Future Directions
Based on a detailed review of the corporation, it is worth identifying clear vectors for future development. First of all, Automatic Data Processing makes software for managing the HR side of enterprises. This includes outsourcing of personnel management through the ADP TotalSource cloud platform, payment of salaries. In both segments, the company receives revenue from interest from the placement of client money in the bank. The company manages the payroll of clients, and until the employees of the serviced enterprises receive a salary, Automatic Data Processing can dispose of this money, this brings 3.7% of the company’s revenue. The latest report does not provide information on overseas sales (Bauer et al., 2019, p. 77). The Fiscal Year 2019 report indicated that overseas sales accounted for 14.2% of the company’s revenue, with the remainder being done in the US. The combination of the above facts suggests that the company needs to move towards attracting customers and investors.
At the same time, it should be noted that Automatic Data Processing has extremely effective tools for fulfilling such goals. Given that the company is tied to HR, investors expected a powerful drop in profits and revenues in the second, coronavirus quarter, when most of the economy was quarantined. According to the annual report, the company has approximately 810,000 customers, none of which contribute more than 2% of its revenue (Bauer et al., 2019, p. 98). This is an essential key because it strengthens ADP’s bargaining position: big clients like to haggle and demand big discounts.
In addition, there is another vital vector for the development of a corporation, namely technology. The bottom line is that at the moment the atmosphere in our country is favorable for the potential of corporations working remotely. The same affects Automatic Data Processing, which needs to be given maximum attention in modernization. In addition, technology allows not only to improve existing products but also to create new ones (Wolters Kluwer Editorial Staf, 2021). However, it is worth emphasizing that it is expensive and unprofitable to do it yourself, therefore it is intertwined with the previous goal. Finally, companies should pay attention to the process of connecting organizations, that is, combining them into common databases. In this case, the quality of the services provided by the organization will not suffer, but the costs of maintaining Internet resources will significantly decrease.
Potential Problems and Recommendations
Despite the stability and growth of the company, it is worth noting that it is worth considering potential problems that you may encounter. It’s important to note that while the company doesn’t disclose what percentage of SMB revenue it generates, it’s easy to assume it’s very high. Of the company’s 810,000 clients, 640,000 are small businesses, 70,000 are medium and large, and 500 are large corporations (Allman-Ward & Allman-Ward, 2018, p. 64). Another 65 thousand are companies outside the United States, probably quite large. In general, Automatic Data Processing certainly earns the main money in small enterprises. According to a survey by the American National Federation of Independent Enterprises (NFIB), American entrepreneurs need help. 22% of entrepreneurs plan to start dismissing workers after money issued by the US government will end. Because of this, the revenue of Automatic Data Processing will decrease, which will slow down the development in the field of technology.
The threat may be an increase in the number of enterprises that have closed permanently. Here everything will depend on the outcome of the debates of legislators in the US. In the long term, of course, they have shown a willingness to support small and medium-sized businesses, but the debate may drag on, especially in connection with the escalation of political confrontation in the United States. If aid arrives late or its volume is less than necessary, real mass bankruptcies of enterprises will begin. Automatic Data Processing pays $3.64 in dividends per share per year (Bauer et al., 2019, p. 74). With a share price of $133 dollars, it turns out 2.7% per annum, which is not bad, but dividend payments are 94.1% of the company’s profit (Allman-Ward & Allman-Ward, 2018, p. 103). At the same time, according to the latest report, Automatic Data Processing has large debts: 33.413 billion dollars of debt against 4.368 billion dollars at the disposal of the company (Allman-Ward & Allman-Ward, 2018, p. 111). If ADP decides to cut or cancel dividends, then the stock will fall even lower than it is now and will slowly recover. However, the company does not have the worst business foundation, and the prospects it mentioned of a 3-4% decline in revenue and 14% in profit this year are already priced into the stock price (Allman-Ward & Allman-Ward, 2018, p. 117). A repeat of the spring quarantine will, of course, hit the Automatic Data Processing business and drop quotes. If the dividend is canceled, not only will stocks fall lower, but it will take longer for them to recover. From the point of view of investors, who are the main source of income in the company, this will be a sign that it is profitable to work into the company.
In turn, corporations need to redistribute their income so that most of it goes to technology. The fact is that it is equipment and technological relevance that are the main advantages of the company over competitors. It is necessary to improve this area, which is expensive and unprofitable for investment without investors. However, if the management ignores this need, then the corporation can give way to the leader quickly catching up with competitors.
References
Allman-Ward, M. and Allman-Ward, P. A. (2018). Optimizing company cash. A guide for financial professionals. Wiley.
Bauer, T., Erdogan, B., Caughlin. D. and Truxillo, D. (2019). Fundamentals of human resource management. People, data, and analytics. SAGE Publications.
Wolters Kluwer Editorial Staf. (2021). Directory of corporate counsel. Wolters Kluwer Law & Business.