Q&A: Kronos CEO Aron Ain on ERP, Saas and the joys of being privately held

Kronos, a human capital management software company, revolves around good timing. For starters, it tracks employee work time, scheduling and other work processes to improve productivity. It also managed to go public back in 1992, make a bunch of acquisitions and then go private in 2007 just before the economy tanked. 

Kronos CEO Aron Ain

Simply put, Kronos cooks up systems that run the processes for hiring, paying people and managing absenteeism. Kronos is also about labor analytics. And Kronos isn't small: It had revenue of $715 million in fiscal 2008 with earnings before interest, tax and amortization of $138 million, up 20 percent from a year ago. 

The company, which started out making automated time clocks, has recently been busy launching updates to its Workforce Acquisition and Workforce Management applications. Kronos is also one of those recession resistant companies because customers turn to it to cut costs. 

Here are the key points from my conversation with Aron Ain, CEO of Kronos:

First off, I had to ask about Kronos' market timing. The company went public in 1992 and then went private in 2007. In between Kronos acquired a bevy of companies---60 in total---and got out of the public markets be just before a disastrous 2008 and early 2009 for the stock markets. 

Ain said the move was made because he "felt very strongly the long-term interest not being looked at in public market." Indeed, Kronos had a market capitalization of $1.2 billion toward the end of its public company run and went private at a valuation of $1.8 billion. Another reason to go private: 

"It was very boring being a public company with the quarter to quarter craziness. With Sarbanes-Oxley (among other items) you're not able to take a long-term view. Now we can make meaningful investments and it's in the best interest of employees and shareholders. You can't run a company on an Excel spreadsheet and you have to do that if you're public."

On whether being privately held limited Kronos' ability to acquire, Ain said that the company has plenty of cash to buy companies. However, Ain isn't seeing good buys. "Kronos is not prepared to overpay. The companies we're interested in are based on values of the recent past instead of what near future will be," he explained. "Right now the near future challenging and the valuations are less attractive. As this economic nuttiness continues I believe there will be companies that won't be able to hold out indefinitely. But it hasn't happened yet."

When asked whether Kronos' business has been affected by the economic downturn Ain noted that there has been some impact, but sales "pipelines are holding well with hundreds of orders." He added:

"Part of what we deliver is measurable ROI and we can demonstrate how our software can control labor costs, improve productivity and track compliance. Having said all of that we're not immune. The yield of turning interest into real orders is difficult. There's a peak of nervousness in buying community right now."

On the biggest challenges in the human capital management market Ain said the biggest change is workers are increasingly at home or remote. "The world is working more from home and remotely and in order to help the workforce use our applications we have to focus on employee self service and give them functionality to manage productivity and compliance," he said. "Companies don't want everybody to go to the HR department." Another thread is to create software that can account for the various work rules across the globe. 

What are some of the moving parts in the workforce? Ain said Kronos tries to automate as much as possible including tracking hours, worker scheduling, compliance with local laws and collective bargaining agreements. 

Ain identified the following verticals as the biggest industries for Kronos: Manufacturing, which represents a quarter of the company's revenue; healthcare; retail; and government and education, two groups under more pressure to operate more efficiently.  

On maintenance fees, Ain noted that Kronos hasn't cut them, but hasn't raised them either (unlike some other enterprise software companies). The company, however, has altered some pricing strategies and its hiring application is available on a pay-for-hire basis. If a company hires a candidate using Kronos it will pay a fee per hire instead of an all-you-can hire approach. Ain said if you run hiring at a hospitality company and you get 2 million applications for 100,000 positions you need software rules to stack and rank applicants. "Everybody is more cautious about hiring," said Ain. "We want to be the eHarmony of hiring."

On the shift from starting out as a computerized time clock company to becoming one focused on enterprise software. Ain noted that Kronos has always been a software firm that automated work rules, but the requirements have changed for workers. Half of Kronos' users are professional salaried folks with the other half hourly employees. 

When asked about Kronos software as a service (SaaS) strategy, Ain said that SaaS isn't about one model. Kronos classifies the SaaS decision into three parts:

• The decision to license or rent.
• The decision to deploy the software at a site or have it hosted.
• How do you want the applications supported? 

"The full monty is to do all of it, but we have pricing around all of those components. Customers will pick and choose what they want. It doesn't make sense to be too evangelical about any of those forms of SaaS," said Ain. 

And finally, I couldn't help but note that the ERP market, which falls into four buckets (financial, supply chain management, enterprise management and human capital management), has consolidated. Could Kronos be acquired too? "When we (first announced plans to go private) some others approached us, but (today private companies) have to put a sign up to be acquired," explained Ain. "If you're not sending signals typically companies don't come banging at your door."