After years of solidifying its gains in the workforce management applications market, Kronos is eying a bigger prize in everything HR.
Already a leading vendor in the $3-billion workforce management apps market, Kronos is investing nearly $200 million in R&D, tripling what it spent in 2006 when it went private, in order to become a force to be reckoned with in the $20-billion-plus HCM software market.
The upstream migration to a bigger pond presents tantalizing opportunities as well as unique challenges following the 2018 move by the 42-year-old vendor into a 1.25-million-square-foot complex in Lowell, MA. Kronos’ 1,500 employees (a quarter of its global headcount) are taking over nearly half of office space in a three-tower complex formerly owned by Wang Laboratories, which for past decades along with Data General, DEC, Prime, and Stratus helped put the Massachusetts high-tech corridor on the map.
Today, software companies like Kronos are reviving the tech scene in and around Boston. At a recent analyst event in Lowell, Kronos outlined a series of initiatives that could put its enterprise software into the hands of every corporate user around the world, essentially continuing the automation promise that Wang and others had worked on for much of the 20th Century.
Much of that revolves around its flagship application, Workforce Dimensions, a Cloud-native HCM suite that covers everything from HR, Payroll and benefits to time and attendance, employee self-scheduling, labor forecasting, and performance management.
From a product positioning standpoint, Workforce Dimensions is designed for larger accounts with global or complex workforce management needs and Kronos has been beefing up its midmarket offerings after buying SaaShr.com in 2012 and rebranding it Kronos Workforce Ready, also a suite of Cloud-native HCM applications for timekeeping, payroll processing, and Core HR. The latter is designed for mid-sized companies without complex workforce management needs or deep vertical challenges.
That’s on top of its cash cow Kronos Workforce Central, which has secured over 8,000 marquee customers including the likes of FedEx, General Motors, Marriott, Nestle, and the US Transportation Security Administration. Each of these key accounts runs Kronos applications to manage time and attendance of tens of thousands of employees. Recently, Nestle has moved the use of its Workforce Central applications to a hosted environment run by Kronos, a migration pattern that has resulted in growing recurring revenues for the vendor.
Chris Todd, president of Kronos, attributed those private- and public-cloud implementations of its products to its accelerating subscription revenues, which for the first time surpassed its maintenance fees in the first quarter of its fiscal 2019 ended December 31, 2018. In other words, the decade-long transformation of Kronos has reached a tipping point as the on-premise vendor once dependent on its legacy products is now cashing in on its latest Cloud HCM services.
Already, Kronos is assigning 900 engineers, or 15% of its workforce, for developing and enhancing Workforce Dimensions with at least three large feature releases a year, underscoring its strategic importance.
What works in its favor is that customers are increasingly adding other HR modules like Core HR, payroll and payroll services, employee self-service, talent acquisition, and performance management when they first run Workforce Dimensions for time and attendance. And there are at least 7,000 additional Workforce Central customers that the vendor can migrate even though some like Nestle are not likely to make such moves for a few years.
Despite some hiccups, early adoptions of Workforce Dimensions, unveiled in November 2017, have been encouraging. A major retailer with more than 100,000 employees has signed on to implement Workforce Dimensions in a seven-figure deal.
So far, Kronos has trained over 500 consultants who can take some 300 Workforce Dimensions implementations into production along with 2,000+ integrations (mostly done through Dell Boomi) that connect the product to third-party solutions from 70-plus partners like PayActiv, Even and Branch for same-day payroll services. Given the go-live momentum, the number of Workforce Dimensions users could exceed 1.5 million by end of 2019.
Bill Bartow, Kronos vice president of product management, touts AIMEE, an acronym that stands for AI for Managers and Employees which provides the machine learning capabilities of Workforce Dimensions (and Workforce Ready), as instrumental in helping these users automate and drive self-service scheduling to perfection.
Allegis’ MarketSource, a staffing firm for retailers, and Community Bank, a regional bank in upstate New York with nearly 3,000 employees, are among dozens of Workforce Dimensions customers that have gone live experiencing improvements in reporting, labor law compliance as well as processes like time-off requests.
By exploiting easy cloud access and greater usability of Workforce Dimensions, MarketSource, which stations many of its 9,000-strong on-demand sales and demo reps at retailers like Best Buy, expects it can accommodate a new generation of workers who thrive on a flexible work/life schedule, which ultimately will result in better customer experience for its clients. Despite such enhancements, the rollout of Workforce Dimensions has not been smooth. Community Bank went dark on the first day of running Workforce Dimensions because of load-balancing issues, something that Kronos was able to remedy immediately.
Renewed Push At SAP
Another catalyst lies in a renewed reseller agreement under which SAP will offer Kronos applications including Workforce Dimensions to its 35,000+ ERP and HCM customers. Since the deal was signed in January 2019, Kronos has sold Workforce Dimensions to three SAP customers outside the United States, enabling the vendor to expand into countries where it does not have a direct presence.
With Workforce Dimensions making a dent on the HCM apps market, Jim Kizielewicz, Kronos Chief Marketing Officer, said the Workforce Ready HCM suite for the SMB market is reaching a critical mass with 3,300 Cloud customers including 550 added in fiscal 2018. Two-thirds of these customers buy the time and attendance product first, then attach it to other HR modules for benefits, payroll, compensation, scheduling, learning, performance management, recruitment and others.
This year, Kizielewicz said Kronos is investing heavily in online and radio advertising to drive brand awareness of Kronos in the HCM market. At their current run-rate, HCM applications sales at Kronos could contribute as much as a quarter of its revenues over the next year or two, up from a low single digit in 2012. Last year, Kronos posted $1.4 billion in sales.
Among new customers of Workforce Ready are Airlite Plastics and Servicon, which picked the vendor over rivals like ADP and Ceridian because of its integrated capabilities. The latter also credits its geofencing features for providing visibility into where and when employees enter time.
Even though Kronos is committed to becoming a credible player in the $20-billion+ HCM applications market, it harbors no illusion about its challenges. For one, it may be able to siphon shares from vendors like ADP in the US, but it also partners heavily with ADP on deals in other countries like the United Kingdom under a long-standing partnership between the two dating back to 2000.
The renewed agreement with SAP followed an alliance between the two first signed in 2013. Since that time, SAP SuccessFactors has also partnered with Workforce Software, a close rival of Kronos. In both cases, shifting priorities at SAP have prevented its partners from making major inroads into the vast SAP’s installed base.
The Ultimate Question
Then there are the April 2019 ownership changes at Ultimate Software, which is in the crosshairs of Workforce Ready with both competing in the same HCM and workforce management applications markets. Both Ultimate and Kronos are now owned by the same investor group consisting of Hellman & Friedman, Blackstone Group LP, GIC Pte Ltd., and JMI Equity.
Kronos executives said they expect to compete with Ultimate Software in every deal, similar to its match to outscore ADP, Ceridian, Workday and others in a market dotted with thousands of HCM vendors as noted in our HCM Top 500 reports.
One striking point from Ultimate Software’s $11-billion sale to Kronos’ investor group is how these two are stacked up against each other. Both Kronos and Ultimate Software exceed $1 billion in revenues with the former employing nearly 6,000 and the latter 5,113. However, the former has more than 35,000 customers including 22,000 SMBs typically those with under 100 employees served by 220 Workforce Ready partners. Ultimate Software has over 4,500 customers almost all direct.
In April 2018, Kronos’ parent Hellman & Friedman did another round of portfolio shuffling and pegged the valuation of Kronos at $6.5 billion, according to press reports. In fiscal 2018, Kronos reported EBITDA income of $383 million on revenues of $1.4 billion. Sold at $11 billion, Ultimate Software last year reported EBITDA income of $83 million on revenues of $1.1 billion. In other words, Kronos has more customers, revenues and it earned more, but its valuation was 40% less than Ultimate Software.
It’s fair to assume that the sibling rivalry between Kronos and Ultimate Software could become more pronounced with each vying not just for parental attention, but also the resources needed to sustain their growth, or for that matter their lofty valuation.
It may also be fair to assume that Kronos’ move into the Lowell office space and its intense desire to make a splash in a bigger pond underscore the lengths to which software companies need to fend for themselves before the market shifts below their feet.
Back in the 80s, Wang and DEC, which rode the minicomputer wave, finally decided to enter the PC market after much hand-wringing and both botched their ill-timed efforts. Kronos, or any other enterprise applications vendor for that matter, realizes that one can ill afford to make the same mistake.
Source: Apps Run The World, May 2019