Hewitt Associates

Hewitt Associates

company_name = Hewitt Associates
company_type = Public (nyse|HEW)
company_slogan =
foundation = Lake Forest, IL (1940)
location = Lincolnshire, IL
key_people = Russell P. Fradin, Chairman & CEO
num_employees = ~23,000
industry = HR Outsourcing and Consulting
products =
revenue = $2.9 billion in fiscal 2007
homepage = [http://www.hewitt.com www.hewitt.com]

Hewitt Associates (nyse|HEW), based in Lincolnshire, Illinois is a global human resources (HR) outsourcing and consulting firm delivering a complete range of integrated services to help companies manage their total HR and employee costs, enhance HR services, and improve their workforces.


Founded: 1940 as Edwin Shields Hewitt and AssociatesNAIC: 541214 Payroll Services; 541612 Human Resources and Executive Search Consulting Services; 561310 Employment Placement Services; 561320 Temporary Help Services; 561330 Professional Employer OrganizationsSIC: 7361 Employment Agencies; 7363 Help Supply Services

The Lincolnshire, Illinois-based Hewitt Associates, Inc. is a global management consulting firm specializing in the outsourcing of corporate human resources (HR) programs such as healthcare benefits, payroll administration, stock options and investment accounts, retirement programs, and severance packages. Hewitt represents many Fortune 500 companies, administering their investment and benefit programs and offering their clients a host of related services, many of them online. Hewitt not only pioneered the use of automated benefit programs, but brought the HR industry into the Internet age by launching a series of online programs and software packages.

In the Beginning: 1940s-70s

Edwin "Ted" Hewitt founded Edwin Shields Hewitt and Associates on October 1, 1940, as a brokerage house focusing on insurance and personal financial services. It was a heady time in the United States; population had grown to 132 million, the economy was robust, and President Franklin Delano Roosevelt was reelected for a record third term. Unfortunately, the war raging in Europe was about to bring the United States into what became World War II.

During and after the war, Hewitt's particular expertise became immensely valuable when the government instituted "pay-as-you-go" income taxes in 1943 and the U.S. cost of living increased more than 25 percent in 1945. Once the war and its rationing ended, Americans returned to work and the economy recovered. Hewitt's clients, many of whom had manufactured goods for the war effort, returned to their customary businesses and thrived. Hewitt began offering its clients statements to track their employee benefits and had pioneered the use of specific financial goals for company investments. Hewitt's programs were the first of their kind to be approved by the Internal Revenue Service; they were so cutting edge the U.S. Department of Labor asked the firm to create forms for the welfare and pension programs of the 1950s.

By the 1960s the Hewitt firm continued to expand its pension and benefit plans, creating more sophisticated programs for its clients. During the decade the firm revolutionized employee benefit packages once again, as the first company to design pension and benefit plans tied to a corporation's revenue and growth projections. While such a practice became commonplace in the pension and employee benefits of larger corporations, it was another in Hewitt's growing list of industry firsts. Hewitt was so respected for its work in the field that it was the only company asked by the U.S. government to consult on the Federal Interagency Task Force from 1964 to 1968. The Task Force was responsible for the design and implementation of the new Employee Retirement Income Security Act.

In the next decade Hewitt began offering its clients an increasing number of innovative products, including its trademarked Benefit Index to track the performance of benefit programs. The Benefit Index was another industry first and soon became the standard to which all aspired. Hewitt also offered its clients several flexible investment strategies for employee benefit packages, which led to the formation of a new consulting firm, the Hewitt Investment Group, in 1974.

ignificant Growth: 1980s and 1990s

Hewitt continually sought to better its programs. The company began to conduct in-depth surveys to find out which benefit programs worked best and which ones needed improvement. In the 1980s Hewitt researched numerous issues and began issuing its findings industry-wide on subjects such as offering benefits to part-time employees, full versus partial hospital reimbursement, fluctuating profit-sharing percentages, mental health benefits, 401(k) programs, and rising health plan deductibles. Another topical issue was computer use for automated benefit calculations.

The use of computers had finally begun to take hold in larger businesses, as Hewitt found automated benefit programs had increased remarkably from 1986 to 1988. In a survey detailed in PC Week (November 6, 1989), Hewitt had surveyed 700 companies to find 71 percent had become either fully or partially automated in their administration of benefits plans, up from 48 percent two years before. Hewitt responded to the expanding use of technology by designing computerized benefit programs and software so companies could manage their benefit plans. Hewitt Technologies was created in 1988 to monitor and respond to the industry's rapidly changing technological needs.

By the beginning of the 1990s Hewitt had ventured abroad and offered tailored benefit programs to corporations in the United Kingdom. The firm had brought in more than $250 million in revenues for 1990 and was ranked the fourth largest benefit management and consulting firm in the world, according to Business Insurance magazine. Yet many of Hewitt's clients were feeling the pinch of a struggling economy and inflation. As companies began looking for ways to bolster the bottom line, benefits were often the first place executives looked for a quick fix. In a time when few received raises and those who did received only cost-of-living increases, Hewitt started retooling retirement packages and healthcare benefits to keep its customers from making drastic changes. Of particular interest were retirement programs since few seniors could withstand the effects of inflation and soaring healthcare costs. Hewitt also researched other benefit additions such as flextime scheduling, child- and elder-care benefits, and HMOs (health management organizations) versus PPOs (preferred provider organizations).

By 1997 more than 100 large companies outsourced their benefit programs to Hewitt, covering about nine million worldwide employees. Hewitt not only managed these HR services but provided both the companies and their employees with the opportunity to view their benefits with ease. The company ran into controversy, however, when it secured lucrative incentives to open a new benefits management center in Orlando, Florida. Public officials decried the incentives, believing that Hewitt was favored over other firms that could have offered more jobs and revenue for the city. Despite the furor, the new office opened in Orlando in 1997, during a fiscal year (ending in September) in which Hewitt's revenues reached close to $700 million.

In 1998 Hewitt partnered with the California-based Financial Engines, an online investment firm, to offer its clients financial advice over the burgeoning "information superhighway" or Internet. Hewitt clients were among the first to view nearly every facet of their company's benefit programs with a few simple keystrokes, and could seek online investment advice and make changes in real-time. Such advancements, along with being the first HR industry firm to launch a corporate web site, landed Hewitt among PC Week's Top Ten Most Technologically Innovative Companies. Hewitt also continued its in-depth surveys, developing the Health Value Initiative in 1999 to measure the effectiveness and quality of more than 2,000 healthcare programs worldwide. The Initiative's findings led to testimony for the government and various agencies in an attempt to reform the U.S. healthcare industry.

As the decade closed, Hewitt was poised for further growth both domestically and abroad. Not only was the company broadening the scope of its operations, but it offered clients advanced tools to outdistance their competitors. Hewitt's HR management services had become known for their cutting-edge technology and the company's ongoing commitment to offer newer, faster, and more comprehensive programs would take it to the top of the industry in the next century.

A New Era: 2000 Onward

By early 2000 Hewitt's expansion moved forward with new offices near Houston, Texas, and an increased presence in Asia with a new office in Kuala Lumpur, Malaysia. The company also announced the merger of its British and Irish operations with the United Kingdom's Bacon & Woodrow, a leading retirement and HR management consulting firm. Hewitt also unveiled plans for Sageo, a comprehensive online service where participants could compare, choose, and enroll in benefit programs. Sageo was designed for retirees and companies with numerous older employees, to offer this growing population the same benefits provided to Hewitt's 150 corporate clients and their 15 million worldwide employees. Hewitt hoped that Sageo's online format would not only simplify the benefits process but lower employer costs as well. Within a few months of its debut, Sageo had enrolled nearly a dozen companies representing 500,000 individuals. However, Sageo never made money and was dismantled shortly thereafter.

In 2001 Hewitt formally announced its intention to become a publicly traded company after nearly six decades as a private firm. Under the ticker symbol HEW on the New York Stock Exchange, Hewitt went public on June 27, 2002, with an initial offering of 11 million shares (at $19 per share). Share prices rose as high as $23 the following day. Hewitt wasted little time in putting its new funds to work, paying off debt, purchasing France's Finance Arbitage, an investment consultancy firm, and spearheading expansion plans for the United Kingdom and China.

In 2003 Hewitt took over the Cork, Ireland-based Becketts, a benefits consultancy, and bought the software programs and payroll services of Cyborg Worldwide Inc. These moves, along with several others, prompted the Chicago-based Crain's Chicago Business to name Hewitt one of the area's fastest growing public firms, with fiscal revenues topping $1.9 billion for the year. In 2004 Hewitt announced the purchase/merger of Irvine, California's Exult Inc., another HR and consulting firm. The deal was valued at close to $700 million and was expected to bring in combined revenues of more than $3 billion by the following fiscal year.

For 2004 Hewitt reached revenues of $2.2 billion and the firm sustained its 43rd consecutive year of growth. Employees numbered more than 22,000 in nearly three dozen countries (including Brazil, China, France, India, Ireland, The Netherlands, Puerto Rico, Singapore, and Switzerland) serving more than 18 million employees for its corporate clients. In addition, the company was named one of America's Most Admired Companies in 2004 by Fortune magazine, ranked as one of the 100 Best Places to Work for the fourth consecutive year by Computer World, and had become the United States' largest and the world's second largest benefits outsourcing company, according to Business Insurance magazine.

By early 2005 Hewitt clinched several significant business processing outsourcing (BPO) contracts, signing publisher Thomson Corporation, Sun Microsystems, hospitality leader Marriott International, beverage giant PepsiCo Inc., Wachovia Corporation, and others to a roster of more than 2,500 international clients. As the year came to a close, Hewitt had fallen a bit short of its $3 billion goal, bringing in revenues of $2.8 billion. With analysts believing the business outsourcing market would top $33 billion or more in 2006, Hewitt continued to dominate the U.S. benefits industry and aimed to be the world's top provider of outsourced business processing.

Growth Strategy

Prior to 2000, most of Hewitt's growth was organic. Acquisitions of and joint ventures with very small boutique firms, primarily defined benefit plan actuaries and human resources consultancies, were typical. In 2000, Hewitt began growing through larger mergers and acquisitions. The first of these was the announcement, in late 2000, of a plan to integrate its UK and Ireland business with Bacon & Woodrow, a leading retirement and financial management consultancy in the UK.

In June 2003, Hewitt announced the completion of the acquisition of Northern Trust Retirement Consulting, L.L.C., expanding its portfolio of outsourcing clients. Later in 2003, Hewitt acquired Cyborg Worldwide, Inc., expanding outsourcing capabilities to include payroll services.

On October 1, 2004, Hewitt completed the acquisition of Irvine, CA - based Exult Inc., a company specializing in Human Resources Business Process Outsourcing or HR BPO. This move was to ensure Hewitt would remain competitive within the HR Consulting and Outsourcing space, in which HRBPO was a rapidly growing area.

Hewitt currently has over 2,600 clients making it the world's largest provider of multi-service HR business process outsourcing (BPO), and it claims to be the only firm fully integrated HR outsourcing and HR consulting. Hewitt's clients include over half the Fortune 500 and a third of the Fortune Global 500. Hewitt has 86 offices in 37 countries and employs over 27,000 employees.

Response to competitive challenges

Facing increased competition in the business process outsourcing market, significant investment in a number of new outsourcing engagements, and declining margins in its traditionally strong consulting business, Hewitt announced substantive changes to employee benefits including health insurance, profit sharing, sick leave, and arguably their most famous benefit, the elimination of free lunch (in North America) in late 2005. The company was spending $35M annually on the free lunch program. The company acknowledged, in SEC filings, that employee reductions were taking place in certain segments of the business.Fact|date=August 2007

Analysts believe Hewitt Associates still has much to do to rectify its troubled human resources outsourcing business.Fact|date=August 2007

Joel Bloomer, an analyst with Morningstar, Inc. in Chicago, sums up this broadly held sentiment with his analysis. Bloomer has indicated that even before the merger with Exult, in a rush to accelerate growth in its outsourcing business and without a proper understanding of costs, Hewitt entered into a number of long-term contracts that will, he believes, likely lose money over time. That was also the case with many of the contracts the company inherited from Exult. "Hewitt’s still a solid company, it just made some bad decisions." Bloomer said.Fact|date=August 2007

Leadership change

On Thursday, June 15, 2006, it was announced that CEO and Chairman Dale L. Gifford would be stepping down. The announcement was made in the face of Hewitt's declining stock performance and market worries about the entire BPO sector, but Gifford, who has served as chief executive officer since 1992, indicated the decision was his own, and that he planned to retire.Fact|date=August 2007

Just after the closing of the stock market on Thursday, August 10, 2006, the company announced the appointment of the fourth CEO of Hewitt Associates, Russell P. Fradin, whose tenure commenced on September 5, 2006.

External links

*Official Hewitt UK careers site for [http://www.hewittgraduate.co.uk// graduate actuarial jobs]

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