Leadership by example is sometimes the best way to gain
respect and recognition from clients.
Ultimate Software (
), a provider of Web-based payroll and human resources services,
has placed the customer first since its inception in 1990.
But the company hasn't just been saying it. It's been doing
it. It set the example by treating its employees like
"The company is one of the pioneers of software as a service
(SaaS)," said Mark Marcon, an analyst at Robert W. Baird. "It
started transitioning its solutions to a SaaS model far earlier
than the vast majority (of payroll service companies). It has
grown very rapidly through providing a SaaS alternative to
payroll and HR management services and building a tremendous
reputation for excellent client service and customer
How did it stand out in client service?
"It actually starts with management's focus on their own
employees," he noted. "A lot of management teams start by
thinking about shareholders and what they need to do there. This
management team starts with thinking about 'What do we need to do
with our employees?'"
Ultimate Software makes sure it keeps its employees happy. For
example, it covers 100% of their health care costs. It also is
very good at screening and identifying promising additions to
their team and has a very strong culture.
"Typically, there is a strong correlation between satisfied
employees and the willingness to provide good customer service,"
said Marcon. "The people are happy and satisfied, and they want
to do their best for their clients. The company is viewed by many
as one of the best employers in the country."
Current President and CEO Scott Scherr is Ultimate's founder.
Prior to starting the company, he was atAutomatic Data Processing
), one of the largest payroll processing and benefits
administration companies in the world.
"He became sort of disenchanted with the ADP business model
and with the idea of continuing to slice and dice sales
territory," said Justin Furby, an analyst at William Blair. "From
day one, he started with a focus on a different approach, on a
much more customer-centric approach than the big payroll service
Ultimate Software wins more than 90% of competitive deals
against major payroll service providers, such as ADP and
Ceridian, when it runs its sales process, writes Furby in his
research report. "We believe that ADP, which is the largest
source of Ultimate Software customers, continues to sell
numerous, disjointed products to the market, and we have heard
that the number of live Vantage (an ADP product) customers
remains relatively small."
Ultimate Software pursues a slightly different demographic
from ADP. While ADP has employers anywhere from one to thousands
of employees, Ultimate Software does not focus on the
small-business market up to 200 employees. Instead, it pursues
companies with 200 to 85,000 employees. Its market share is about
5% for the up-to-1,000-employee market and 10% in the enterprise
niche for larger employers.
Nevertheless, management has discussed plans to enter the
small-business market with up to 500 employees as a third
Its flagship product is UltiPro. It is an all-in-one
cloud-based solution, providing employers with payroll
administration, tax management, compliance, human resources,
benefits administration, talent management, time tracking,
performance management, salary budgeting, recruitment, reporting
and analytics under one umbrella.
"Instead of having to run multiple reports, like you might
have to with ADP, with Ulti it's all under one stack. I think the
biggest reason why customers come to them is their unified
architecture, where they have all these different products in one
stack. Companies can run reports easily," said Furby.
The company's recurring revenue makes up 82% of total revenue.
Management expects it to grow at a 25% rate in 2013. This is also
the higher-margin portion of revenue, with retention rates above
The services line revenue is 18% of total revenue and comes
from implementation services for new clients. This stream is
viewed as less important by investors, and it can fluctuate from
quarter to quarter.
One of the risks analysts are naming is competition from new
or existing competitors. Aside from the large companies, such as
ADP and Ceridian, that may choose to upgrade their
) is one that investors have been paying attention to.
However, the focus of Workday is slightly different, analysts
point out. The company provides a different product lineup and is
also more globally focused, while Ultimate Software's main focus
is the U.S. and Canada.
"Workday has made quite a splash," noted Marcon. "Now, Workday
and Ultimate aren't directly comparable. There's different
elements of emphasis."
Ultimate Software is also building out a next-generation
platform. It expects to roll out updated modules of its existing
products over the next few years. The first module to be updated
is recruiting. The company plans to sell it to new customers in
the first half of 2014. Converting existing customers will take
place several months later.
"They've been through these transitions before," said Furby.
The company successfully went from a DOS-based product to .NET
and then from on-premise software to SaaS. "People are going to
be watching 'how is that progression' over the next few years in
terms of how are they doing with the new technology and how are
they doing with transitioning customers from the legacy to the