Administaff - PEO CASE STUDY 1: Administaff,Inc.

PEO Insider - December 1999/ January 2000

PEO CASE STUDY 1: Administaff,Inc.

BRANCH OFFICES: Atlanta, Austin, Charlotte, Chicago, Dallas, Denver, Houston, Los Angeles, New York City, Orlando, Phoenix, San Antonio, San Francisco, St. Louis, Washington, DC
EVOLVING BUSINESS MODEL: e-Training, e-Service

By Paul J. Sarvadi

A business model isn't created in a vacuum. It is the product of a chain of events. I like the explanation of one writer: "Fundamental properties of the universe are transformed into scientific understanding, then developed in new technologies, which are applied to create products and services for business, which then ultimately define our models of organization."
Because business models are often the last link to develop, companies frequently find themselves using outdated models in a new economy. In the past, these models were built on experience, and they viewed time, space, and matter as constraints. In today's e-conomy, as we might call it, business models must look ahead, defining today as tomorrow's past. Time, space, and matter are now unshackled as valuable resources. What's made the difference? In short – technology. Scientific breakthroughs shorten the time intervals on transactions, eliminate geographical boundaries between buyers and sellers, and shift the emphasis from tangible products to intangible services.

Future First
As the business model example of a full-service, client-focused PEO, Administaff followed this new modeling paradigm from the beginning, sometimes deliberately, often subconsciously. Research shows most successful entrepreneurs have a vision and act on that vision, even if their business plan is not fully defined. That was true of Administaff, as I'm sure it's true of many companies. Now, instead of extrapolating the present into the future, we must extrapolate the future into the present. This is not a far-fetched concept. Harold Geneen, in his book Managing, laid out a three-sentence course on business management: "You read a book from the beginning to the end. You run a business the opposite way. You start with the end, and then you do everything you must to reach it."

Administaff began, in concept, as a full-service, client-focused PEO; we knew we wanted to provide a comprehensive suite of services that would help forward-thinking business owners succeed. We started with the basics and kept adding services as we grew. We're still introducing new services for our clients with each passing year. But to understand the full-service concept, you have to start with the client and the target market.

The Top 10 Percent
It's extremely important in any PEO model to carefully define your target market. For Administaff, that market is the top 10 percent of all small business owners in the United States. That's roughly 600,000 companies, and after 14 years in business, we've barely scratched the surface. The 10 percent we're after have two specific qualities: a definitive getting-better agenda and an understanding of the crucial role their people play in accomplishing that agenda. In addition, these companies are past the struggling phase most small businesses go through and we are well into the producing, or even thriving, phases. They normally offer higher pay and better benefits to their employees. And finally, we know they need the value-added services we bring to the table to help them achieve their goals. They don't always realize they need the value-added services when we first meet, but that's where our sales consultants come in.

By our own definition, 90 percent of small business owners do not fit into this category. They may be hard working, but they are more satisfied with the status quo or have not figured out how to make it beyond the struggling phase. These entrepreneurs also need help, of course, which provides opportunities for other types of PEOs and service companies.

Comprehensive Services
Forward-thinking, forward-moving business owners in today's fast-paced economy must be able to stay focused. That means carefully outsourcing certain tasks that do not pertain to their core business. However, in the Administaff business model, helping our clients "insource" what they need to accomplish their objectives is as important as helping them outsource non-core activities. We call it insourcing because you can only outsource what you are already doing.

The PEO industry is built on handling the human resource needs of small businesses. But comprehensive human resource management does not end with outsourcing payroll administration and benefits management, at least not for our target market. We designed our service model in terms of an eight-point personnel management system that also addresses revenue-impacting areas like recruiting and selection, training and development, and performance management. Then, to help protect net profits, we include assistance with government compliance, employer liability management, and an expanding network of owner support services. This approach acknowledges and emphasizes the potential effect of our services on a client's income statement and balance sheet.

As a full-service PEO, we are constantly looking for ways to add valuable services to our product mix. One way is by leveraging the buying power of our client base to establish marketing alliances with best-of-class providers that can benefit our customers. Industry leaders like American Express, Dell, and others recognize PEOs as a delivery channel to the small business community and are willing to work with us to provide clients with value-added services at prices small businesses could not obtain on their own. Likewise, we are beginning to extend many new alliance benefits to worksite employees as well. Which brings me to an important point.

What About the Employees?
Because we are a full-service PEO with a client focus, (versus full-service, employee-focused), you might wonder where worksite employees fit in our model. The answer is right next to the client-owner. We recognized the need to communicate to four separate groups within a client company: the client owner, the payroll contact, the onsite supervisor, and the worksite employee. Sometimes one person fills several roles, but we communicate with each based on their respective roles. Each role has specific needs and interests, and is served by a different Administaff corporate employee position.

As I mentioned earlier, our clients realize the crucial role employees play in their companies and want to do all they can to motivate and retain them. We work hard to structure programs mutually beneficial to employees and clients. For example, employees and business owners both benefit from ongoing training; the worker improves his or her skill set while the client receives a more productive and valuable employee. To make training as easy and convenient as possible, we're putting a number of courses online so employees can take them whenever it's most expedient for them and the client's business. This might be morning, afternoon, evening, workday, weekend. We're also implementing more comprehensive employee-focused work-life programs to relieve many of the tensions that arise from today's lifestyles.

In summary, when we talk about being client-focused, we believe that includes a separate focus on the needs of worksite employees. These are valuable individuals with feelings, families, and futures. As we help them, we also help the businesses they serve.

Specific Needs
The full-service, client-focused PEO model is not an easy model to implement for several reasons. First, it requires a tremendous investment in service delivery. I have described our approach as being "high tech/high touch," both of those elements require time and money to develop and maintain. The investment in new technology is essential to provide our clients with the efficiencies, economies, and convenience to accomplish their getting-better agendas. With access to our online service delivery platform, clients can transact much of their business with us when it's most convenient for them. These transactions don't require direct interaction with an Administaff representative. This approach frees our corporate employees to assist clients with more personal issues. It's a win-win situation; it helps us better serve our clients and contain costs while boosting the convenience factor for them.

Another reason this model is difficult to implement is because it requires a value-added sale. While our target market has a need for and can benefit from our bundle of services, they're still learning about the PEO industry and how Administaff, with our comprehensive array of services, can help them achieve their goals. A value-added sale of this type simply costs more than selling basic services. It takes more time and requires a more educated sales consultant to identify the prospect's business needs and present our services as a powerful way to meet those needs. Many of our sales consultants have owned small businesses and were Administaff clients. In fact, some still are.

Fulfilling the Niche
I've already described our target market, but our niche as a PEO is based on a strategy with a higher purpose – we want to aggregate the best small businesses in America and become the primary service delivery platform to that market. It's a strategy I believe is paying off as we grow our client base and attract best-of-class service providers to benefit our clients and worksite employees.

It is a fact of business that success breeds success. The best tend to attract the best, and that creates an internal momentum that continues to grow. The full-service, client-focused model helped Administaff create a platform for helping customers beyond the boundaries of human resources. It also provides us with incredible opportunities for the future.

Using the Model
In this feature article section, several different PEO models are described. Each can stimulate thinking about the future of our industry and how we can better serve our clients. The truth is, no two companies are alike – Dell is not like IBM, nor is either like Compaq or Gateway. But they are each successful in their own time and in their own ways. The same is true of companies in the PEO industry. Administaff is honored to be considered the model of a full-service, client-focused PEO because that has been one of our goals from the very beginning. Regardless of the model your firm is following, we can continue to learn from each other for the benefits of our clients. Proverb 27:17 says it well: "As iron sharpens iron, so one man sharpens another."

Paul J. Sarvadi is president and chief executive officer of Administaff, Inc., a Houston-based PEO with 25 offices in 15 major markets nationwide. The company has been recognized by InformationWeek magazine as one of the country's top 500 users of information technology.