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Our business, strategy and KPIs

Our strategy

Dual approach in staffing service offering

We operate two core businesses under one roof: General and Professional Staffing. Given the different service requirements of each business, we have two distinct market approaches in terms of what we offer and how:

  • In our General Staffing business, we typically offer tailored solutions to retail and large clients. Given the relatively lower-margin nature of the business, cost leadership and price discipline are key factors. Strategically, we aim to build longer-lasting relationships with associates and clients, not only to improve their prospects, but also in order to optimise costs.
  • In Professional Staffing, we focus on our “experts talk to experts” approach. With this approach we establish relationships with line managers at client companies to better understand the skill sets of candidates needed. This ensures successful matching of candidates’ profiles with clients’ needs for positions requiring higher qualifications. Furthermore, expert points of contact with clients lead to longer-lasting and more challenging assignments for candidates. Such assignments, in turn, enable us to attract talented, qualified and consequently more sought-after individuals. Our strategic objective with this approach is to profit from the demand for talent, while generating higher margin returns.

In order to enhance the Group’s earnings mix, our strategy is to grow the Professional Staffing business, both organically and through acquisitions, while enhancing our General Staffing operations. In 2010, we successfully completed the acquisition of US-based MPS Group in a move to further expand the Professional Staffing offering, particularly in the USA and in the UK, which represent the largest Professional Staffing markets worldwide. MPS Group is an ideal strategic fit, enhancing Adecco’s position in this highly attractive market segment.

Decentralised country approach

Our staffing business is a local business since HR markets are local markets. Every country has its own characteristics in terms of client needs, client structure, demographics, culture and regulations. We are convinced that decentralisation is the right strategy for managing a global staffing organisation and promoting local entrepreneurship – a key success factor for our business. Our two distinct market approaches in the General and Professional Staffing businesses, coupled with a decentralised country approach, form the heart of the Adecco Group strategy aimed at achieving sustainable, profitable growth.

Strategic mid-term priorities

Building on our distinct dual-approach service offering, management has defined strategic priorities to enhance Adecco’s market leadership position and in order to reach the Group’s mid-term profitability target of an EBITA margin above 5.5%. The strategic focus of Adecco’s management is on Retention, Information Technology (IT), Professional Staffing, Client segmentation, MSP/RPO and the Emerging Markets.

  • Retention: retaining our own employees is essential in building successful long-term relationships with both clients and associates. A better, longer-lasting relationship with our clients and associates is a competitive advantage both from a revenue and also from a cost perspective. We made good progress in better retaining our people in 2010. The regularly conducted Great Place to Work® survey on the job satisfaction of our own employees, gives insight on enhancing and offering an attractive working environment.
  • Information Technology: optimising our IT processes, through the consolidation of data centres, front-office systems standardisation and the reduction of applications, as well as a common Group-wide web platform, is an important strategic priority for the Group’s management. The investments in IT are aimed at enhancing our cost leadership position. Additionally, we invest in our Web presence to remain at the forefront of the emergence of new delivery models such as social media networks.
  • Professional Staffing: increasing the share of revenues generated from the Professional Staffing segment remains an essential part of Adecco’s strategy. With the acquisition of MPS Group, Adecco has taken the global lead in Professional Staffing. This segment, with higher growth and margin potential, accounts for approximately 30% [1] of the global staffing market. Mid-term, Adecco targets to raise its share of revenues generated with Professional Staffing services beyond that level. Demand for higher-margin Professional Staffing, where penetration rates are still significantly lower than in the General Staffing segment, will be driven by scarcity of talent and higher wage growth for qualified personnel.
  • Segmentation: in General Staffing we work on further segmenting the business along skills and markets. We aim to increase our presence in the higher-margin retail and office segments.
  • MSP/RPO: as the world’s leading HR solutions provider, Adecco considers the emerging trend towards Managed Services Programmes (MSP) and Recruitment Process Outsourcing (RPO) a major opportunity to differentiate its service offering. Large multinational customers increasingly seek to outsource their HR processes and streamline supplier relationships, particularly in highly fragmented markets such as the USA and the UK. With its global footprint and extensive know-how of local labour markets, Adecco is ideally positioned to take advantage of this emerging trend.
  • Emerging Markets: the Emerging Markets offer immense untapped growth potential for the staffing industry. Penetration rates of temporary staffing services are still at very low levels. The highly dynamic economic activity and the move of production and growing investments into the Emerging Markets by multinational corporations are the main growth drivers for our business in these markets. The recently established joint venture between FESCO and Adecco in Shanghai, to enhance our HR service offerings in China, underlines our strategic focus on the rapidly growing Emerging Markets.

How we execute our strategy

Top management carries out frequent operational and financial reviews with the country and regional heads of Adecco’s markets and business segments to ensure that the Group’s strategy remains on track and is embedded in the local operations. Following the structural optimisation of our organisation during the downturn, we aim to strengthen our business further in order to take advantage of current market opportunities and emerging trends in the staffing industry. While we selectively invest in high growth segments and markets, we continue to practice stringent cost management to ensure attractive operating leverage and a sustainable improvement in profitability. In addition, the application of the “Economic Value Added” (EVA) concept continues to be a core pillar of our day-to-day operations and strategy, ensuring discipline with respect to client contract pricing, cost containment and evaluating business opportunities. Keeping a tight grip on costs, while concentrating on our strategic priorities, makes us highly confident that we are in good shape to enhance our leadership position in the HR services industry and that we are well on track to achieve our EBITA margin target of above 5.5% mid-term.

The “Economic Value Added” (EVA) concept

To ensure alignment of the Adecco Group’s overall strategy throughout the decentralised organisation, firm central control and effective management tools are required. The EVA concept not only helps us to ensure that the interests of our shareholders are met, it also makes sure that our daily decision-making processes are geared to value generation.

The Adecco Group’s value-based management approach has long moved beyond profitability based on pure accounting criteria as a measure of value creation. We also take capital intensity into consideration and application of the EVA concept enables us to maximise shareholder returns. EVA is deeply embedded in our daily operations, fostering consistent and dependable pricing policies, ensuring the use of the most efficient delivery channel and serving as a basis for performance-related incentives. In addition, acquisitions and investments are evaluated on an EVA basis, ensuring value creation. Put simply, the concept allows us to find the right balance between revenue growth, market share, pricing, cost structure and invested capital. It enhances our ability to make the right choices with respect to client relationships, acquisitions, strategies, incentive schemes and targets.

How we calculate “Economic Value Added”

EVA is a measure of a company’s financial performance based on residual income. According to this concept, value is only created if operating income after the deduction of taxes is greater than the minimal required rate of return on the invested capital, equal to the Company’s weighted average cost of capital (WACC).

The calculation is based on the Adecco Group’s net operating profit after taxes (NOPAT). Invested capital is defined as total assets minus liabilities, excluding cash and interest-bearing liabilities, but including gross acquired goodwill and other gross acquired intangibles since the introduction of the EVA concept. We apply a 10% cost of capital across all our entities, while the actual weighted average cost of capital (WACC) in the reporting period was below 10%.

Where we apply “Economic Value Added”

We apply the EVA concept in the following areas: incentive plans, contract pricing and acquisitions.

  • Incentive plans: performance-related pay is calculated on an EVA basis and applied at almost all levels and regions of the organisation. At branch level, we apply a simplified version of the concept, while the remuneration of senior management is measured using the most detailed form of the calculation, covering all elements of the concept, including goodwill and other intangible assets.
  • Contract pricing: we use EVA to measure the value generation of new and existing clients. First and foremost, this approach ensures that the pricing of our client contracts is consistent and dependable, giving us a clearer picture of the cost structure and capital needs of our business relationship with individual clients. In addition, the concept is a valuable tool for evaluating potential business with new clients.
  • Acquisitions: we apply the EVA concept in order to evaluate the attractiveness of potential acquisitions. As goodwill and other intangible assets are a substantial part of the invested capital which directly affect “Economic Value Added” and subsequently the incentive pay of senior management, the concept helps us to avoid overpaying.

 

[1]Adecco estimate