Olsten Corporation

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Olsten Corporation

175 Broad Hollow Road
Melville, New York 11747-8905
U.S.A.
(516) 844-7800
(800) WORK NOW
Fax: (516) 844-7011
Web site: http://www.olsten.com

Public Company
Incorporated: 1950
Employees: 700,850
Sales: $4.6 billion (1998)
Stock Exchanges: New York
Ticker Symbol: OLS
NAIC: 56131 Employment Placement Agencies; 56132 Temporary Help Services

The third largest temporary employment provider in the world, Olsten Corporation recruits, screens, and places individuals for temporary work assignments with employers. In 1999 Olsten Corp. provided roughly 700,000 temporary employees for an estimated 600,000 clients through a network of 1,500 offices. Aside from its commercial business, which supplied temporary personnel for a variety of corporate and light industrial positions, the company provided temporary staffing services to information technology and health care industries, its two areas of specialization. During the 1990s, Olsten Corp. completed a number of acquisitions in the health care industry that made it the largest supplier of temporary health care personnel in North America.

1950 Founding

William Olsten was regarded as one of the pioneers in the temporary help industry, opening his first office—housed in one small room—in New York City in 1950. Ambitious and a risk-taker, Olsten demonstrated an intuitive sense of timing as a temporary help supplier, foreseeing changes in the labor market and anticipating the skills employers were seeking from their work force. He consistently positioned his company to take advantage of emerging trends in the workplace, a skill that enabled his modest, one-office business to flourish from the start. As the 1950s began, office workers were in short supply, their ranks depleted by a postwar transition that saw many women give up the clerical jobs they had performed during the war and return home. Olsten, with the help of his brother-in-law, took to the streets and canvassed suburban New York City to recruit women for temporary office work. Within eight years, Olsten had expanded his business to five offices, first by establishing offices in the outer boroughs of New York City and then moving into other major urban markets such as Boston and Philadelphia. As a tool to promote his business and to recruit temporary workers, Olsten created what he called the “Temp-Mobile,” a Volkswagen bus that traveled from neighborhood to neighborhood. Olsten began using his Temp-Mobile in 1957 and later replaced it with a radio-equipped van that shuttled temporary workers from suburbia to their assignments in New York City.

The 1960s witnessed the maturation of the Olsten enterprise, as it evolved from a relatively small, five-office staffing firm into a rapidly expanding, diversified, publicly held corporation. Market conditions propelled the company forward, as the concept of employing temporary workers cemented itself in the mindset of corporate America. Olsten capitalized on the changing business practices and advancing technologies of the decade, demonstrating a strong desire to develop his company into a national force. Looking for a way to accelerate expansion, Olsten began franchising his business concept in 1962. In 1965 the company opened its first Canadian office, establishing a branch in Toronto. By this point, the company had tripled in size, comprising 20 offices scattered throughout nine states, and had deepened its penetration into the temporary worker industry, as Olsten increased the services his company provided to employers. To the company’s selection of secretarial and clerical workers, Olsten added other professions, such as those related to engineering work. A change in the company’s corporate title to “Olsten Corporation” in 1967 was followed in 1968 by the debut of the newly named company as a publicly traded corporation, the same year corporate headquarters were moved to Westbury, New York. In a display of his company’s newfound might, Olsten finished the decade by completing two acquisitions that diversified Olsten Corp. and foreshadowed its involvement in a new, significantly important area. In 1969 Olsten acquired a medical laboratory named Rush Laboratories and purchased another medical laboratory, Path-Tek Laboratories, the following year.

Expansion and Diversification in the 1970s and 1980s

The foray into the medical field represented a significant event in Olsten Corp.’s history, introducing the company into a market segment that was the central focus of its activity during the 1990s. The acquisition of the two medical laboratories led to Olsten Corp.’s entry into the market for temporary workers in the health care industry, inaugurated by the creation of Olsten Health Care Services in 1971. By creating a subsidiary to provide temporary medical staffing services, Olsten had seized upon a way to insulate his company from the cyclically of its commercial business. As the demand for temporary workers in the corporate world dipped and rose, the company’s medical staffing business would serve as a stabilizer, enabling Olsten Corp. to generate revenue at a more consistent level. The entry into health care services also represented another example of Olsten’s foresight, positioning his company in what would become a significant and lucrative market for temporary staffing services. During the first half of the 1970s, however, Olsten Corp.’s medical services business was little more than a sideline venture; its prominence within the corporation was still two decades away. In the interim, the company’s commercial business was recording explosive growth, as Olsten developed his business into a national chain. Between 1965 and 1975, the number of offices increased from 20 to 150, flooding principal markets throughout the United States. Although there were several areas beyond the company’s reach by the end of the 1970s, expansion during the 1980s ensured that every state in the country could claim at least one Olsten Corp. office within its borders.

The reliance on temporary employees by businesses big and small increased during the 1980s, fueled by the flexibility it gave employers as they contended with the fluctuating productivity demands of their businesses. Temporary staffing firms recruited and screened potential employees, identifying their particular skills and matching those skills with the specific demands of the employer. Olsten Corp. had decades of experience in appraising prospective temporary employees, developing its own system called the Olsten Profiler in 1972 that was trademarked the following year. In 1986 the company computerized the Olsten Profiler, improving its efficiency and accuracy further.

Expansion during the 1980s doubled the size of the company from its stature in 1975, establishing offices throughout the nation. With the opening of offices in Hawaii, Alaska, and Puerto Rico in 1987, the company had offices in all 50 states, the District of Columbia, Puerto Rico, and Canada, ranking it as the third largest temporary staffing firm in the United States. The company had developed well beyond its original business of providing clerical workers to embrace a variety of positions. In 1987 Olsten Corp.’s more than 400 offices placed 240,000 temporary workers in positions for 80,000 clients, providing workers with skills in office services, office automation, accounting, legal support, records management, marketing, technical and light industrial services, as well as nursing, home health care, and therapy. By the end of the 1980s, there were more than 525 Olsten Corp. offices in operation.

Focus on Health Care in the 1990s

The end of the 1980s marked a turning point in the history of Olsten Corp., ushering in a decade of dynamic change. Olsten retired in 1990, vacating his posts as chairman and chief executive officer during the company’s 40th anniversary. Behind him, Olsten left a business capable of generating nearly $1 billion in sales per year, a company with a far-reaching grasp on the commercial temporary staffing market and a promising involvement in the health care temporary staffing market. Olsten’s successor was Frank Liguori, a Brooklyn-born butcher’s son who had been president of the company since 1986. Liguori, an accountant by training, took the helm of Olsten Corp. and initiated dramatic changes, immediately steering the company toward a greatly increased presence in the health care industry. Olsten had not neglected the company’s involvement in health care—opening its first Medicare-certified office in 1983—but Liguori pushed the business headlong into health care, taking the legacy left by Olsten to another level. One of the first steps taken in this direction was the acquisition of Upjohn Co.’s Upjohn Health Care Services subsidiary, purchased in December 1990. Upjohn Health Care Services had collected $182 million in sales in 1989 by providing home health care and supplemental staffing to hospitals, nursing homes, and other health care organizations. The acquisition, which lifted Olsten Corp.’s sales beyond $1 billion, added 200 offices to Liguori’s portfolio of health care properties and made health care a contributor of 30 percent of Olsten Corp.’s revenue volume.

Company Perspectives:

When companies today seek out human-resource management, they’re looking for ways to reduce costs, improve flexibility, and find other business solutions that help them to develop and market new products and services better and more quickly. So the services we offer include everything from helping them fill positions either temporarily or permanently, to full outsourcing activities. Plus we handle these services on a success rather than retainer basis. Companies approaching the 21st century need a human-resource partner that can help them achieve long-term differentiation.

Liguori was merely getting started when he acquired Upjohn Health Care Services. His efforts during the 1990s reflected an emphasis on the global expansion of Olsten Corp.’s commercial business and on the development of an information technology business, but progress on both these fronts paled in comparison with the strides gained in the health care industry. In May 1993, Liguori made headlines when he proposed to pay $449 million worth of Olsten Corp. stock for Lifetime Corp., a supplier of home health care personnel with an enormous $886 million in annual sales. His offer drew criticism from industry analysts for several reasons. Lifetime was saddled with debt and had demonstrated erratic profitability, recording nearly $18 million in earnings in 1990 and $5 million two years later. The company, by its own admission, also suffered from what it referred to as “operational inefficiencies” and overstaffing, but Liguori brushed the problems aside, remarking, “One man’s operating problems are the next man’s opportunity.” Perhaps the most alarming aspect of the deal was the amount Liguori had proposed to pay. Earlier in 1993, Lifetime had been trading at roughly $16 per share when another company, Abbey Healthcare, attempted to purchase it for $23.50 per share. Abbey Healthcare later raised its offer to $27.50 per share, a bid Liguori preempted by offering $33 per share, which critics believed was too high. Despite the widespread belief that the acquisition was ill advised, Liguori pressed forward and completed the deal, gaining shareholder approval on a transaction that doubled the size of Olsten Corp. overnight.

Aside from substantially increasing Olsten Corp.’s annual revenue volume, there were other, equally profound, effects stemming from the Lifetime acquisition. Olsten Corp. was transformed from a company whose foundation rested on commercial temporary staffing into a company whose sideline involvement in health care had become its future—“something of a flip-flop,” according to Liguori. After the acquisition of Lifetime, Olsten Corp. derived 55 percent of its business from health care and 45 percent from its former mainstay commercial temporary staffing business, ranking as the largest supplier of staffing services to the home health care market in the country. Industry pundits watched Olsten Corp. closely, waiting to see if Liguori had made a mistake or acquired the means to create a formidable temporary staffing firm with a two-pronged strategy.

Olsten Corp.’s commercial business also saw its scope increased during the first years of Liguori’s tenure. During the 1980s, the company had solidified its position in the United States, establishing offices in every state. During the 1990s, Liguori set his sights on the rest of the world, beginning a concerted attack on international markets. The company’s progress overseas was achieved through a series of acquisitions. In 1993 Olsten Corp. purchased Office Angels, a staffing service firm headquartered in the United Kingdom. The following year, the company acquired a stake in a Mexican staffing agency, which subsequently was renamed Olsten STAFF S.A. In 1995 the company moved in several directions, acquiring operations in Argentina, Norway, Denmark, and Germany.

By the end of 1995, systemwide sales for Olsten Corp., including franchises, exceeded $3 billion, only four years after the company had reached the $1 billion mark. Much of the financial growth was attributable to the acquisition of Lifetime and the increasing use of temporary employees by employers, but some of the revenue growth was derived from Liguori’s foray into a new business area. In 1995, one year after moving company headquarters to Melville, New York, Liguori acquired IMI Systems Inc., an international information technology services company. With $47 million in sales in 1994, IMI was recording growth in excess of 40 percent per year, making leaping strides in a fast-growing industry. IMI served a clientele consisting of a large number of Fortune 100 companies, including banks, utilities, and telecommunications concerns. For these clients, IMI designed, developed, and maintained information systems, providing its comprehensive services on either an individual or project-oriented basis. The company, which Liguori planned to use as the foundation for the further development of information technology services business, was supported by a network of 12 offices, including two branches in Europe.

After the acquisition of IMI, Liguori moved ahead with further acquisitions during the latter half of the 1990s, behaving “like a Monopoly player on amphetamines,” according to a reporter from Chief Executive magazine. Despite the characterization, there was no implication that he was being too aggressive. Liguori had few critics following the IMI acquisition, having silenced his earlier detractors by successfully assimilating Lifetime into Olsten Corp. “The ongoing shift to lower-cost health care settings, such as the home, and the dramatic growth in business and industry temporary staffing needs should result in continued revenue growth acceleration for Olsten,” explained one analyst, typifying the industry’s assessment of Liguori’s progress. Amid such praise, Liguori completed two acquisitions in 1996, purchasing Co-Counsel, a leading provider of legal staffing services, and Quantum Health Resources, a provider of alternate-site therapies and infusion support services. Also in 1996, CIGNA selected Olsten Kimberly QualityCare as sole-source provider of home health care services for nearly ten million managed care participants nationwide, the type of full-service partnerships with large clients that Liguori was seeking. The following year, further expansion occurred, particularly overseas, where the company established staffing services outlets in Chile, France, and Spain.

Olsten Corp. entered the late 1990s with glowing prospects, its rapid growth during the decade heralded as a success story and its leader hailed as an astute and ambitious manager. Both assessments quickly changed during the late 1990s, however, as Olsten Corp. faltered and Liguori bore the brunt of the damage. The company became embroiled in a series of federal investigations claiming Medicaid fraud charges that eventually led to a $102 million settlement to end the Department of Justice’s litigation. Concurrently, the company’s profits declined by 50 percent in 1998, in large part because of cutbacks in Medicare payments. In response to the internal turmoil, Olsten Corp.’s stock fell to roughly $7 per share, far below the $32-per-share price of two years earlier. To add insult to injury, Fortune magazine reported that the nation’s leading business leaders ranked Olsten Corp. as one of the “least admired” companies in the United States. For Liguori, the situation could not be bleaker. In February 1999 he surprised industry analysts by submitting his resignation. The responsibility for restoring the company’s image and its financial results fell to Edward Blechschmidt.

Blechschmidt had joined Olsten Corp. in 1996 as the company’s president. Although he was regarded as Liguori’s heir apparent at the time, few thought he would assume control over the company three years later. During his first few months in office, Blechschmidt presided over the closure of 60 offices in markets deemed to be oversaturated. Although opinions differed concerning the company’s prospects as it prepared for the 21st century, there was justifiable confidence in the future growth of Olsten Corp.’s commercial temporary staffing business. Sales at Olsten Staffing Services increased 20 percent in 1998, rising to $3.55 billion. Whether or not the company could restore its health care business following the federal investigations was a question to be answered in the decade ahead.