There are so many threats right now in the PEO industry it is probably tougher than it is ever been. There are still opportunities out there, but the threats are in health care reform, regulation changes and definitely commoditization. The products are all starting to look the same and clients are very conscious about the price they are willing to pay when shopping PEOs. The big keep getting bigger, M&A activity, the lines are blurring, brokers are offering payroll, and you’ve got ADP and Paychex who are now brokers offering insurance. So there are lots of threats.
In the past there was enough wiggle room for smaller PEOs to be creative, but that is eroding. You’ve got high unemployment and unbundled billing, so revenue is eroding at the same time that there is confusion in the marketplace and regulation. Differentiation is a very tough and real problem.
To handle that, you need a mitigation strategy. Diversifying product is certainly a way for small PEOs to not only differentiate themselves, but to also mitigate the risks that are out of their control that they have no influence on. So diversifying product, whether it is offering your products in a non-PEO environment, whether it is offering benefits administration as a client wants to carve out their benefits instead of going on a master policy, whether it is offering your wonderful technology that you have invested in in a software service environment, all of those things need to be put on the table as a mitigation strategy.
CogNet can help you with that because CogNet can help you offer those services at a much lower cost to serve without distracting your core business. Between those two things you might be able to diversify easier than you think you could and we can help you with that.