Hewitt (Part 2) - The Competitive Environment
By William Trent, CFA of Stock Market Beat
In Part 1 we discussed Hewitt’s (HEW) business and strategy. Here we take a look at some of the other companies doing the same thing, and how it affects Hewitt.
Looking through the lens of Porter’s Five Forces, we find:
Customer bargaining power is weak. As mentioned in Part 1, Hewitt has 2,400 clients and none represent more than 10% of Hewitt’s revenue. While there is typically a good deal of competition for the initial contract and renewals, contract terms are typically 3-5 years and include early exit penalties. Furthermore, once a customer is on a particular system switching can be painful.
Supplier bargaining power is mixed. In a consulting business, the suppliers are employees. There is typically a give-and-take for key employees, and previous partners became shareholders when the firm went public. Unfortunately, Hewitt has squandered several of the retention levers it had at its disposal: goodwill shares are now fully vested, out-of-money stock options were given accelerated vesting so as to avoid expensing them under new accounting rules, restricted shares issued at the time of the Exult merger have vested, and so on. The company may have to step up retention efforts in coming quarters.
The threat of new entrants is limited. The large number of existing competitors and the level of expertise needed to be successful are barriers to entry.
Substitute products are available. The primary being in-house human resources management. In addition, software packages are available that perform some HR tasks. In fact, part of Hewitt’s consulting business is to help clients choose such software.
Competitive rivalry is intense.
In their 10K, Hewitt describes it thusly:
We operate in a highly competitive and rapidly changing global market and compete with a variety of organizations. In addition, a client may choose to use its own resources rather than engage an outside firm for human resources solutions.
Outsourcing. The principal competitors in our human resources outsourcing business are outsourcing divisions of large financial institutions such as CitiStreet, Fidelity Investments, Merrill Lynch, Putnam Investments, T. Rowe Price and the Vanguard Group; companies that extended their services into human resources outsourcing such as Automatic Data Processing, Ceridian, Convergys and Paychex and technology consultants and integrators such as Accenture, Affiliated Computer Services, Electronic Data Systems and IBM.
Consulting. The principal competitors in our consulting business are consulting firms focused on broader human resources, such as Mercer Human Resource Consulting, Towers Perrin and Watson Wyatt Worldwide. We also face competition from smaller benefits and compensation firms, as well as from public accounting, consulting and insurance firms offering human resources services.
http://stockmarketbeat.com/blog1/
In Part 1 we discussed Hewitt’s (HEW) business and strategy. Here we take a look at some of the other companies doing the same thing, and how it affects Hewitt.
Looking through the lens of Porter’s Five Forces, we find:
Customer bargaining power is weak. As mentioned in Part 1, Hewitt has 2,400 clients and none represent more than 10% of Hewitt’s revenue. While there is typically a good deal of competition for the initial contract and renewals, contract terms are typically 3-5 years and include early exit penalties. Furthermore, once a customer is on a particular system switching can be painful.
Supplier bargaining power is mixed. In a consulting business, the suppliers are employees. There is typically a give-and-take for key employees, and previous partners became shareholders when the firm went public. Unfortunately, Hewitt has squandered several of the retention levers it had at its disposal: goodwill shares are now fully vested, out-of-money stock options were given accelerated vesting so as to avoid expensing them under new accounting rules, restricted shares issued at the time of the Exult merger have vested, and so on. The company may have to step up retention efforts in coming quarters.
The threat of new entrants is limited. The large number of existing competitors and the level of expertise needed to be successful are barriers to entry.
Substitute products are available. The primary being in-house human resources management. In addition, software packages are available that perform some HR tasks. In fact, part of Hewitt’s consulting business is to help clients choose such software.
Competitive rivalry is intense.
In their 10K, Hewitt describes it thusly:
We operate in a highly competitive and rapidly changing global market and compete with a variety of organizations. In addition, a client may choose to use its own resources rather than engage an outside firm for human resources solutions.
Outsourcing. The principal competitors in our human resources outsourcing business are outsourcing divisions of large financial institutions such as CitiStreet, Fidelity Investments, Merrill Lynch, Putnam Investments, T. Rowe Price and the Vanguard Group; companies that extended their services into human resources outsourcing such as Automatic Data Processing, Ceridian, Convergys and Paychex and technology consultants and integrators such as Accenture, Affiliated Computer Services, Electronic Data Systems and IBM.
Consulting. The principal competitors in our consulting business are consulting firms focused on broader human resources, such as Mercer Human Resource Consulting, Towers Perrin and Watson Wyatt Worldwide. We also face competition from smaller benefits and compensation firms, as well as from public accounting, consulting and insurance firms offering human resources services.
http://stockmarketbeat.com/blog1/
posted by douglas mcintyre at 8:20 AM
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