Comparing parts of ADP's business to rival Paychex, the Pershing Square founder said: "ADP is not as efficient as it should be."
"The result is its margins are half of Paychex's," Ackman said. He said Paychex competes in about 35 percent of ADP's businesses.
Ackman unveiled an 8.3 percent stake in stock and options in ADP in August. The boardroom battle goes to a vote at the human resources service firm's annual shareholder meeting next week.
In a statement to CNBC, the company said: "ADP strongly rejects the false and reckless claims made by Pershing Square throughout the proxy contest and urges shareholders to vote in their own best interests on ADP's white proxy card."
Ackman said in the "Squawk Box" interview that ADP's shareholder base sees "a big margin opportunity." He said some of the investors he's spoken to believe the pressure he's applied is a "positive."
If the company doesn't continue to innovate and become more efficient, it is going to lose "significant market share," he said. He added that he has no desire to fire lots of employees, saying the HR solutions industry is growing. The biggest risk to ADP workers is from the company's failure to keep up with its competition, he said.
Ackman said ADP has "missed the boat on technology," describing the company's chief technology officer as not a "technologist," but a business guy.
In its statement, the company said: "ADP is continuing to execute on a technology-driven transformation. ADP is now the largest Human Capital Management (HCM) provider in the cloud, with 83 percent of our clients on strategic cloud-based platforms."
Earlier, the company said it plans to file a complaint with the SEC against Ackman for releasing "false and misleading" information.
In a letter to ADP on Wednesday morning, Ackman advocated that both sides "get along for the benefit of all of ADP's stakeholders."
"Putting out a press release saying that you are reporting me to the SEC is a move designed to smear my reputation for a tactical advantage in a proxy contest. It is not an appropriate thing to do, nor is it fair play," Ackman wrote in the letter.
The hedge fund manager's letter also said ADP can increase its profit margins by improving software and services as well as reducing operating costs.
"It's certainly an important investment for us. It's one of the largest investments we've made," he told CNBC. "We think the downside is limited and the upside is pretty substantial."
Pershing Square has been underperforming the market this year. The fund is down 1.2 percent year to date versus the S&P 500's 14.8 percent return through Oct. 24, according to its website.
—Reuters contributed to this report.