News from Hewitt

A very insightful article...

Hewitt announced the departure of Michael Salvino, co-leader of its HRO sales and accounts group. The announcement comes on the heels of the announced resignations of Hewitt’s CEO Dale Gifford and Bryan Doyle, president of HRO. Hewitt doesn’t appear to have a successor in place for Salvino. According to some industry observers that could be hinting at a sale of its HRO business. By any standards, the three departures signal a major shakeup only two years after the merger of Hewitt and Exult was announced. At the time of the announcement, the merger was regarded as nothing short of a defining moment in the history of HRO.

And now, while the marriage is still intact, the honeymoon is clearly over. While the union may yet last longer than a typical Hollywood wedding, if the paparazzi could stalk companies, they’d be all over this relationship. I haven’t seen the Las Vegas line, but put the over/under at 18 months and take the under. When the merger first took place it appeared to be the perfect marriage. Hewitt was regarded as the gold standard in benefits outsourcing, setting the paradigm in how total benefits administration was delivered. Exult on the other hand had the most mature of the practices and model of BPO of HR. The orders started pouring in! It would appear, however that the orders came in too fast. Reportedly (and allegedly) implementation became more difficult, and now perhaps Hewitt isn’t competing effectively for the current opportunities.

The rumors had been that Hewitt might be looking to jettison HRO and that Accenture would be the taker. More recently ADP and Fidelity have come into the mix of rumors. The thinking is that another major market player will have better luck in turning the Exult model to profitability. If Hewitt couldn’t turn a profit with it, I don’t think ADP or Fidelity could either. Hewitt was the best at turning administration into profitability. Fidelity and ADP are the best at turning high volume transaction processing into profit. The real problem is that HRO is neither solely administration nor high volume transaction processing. When Hewitt offered services outside of its core model, the troubles began. Now it is hard to tell what the model is. Is it based on Cyborg? Is it a lift and shift of your PeopleSoft or SAP platform? Is it a one-to-many or a one-off model? In the final analysis, we may very well see that the Hewitt-Exult merger did indeed change the way the market views HRO but not in the way in which people may have thought only one year ago.

Drug prices rose sharply

Prices for some of the most widely prescribed drugs rose sharply during the first quarter of the year, according to two separate studies. AARP said prices charged by pharmaceutical makers for brand-name drugs rose 3.9%, four times the general inflation rate. Overall higher prices mean the cost of providing brand-name drugs to seniors rose by almost $240 on average for the 12 months ended March 31. The second survey by Families USA found similar inflation rates among brand-name drug prices. The drug price increases could have a devastating effect on the new Medicare drug program. High drug prices could lead to higher premiums, which could discourage some people from enrolling in the program or staying in the program [the ones least likely to need the service, a concept known as anti-selection in the insurance industry], which in turn could lead to even higher premiums.

Imagine that. Dramatically increasing demand by instituting Medicare drug coverage caused prices to go up dramatically. Who could have predicted such a thing? Certainly not me. I mean, it's not like they explain this in Economics 101 or anything.