Decentralized ADP Seeks Strength of Monoliths

Before outsourcing was a political hot potato. before it became an international phenomenon. Before Infosys Technologies, Lou Dobbs and the World Trade Organization, there was Automatic Data Processing Inc. Founded in 1949, ADP was outsourcing payroll when BPO still stood for the Buffalo Philharmonic Orchestra. Today, 46 years later, one out of every six people in the U.S. sees the letters “ADP” printed on their paychecks. But few, if any, think to ask, “Who is this company that pays me every week?”

Which is, of course, just the way ADP wants it. The less attention the Roseland, N.J.-based company receives, the better it is doing its job. And while ADP may have payroll services down to a quiet science, the company hasn’t stood still since it pioneered the market more than four decades ago. ADP has diversified well beyond payroll processing, and now handles a range of human resources, benefits and government compliance issues for companies. It’s become an $8 billion enterprise with more than 40,000 employees, pulling down $1 billion a year in profits. Given its market leadership in payroll outsourcing, and the current momentum of business outsourcing in general, it would seem ADP is perfectly poised for rapid growth.

Despite its diversification efforts, however, ADP’s largest unit remains Employer Services (ES), where most of the payroll processing lives. Employer Services generated 62 percent of ADP’s revenues in 2004, and 66 percent of earnings—not exactly the revenue diversification the company has been looking for. And a large percentage of ES’s 475,000 customers still use ADP for payroll services alone.

Also, ADP hasn’t been growing all that much: The company has experienced only 10 percent revenue growth in the past two years, and that with shrinking margins, even while the annual outsourcing market is growing at a rate of 25 percent or more, by analyst estimations. Part of the problem is that with diversification came decentralization. ADP’s four divisions—Employer Services, Brokerage Services, Dealer Services and Claims Services—all have autonomous executive teams and balance sheets. Employer Services alone has six divisions. And each of those groups has its own profit and loss statements, its own sales and marketing staff, its own IT leaders.

To tie all its product offerings together, and to start leveraging their respective successes, ADP is turning to technology. Specifically, a unified Web services interface that can offer ADP’s varied services as a total package for the first time. “This will change the way we sell, service and implement products,” says Bob Bongiorno, senior vice president and CIO of Employer Services. That makes it a bellwether IT project for how Web services could transform the entire company. If it works.

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