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Business Services
"This sector has been growing strongly over the last few years since the 1993 recession," Thomson says. "There has been a shift in thinking toward a smaller core of permanent employees and a larger layer of outsourced employees so businesses can stay more flexible and efficient. As long as business feels positive about continued expansion in the economy, this sector will continue its strong growth."
The business service category includes advertising, credit reporting, equipment rental, computer processing, and mailing and reproduction, but personnel supply service companies are making the biggest headlines.
In 1997, more businesses of all sizes are expected to turn to employee leasing companies to handle such tasks as payroll and benefits administration. Other companies are relying on personnel supply services and temporary agencies to recruit, screen and place their employees.
The fastest-growing segment of business services is employee leasing. Businesses keep their existing employees but contract with leasing companies to administer employee benefits, handle payroll taxes and help the businesses comply with state and federal work-place regulations. Companies "are looking more and more for the information we can provide them," says Celeste Dockery, president of Professional Employee Management of Sarasota. And while employee leasing has seen enormous growth in Florida in the past decade, Dockery claims it has only scratched the surface of the national market. "There is $1 trillion in payroll in the U.S., and only 1% or 2% is handled by leasing companies," says Dockery, whose company projects 1996 revenues of $154 million. "I still believe it is an untapped market."
Other Florida leasing companies say they expect some of their 1997 growth to come from out of state. "I don't think you will see as aggressive growth (in Florida) because we have a higher market penetration already," says Marc Moore, president and chief executive officer of Payroll Transfers Inc. "A lot of our expansion is out of state. We will be active in Florida, but it will not necessarily be our primary thrust."
Moore expects that growth in Florida will come mainly from large, white-collar companies. "Two years ago, we had two clients with more than 100 employees. Today we have more than 25 and that number is growing weekly," Moore says. In the past, construction firms, restaurants and hotels, and other businesses in the service industry have been big clients for many leasing companies. Moore says accounting firms, physician groups, architects, consulting firms and computer services companies are among businesses now looking to employee leasing.
Some employee leasing companies merged in 1996, and industry consolidation is expected to continue in 1997. Last year, ADP acquired Staff Management Systems in Tampa, Paychex acquired National Business Solutions in St. Petersburg and NovaCare purchased Human Resource One.
"My sense is that the smaller companies will be sold to the larger companies and the larger companies are going to merge or be bought," says Richard Goldman, senior vice president and general council of Staff Leasing in Bradenton. "The smaller companies don't have the financial resources or the management to compete with the larger players."
Goldman says that the employee leasing companies may experience more competition and pricing pressures because the state is lowering workers' comp rates by 11% in January. "Our pricing will follow the trend down," he says, adding that companies that do not lower their prices may be caught in a price squeeze.
"As the bigger companies get more competitive, some growth for the smaller companies is going to slow down and we may see some failures," Goldman says. What once were known as "temp agencies" now prefer to operate under the rubric of "flexible staffing." Whatever they're called, flexible workers will be in demand as the state's economy continues to expand in 1997. Companies that once would have hired a permanent worker for a job, now more frequently look to a flexible worker - one whom the company can let go easily if its business declines. Along with the traditional secretarial and clerical workers, some staffing companies also are recruiting more high-level positions, such as accountants, network engineers and physical therapists.
These workers may stay in the same jobs for more than a year, and many of the positions are salaried and offer healthcare benefits. "What started out as an evolution is quickly becoming a revolution," says Ray Marcy, president and CEO of Fort Lauderdale-based Interim Services Inc., the 10th largest employer in the U.S. The business "is accelerating at a pace far greater than I would have expected even a few years ago."
He says more businesses are using staffing companies as consultants to help them identify what percentage of their employees should be core and non-core. "They want to create greater efficiency and productivity. They are looking for assistance in building their bottom line," Marcy says. "We are taking a much more strategic approach with our customers."
New media
Elsewhere in the business services sector, Florida's advertising agencies capitalized on a thriving economy in 1996 and expect continued growth this year if the economy remains healthy. "1997 will be a good year for the right kind of agencies," says Stan Harris, a partner with Harris Drury Cohen a Fort Lauderdale-based ad agency. "Advertising is getting more demanding, more results-oriented and more efficiency-oriented. The economy is strong and a lot of good things are going on, but consumers are more jaded than before."
Advertising agencies also expect to benefit from trends in new media and the Internet. Companies looking for more exposure are creating their own Internet Web sites. "There is a lot of potential there," says Ben West, president and a managing partner with WestWayne, the largest independent agency in the Southeast. "Many of the major clients want to employ a number of communication efforts. The commercial value is in its very early days, but it is important to learn how consumers are using this medium," says West.
As technology continues to become more sophisticated, computer services will capitalize on these high-tech changes. "As software becomes more elaborate, the equipment has to become more elaborate," says Bob Longhini, director of marketing for Dataflex, a New Jersey company that relocated its headquarters to Clearwater in October. Longhini said he expects computer services to see strong growth in 1997. "A big trend right now is disaster recovery and prevention. When a system crashes, that is the biggest problem in the industry. (Companies) need to prevent it and put in fail-safes rather than asking how to get their information back after they have a problem."
Jobs
An important development in 1997 will be the emergence of a more complete picture of job growth in the state's employment data. Until now, all leased employees have been counted under one category, regardless of what they actually did and where they worked. This practice led to confusion for state economists and skewed the state's employment data. Beginning in mid 1996, the largest employee leasing companies started to break out employees by geographic area and job description. The data should be available later this year.
"There is going to be a major break in our business services data series. This is going to have a major impact on the numbers," says Tim Campbell, an economic analyst for the Bureau of Labor Market Information. "It is going to show a big drop in business services, but it is not an economic phenomenon. It is how the data is organized."
State economic analysts hope the newly categorized data will paint a clearer picture of job growth patterns. "The really big story in Florida is what those employee leasing firms' workers are really doing. Are they in manufacturing or healthcare? In the past, all we've known is that thousands of workers are in a category called employee leasing," says David Lenze, an economist with the University of Florida Bureau of Economic and Business Research. "This is going to change our view of Florida's employment picture."
