How Kronos’ cloud migration makes for a better business

Kronos CEO Aron Ain discusses how the company is successfully moving to the cloud. Ain talks about how the migration has led to new analytics capabilities, is improving profits, helps customers run their businesses better and more.

Aron Ain

Software companies don’t survive – thrive, in fact – for nearly 40 years without a strong aptitude for change. Kronos launched in the late 1970s with the first microprocessor-based time clock. In the decades since, the Chelmsford, Mass.-based company has become the leader in workforce management applications, navigating a rapidly changing technology landscape and the transition from startup to public company back to a private entity now generating more than a billion dollars in revenue annually.

Today, Kronos is successfully evolving to the cloud – an adaptation that has tripped up other packaged software firms. In this installment of the IDG CEO Interview Series, Kronos’s Aron Ain talked with Chief Content Officer John Gallant about the keys to navigating that cloud migration, including the decision to transition from owing and running cloud data centers to hosting Kronos products with third-parties. Ain discussed how the collective intelligence gleaned by operating in the cloud is helping Kronos customers run their businesses better, and how new analytics capabilities are improving profits and productivity, and making lives better for employees.

[ Related: Tech Titans Talk: The IDG Enterprise Interview Series ] I want to talk about Kronos’s transition to the cloud. When did it begin, what prompted that and where do you stand today?

Kronos CEO Aron Ain: It started seven or eight years ago, and got active four or five years ago. What drove it was our customers. Our customers basically started saying ‘we want you to manage your application for us. We want you to take responsibility for application management, upgrades, general monitoring to make sure the application is tuned to its highest level.’ At first that came in the form of hosting the application for them and then it turned into being a pure SaaS play. If you break software-as-a-service into its logical components, it’s how you pay for it -- license or subscription -- how you deploy it -- on-premises or hosted -- and how you manage it -- by the company or the vendor. So it transitioned across that continuum in those different dimensions.

[ Related: Expect big investments as Kronos crosses the $1 billion mark, CEO says ] Was it driven largely by the small businesses or your larger customers?

Ain: At that point we were really more of a mid-market company than an SMB company so it was coming from more of the enterprise companies. I would describe it as more of the leading edge CIOs who were driving it. They were under tremendous pressure to do more with less. What percentage of the business is cloud-based today?

Ain: For new customers, it’s at 90 percent so people are voting with their purchase orders. As far as our total revenue, it’s a lower percentage because we have lots of existing customers who are still paying us maintenance for an on-premises instance. But when people are buying new products from us -- and new customers in particular -- it’s over 90 percent today.

The people who are existing customers who continue to do on-prem, what holds them back from the cloud?

Ain: I don’t think anything holds them back other than what they have is installed and working and they have other priorities. However, what’s happening with increased urgency is as they do an upgrade or as they add new components, new modules, they say, as part of that, let’s switch over to the cloud. [Case in point]: Family Dollar with 75,000 employees, 7,000 stores, long-time Kronos customer. When they wanted to upgrade, they said: ‘You’ve been talking to us about the cloud. Let’s go do it now. You bring it into your data center.’ Wyndham Hotels, same idea. If they’re not ready to do something new or they’re not looking to buy something new, they’re typically staying where they are. You’ve made a transition that a lot of big companies in enterprise software are either just undertaking or struggling with today. What did you learn as someone running a software company making that transition from the license-based, periodic upgrade world to a world of subscription revenue? What were the pain points, what were the lessons learned?

Ain: The thing I learned early on is don’t be too evangelical about saying everyone has to have on-premises license or Software-as-a-Service (SaaS). Treat your customers the way we would want to be treated and give them a choice and travel this journey with them. That means we offer it both ways. If people still want to buy licenses and pay maintenance we’ll do that. If people want SaaS, we’ll do that. If they want to do something in between, we’ll do that as well. What I’ve learned is if we can be good partners to our customers it will pay big dividends for us. I think what we learned is to use the energy of the decisions that our customers make and follow their lead, follow their path. Tell them the advantages of both ways. We think we can be a better vendor to them if they’re running in the Kronos Cloud because we’re the experts with our product but it doesn’t mean that they can’t do it themselves. But it is a challenge to offer all of those options in terms of maintaining them, growing them.

Ain: It’s the same product, though, so [while] it has some challenges it’s not as hard as it seems. I guess where I was going with that, Aron, is do you ever envision a point where you would say to customers it’s going to be all cloud from here forward?

Ain: I do. Where it adds additional overhead, which prevents us from maybe investing as much as we want to in our products, is when you also offer an on-premise version for customers who have a particular technology orientation or a technology stack that’s important to them. So there’s the Oracle, the IBM, the Microsoft shops and when you’re running on-premises they want you to support the way they do it, where if we run it in the cloud they don’t ask us what we run. They just want to know that it’s available. I think at some point we’ll only offer it one way. I think that’s accurate, true and that makes sense. I want to shift gears a little away from that cloud transition. How is the workforce management market evolving today? What are you seeing in changing customer needs and how is the competitive landscape changing?

In the past it really used to be a feature-centric buying decision. What’s changed in the past several years is that things really focused around technology have taken more of a dominant role. Organizations want products that are easy to use, that are self-evident, that minimize the number of clicks to use the product, known by some as user experience (UX), which is translated into exciting user interface. That’s a big change. That whole UX/UI world has changed significantly.

[ Related: Workday Adds Time-tracking Module to Cloud HCM Software ]

Second, there are new technologies out there in terms of how people interact with the system, mobile being the biggest one. Today, organizations want their employees, they want their managers to be able to access the system not just from a desktop but through their smartphones and their tablets. That’s a big shift. People are managing in the moment, they’re looking for the answers right away. It’s very interactive. Then the whole world of data has led to a whole birthing of new opportunities around analytics, informed decision-making. What we’re able to do today, and what our customers are demanding, is not just give them information but also give them recommendations on what they might do to solve a particular problem.

The last thing I’ll say is that we used to sell our products country by country. If we tried to go to a Fortune 50 organization and say we could solve their problems around the world they really weren’t interested in talking to us. They said: ‘I’m just talking to you about the U.S. or maybe the U.S. and Canada.’ Today, more often than not, they’re coming to us and saying: ‘We want to talk to you about your product used around the globe.’ What changes are you seeing in the competitive landscape?

Ain: We no longer have our toughest competitors in the form of cross-vertical ERP companies. Today our most challenging competitors are industry-specific software companies focused on solutions just for healthcare, manufacturing, retail and hospitality or public sector. Oftentimes that’s not about the product. What’s changed is we now are completely vertical. We shifted to this model in the late 2000s and were completely vertical by 2009. That means our sales people, our pre-sales people, our service people, our marketing people, are organized around specific vertical markets, in many cases using a common product. Who are your key competitors? Do you consider those to be the full-suite human capital management (HCM) providers?

Ain: It’s different in SMB than enterprise and then it’s different domestic vs. global. In the SMB space, which we define as companies up to 1,000-2,500 employees, it’s a full HCM Suite. [We have] payroll, HR, talent [management], as well as workforce management in its full glory.

That’s different from the enterprise. In the enterprise our customers might buy payroll from ADP and HR from Workday and workforce management from Kronos. They tend not to look for a single vendor. They tend to look for the best within the workforce management world, best within the HR world, best within the talent world, etc. So there’s a whole group of competitors in the SMB world, maybe a Paychex or Ultimate Software or an ADP and then a whole series of smaller companies. In the enterprise it might be more an Oracle or an SAP or those kinds of companies. When you look at that enterprise side, do you consider the ADPs and the Oracles and companies like that competitors or are they more often partners because people use the two products together?

Ain: Both. We cooperate and partner with them and we compete with them and that’s fine. The majority of the Fortune 1000 uses Kronos today. In many cases those other organizations are trying to go in and sell an enterprise HR, talent or payroll solution and our customers are not going to take Kronos out to use their system. So they have to work with Kronos. But in other cases they’re trying to sell a whole suite and they might say they also do workforce management. The good news for us, because we focus in the enterprise just on workforce management, our product is better. We’re not trying to be a full suite HCM provider to the big enterprise. We’re trying to do just a fantastic job in the workforce management area. Long term, do you stay focused on the best in workforce management or play in that bigger HCM suite marketplace for the enterprise?

Ain: Decisions change. Right now in the SMB, [we have] the full suite. I want to be crystal clear about that. We have great suite products across the whole HCM spectrum. In the enterprise, we’re going to go deeper and deeper in the workforce management space. It’s not to say that we won’t offer some basic HCM offerings there but our main focus will be time and attendance, absence management, scheduling and analytics to support that, data collection devices to support that, to be the very best we can be in those areas. Kronos is a privately held company, yet you release your financials. Why?

Ain: Because, No. 1, our numbers are great. No. 2, we want to be very open with our customers. We think they should know how we’re doing. We think it’s a strategic advantage for us that we share that information. We tell them we have nothing to hide. Private or not, we want to share this with you. Customers tell us all the time: ‘Gosh, I’m surprised you release this.’ We tell them: ‘We think you have a right to know how someone you’re deciding to do business with for the next 10 years is doing.’ People don’t buy a product like ours for two or three years. Once someone picks a vendor in this space, you’re their partner indefinitely.

Being a private company has made us a better partner to our employees and a better partner to our customers. We don’t worry about things quarter-to-quarter. We think about the long term in everything we do and we’re able to do that as a private company. How do I know that? Because I was CEO of Kronos as a public company and it’s not that I didn’t enjoy being a public company CEO. I just like being a private company CEO a whole bunch more. It just gives us more flexibility, more options in so many dimensions. You reached over a billion in revenue early last year. What’s driving that growth?

Ain: The good news is it’s happening across all of our verticals. They’re all growing nicely. In particular, right now the healthcare business is growing very quickly. I’m talking about hospitals, long-term care and other non-acute care areas. The retail and hospitality space and the public sector is growing well. That’s defined as K-12. It’s also defined as higher education. Federal government as well as city, county, state areas, financial services and then lots of parts of manufacturing. We can tell the automotive industry in America is doing well by how we’re engaging with them these days and in the past couple of years. Consumer products, life sciences, those areas are doing well. I guess the better way to ask that was where aren’t you doing well?

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