1. Hewitt's culture at crossroads
Converting 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 it
September 18, 2003|By Ameet Sachdev, Tribunestaff reporter.
The employees at Hewitt Associates Inc.areused to being indulged. Breakfastand lunch atthe cafeteria is free. The
company offers discounted dry-cleaningservices.Employees who attend the annual fall health fair areeligiblefor
savings on their health insurance.
Such perks helped Hewitt, founded in 1940, build an espritde corps that propelled the private partnership to become
one of the largesthuman-resources outsourcingcompanies in the world,with about 15,000 employees and nearly $2
billion in yearly sales.
Now there is anxiety insidetheLincolnshire-based company that the lavish culturemay be a thingof the past,after
Hewitt converted to a publicly traded company lastyear. The streamliningalready has begun. Hewitt has laid off nearly
300 consultants and professionalsin its own human-resources department as hiringinsideand outsidethe company has
slowed. It plans to shiftmore of its outsourcingservices to low-costcenters overseas.
The company even is nibblingaway atsome of its prized perks. It pared the lunch menu at the cafeteria.And it removed
the bagels,muffins and pastries fromcoffee stations on each floor. Employees now must go to the cafeteria for those
treats.
The changes may seem minute, but to a Midwestern firmbuiltby conservativeactuaries,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 thatthe belt tightening is a function of a soft economy rather than the ownership change.
"We'd be doing virtually thesame kinds of things if we were still a partnership,"he said."It's importantfor us to be as
efficient and effective as we can be."
Whilethat is music to investors' ears,Wall Street is watchingclosely for any signs of cultural strifeatHewitt. The biggest
assetof professional-services firms,includingconsultingand lawfirms,is their people. If employees become unhappy
and start leaving,sales and profitcould startslipping,analysts said.
Complacency also is a concern.Hewitt's more than 500 partners when the company went public hold stock worth
millionsof dollars.They began cashingouttheir investments lastmonth when Hewitt held a secondary offering at $23 a
share.Gifford sold about3.3 percent of his nearly 270,000 shares,raisingabout$210,000,which went toward
charitablecauses,hesaid.
About 3 percent of its partners have left the company sincethe initial public offeringin June 2002--aboutthe traditional
retirement rate for partners,Gifford said.Analysts wonder if the retirement rate will acceleratein comingyears.
"One of the bigrisks is whathappens to the culture," said David Farina,an analystatWilliamBlair& Co. in Chicago."The
breakfasts and lunches areharder to get away with when you're a public company."
Gifford responds that the benefits of going public outweigh the risks.Atmore 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 roseto a high of $36.36 within months, outperforming
the rest of the market. Industry trends favored the company. Corporations largeand small increasingly were turningto
companies likeHewitt to help control soaringhealth insuranceand pension costs.
In May, however, the company got its firsttaste of how fickleinvestors can be. In one day the stock tumbled 20 percent,
to $22,after Hewitt slightly lowered its sales and profitprojections for its 2003 fiscal year,which ends Sept. 30.
Hewitt's sales growth, excludingacquisitions,is expected to be below 10 percent this year for the firsttime in abouta
decade and only the fourth time in the last42 years.Like most consultingcompanies,Hewitt's business has slowed
because of the tight economy.

2. Cost-reduction efforts
The company also wants to improve its margins in outsourcingby cuttingcosts.As the enrollment season for health
insuranceapproaches,Hewittisn'thiringas many temporary workers as it once did,relyingmore on Web-based
automation.
Over the next 15 months, the company also plans to hiremore than 500 people in India to handlemore of its
technology development.
"Pure consultingis a very high-margin business,"said TomRodenhauser, a New Hampshire-based consultingindustry
analyst."Outsourcingis justthe opposite, which is why you take stuff overseas."
September 18, 2003|By Ameet Sachdev, Tribunestaff reporter.