. The company provides all of the services necessary for clients to recruit and retain talent. Capital Consulting strives to provide a seamless solution including recruitment campaigns, recruitment diagnostics (a comprehensive assessment of a client s recruiting function), employer branding, diversity, assessment and selection, and recruitment process and technology. Its processes are agency, media, and technology neutral. One of the ways that the company differentiates its offering from many of its competitors is its focus on helping its clients develop a strong employer brand to make them an attractive employer to potential employees. Capital Consulting s clients include American Express, Yahoo, KPMG, and Vodafone. Capital Consulting strives to provide its clients with better, faster, cheaper recruiting solutions. The company offers a seamless, comprehensive solution ranging from assisting its clients with employer branding to helping with the assessment and selection of employees. Capital Consulting is capable of serving some of the largest customers in the world. Business Services Human Capital Services 123

125 February 2008 CRI, Inc. (Private) Founded 1997, Torrance, CA; Recruitment Process Outsourcing Major Business Segments: Full-Service Outsourced Recruitment; On-Demand Outsourced Recruitment CRI, Inc. is a nationwide RPO provider that helps Fortune 1000 companies identify, hire, and retain dedicated staff. CRI offers full-service outsourced recruitment for companies requiring an end-to-end recruitment solution as well as on-demand services for clients who require assistance with only a portion or a specific step of the recruitment function. CRI s DyNamic Adaptation (DNA) recruitment process is composed of four elements: workforce planning (CRI Consult), workforce attraction (CRI Attract), workforce selection (CRI Select), and workforce hiring and on-boarding (CRI Engage). The company s comprehensive sourcing capabilities include web-based sites, print advertising, professional and college job fairs, direct mail, and other outreach methods. Candidate identification is followed by rigorous electronic screening, resume reviews, phone and face-to-face interviews, psychological evaluation, and background and employment checks. Once a candidate undergoes further behavioral interviews and is accepted by the client firm, CRI then transitions the new hire through the on-boarding process, including documentation and cultural introduction. Finally, CRI supports post-recruitment services as well, such as training, reassignment and outplacement. CRI serves industry leaders such as Genworth Financial, Edward Jones, Deloitte, KB Home and Heinz. The company annually places approximately 4,000 individuals on client firms and operates a network of 62 offices in the U.S. Futurestep (KFY) Founded 1998, Los Angeles, CA; Recruitment Process Outsourcing Major Business Segments: RPO; Mid-Level Recruitment; Project Recruitment; Interim Solutions Futurestep, a Korn/Ferry company, is a global leader in outsourced recruitment for middle management professionals. Futurestep s recruitment solutions include recruitment process outsourcing, project recruitment, interim solutions and mid-level recruitment. In Futurestep s fully integrated, single-source RPO solution (roughly 65% of fiscal 2007 revenue), the company creates customized recruitment solutions based on its clients individual workforce needs. The company manages all aspects of its clients recruiting needs including workforce planning, establishing benchmarks and performance metrics, recruiting, interviewing, hiring and on-boarding. Futurestep's mid-level and project recruitment segments focus on mid-level search on an individual basis or for engagements involving multiple hires within a specific timeframe, respectively. The interim solutions segment provides highly qualified middle management professionals on a temporary basis. Futurestep has approximately 550 employees working in 39 offices in 17 countries around the world. Futurestep s diverse international network, proprietary global database of candidates, international brand recognition and innovative technology enables the company to reduce clients recruitment costs while improving quality and attracting the best talent. Robert W. Baird & Co. 124

126 Comprehensive Guide to Human Capital Services Hyrian, LLC (Private) Founded 1997, Los Angeles, CA; Recruitment Process Outsourcing Major Business Segments Hyrian OnDemand; Hyrian Enterprise Hyrian is one of the leading RPO providers in the United States. For companies averaging 1,000+ hires per year, Hyrian s enterprise group manages the entire recruitment process including strategy (workforce planning, job design), sourcing (web postings, print advertising, referrals, corporate career website management, job fairs), screening (resume review, phone interviews, assessments, background checks, drug tests, reference checks), candidate selection and starting (on-boarding, orientation, payroll setup, EEOC/OFCCP compliance). In April 2006, Hyrian began offering an OnDemand service which gives clients with 100 to 5,000 employees the flexibility to use Hyrian only as needed. The OnDemand service can work as a complement to a recruiting department or completely replace the recruitment infrastructure. According to the company, the OnDemand division fills positions at costs that are typically one-fifth of the cost of headhunters usually $1,600 to $5,000. In 2006 Hyrian filled 15,000 positions across both its divisions. Hyrian has over 200 employees with offices in Los Angeles, Minneapolis, Boston and New York. Hyrian s reputation and strong relationship with large companies should enable the company to serve more firms, especially mid-sized, in the future. As most large companies already have applicant tracking systems, the enterprise group works within a client s existing ATS in order to maximize ROI and eliminate the cost of new technology integration. The OnDemand group offers clients the use of its online ATS to provide access to candidate information, one-click approvals and real-time process reporting. Kelly HRfirst (KELYA) Founded 1995, Troy, MI; Recruitment Process Outsourcing Major Business Segments RPO; Human Resource Outsourcing; Customized Recruitment Projects Kelly HRfirst is a division of Kelly Services Professional Technical and Staffing Alternatives Group. The company s RPO practice provides outsourced talent acquisition programs to employers with high-volume, direct hire needs. Its target customers typically hire more than 500 professionals or more than 1,000 hourly employees annually. Kelly HRfirst s services range from full employment department outsourcing to individualized offerings that supply individual parts of the hiring process such as advertising, resume review or phone screening. In addition to its main RPO business, HRfirst s HRO segment offers program management services including benefits and payroll, employee referral, employee retention, internship programs, leadership development programs and training programs. HRfirst also offers customized recruitment solutions for high-volume direct hire projects that are designed to decrease recruitment costs, reduce cycle time, optimize recruiting efficiencies, attract top talent and leverage best practices. Kelly HRfirst has been managing regional and multi-country account relationships covering many industries and unique solutions since This experience provides Kelly the footprint to expand RPO programs to new geographies very quickly. In addition, because of the volume of its transactions, HRfirst enjoys wide economies of scale. Business Services Human Capital Services 125

127 February 2008 Kenexa Corporation (KNXA) Founded 1987, Wayne, PA; Recruitment Process Outsourcing Major Business Segments Talent Acquisition; Employee Performance Management; Employment Process Outsourcing Kenexa is a leading provider of Employment Process Outsourcing (EPO). Kenexa has a comprehensive list of services designed to increase the speed of hiring, improve candidate quality and reduce costs. Kenexa offers staffing management where a team of staffing professionals administers all or part of the staffing function for a client including strategic development and tactical execution of hiring programs. Kenexa offers large project outsourcing programs that entail managing and completing large and small scale recruitment campaigns. Kenexa also develops and executes multi channel sourcing & recruitment strategies including direct recruitment, internet mining, advertising, internet job postings, affinity associations, referral programs and career centers. The company s Kenexa Selector behavioral profiling tool combines personality, experience, situational judgment, cultural fit, and problem-solving assessments to provide accurate performance predictions for candidates. Kenexa also utilizes its Prove It! tool which offers over 800-skills based pre-employment assessments for a wide range of job classifications. Kenexa also offers on-boarding services which attempts to reduce the time-to-productivity for new hires. Kenexa maintains a single-source accountability rather than partnering with external sub-contractors, thus avoiding potential conflicts that may arise from the use of multiple providers. The company also holds a reputation for innovation and service, as exemplified by its appearance on Forbes B2B s Best of the Web list in 2003, 2004, and Momentum (VOL) Founded 1997, Seattle, WA; Recruitment Process Outsourcing Major Business Segments RPO Momentum, a Volt Information Sciences Company, is a provider of RPO solutions to local, regional, national, and international customers. Although Momentum was not formally created until July 2006, Volt has been offering RPO solutions to its customer base for approximately 10 years. Momentum s modular service offering provides clients greater flexibility in program design by allowing them to select an end-toend solution or only those service components that they need. Momentum s outsourcing suite of services includes requisition management, internet job board posting, sourcing, screening, interview scheduling, candidate presentation, offer management, on-boarding and performance management. Momentum serves customers from a variety of industries including aerospace, manufacturing, semi-conductor, technology and telecommunications. Momentum is present in major markets throughout the U.S., Canada, Europe, and Asia. Momentum performed over 28,000 full-service RPO placements in 2005 according to HRO Today s 2006 Baker's Dozen list of top RPO providers (second highest on the list) and was also a Tier I provider (>30k placements) on the 2007 Bakers Dozen list. Momentum s RPO services are supported by its VoltTrack RPO software that delivers comprehensive data tracking and reporting, integration with online job boards, state-of-the-art resume parsing technology, a fully configurable job portal and online application tools. A key feature of VoltTrack RPO is that it is comprised of modular components so that if an organization has already made significant IT investments in one or more areas, existing systems and processes can be easily integrated. Robert W. Baird & Co. 126

128 Comprehensive Guide to Human Capital Services Novotus, LLC (Private) Founded 2001, Austin, TX; Recruitment Process Outsourcing Major Business Segments: RPO (NovoRPO); Candidate Sourcing (NovoFlow); Interim Staffing (NovoFlex); Permanent Staff Recruiting (NovoDirect) Novotus is a provider of both comprehensive and unbundled RPO services in the U.S. The company addresses the human capital needs of clients in four ways: 1) fully outsourcing the recruiting function for an entire organization, individual division, or for large hiring projects through NovoRPO; 2) sourcing permanent and temporary employees on-demand for single searches or projects by constructing company-specific websites and by deploying web-based recruitment management processes from screening to interviews through NovoFlow; 3) locating flexible staffing candidates for short-term assignments and/or contract-to-hire needs through NovoFlex; and 4) conducting contingency searches for permanent positions via NovoDirect (no charges to the client until a position has been filled). The company focuses on increasing the volume of candidates while improving the placement quality through aggressive marketing and expansive screening. The company typically places over 1,000 employees annually. Novotus strives to decrease the cost of hiring for HR managers while increasing the pay rates of its consultants, mostly through scale. The company s recruitment services are regularly marketed at a 50-70% discount relative to other RPO providers. Pinstripe, LLC (Private) Founded 2004, Milwaukee, WI; Recruitment Process Outsourcing Major Business Segments Financial Services; Healthcare Services Pinstripe, LLC is a leading RPO and recruitment services firm servicing companies in the financial services and healthcare services industries. Pinstripe s proprietary, full-service RPO model called Requisition-to-Results (R2R TM ) entails working closely with client companies in each step of the recruitment process, from the assessment of the current HR condition to the accommodation and training of new employees. In addition to its R2R offering, Pinstripe offers unbundled, on-demand arrangements in which one or more functional process modules or the staffing requirements for a large business unit, division or department are outsourced. Pinstripe s strategic advisory services provide recruitment marketing planning, employment department strategic planning, HR technology selection and implementation services, new employee engagement and training program design. The company also provides contingent staff acquisition programs and vendor management services to help centralize and consolidate the procurement of temporary and contract personnel. Pinstripe s Autonomy direct resourcing solutions help healthcare organizations build internal staffing solutions that are designed to outperform the traditional approach of over dependency on temporary agencies to meet the fluctuating needs of the clinical environment. Pinstripe has studied the satisfaction levels of employees and hiring managers after 30 and 90 days on the job. Since the first few months on the job often determines whether the employee will decide to leave within the first year, these studies have allowed the company to better understand the favorable conditions that support a successful employment. As a result, the company hopes to save clients thousands in expenses associated with the early departure of good employees. Business Services Human Capital Services 127

129 February 2008 Recruitment Enhancement Services (OMC) Founded 1983, Houston, TX; Recruitment Process Outsourcing Major Business Segments RPO; Customized Projects RES is the recruitment services division of Bernard HODES Group, a 1global provider of integrated talent solutions and a unit of the Omnicom Group, a multi-billion dollar holding company. Credited by many as the first firm to pioneer recruitment outsourcing and applicant management, RES is a leading provider of complete recruitment services outsourcing as well as customized project solutions. Project solutions, which are designed for smaller scale engagements with shorter time frames, typically focus on RES core competencies in hiring process reengineering, staffing technology (ATS) and recruitment marketing. True to its beginnings, the company is equipped with state-of-the-art technologies involving internet research and resume mining (RESputin) that allow the firm to view virtually every internet job board and niche site available. The company also employs a variety of sourcing strategies to recruit a skilled and diverse candidate pool, including targeted networking, cold calling, and referral gathering. With marketing communication leader Bernard HODES Group as its direct parent, RES performs a unique recruitment marketing role by branding a client s website. The improved career site would then presumably attract more traffic and qualified applicants. Moreover, the company s core attribute remains its innovative technologies, the development of which is a crucial driver of growth. The RightThing, Inc. (Private) Founded 2003, Findlay, OH; Recruitment Process Outsourcing Major Business Segments: RPO; Staffing Process Consulting The RightThing, Inc. (RTI) is a leading end-to-end provider of RPO service to Fortune 2000 companies. RTI offers clients fully outsourced hiring solutions for on going support, solutions for event-based hiring needs, as well as the ability to outsource individual components of the hiring process. RTI s services cover recruitment and candidate sourcing, requisition management, custom built intake technologies to establish consistent candidate profiles, prescreening, interviewing, skills assessment, hiring logistics, candidate communication, exit interviewing, post offer activities and on-boarding. RTI also has a staffing process consulting group that assists organizations with assessing their current hiring processes and designing and implementing new staffing processes with a focus on improving technology, compliance, quality, and metrics. In 2006, RTI announced the addition of several blue chip accounts, including Pepsi Bottling Company, Fed Ex, Owens Corning, Siemens, Kellogg Company, Novartis and Astra Zeneca. After adding these clients to its existing base of over 200 clients in 10 industries, RTI is now responsible for roughly 50,000 hires annually compared to 17,500 in 2005 (per HRO Today). According to RTI, the company has exposure to over 10,000 sourcing vehicles to help find candidates. The recent signing of several blue chip clients and the growing acceptance of RPO should enhance RTI s ability to market itself to additional clients. In May 2007, RTI and Talent2 International Limited, an Australian company focused on Asia and the UK, announced an alliance to offer global RPO services which should help RTI to meet the growing demand for global recruitment requirements of companies. Robert W. Baird & Co. 128

130 Comprehensive Guide to Human Capital Services Spherion Corp. (SFN) Founded 1946 (RPO 2001), Fort Lauderdale, FL; Recruitment Process Outsourcing Major Business Segments RPO Spherion, one of the largest RPO providers in terms of employees placed, offers its services through four targeted engagement types. SFN s enterprise-wide RPO offering entails comprehensive management of the recruitment function across an entire enterprise, from requisition creation to candidate on-boarding. The selective RPO offering provides customized support for a specific business unit, skill set or location. SFN s event-based service provides clients with a dedicated recruiting team to meet the goals of shortterm hiring projects. SFN also provides highly experienced recruiters to augment clients internal recruiting efforts through its on demand service. SFN has adopted a case-specific approach to its offerings by leveraging the client s existing infrastructure investments. Thus, both Spherion and the client benefit from reducing the cost of implementing the service and maximizing the returns from combined resources. During 2006, SFN placed over 35,000 individuals through its selective and enterprise offerings as well as over 100,000 event-based project hires. Spherion has the ability to scale recruiting resources given that it has over 500 RPO recruiters with an average of 10 years recruiting experience. SFN also focuses on providing superior client service. According to the company: 1) over 70% of RPO clients expand their partnership scope within 12 months, 2) 95% of RPO clients rate themselves as satisfied/highly satisfied, and 3) SFN has earned a 100% RPO client renewal rate in 2006 and 2007 year-to-date. TalentTrack (SWX/VIRT-X: ADEN, Euronext: ADE) Founded 2002, Toledo, OH; Recruitment Process Outsourcing Major Business Segments: Recruitment Process Management; TalentScout; TalentSolution; Knowledge Management TalentTrack is a provider of customized talent management solutions to Global 2000 corporations. The company is organized into four strategic practice areas. The company s core Recruitment Process Management (RPM) offering is a fully outsourced recruitment solution that completely addresses the talent lifecycle from planning and strategizing to talent acquisition and employee assimilation. The TalentScout practice provides consulting services designed to assess a company s recruitment process and then develop and implement a new recruiting strategy focused on identifying more qualified candidates, sourcing candidates faster and lowering recruiting costs. The TalentSolution group provides a variety of HR back office support including performing research, providing screening & assessment tools, as well as providing trained HR professionals to augment a client s internal staff. TalentSolution also offers an e-cruiting solution which deploys both a job board aggregator and a web-spider technology to quickly identify a large potential universe of candidates. TalentTrack s Knowledge Management group provides benchmarking and performance measurement. The company was acquired by Adecco in August TalentTrack prides itself on the depth of experience its consultants possess within the employment industry. As a result, the firm is able to produce innovative solutions that enhance the quality of hires. For example, the firm s e-cruiting product features a scoring system that tries to differentiate candidates on a continuum of measurements, rather than a simple yes or no screen. Business Services Human Capital Services 129

131 February 2008 Yoh (Private) Founded 1940, Philadelphia, PA; Recruitment Process Outsourcing Major Business Segments Talent Services (Staffing, Direct Hire, 1099 Managed Services); Outsourcing Services (Yoh HR Solutions (RPO), Managed Staffing, Yoh Exchange, Help Desk Solutions) Yoh, a Day & Zimmermann company, is a provider of talent and outsourcing services to customers in the United States. Yoh operates from more than 75 locations and generates over $380 million in total sales (includes Talent and Outsourced Services). Yoh HR Solutions, Yoh s RPO practice, provides a mix of services including requisition management, communications & advertising, recruitment, program management, onboarding and staff augmentation. Yoh tailors its RPO services to meet its clients objectives, from designing, staffing and managing a comprehensive recruiting operation to augmenting the HR support staff on an existing team. Through its Managed Staffing services, Yoh delivers on-site staffing procurement and administration of contract labor to more than 200 customer sites while managing a supply chain of more than 450 staffing providers. Yoh Help Desk Solutions helps clients design technology support services and augment their existing support staff. The company utilizes Yoh Exchange which is an online, end-to-end staffing solution that integrates interactive staffing planning technology, policy and profile management tools, proprietary staffing management applications and seamless on-site customer support. The web-based tool is a speedy and interactive way to solve talent acquisition issues. Robert W. Baird & Co. 130

132 Comprehensive Guide to Human Capital Services e-cruiting Solutions Companies Profiled: 51Job, Inc. Adicio, Inc. Arbita CareerBuilder.com ComputerJobs.com Craigslist, Inc. Dice Holdings, Inc. DirectEmployers.org equest Experience, Inc. Google, Inc. (Google Base) Yahoo!, Inc. (HotJobs.com Ltd.) Indeed, Inc. Jobing.com, LLC Jobster, Inc. LinkedIn Corporation TheLadders.com Monster Worldwide, Inc. NationJob, Inc. Net-Temps, Inc. NowHiring.com SearchEase.com Corporation SelectMinds, Inc. SimplyHired.com SnagAJob.com, Inc. StepStone Vault, Inc. Business Services Human Capital Services 131

133 February Job, Inc. (JOBS) Founded 1998, Shanghai, China; e-cruiting Solutions Major Business Segments 51job Weekly; 51job.com; Executive Search; Campus Recruitment; ehire; Training; HR Forum; Human Capital Magazine; HR Outsourcing; Salary Survey Reports 51job, Inc. is a leading provider of human resource services in mainland China. Primarily a recruitmentfocused firm, the company offers 51job weekly, a city-specific recruitment advertising publication, which is distributed as an insert in local newspapers and/or on a stand-alone basis. The firm sources candidates online as well through its web portal 51job.com. The site is denoted in English and Chinese on a city-bycity basis, and covers different job categories ranging from professional and middle management positions to clerical, industrial, and hourly jobs. 51job, Inc. also provides executive search services (esearch), campus recruitment, job postings and applicant tracking (ehire), training seminars in various disciplines, and HR outsourcing. The HRO department serves over 10,000 employees from hundreds of clients in the areas of staff enrollment, benefits, payroll management and other employee benefits. 51job, Inc. primarily serves multinational corporations, national corporations, and local enterprises through 25 offices in Hong Kong and mainland China. 51job, Inc. claims to be the only nationwide publisher of recruitment materials in China with millions of copies in circulation each week. Moreover, its website 51job.com has the most registered members (over 18 million), the largest resume database (over 12 million), and the highest traffic (approximately 30 million average page views per day) according to the company. Through the website, more than 800,000 jobs are posted each month. The company s bilateral approach is an important driver of both traditional users (through print) and the rapidly growing online population (through the website). The company is particularly competent at sourcing openings from multi-national corporations in China. Adicio, Inc. (formerly CareerCast) (Private) Founded 1997, Carlsbad, CA; e-cruiting Solutions Major Business Segments Career Services; Motors Services; Real Estate Services Adicio is a leading supplier of e-cruiting products and services that power the career portals for many of the nation s largest newspapers and media properties. Its site management tools include data aggregation, integration, and site management services for job boards. Employers can also benefit from Adicio s job posting, candidate search, screening, candidate tracking and advertising functionalities. Employers can also expand their pool of potential job seekers by using the Adicio s national, regional and cross-posting network upgrades which provide employers the convenience of posting their job openings just once to be viewed by candidates visiting their own site, as well as those visiting Adicio s national job site, the sites of other regional network members and specialty job sites, respectively. Lastly, job seekers can also utilize the company s array of recruitment tools, including job search, resume/application matching, and an integrated application tracking system. In addition to its flagship career services segment, Adicio has also extended its reach into motors and real estate website management. Adicio s clients receive almost 21 million unique visitors per month and have 2+ million resumes posted. The company s close partnerships with key newspaper firms, including Dow Jones & Co. and the Wall Street Journal, provide it with the technical expertise and financial resources to enhance its services. Robert W. Baird & Co. 132

134 Comprehensive Guide to Human Capital Services Arbita (formerly RecruitUSA) (Private) Founded 1993, Minneapolis, MN; e-cruiting Solutions Major Business Segments Media Solutions; Technology Solutions Arbita creates and executes innovative recruitment media, technology and consulting solutions for many of the world s most respected employers. Arbita is one of the pioneers in internet jobs cross-posting, having developed and refined web-recruiting solutions which enable employers to reach every leading career destination in North America as well as a rapidly growing network of job boards in over 80 countries. Using its network of over 2,000 career sites combined with its proprietary media measurement, response tracking and financial reporting capabilities, Arbita guides clients in media selection and provides seamless integrations with these media outlets to develop employer specific networks designed to meet the individual recruiting needs of employers. Every job posting Arbita s system distributes includes a tracking tag which is monitored in order to report on candidate behavior and response rates and to calculate the cost of each posting at each job board, cost per response and cost-per-click. This information helps show which outlets are working for recruiters and which outlets are failing to meet their needs. Arbita s technology solutions allow for flexible integration between Arbita s system and other ERP, HRIS, and ATS platforms. Arbita offers a single focal point for dealing with the enormous variety of job boards on the internet. Arbita customers enjoy a single tool for managing the job-posting process and a consolidated bill instead of multiple bills from different job boards. CareerBuilder.com (TRB, GCI, MNI, MSFT) Founded 1995, Chicago, IL; e-cruiting Solutions Major Business Segments Online Recruiting; Newspaper Recruiting Owned by Gannett Co, Inc., Tribune Company, The McClatchy Company, and Microsoft Corp., CareerBuilder.com offers a vast online and print network to help job seekers connect with employers. With over 21 million job seekers per month, CareerBuilder is one of the largest online recruiting sites. In addition to providing employers with job postings on its job board, CareerBuilder also offers recruiters access to its resume database that includes over 22 million resumes as well as its R2 (Recommended Resumes) matching engine, a patent-pending context-specific technology that automatically locates resumes that best match another resume, an uploaded document or a job posting to provide faster access to more relevant candidates. In addition to the normal functions of an e-cruiting firm, CareerBuilder offers job seekers specialized features such as a career resources, career guidance and job fairs for specific industry groups. CareerBuilder.com powers the online job search centers for more than 1,000 partners, including 150 newspapers, America Online and MSN. The company s partnerships with the nation's leading newspaper, diversity, broad appeal, and other specific industry sites help recruiters reach the right talent. CareerBuilder.com is continuing its global expansion, having recently launched sites in the UK, Canada and India and partnering with major players such as 51job, Naukri, Lycos Canada. The company also expanded its alliance with MSN and will be the exclusive content provider for the MSN international sites as well. Vital to CareerBuilder s success will be its numerous partnerships. The amount of side traffic generated by these large portals should continue to be a boon for the company. Business Services Human Capital Services 133

135 February 2008 ComputerJobs.com (Private) Founded 1995, Atlanta, GA; e-cruiting Solutions Major Business Segments IT/Technology Employment Services; Advertising ComputerJobs.com is a leading employment website focused solely on IT professionals. The company offers visitors to its website high-quality, computer-related job opportunities and career-related content organized by 18 popular skill sets and 20 major metropolitan markets. The site averages 500,000 new unique visitors per month and maintains almost 1.2 million registered users. When the 4,000+ client organizations need to fill positions, they have at their command approximately 210,000 pre-screened resumes from active and passive candidates. The company has many large companies as customers including IBM, Microsoft, UPS, Home Depot, and Spherion. In November 2006, ComputerJobs.com was acquired by JobServe.com, a leading internet recruitment site in the U.K. Created by two IT professionals who foresaw the advantages of internet ads for computer jobs, ComputerJobs.com s mission is to be the first place on the internet that IT professionals visit when looking for computer-related jobs, career-information, or industry resources. Its insight into the IT market and prescreening solutions present a quality product to the public. Craigslist, Inc. (Private) Founded 1995, San Francisco; e-cruiting Solutions Major Business Segments Job Search; Housing; Personals; Sales/Wanted; Services; Community; Gigs; Resumes Founded by a computer programmer in 1995 to announce local events in San Francisco, Craigslist has grown into one of the largest classified websites in the world. The site was designed to be simple and easy to use rather than to have the best look and feel. Largely forum-based, Craigslist provides an environment where job seekers and employees, landlords and apartment hunters, and barter traders can find counterparties in their targeted locality. Except for job searches in select cities and brokered apartment ads, all postings on the website are free. All job ads are listed by locality, industry, date posted (in that order) in a banner-free environment. Like recruiters, job seekers can also post their information online as specific ads, but neither can maintain their own web pages. To connect with each other, the two parties must communicate by . Due to the free subscription and lack of advertisements, internet users have flocked to Craigslist. It is one of the most trafficked English-language sites with more than 8 billion page views per month and over 1.5 million new job postings each month. The traffic growth also fueled a geographic expansion as well: the site now provides classified services in approximately 450 cities in 50 countries. The company employs approximately 25 people. Craigslist s popularity stems largely from its local, down-to-earth appeal. Each community listed on the site has its own web page displaying the same suite of services. Users have pointed to a sense of trust, the ability to voice opinions, and simplicity as other reasons they prefer Craigslist over rival classified sites. An important potential revenue driver may be ebay, which acquired a 25% stake in Craigslist in Robert W. Baird & Co. 134

136 Comprehensive Guide to Human Capital Services Dice Holdings, Inc. (DHX) Founded 1991, New York, NY; e-cruiting Solutions Major Business Segments Dice.com; efinancialcareers.com; JobsintheMoney.com; ClearanceJobs.com; CyberMediaDice.com; Targeted Job Fairs Dice Holdings, Inc. is a leading provider of specialized career sites and career fairs for high-growth vertical sectors. Dice s mission is to enable employers to reach hard-to-find, experienced and qualified technology and engineering, accounting and finance, capital markets, and security-cleared candidates. In 2003, the former public company (symbol: DICE) sank into bankruptcy. By June 2003, Dice reemerged from bankruptcy a private company and shed most of its properties, including Developer.com, Datamation, CrossNodes, EarthWeb Direct, SysOpt.com, to focus on its flagship site, Dice.com, a leading provider of online recruiting services for IT and Technology professionals. Dice has subsequently added several websites include efinancialcareers.com, a leading global career network with 40 partner sites for jobs and career management in investment banking, asset management and securities. JobsintheMoney.com is the company s career site for accounting, finance, retail banking and wealth management professionals in the United States. ClearanceJobs.com is a premier secure job board focused exclusively on candidates with active or current U.S. Government security clearances. CyberMediaDice.com is the first and largest targeted career site for technology and engineering professionals in India. The company also owns Targeted Job Fairs which is a producer of career fairs and open houses for technology and engineering, accounting and finance, and security-cleared candidates nationwide. In July 2007, Dice completed its IPO and is trading under the ticker DHX. Dice administers efficient search services that are user-friendly. Additionally, the acquisitions of its additional sites can be significant drivers given the general shortage of skilled personnel in those fields. DirectEmployers.org (Private) Founded 2001, Indianapolis, IN; e-cruiting Solutions Major Business Segments DirectEmployers Search Engine; JOBcentral; NACElink (student/alumni recruiting); VetCentral; Think Tank Sessions DirectEmployers.com is a career portal owned and managed by employers through the DirectEmployers Association, a nonprofit employer association comprised of human resource, employment, recruitment and diversity policy makers from over 270 leading corporations worldwide. The original 22 charter firms founded the organization in 2001 to address three major issues: price increases in job search, lack of job seeker privacy, and job board vs. employer branding. The organization allows member corporations and approximately 24 million unique visitors to conduct over 135 million searches per month. The organization is further supported by an educational network (National Association of Colleges and Employers) that links members with students and alumni of top schools. The DirectEmployers business model is very different from that of most career portals. Rather than keeping an internal database of jobs, the site indexes career openings at members corporate sites. Job seekers are then redirected to individual members career sites. This rerouting solves all three of the original issues by reducing the third-party interference of a job board and by promoting members own websites. Business Services Human Capital Services 135

137 February 2008 equest (Private) Founded 1994, San Ramon, CA; e-cruiting Solutions Major Business Segments Job Posting; Applicant Tracking; Job Board Consulting; Job Board Analysis equest is a leading job posting service company. The company s hallmark service is its job posting management system which targets hiring managers, recruiters, recruitment automation companies, and portals. equest enables hiring personnel to post jobs across 1,000 unique job boards, including Monster and CareerBuilder. This multi-portal distribution system saves recruiters the time used to individually post jobs on each site. To supplement its job posting management system, equest also offers a complete line of job board management services including candidate sourcing metrics and job board evaluations, job board consultation and planning, job board negotiating, billing control and applicant tracking integration, which routes jobs from a client s ATS to the equest delivery gateway. The company s services span over 200 countries in the world. equest is a global organization that enjoys a strong leadership position in job distribution. Its job board analysis tool, JobTracker, compares job board performances across a variety of parameters, allowing clients to check who views their postings and who applies. It also informs clients of position-specific job board traffic, saving them money by focusing resources on top performing job boards. Experience, Inc. (Private) Founded 1996, Richmond, VA; e-cruiting Solutions Major Business Segments Campus Services; Alumni Services; Career Fair; Interactive Marketing Experience.com is one of the largest university-powered recruiting websites in the U.S. Over 3,800 U.S. colleges and universities have signed up for services at Experience, allowing more than 100,000 recruiters to search a registry of 3 million candidate profiles. In 2002, the company bought out epronet, a job placement service founded by the alumni associations of Stanford, MIT, and the University of California. The site provides several services to educational organizations, employers, and students. From a career center s point of view, Experience automates many of their services for them, including advice columns, career fair postings and student-employer connections. Each college can customize 90% of its site content, and pays $4,500-$5,500 in annual licensing fees based on school enrollment size. For the employers, the site offers firms the chance to search for candidates from the top universities within the U.S. Students can be screened based on GPA, major, graduation date, degree, and other attributes. Annual fees for job postings are $11,250 for recruitment ads on college network and $16,850 for alumni network. Recruiters also have the option to brand their organizations through CandidateConnectServices TM, an interactive tool that integrates site content, targeted s, surveys and enewsletters to market the firm to students nationwide. Lastly, students can register accounts online and perform traditional searches for free. Unlike many other campus e-cruiting firms, Experience.com s recruitment packages target both students and experienced alumni alike. Moreover, most of their proprietary database of top engineering, science, and business professionals cannot be accessed elsewhere, an important competitive edge. Robert W. Baird & Co. 136

138 Comprehensive Guide to Human Capital Services Google Base (GOOG) Founded 2005, Mountain View, CA; e-cruiting Solutions Major Business Segments Blogs; Jobs; Wanted Ads; Reviews; People Profiles Google operates web sites at many international domains, with the most trafficked being google.com. Aside from Google s search engine business, the company also serves corporate clients, including advertisers, content publishers and site managers with advertising and a wide range of revenuegenerating search services. Google Base is the company s free online service where users can submit all types of online and offline content that Google will host and make searchable online. Similar to a database, Google Base enables content owners to describe and assign attributes to the information they upload and uses this meta-data to better target search results to what users are looking for. The goal of Google Base is to improve the overall quality and breadth of Google Search results by collecting even more information about a wider diversity of content. For recruiters, Google gives them the option to either provide a description of their open position or a link that will take viewers to it (such as corporate career sites). Conversely, Google also facilitates the job search process by letting job seekers type any attribute and quickly find the closest job description that matches the keywords. Categorically, the applicant can also search by job function, job type, industry, employer, education requirements, salary and location. Google Base s most appealing feature is the amount of daily traffic driven to the site. Due to the high level of traffic through Google s search portal, the job board enjoys a high visibility among job seekers and employers. Google s global unique users per month are roughly 380 million (Nielsen/NetRatings 8/05). HotJobs.com, Ltd. (YHOO) Founded 1997, New York, NY; e-cruiting Solutions Major Business Segments United States; International A subsidiary of Yahoo! since 2002, Yahoo! HotJobs is one of the leaders in the online recruiting industry, providing comprehensive solutions for employers, staffing firms and job seekers. Yahoo! HotJobs enables job seekers to create an online resume, search and apply for jobs, and access newsletters, online forums and salary research, free of charge. HotJobs generates revenue from employers and staffing firms that pay to access their database of job seekers and use their tools to post, track and manage job openings. In late 2006, the company formed a strategic partnership with a consortium of newspaper companies that will enable the newspapers to provide advertisers who list jobs in any of the consortium s newspapers the ability to also post their jobs on HotJobs and throughout the Yahoo! network. All of the newspapers online career sections will be powered by Yahoo! HotJobs and co-branded between Yahoo! and the local newspaper. Owned by Yahoo!, HotJobs is able to capture much of the traffic at the search portal and redirect visitors to its site. In 2006, Yahoo! introduced a new search engine through which job seekers can view job openings from employers across the web, not just those that subscribed with HotJobs. Although this may drive away some recruiters who feel slighted that HotJobs does not advertise their ads exclusively, the expanded search capabilities should drive more traffic to the site. In addition, the recent newspaper alliances should help create a powerful local and national jobs network, enabling recruitment advertisers to reach a larger, more diverse candidate pool of both active and passive job seekers. Business Services Human Capital Services 137

139 February 2008 Indeed, Inc. (Private) Founded 2004, Stamford, CT; e-cruiting Solutions Major Business Segments Job Search; Advertising Indeed.com is one of the most trafficked job sites. Unlike most job search websites, Indeed.com is not a job board and does not offer its own job posting services. Rather, it operates a comprehensive search engine which locates jobs from company career pages, major and niche job boards, national and regional newspapers, and hundreds of associations. Indeed indexes jobs from each job base daily, making it a fresh and accurate listing of jobs on the web. Indeed s job bank is vast as the company frequently shows 1 million+ job postings per week. Job seekers can easily search for a job at Indeed by entering the keywords and/or location of the jobs they desire. Recently, the New York Times Company bought a minority stake in Indeed, further enhancing its visibility to users through NYTC s websites, including NYTimes.com and About.com. Indeed, Inc. launched a pay-per-click advertising network in May 2006, enabling employers, recruiters and job boards to promote their advertisements online. Indeed was one of the first job search companies to be equipped with pay-per-click ads. Indeed also continues to be added to applicant tracking systems and job distribution systems which allows employers and recruiters to include their jobs on Indeed directly from the systems they use every day. These services deliver a feed of jobs directly to Indeed, keeping their clients' listings fresh and relevant for job seekers. Advanced tracking allows each system to monitor the job seeker traffic provided by Indeed and report those metrics back to their users. Jobing.com, LLC (Private) Founded 2000, Phoenix, AZ; e-cruiting Solutions Major Business Segments Job Search; Job Fairs; HR Websites; JobingTV; Go Jobing Magazine Jobing.com is a leading media provider of locally focused recruiting, online job search and talent management solutions designed to connect local employers and job seekers. Jobing.com s portfolio of products include: locally focused job search web sites; Career Expo job fairs; HR websites; JobingTV; and Go Jobing magazine. In addition to job posting and resume search, the company s job boards offer subscribing employers the free use of its applicant tracking system as well as the ability to post videos that describe the position and the company. Jobing.com has also partnered with local television channels to provide local employment television shows, JobingTV, which are designed to showcase an employer s corporate culture and recruiting opportunities. Jobing.com serves 18 metropolitan communities in eight states. In June 2007, the company acquired Milwaukee-based LocalCareers.com Inc., an online network that encompasses approximately 400 local and niche employment web sites across the U.S. In August 2007, Jobing.com expanded into Canada with its acquisition of CanJobs.com, a network of more than 140 local city, provincial, and industry-specific domains in Canada. Unlike most job boards that target a national audience, Jobing.com is dedicated solely to recruiting at the local level. By having a more limited focus, the company hopes to save recruiters from sorting through resumes from around the nation and at the same time deliver candidates that are more willing to accept a position since they live in the area already and would not need to relocate. JobingTV is also a unique offering that allows local companies to market themselves and the positions they have available. Robert W. Baird & Co. 138

140 Comprehensive Guide to Human Capital Services Jobster, Inc. (Private) Founded 2004, Seattle, WA; e-cruiting Solutions Major Business Segments Job Board; Staffing Agency Services; RPO Services Jobster takes a unique approach to traditional job search by combining social networking tools, usergenerated content, and tag-based matching to pair active and passive job seekers with open positions. Jobster allows job seekers to create professional career profiles, upload their resumes and even use features such as video resumes. Professional profiles are maintained in Jobster s database of over 35 million professionals. Domestic employers can use the site to post an unlimited number of jobs for free as well as search for active and passive candidates, build networks and manage candidate relationships. Companies may choose to advertise their jobs posts more prominently for a fee which is charged only when candidates inquire about the posted positions. Jobster also offers employers sourcing services such as targeted campaigns, blog advertising, and search engine and employment site advertising. Jobster also offers professional services such as career website optimization, sourcing on demand, designing custom employee referral campaigns and direct marketing. According to the company, Jobster provides access to more than 2 million jobs and attracts more than one million jobseekers each month. Jobster s site provides web-based referral networking opportunities for employers and prospective candidates which is important in a job market where many employers rank referrals and networking as one of the more effective sources for professional candidates. Jobster also provides a blog where people can recommend inactive (and often the most qualified) candidates to recruiters. LinkedIn Corporation (Private) Founded 2003, Mountain View, CA; e-cruiting Solutions Major Business Segments Online Professional Network LinkedIn is a provider of private networking tools for professionals in all industries across the globe. Professionals that join LinkedIn create online profiles that enable them to find and be found by former colleagues, clients, and partners. Members can add more connections by inviting trusted contacts to join LinkedIn and connect with them. Through the LinkedIn network, members can find potential clients, service providers, subject experts, and partners, search for jobs, post and distribute job listings and potentially find high-quality passive candidates. LinkedIn is free to join; however, the company also offers paid accounts that give members more tools for finding and reaching the people. LinkedIn has an online network of more than 15 million experienced professionals from around the world, representing 150 industries, all of the Fortune 500 companies, as well as a wide range of household names in technology, financial services, media, consumer packaged goods, entertainment, and numerous other industries. Given that referrals are one of the most important sources for locating quality applicants, many webbased job boards have been adopting products that offer referral and/or networking services. LinkedIn should benefit from first mover advantages compared to its competitors as LinkedIn is already the world s largest online professional network. Business Services Human Capital Services 139

141 February 2008 TheLadders.com (Private) Founded 2003, New York, NY; e-cruiting Solutions Major Business Segments Marketing; Sales; Construction & Real Estate; HR; Technology; Operations; Legal Services TheLadders.com is a specialty employment website targeting jobs with $100,000+ in compensation. TheLadders.com provides targeted job search sites focusing on marketing, sales, finance, HR, technology, operations, and law positions. According to the company, its sites list more than 35,000 new jobs per month. To augment user experience, the website provides a profile database called the Professional Network, where recruiters and applicants can communicate with each other throughout the process. The company s Resume Service business provides professional resume critiques, editing services and advice to job seekers. The company s RecruitLadder service allows recruiters to manage multiple searches, search by zip-code and radius from job location, correspond with multiple candidates, save candidates for future positions and ensure that OFCCP compliance is seamlessly integrated into the talent sourcing process. TheLadders.com has over 1,380,000 members and 30,000 recruiters. The company offers a free, basic service that allows seekers to browse through a limited amount of job listings and a premium service which allows members to view and apply to all jobs in the database as well as connect with corporate and executive recruiters for a cost of $30 per month. This fee system is designed to save recruiters from being inundated with inappropriate applications. The company has indicated that they plan to expand to include jobs with salaries over $75,000 to address the 20 million workers that earn in the $75,000 to $100,000 range. Monster Worldwide, Inc. (MNST) Founded 1967, New York, NY; e-cruiting Solutions Major Business Segments Careers North America; Careers International; Internet Advertising & Fees Monster Worldwide, Inc. is the parent company to Monster.com, one of the world s largest online recruitment portals and is consistently ranked among the top 20 most visited sites on the internet. Over 75 million of Monster's visitors have established personalized accounts. The company s services include job postings, a global resume database, proprietary job search agent technology, career advice and resume editing. The website s major source of revenue comes from the fee employers pay to post jobs. Monster has a direct sales force that focuses on serving enterprises as well as medium-sized businesses; however, the company also operates a self-service electronic business channel that caters primarily to small businesses. Over the past few years, Monster has expanded its global footprint significantly. Through the internet advertising & fees segment, Monster offers online advertising space on its portfolio of web sites including Tickle.com, Military.com, FastWeb, and the recently acquired Affinity Labs network of sites. The company employs approximately 4,200 people in 36 countries. Given its recent investments abroad, Monster is well positioned to benefit from international growth as online career advertising markets are much less developed outside of the U.S. Monster also continues to focus on extending its reach into local markets in the U.S. having entered into strategic alliances with hometown newspapers and leading local online sites in various geographic regions to expand the online recruitment market and serve more customers and job seekers more effectively and efficiently. Robert W. Baird & Co. 140

142 Comprehensive Guide to Human Capital Services NationJob, Inc. (Private) Founded 1988, Des Moines, IA; e-cruiting Solutions Major Business Segments Specialty Sites; Custom Jobs Pages; Community Pages; P.J. Scout; Community Sponsorship Program The original business of NationJob, Inc. was to advertise job openings on stand-alone computers in college career centers. The company now owns and operates the NationJob Network which is an integrated network of internet sites and services including: (1) categorized a network of specialty sites promoting jobs in specific employment categories; (2) custom jobs pages and community pages where individual companies and communities can input their name, logo, and a current listing of all of their open jobs; (3) cross-postings to other sites on the web; (4) P.J. Scout, a website that allows users to store their job preferences and receive updates whenever a similar opening surfaces, thereby giving passive job seekers who are already employed the ability to still explore other opportunities; and (5) in addition to offering services directly to individual employers, NationJob offers its Community Sponsorship Program which is a community-based internet recruitment program in the U.S. For nearly two decades, the NationJob personnel have accumulated much experience in virtual recruiting; and despite shutting down its stand-alone network in 1997, the company still retains a provincial focus in its services, albeit on a larger scale nationwide. More importantly, as passive job seeking continues to gain momentum, P.J. Scout could see a dramatic increase in revenues. The unit already has 950,000 subscribers receiving notifications on job openings. Net-Temps, Inc. (Private) Founded 1996, North Chelmsford, MA; e-cruiting Solutions Major Business Segments Job Postings; Candidate Management; Cross-posting Net-Temps is a provider of recruiting services exclusively to staffing companies. Membership with Net- Temps is free for jobseekers. Seekers can search from thousands of new job postings, create a free Job Search Assistant to help find their next job, post up to three resumes and cover letters, set up job search agents and access other career resources such as resume writing, interviewing tips and a salary calculator. Net-Temps allows recruiters to search from its 380,000 active resumes and 2.1 million archived resumes. The company s resume search service automatically searches the Net-Temps resume database for recruiters using various search criteria including job category, type of candidate (temp, contract, full-time), work status and keywords. Net-Temps provides its candidate manager solution as a free service to help recruiters streamline the recruiting workflow, efficiently evaluate candidates and move them through the screening and placement process. Net-Temps offers a cross-posting service which allows companies the ability to also post their jobs on the 25,000 employment-related websites within Net-Temps Job Distribution Network (JDN). Included are networks like Beyond and HireNet, vertical job search engines like Indeed and Google Base, plus thousands of niche job boards that focus on specific industries, job categories and geographic locations. Furthermore, clients can link all the job postings on their own websites directly to Net-Temp with the Net-Link option. Much of the traffic that comes through Net-Temps relates to the IT and Engineering channels (over 40% combined), which are revitalized segments of the staffing industry. Business Services Human Capital Services 141

143 February 2008 NowHiring.com (Private) Founded NA, Ann Arbor, MI; e-cruiting Solutions Major Business Segments Job Search; Career Resources Formerly branded as CareerSite and Employment Wizard, NowHiring.com is a job site designed specifically for teens, students and young adults as opposed to people who are starting their careers. NowHiring.com provides job alert information, employer profiles, and career tips for young job seekers in the U.S. NowHiring.com has partnered with SnagAJob.com which provides job postings and content meant for teens and students. NowHiring.com allows younger job seekers to search for part-time jobs, summer jobs, hourly jobs, teen jobs, and entry-level jobs without having to wade through career-level and management positions. Seekers apply for jobs online and their applications are sent to employers within minutes. The majority of jobs posted are concentrated in areas such as customer service, clerical/office, retail, health care and food service. Companies often have difficulty keeping a fully staffed team of part-time workers as they are often required in large numbers and tend to have higher turnover. Given the cost of advertising in traditional newspapers, NowHiring.com is aimed at moving traditional newspaper advertisers to the web, especially for companies with multiple or even thousands of locations. SearchEase.com Corporation (Private) Founded 1997, Norwood, MA; e-cruiting Solutions Major Business Segments Job Board (SearchEase.com); Career Site Design (JobBoardSoftware.com) SearchEase.com Corp. is a leading application service provider in the area of job board software and career site hosting. Its suite of software is geared towards three types of customers (small, medium and large job boards and other businesses) under the banners of Lite, Engine and Enterprise, respectively. The site s universal services include job search scripting, database profiling, resume building, cover letter uploading, and account activity reporting. Premium products such as referral tracking, advanced resume searching, and advanced job searching are available only to the higher-end users. The company boasts a 30-day installation period with 24/7 customer support for the life of the contract. A typical set-up involves server, security, software, and remote monitoring installations as well as marketing essentials like logo design. SearchEase also maintains a proprietary job board that sources over 50,000 job postings which are less than 60 days old and indexes jobs from over 15,000 employers worldwide. Job seeking users of the site can automatically transfer resumes from Monster or CareerBuilder to SearchEase.com. SearchEase.com Corp. attempts to differentiate itself by providing higher-quality maintenance, established third-party partnerships, and dependable uptime. On the job board side, SearchEase.com offers its services free of charge to the employers and recruiters. Robert W. Baird & Co. 142

144 Comprehensive Guide to Human Capital Services SelectMinds, Inc. (Private) Founded 2000, New York, NY; e-cruiting Solutions Major Business Segments Corporate Social Networking SelectMinds is a global provider of secure, on demand, corporate social networking solutions. Using the power of web 2.0, SelectMinds helps organizations build connections between groups of employees and other constituencies which help drive increased knowledge sharing and collaboration, enable strategic talent sourcing, and foster employee development and retention. The company s programs focus on corporate alumni, current employees, women professionals and retirees. SelectMinds also provides a solution focused solely on the legal profession. The company recently announced the launch of NewHireConnect, an onboarding solution which uses corporate social networking to enable new hires to create a profile, connect with colleagues regardless of location, find centers of knowledge, and quickly get up to speed on corporate news and events. The company also offers services including advisory services, site design and deployment as well as ongoing program management. SelectMinds should benefit from the increasing usage of referral and/or networking services by companies to help locate quality applicants. The company s platforms are designed to be easy to deploy, flexible, scalable and able to serve the demands of global clients. SelectMinds clients include more than 60 leading organizations including JPMorgan Chase, The Dow Chemical Company, Lockheed Martin, Latham & Watkins, Schlumberger and Deloitte. SimplyHired.com (Private) Founded 2003, Mountain View, CA; e-cruiting Solutions Major Business Segments Job Search Services; Job-a-matic Network Simply Hired is a vertical search engine company striving to build the largest online database of jobs in the world and to find the simplest way for people to find jobs. With job listings spread across numerous job boards, newspaper and company websites, job seekers have traditionally been forced to search multiple sites for jobs that interest them. Using its web crawling technology, Simply Hired aggregates listings from thousands of sources into a single index comprised of almost 5 million jobs. Job seekers can search the database by keyword, geography, occupation, or sector. Since its launch, Simply Hired has joined with sites such as LinkedIn and MySpace that use the company s job search engine to power their jobs sections. Simply Hired recently introduced its Job-a-matic service which is designed to help bloggers monetize their sites by adding job listings. By adding job listings to a blog, the blog publisher is providing its readers with a useful service and providing employers a means of promoting their job listings to a targeted audience. Job listings through Job-a-matic are also displayed across the Simply Hired network, which means they will be seen at sites such as Simply Hired, LinkedIn, and MySpace. Simply Hired s relationships with LinkedIn and MySpace help to enable networking between job seekers and current and past employees from a company. Such contact often raises the quality of the match between candidates and companies as referrals and networking are often an efficient way for employers to locate candidates. Business Services Human Capital Services 143

145 February 2008 SnagAJob.com, Inc. (Private) Founded 1999, Richmond, VA; e-cruiting Solutions Major Business Segments Online Recruiting; Career Resources & Advice SnagAJob.com is the largest job site for part-time and full-time hourly jobs, with more than 117 million annual job searches for companies hiring non-exempt employees. Founded in 1999, SnagAJob.com was set up to provide the best part-time jobs for college and high-school students, a niche ignored by other career boards like Monster.com and HotJobs.com. Today, the company connects students, seasonal workers, and retirees with thousands of firms across the country. The company has filled jobs for clients such as The Home Depot, Target, Wendy s, Boston Market, Chick-fil-A, Bed Bath & Beyond, T-Mobile, Rite-Aid, Michaels, Friendly s, and Jiffy Lube. The site offers quick searches and gives employees and companies the option to input their preferred work hours. This allows employees that desire a more flexible work schedule find employment in a speedy manner. SnagAJob.com also has a resource center which offers job seekers tools and advice to help with finding a job and interviewing. The company holds a unique position in that its job board is focused specifically on the part-time and hourly job market, which is largely under-penetrated. Because SnagAJob.com was the first company to successfully target the part-time and hourly job market, the company holds the leading position in the market which should benefit it going forward. StepStone (Oslo: STP) Founded 1996, Oslo, Norway; e-cruiting Major Business Segments Career Websites; Recruitment Solutions StepStone ASA is a leading provider of online recruitment services and solutions in Europe. The company was founded in Norway in 1996 and helped pioneer the development of online recruitment in Europe. StepStone's public career websites currently cover 13 European countries. In 2004, StepStone entered the talent management system market via acquisition, adding its EasyCruit offering for companies with less than 1,000 employees, and later acquired i-grasp in 2005, which is now the company s Solutions product for large-enterprise clients. Thousands of companies, including Aviva, Balfour Beatty, Bank of America, AXA, British Airways, Ericsson, Canon and Fiat, use StepStone's products and services to help them recruit qualified staff globally. StepStone is a leading provider of European e-cruitment services and its Solutions business was the only European-headquartered vendor to be recognized as a leader by Gartner, Inc s "Magic Quadrant for E- Recruitment Software, 2006 report. Robert W. Baird & Co. 144

146 Comprehensive Guide to Human Capital Services Vault, Inc. (Private) Founded 1996, New York, NY; e-cruiting Solutions Major Business Segments Industry/Company Guides; Education (surveys & related articles); Job Board; Job Advice; Message Boards Description Vault is a premier media company focused on helping students and professionals land high-paying internships and full-time positions. Vault provides numerous publications including the Vault Career Library which is a collection of over 100 education and career guides, including titles such as the Vault Guide to the Top 100 Law Firms. The company s website provides access to research on over 5,000 companies, 70 industries and over 4,000 MBA programs, universities and law schools. Vault provides a free job board that attracts over 3 million job seekers per month as well as industry-specific job boards in the following areas: Finance (150,000+ members), Law (45,000+ members), Consulting (70,000+ members) and MBA (80,000+ members). Vault s Electronic WaterCooler is a collection of companyspecific message boards where job seekers can communicate with employers to learn about the latest corporate and career news, network with each other, ask for job advice and learn about trends shaping the workforce. The Electronic WaterCooler contains over 2 million searchable posts. In September 2007, Veronis Suhler Stevenson ("VSS"), a leading private equity investor in the media, communications, information and education industries, announced the signing of definitive documentation for the acquisition of a majority stake in Vault.com Inc. Since its founding, Vault has earned a reputation for being the leading provider of comprehensive insider advice in the recruiting world which acts as a draw for site traffic and new subscriptions. Vault s companyspecific message boards provide an effective means for companies and job seekers to network and share information. Business Services Human Capital Services 145

147 February 2008 Assessment and Verification Companies Profiled: Acxiom Corporation (Acxiom Information Security Services) Automatic Data Processing, Inc. (ADP Screening and Selection Services, Inc.) Manpower, Inc. (CareerHarmony) ChoicePoint, Inc. Development Dimensions International, Inc. employeescreeniq First Advantage Corporation General Information Services, Inc. HireRight, Inc. Marsh and McLennan Companies (Kroll, Inc.) Reed Elsevier, PLC (LexisNexis Authentication & Screening) PreVisor, Inc. Sterling Testing Systems, Inc. TALX Corporation U.S. Investigation Services Verifications, Inc. Verified Person, Inc. Robert W. Baird & Co. 146

148 Comprehensive Guide to Human Capital Services Acxiom Information Security Services (ACXM) Founded 1969, Little Rock, AR; Assessment and Verification Major Business Segments Background Screening Acxiom Information Security Services (AISS) is a wholly owned subsidiary of Acxiom Corporation and is a provider of pre-employment screening. AISS provides real-time, FCRA-compliant criminal record checks, credit reports, and driving records. AISS also provides a wide range of additional services including verification of social security number, employment, education and professional licenses, drug screening and searches for workers' compensation history, registered sexual offenders, suspected terrorists and fraudulent activity. AISS offers clients the use of its InsightHire which is a comprehensive applicant tracking system that allows users to submit background check requests, retrieve results and manage and track applicant data throughout the hiring process. AISS utilizes nearly 3,000 court record researchers to physically research and collect criminal history information in more than 5,000 individual court locations throughout the U.S., Puerto Rico, the U.S. Virgin Islands, Guam, and Canada. AISS TRUSST product (Tracking Residences Using Social Security Trace) uses a social security trace/id report in conjunction with criminal record searches to yield a more complete listing of candidates' address histories. TRUSST increases the number of "hits" by revealing previous addresses undisclosed by applicants. AISS also maintains a criminal offender database (National Criminal Acxess Search) that contains over 180 million criminal record files that is used to help uncover criminal history information in states/jurisdictions where the applicant has had no previous address history. ADP Screening and Selection Services, Inc. (ADP) Founded 1986, Roseland, NJ (SSS: Fort Collins, CO); Assessment and Verification Major Business Segments Employee Screening; Hiring Selection; Compliance In 2001, ADP purchased Avert, a leader in employee prescreening, and renamed it ADP Screening and Selection Services. ADP provides solutions that integrate online applications, job fit assessments, background screening and professional HR support. ADP offers different screening programs depending on the size of the client but also allows clients to create customized, position-specific background screening packages. ADP s employee screening services include verifying identity, criminal records, driving records, credit records, government registries, workers' compensation records, reference verifications and substance abuse testing. ADP completed over 5.8 million background checks in ADP also provides hiring selection services that include online order tracking and automated result scoring of the pre-employment screening results based on a pre-defined rating system. ADP also provides compliance services to help ensure that clients are following current employment regulations. ADP offers clients on-demand access to HR subject matter experts to answer questions (KnowledgeLink HR Help Desk) and also provides an online resource library that contains up-to-date information and materials such as compliance forms, employment law summaries and hiring guides. ADP s Screening and Selection Services business should benefit from the ability to cross-sell services to the large base of clients already receiving payroll services. ADP s brand recognition and reputation should also provide benefits in selling its screening and selection services. Business Services Human Capital Services 147

149 February 2008 CareerHarmony (MAN) Founded 1990, New York, NY; Assessment and Verification Major Business Segments Online Assessments CareerHarmony, a subsidiary of Manpower, Inc., specializes in delivering web-based assessment and selection services designed to measure and test applicants in order to more clearly identify the most suitable candidates for a job. CareerHarmony s Assessment Management System is a library of assessment tools developed by an advisory board of psychologists and range from traditional psychometric tests to interactive job simulations. The company pre-screens candidates to ensure that only the most appropriate candidates undertake the more detailed assessments. CareerHarmony s assessments may include ability, personality, knowledge and skills tests and interactive job simulations to ensure that the candidate s potential job performance is predicted as accurately as possible. CareerHarmony s system keeps track of where candidates are in the recruitment process, provides realtime results to recruiters, and ranks candidate scores in order to facilitate hiring decisions. CareerHarmony s proprietary psychometric analyses draw from years of research and are continually refined by the company s advisory board of psychologists. The company s solutions are also designed to meet high-volume recruitment needs. ChoicePoint, Inc (CPS) Founded 1986, Alpharetta, GA; Assessment and Verification Major Business Segments Insurance Services; Screening & Authentication; Business Services; Marketing Services ChoicePoint is a leading provider of information and information services to companies and government agencies for risk management and other key decision making. Although its main business is insurance services, CPS also has a Screening & Authentication Services group (24% of total 2006 revenue, 17% of EBIT) that focuses on employment screenings, tenant screenings, vital records and customer enrollment businesses. CPS' WorkPlace Solutions group offers a full range of pre- and continuing employment screening products and services including criminal background checks (National Criminal File, county courthouse check, state sex offender registry check), identity and social security number verification, motor vehicle records, credit history, employment verification, education verification, reference verification, drug testing and license, credentials and certification verification. CPS offers customers the use of its National Criminal File which is the world s largest repository of public record information with access to over 100 million criminal conviction records across all 50 states. CPS also offers assessment products including personality testing, attitude assessments and qualifications evaluations. CPS Screening & Authentication Services segment also provides vendor screening services to businesses as well as vital records, such as birth certificates, marriage licenses and death certificates to individuals. CPS is considered to be a leader in pre-employment screening and has significant scale advantages over the majority of its direct competitors. The addition of the National Criminal File and ScreenNow (background verification and drug testing for small and mid-sized companies) has improved ChoicePoint s market position. Robert W. Baird & Co. 148

150 Comprehensive Guide to Human Capital Services Development Dimensions International, Inc. (Private) Founded 1970, Pittsburg, PA; Assessment and Verification Major Business Segments Employee Hiring & Promotion; Leadership Development DDI is a leadership consulting company focused on designing and implementing selection systems as well as identifying and developing exceptional leadership talent. DDI s selection suite, AcqHire, consists of five components: success profiling, screening & testing, interviewing, simulations, and on-boarding. DDI performs competency profiling to define the key drivers of successful performers and then designs and implements comprehensive selection processes to target candidates. DDI performs screening to quickly eliminate unqualified candidates as well as assessments to evaluate candidates behavior, motivations, and aptitude for specific jobs. DDI provides behavior-based interviewing training for recruiters to ensure that they possess the necessary interviewing skills. DDI also provides simulations that offer a glimpse at how a candidate might perform on the job. Once the candidate is selected, DDI offers on-boarding services to help the new hire realize his/her potential. DDI also offers full outsourcing of the entire recruiting process. In terms of its leadership development services, DDI offers a wide range of assessment and needs-analysis tools to diagnose individual and group leadership strengths and developmental needs. The company offers a curriculum of 55 courses for leadership and workforce development which are offered for the classroom or online in multiple languages. Close to one-third of DDI s business is outside of North America through its network of 76 offices in 26 countries. DDI was an early pioneer in competency-based behavioral modeling. The multinational nature of the company should allow DDI to attract a greater customer base relative to smaller competitors. According to the company, its focus on customer satisfaction has resulted in a 96% customer satisfaction rate. employeescreeniq (Private) Founded N/A, Cleveland, OH; Assessment and Verification Major Business Segments Pre-Employment Services EmployeescreenIQ, formerly Background Information Services, Inc. (BIS), is a global provider of background screening services. The company s services include: federal and county criminal checks, social security number traces, driver's license history, credit reports, reference interviews, drug testing, homeland security checks, education and employment verifications, global screening, workers compensation history, and professional licenses & certifications verifications. employeescreeniq utilizes a wealth of data sources which enables the company to execute criminal records searches in over 150 countries and employment and education verifications in over 200 countries. The company employs an in-house verifications and criminal research staff and maintains a nationwide network of over 3,500 professional court researchers and a syndicate of thousands of patient service centers for drug screening. The company s technology platform is based on an XML structure that fully integrates with a clients ATS and HRIS systems. The company s average turnaround time is less than three working days. employeescreeniq conducts on-site by-hand criminal records searches as the company believes that database searches are unreliable. The company also limits its focus to pre-employment screening and maintains no proprietary database of consumer information in order to avoid the possibility of security breaches from selling access to consumer data. The company also protects its customers with a $5 million errors and omissions policy. Business Services Human Capital Services 149

151 February 2008 First Advantage Corporation (FADV) Founded 2003 (IPO), St. Petersburg, FL; Assessment and Verification Major Business Segments Lender Services; Data Services; Dealer Services; Employer Services; Multifamily Services; Investigative & Litigation Support Services First Advantage Corp. was formed in June 2003 after the screening segments of the First American Corporation and U.S. Search.com merged. First American (FAF) retained a majority stake in FADV. The company s employer services segment (26% of 2006 revenue) provides a suite of solutions designed to reduce the time and costs associated with the recruiting, screening and ongoing retention processes. FADV s solutions include a library of customizable assessments covering over 800 job skills, behaviors and cognitive abilities including customer service attributes, sales attributes, cognitive abilities in math, computer literacy, software skills, clerical skills, and skills in areas such as accounting, law, medicine and IT. FADV provides breadth of background screening tools including federal, state, and county criminal searches, federal and state civil searches, and employment and education verifications. FADV also provides special searches for motor vehicle records, credit histories, US Patriot Act search, bankruptcies, tax liens and judgments, character references, professional licenses, and international screening solutions. The company also offers clients business tax credit consulting, fingerprint identification, drug testing and administration of pre-placement physical examinations. FADV has a strong market position in several of its businesses such as pre-employment screening and tax credit consulting and provides over 4 million employment background verifications annually. FADV maintains a proprietary database (NationScan Criminal Index) of over 150 million criminal records from 42 states. General Information Services, Inc. (Private) Founded 1966, Chapin, SC; Assessment and Verification Major Business Segments Background Screening General Information Services (GIS) is a provider of workforce management and security solutions. The company provides business and consumer credit reports, criminal history searches, sex offender registry and terrorism searches, identity validation, name & address history, social security number validation, verifications (education, employment, employment eligibility, military, motor vehicle record, professional credentials and license, references and workers' compensation), drug testing and international background checks. The company also offers specialized services for the retail, insurance, staffing, employment services, banking/financial services, healthcare and gaming/hospitality industries. GIS operates throughout the U.S. and has international service capabilities including the Caribbean Islands, Central and South America, Europe, the Middle East, and the Pacific Rim. GIS has a network of over 2,500 field agents nationwide to conduct county-level searches on a daily basis. GIS tries to differentiate itself by providing flexible services and programs to meet the unique needs of each client as well as by providing superior customer service through its dedicated team of support specialists. As a result, the company s average client tenure exceeds five years, with a retention rate of 94.6% over the past five years according to the company. Robert W. Baird & Co. 150

152 Comprehensive Guide to Human Capital Services HireRight, Inc. (HIRE) Founded 1995, Irvine, CA; Assessment and Verification Major Business Segments Background Screening; Drug & Health Screening; Global Verifications; Extended Workforce Screening; Employment Apps; Industry Solutions HireRight is a leading provider of technologically advanced on-demand employment background screening solutions. HireRight developed the industry s first internet-based background screening solution which it launched in June The company was also the first to develop pre-integrated screening solutions with leading e-recruiting applications and HR outsourcers. The company provides over 50 different screening services including background checks, drug and health screening, global verifications as well as industry-specific products. HIRE has approximately 500 employees operating from six offices in four countries. In 2006, HIRE conducted 4.8 million transactions in over 200 countries for over 1,700 customers including 17 of the Fortune 100. HireRight utilizes advanced technology which allows it to increase the speed of service (2-3 day turnaround vs. 1 week), improve accuracy by eliminating human error and provides greater ease of use. One of the company s key advantages is that it has integrated with more HRMS and ATS providers and HR outsourcers than its competitors. In 2001, HIRE launched its partnership strategy by partnering with PeopleSoft. The company has subsequently signed partnership agreements with Accenture, ADP VirtualEdge, Convergys, DDI, Deploy Solutions (Kronos), ExcellerateHRO, Hewitt, IBM, Oracle/PeopleSoft, People Admin, Peopleclick, Previsor, SuccessFactors, Taleo, VisaNow and Vurv. Kroll, Inc. (MMC) Founded 1972, New York, NY; Assessment and Verification Major Business Segments Corporate Advisory & Restructuring; Investigations, Financial Advisory & Intelligence; Background Screening; Identity Fraud; Security; Technology Kroll, a leading risk consulting company, was acquired by Marsh and McLennan (MMC) in 2004 and now represents MMC s Risk Consulting and Technology segment. Kroll can operate and restructure businesses, scrutinize accounting practices and financial documents, gather and filter electronic evidence, recover lost or damaged data from computers, conduct in-depth investigations, screen job candidates, protect individuals, and enhance security systems and procedures. The background screening segment provides background checks, credit screening, vendor screening, employment physicals and form I-9 services. The company uses its Kroll Reference Bank, an automated, web-based platform for managing reference requests. Kroll's lab also conducts drug testing and develops programs to detect and prevent workplace violence, theft, injuries and negligent hiring lawsuits. In September 2007, Kroll announced that its Substance Abuse Testing division acquired the toxicology business of Meriter Laboratories. In September 2007, Kroll also acquired TrialGraphix which expands Kroll s litigation service offering to include trial graphics, courtroom presentation technologies and jury consulting services. Kroll is well suited to serve multinational clients as it has approximately 3,900 colleagues in 27 countries, and also uses a worldwide network of consultants with specialized expertise. According to the company, Kroll s attention to performing accurate background checks has resulted in an accuracy rate of over 99%. Business Services Human Capital Services 151

153 February 2008 LexisNexis Authentication & Screening (ENL, RUK) Founded 1998, New York, NY; Assessment and Verification Major Business Segments Full-Service Screening; Express Screening; Specialty Screening; Vendor Screening; Identity Authentication; Vendor Screening; Customer Due Diligence; Anti-Money Laundering LexisNexis, a member of Reed Elsevier, PLC, is a leading provider of information and business solutions to professionals in a variety of industries. LexisNexis Authentication & Screening, a segment of the LexisNexis Risk & Information Analytics Group, provides full-service screening including verification and analysis of education, employment history, criminal records, drug tests, and fingerprinting. Full service screening is fully customizable to meet the needs of the hiring organization and the results can be integrated into the organization s current HR or security software. For smaller organizations that prefer a quick, low-cost alternative, the company provides express screening which covers criminal history, educational and employment background, and financial standing. LexisNexis also offers specialty screening for organizations that would like a customized web site co-branded with their logo or event information where applicants can complete data entry and even pay for background checks themselves. LexisNexis Authentication & Screening also offers solutions that address identity authentication (InstantID), vendor screening, customer due diligence and anti-money laundering. The authentication & screening business of LexisNexis should be able to successfully leverage the reputation of LexisNexis as being a trusted provider and custodian of quality information. PreVisor, Inc. (Private) Founded 1967, Roswell, GA; Assessment and Verification Major Business Segments Job-Specific Solutions; Tests & Assessments; Interview Suite; Certifications; Job Analysis; Optimization Studies PreVisor is a provider of automated tests and assessments designed to improve employee assessment, selection, hiring and performance measurement. PreVisor offers job-specific evaluations designed to predict on-the-job performance for specific jobs including sales, customer focused jobs, management, senior leadership, specialized, manufacturing, healthcare, finance and banking. PreVisor also offers a library of pre-employment tests to gauge candidates knowledge, skills and abilities, personality and behavioral evaluations, as well as competency assessments to measure their cognitive ability, competence and professionalism. This content can be added as a supplement to a job-specific solution or used individually. Through its interview suite of products, PreVisor can help a company structure its interview process to ensure that it is consistent, effective and relevant to the position. Brainbench, a PreVisor company, provides the opportunity for individuals to earn certifications and employers to evaluate candidates knowledge of today s leading IT and computer skills. PreVisor also provides professional services including optimization studies and job analysis to evaluate the skills, knowledge and abilities needed to perform a job well. The company serves more than 25,000 organizations worldwide, including many of the Fortune 500. In August 2007, PreVisor announced its acquisition of talent management and selection provider Talent Technologies, Pty. Ltd., which is based in Sydney, Australia. PreVisor assessments are developed using the results of over 50 million applicants and 40 years of evidence correlating competency measurement and applicant scores with employee performance. Robert W. Baird & Co. 152

154 Comprehensive Guide to Human Capital Services Sterling Testing Systems, Inc. (Private) Founded 1975, New York, NY; Assessment and Verification Major Business Segments Background; Drug; Tenant; Mortgage Credit Reports; Tax Credit Opportunity Programs; I-9 Processing Sterling is a provider of screening and assessment services. Sterling s background screening services include civil and criminal record searches, social security traces, credit reports, motor vehicle records searches and workers compensation searches. Sterling also partners with major occupational testing laboratories to design and maintain effective drug testing programs. The company has a network of over 3,300 SAMSHA/NIDA certified and DOT-compliant primary collections sites and 6,000 additional occupational health clinics. Sterling offers tax credit screening programs to help employers reduce costs by capturing any available tax credits, grants, offsets, and profit recovery services such as the Work Opportunity Tax Credits (WOTC), Welfare-to-Work (WTW) and Empowerment and Enterprise Zone credits. Sterling also offers an I-9 service which completes the I-9 electronically and also allows employers to efficiently verify the employment eligibility of new employees via the Department of Homeland Security's Employee Eligibility Verification program. Sterling also offers tenant screening and mortgage credit reporting. Sterling has over 6,000 clients worldwide. According to the company, Sterling s level of service has resulted in roughly 99% client retention. Sterling s presence in India and multinational network of partner firms to gather business data from over 200 countries provides the company with global capabilities. TALX Corporation (EFX) Founded 1973, St. Louis, MO; Assessment and Verification Major Business Segments The Work Number Services; Tax Management Services; Performance Assessment Networks (pan) TALX Corp., a division of Equifax, is a leading business process outsourcer for payroll data-centric services that include unemployment cost management and automated employment and income verification. The company conducts its business through three segments: The Work Number (TWN), Tax Management Services (TMS) and Performance Assessment Networks (pan). TMS (55% of fiscal 2006 revenue) offers unemployment claims processing, benefit charge verification and employer tax consulting (including the WOTC and WtW credits). The TWN (44% of revenue), provides automated payment and salary verification services, as well as W-2 applications (W-2 express), pay-stub review (epayroll), automated timesheets and time reporting (FasTime), pre-applicant screening (Hire express), and electronically generated employment verification forms (I-9 express). pan provides electronic-based psychometric testing and assessments as well as talent management services. TALX serves over 9,000 clients including three-fourths of the Fortune 500. TALX was acquired by Equifax Inc. on May 15, TALX is the leader in both employment and income verification (controls roughly 95% of the outsourced market) and unemployment cost management (controls roughly 50% of the outsourced market). While TALX s database includes records for roughly 30% of the non-agricultural U.S. workforce, the company has implemented a One Stop Verification initiative to assist clients in verifying employment data for all U.S. employees by partnering with call centers to obtain information not in the TALX database. Business Services Human Capital Services 153

155 February 2008 U.S. Investigations Services (Private) Founded 1996, Falls Church, VA; Assessment and Verification Major Business Segments Screening & Information Services; National Security & Global Services; Government Background Investigations; Intelligence & Risk Management; Insurance Underwriting Formerly the Office of Federal Investigations, USIS is an information and security services company serving the human resources, insurance, government and National Security markets. USIS screening segment provides drug testing, criminal background screening, verification services (employment, education, license, reference, I-9), employment credit reports, social security number checks, driving record reports, international screening and fingerprint collection. USIS also offers industry-specific solutions for the healthcare, trucking, aviation, retail and staffing industries. The screening division performs over 20 million screens annually for its 33,000 customers. USIS services include securityclearance background investigations, special investigations and national security support services to government agencies and commercial businesses. USIS also provides expert security staffing and training to government and commercial clients through its National Security and Global Services segment. USIS intelligence services include performing due diligence, asset searches, investigations and litigation support. In May 2007, USIS agreed to be acquired by Providence Equity Partners Inc. USIS is the largest supplier of background investigations to the U.S. Office of Personnel Management. Verifications, Inc. (Private) Founded 1987, Minneapolis, Minnesota; Assessment and Verification Major Business Segments Applicant Processing; Background Screening; Substance Abuse Testing; International Screening; Professional Services; Integration Services Verifications, Inc. (VI) is a provider of employment screening and applicant processing services. VI provides automated applicant processing solutions including online employment applications, workflow management, adverse action notification, employment eligibility testing (electronic I-9 processing and legal right to work checks), offer management and on-boarding. VI offers background screening services which encompass criminal, academic, credit, employment, license and reference checks as well as industry-specific and international services. The company provides an online management system that enables clients to monitor their substance abuse and background screening services from one reliable source. VI also provides a range of professional services including screening program implementation, project management and compliance consulting as well as integration services to enable interfaces with applicant tracking, HRIS, and batch processing programs. According to the company, VI is the first company to be ISO certified in both its background screening and substance abuse testing operations. VI is an ISO 9001:2000 certified organization and has been since its certification in July of In addition, VI s focus on client service has resulted in over 96% of its client base indicating that they would recommend the company s services to others. Robert W. Baird & Co. 154

156 Comprehensive Guide to Human Capital Services Verified Person, Inc. (Private) Founded 2003, New York, NY; Assessment and Verification Major Business Segments Background Screening Verified Person, which was founded by former Pepsi and Apple CEO John Sculley, is a provider of background screening and identity verification services to a variety of industries. The company s Assure offering is a comprehensive background screening solution that supports the pre-hire and ongoing screening needs of organizations. Services include social security number verification, criminal records search, education and employment verification, and screening for sex offender, OIG/GSA, professional licensure, motor vehicle, and drug use. Verified Person has developed a criminal and licensure records database that covers over 60% of the U.S. adult population and is updated through connections to state and county-level court records. Verified Person is fully integrated with Taleo s ATS which enables customers to conduct a background check or screening directly within the Taleo solution. Verified Person can also integrate its service with leading enterprise e-recruiting solution providers. The list of the company s clients includes the Boys & Girls Club of America, Heidrick & Struggles and Spencer Stuart. Through a combination of its criminal and licensure records database and nationwide court runner network, Verified Person hopes to provide the most accurate and timely screening information available. In addition, as one of the pioneers within the ongoing screening segment, VP should continue to gain momentum as this trend accelerates. Business Services Human Capital Services 155

157 February 2008 Talent Management Suites/Systems Companies Profiled: Automatic Data Processing, Inc. (ADP VirtualEdge) AIRS Authoria, Inc. Deploy Solutions, Inc. (Kronos, Inc.) Halogen Software, Inc. Kenexa Corporation Kronos, Inc. (Kronos Talent Management) Peopleclick, Inc. Plateau Systems, Ltd. Softscape, Inc. SuccessFactors, Inc. Taleo Corporation VCG, Inc. Vurv Technology, Inc. Workstream, Inc. Robert W. Baird & Co. 156

158 Comprehensive Guide to Human Capital Services ADP VirtualEdge (ADP) Founded 1998, Newtown, PA; Talent Management Systems Major Business Segments Workforce Planning; Sourcing; Recruiting; On-Boarding; Internal Mobility; Off-Boarding In October 2006, VirtualEdge Corp. was acquired by ADP and was renamed ADP VirtualEdge (ADP VE). The company provides talent lifecycle software and is part of ADP s pre-employment services offering for national accounts (over 1,000 employees). The ADP VE talent lifecycle suite delivers workforce planning, candidate sourcing, recruiting, on-boarding, internal mobility, and off-boarding services. The company s candidate sourcing is aided by the use of its Universal Intelligent Access technology which scans millions of web sites, press releases, electronic news services, RSS feeds and other online sources to compile a pipeline of millions of candidates for clients to select from. ADP VE s recruiting services automate tasks such as creating and posting job requisitions, making offers and initiating pre-hire activities. VE also provides targeted recruiting solutions for companies with high-volume hiring (retail, food services, financial services, etc.) and those that hire contingent and shift workers. ADP VE s talent lifecycle suite is fully integrated with ADP's screening and selection services and tax credit services as well as ADP s payroll system. ADP VE serves over one million users at more than 150 enterprises in over 80 countries. One of the compelling attributes of ADP VE s talent lifecycle suite is its ability to support change with ondemand configurability, personalization and performance without high cost, risk and additional programming. VE also offers implementation time and cost guarantees. If these guarantees are not met, ADP VE will refund 20% of the professional services fee. AIRS (Private) Founded 1997, Wilder, VT; Talent Management Systems Major Business Segments Candidate Sourcing; Recruiting Compliance; Recruiter and HR Team Development; Career Transition and Outplacement AIRS is a provider of web-based tools and consulting services to assist with candidate sourcing, recruiting compliance, recruiter and HR team development, and career transition and outplacement. The company provides services for over 1,500 clients, including over 70% of the Fortune 500. Its products span from learning to technology solutions and outsourced offerings. AIRS Learning has helped train over 55,000 recruiters and HR professionals in various recruiting best practices (involving internet sourcing, core recruiting, diversity recruiting, etc.), hosting over 300 training events annually in 30 cities. AIRS also provides classes to teach clients OFCCP regulations and offers reporting modules to track resume database searches and resumes to ensure OFCCP compliance, including documenting that their recruiting practices are non-discriminatory. AIRS also offers a recruitment CRM, AIRS SourcePoint, which provides a complete suite of recruiter tools. AIRS SourcePoint is sold via a modular candidate sourcing platform with seven interchangeable modules Recruitment Candidate Management, Active Candidate Sourcing, Passive Candidate Sourcing, Recruiting E-marketing & Referral Tools, Analytics, Integration, and OFCCP Compliance. Over 55,000 professionals at over 1,500 companies, including an extensive list of blue chip companies, have attended AIRS recruiter training sessions, making AIRS the world leader in recruiter training and assessment. The company also offers the only extensive recruitment CRM in the industry. Business Services Human Capital Services 157

159 February 2008 Authoria, Inc. (Private) Founded 1984, Waltham, MA; Talent Management Systems Major Business Segments Recruiting; Performance Management; Incentive Management; Compensation; Succession Planning; Benefit/Policy Communication Authoria offers web-based HR knowledge applications that deliver personalized answers to employee benefits and HR policy questions. Authoria s software allows employers and outsourcers to communicate vital information to its employees and customers via the internet, intranet, or call center. The goal of Authoria is to offer a one-stop shop for routine employee HR questions, thereby reducing the amount of staff time spent responding to inquiries. The company s product is scalable to large or small organizations and is available on the web 24 hours a day, seven days a week. Traditionally, Authoria was a leading provider of benefit plans, employee communications, and HR management. However, the firm broadened its offerings in 2004 by acquiring compensation/performance management software maker Advanced Information Management. In 2005, the company acquired Hire.com which specializes in recruitment management. Authoria s solutions are oriented towards large enterprises, with one-third of its 300 customers employing more than 20,000 individuals (the company serves approximately 10 million client employees total). The company s customers and partners include outsourcers such as Towers Perrin and Accenture, as well as companies such as McDonald s, Weyerhaeuser, and ChoicePoint. Authoria strives to go a step beyond traditional HR self-service applications by offering information that is tailored to the individual employee. For example, an employee could obtain answers as detailed as who approves his or her timesheet, as well as questions of a more general nature. Furthermore, with the successful integrations of Hire.com and AIM, Authoria now has the leverage to offer a complete HR outsourcing service and has increased the number of markets it serves. Deploy Solutions, Inc. (Private) Founded 1997, Auburndale, MA; Talent Management Systems Major Business Segments Recruiting; Career Websites & Portals; Kiosks; Telephone Job Hotline; Assessments; On-boarding/Off-boarding; Perf. Management Deploy Solutions, a division of Kronos, is a provider of talent management software and services. The company s Enterprise Talent Suite is an integrated portfolio of services including its applicant tracking system that assists in creating requisitions, processing resumes, screening candidates, and creating job offers. Deploy s career website services include website design, candidate marketing services and multipost requisitioning that enables companies to post jobs on designated job boards in addition to their corporate websites. Deploy s career portal services allow companies to design portals where employees can create profiles and receive alerts when matching jobs becomes available. Deploy s OnBoarding services facilitate new hire processing by utilizing data captured during the application process to auto-fill documents such as I-9 forms. The company s performance management services automate the performance review process and apply information gathered from employee reviews to the recruiting and hiring process. Deploy s solutions are customizable for specific industries and can be provided via a SaaS offering or as installed applications. The company was acquired by Kronos in October Deploy s client list, which includes companies such as AON, Bristol-Myers Squibb, Hewitt, Prudential, Southwest and Wal-Mart, should assist in marketing its services to new clients. According to the company, Deploy has consistently experienced revenue growth of over 50% for the past five years. Robert W. Baird & Co. 158

160 Comprehensive Guide to Human Capital Services Halogen Software, Inc. (Private) Founded 2001, Ottawa, ON; Time/Attendance Major Business Segments Employee Performance & Talent Management Suite (eappraisal, ecompensation, esuccession, e360, elms and esurveyor) Halogen Software provides companies of all sizes with a suite of web-based employee performance and talent management solutions. Halogen s suite of products helps companies align employee goal plans across the organization, create professional quality appraisals, administer 360-degree feedback procedures, prepare employee development plans, plan training, prepare merit-based compensation adjustments to reward and retain key employees, perform web-based surveys as well as assist in succession planning. The company also provides industry-specific suites for healthcare, financial services and professional services. Customers have the choice to deploy Halogen s software on their premises or have their solution hosted by the company. Halogen has approximately 1,000 customers worldwide. Halogen s solutions are designed to be simple to use. Many of the company s customers are up and running using their Halogen solution within a matter of days. Halogen s products also allow users to create and change forms, assessments, reports, and goal and development plans without any need for IT or vendor involvement. The company also focuses on making its solutions affordable to implement. Kenexa Corporation (KNXA) Founded 1987, Wayne, PA; Talent Management Systems Major Business Segments Talent Acquisition; Employee Performance Management; Employment Process Outsourcing Kenexa s talent acquisition suite includes solutions for applicant tracking, phone screening, skills assessments, behavioral assessments, and structured interviews. Kenexa has multiple applicant tracking system (ATS) products. Kenexa Recruiter serves mid-to large-sized domestic companies with centralized recruiting processes. Kenexa Recruiter BrassRing serves large customers with more complex and/or decentralized recruiting processes and supports multi-national clients with multi-language requirements. Kenexa StoreFront serves customers with hourly and retail specific recruiting needs. Kenexa Recruiter is fully integrated with other Kenexa solutions including Kenexa ProveIt! (a library of over 800 skills tests), Kenexa Selector (online candidate assessments) and Kenexa Insight (customized behavioral-based structured interviews). From the Kenexa Recruiter desktop, KenexaConnect provides internet job-posting management and resume search capabilities through its access to over 2,200 job boards, Monster's resume database, AIRS web mining services, epredix assessments as well as solutions from Zoom Information, Sterling Testing Systems and First Advantage Tax Consulting. Kenexa Recruiter can be fully integrated with HRIS systems such as PeopleSoft, Oracle, SAP, ADP and Lawson. Kenexa differentiates itself through the depth and breadth of its product offering. The company has over 2,500 clients including well-known companies such as Bank of America, Wachovia, Johnson & Johnson, Amgen, Microsoft, Home Depot, Target, FedEx, American Airlines, ExxonMobil, BP and Exelon. Business Services Human Capital Services 159

161 February 2008 Kronos Talent Management (Private) Founded 1996, Beaverton, OR; Talent Management Systems Major Business Segments Talent Management; Employee Selection; Business Impact Consulting; Professional Services In August 2006, Kronos, a provider of workforce management solutions, acquired Unicru which is a provider of talent management solutions. Following the acquisition, Unicru began operating as the Kronos Talent Management division which strives to integrate hiring management, selection science and workforce analytics to help employers improve productivity. Kronos Workforce Acquisition solution is an integrated, web-based hiring management system that automates and streamlines the hiring process by providing applicant tracking, job postings services, pre-employment screening (background, drug, criminal, employment, education, etc.), employee selection tools such as behavioral and skills assessments, tax credit capture (WOTC, WtW, etc.) and on-boarding services. Kronos also provides professional services that include solution implementation, training, and support to help ensure a smooth rollout. Additional services provided by the company include a business impact consulting team that performs workforce audits and designs targeted selection programs to address the strategic hiring needs of the clients. Kronos was acquired by Hellman & Friedman Capital Partners in June Kronos further bolstered its talent management offering by acquiring Deploy Solutions in October Prior to its acquisition, Unicru, which employs a software-as-a-service model, experienced seven straight years of double-digit organic revenue growth. Unicru has historically been focused primarily on retail clients; however, its acquisition by Kronos should result in cross-selling opportunities into other verticals such as hospitality, manufacturing and government. Peopleclick, Inc. (Private) Founded 1997, Raleigh, NC; Talent Management Systems Major Business Segments Recruitment Management System; Vendor Management System; Affirmative Action Planning Software & Services; Research Institute Peopleclick is a provider of managed software and consulting services including web-based recruitment, staffing vendor management and affirmative action solutions. Peopleclick s recruitment management system (RMS) manages the entire job requisition process, provides candidate search capabilities, allows users to manage all their postings using one process for internal and external career sites and numerous job boards, and administers questionnaires to assess candidates qualifications for the position. RMS offers customized reporting and analytics which enable the analysis and improvement of the hiring process and assists in monitoring compliance with diversity objectives. RMS has global capabilities and supports over 77 languages. Peopleclick offers affirmative action software and outsourcing solutions that include producing technically compliant affirmative action plans (AAPs) for clients as well as monitoring compensation levels and analyzing an organization's hiring, promotion and termination practices for potential discrimination. Peopleclick s VMS offering helps clients control its contingent workforce staffing by providing greater visibility into labor procurement costs and vendor quality. Peopleclick serves over 1,800 clients worldwide in 192 countries including over half of the Fortune 100. Peopleclick continues to expand internationally having signed new clients in the UK, Europe, Australia, Canada and Africa during Over 25% of Peopleclick s client base is located outside of the US. Robert W. Baird & Co. 160

162 Comprehensive Guide to Human Capital Services Plateau Systems, Ltd. (Private) Founded 1996, Arlington, VA; Talent Management Systems Major Business Segments Plateau Learning; Performance; Compensation; Career & Succession; Learning Plateau is a provider of talent management solutions focused on learning management, performance management, compensation management and career and succession planning. Plateau s learning products enable companies to manage training across its workforce by defining competencies by job role and/or individual, delivering tests to assess employee knowledge, identifying training requirements, deploying the appropriate training and tracking its completion. Plateau s performance products automate the review process by creating and maintaining performance plans, tracking when and how employees should be evaluated, facilitating 360-degree reviews and enabling organizations to take high-level strategic goals and translate them down the organizational hierarchy into individual goals. Plateau s webbased compensation planning system enables compensation managers to model and implement compensation programs, simulate the impact of compensation plan changes as well as provide access to historical compensation, performance ratings and titles which can then be correlated with market data. Lastly, Plateau created a web-based career & succession system that generates development plans, identifies crucial roles in a company, determines staffing needs and performs best candidate analyses. In order to continually improve its content quality and functionality, Plateau has entered into numerous alliances with content partners, consulting & integration partners, application providers, technology providers and international resellers. Softscape, Inc. (Private) Founded 1994, Weyland, MA; Talent Management Systems Major Business Segments Human Capital Management; Case Management; Management Consulting; Technology Development Softscape is a provider of web-enabled human capital management solutions. The company s HCM capabilities are based on Softscape Apex, which is a modular platform capable of running independent modules or fully integrating all modules into a single end-to-end solution. Softscape s product modules include workforce planning, talent acquisition, performance management, learning management, compensation management, workforce collaboration, HR management and workforce analysis. Softscape s talent acquisition module includes automated requisition creation and approval, position profiling, job posting, applicant tracking, pre-screening, interview scheduling, behavioral-based interviewing questions, candidate assessments, reference checking and data capture on each candidate for EEOC reporting. Softscape offers its configuration toolkit so that organizations have the ability to configure the Softscape Apex suite on an ongoing basis without reliance upon IT staff. The company uses its Softscape PeopleOS technology infrastructure which enables customers to connect their upstream and downstream applications directly to the Softscape s HCM functions. The company has customers located in 156 countries across 30 verticals. The company believes that the flexibility of its solutions is a differentiator. Softscape s solutions can be implemented out-of-the-box (standard), configured, or tailored to meet specific customer needs. Solutions can also be provided on-demand (hosted), on-premise (purchased) or on-choice whereby customers purchase software licenses while still benefiting from Softscape s hosting and maintenance services. Business Services Human Capital Services 161

163 February 2008 SuccessFactors, Inc. (SFSF) Founded 2001, San Mateo, CA; Talent Management Systems Major Business Segments Performance and Talent Management Solutions SuccessFactors is a leading provider of on-demand performance and talent management solutions. The firm s Enterprise (for companies with +1,500 employees) and Mega Enterprise (+20,000) product suites include a variety of modules to assist companies with performance reviews, 360-degree reviews, goal management, talent and succession planning, career/development planning, competency assessments, learning management, compensation planning, employee surveys, recruiting management and analytics and reporting. The company also offers small and mid-sized clients simplified, less expensive packages. However, as all of the modules in SuccessFactors suite can be seamlessly integrated and licensed separately, companies have the option to add different modules over time. SuccessFactors products are used by over 2 million employees at 1,400 customers in 156 countries. The company s talent management solutions can be provided via 18 different language platforms which enables the company to serve multinational clients. Taleo Corporation (TLEO) Founded 1996, San Francisco, CA; Talent Management Systems Major Business Segments Application; Consulting Services Taleo, formerly Recruitsoft, is a leading provider of on-demand talent management solutions that enable companies to automate and manage their worldwide staffing processes. Taleo s enterprise solution encompasses workforce planning, talent sourcing, contingent labor procurement, candidate assessment, selection, performance management, career planning, leadership & successor planning and goals management. Taleo also offers optional product modules to extend the performance of its core solutions to include regulatory compliance, effective retention and internal mobility programs, campus recruiting, onboarding, and consolidation of multiple talent management systems. Taleo offers its Business Edition solution which emphasizes speed, ease of use and affordability to standalone departments, company divisions, small businesses, or staffing companies. Taleo also provides specialized solutions for companies in the financial services, healthcare, higher education, life sciences, retail, manufacturing, public sector, foodservice, energy and professional services industries. Taleo serves over 1,000 clients with 900,000 registered users in 100 countries. In 2006, roughly 81% of revenue came from hosting and supporting the company s software applications with the remaining 19% coming from consulting services. Taleo has ties with numerous blue-chip firms, including Hewlett-Packard, Toyota Motor Co., DuPont, Starbucks, and Dell. Moreover, Taleo s multi-language platform and the ability to serve over 100 countries should help to attract global companies. Robert W. Baird & Co. 162

164 Comprehensive Guide to Human Capital Services VCG, Inc. (Private) Founded 1976, Roswell, GA; Talent Management Systems Major Business Segments Software Solutions; Professional Services VCG is a developer of software solutions and services for recruiting and staffing companies. Pointwing is the company s new modular recruiting and staffing software which offers the following modules: Front Office, Self Service and Dashboard. Pointwing Front Office is the core recruiting and CRM module that includes an applicant tracking system which provides resume parsing and search capabilities. Pointwing Self Service is a web portal that integrates with a company's existing web site to enable online job posting, online applications and provide customers the ability to submit and check orders. Dashboard is a web-based business intelligence module that monitors key performance indicators. StaffSuite is VCG s staffing software platform that fully integrates front office activities (sales, client orders, recruiting, work order coordination) with back office operations (temp employee payroll, client billing, general ledger interface and reporting and analysis). VCG offers additional modules including personality/cognitive assessments (SuccessCheck) and web-based timesheet data entry and approval (TimeKeeper). VCG also provides consulting, disaster recovery, hosting, software support and web design services. The company supports over 14,000 professionals worldwide. One of Pointwing s advantages is its flexibility. Pointwing uses Microsoft s.net technology and the latest service oriented architecture (SOA) which allows Pointwing to be customized to support a company s unique workflow and to integrate with other services such as skills testing and background checks. Vurv Technology, Inc. (Private) Founded 1996, Jacksonville, FL; Talent Management Systems Major Business Segments Enterprise; Express; Vurv Strategy and Services Formerly called Recruitmax, Vurv provides software and services to help companies attract, hire, and retain employees more efficiently. Vurv Enterprise is a web-based suite of workforce management applications that provides recruitment, on-boarding, performance management, succession planning, and compensation management services to large companies. The enterprise product suite is available ondemand in a modular form or integrated into one comprehensive system. Vurv Enterprise offers recruiting applications to meet the needs of global companies that hire professional, hourly and contingent workers as well as specialized applications for staffing and recruitment agencies. Vurv also offers a staffing vendor management application to help firms optimize supplier relationships. Vurv s Express product line provides recruitment and performance management services designed for small to mid-sized businesses. Vurv Express Recruitment is a full-featured ATS that provides screening and assessment tools, resume search capabilities as well as the ability to automatically distribute jobs to premium job board accounts and to a network of over 2,500 free job boards. In addition to its web-based offerings, Vurv also offers strategic business consulting, global deployment and technology integration services. Vurv has more than 2,000 total customers including over 300 large, enterprise customers. With over 300 enterprise clients in more than 50 countries, Vurv has demonstrated the ability to service complex, global organizations. According to the company, the ease-of-use of its applications, product functionality and innovation, global capabilities and focus on client relationships has resulted in customer retention in excess of ninety-nine percent. Business Services Human Capital Services 163

165 February 2008 Workstream, Inc. (WSTM) Founded 1996, Ottawa, Canada; Talent Management Systems Major Business Segments Enterprise Workforce Services; Career Networks WSTM provides compensation, performance and talent management solutions to enterprise and mid-size businesses. WSTM solutions are offered on a monthly subscription basis, under a software-as-a-service (SaaS) model. The Enterprise Workforce Services (EWS) segment (72% of fiscal 2006 revenue) offers a suite of software solutions addressing recruitment, benefits administration, performance management, development, transition, succession planning and compensation management. Enterprise clients access WSTM s solutions through the Workstream TalentCenter, a web-based portal that aggregates all of the resources relevant to workforce management. The company s Professional series of solutions provides performance management, 360 assessments, development, compensation management and succession planning services to mid-sized companies (under 2,500 employees) with a focus on quick setup, ease of use and affordability. The Career Networks (28% of revenue) segment offers recruitment research, resume management and career transition services. The company s career transition group operates under the name Allen & Associates and offers job seekers assessment and coaching services. Allen & Assoc. also provides outplacement services to enhance corporate image and minimize liability claims. WSTM serves over 400 customers across all industries throughout North America. According to the company, Workstream s customer retention rate exceeds 96%. The company s client list includes numerous well-known companies including Verizon, Wells Fargo, GlaxoSmithKline, Visa, Dell, Kaiser Permanente, Virgin Mobile, Liberty Mutual, American Red Cross, Gap and Nordstrom. Robert W. Baird & Co. 164

166 Comprehensive Guide to Human Capital Services Vendor Management Systems Companies Profiled: MPS Group, Inc. (Beeline) MPS Group, Inc (Chimes/Ensemble/Axium) ework, Inc. Fieldglass, Inc. IQNavigator, Inc. PrO Unlimited Taleo Corporation Nelson Family of Companies (WorkforceLogic) Business Services Human Capital Services 165

167 February 2008 Beeline (MPS) Founded 1999, Jacksonville, FL; Vendor Management Systems (VMS) Major Business Segments Workforce Acquisition, Management, and Analytics Beeline is a subsidiary of the staffing firm MPS Group that specializes in workforce optimization. The company engages in three main lines of business: workforce acquisition, management, and analytics. In the areas of talent acquisition, Beeline provides web-based, on-site, and supplier-neutral human capital management automation software solutions, including applicant tracking. The company s suite of vendormanaged services include vendor due diligence, proactive compliance reporting, volume discounts, supplier performance measurements, electronic communication, temp employee bill rate cards, and time and expense processing. Beeline acquired Employer Services Corporation in May 2007 and Integrated Performance Systems (IPS) in September In January 2008, the company acquired the assets of Chimes (now part of Ensemble Workforce Solutions) as noted below. Beeline streamlines the creation, distribution, and tracking of position requirements for both full-time and contingent worker procurement, as well as the interaction between clients and their suppliers. Beeline also applies its service model specifically to the healthcare industry, automating contract labor procurement, approved vendor management, and billing processes. Chimes (MPS) Founded 1970 (Chimes), Los Angeles, CA; Vendor Management Systems (VMS) Major Business Segments Managed Services, Workforce Automation, Risk Mitigation, Supplier Diversity, Payroll Services Chimes (also known as Ensemble Workforce Solutions) was until recently an affiliate of AXIUM International that provides vendor management systems. AXIUM originally made its entry into the human capital services industry as a provider of payroll services to the entertainment industry. The company made a meaningful inroad into the vendor management system space and broadened its client base when it acquired Chimes, Inc. from Computer Horizons Corp. in February Post acquisition, Chimes became part of Ensemble Workforce Solutions. At its height, Ensemble was the largest vendor-neutral managed services company servicing over 50 companies in 16 countries. It provided enterprise-wide, flexible and scalable technologies to assist in the management of contingent workforces. Its solutions include managed services, supplier diversity, workforce automation, services procurement, risk mitigation and worker classification, and payroll services. Ensemble offers its services on either a stand-alone or bundled basis. On January 9, 2008, Axium International filed for Chapter 7 bankruptcy. As part of the bankruptcy proceedings, the assets of Chimes, including software platforms and related intellectual property were auctioned off and acquired by Beeline (MPS). Prior to being acquired by AXIUM and being made part of Ensemble Workforce Solutions, Chimes claimed to have delivered average cost savings of 8-15% for its clients within the first year of systems implementation, a strong record within the VMS space. Robert W. Baird & Co. 166

168 Comprehensive Guide to Human Capital Services ework, Inc. (Private) Founded 1999, San Francisco, CA; Vendor Management Systems (VMS) Major Business Segments ework Enterprise; ework Markets; ework Healthcare ework, Inc. provides solutions to help clients manage their professional contract workforces to obtain high quality contract workers while controlling expenditures and assisting in compliance. Its solutions integrate enterprise-class applications, outsourced managed services, and a consultant supplier network. Its integrated solutions include: (1) ework Enterprise (formerly ework ProSource), an on-demand software application that automates the procurement of contingent workers from requisition to reconciliation and provides clients with real-time analytics and key metrics; (2) ework Markets (formerly Prosavvy), which offers 2,000 pre-qualified affiliated suppliers to source unique consulting services, and (3) ework Healthcare, a vendor-neutral on-demand vendor management system tailored to the healthcare industry to help companies manage their contingent workforces, including per diem nurses, travel nurses, locum tenens and other allied healthcare professionals. The VMS system within both the Enterprise and emarket businesses provides a dashboard where client corporations and vendor affiliates can connect through an auction process. ework helps organizations reengineer processes, gain visibility into contract workforce spend, optimize supplier performance, and reduce co-employment compliance risk. The company typically focuses on large enterprises and offers highly scalable solutions. It also provides consultants through the ework Consultant Supplier Network to assist clients with various initiatives including six sigma and Sarbanes Oxley compliance. Fieldglass, Inc. (Private) Founded 1999, Chicago, IL; Vendor Management Systems (VMS) Major Business Segments Contingent Labor Procurement & Management; Consulting, Outsourcing, Off-shoring services Fieldglass is a leading software technology company focused on the global 2000 that provides vendorneutral procurement of temporary staffing services. The firm s primary on-demand application, InSite, creates a secure private marketplace for corporations to interact with their staffing vendors of choice. In doing so, the program helps customers reduce service spend, improve the speed of resource procurement, enforce regulatory compliance, ensure supplier accuracy, timeliness, and quality, and gain transparency into the enterprise. InSite can also generate standard and customizable reports for recruiters of all experience levels. Insite s consolidated software suite supports a secure interface where buyers, suppliers and other decision makers can communicate electronically. InSite is a highly configurable system that enables organizations to define individual user roles, set permissions, create vendor tiers, assign accounting codes and build approvals, thus creating a customized procurement solution. It helps users reduce service procurement costs, reduce procurement cycle times, enforce compliance, and ensure supplier quality. InSite seamlessly integrates with many back-end business systems. Business Services Human Capital Services 167

169 February 2008 IQNavigator, Inc. (Private) Founded 1999, Denver, CO; Vendor Management Systems (VMS) Major Business Segments Outsourcing; Contingent Workforce; Professional Services; IT Services; Facilities Management; Field Services; Marketing & Print Services IQNavigator is a Java-based technology firm that provides end-to-end e-procurement services. The company s tiered supplier capabilities promote preferred and targeted networks, which help organizations establish and pursue volume and overtime discounts, diversity initiatives, and a more efficient and controlled sourcing process. To manage vendor performance, IQNavigator 8.0 (the firm s leading product) tracks key performance indicators through online supplier evaluations, enabling customers to create weighted scoreboards of different suppliers. The company s SaaS model also ensures that there are no up-front technology costs associated with servers or installation, that systems are rapidly implemented, and that free upgrades are continuously available. IQNavigator s key market segments include financial services, energy, healthcare, manufacturing, and aerospace/defense. In addition to its U.S. operations, the company has a European headquarters in London with plans for additional global expansion. IQNavigator 8.0 s software incorporates many global features such as the ability to input organizationdefinable business rules and functions to help ensure the adherence to varying taxation, finance, and labor laws. IQNavigator is in position to potentially gain from more firms commencing global rollouts. PrO Unlimited, Inc. (Private) Founded 1991, Boca Raton, FL; Vendor Management Systems (VMS) Major Business Segments Contingent Staffing Management (onsite), PrOBid (webbased) PrO Unlimited delivers a full range of services to manage issues related to the procurement, selection, engagement and tracking of contingent workers through a proprietary, internet-based software solution, Workforce Alliance Network Direct ( WAND ). PrO's solutions help clients reduce costs and address critical issues including: supplier management, worker classification, lifecycle tracking, co-employment, headcount & expense tracking and 1099 management. PrO s onsite Contingent Staffing Management service provides clients with steeper volume discounts on contingent labor, faster order fulfillment, higher quality candidates, consolidated billing, staffing supplier reviews, headcount and hours tracking, and security and background screening. PrOBid is a web-based tool that automates the procurement and tracking of fixed price, milestone and time/materials-based project work. Utilizing PrO's WAND system, PrOBid provides a dynamic online bidding environment along with project tracking features. PrO services leading Global and Fortune 500 companies and works with more than 20,000 contingent workers annually through a network of over 1,000 staffing suppliers. As an early entrant into the industry, PrO offers some of the most evolved products and services in the space. PrO utilizes Miller Heiman's LAMP (Large Account Management Process) strategy to ensure complete customer service satisfaction for its clients. PrO has also developed a TQM measurement process, which ensures that all suppliers working through PrO's program are fully assessed on a quarterly basis. Robert W. Baird & Co. 168

170 Comprehensive Guide to Human Capital Services Taleo Corporation (TLEO) Founded 1996, San Francisco, CA; Vendor Management Systems (VMS) Major Business Segments Taleo Enterprise; Taleo Business Taleo (formerly Recruitsoft) is a leader in recruitment and talent deployment automation, helping clients assess, acquire, develop, and align their workforce with business objectives. The company entered the VMS market in October 2003 through the acquisition of White Amber. The White Amber solution has since become Taleo Contingent, the company s solution to automate contingent workforce sourcing and management for large enterprises. Taleo Contingent leverages the Taleo Enterprise Edition platform to enable the sourcing, screening, and selection of both contract and full time workers from a single interface. Taleo Contingent allows clients to implement negotiated rate structures for each job and location, increase supplier competition through competitive bidding, and leverage preferred supplier relationships in order to improve pricing. The solution also helps companies streamline and automate their hiring processes by ensuring that the user-defined approvals, rates, suppliers, and workflows are consistently used throughout the company. The solution also provides extensive reporting for candidate and supplier performance metrics. Taleo has strong ties with numerous blue-chip firms, including Hewlett-Packard, Toyota Motor Co., Johnson Controls, Seagate, and Dell. Moreover, Taleo s multiple language and currency sourcing capabilities should help attract companies trying to manage a global contingent workforce. WorkforceLogic (Private) Founded 1970, Sonoma, CA; Vendor Management Systems (VMS) Major Business Segments Risk Mitigation, Talent Acquisition Management, Contingent Workforce Planning WorkforceLogic is an innovative workforce management company focused on risk mitigation, talent acquisition management and contingent workforce planning. It helps clients manage their workforce acquisition process while managing costs and mitigating risk through a flexible, adaptable suite of services and software tools. The company offers customized risk mitigation solutions to help clients manage risks inherent when utilizing a contingent workforce, including I-9 processing, employment eligibility, and contractor and supplier compliance. The company s talent acquisition management solution helps clients recruit high-quality talent, reduce recruitment cycle times, and control contingent workforce management spend. The company s contingent workforce planning helps clients assess the composition of their contingent workforce and the mix between the traditional and contingent workforce with the overarching goal of helping clients achieve their business goals while minimizing labor costs. WorkforceLogic is part of the Nelson Family of Companies. With over 35 years of experience in developing talent acquisition strategies, WorkforceLogic has one of the most evolved solutions in the industry. Its experience with risk mitigation is especially important for clients that must comply with SOX. The company s systems also fully integrate with most HRIS. Business Services Human Capital Services 169

171 February 2008 HRMS Software Solutions Companies Profiled: Infor Global Solutions Lawson Software, Inc. Oracle/Peoplesoft Sage Software, Inc. SAP AG Ultimate Software Group, Inc. Workday Robert W. Baird & Co. 170

172 Comprehensive Guide to Human Capital Services Infor Global Solutions (Private) Founded 2002, Alpharetta, GA; HRMS Software Solutions Major Business Segments Enterprise Software Infor offers a range of enterprise business software including customer relationship management, enterprise asset management, enterprise resource planning, financial management, human capital management, performance management, product lifecycle management, supplier relationship management, and supply chain management. Infor HCM is a web-enabled human capital management system that addresses the entire recruit-to-retire process. The Infor HCM solution includes Core HR Management (benefits administration, compensation, and payroll & taxation administration), Workforce Management (time & attendance, workforce scheduling, workforce planning, absence management, etc.), and Talent Management (recruitment, learning, performance management, succession planning). Infor s HR software accommodates multiple languages, currencies, banks, tax definitions, benefits, security configurations, and platforms. Infor has implementation and support capabilities in 100+ countries. Infor has been enriching its service offering by acquiring additional capabilities. The company recently acquired Workbrain, a provider of web-based workforce management solutions, in June 2007 and Extensity, a provider of employee relationship management (ERM) solutions, in August Lawson Software, Inc. (LWSN) Founded 1975, St. Paul, MN; HRMS Software Solutions Major Business Segments Enterprise Resource Planning Software; Consulting Lawson is a global provider of enterprise software to more than 4,000 customers in 40 countries and 20 languages. The company provides business application software, services and maintenance to customers primarily in the services sector, trade industries, and manufacturing/distribution sectors. The company in particular focuses on middle-market and resource-strained customers, with a specific emphasis on the healthcare, retail, and fashion industries. Lawson s software solutions include enterprise financial management, human capital management, business intelligence, asset management, enterprise performance management, supply chain management, service management, manufacturing operations, business project management, and industry-tailored applications. The company s consulting revenue is generated primarily through helping clients implement Lawson applications and providing maintenance services. Lawson significantly expanded its business in 2006 through the acquisition of Intentia International, a Sweden-based provider of enterprise software, primarily for mid-market European companies. In our view, Lawson obtains its competitive advantage by focusing on mid-market clients and specific industries, which enables it to develop solutions that are often better tailored to its clients than competitor s offerings. Additionally, the company s solutions focus on budgeting and planning, domainspecific analytics and scorecarding. Business Services Human Capital Services 171

173 February 2008 Oracle/Peoplesoft (ORCL) Founded 1977, Redwood City, CA; HRMS Software Solutions Major Business Segments Software Licenses/Updates/Product Support; Services Oracle is the world s largest enterprise software company. It develops, manufactures, markets, distributes and services database and middleware software as well as applications, and provides global support programs for Linux. Oracle has supplemented its organic growth with a large number of acquisitions, three of the most notable of which were the 2003 acquisition of J.D. Edwards & Co., the 2005 acquisition of Peoplesoft, and the 2006 acquisition of Siebel. Oracle is organized into two business segments: software (new software licenses, software license updates and product support), and services (consulting, On Demand, and education). The company has literally hundreds of products, which are tailored for different industries, client sizes, and functional requirements. Oracle has an enviable customer list, including 1,500 public sector organizations, the world s top 10 banks, the words top 10 academic institutions, and 19 of the world s top 20 telecom companies. According to IDC, Oracle has a 44.4% market share. Sage Software, Inc. (LSE: SGE) Founded 1971, Irvine, CA; HRMS Software Solutions Major Business Segments Business Management; Industry & Specialized Solutions; Payment Services; Healthcare Sage Software, Inc. is the North American subsidiary of British software maker The Sage Group, PLC. Like its parent, the company sells business management products to small (<25 employees) and medium (25<employees<500) businesses. Sage provides software products for a broad range of areas including accounting, budgeting, construction, CRM, manufacturing, non-profit and real estate. Sage also provides a range of HR and payroll management solutions. Sage Abra HRMS, the company s most comprehensive HR and payroll offering, allows companies to choose from a range of services including employee self service (Abra ESS), benefits enrollment, HR management (government compliance, benefits administration), payroll, attendance, employee training management, recruiting (applicant database, resume processing, resume search), organizational chart creation, web-based training on HR/legal matters and reporting. Sage also offers a line of time and expense tracking products for businesses that bill multiple external customers per day such as law firms (Sage Carpe Diem), project-oriented organizations (Sage TimeSheet) and service professionals (Timeslips by Sage). SGE now serves over 2.8 million North American SMB customers, which account for over half of Sage Group s 5.4 million global clients. The firm s long history and heavy market penetration make Sage Software one of the more attractive software companies. In addition, software contracts generally increase in value over time due to the recurring revenue stream coupled with minor ongoing expenses. Robert W. Baird & Co. 172

174 Comprehensive Guide to Human Capital Services SAP AG (WKN: SAP, NYSE.ADR: SAP) Founded 1972, Walldorf, Germany; HRMS Software Solutions Major Business Segments Product; Consulting; Training SAP develops and licenses business software solutions, and has three reportable segments: product, consulting, and training. The company sells maintenance, consulting, training and other services related to its software products. It has over 38,000 customers in over 120 countries and has completed over a 105,000 installations, providing services for six general industry sectors; namely, process, discrete, consumer, service, financial services and public services. SAP divides its solutions into two general areas: Enterprise Applications and Business Solutions, and is in the process of developing solutions for midsized companies. Its solutions are delivered via three platforms: Enterprise SOA, SAP NetWeaver, and Ecosystem. Finally, the company provides users with services to extract the maximum value from their SAP solution, including SAP experts, global support, methodologies, tools, and certified partners. In total, SAP has 185,000 certified partner employees, 11,000 consulting and education employees, 6,000 service and support staff, and 77 training centers. SAP has an extensive support network that maximizes the ease of transition/integration and a broad support network that leads to high user satisfaction rates. Finally, with the consolidation that has occurred in the space, SAP is one of only a few providers capable of delivering truly global solutions. Ultimate Software Group, Inc. (ULTI) Founded 1990, Weston, FL; HRMS Software Solutions Major Business Segments HR Services; Benefits Services; Payroll Services Ultimate Software designs, markets, implements and supports comprehensive human capital management (HCM) systems. The company s target market includes organizations in the United States and Canada with at least 200 employees. The company's solution, which is branded "UltiPro", is a comprehensive, single source web-based solution that is designed to help clients manage the complete employee life cycle from recruitment to retirement. Its core UltiPro solution includes feature-sets for talent acquisition and hiring, human resources compliance, online benefits enrollment and management, payroll, performance management and appraisals, learning management, reporting and analytical decision-making tools, time and attendance, and a self-service web portal. ULTI also offers more comprehensive "add-on" modules to enhance the functionality in areas such as Recruitment, Performance Management, and Time & Attendance. It plans to have add-on modules available by the end of 2008 to enhance its Compensation Management, Learning Management, Succession Planning, and On-Boarding capabilities. Ultimate Software sells its software either on a license basis or via Software-as-a-Service (SaaS), which is branded "Intersourcing." Ultimate Software is based in Weston, FL and provides solutions to over 1,500 companies in a wide range of industries. Ultimate s competitive advantage stems from having a comprehensive payroll solution at the epicenter of its offering, a highly configurable single source code, and well regarded customer service, and from offering its service via either SaaS or a license agreement. We believe that the company s key drivers will be its dedicated expansion into the mid-market (companies with employees) through its Workplace offering, the development and sale of add-on modules, and its expansion into Canada. Business Services Human Capital Services 173

175 February 2008 Workday (Private) Founded 2005, Walnut Creek, CA; HRMS Software Solutions Major Business Segments Workday Enterprise Business Services Workday is an on-demand enterprise business services provider. It was founded in March 2005 by Dave Duffield, the founder and former CEO of Peoplesoft. It provides on-demand Enterprise Business Services for Human Capital Management, Financial Management, Resource Management, and Revenue Management. Its Human Capital Management services help companies manage both their permanent and temporary employees through the hire-to-retire process, including recruitment, life-cycle management, compensation, performance, competencies, succession planning, and development. It also provides a broad range of human capital management services from applicant tracking to payroll to performance management. Workday serves clients as small as a few hundred employees, but also has the capabilities to serve much larger clients. While Workday is one of the most recent entrants to the space, being founded by the founder of Peoplesoft enabled it to quickly develop a comprehensive, easy to use system. Utilizing a SaaS model enables Workday s customers to update their solutions to adapt to their requirements in real-time. Robert W. Baird & Co. 174

176 Comprehensive Guide to Human Capital Services Time and Attendance Companies Profiled: CyberShift, Inc. Kronos, Inc. Paychex, Inc. (Stromberg) Valiant Infor Global Solutions (Workbrain) Business Services Human Capital Services 175

177 February 2008 CyberShift, Inc. (Private) Founded 1996, Parsippany, NJ; Time/Attendance Major Business Segments Workforce Management; Professional Services CyberShift is a provider of workforce and expense management software and services. The company s Workforce Management 3G suite of solutions facilitates complex issues such as employee scheduling and optimization, time and attendance, absence and leave management, expense management, Family Medical Leave Act (FMLA) case management as well as workforce and expense reporting and analytics. The company s web-based products are fully integrated and are available either through a Software-as-a- Service (SaaS) model or by the purchase of a license for in-house installation. For small-to-medium size businesses with less than 5,000 employees, CyberShift offers TruTrack which is a client server time and attendance system that integrates time and attendance and employee scheduling with employee entitlements and accruals management, labor distribution, job tracking, permission-based access control and report writing in a single system. TruTrack is compatible with most existing network systems and supports Oracle, Microsoft SQL and Interbase as database platforms. CyberShift has over 100 client companies in a variety of industries including financial services, education, energy, manufacturing, media & entertainment, the public sector, pulp and paper, retail and transportation. The company s solutions were built using a service-oriented architecture that provides a powerful foundation for component applications and enables rapid deployments, flexible configurations and greater system-to-system interoperability. CyberShift also offers a single portal format for all user interactions with the system which permits users to execute all activities without ever leaving a single screen. Kronos, Inc. (Private) Founded 1977, Chelmsford, MA; Time/Attendance Major Business Segments Workforce Management; Talent Management Kronos provides a suite of solutions that automate employee-centric processes to optimize the workforce. Kronos solutions address time and labor, scheduling, talent management, human resources, payroll, absence management, labor activity tracking, data collection, self-service and workforce analytics. The company pioneered the front-line labor management system market nearly 30 years ago, and is now the largest provider of time and attendance applications by revenue. Kronos automates the real-time collection of labor information from time clocks, web-based applications, desktop applications, telephones and PDAs. Through its Workforce Central software suite, Kronos subsequently leverages this information to help companies plan, track, and analyze their employee activities in order to improve workforce productivity and lower labor costs. Kronos employs approximately 3,400 individuals and operates over 60 offices in North America, Europe, Australia and New Zealand. Kronos was acquired by Hellman & Friedman Capital Partners in June Kronos already occupies 45% of the $1.3 billion time and labor applications market (Baird estimates). Nevertheless, management has been aggressively pursuing opportunities to expand its service offering (refer to the talent management systems section for a discussion of Kronos Talent Management). Kronos is also well positioned to address the international markets which are currently underserved. In June 2007, the company expanded its presence in Europe by acquiring Captor, a provider of workforce management solutions to customers throughout Europe. Kronos generates high returns and recorded 108 straight quarters of year-over-year revenue growth through December Robert W. Baird & Co. 176

178 Comprehensive Guide to Human Capital Services Stromberg (PAYX) Founded 1989, Lake Mary, FL; Time/Attendance Major Business Segments Time and Attendance; Scheduling; Data Collection Stromberg is a leading provider of time and attendance software solutions. Stromberg Enterprise is a complete T&A solution for mid-to large sized businesses. Features of the Enterprise Time and Attendance software include time card management, historical reporting capabilities (including exception reporting to track employee compliance with HR policies over long periods of time), access to archived time cards, reporting, employee self service and the ability to interface directly with payroll, HR and/or ERP systems. Stromberg s Enterprise Scheduling is a complete personnel management solution that is comprised of three modules that address scheduling, forecasting and budgeting for the work force. These modules can be installed individually or in any combination and can be fully integrated with the T&A system. Stromberg offers magnetic strip, bar code and biometric time clocks as well as web-based systems to collect data. The company also offers specialized services for the healthcare, retail, hospitality, manufacturing and government sectors. Stromberg supports over 500,000 worksite employees. Stromberg is unique in three aspects: 1) it offers clients free upgrades and product enhancements; 2) the costs of system implementations and training services are fixed and are negotiated up front (additional work and training is free of charge); and 3) it guarantees a 30-second call response time and technical support within 30 minutes. The company s focus on service has resulted in a 99.7% customer retention rate. The company s relationship with its parent, PAYX, which acquired Stromberg in 2004, should also provide long-term financial support. Valiant (Private) Founded 1992, Woodbury, NY; Time/Attendance Major Business Segments Workforce Management; Time & Attendance; Employee Scheduling; Payroll Processing; Human Resources Valiant is a comprehensive workforce management solutions provider that provides time & attendance, scheduling, payroll, HR and business process outsourcing solutions on a hosted Software-as-a-Service platform. Its products include Vision, an automated employee scheduling solution; Vault, a payroll solution; View, a human resources solution; Vantage, a telephony-based time and attendance solution; Velocity, an electronic timesheet solution; VIP (Valiant Information Portal), an automated, web-based employee self service portal; and VAL Link Biometrics, an automated biometric time and attendance solution that integrates with the company s Vision and Vault workforce management solutions. The company also offers vpod, a biometric fingerprint reader system, which is the only solution that provides integrated, web-based automation functionality from a single source. While Valiant has clients in a wide range of industries, it offers tailored solutions to industries with a significant portion of hourly workers, including the aviation and transportation, healthcare and nursing, professional sports and stadium, manufacturing, parking and valet, and security guard markets. Valiant offers some leading technologies in the workforce management solutions space, including its patent-pending vpod product. The company is also well regarded for its customer service, and its industry-tailored solutions provide enhanced functionality for its clients in their respective industries. Business Services Human Capital Services 177

179 February 2008 Workbrain (Private) Founded 1999, Toronto, Canada; Time/Attendance Major Business Segments Workforce Planning; Workforce Scheduling; Time and Attendance; Business Intelligence Workbrain, now Infor, offers a suite of ERM applications that automate and transform the most frequent and complex time & attendance interactions between an enterprise and its employees, including labor projections, budget administration, scheduling integration, shift trading, attendance/leave management, industry-specific intelligence, and employee/manager self-service. Workbrain was acquired by Infor in June 2007, prior to which it traded on the Toronto Stock Exchange (TSX: WB). Infor offers a range of enterprise business software including customer relationship management, enterprise asset management, enterprise resource planning, financial management, human capital management, performance management, product lifecycle management, supplier relationship management, and supply chain management. Workbrain is one of a few providers of web-based workforce management solutions for large enterprises. Being acquired by Infor significantly broadens Workbrain s offering well beyond most of its competitors and provides it significant scale and financial backing to further expand its capabilities. Robert W. Baird & Co. 178

180 Comprehensive Guide to Human Capital Services HR Outsourcing Companies Profiled: Accenture HR Services Affiliated Computer Services, Inc. ARINSO International NV Automatic Data Processing, Inc. Capita Group, PLC Ceridian Corporation Citigroup and Statestreet (Citistreet, LLC) CompuPay, Inc. Convergys Corporation E-Duction, Inc. Electronic Data Systems and Towers Perrin (Excellerate HRO, LLC) Empagio Fidelity Employer Services Company (FESCo) Genesys Software Systems Hewitt Associates, Inc. IBM Business Consulting JAT Computer Consulting, Inc. Mercer LLC PAI Group, Inc. Paychex, Inc. Paycor, Inc. PayCycle, Inc. PayFlex Systems USA, Inc. Payformance Corporation The Sheakley Group of Companies SurePayroll, Inc. USI Holdings Corp. (Univers Workplace Benefits) Wageworks, Inc. Business Services Human Capital Services 179

181 February 2008 Accenture HR Services (ACN) Founded 1989, Hamilton, Bermuda (Parent); HR Outsourcing Major Business Segments Customer Contact; Exit Services; HR Advisory; Information Services; Pay & Benefits; Performance Services; Resourcing Services Accenture HR Services was established in August 2000 as a joint venture between BT and Accenture. In March 2002, Accenture acquired BT s stake in the company and moved rapidly to increase its market focus on North America and leverage Accenture s strong brand. The company offers HR outsourcing services in a variety of areas including recruitment and sourcing, vendor management, learning and development, pay and benefit, performance management, managed employee services, reward services, outplacement and alumni services, and information services. The company delivers its services via either application outsourcing or business process outsourcing, through which Accenture manages the client s business function. Accenture HR s contact centers are located in the U.S., the U.K., Italy, Spain and Australia. Accenture is one of the world s premier IT consulting and outsourcing firms. The company s strong client base, in-depth knowledge, global footprint, and respected brand should provide for a significant opportunity in the rapidly growing HR outsourcing marketplace. Affiliated Computer Services, Inc. (ACS) Founded 1988, Dallas, TX; HR Outsourcing Major Business Segments Commercial; Government ACS is a leading provider of diversified business process outsourcing (BPO), information technology outsourcing (ITO) solutions and consulting services to commercial and government clients worldwide. ACS commercial segment comprised 60% of fiscal 2007 revenue with the government segment comprising the remaining 40%. ACS BPO services include administration, finance and accounting, human resources, payment services and customer care. The company s ITO offerings include applications solutions, data center management, disaster recovery, end-user computing, network management, security services, storage solutions, technology review, assessment and planning, and transition services for human resources. Through Buck Consultants (which is highlighted in the HR Consulting section), the company provides consulting services including retirement, health and welfare, communications and compensation services to HR departments. ACS serves clients in a variety of sectors including communications, education, energy, financial services, government, healthcare, insurance, manufacturing, retail, travel, and transportation. ACS employs approximately 62,000 people supporting client operations in over 100 countries. Although 93% of its fiscal 2007 revenue was generated domestically, ACS ability to provide services in over 100 countries is an advantage in attracting business from multinational corporations. Additional advantages lie in the company s world-class technology, subject matter expertise, process reengineering skills and proprietary software. Robert W. Baird & Co. 180

182 Comprehensive Guide to Human Capital Services ARINSO International NV (NYSE Euronext: ARIN) Founded 1994, Brussels, Belgium; HR Outsourcing Major Business Segments HR Integration; HR Outsourcing; HR Strategy ARINSO International is a global HR services firm offering comprehensive HR business solutions to some of the world s largest companies, including over 100 of the Fortune Global 500 companies. The firm operates three business lines: HR Integration (57% of 2006 revenue), HR Outsourcing (39%), and HR Strategy (4%); and organizes itself around three regions: EMEA (77% of 2006 revenue), Americas (18%), and Asia-Pac (5%). The company helps its clients design, build, and operate integrated human resources systems. Through its HR Integration division, ARINSO delivers HR and payroll solutions to multinational clients, helps deploy HR administration and payroll IT systems, and assists clients with e-hr templates and portals. The company s outsourcing services range from standard payroll processing to comprehensive HRO, including talent acquisition and development; and from technologically advanced infrastructure outsourcing to innovative recruitment process outsourcing. Finally, the Consulting division helps clients transform their HR departments to become both more effective and more efficient. ARINSO acquired the UK-based recruitment services company Lansdowne in April ARINSO International employs over 2,600 staff in 27 countries on five continents. Northgate Information Solutions is the majority shareholder of ARINSO and plans to launch a mandatory public offer to acquire the remaining shares. Founded by a former SAP executive in 1994, ARINSO established an early position in the HRO market in Europe. Following the acquisition of a majority position by Northgate, the combined enterprise is the market leader in HR & Payroll services in Europe and has strong positions in the Americas and Asia- Pacific. ARINSO also has formative partnerships with Oracle/PeopleSoft and other key HRO companies. Automatic Data Processing, Inc. (ADP) Founded 1949, Roseland, NJ; HR Outsourcing Major Business Segments Employer Services; Dealer Services ADP provides various business outsourcing solutions to companies of all sizes in North America, Europe, Latin America and Asia-Pacific. The company has about 46,000 employees and serves roughly 585,000 clients. ADP is currently organized into two major business units, Employer Services and Dealer Services (ADP spun off its Brokerage Services segment in March 2007, which now operates as Broadridge Financial Solutions Inc. (NYSE-BR)). The company is best known for its payroll and human resourcerelated services (part of Employer Services), through which it pays roughly 33 million people annually (including roughly one in six private sector employees in the United States), significantly more than its closest competitor. In addition to payroll processing, other services include 401(k)/retirement services, time and labor management, benefits administration, human resources solutions, PEO/ASO, tax and compliance services, and screening and selection services. ADP s Employer Services division services businesses of all sizes. ADP s Dealer Services division provides computing, data, and professional services to automobile dealerships and manufacturers. Most of ADP's services are provided on an outsourced, service bureau basis to clients that retain the services for an average of about nine years. ADP s advantages lie in its experience, economies of scale, and reputation for service quality. ADP is the world s largest payroll processor, with roughly 50% of the outsourced payroll market for medium and large enterprises, in addition to a strong position in the outsourced payroll market for small businesses. Client retention is roughly 90% which is healthy for the payroll processing industry. In addition, ADP has one of the best long-term earnings track records and strongest financial positions of any company in the U.S. Business Services Human Capital Services 181

183 February 2008 Capita Group, PLC (LSE: CPI) Founded 1984, London, U.K.; HR Outsourcing Major Business Segments Integrated Services; Professional Services; HR Solutions & Property Consultancy; ICT & Advisory Services; Financial Services; Life & Pensions; Insurance & Specialist Services Capita Group provides a range of outsourced solutions and professional support services including business process outsourcing, customer services, administration and support, human resources, information and communications technology, property consultancy, finance and treasury, and consultancy services. The company services clients in a wide range of industries as well as both local and federal government agencies (private/public sector split was 48%/52% in 2006). Capital focuses primarily on providing services to customers in the U.K. and Ireland. As of the end of 2006, it employed 27,800 people at 52 offices in the U.K., Ireland, Channel Islands, and India. Capita is a leading provider of BPO services in the U.K. and the company has a very high renewal rate, having failed to renew only two contracts in the company s 23 year history that contributed at least 1% of the prior year revenue. The company s significant exposure to the public sector limits its cyclical exposure. Ceridian Corporation (Private) Founded 1957, Minneapolis, MN; HR Outsourcing Major Business Segments Human Resource Services; Comdata Ceridian is a leading information services company in the HR, retail, and transportation markets. Ceridian s operations are split into two major business units: HR Services and Comdata. Through its HR Services segment, the company provides payroll processing, tax filing, HR information systems, employee self-service, time and labor management, benefits administration, employee assistance and work-life programs, recruitment and applicant screening, and post-employment health insurance portability compliance. The company has HRS operations in the U.S., Canada and the U.K. Comdata operates through two sub-segments: Transportation Services and Stored Value System. Through its transportation sub-segment, Ceridian is the largest supplier of transaction processing, regulatory compliance and information services to the trucking industry. Stored Value System sells private-label, magnetized cash/gift cards to retailers, supermarkets and restaurants, as well as employee pay cards. Ceridian recently agreed to be acquired by Thomas Lee Partners and Fidelity National Financial. Ceridian is the second-largest payroll processor in both the U.S. and Canada in the enterprise (1,000+ employees) and middle ( employees) markets. In addition, CEN holds the leading position in a number of HRS categories in the U.K., including payroll. Lastly, Ceridian is the largest COBRA/HIPAA and QDRO service provider and the largest independent administrator of flexible spending accounts in the U.S. The company s leading position in all these markets should help drive solid margins. Robert W. Baird & Co. 182

184 Comprehensive Guide to Human Capital Services CitiStreet, LLC (STT and C) Founded 2000, North Quincy, MA; HR Outsourcing Major Business Segments Savings Plan; Health & Welfare; Pension Created in April 2000 as a 50/50 joint venture between Citigroup and State Street, CitiStreet is a premier global benefits provider. CitiStreet provides outsourced administration of savings, health & welfare, and pension plans. Services include retirement savings plans with a competitive range of investment choices, tools and services for employees, employee communication and education services, consultative support for plan sponsors, and total benefits outsourcing. Its clients include small-to-medium (<20,000 employees) and large (>20,000) corporations, government, and multi-employer and union plan sponsors (under Taft-Hartley). It is currently the third-largest defined contribution provider in terms of total record keeping assets under administration ($220 billion), and services over 11 million plan participants and 16,500 plans. The company employs over 2,500 benefits experts. As the offspring of two of the largest asset managers in the world (almost $2 trillion combined assets under management), CitiStreet has the financial strength and scaled operations to attract even the largest organizations to its services. CompuPay, Inc. (Private) Founded 1980, Miami, FL; HR Outsourcing Major Business Segments Payroll Services; Health/Workers Comp Insurance; 401k; Third Party Administration; Section 125; Time/Attendance; Paycards; Screening CompuPay is one of the five largest providers of payroll outsourcing in the U.S. with 20 offices and clients in all 50 states. The company targets mostly small businesses, offering phone/fax-, internet-, and PCbased payroll solutions. The internet payroll service, XpressPayroll, caters particularly well to companies with 1-5 employees, while PowerPayroll, CompuPay s more comprehensive internet-based payroll and tax filing solution typically serves larger clients. The company also offers PC-based payroll alternatives, including PayLoad for customers with 150 to over 10,000 employees, and Payright for smaller companies. In addition to payroll services, the company also offers a range of other HR services including HR essentials, a web-based library of HR information, health insurance, workers compensation insurance, 401(k) plans, section 125 plans, time and attendance solutions, paycards, and employee background screening. After acquiring the payroll technology leader PayMaxx in June 2005, CompuPay now serves roughly 500,000 client employees, with client sizes ranging from one to over 10,000 employees. Even with such a large client base across 50 states, CompuPay maintains 80%+ client retention, one of the best rates in the industry among payroll processors that serve small businesses. The PayMaxx acquisition should be a significant step forward as the company strives to gain market share. Business Services Human Capital Services 183

185 February 2008 Convergys Corporation (CVG) Founded 1998, Cincinnati, OH; HR Outsourcing Major Business Segments Customer Care; Employee Care; Information Management Convergys is a global supplier of customer care, human resources, and billing services. The company delivers its services via business process outsourcing, traditional transaction outsourcing agreements, licensing, and managed services. With offices in 25 states and 32 countries, the company serves a multitude of industries, including telecommunications, broadband services, technology, and financial services in 70 countries. The company currently operates three divisions: Customer Care, Employee Care, and Information Management. The company typically delivers HR services through a business process outsourcing model. Convergys HR solutions include recruiting and resourcing, compensation planning and strategy, HR administration, payroll processing, benefits administration, and organizational development. Convergys employs 74,000 people in the U.S., Canada, Latin America, Europe, the Middle East, and Asia. Convergys is a leading provider of U.S. wireless billing services, billing more than a third of all wireless calls, is the leading provider of cable telephone billing globally, and is a leading provider of outsourced customer service. Convergys economies of scale and experience in these areas have enabled the company to develop some of the most advanced systems to deliver HR services. E-Duction, Inc. (Private) Founded 1997, Blue Bell, PA; HR Outsourcing Major Business Segments Automatic Payroll Deduction E-Duction specializes in offering direct payroll deduction services to employees through guaranteed-issue programs. The company s patented product, Clear, enables employees to pay for goods and services onthe-spot 365 days a year by deducting the expenses directly from their payroll over a predetermined period (typically 2-6 months). Employees can use Clear to pay for personal, business, and emergency expenses without incurring interest charges or late fees. Along with the product, employees are typically offered a credit line based on their annual base salary (typically up to 4% of their salary). Additionally, employers benefit from the reduction in 401(k) borrowing while the disruptions from implementing Clear are minimal due to the short implementation time (usually less than 35 days). E-Duction s payment system is closely tied to its partnership with MasterCard, which allows E-Duction users to make purchases at 24 million locations worldwide. E-Duction s product offers an attractive, and somewhat unique, benefit to employees in that it allows employees to make interest free purchases against future wages. The company s Health Expense Account also helps both employers and employees save on health care expenses, which are becoming increasingly important given the rapid health care cost inflation. Robert W. Baird & Co. 184

186 Comprehensive Guide to Human Capital Services Empagio (Private) Founded 1980, Orlando, FL; HR Outsourcing Major Business Segments HR, Benefits, & Payroll; Business Analytics Empagio is a global HR software and services company formed through the combination of Tesseract, Empagio, and Executive Consultants Inc. (ECI). Tesseract, which is headquartered in Atlanta, GA, provides the Payroll and HR system that serves as the centerpiece of the Empagio product suit. Empagio focuses on the delivery of HR and human capital management and is headquartered in San Francisco, CA. ECI focuses on implementation, consulting, and HR services and is headquartered in Pittsburgh, PA. The company currently serves roughly 50 clients in a wide variety of industries and provides HR services to over 2 million employees, producing over 3.2 million paychecks per week. The company delivers integrated, web-centric HRMS and related software hosting to medium and large enterprises. Clients range from 800 to over 300,000 employees. Empagio was recently acquired by a management team led by the company s CEO, Seth Bernstein. Empagio frequently underscores its belief in long-term customer relationships based on trust rather than developing new software. Therefore, the company aims to help clients manage the transition to technology platforms at a time and place that is appropriate for them. ExcellerateHRO, LLP. (EDS, Towers Perrin) Founded 2005, Plano, TX; HR Outsourcing Major Business Segments HR Outsourcing; Benefits Administration; Payroll; Relocation and Assignment ExcellerateHRO is the jointly owned HR outsourcing business of EDS and Towers Perrin, which was formed in March ExcellerateHRO combines EDS s payroll and related HR outsourcing business with the Administration Solutions business from Towers Perrin. The company delivers a suite of services that can be offered on a stand-alone or packaged basis. ExcellerateHRO s services include HR outsourcing, benefits administration, payroll, compensation management, recruitment and staffing, workforce administration, workforce development, business intelligence, service center support, HR systems management, and relocation and assessment. All of the company s solutions are both hardware and software agnostic. That said, the company offers standardized IT components from alliance partners including Oracle, SAP and Microsoft. The company s 3,500 internal employees provide services to approximately 400 clients and 33 million client employees in the U.S., Canada, Europe, and Central and South America. ExcellerateHRO incorporates EDS s technology and customer base with Towers Perrin s intellectual property and experience in HR outsourcing. This strategic alliance has generated an efficient and reputable business model with global delivery capabilities that attracts some of the biggest corporations in the world. The company also has a thorough, well thought out implementation process, which is especially important given the complexity of the contracts. Business Services Human Capital Services 185

187 February 2008 Fidelity Employer Services Company (FESCo) (Private) Founded 1943 (Parent), Boston, MA; HR Outsourcing Major Business Segments Defined Contribution; Defined Benefit; Health & Welfare; HR/Payroll; Consulting; Investments/Stock Plans Endowed with a reputation as one of the world s finest mutual fund companies, Fidelity has leveraged its brand name to establish a large and growing HR services business. Fidelity Employer Services Company (FESCo) offers HR outsourcing solutions to large companies through Fidelity Total HR Advantage, whose suite of services includes workforce administration, talent management, and benefits administration. Workforce administration services include HR administration, payroll administration, and time and attendance solutions. Talent management services include staffing management, performance management, compensation management, learning management, and talent planning. Benefits administration services include defined contribution administration, defined Benefit administration, stock plan services, health and welfare administration, and benefits consulting services. Fidelity also offers more simplified services for smaller companies. Fidelity is one of the largest providers of defined contribution plans in the U.S. With the acquisition of IBM s HR Access in 2003, Fidelity is better able to leverage its brand name by selling other HR outsourcing services beyond retirement plans. Fidelity also has a long history of processing information, providing the company an advantage over some of its competitors in terms of servicing large companies. Genesys Software Systems, Inc. (Private) Founded 1981, Methuen, MA; HR Outsourcing Major Business Segments Payroll, HR & Benefits; Learning Mgmt; Performance Mgmt; Employee/Manager Self-Service; Payroll Tax Filing; HealthCare HRMS; Benefits Payments Genesys Software is an extensive provider of software tools for managing payroll, taxes, benefits, performance, and training. PeopleComeFirst, Genesys web-based HRMS suite, is typically offered as a single integrated solution for human resources, benefits, self-service, and payroll. Genesys suite is based on a high-performance web-native architecture that fully integrates with a client s other systems. PeopleComeFirst can be offered separately as licensed software or assembled to form an HRO solution. The application can be either outsourced or managed in-house. Genesys also offers payroll tax filing service, printing and distribution services, year-end services, learning management systems, performance management, web-based employee self service solutions, consulting services, healthcare HRMS, and pension disbursement services. Genesys Software Systems has processed more than 1 billion transactions involving confidential, mission-critical business and employee data. The company s facilities include a state-of-the-art data center with extensive security, backup, and redundant systems. The Gartner Group has named the Genesys solution as having the lowest total cost of ownership. Robert W. Baird & Co. 186

188 Comprehensive Guide to Human Capital Services Hewitt Associates, Inc. (HEW) Founded 1940, Lincolnshire, IL; HR Outsourcing Major Business Segments Benefits Outsourcing; HR BPO; HR Consulting Hewitt Associates is one of the largest providers of HR Outsourcing services, providing HR outsourcing services to approximately 340 clients (typically Global 100 companies) around the world. Hewitt also provides HR consulting services to 3,000 clients. Outsourcing services (including Benefits Outsourcing and HR BPO) comprise the majority (70%) of the firm s revenue. Benefits Outsourcing services consists of benefits administrative services for health and welfare plans, as well as defined contribution and defined benefit plans. In 2003 and 2004, Hewitt acquired Cyborg Worldwide and Exult Inc., two large companies specializing in payroll and HR BPO, respectively, significantly growing the company s HR BPO platform. Hewitt s bundled HR BPO services include workforce administration, rewards management, recruiting and staffing, payroll processing, performance management, learning and development, talent management, relocation services, time and attendance, accounts payable, procurement expertise and vendor management. Hewitt is one of the largest providers of HR BPO services to large companies. Hewitt employs 23,000 individuals in 33 countries, although roughly 76% of its revenue is generated in the U.S. In January 2008, the company sold the assets of its Cyborg business to Vista Equity Partners. In addition to being one of the largest players in the space with scalable platforms, Hewitt also has one of the best reputations in the industry for service quality. Prior to its 2006 fiscal year, Hewitt had a streak of 44 consecutive years of revenue growth. IBM Business Consulting (IBM) Founded 1850, Armonk, NY (Parent); HR Outsourcing Major Business Segments Human Capital Management Services; HR Business Transformation Outsourcing; HR IT Services; Learning & Development IBM purchased its Business Consulting division from PricewaterhouseCoopers in late 2002, becoming the dominant player in the consulting services market. Within Business Consulting, the human capital management sector is growing steadily. Thanks to IBM s technological background, the subsidiary is able to offer services in HR and benefits outsourcing, organizational development, strategic HR analysis, HR information systems, and cross-boarder training. Moreover, the company complements its advisory services with a range of e-hr tools such as Lotus web conferencing, e-commerce, and Identity and Access Management. IBM also boasts a robust HR BPO business with such prominent clients as Procter & Gamble. However, the company relies on Mercer for the benefit administration portion of its HR BPO service. IBM is long established in the IT and financial services BPO market. The company firmly believes in transposing its success in those areas to the HR BPO business. IBM s brand recognition will certainly help position this segment. Business Services Human Capital Services 187

189 February 2008 JAT Computer Consulting, Inc. (Private) Founded 1985, Bridgewater, NJ; HR Outsourcing Major Business Segments ERP Services; Software Products JAT is a full-service management and technical consulting firm specializing in human resource, payroll, and financial systems services. JAT s consultants collaborate with many technology firms to provide an integrated service. These partners include Lawson Software (payroll administration), Microsoft Business Solutions (HR management), Kronos (time/attendance scheduling), and Integral Systems (system interfaces & check writing). To help customers deal with specific issues, JAT also has a product selection team focused on recommending and implementing the best software for a given task. In addition to its consulting business, JAT also offers its own suite of software called the PRINTVIEW series through JAT Software, Inc. PRINTVIEW allows employees at client corporations to instantly edit, process, print, and export W-2 forms/data, while PRINTVIEW PLUS enables large companies to batch-print high volumes of W-2s at once. Furthermore, organizations can also outsource their W-2 and 1099 reissue processing to the JAT Call Center. JAT Software claims to offer a more cost-effective outsourcing solution than many competitors. Payments for its services include a design fee of $3,000, a database load fee based on W-2 and/or 1099 volumes, and a recurring maintenance fee of $1,500 annually. Additionally, close to 300 organizations, including UPS, PaineWebber, and the State of New Mexico, have utilized JAT s product and services. The company boasts a retention rate of 90% or greater. Mercer LLC (MMC) Founded 1937, New York, NY; HR Outsourcing Major Business Segments Retirement; Health & Benefits; Human Capital; Information Products; Communication; Investment Consulting; Investment Management; M&A; Outsourcing The outsourcing business of Mercer (formerly Mercer HR Services) was created in large part through Mercer s acquisition of Synhrgy HR Technologies in January 2004 (following acquisitions of HR BPO platforms by Accenture and IBM). Mercer acquired Synhrgy s web-enabled technology as a platform to power HR services automation. Mercer strives to reduce client costs, increase client satisfaction, and provide better data to its clients through automated payroll processing, flexible staffing, employee feedback, and detailed reporting. The outsourcing group also offers stand-alone services such as healthcare benefits, workforce management, vendor management and benefits administration which cater to particular demands from HR managers. Mercer believes that it service delivery model enables clients to transform their HR departments into knowledge-driven organizations focused on supporting corporate strategy, rather than transaction processing and administration. Already endowed with many Fortune 500 clients, the company offers tremendous scale in its HR BPO business. Robert W. Baird & Co. 188

190 Comprehensive Guide to Human Capital Services PAI Group, Inc. (Private) Founded 1990, Moorestown, NJ; HR Outsourcing Major Business Segments Payroll Software; Payroll Service Bureau PAI Group, Inc. owns Payroll Associates, LLC, a payroll software company, and PAI Services, LLC (dba PayChoice), a payroll service bureau. Payroll Associates provides software to over 300 payroll companies which process payroll for nearly 120,000 businesses with 2 million employees. The company s licensees include CPAs, banks, internet and merchant service organizations that provide payroll to companies across the U.S. PayChoice, the company s legacy system, provides payroll, tax, and benefits solutions through a completely automated process. PayChoice provides users with a wide array of reports and offers electronic transmission through ViewChoice. Payroll Associates has since developed a new flagship product, Encore, which is the first Microsoft Windows,.net, SQL server 2005 payroll application available. Building off of the features included in Paychoice, it includes expanded tax functionality, payroll service bureau management logic, and an advanced billing engine. Built with a cash management focus, Encore helps clients manage and balance taxes, ACH and vendor payments. Encore also includes a myriad of support features, from disaster recovery and hardware consultation to supplies sourcing. Payroll Associates also offers service bureau support, sales and marketing assistance, workers compensation, retirement and flexible spending plans, time and attendance systems, on demand HR and other ancillary services. PAI Services, which operates as PayChoice, provides payroll and employer services directly to 10,000 businesses in the U.S. Payroll Associates has developed some of the most advanced software and is one of the largest providers of payroll software. The leveragability of its large base should help drive strong earnings growth. Paychex, Inc. (PAYX) Founded 1971, Rochester, NY; HR Outsourcing Major Business Segments Payroll Services; Human Resources Services Paychex is a national provider of payroll and human capital services to small- and medium-sized businesses. The core business of Paychex is its Payroll Services division which offers payroll processing, tax preparation and payment, and direct deposit assistance. Payroll Services delivers its services via two main platforms: Core Payroll, which typically provides services for companies that employ less than 50 people, and Major Market Service Services, which typically provides services for companies that employ between individuals. Human Resource Services include retirement services, workers compensation services, Section 125 plans, state unemployment insurance, health insurance, and employee handbook services. The company also has a time and attendance subsidiary, Stromberg. The company provides a comprehensive HR outsourcing solution through Paychex Premier. This unit administers payroll, employer compliance, HR, benefits, and risk management outsourcing. Paychex also offers a PEO substitute to Premier, through which PAYX acts as a co-employer of the clients employees. Paychex operates a network of more than 100 offices and serves roughly 561,000 clients. Paychex s advantages lie in its experience, client base, reputation, and economies of scale. It historically focused on small businesses (current average client size of 17 employees), although has been developing more robust offerings and moving upstream in terms of the size and complexity of companies that it is capable of servicing. PAYX has a 50%+ position in the outsourced payroll market of small businesses, and should benefit from the increasing penetration rate. Paychex is also a highly profitable company, achieving 17 straight years of yoy earnings growth. Business Services Human Capital Services 189

191 February 2008 Paycor, Inc. (Private) Founded 1990, Cincinnati, OH; HR Outsourcing Major Business Segments Professional Payroll; Major Market Payroll Founded in 1990, Paycor is one of the early entrants into the discrete outsourcing market. Designed for both large (>100 employees) and small (<100) employers, the company offers graded services in the form of Major Market and Professional payroll services, respectively. For managers seeking convenient payroll processing, the Professional services allow them to relay payroll information by phone, internet, fax or , while Paycor handles all other aspects of payroll processing including check production, direct deposit transfers, and tax deposits and filings. Based on a similar model, the Major Market product has the option of using Paycor for Windows, which provides users with the control of an in house system, and also provides the client a dedicated Payroll Specialist to service the account. Other optional services include benefits administration, time/attendance, workers compensation, and HR solutions. Paycor handles payroll for over 12,000 clients nationwide from 13 locations and is supported by over 375 associates. The company often provides clients with software upgrades without charging them additional fees. Given its current size, the company should soon be reaching the scalability needed for the next stage of growth. PayCycle, Inc. (Private) Founded 1999, Palo Alto, CA; HR Outsourcing Major Business Segments Payroll Basic; Payroll Plus; PayCycle for Accounting Professionals PayCycle was founded by a group of ex-intuit employees with the intention of making paper-based payroll processing obsolete. The company caters to small businesses with 50 or fewer employees/contractors. The company s software packages range from the premium-priced Payroll Plus suite to the lesser priced Payroll Basic and Payday versions. Through PayCycle s Do-It-With-You technology platform, clients complete the entire payroll process online. Paychecks are automatically calculated on designated pay dates and then printed or direct deposited for employees. Timekeeping devices and automatic reminders accompany all subscriptions. Employees can access their pay stub records via PaycheckRecords.com, saving employers the cost of installing their own payroll website. PayCycle also offers extensive tax services including filings for W-2s and Forms 941, 940 and 944. Clients can complete these forms electronically or send out pre-written forms to authorities. Lastly, PayCycle uses a high-level, 128-bit encryption to secure information flow while remaining compatible with QuickBooks and Microsoft Money applications to avoid the need for data re-entry. The company also offers PayCycle for Accounting Professionals to help accountants assist their small business clients with their payroll needs. PayCycle s main attraction to customers is its price, with Payroll Basic costing as little as $24.99/client/month (up to five employees). The Do-It-With-You technology platform through which the entire process is navigated online also separates PayCycle from its competitors. PayCycle currently services 50,000 customers in all 50 states and has been growing rapidly. Robert W. Baird & Co. 190

192 Comprehensive Guide to Human Capital Services PayFlex Systems USA, Inc. (Private) Founded 1997, Omaha, NE; HR Outsourcing Major Business Segments FSA Administration; COBRA Administration PayFlex is an employer services provider specializing in third-party flexible spending account (FSA) administration. The company provides health reimbursement administration (HRA), health savings accounts (HSA), transit and dependent care, retiree billing services, and COBRA/HIPAA administration services. PayFlex has over 6,000 clients and processed over 3 million spending account claims totaling $500 million last year. It serves a wide range of client sizes, including Fortune 500 companies. In January 2007, PayFlex acquired FlexAmerica, Inc., a FSA administration provider with over 1,000 clients. The company s future growth will likely be driven by ongoing health care cost inflation and the trend of employers passing on a higher percentage of certain costs (e.g., health care costs) through to their employees. Payformance Corporation (Private) Founded 1983, Jacksonville, FL; HR Outsourcing Major Business Segments epayments; Payment Software; Print Services; Healthcare Payment and Remittance; Fraud Services; Printers and Supplies Payformance Corporation is a leading developer of payment automation systems for companies to pay their employees, vendors and partners in a variety of industries including financial services, insurance, banking, state and local government, and manufacturing. The company s corporate electronic payment software, PaySpan, produces ACH (automated clearing house) payments with detailed electronic remittance advices in a format similar to accounts receivables systems, thus eliminating manual rekeying. Payformance also offers solutions that make paper-based processes more efficient, including printing MICR laser checks, statements, invoices and other documents in-house. The company also offers print services through which it provides its clients with traditional check printing and delivery. In addition to its payment and printing services, Payformance also offers payment and remittance advice to the Healthcare industry. The company s PaySpan Health product facilitates electronic medical claim settlement, electronic fund transfers and electronic remittance advice. Lastly, Payformance also sells and supports printers, toners, and blank check stocks to its customers. Payformance s advantages include a large customer base and a focus on innovation. The company currently serves over 3,500 clients and claims to have developed the first laser check printing solution in the industry. Its industry-specific PaySpan health product is a highly tailored solution for the healthcare industry that separates it from more generalized products. Business Services Human Capital Services 191

193 February 2008 The Sheakley Group of Companies (Private) Founded 1963, Cincinnati, OH; HR Outsourcing Major Business Segments Payroll; Workers Compensation (MCO & TPA); Unemployment Services; Insurance; 401(k) Services; 125 Savings Plans The Sheakley Group of Companies is a leading provider of HR outsourcing solutions to nearly 30,000 employers nationwide. The company provides an integrated suite of outsourcing services for human resource, payroll, and healthcare providers. Its service include employee background checks, automated employment verification, exit interviews, flexible benefits programs, I-9 compliance, managed care, section 132 parking and transportation benefits, retirement plans, safety consulting, small employer consulting, unemployment cost management, W-2 reprint services, and worker s compensation. The Sheakley Group of Companies targets small to mid-sized employers in the U.S., and has an especially large market share in its home state of Ohio. With more than 40 years of experience, Sheakley has become a recognized leader in cost-control consulting for mandated and voluntary employee benefit programs. SurePayroll, Inc. (Private) Founded 1999, Glenview, IL; HR Outsourcing Major Business Segments Payroll; Tax Filing; Accountant Services SurePayroll is the largest full-service online payroll provider, having developed a 100% online payroll service in 1999, and is overall the fifth-largest payroll provider in the United States. The company focuses primarily on small businesses, serving over 16,000 clients and processing more than $3 billion in employee payroll and taxes. To prepare a payroll, customers of SurePayroll fill out key information on employees and enter their hours worked (with overtime pay and one-time deductions where appropriate). Clients can also customize checks for bonuses and tax overrides. Furthermore, SurePayroll can limit client issues with the IRS by filing and paying all taxes on their behalf. The company also serves accounting professionals through its SureChoice Access program which offers bureau-style payroll tax accounting. In addition to its payroll and ClickFREE tax file and pay service, SurePayroll also provides HR and compliance resources, workers compensation products, and 401(k) retirement solutions. SurePayroll believes it offers a superior solution than some larger providers based on four factors: 1) simplicity; 2) cost savings of 30%+; 3) time savings (no need to phone or fax in payroll data); and 4) risk reduction (eliminates third party errors and offers six-month, money-back guarantee). Robert W. Baird & Co. 192

194 Comprehensive Guide to Human Capital Services Univers Workplace Benefits (USIH) Founded 1991, Hammonton, NJ; HR Outsourcing Major Business Segments Benefits Services Univers Workplace Benefits (formerly known as Custom Benefit Programs) is a leading benefits communications and enrollment solutions provider, conducting more personal employee benefits reviews and enrollment sessions than any other provider. It provides services to employers of all sizes nationwide. Univers helps clients demonstrate to their employees what their total compensation is, introduce new benefits, clarify benefit choices, explain the benefits of 401(k) and FSA participation, reduce employee anxiety related to their benefits decisions, and develop employee communications materials. The company s proprietary enrollment platform, ResourceONE visually communicates employee benefits programs, helps employees enroll in benefits (either face-to-face, via a call center, or through web enrollment), updates employee and family information, calculates a real-time paycheck illustration to highlight the impact of benefits deductions, interactively presents total compensation, and conducts and tabulates employee surveys. Univers Workplace Benefits is part of the USI family of companies Specialized Benefits Services segment. Univers has a proven track record of increasing employees knowledge of their employer-sponsored benefits packages with 97% of employees showing a higher understanding and appreciation of their benefits after speaking with a Univers benefit counselor. The company is also the largest provider of benefits communications and enrollment solutions which should result in economies of scale. WageWorks, Inc. (Private) Founded 2000, San Mateo, CA; HR Outsourcing Major Business Segments Health Care; Dependent Care; Commuter; Benefits Continuation WageWorks, Inc. is a leading provider of consumer-driven tax-advantaged spending accounts to over 2,700 clients and 7 million eligible employees. WageWorks serves the Fortune 500 and government organizations, with a significant share of the enterprise space, serving 40 of the Fortune 100 and 100 of the Fortune 500. The company offers spending accounts for health and dependent care, commuter, and benefits continuation. Products include flexible spending (FSA), health reimbursement (HRA), health savings (HSA), COBRA, and commuter accounts. WageWorks is the only company to deliver a completely integrated spending account solution. It provides its products on a single platform with built-in debit cards for health care and consolidated account management tools such as electronic-bill payment, cash reimbursement and transit pass home delivery services. WageWorks has a significant share of the market for large companies that provide their employees with tax-advantaged savings accounts. The company s future growth will likely be driven by ongoing health care cost inflation and the trend of employers passing on a higher percentage of certain costs (e.g., health care costs) through to their employees. Business Services Human Capital Services 193

195 February 2008 Professional Employer Organizations (PEO) Companies Profiled: Administaff, Inc. Automatic Data Processing, Inc. (ADP TotalSource/ADP Resource) Advantec Ambrose Employer Group, LLC Barrett Business Services, Inc. Gevity HR, Inc. Oasis Outsourcing, Inc. Paychex, Inc. (Paychex Premier/Paychex Business Solutions) SCI Companies Strategic Outsourcing, Inc. TriNet Group, Inc. Robert W. Baird & Co. 194

196 Comprehensive Guide to Human Capital Services Administaff, Inc. (ASF) Founded 1986, Houston, TX; Professional Employer Organizations Major Business Segments PEO Administaff is one of the pioneers in the PEO industry and is one of the largest pure-play PEOs. ASF serves as the HR function for small and medium-sized companies, providing services in recruiting, selection, performance management, records management, training, liability solutions, and government compliance. Administaff sponsors a complete health plan that covers medical, dental, vision, work life, and prescription drug programs. ASF reduces employee benefit costs by aggregating the buying power of its clients to achieve cost savings while still delivering quality health services. ASF also serves as an intermediary between health and workers compensation insurance companies and its client companies by prescreening for and excluding high risk companies and assisting its clients with risk controls. Finally, ASF owns HRTools.com, an online portal for HR products, services and information, as well as small business software applications related to job descriptions, performance reviews, and personnel policies and procedures. Administaff serves mostly small companies with 10 to 2,000 employees in white collar and skilled blue collar industries such as computer/it (18% of client base), finance/insurance/real estate (15%), management & administration (13%) and others. The company serves roughly 113,000 worksite employees at roughly 5,700 client companies. ASF operates 47 offices in 23 regional markets nationwide, with a long-term goal to operate 90 offices in 40 markets. ASF has an impressive long-term track record, with a 10-year CAGR in worksite employees of roughly 16%. The company also has a better client mix than many of its competitors as it targets only the top 10% of small businesses in the U.S. (businesses that are doing well and have low employer risks). Finally, ASF is recognized by many in the industry as offering a premium service which helps client retention. ADP TotalSource/ADP Resource (ADP) Founded 1984, Miami, FL; Professional Employer Organizations Major Business Segments PEO; ASO While ADP has traditionally been best known for its payroll services, ADP s PEO unit, TotalSource, helped pioneer the development of the PEO market. Today, TotalSource is the largest PEO based on worksite employees under a co-employment relationship. The company offers integrated PEO services including: access to experts across the HR spectrum; comprehensive payroll and tax services; a human resource management system; employee benefit management, including 401(k) administration; recruiting, selection and development; and regulatory compliance. ADP provides similar services without a co-employment agreement through its administrative service offering (ASO), ADP Resource. ADP Resource helps employers reduce employment and HR management costs and complexities while utilizing the employer's own workers' compensation and health insurance policies. Combined, ADP TotalSource and ADP Resource operate sales offices in 20 states and support over 5,000 businesses and 165,000 client employees in all 50 states, typically serving businesses with employees. Unlike some of the other players in the space, ADP TotalSource benefits from a low cost structure from economies of scale as well as sizeable financial backing that enables the division to weather downturns in the labor cycle. Finally, a large existing payroll client base to cross-sell its PEO/ASO services to has enabled ADP to achieve greater growth in worksite employees than many of its competitors. Business Services Human Capital Services 195

197 February 2008 Advantec (Private) Founded 1999, Tampa, FL; Professional Employer Organizations Major Business Segments PEO; ASO; HRO Advantec provides PEO, ASO, and HRO services for 700 small and medium-sized businesses nationwide. The company integrates, develops and supports human resources business solutions for its clients, and provides products and services to co-employment markets, and human resources outsourcing and management services in select markets. Operating under the co-employment relationship, Advantec s PEO offering includes payroll, benefits, new hire reporting, workers compensation, compliance, recruiting, training, and other human resources functions, and serves its clients via a Peoplesoft-powered integrated human resource information system. Advantec s HRO solution is generally more comparable to many competitors ASO offering i.e., a scaled down version of the PEO service without co-employment. Advantec distinguishes its HRO offering from ASO by the extensiveness of the outsourcing -- the HRO solution focuses on managing the entire HR business process while the Administrative Service (ASO) model focuses more on transactional processes. Through the Advantec Advantage, the company conducts quarterly client satisfaction surveys to measure its performance in order to ensure that there is continual process improvement. A large, qualified consultant force is a sustainable driver of Advantec s business. Most consultants boast over 10+ years of business experience in diverse industries and the vast majority of consultants have been certified by the Society for Human Resource Management (SHRM) Certification Institute. Ambrose Employer Group, LLC (Private) Founded 1997, New York, NY; Professional Employer Organizations Major Business Segments PEO Ambrose Employer Group is a PEO that provides outsourced HR, payroll, and benefits solutions to small businesses with less than 300 employees. Ambrose services 300 clients in 46 states, the majority of which are in the financial services, business services, and technology industries. Built on a web-enabled platform for both employee and manager self-service, Ambrose prepares semi-monthly reports that are delivered through the Automated Clearing House banking system. Furthermore, the company s benefits administration is linked to United HealthCare which offers defined contribution plans and flexible spending accounts. The firm ensures proper employee management through various solutions focused on compliance, best practice consulting, background checks, employee record maintenance, unemployment claims, and new hire orientation and handbooks. The firm has garnered a white collar insignia from its exclusive focus on professional service firms in the financial services, business services and technology industries. Its more specialized focus has enabled the company to develop an HR platform specifically tailored to serve clients that place a high value on their human capital. Robert W. Baird & Co. 196

198 Comprehensive Guide to Human Capital Services Barrett Business Services, Inc. (BBSI) Founded 1965, Vancouver, WA; Professional Employer Organizations Major Business Segments Staffing; Direct Placement; PEO Barrett Business Services provides a comprehensive range of human resource management services to small and medium-sized businesses with its primary services consisting of staffing services and PEO. The staffing services segment offers a variety of employment services to its clients, including on-demand or short-term assignments, contract staffing, long-term and/or on-site management, direct placement, and HR administration. In 1990, Barrett expanded its service offering and began offering PEO services to new and existing clients. Barrett is one of the few companies with core competencies in both staffing and PEO. Through its co-employment relationship, Barrett assumes the HR management responsibilities on behalf of its client, including payroll, taxes, employee benefits, health insurance, workers compensation coverage, workplace safety programs, compliance with employment laws, labor and workplace regulatory requirements and related administrative responsibilities. Despite Barrett s experience with staffing, many of its clients retain the responsibility for their own recruiting functions. BBSI serves roughly 1,100 PEO clients and over 25,000 worksite employees. In July 2007, BBSI acquired Strategic Staffing, Inc., a privately held staffing company with five offices in Utah and one office in Colorado Springs, Colorado. Unlike many other PEO organizations that are simply benefit administrators or payroll providers, Barrett Business boasts a long history in sourcing quality candidates for small-to-medium sized corporations which provides the company a competitive advantage over many of its PEO competitors, which are generally less familiar with the hiring process. Gevity HR, Inc. (GVHR) Founded 1984, Bradenton, FL; Professional Employer Organizations Major Business Segments ASO; PEO Gevity HR is one of the largest PEO organizations with roughly 135,500 worksite employees, which it services via 42 offices in 15 states. Prior to 2002, Gevity was known as Staff Leasing, Inc. and primarily provided insurance and payroll processing. Today, Gevity provides both PEO and ASO services but has recently been transitioning away from PEO in favor of the ASO model. Gevity s flagship product, Gevity Edge, includes benefits and payroll administration, policies and compliance, recruitment support, performance management, and employee development and retention. Unlike many of its smaller competitors, Gevity provides its clients access to an on site HR consultant in addition to phone and internet-based support. Gevity complements its core functions with the Gevity Institute, a research entity that raises awareness of HR outsourcing by exploring the link between HR practices and business performance. Gevity HR primarily targets small- to medium-sized firms, with most clients having fewer than 500 employees. Among the customer base, the services industry occupies the biggest portion of client billings at 41.2%, followed by finance/insurance/real estate (15.8%) and manufacturing (12.2%). Gevity recently acquired HRAmerica s book of business, which consisted of 15,900 worksite employees. Gevity HR was featured in Businessweek s 2006 Top 100 Hot Growth Companies report (no. 33 on the list), a testament to the Gevity business model, which brought about a doubling of revenues in less than three years. The company s ability to transition from a PEO model to a predominately ASO model will be the key factor impacting financial results over the next few years. Business Services Human Capital Services 197

199 February 2008 Oasis Outsourcing, Inc. (Private) Founded 1996, West Palm Beach, FL; Professional Employer Organizations Major Business Segments PEO; Staffing and Placement Agency Oasis Outsourcing is the leading privately owned PEO organization in the U.S., co-employing more than 70,000 worksite employees at over 2,000 clients. The company operates two functional segments, a PEO and a traditional staffing and placement agency. The PEO division provides human resources, employee benefits, payroll, workers compensation, and risk management services to businesses throughout the country, although has an especially strong presence in Florida. The firm s other division, Oasis Staffing, provides temporary, temp-to-hire, direct hire, and contract staffing solutions in the clerical, light industrial and professional/technical occupations. Oasis Outsourcing acquired Kelly Staff Leasing from Kelly Services, Inc. in January Oasis major investors include Nautic Partners and Prudential Capital Partners. Oasis claims that its competitive advantages lie with its seasoned management team, a full-service a la carte menu of Human Resources and staffing alternatives, attractive insurance options, stringent underwriting guidelines, strong partnerships with complementary business organizations, and the strong financial backing. Paychex Premier/Paychex Business Solutions (PAYX) Founded 1971 (Parent), Rochester, NY; Professional Employer Organizations Major Business Segments ASO; PEO Paychex provides fully outsourced HR services to clients via both an ASO (Paychex Premier) and PEO (Paychex Business Solutions) model, preferring the ASO model. Paychex Premier provides businesses a full-service approach to the outsourcing of HR services. Paychex Premier offers businesses a comprehensive package of HR services including payroll, employer compliance, human resource and employee benefits administration, risk management outsourcing, and the on-site availability of a professionally trained human resource representative. The company also operates a PEO (primarily for clients in FL and GA), which provides businesses with similar services to Paychex Premier, except PAYX serves as a co-employer of the clients employees, thus assuming some employer-related risks. As of November 30, 2007, Paychex s ASO and PEO offering serviced a combined 401,000 client employees, with the vast majority being serviced via the ASO model (Paychex Premier). Paychex is by far the largest provider of ASO/PEO services (based on worksite employees). PAYX has been able to achieve worksite employee growth rates well above the industry average by up-selling to its core payroll clients. Robert W. Baird & Co. 198

200 Comprehensive Guide to Human Capital Services SCI Companies (Private) Founded 1985, Tampa Bay, FL; Professional Employer Organizations Major Business Segments PEO SCI Companies is a provider of PEO services, specializing in payroll administration, employee benefits, workers compensation, human resources, and training and development. The company expanded rapidly in the 1990s and early 2000s through a host of acquisitions that enhanced its technological presence and expanded its outsourcing capabilities. Today it serves more than 600 client companies and 30,000 worksite employees nationally. SCI often delivers its services via alliances with IBM Global Services, Cigna, Transamerica, TALX, First Advantage, Lawson Software, and others. Like many of the developed PEO firms, SCI supports a seasoned liability management force that includes attorneys, human resource specialists, payroll coordinators, unemployment specialists, and safety consultants to assist clients with risk control and liability management. According to the company, SCI s advantage lies in its payroll and government compliance areas, which are the company s primary lines of business. SCI also interfaces with the SCI HR Portal, which is a onestop shop for HR and wage reporting. Strategic Outsourcing, Inc. (Private) Founded 1990, Charlotte, NC; Professional Employer Organizations Major Business Segments PEO Strategic Outsourcing provides PEO services to small and medium-sized employers in select industries. Its services include human resources and compliance, risk management, employee benefits, payroll processing, and information technologies. SOI supports tens of thousands of worksite employees throughout all 50 states. The company is currently engaged in a comprehensive re-branding initiative. The company further facilitates client HR functions by providing employee self-service through the SOI Portal, a secure online database and report generator. Other tangible SOI solutions include a time entry system with customized reports that cover a wide range of topics, including check history, payroll deductions, year to date earnings, and new hires. However, the company does not currently offer a direct sourcing solution to its clients, but does provide advisory assistance and prescreening programs that minimize the risks of hiring. Strategic Outsourcing has over 800 clients with 32,000+ worksite employees. Strategic Outsourcing supplies its clients with a Cost of Employee Administration Worksheet, which compares the expenses associated with individually administering the employment programs and with SOI s packaged solution. Business Services Human Capital Services 199

201 February 2008 TriNet Group, Inc. (Private) Founded 1988, West San Leandro, CA; Professional Employer Organizations Major Business Segments PEO TriNet Total HR provides web-based outsourcing of employer and HR services to more than 1,500 smallto medium-sized companies in the technology, financial services, and professional services industries within the U.S. and Canada. Prior to commencing services, an on-site HR manager designs the strategic plans that best fit the practices of the customer. Afterwards, clients can connect with TriNet s account management teams on a day-to-day basis to solve payroll and benefits issues. Finally, TriNet provides a toll-free employee solution center to answer support calls from employees. In addition to traditional PEO services, such as HR management, payroll, and benefit plans, TriNet also supplies solutions designed for industry-specific frameworks. All PEO services are delivered as one bundle, but the company also delivers two stand-alone services as well. TriNet acquired the HR Outsourcing provider John Parry & Alexander in July 2007 and the customer assets of Outsource Group, a nationwide HR services provider in July TriNet is owned by General Atlantic. TriNet s focus on three specific white-collar industries enables it to provide services that are better aligned with its target market than its competitors that tend to serve a much broader market. The company boasts an average worksite employee salary in excess of $80,000, well above the industry average, highlighting the firm s customer mix. Robert W. Baird & Co. 200

202 Comprehensive Guide to Human Capital Services eo=`çåëìäíáåö= Companies Profiled: Aon Corporation Affiliated Computer Services, Inc. (Buck Consultants) Capital H Group Guardian Life Insurance Co. of America Hay Group, Inc. Hewitt Associates, Inc. Mercer LLC Towers Perrin, Inc. Watson Wyatt Worldwide, Inc. Business Services Human Capital Services 201

203 February 2008 Aon Corporation (AOC) Founded 1979, Chicago, IL; HR Consulting Major Business Segments Risk and Insurance Brokerage Services; Consulting; Insurance Underwriting Aon is a leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. Aon s recognition and background are grounded in its insurance businesses. However, the company also provides a wide range of human capital consulting services including: employee benefits (benefit objective setting, governance & risk control, audits, benefit design, efficiency & effectiveness, investment consulting); talent selection, development and management (training & development, success/competency profiling, leadership assessment); compensation (executive compensation design); management consulting; communications (communication strategy, change management communication); HR outsourcing; strategic HR consulting; and human capital research. Aon also provides specialized services including financial advisory and litigation consulting. Aon is one of the few global providers of human capital/hr consulting services, providing services to its clients from Aon s offices in the Americas, EMEA, and the Asia-Pacific region. Aon is among the world s top five providers of employee benefits consulting. As a result, the company can leverage its over 500 global offices (in 120 countries) to aggressively cross-sell its HR services to insurance clients. Its size also provides a unique ability to service global companies across their regions. Buck Consultants (ACS) Founded 1988 (ACS)/ 1916 (Buck Consultants), Dallas, TX; HR Consulting Major Business Segments Buck Consultants While ACS is best known for its business process outsourcing (BPO) and information technology outsourcing (ITO) services, the company also has a sizable consulting practice. ACS purchased the HR Services subsidiary of Mellon Financial Corp. in March The Mellon HR unit s consulting practice continues to operate as Buck Consultants, an ACS company. Buck provides various HR consulting services including retirement, compensation, HR management, heath and welfare and communications. Buck has a long history of innovation in the industry, having helped establish the first global Employee Stock Ownership Plan, introduced the first cash balance plan, and developed the first fully integrated Health Savings Account (HSA). ACS also provides various consulting services for the health care industry, as well as systems and integration consulting, both of which can include aspects of HR consulting. Buck operates 44 offices in 13 countries across North America, Europe, and Asia-Pac. Buck s consulting roots date back to 1916, making it one of the most established firms in the industry with a superior reputation with clients. In addition to being one of the most established firms, Buck is also one of the most innovative firms in the industry with firsts in global ESOPS, HSAs, and cash balance plans. Robert W. Baird & Co. 202

204 Comprehensive Guide to Human Capital Services Capital H Group (Private) Founded 2001, Chicago, IL; HR Consulting Major Business Segments Strategy; Organization; Talent Capital H Group is a human capital consulting firm with 200 professionals and seven offices in the U.S. The company s consulting services include strategy, organization, and talent. Its talent consulting business assists its clients with attracting, hiring, developing, motivating, rewarding, and retaining employees. More specifically, the Capital H Group advises its clients on diversity and inclusion strategies, recruitment and selection process design, on-boarding, outsourced recruiting, executive coaching, performance management tools development, training and development, employee engagement, retention efforts, career development and succession planning, and compensation and rewards. Its consultants have an average of 15 years of experience with a combination of consulting and industry backgrounds. In October 2007, the company acquired the UK-based Centre for High Performance Development (CHPD). The acquisition of CHPD, a specialist leadership and management training consultancy headquartered in London, marks the first step into global expansion for Capital H Group. Capital H Group offers much broader services and more experienced consultants than most boutique consulting firms. Its consultants average 15 years of experience, and many of them are recruited from the major consulting firms. Guardian Life Insurance Company of America (Private) Founded 1860, New York, NY; HR Consulting Major Business Segments Insurance; Retirement; Investing; Education Funding; Estate Planning; Business Planning The Guardian Life Insurance Company of America is one of the largest mutual life insurance companies in the United States. As of December 31, 2006, Guardian and its subsidiaries had $39.5 billion in assets (on a consolidated statutory basis). With more than 5,000 employees and 3,000 financial representatives, as well as more than 80 agencies nationwide, Guardian and its subsidiaries protect individuals, businesses, and their employees with life, disability, health, long-term care, and dental insurance products, and offer 401(k), annuities and other financial products and trust services. The firm added a disability insurance group after acquiring Berkshire Life Insurance in The company also offers a variety of business planning services, such as executive compensation structuring, reimbursement for key employee death, and split dollar arrangements (funding of life insurance on an executive using corporate dollars that can later be recovered). The company has also been investing in its wealth management capabilities. Guardian s mutual status allows it to hold a long-term perspective during business planning to ensure better value for policyholders. The company depends on a career agency system of independent agents and brokers to distribute insurance products, and is routinely rated AA or above in Fitch and Moody s ratings. Business Services Human Capital Services 203

205 February 2008 Hay Group, Inc. (Private) Founded 1943, Philadelphia, PA; HR Consulting Major Business Segments Performance Management; Job Evaluation; Organization Effectiveness; Talent Management; Capability Assessment; Reward Strategies; Leadership Transformation; Employee & Customer Surveys Hay Group offers HR and organizational consulting services to over 7,000 clients around the world. Its clients include public, private, and not-for-profit organizations across virtually all industries. While best known as a global management consultancy, the company is well known in several other service areas as well. Through its performance management segment, Hay Group implements detailed plans for managers to evaluate employees based on their performance criteria. Within its job evaluation group, the company developed a disciplined system (aptly named the Hay Group Method) for determining the relative importance and value of different jobs within an organization. The Hay Group Method is supported by the company s global compensation database which allows clients to make more accurate pay decisions. Lastly, Hay Group improves upon organizational structures by bringing best-practice operating structure, processes, people, and systems to help clients reach their goals. Other notable consultations are also available to clients, including leadership coaching, compensation benchmarking studies, and employee retention. The company maintains 88 offices in 47 countries. For over 60 years, the company has collected thousands of surveys and undertaken many empirical studies of various organizations which give it a powerful edge against its competition. The company s global footprint also enables it to serve large, multinational companies. Hewitt Associates, Inc. (HEW) Founded 1940, Lincolnshire, IL; HR Consulting Major Business Segments Retirement & Financial Management; Talent & Organization Consulting; Healthcare Consulting In addition to being one of the largest providers of HR outsourcing, Hewitt is also a leading provider of global HR consulting services (which account for roughly 30% of total revenue). The consulting services are closely aligned with the outsourcing services to provide clients with total end-to-end solutions. The Consulting segment is organized around three core service areas: benefits consulting, talent and organization consulting, and healthcare consulting. The benefits consulting practice addresses benefit plan design, actuarial services, investment consulting, legal consulting/compliance, defined benefit and contribution plan administration support (recordkeeping, compliance services, and customer service), and communication services. Talent and organization consulting encompasses a range of service including compensation and rewards, organizational change, talent management, HR efficiency and effectiveness, international HR, and federal government consulting. Healthcare consulting consists of health and welfare plan design. Hewitt employs 24,000 individuals in 33 countries, and serves over 2,300 consulting clients. Hewitt has one of the best reputations in the industry for both benefits outsourcing and HR consulting services. Prior to its 2006 fiscal year, Hewitt had a streak of 44 consecutive years of revenue growth. The company is currently one of only a few providers capable of providing total end-to-end HR solutions on a global basis. Robert W. Baird & Co. 204

206 Comprehensive Guide to Human Capital Services Mercer LLC (MMC) Founded 1937, New York, NY; HR Consulting Major Business Segments Retirement; Health & Benefits; Human Capital; Information Products; Communication; Investment Consulting; Investment Management; M&A; Outsourcing Mercer (formerly Mercer Human Resources Consulting), a subsidiary of Marsh and McLennan, Inc., is the largest HR consulting company with over 17,000 employees in offices in 180 cities in 42 countries. The group began as the employee benefits department of Marsh & McLennan in 1937, but has grown considerably since then, both organically and through more than 40 acquisitions. The company has expertise in virtually all human resource areas, from compensation and benefits to operational effectiveness and employee performance and engagement. Its consultants help clients plan, develop, implement, administer, and measure the effectiveness of their human resource programs and policies. Mercer also provides investment-related services to help retirement plan sponsors and participants and other investors achieve satisfying long-term returns at an acceptable level of risk. In addition, Mercer is also particularly experienced in administering the employee transition process through corporate changes (e.g., IPOs and mergers & acquisitions). Mercer has several significant competitive advantages, including a stellar reputation, a full range of HR consulting services, and a global scope of operations. Towers Perrin, Inc. (Private) Founded 1934, Stamford; CT; HR Consulting Major Business Segments HR Services; HRO (ExcellerateHRO profiled separately in HR Outsourcing) Towers Perrin is a global professional services firm that provides HR consulting services to help clients improve the effectiveness of their employees. Through its global network of offices, Towers Perrin provides a range of HR consulting services to help clients address various HR issues including HR function design and implementation; HR training; compensation consulting, including global talent and reward strategies, employee compensation program design and implementation, and executive compensation consulting; retirement, health and welfare strategy, including plan design and implementation, actuarial and financial management services, and pension risk management advisory; providing benefit and compensation data of comparative companies; change management and communication services, including human capital issues stemming from mergers and acquisitions; and, organizational research. The firm also provides reinsurance intermediary and consulting services, and, through its Tillinghast subsidiary, provides consulting and software solutions to insurance and financial services companies. With roughly 80 offices in over 25 countries worldwide, Towers Perrin serves approximately three-quarters of the Fortune 1000 companies. In March 2007, Towers Perrin announced the acquisition of ISR, a global employee research and consulting firm. The firm also offers HR outsourcing services through its ExcellerateHRO unit, which we profile separately. The firm s competitive advantages include a global network, significant breadth of HR service offerings, and a strong reputation earned through seven decades of experience. In the near term, the Pension Protection Act of 2006 and other legislative/regulatory changes will be significant drivers given the significant capabilities required to address these issues at large companies. Business Services Human Capital Services 205

207 February 2008 Watson Wyatt Worldwide, Inc. (WW) Founded 1946, Arlington, VA; HR Consulting Major Business Segments Benefits Group; Technology Solutions Group; Human Capital Group; Investment Consulting; Insurance and Financial Services Watson Wyatt Worldwide is a global human capital consulting firm, providing services in several related practice areas Benefits (60% of WW s revenue), which provides retirement and health care plan design, actuarial services, and administration, etc. globally; Human Capital consulting, including compensation, organization effectiveness, and compensation reports; Investment Consulting, including investment strategy, structured products, and governance, etc.; and, Insurance and Financial Services, which performs actuarial and business consulting for financial services companies. The company also provides outsourcing services with an emphasis on single and multi-process outsourcing through its Technology & Administration Solutions Group. While it traces its roots to a British actuarial firm, R. Watson & Sons, which was founded in 1878 (the U.S.-based The Wyatt Company was formed in 1946), Watson Wyatt Worldwide in its current form was formed in 2005 by a merger of equals when Watson Wyatt acquired its private U.K. counterpart (which it had previously operated with via a global alliance) to form Watson Wyatt Worldwide, Inc. In addition to acquiring Watson Wyatt LLP, it also acquired Brans & Co. in the Netherlands, Heissmann in Germany and Oakbridge Consulting in Sweden, significantly broadening its geographic base. Today, the company has 7,000 associates in 32 countries. Watson Wyatt s competitive advantages stem from its reputation, thought leadership, existing relationships with the world s largest companies, and its extensive geographic reach. The company serves more of the world s 300 largest pension plans than any other firm, and is the leading provider in the U.K., the Netherlands, and Germany. In the near term, we believe that Watson Wyatt s competitive advantages position it to benefit from the increasing number of retirees, the rising cost of health benefits, increasing demand for corporate governance, and legislative/regulatory changes (including the Pension Protection Act of 2006). Robert W. Baird & Co. 206

208 Comprehensive Guide to Human Capital Services eìã~å=`~éáí~ä=mçáåí=pçäìíáçåë=l=jáëåéää~åéçìë=péêîáåéë= Companies Profiled: Automatic Data Processing, Inc. (ADP Employease, Inc.) Intuit, Inc. OneClickHR, PLC. Saba Software, Inc. Salary.com, Inc. SHPS, Inc. SkillSoft, PLC. Workscape, Inc. Business Services Human Capital Services 207

209 February 2008 ADP Employease, Inc. (ADP) Founded 1998, Norcross, GA; Human Capital Point Solutions Major Business Segments Benefits Administration; HR Solutions Employease offers a comprehensive, web-based human resource package for managing and communicating human resource, employee benefits, and payroll information. In October 2006, the company was acquired by ADP, a strategic business partner of Employease since Employease now operates under ADP s Major Accounts Services within the Employer Services division. The company s software interfaces with other enterprise systems and handles a range of HR functions, including employee/manager self-service, applicant tracking, leave management, performance assessment, and recruitment. Employease s benefits solutions include enrollment services, flexible spending account administration, 401(k) contributions, COBRA/HIPAA administration and eligibility audit services. Clients have the ability to use Employease s applications, services and network to manage benefits work in-house or turn over the responsibility for processes to Employease s outsourcing service center. Employease provides services to approximately 1,500 companies. Employease believes that it offers first-class software applications based on: (1) superior functionality (Employease s SaaS architecture is self-updating); (2) fast implementation ( days); (3) innovativeness (21 major releases and 54 monthly enhancements over the past seven years); and (4) robust connection infrastructure (4 million transactions per month to more than 180 service providers). Intuit, Inc. (INTU) Founded 1983, Mountain View, CA; Human Capital Point Solutions Major Business Segments TurboTax; Quicken; QuickBooks Intuit is a leading provider of business, financial management and tax solutions for small businesses, consumers and accountants. The company is best known for its flagship financial software products, TurboTax, Quicken, and QuickBooks. TurboTax products are tailored for personal and business use, each with various versions (e.g. basic, deluxe, premier) depending on the complexity of the user s returns (e.g., deductions, investments, etc.). Intuit also offers various other products and services including TurboTax State to file state tax returns, MyCorporation to assist with incorporating an L.L.C. online, and Professional Tax Review, which allows an individual or business to have their tax return reviewed by an experienced tax professional prior to filing. Quicken helps individuals and small businesses account for and manage their finances; Quicken currently has 15 million users. Similar to TurboTax, various versions exist depending on the user and the complexity of their situation. Intuit also offers Quicken Health Care products to help with health care expense management. Quickbooks is a financial software product that assists small businesses with payroll, checks and supplies, accepting credit cards, point of sale transactions, and training solutions. ProSeries and Lacerte are Intuit's leading tax preparation software suites for professional accountants. Intuit s financial institutions division, anchored by Digital Insight, provides on-demand banking services to help banks and credit unions serve businesses and consumers with innovative solutions. Intuit sold its fully outsourced payroll business to ADP in March Intuit is arguably the largest payroll provider for small businesses in the world. Intuit has developed some of the best known brands in the space and has a loyal following of clients familiar with its products. Robert W. Baird & Co. 208

210 Comprehensive Guide to Human Capital Services OneClickHR, PLC (LSE: OCR) Founded 1996, London, the United Kingdom; Human Capital Point Solutions Major Business Segments HR Software; HR Consulting; Training Services OneClickHR is a provider of HR software solutions, HR consulting and training services. Through its Vizual Business Tools subsidiary, the company provides web-based, virtual HR solutions for companies of all sizes. For large companies, the firm launched HR.net in 2005 to provide Microsoft.NET-enabled internal process solutions. HR.net services cover the entire employee lifecycle including recruiting, payroll processing, time and attendance, absence management, online training and exit management. For midsized companies, Vizual offers a customizable suite of products including a personnel database (Personnel Director), time and attendance solutions (CaptureIT), payroll processing (Payroll Director) and a recruitment management system (Recruitment Director). For smaller companies, Vizual offers a suite including its time and attendance, payroll and training (Training Administrator) modules. OneClickHR s Vizual HR subsidiary provides clients with online and person-to-person HR consulting, policy solutions, employment law advice and outsourcing services. OneClickHR also provides training services through its Vizual Learning subsidiary. OneClickHR is a leading e-hr firm in the United Kingdom and has multi-national corporations such as Honda, FTSE, and Hilton Hotels as clients. Vizual HR has over 30,000 registered users and VizualHR.com is the market leader in online HR services in the UK. Saba Software, Inc. (SABA) Founded 1997, Redwood Shores, CA; Human Capital Point Solutions Major Business Segments Learning; Performance; Centra; Talent Suites Saba began delivering the first Learning Management System (LMS) in 1997, and later introduced an integrated learning and performance management solution in Today Saba provides a software platform for enterprise learning, collaboration, performance, and talent management. The company s solutions seek to bring a disciplined approach to aligning, developing, and managing employees across a client s entire organization. Saba offers a full range of services including governance workshops, application management services, certified content services, as well as core integration, implementation, hosting, education and technical support services. Saba has over 17 million users at over 1,100 customers in 150 countries, including 51 of the Fortune 100. Saba acquired THINQ Learning Solutions in May 2005 and Centra Software in January Saba has a truly global offering, serving users in 150 countries with over 40% of its client base headquartered outside of the United States. Additionally, the company s products are scalable to the largest enterprises Saba counts 51 Fortune 100 companies as clients and its enterprise learning customers have an average of roughly 25,000 users. Business Services Human Capital Services 209

211 February 2008 Salary.com, Inc. (SLRY) Founded 1999, Waltham, MA; Human Capital Point Solutions Major Business Segments Enterprise; Small Business; Personal Salary.com is a leading provider of on-demand compensation management solutions for large enterprise clients, small businesses, and personal consumers. The company maintains a database with base, bonus and incentive pay data for positions held by more than 73% of U.S. employees and similar data for the top executives in over 10,000 U.S. public companies. Its proprietary data sets are integrated into ondemand software applications, automating the compensation management process. In effect, Salary.com s products enable companies to determine how much to pay new and existing employees based on current market data of what similar employees are being paid at competing employers. The company s flagship offering, CompAnalyst, is a suite of compensation management applications that integrates the company s proprietary data, third-party surveys, and a customer s own data. The company also offers an employee life-cycle performance management application, TalentManager. Finally, the company offers various scaled down applications on its webpage that are targeted at small business and individual consumers. In July 2007, the company acquired the assets of ITG Competency Group, LLC and licensed the complete competency library of Schoonover Associates, Inc. With these transactions, Salary.com will own an extensive competency library comprising over 2,000 job competencies and will offer consulting services for competency model development and support partnership re-selling arrangements. Salary.com maintains one of the most extensive databases of compensation data, which inspires client confidence in the data. The company has the potential to leverage its proprietary data to produce various unique products. SHPS, Inc. (Private) Founded 1997, Louisville, KY; Human Capital Point Solutions Major Business Segments Human Resource Solutions; Healthcare Services; Business Support Services; Enterprise Solutions SHPS provides a broad range of health management tools, resources and services through an integrated delivery system that empower consumers to make wise healthcare decisions. The company serves large (10,000+ employees) and mid-market (1,000-10,000 employees) organizations as well as health insurance carriers, third-party administrators, Medicare Part D providers and government agencies. The company s suite of health management tools for employers includes spending account management, care management (health risk assessments, case management, counseling, etc.), advocacy services (health portal, decision support tools), productivity management (absence and disability management), benefits administration and program design. SHPS partner solutions offer healthcare providers a suite of services including administrative & financial services (eligibility & enrollment services, call center administration), clinical services, cost management solutions, software & technology solutions and communications management. SHPS is one of the largest administrators of flexible spending accounts and health savings accounts. Its focus on HSAs could provide strategic benefits if employers migrate towards HSAs instead of remaining with traditional healthcare plans. Robert W. Baird & Co. 210

212 Comprehensive Guide to Human Capital Services SkillSoft, PLC (SKIL) Founded 1998, Nashua, NH; Human Capital Point Solutions Major Business Segments e-courseware; Compliance Training; IT Certification; e- Books SkillSoft, PLC was created from the merger of Skillsoft Corp. and SmartForce PLC in The company is a leading provider of comprehensive e-learning content and technology products for business and IT professionals within global enterprises. The company s top-selling product SkillChoice Multi-Modal Learning Solutions accounts for 90% of SKIL s sales and provides an array of resources to support formal and informal training needs. Typical services include courseware, referenceware, online mentoring, test preparation, express guides, and skill simulations. As an addendum to MMLS, the company also offers SkillSoft, an e-learning management platform for corporate clients. Other services include live and ondemand virtual learning sessions (SkillSoft Dialogue), IT Skills and Certification Courseware, online publications (Books 24/7 Referenceware) and legal compliance (Compliance Solutions). In May 2007, SkillSoft announced that it had completed the acquisition of NETg from the Thomson Corporation. SkillSoft s diversified offerings span numerous disciplines and a majority of them are certified by industry standards. With 6 million licensed users and more than 4,750 online courses, SkillSoft is one of the largest sellers of web-based training materials. Workscape, Inc. (Private) Founded 1998, Marlborough, MA; Human Capital Point Solutions Major Business Segments Outsourced Benefits Administration; Compensation and Performance; Employee Portal Workscape is a provider of HR solutions to administer health and welfare benefits and the compensation and performance cycles. Workscape's Outsourced Benefits Administration solution provides a wide range of web-based, self-service applications and integrated services including enrollment and eligibility, compliance, spending account administration, decision support, employee communications and vendor management. Workscape s compensation planning and performance management solutions help companies identify, motivate, retain, and reward their valuable employees. Workscape s performance management solution automates a company s performance management processes and helps to align goals, competencies, results, and compensation throughout the organization. Workscape s Employee Portal provides a single point of access to consolidated HR and enterprise information and also functions as a gateway to Workscape s benefits, compensation and performance solutions as well as corporate and third-party programs. With multi-lingual support, the company s solutions can be extended to contingent workers, contractors, and partners globally. Workscape provides services to over 100 customers including prominent firms such as Aetna, CIGNA, IBM, BMW, General Motors, Raytheon and Honeywell. Business Services Human Capital Services 211

213 February 2008 lìíéä~åéãéåí=péêîáåéë= Companies Profiled: Drake Beam Morin, Inc. Adecco SA (Lee Hecht Harrison) Manpower, Inc. (Right Management Consultants) Robert W. Baird & Co. 212

214 Comprehensive Guide to Human Capital Services Drake Beam Morin, Inc. (Private) Founded 1967, Philadelphia, PA; Outplacement Services Major Business Segments Organizational Transitions; Individual Transitions Drake Beam Morin is a global outplacement firm focusing on employee selection, development, retention, and transition services. When organizations undergo major structural transformations such as mergers and acquisitions, consolidations, off-shoring, or restructuring, DBM helps them realign the workforce in the new direction. Working closely with management teams, DBM consultants advise clients on how to retain the best performers and to smooth the transition process for laid off workers. Apart from supporting organizations, DBM also delivers solutions to employees of all positions. These solutions include DBM Select, which designs personalized plans for senior executives; DBM Choice, which finds quality positions for mid-level managers and professionals; and DBM Powerstart/Quicklaunch, which provides practical advice and job search services to all displaced employees. The company powers the online portal JobScout to connect its database of candidates with potential employers worldwide. In addition to these basic services, senior officers can access the International Center for Executive Options, which is a career resource and networking unit dedicated to meeting the transition needs of executives. DBM is a prominent outplacement firm that differentiates itself by geographical coverage and industry expertise. The company currently operates a network of roughly 200 offices in 85 countries and offers specific solutions in financial services, pharmaceutical, professional services, technology, telecommunications, and energy industries. Lee Hecht Harrison (SWX/VIRT-X: ADEN, Euronext: ADE) Founded 1974, Woodcliff Lake, NJ; Outplacement Services Major Business Segments Organizations; Individuals; Recruiters Lee Hecht Harrison is the outplacement division of the world s largest staffing company, Adecco SA. Since 1974, LHH has provided consulting and job services to organizations, individuals, and recruiters. LHH delivers solutions in career transition, leadership consulting, and career management. For employees recently displaced from client organizations, the group applies a proprietary approach called AIM (Assess, Implement and Manage) to provide expert consulting services and e-learning tools to guide them through the transition. Lastly, LHH also caters to recruiters by supporting an online job board named Resume Reserve. A key feature of this service is that it enables the displaced employees to seek new opportunities at other companies from home. The company has 240 offices throughout the world. Lee Hecht Harrison s business is bolstered by a strong reputation. In addition, Adecco s global network of staffing clients provides a means for the company to expand its customer base. Business Services Human Capital Services 213

215 February 2008 Right Management Consultants (MAN) Founded 1980, Philadelphia, PA; Outplacement Services Major Business Segments Career Transition; Organizational Consulting Manpower added Right Management to its existing Empower Group in January 2004, forming the largest worldwide provider of outplacement services. With 300 offices across 40 countries, Right Management runs two principal activities: Outplacement and Consulting services. The Outplacement sub-segment is RMC s career transition unit that offers assistance to displaced employees, including severance package negotiation, resume writing, networking, and interviewing. Services to these workers are channeled through group or individual programs. Managerial-level employees receive longer-term (often more than six months), personalized services while less-senior employees receive shorter-term (<1 month), groupbased services. RMC s other sub-segment, Consulting services, addresses worker productivity and organizational structure issues by offering services centered on assessment, strategic execution, leadership development, and talent management. Right Management serves large and medium-sized businesses in all industries, including 80% of the Fortune 500 and 50% of the Global 1000 companies. RMC s countercyclical nature of business fits well into Manpower s cyclical operations. Furthermore, the company s reach into organizational consulting diversified its offerings and strengthened its outplacement leadership. Robert W. Baird & Co. 214

216 Comprehensive Guide to Human Capital Services ^éééåçáñ=j=fãéçêí~åí=aáëåäçëìêéë=~åç=^å~äóëí=`éêíáñáå~íáçå= Robert W. Baird & Co. and/or its affiliates expect to receive or intend to seek investment banking related compensation from the company or companies mentioned in this report within the next three months. Investment Ratings: Outperform (O) - Expected to outperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Neutral (N) - Expected to perform in line with the broader U.S. equity market over the next 12 months. Underperform (U) - Expected to underperform on a total return, risk-adjusted basis the broader U.S. equity market over the next 12 months. Risk Ratings: L - Lower Risk - Higher-quality companies for investors seeking capital appreciation or income with an emphasis on safety. Company characteristics may include: stable earnings, conservative balance sheets, and an established history of revenue and earnings. A - Average Risk - Growth situations for investors seeking capital appreciation with an emphasis on safety. Company characteristics may include: moderate volatility, modest balance-sheet leverage, and stable patterns of revenue and earnings. H - Higher Risk - Higher-growth situations appropriate for investors seeking capital appreciation with the acceptance of risk. Company characteristics may include: higher balance-sheet leverage, dynamic business environments, and higher levels of earnings and price volatility. S - Speculative Risk - High-growth situations appropriate only for investors willing to accept a high degree of volatility and risk. Company characteristics may include: unpredictable earnings, small capitalization, aggressive growth strategies, rapidly changing market dynamics, high leverage, extreme price volatility and unknown competitive challenges. Valuation, Ratings and Risks: The recommendation and price target contained within this report are based on a time horizon of 12 months but there is no guarantee the objective will be achieved within the specified time horizon. Price targets are determined by a subjective review of fundamental and/or quantitative factors of the issuer, its industry, and the security type. A variety of methods may be used to determine the value of a security including, but not limited to, discounted cash flow, earnings multiples, peer group comparisons, and sum of the parts. Overall market risk, interest rate risk, and general economic risks impact all securities. Specific information regarding the price target and recommendation is provided in the text of our most recent research report. Distribution of Investment Ratings: As of January 31, 2008, Baird U.S. Equity Research covered 513 companies, with 49% rated Outperform, 49% rated Neutral and 2% rated Underperform. Within these rating categories, 13% of Outperform-rated, 9% of Neutral-rated, and 29% of Underperform-rated companies have compensated Baird for investment banking services in the past 12 months and/or Baird managed or co-managed a public offering of securities for these companies in the past 12 months. Analyst Compensation: Analyst compensation is based on: 1) The correlation between the analyst s recommendations and stock price performance; 2) Ratings and direct feedback from our investing clients, our sales force and from independent rating services; and 3) The analyst s productivity, including the quality of the analyst s research and the analyst s contribution to the growth and development of our overall research effort. This compensation criteria and actual compensation is reviewed and approved on an annual basis by Baird s Research Oversight Committee. Analyst compensation is derived from all revenue sources of the firm, including revenues from investment banking. Baird does not compensate research analysts based on specific investment banking transactions. A complete listing of all companies covered by Baird U.S. Equity Research and applicable research disclosures can be accessed at You can also call or write: Robert W. Baird & Co., Equity Research, 24 th Floor, 777 E. Wisconsin Avenue, Milwaukee, WI Analyst Certification Business Services Human Capital Services 215

217 February 2008 The senior research analyst(s) certifies that the views expressed in this research report and/or financial model accurately reflect such senior analyst's personal views about the subject securities or issuers and that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report. Disclaimers Baird prohibits analysts from owning stock in companies they cover. This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. ADDITIONAL INFORMATION ON COMPANIES MENTIONED HEREIN IS AVAILABLE UPON REQUEST The Dow Jones Industrial Average, S&P 500, S&P 400 and Russell 2000 are unmanaged common stock indices used to measure and report performance of various sectors of the stock market; direct investment in indices is not available. Baird is exempt from the requirement to hold an Australian financial services license. Baird is regulated by the United States Securities and Exchange Commission, NASD, NYSE, and various other selfregulatory organizations and those laws and regulations may differ from Australian laws. This report has been prepared in accordance with the laws and regulations governing United States broker-dealers and not Australian laws. Copyright 2008 Robert W. Baird & Co. Incorporated Other Disclosures UK disclosure requirements for the purpose of distributing this research into the UK and other countries for which Robert W. Baird Limited holds an ISD passport. This report is for distribution into the United Kingdom only to persons who fall within Article 19 or Article 49(2) of the Financial Services and Markets Act 2000 (financial promotion) order 2001 being persons who are investment professionals and may not be distributed to private clients. Issued in the United Kingdom by Robert W. Baird Limited, which has offices at Mint House 77 Mansell Street, London, E1 8AF, and is a company authorized and regulated by the Financial Services Authority. For the purposes of the Financial Services Authority requirements, this investment research report is classified as objective. Robert W. Baird Limited ("RWBL") is exempt from the requirement to hold an Australian financial services license. RWBL is regulated by the Financial Services Authority ("FSA") under UK laws and those laws may differ from Australian laws. This document has been prepared in accordance with FSA requirements and not Australian laws. Robert W. Baird & Co. 216

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