ADP – Redefining workforce industry

The payroll giant has now moved onto broader workforce trends, transforming the HR outsourcing industry forever

If it’s almost end of month and you are waiting for your paycheck to arrive, there is a high probability that this company is making sure that your employer pays you – the right figure at the right time. With a client base of over 610,000 companies and 24 million employees just in the US, ADP is well known in the workforce industry. When one thinks of performance and more importantly disruption/ product innovations, ADP will feature in the top right space. Successful companies go through a constant cycle of reinvention and disruption and ADP is a prime example of a company which not only disrupted the market when it launched but continues to try out different models and grows ambitiously.

This is evident from the company’s revenue which have doubled in the last 10 years. From $6 billion in 2005 to $15 billion in 2014. From a revenue per person of $130k to a revenue of more than $200k per person, even though the company has grown more conservatively in terms of employees and clients indicating they have been deriving more value from existing clients. The main growth in their client base has been around small companies and global companies. Despite expanding across geographies, ADP’s robust operating model ensures margins don’t take a dip while centering their business mainly on standardized platform offerings with limited human resource involvement.

ADP over the last few decades, has found a way to steer alignment between its business model and operations in the rapidly changing customer context. It is important to revisit payroll history to understand ADP business model innovation. The payroll industry has traditionally between a human resources intensive space. Firms would typically outsource this non-value adding yet critical operations to a payroll firm which would charge you project time for FTEs invested. Soon new software companies came on board which reduced FTE involvement but required a substantial upfront investment to buy the license of the software. This often locked the customers till the time they could break even on the cost. ADP used this opportunity to offer come up with subscription model – commonly known as pay-per-use model giving clients more flexibility.

ADP’s business model is focused on providing solutions that best fit the firm. Company segments clients into small, medium, large and global categories. This is done to offer focused services and to take strategic decisions specifically for each segment, keeping in mind that solution for customer can differ by the number of employees and geographic reach.

ADP_offers

In order to do this, ADP has followed a slow and steady acquisition strategy to cater to all customer segments and expand in other geographies. They acquired several promising, young companies like Intuit way back to focus on their weak segments. ADP acquired several companies in Europe, Asia and South America to get local talent and reduce entry barriers and challenges related to customer acquisition. Moreover, presence in these regions helped in on-boarding existing clients’ other geography offices. Operationally, they had to invest limited amount in hiring or creating physical infrastructure from scratch, thus reducing their time to go-to-market and capex required. The management also allows most of these companies to run independently, thus helping to keep their culture intact. For young companies like Intuit, it helps to foster product innovation and talent retention.

The company today wants a larger share of the human capital management pie and as a result, strives to provide end-to-end solutions to its clients. The HR outsourcing industry over time has seen rising adjacencies. Customers want a seamless service – payroll, benefits, recruitment, talent management and others. This changing customer behavior has led ADP to follow a two-pronged approach. Firstly, instead of disrupting software companies in these segments, it is allying with them. Most interesting update has been ADP’s partnership with Workday. ADP and Workday are direct competitors in the human capital management space. However, instead of competing – they decided to go ahead and partner. So while clients use Workday for talent management and recruiting, they can leverage ADP global payroll solution without having to change the interface. They have also gone via their traditional route to acquire companies like TheRightThing and Workscape to enter into new areas.

The company continues to innovate and stay ahead. ADP has recently launched the marketplace, which gives small companies, startups an opportunity to sell their specific programs to ADP clients through the exchange. While ADP gets an additional stream of revenue through transaction charges on app downloads, it also helps ADP keep check on the disruption happening in the space and retain customers.

Thus, it is evident that ADP uses its assets – talent, access to capital and intellectual property in the form of platform solutions to create value for companies across the world. Their strategy is to serve the needs of the customer, in the fastest and best fit manner and to give them a seamless experience, while being their trusted solution provider along their human resource journey.

Sources used:

  • ADP company website, annual reports and investor presentations
  • https://www.workday.com/company/news_events/press_releases/detail.php?id=2012396#.VmXz4narTIU
  • http://fortune.com/2015/12/02/adp-marketplace-strategy/

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1 thought on “ADP – Redefining workforce industry

  1. Fascinating post and great business model! I am quite impressed by ADP’s ability to maintain its mass-market payroll processing and other human resources outsourcing services while continuing to build and add on business lines and customer segments. I would be interested to learn more about how ADP has been able to penetrate the SMB market given the high cost of acquisition and relatively low product use.

    How has ADP managed the process of training human resources employees to learn and use a system that is generally designed to replace their function in some way or another? I also wonder how ADP has responded to growth in new entrants focused on the most complex elements of payroll / HR (i.e. healthcare, contracting, filmmaking, etc.). Many companies view ADP’s mass market approach as a challenge to the Company’s ability to flexibly react to customer needs and roll out changes quickly. It seems ADP has shown a great ability to continue to grow and will find ways to continue to do so.

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