Mr. McHugh: I'm part of the business services team at William Blair, covering a variety of companies that are related to consulting, employment and other types of professional services. Included within that group are a few companies that fall within the scope of this conversation. Specifically, I cover some of the online recruiting firms, such as Monster Worldwide and Dice Holdings; some of the payroll processing firms, such as Paychex and ADP; and some of the benefits consulting and outsourcing firms, such as Hewitt Associates.
TWST: Are there any names you follow that have made some creative or successful changes to adapt to the difficult economy?
Mr. McHugh: The demand for most of these services is cyclical in nature. Online recruiting is the most cyclical of those areas that I mentioned. The payroll processing firms and benefits outsourcing firms saw much smaller declines in revenue than the online recruiting firms. But payroll processing businesses have been hurt by the bankruptcy of some clients and a decline in overall headcount at their clients. These companies are paid on a per-employee basis, so that's been a headwind for all of them. None of the firms that I cover have stood still during the downturn, but some have made more significant changes than others. In many cases, the changes have been focused on preparing the company for improved margin expansion or growth as the economy recovers. Some companies also have made some changes to respond to competitive challenges. There is very little you can do to override a cyclical impact on the environment since it's an external factor, but all of these companies have taken the appropriate steps to try and reduce their costs, and better position themselves on a longer-term basis. For example, after losing market share within the U.S. to CareerBuilder over the last few years, Monster Worldwide has made a number of changes to its product and operating model. They've changed their customer service approach; they've changed their sales model from almost an entirely telephone-based sales system to including a much larger portion of locally based sales people. Finally, they've redesigned their Web site, and they have invested a significant amount of money in a new search technology that allows employers to better search through resumes and job seekers, to better search through potential opportunities on the Web site. That's probably been the most significant change. Other companies though have also been preparing for the upturn. Paychex and ADP continue to invest in the growth of potential ancillary service offerings, like health care benefits at Paychex. And ADP has been investing in their GlobalView product and their international expansion.
Tickers included in this excerpt: ADP, DHX, HEW, MWW, PAYX, YHOO
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