Hewitt Associates, Inc. Business Information, Profile, and History

Company Perspectives

Hewitt Associates is a global human resources outsourcing and consulting firm delivering a complete range of integrated services to help companies manage their total HR and employee costs, enhance HR services, and improve their workforces.

History of Hewitt Associates, Inc.

The Lincolnshire, Illinois-based Hewitt Associates, Inc. is a global management consulting firm specializing in the outsourcing of corporate human resources (HR) programs such as healthcare benefits, stock options and investment accounts, retirement programs, and severance packages. Hewitt represents many Fortune 500 companies, administering their investment and benefit programs and offering their clients a host of related services, many of them online. Hewitt not only pioneered the use of automated benefit programs, but brought the HR industry into the Internet age by launching a series of online programs and software packages.

In the Beginning: 1940s-70s

Edwin "Ted" Hewitt founded Edwin Shields Hewitt and Associates on October 1, 1940, as a brokerage house focusing on insurance and personal financial services. It was a heady time in the United States; population had grown to 132 million, the economy was robust, and President Franklin Delano Roosevelt was reelected for a record third term. Unfortunately, the war raging in Europe was about to bring the United States into what became World War II.

During and after the war, Hewitt's particular expertise became immensely valuable when the government instituted "pay-as-you-go" income taxes in 1943 and the U.S. cost of living increased more than 25 percent in 1945. Once the war and its rationing ended, Americans returned to work and the economy recovered. Hewitt's clients, many of whom had manufactured goods for the war effort, returned to their customary businesses and thrived. Hewitt began offering its clients statements to track their employee benefits and had pioneered the use of specific financial goals for company investments. Hewitt's programs were the first of their kind to be approved by the Internal Revenue Service; they were so cutting edge the U.S. Department of Labor asked the firm to create forms for the welfare and pension programs of the 1950s.

By the 1960s the Hewitt firm continued to expand its pension and benefit plans, creating more sophisticated programs for its clients. During the decade the firm revolutionized employee benefit packages once again, as the first company to design pension and benefit plans tied to a corporation's revenue and growth projections. While such a practice became commonplace in the pension and employee benefits of larger corporations, it was another in Hewitt's growing list of industry firsts. Hewitt was so respected for its work in the field that it was the only company asked by the U.S. government to consult on the Federal Interagency Task Force from 1964 to 1968. The Task Force was responsible for the design and implementation of the new Employee Retirement Income Security Act.

In the next decade Hewitt began offering its clients an increasing number of innovative products, including its trademarked Benefit Index to track the performance of benefit programs. The Benefit Index was another industry first and soon became the standard to which all aspired. Hewitt also offered its clients several flexible investment strategies for employee benefit packages, which led to the formation of a new consulting firm, the Hewitt Investment Group, in 1974.

Significant Growth: 1980s and 1990s

Never content to be an industry leader, Hewitt continually sought to better its programs. The company began to conduct in-depth surveys to find out which benefit programs worked best and which ones needed improvement. In the 1980s Hewitt researched numerous issues and began issuing its findings industrywide on subjects such as offering benefits to part-time employees, full versus partial hospital reimbursement, fluctuating profit-sharing percentages, mental health benefits, 401(k) programs, and rising health plan deductibles. Another topical issue was computer use for automated benefit calculations.

The use of computers had finally begun to take hold in larger businesses, as Hewitt found automated benefit programs had increased remarkably from 1986 to 1988. In a survey detailed in PC Week (November 6, 1989), Hewitt had surveyed 700 companies to find 71 percent had become either fully or partially automated in their administration of benefits plans, up from 48 percent two years before. Hewitt responded to the expanding use of technology by designing computerized benefit programs and software so companies could manage their benefit plans. Hewitt Technologies was created in 1988 to monitor and respond to the industry's rapidly changing technological needs.

By the beginning of the 1990s Hewitt had ventured abroad and offered tailored benefit programs to corporations in the United Kingdom. The firm had brought in more than $250 million in revenues for 1990 and was ranked the fourth largest benefit management and consulting firm in the world, according to Business Insurance magazine. Yet many of Hewitt's clients were feeling the pinch of a struggling economy and inflation. As companies began looking for ways to bolster the bottom line, benefits were often the first place executives looked for a quick fix. In a time when few received raises and those who did received only cost-of-living increases, Hewitt started retooling retirement packages and healthcare benefits to keep its customers from making drastic changes. Of particular interest were retirement programs since few seniors could withstand the effects of inflation and soaring healthcare costs. Hewitt also researched other benefit additions such as flextime scheduling, child- and elder-care benefits, and HMOs (health management organizations) versus PPOs (preferred provider organizations).

By 1997 more than 100 large companies outsourced their benefit programs to Hewitt, covering about nine million worldwide employees. Hewitt not only managed these HR services but provided both the companies and their employees with the opportunity to view their benefits with ease. The company ran into controversy, however, when it secured lucrative incentives to open a new benefits management center in Orlando, Florida. Public officials decried the incentives, believing that Hewitt was favored over other firms that could have offered more jobs and revenue for the city. Despite the furor, the new office opened in Orlando in 1997, during a fiscal year (ending in September) in which Hewitt's revenues reached close to $700 million.

Hewitt was ahead of the curve again in 1998 when it partnered with the California-based Financial Engines, an online investment firm, to offer its clients financial advice over the burgeoning "information superhighway" or Internet. Hewitt clients were among the first to view nearly every facet of their company's benefit programs with a few simple keystrokes, and could seek online investment advice and make changes in real-time. Such advancements, along with being the first HR industry firm to launch a corporate web site, landed Hewitt among PC Week's Top Ten Most Technologically Innovative Companies. Hewitt also continued its in-depth surveys, developing the Health Value Initiative in 1999 to measure the effectiveness and quality of more than 2,000 healthcare programs worldwide. The Initiative's findings led to testimony for the government and various agencies in an attempt to reform the U.S. healthcare industry.

As the decade closed, Hewitt was poised for further growth both domestically and abroad. Not only was the company broadening the scope of its operations, but it offered clients advanced tools to outdistance their competitors. Hewitt's HR management services had become known for their cutting-edge technology and the company's ongoing commitment to offer newer, faster, and more comprehensive programs would take it to the top of the industry in the next century.

A New Era: 2000 Onward

By early 2000 Hewitt's expansion moved forward with new offices near Houston, Texas, and an increased presence in Asia with a new office in Kuala Lumpur, Malaysia. The company also announced the merger of its British and Irish operations with the United Kingdom's Bacon & Woodrow, a leading retirement and HR management consulting firm. Hewitt also unveiled plans for Sageo, a comprehensive online service where participants could compare, choose, and enroll in benefit programs. Sageo was designed for retirees and companies with numerous older employees, to offer this growing population the same benefits provided to Hewitt's 150 corporate clients and their 15 million worldwide employees. Hewitt hoped that Sageo's online format would not only simplify the benefits process but lower employer costs as well. Within a few months of its debut, Sageo had enrolled nearly a dozen companies and represented 500,000 individuals.

With revenues topping the billion-dollar mark in 2000, Hewitt executives pondered the benefits of going public. Funds raised through an initial public offering would spearhead expansion, and Hewitt was eager to conquer more of Europe and Asia. In 2001 Hewitt formally announced its intention to become a publicly traded company after nearly six decades as a private firm. Under the ticker symbol HEW on the New York Stock Exchange, Hewitt went public with an initial offering of 11 million shares (at $19 per share). Share prices rose as high as $23 the following day. Hewitt wasted little time in putting its new funds to work, paying off debt, purchasing France's Finance Arbitage, an investment consultancy firm, and spearheading expansion plans for the United Kingdom and China.

In 2003 Hewitt took over the Cork, Ireland-based Becketts, a benefits consultancy, and bought the software programs and payroll services of Cyborg Worldwide Inc. These moves, along with several others, prompted the Chicago-based Crain's Chicago Business to name Hewitt one of the area's fastest growing public firms, with fiscal revenues topping $1.9 billion for the year. In 2004 Hewitt announced the purchase/merger of Irvine, California's Exult Inc., another HR and consulting firm. The deal was valued at close to $700 million and was expected to bring in combined revenues of more than $3 billion by the following fiscal year.

For 2004 Hewitt reached solid revenues of $2.2 billion and the firm sustained its 43rd consecutive year of growth. Employees numbered more than 22,000 in nearly three dozen countries (including Brazil, China, France, India, Ireland, The Netherlands, Puerto Rico, Singapore, and Switzerland) representing more than 18 million employees for its corporate clients. In addition, the company was named one of America's Most Admired Companies in 2004 by Fortune magazine, ranked as one of the 100 Best Places to Work for the fourth consecutive year by Computer World, and had become the United States' largest and the world's second largest benefits outsourcing company, according to Business Insurance magazine.

By early 2005 the newly empowered Hewitt clinched several significant business processing outsourcing (BPO) contracts, signing publisher Thomson Corporation, Sun Microsystems, hospitality leader Marriott International, beverage giant PepsiCo Inc., Wachovia Corporation, and others to a roster of more than 2,500 international clients. As the year came to a close, Hewitt had fallen a bit short of its $3 billion goal, though not much, bringing in revenues of $2.8 billion. With analysts believing the business outsourcing market would top $33 billion or more in 2006, Hewitt continued to dominate the U.S. benefits industry and aimed to be the world's top provider of outsourced business processing.

Principal Subsidiaries

Hewitt Financial Services L.L.C.

Principal Competitors

Accenture Ltd.; FMR Corporation; Mercer Inc.; T. Rowe Price Group, Inc.; Towers Perrin; Vanguard Group Inc.; Watson Wyatt & Company Holdings.

Chronology

• Key Dates
• 1940 Edwin Shields Hewitt and Associates is founded by Ted Hewitt.
• 1964 The company begins consulting on the government's Federal Interagency Task Force.
• 1974 Hewitt forms a consulting firm for investment advice.
• 1988 Hewitt creates a new division to monitor technological advances.
• 1997 Hewitt opens a benefits management center in Orlando, Florida, amidst controversy.
• 1998 Hewitt and Financial Engines form a joint venture to offer clients online investment advice.
• 2000 Hewitt breaks the billion-dollar mark in revenues for the first time.
• 2002 Hewitt Associates goes public on the New York Stock Exchange.
• 2003 The company acquires HR management firm Cyborg Worldwide.
• 2004 Exult Inc., an HR and consulting firm, is bought by Hewitt and merged into operations.
• 2005 Hewitt lands lucrative contracts with Thomson Corporation, PepsiCo Inc., Wachovia Corp., and others.