The objective of the new outsourcer, Exult, is a truly colossal undertaking. Founded in November 1998, the company aims to become the entire human resources (HR) department for all the "Global 500" companies. Typically, each of those companies currently has 200-500 people working in their HR departments. Exult will take on all of those employees; all the companies' hardware and software that provides the information technology (IT) backbone for the HR functions; and all the HR processes that the departments currently perform. Over time, Exult seeks to cut costs; improve service levels, and add HR processes that the Global 500 companies may not currently have. The goal is daunting, but Exult already has in place the six key ingredients it believes are necessary for success.
Conceiving a Company
Mark Hodges, vice president of strategy and marketing at Exult, is the former outsourcing consultant and analyst who ran G2R. The number one strategy for growing a services company quickly, Hodges says, is to start an outsourcing business. With contracts that are multi-year in scope, a company can go from $0 to $50 million per year very quickly.
The odyssey of Exult begins with Hodges working as the G2r consultant to General Atlantic Partners LLC. General Atlantic, the world's leading venture capital firm specializing in IT and IT-related investments, sought to buy an existing company that was doing business process outsourcing (BPO) and had the necessary management to take it to a higher level. They found none that fit their criteria. General Atlantic and G2r define BPO asmore than providing end-to-end solutions; the company must be performing the work, not just transacting a process. For General Atlantic, the only alternative was to create a new BPO company. That made it necessary to find a CEO who understood BPO; determining the market (which business process made the best sense to offer) and the best segment of that market to target.
Through an exclusive search firm, they decided Jim Madden, president of MCI Systemhouse, was the CEO material who best understood BPO. Madden (a former client of Hodges) came on board and helped General Atlantic in its analysis of selecting the business process to focus on. They narrowed their short list of processes (supply chain management, customer relationship management, and HR) down to the one they believed had the strongest potential: HR.
They selected HR for several reasons. First, it is a very scalable process on a global basis, explains Hodges. "There are some processes, like logistics, that are really only a national play because you cannot leverage the contract into different countries where different assets are involved." The Global 500 companies (Exult's target segment) operate in multiple countries. To operate HR effectively, a company does not need 50 different payroll systems and 200 different recruiters around the world. So there were economies of scale.
There were also economies of scope. Many companies are outsourcing HR already, but only on a process-by-process basis. They may outsource payroll, benefits, retirement on a standalone basis; but all 17-20 HR business processes, have never been outsourced in their entirety, says Hodges.
Even more important, Hodges points out, there was no existing competition doing HR outsourcing for the clients Exult targets. "Global 500 companies more than 25,000 employees, more than $10 billion in revenue, more than 200 full-time HR people, and are implementing (or already have) PeopleSoft HR or SAP HR." Hodges says that the company's potential competition prefers clients with 5,.000-15,000 employees operating in only one or two countries, and outsourcing only three to five HR processes. Another differentiating factor is Exult's practice of taking on the client's former employees as part of the contract.
Thus, Exult was conceived from a convergence of ideas from Hodges, G2R, General Atlantic, and Madden. They found a niche where no one else can play, as yet, and they are going after it.
Resources to Achieve Success
Hodges explains that the key ingredients for success start with a "fantastic executive management team that understands how to manage a five to ten-year outsourcing contract. You also need very deep HR process expertise (people who have run HR departments in the past and who know how to reengineer HR processes)." He says that such a new company will also need world-class IT expertise. In particular, that expertise should include the Internet since HR will become web-enabled for employee services. Ultimately, he explains, employees will do a lot of their own status changes and access 401k and benefit information without having to wait for HR staff to do it. Exult is building a web portal called "My HR," for that purpose.
An enormous amount of capital is needed in order to get a new company like this off the ground. Shared service expertise is also essential, Hodges says. "In Europe, they do a very good job with financial and administrative service centers. But they need to be built, instead of bought," he explains, "because you can't add more clients to systems and centers that were designed to support specific companies and were not made scalable for new clients to be added." Exult is building two world-class, state-of-the-art shared service centers (one in the US, one in UK) that will support multiple clients. "Those cost anywhere from $5 million to $20 million each," Hodges says. "What's neat about General Atlantic is that they provide sufficient capital and then tell you to hire the best people. Then they sit back and watch you execute the plans."
With the Big Five, Hodges comments, "their investment horizon is two-three years, and the partners need to get returns on investments in a year. To do BPO, you don't think of returns for four to six years. Also, with the big IT service companies, all their capital and best management talent is now going into their e-business groups and their vertical market groups, rather than into BPO. In hindsight, it doesn't surprise me that General Atlantic could not find a company to buy."
The next ingredient is finding the first client. The strategy involved here is making sure that it is a referenceable client. "We have a Global 25 company," Hodges says, "who has agreed to be a reference for us. First we have to deliver superbly, and 80% of our company right now is making sure that what we call our Alpha Client goes well. We are either going to be a spectacular success or a spectacular failure--but not in-between. Our program has never been done before," he adds. "But it is results oriented, and it will succeed."