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Ultimate Software Company Viability Review

Payroll is one of the longest-standing and possibly most competitive business software markets. Even the big guns such as SAP and Workday can’t afford to relax and Ultimate has spent more than 20 years working its way towards the top table of providers. To assess Ultimate’s viability (and stability) as a provider, it is helpful to examine how it leverages its strengths and differentiates itself in such a competitive environment. Broadly speaking, the strategy is threefold:

  • As previously noted Ultimate’s main technological development is focused on the cloud; with a longer-term strategy of migrating existing customers one-by-one to the SaaS environment (while maintaining service provision to those that prefer the original model).
  • The company’s relatively small size has led to different thinking in terms of how Ultimate’s solutions are developed. Larger competitors inevitably deploy larger R&D departments and Ultimate’s answer dates back to 2004 and the adoption of “Lean" processes and flatter management structures in a determined (and subsequently successful) effort to foster higher-performance development teams.
  • Thirdly, Ultimate’s approach to dealings with its clients has gone through a transformation process, with the CTO (Chief Technology Officer) focused on the goal of making Ultimate's IT department a "Partner Player" organization—a label used by Forrester Research to denote a unit that adopts a more strategic role, moving the client’s business forward by creating unique and competitive solutions. This internal initiative afforded the opportunity to markedly decrease turnover and improve the acquisition and retention of top IT talent for its 225 person-strong development workforce. The way forward turned out to be the creation of self-contained, autonomous teams with highly business-focused goals—a technique that leveraged Scrum methodology to manage software development projects, supplemented by the adoption of Toyota's Kanban technique for just-in-time customer delivery.

The result of this multi-strand corporate strategy, encompassing service offering, product development and personnel management has proved beneficial to Ultimate’s fortunes. The company reported total revenues of $269.2 million in 2011 and according to I/B/E/S Estimates, analysts are expecting the company to report revenues of $329.3 million for 2012—impressive growth in what is still a relatively shaky global economy. In fact, according to Scott Scherr, CEO, president, and founder of Ultimate, “[We’ve already] had a strong first quarter for 2012 (up 22% over 2011) across all our key areas. Sales, activation of new customers, and recurring revenues all exceeded our expectations. This performance gives us momentum and better visibility into our full-year 2012 results while keeping us solidly on track for achieving our 2013 goals”.

Remaining one of the few payroll software companies that has successfully bridged the gap between on-premises and SaaS deployments, Roth Capital's Nathan Schneiderman has stated , "Ultimate [Software] remains among our fastest SaaS revenue-growth stories, and it still remains our top medium-term operating margin expansion story."

Next -Ultimate Software’s Strengths and Weaknesses >>

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