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With the new equipment, Automatic Payrolls also branched into some general data processing services such as analytical reports covering sales, costs and inventories, questionnaire tabulation, and even the maintenance of bowling league statistics. In 1959 the Taubs set up a separate company, Automatic Tabulating Services, to handle the general data processing business. Then, in June 1961, in preparation for going public, the payroll and tabulating companies were merged into the newly named Automatic Data Processing. At the time, ADP had about 200 payroll clients, including the cast and crew of the Broadway hit My Fair Lady and 30 general processing customers. As mentioned above, ADP advocates incremental innovation and relies heavily on outsiders to produce new products or platforms.
- Heading into the new century, however, it was clear that the small business sector was the area with the largest potential for growth.
- That same year it launched Accountant Advantage, a referral network that allowed accounting firms to market ADP’s payroll products.
- This heightened focus on small businesses did not mean ADP was neglecting its larger clients.
- In 2000 it launched ADP Enterprise Payroll Services, which offered a comprehensive web-based payroll and accounting platform for corporations with more than one location.
Second, it provides an industry barrier to entry because with fewer potential companies to target , competitors are less likely to enter the industry. Third, and probably most important, ADP’s lengthy client tenure translates into over 90% of its revenues being recurring.
Through this venture, the company introduced its electronic banking service, providing small businesses with a convenient, affordable way to pay bills and balance accounts online. The company built upon this innovation when it formed its Electronic Banking Unit in 1997, which established partnerships with banks and software designers to create a centralized, web-based banking resource center. By making financial products and services readily available online, the resource center could offer valuable support to business owners looking for a way to cut administrative costs. ADP PayExpert, the industry’s first complete payroll processing service, was introduced in 1998, and in 1999 the company created Solution Profiler, a program designed to allow small businesses to customize their payroll service.
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These include computerized payroll, transaction processing, data communications, and IT-based business solutions . ADP can offer substantial scale advantage across all its product offerings, which enables it to cater to a larger customer base. As a main player in the industry, ADP consistently processes difficult, mundane, and high-volume transactions very efficiently at a comparatively low cost. Additionally, ADP has established effective and robust business channels through a highly trained and competent sales force of more than 4000 associates; something that is very difficult for competitors to imitate. On top of that, top management succession has been extremely smooth and has caused very little disruption since the 1950s . Lastly, decentralized organization makes for smoother transitions during M&A periods. One of ADP’s first new offerings arose out of its merger with Checkfree Corp. in July 1995.
ADP also has strategic control systems in place to ensure products continue to meet their high quality standards. Managers at these meetings also examine industry trends and external product innovations and assess the need to change platforms or introduce new products to ADP.
Strongest growth in the early 1990s was in Brokerage Services, which produced 23 percent of fiscal 1993 revenues. ADP processed more than one-fifth of the trades executed on Wall Street each day. Nevertheless, these back-office functions were eclipsed by ADP’s presence in the front office. In 1983 ADP bought GTE’s Telenet Information Services, which put it into stock quote machines, and three years later it acquired the Bunker Ramo quote machine operations. ADP has earned itself a remarkable reputation as a driver of value by unlocking the potential of enterprises through the vision and mission statements.
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This solid reputation for consistent performance is the first source of their competitive advantage. The result of ADP’s strong brand and reputation come is its high revenues and solid profits.
Keeping the clients that it earns for ten years or more provides a number of benefits to ADP beyond simple client familiarity. First, it prevents market share erosion – once a client goes with ADP, they are very unlikely to leave for a competing firm.
ADP’s flat corporate structure meshes well with its core values and business objectives. ADP avoids excess management layers in favor of decentralized authority and empowered product teams. These empowered associates respond well to this structure as it gives them a better sense of their mission, their accomplishments, and their accountability. Ultimately this leads to happier employees and better service levels . Better service levels lead to longer relationships with ADP, expanded service offerings and more references to other companies who use ADP’s products and services . ADP offers different cloud-based HCM solutions to enable its clients to manage a variety of business operations such as payroll, HR, tax, talent, and tax.
Collaboration and incremental innovation occur naturally at ADP as a byproduct of its relatively flat, multidivisional organizational structure. As a result managing change during a paradigm shift should be relatively painless for the company.
What is the ADP value proposition?
Let’s start by briefly introducing ADP. In a sentence, what is ADP and what’s its unique value proposition? ADP® satisfies the entire human capital management (HCM) spectrum from recruitment to retirement for companies of all sizes, ranging from just one employee to tens of thousands.
The most important strategy focuses on using “solid time tested operating principles”. By utilizing proven operational methods and products for all services ADP is able to provide solid, consistent performance in all market segments. This reliable consistency is especially critical given the nature of ADP’s services. Mistakes in processes such as payroll are highly visible to employees and employers. If ADP were not able to deliver this consistent service their clients would leave in droves.
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This heightened focus on small businesses did not mean ADP was neglecting its larger clients. In 2000 it launched ADP Enterprise Payroll Services, which offered a comprehensive web-based payroll and accounting platform for corporations with more than one location. That same year it launched Accountant Advantage, a referral network that allowed accounting firms to market ADP’s payroll products. Heading into the new century, however, it was clear that the small business sector was the area with the largest potential for growth. With research data indicating that payroll services for small businesses would blossom into a $4 billion industry by 2000, ADP was determined to put itself in position to become the undisputed leader in this promising new market. Creating incentives for employees to adopt and adapt new technologies will be paramount as ADP begins to embrace the software-as-a-service platform.
Thanks to ADP’s reliable operations and core knowledge of the transaction services business they can boast over a 90% client retention rate. ADP was founded over fifty years ago and is the longest running payroll/HR company in its industry. This is actually quite a feat considering their industry and the types of services that they provide to their clients.
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Positioning a firm strategically in an industry is one of the primary benefits of such corporate statements. Ideally, the corporate vision statement sets a prospective growth path, while a corporate mission statement identifies the strategies of developing the company along this path. An analysis of ADP reveals similar influences as its vision statement seeks to create a sense of leadership and authority in the company. On the other hand, the mission statement focuses on the difference ADP makes in the running of businesses. These products and services can be incorporated in ADP’s vast distribution network and provide potential bundling, cross-selling, or up-selling opportunities with ADP’s current offerings.
By managing such highly visible, though mundane functions such as payroll, benefits and retirement services, ADP is put in an uncompromising position. But if it errs in its performance, many will notice and will likely exhibit a highly emotional response toward ADP. Therefore, in order to prosper in this “no fail” environment, ADP must continually prove to its clients and potential customers that it is extremely reliable and consistently good. Based on the fact that they have been steadily growing over the past fifty years, clearly ADP has managed to remain reliable. In doing so, ADP has built up major brand equity and is highly regarded in the industry.
Once the benefits of the technology are well known, ADP leverages the new technology to enhance its product offerings. This strategy has fewer risks and lower costs as opposed to investing directly in R&D and innovating internally. Streamlined implementations with aggressive timelines – most are completed in less than one year – allow ADP to catch up quickly and capitalize on the advances along with the first movers. Dedicated cross-functional product teams “live with” the product implementation from its initial project management stages to the final testing and quality assurance phase. These experienced and focused teams deliver new products in half the time of most competitors.
The dynamism of this technological platform increases the productivity in a company and enables enterprises to take additional advantage of their data for growth. Other than increasing the competitiveness of business by harmonizing operations, the company does more through its corporate social responsibilities. It goes beyond its clients to empower people and communities through its experience.
This puts ADP in a healthy financial position, and ultimately allows them to support a large sales force of over 4000 sales associates . ADP’s large sales force is their second source of competitive advantage. ADP recorded a robust financial performance for the time period 2004 – 2006. Revenue has increased over the past year at the rate of 10%, operating profits 10%, net profit 29%, and cash flow 14% respectively . For this industry with small margins and a high cost of acquiring new business, client retention rate is very important. ADP’s average client tenure is estimated at ten plus years, which exceeds the industry’s average . This has allowed ADP to enjoy very predictable recurring revenue streams.