Hewitt's culture at crossroadsConverting to a publicly traded company in 2002 gave all Hewitt Associates employees an ownership stake, but cutbacks and assaults on long-time perks have some questioning if the change was worth itSeptember 18, 2003|By Ameet Sachdev, Tribune staff reporter.

The employees at Hewitt Associates Inc. are used to being indulged. Breakfast and lunch at the cafeteria is free. The company offers discounted dry-cleaning services. Employees who attend the annual fall health fair are eligible for savings on their health insurance.Such perks helped Hewitt, founded in 1940, build an esprit de corps that propelled the private partnership to become one of the largest human-resources outsourcing companies in the world, with about 15,000 employees and nearly $2 billion in yearly sales.

Now there is anxiety inside the Lincolnshire-based company that the lavish culture may be a thing of the past, after Hewitt converted to a publicly traded company last year. The streamlining already has begun. Hewitt has laid off nearly 300 consultants and professionals in its own human-resources department as hiring inside and outside the company has slowed. It plans to shift more of its outsourcing services to low-cost centers overseas.The company even is nibbling away at some of its prized perks. It pared the lunch menu at the cafeteria. And it removed the bagels, muffins and pastries from coffee stations on each floor. Employees now must go to the cafeteria for those treats.The changes may seem minute, but to a Midwestern firm built by conservative actuaries, every move comes under the microscope.

Chairman and Chief Executive Dale L. Gifford acknowledges that some employees are skeptical of the changes. But he said that the belt tightening is a function of a soft economy rather than the ownership change."We'd be doing virtually the same kinds of things if we were still a partnership," he said. "It's important for us to be as efficient and effective as we can be."

While that is music to investors' ears, Wall Street is watching closely for any signs of cultural strife at Hewitt. The biggest asset of professional-services firms, including consulting and law firms, is their people. If employees become unhappy and start leaving, sales and profit could start slipping, analysts said.

Complacency also is a concern. Hewitt's more than 500 partners when the company went public hold stock worth millions of dollars. They began cashing out their investments last month when Hewitt held a secondary offering at $23 a share. Gifford sold about 3.3 percent of his nearly 270,000 shares, raising about $210,000, which went toward charitable causes, he said.

About 3 percent of its partners have left the company since the initial public offering in June 2002--about the traditional retirement rate for partners, Gifford said. Analysts wonder if the retirement rate will accelerate in coming years."One of the big risks is what happens to the culture," said David Farina, an analyst at William Blair & Co. in Chicago. "The breakfasts and lunches are harder to get away with when you're a public company."Gifford responds that the benefits of going public outweigh the risks. At more than 500 partners, Hewitt's organization had become cumbersome, he said.

IPO well received

Investors snapped up Hewitt's stock, which opened at $19 and rose to a high of $36.36 within months, outperforming the rest of the market. Industry trends favored the company. Corporations large and small increasingly were turning to companies like Hewitt to help control soaring health insurance and pension costs.

In May, however, the company got its first taste of how fickle investors can be. In one day the stock tumbled 20 percent, to $22, after Hewitt slightly lowered its sales and profit projections for its 2003 fiscal year, which ends Sept. 30.Hewitt's sales growth, excluding acquisitions, is expected to be below 10 percent this year for the first time in about a decade and only the fourth time in the last 42 years. Like most consulting companies, Hewitt's business has slowed because of the tight economy.

Cost-reduction efforts

The company also wants to improve its margins in outsourcing by cutting costs. As the enrollment season for health insurance approaches, Hewitt isn't hiring as many temporary workers as it once did, relying more on Web-based automation.Over the next 15 months, the company also plans to hire more than 500 people in India to handle more of its technology development.

"Pure consulting is a very high-margin business," said Tom Rodenhauser, a New Hampshire-based consulting industry analyst. "Outsourcing is just the opposite, which is why you take stuff overseas."

September 18, 2003|By Ameet Sachdev, Tribune staff reporter.