The firm’s very name conjures up the white-bearded figure in a robe, and its founding in 1977 predates the various Internet-era upstarts focused on human capital management. For years, Kronos was known primarily for its time clocks.

    These days, however, the firm seems anything but old-school and creaky. Thanks partly to its recent acquisition of hourly workforce specialist Unicru, Kronos is in the midst of a rebirth that could transform the firm from a trusty provider of time-and-attendance applications to a dominant player in the human resources software arena.

    Analysts say Kronos, based in Chelmsford, Massachusetts, is poised to become a force in the growing area of talent acquisition and management, especially for organizations with significant numbers of employees paid by the hour.

    Kronos itself portrays the $150 million Unicru purchase as a "game-changing" move in the industry, and has set a bold target: becoming the first software firm dedicated to human resource matters to rake in $1 billion in annual revenue.

    But Kronos faces some major hurdles on the way to these lofty goals. The firm is barely halfway to its revenue objective. In gobbling up Unicru, it entangles itself in a controversy about personality testing. What’s more, Kronos could find it challenging to stitch together its different technologies.

    Perhaps the biggest question facing the company is whether it truly will shed its skin as a source of largely administrative tools and take center stage in the strategic realm of assessing, developing and managing talent.

    Should Kronos pull off the transformation, the payoff could be big, says Jason Averbook, chief executive of HR technology consulting firm Knowledge Infusion. "I see it is a risk for Kronos," he says, "but the market is ripe for the risk."

    Kronos says it is proceeding prudently, with the kind of wisdom that comes from nearly three decades in business. But the company also shows signs of youthful bravado. Stuart Itkin, Kronos’ chief marketing officer, says the firm is in line to become what SAP is to supply-chain management and what Siebel Systems, which was acquired by Oracle, was to customer relationship management: the gold standard in the field.

    "We feel that there is going to be one company that’s going to clearly lead in workforce management," Itkin says. "We are positioned to be that company."

Breaking out of its niche
    Kronos was founded 29 years ago by entrepreneur Mark Ain, who had a vision of upgrading traditional punch-in time clocks with microprocessor technology. The company produced a digital time clock two years later and has used its expertise in the time-and-attendance field to corral a huge number of customers.

    Tens of thousands of organizations worldwide use Kronos products, including 24 of the Fortune 25. Earlier this year, research firm Gartner gave Kronos its highest rating, a "strong positive," in a report on retail time-and-labor applications.

    The company now employs 3,000 people worldwide. And years of consistent revenue growth have placed it among the HR software titans. Last year it ranked third in total software revenue in the human capital management category, behind SAP and Oracle, according to Gartner.

    Despite the achievements, Kronos has focused on a fairly narrow niche for most of its existence. Its products were limited primarily to devices and software for collecting and processing data about workers’ time on the job. That began to change earlier this decade. In 2002, Kronos licensed technology from Best Software to create a payroll application and a human resource management system. Kronos’ HRMS product, which is targeted to companies with 1,000 to 5,000 employees, captures basic employee records and handles various other tasks.

    Among those are some considered talent management: recruiting, compensation, training and development, and performance management. Talent management is arguably the most important area of HR software. Forrester Research predicts that the category of applications for performance management, compensation and rewards, succession planning, competency management, and planning and analysis should grow 20 percent annually through 2009, making it the fastest-growing segment of the field.

    Before the Unicru deal, Kronos did not sell talent management software separately from its HRMS, nor had it made a big splash as a talent management provider. Its HRMS does not have all the features found in products from some talent management specialists, says Bill Larkin, Kronos’ vice president of HRMS solutions. But he says Kronos accommodates a wider range of employees than do some prominent products. Kronos’ performance management component, he says, treats "generalist" workers such as fast-food counter employees differently from "unique" employees, like designers of new sandwiches. The firm also woos customers by bundling multiple talent management features in its HRMS.

    Kronos hopes its talent management bid will be strengthened by Unicru, which makes software to streamline the hiring process. Beaverton, Oregon-based Unicru concentrates on industries with many hourly employees, making it a close fit with Kronos’ focus on hourly workforces. Although Kronos has some recruiting functionality, Unicru adds a candidate assessment capability.

    Unicru’s system rates candidates with a green, yellow or red designation, based in part on how they score on a personality test. That test is analyzed by sophisticated computer programs that consider the answers of previous test takers and their longevity at the company or at like firms. The candidate assessment considers other data such as educational background. Unicru’s product also includes tailored interviewing guides for hiring managers.

    Serving predominantly large customers such as Best Buy, Toys "R" Us and Marriott, Unicru has seen its revenue grow at a rate of 25 percent to 35 percent annually the past several years. It says it is on pace to record revenue of $46 million in 2006.

    Kronos has acquired dozens of companies in its time, but the Unicru deal—completed in early August—is its biggest. Kronos said the merger will allow customers, "for the first time, to integrate employee selection strategy with actual labor performance and tie labor planning to sourcing and hiring."

    That vision is a real possibility, says Mark Marcon, equity analyst at investment firm Robert W. Baird & Co. He says the fine-grain data about employee performance stored in Kronos’ systems could conceivably be used to tune the assessment from Unicru to select for candidates likely to be stellar workers. It would be similar, Marcon says, to the way that an insurance company can look for "certain characteristics regarding people and determine risk profiles."

    Such a "feedback loop" will take Kronos two to three years to develop, Marcon guesses. He judges the $150 million price tag for Unicru to be expensive, but nonetheless calls the deal a good strategic acquisition. In his mind, a Unicru-Kronos merger could very well shake up the HR software world.

    "They have the opportunity to take the whole talent management space to a new level," he says.

Ambition, competition
    Kronos says it plans to go further into the talent management field over time. And the company seeks nothing less than to be the undisputed king of HR technology vendors.

    In a statement, CEO Aron Ain portrayed the Unicru deal as a key step toward the company’s ambitious revenue target: "Importantly, this acquisition moves us significantly closer to our goal of becoming the first $1 billion software company focused exclusively on meeting the human capital management needs of both large enterprises and small and medium-size organizations on a worldwide basis."

    It’s important to note that Kronos isn’t going up against industry giants Oracle and SAP. It puts them in a different category, given that they sell a range of applications beyond HR software.

    Overseas markets play a crucial role in Kronos’ billion-dollar mission. About 80 percent of the company’s revenue comes from North America, but Kronos has big plans for emerging markets around the globe. It is evaluating possible operations in India and aims to start selling products in China sometime in its next fiscal year, which begins October 1.

    Not only is China home to countless factories, but it also is largely devoid of the kinds of time-and-labor applications Kronos offers, Itkin says. "Certainly the opportunity outside of North America is huge," he says, "and represents a relatively untapped market."

    Nonetheless, Kronos faces challenges. Competition is a major one. Kronos is the dominant player in the niche dubbed "workforce management," which includes applications for scheduling and time-and-attendance tracking. But Kronos is playing catch-up in the HRMS arena against such firms as Ultimate Software and Lawson. And a wide range of vendors are vying to provide talent management applications, including smaller firms as well as the big guns SAP and Oracle.

    In the area of hourly worker hiring systems, Deploy Solutions is a threat. Deploy, which also uses a candidate questionnaire assessment and focuses on industries such as retail and health care, is smaller than Unicru but has been growing at a faster clip for the past several years.

    Sham Sao, Deploy’s vice president of marketing and business development, claims Deploy has overtaken Unicru when it comes to features, in part because of a new onboarding application designed to bring new employees into an organization smoothly.

    Sao also says Deploy’s hiring management system contains a performance management component that allows Deploy to look at employee outcomes in a very detailed way. The in-depth performance ratings contrast with the basic employee termination data Unicru relies on, he says. "Instead of a getting a pass/fail, you can get A, B, C, D and F," Sao says.

    Kronos counters that in the past three quarters, Unicru has closed more than 43 deals. "They have very strong market momentum," Kronos said in a statement.

Personality clash
    Deploy is not the only question mark surrounding the Unicru purchase. Kronos effectively will inherit a debate about the merits and ethics of personality testing. Criticisms of such tests include questions about their effectiveness and concern they can screen out people who tend to question authority.

    Unicru officials acknowledge their assessment leads to some "false positives"—in other words, cases where people who would make good employees score poorly on the test. But Unicru argues that particularly strong-willed individuals may be better suited to start their own businesses rather than become retail cashiers.

    "Everyone has a fit somewhere," Unicru CEO Chris Marsh says. Sniffing out a bad fit before a hire is made is "not good just for the company, that’s good for the employee," he says.

    Unicru and other backers of workplace personality tests also point to evidence that the assessments bring about solid results for organizations.

    Then there’s the matter of integrating the cultures and technologies of Unicru and Kronos. One question is how well Kronos will be able to weave together the applications from Unicru with its own software. Analysts Lisa Rowan and Albert Pang from research firm IDC suggest the software-meshing question is significant because Kronos customers typically install applications on their own computers, while Unicru delivers its software over the Internet as a service.

    Kronos intends to tie its applications together with Unicru’s, given that each product can strengthen the other, Itkin says. Unicru will operate as Kronos’ Talent Management Division. But at least initially, Kronos plans to take a largely hands-off approach to Unicru’s operations. Marsh is joining Kronos as president of the Beaverton-based division.

    A larger, less tangible question for Itkin, Ain and their crew centers on Kronos’ ability to renew itself, and whether, after many years of quietly automating important but not critical tasks, it can step into the limelight of the HR tech world.

    One possible warning sign about Kronos’ adaptability lies in the HRMS and payroll products it created several years ago. In Averbook’s eyes, Kronos hasn’t had tremendous success pitching the newer software. The opportunity is huge, and Kronos is starting to gain momentum in this area, he says. But, Averbook notes, "I don’t think the transition to sell those products has been as easy as they thought."

    Kronos declined to release numbers on the HRMS or payroll products, but Itkin says they have met the company’s expectations. He says Kronos has taken a conservative approach to the HRMS and payroll applications, first selling them exclusively as part of a package with the firm’s traditional workforce management wares and only now as a stand-alone product. The reason for the slow rollout, he says, is that Kronos wanted to make sure it had its customer support capabilities for the products down cold.

    In fact, Itkin argues, the deliberate way Kronos has handled the HRMS and payroll additions is a model for how the company will succeed with the Unicru acquisition and any future talent management efforts. He sums up the philosophy this way: "Do it well, do it better than anyone else, then do a little more."

    Sounds a little like Father Time patiently ticking seconds off the clock. Kronos, at once cautious and confident, says its time has come.

Workforce Management, August 14, 2006, p. 34-39 -- Subscribe Now!