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Around a decade ago, executives at Kronos Incorporated recognized that customer expectations for its workforce management solutions were radically changing. The company was the leader in the workforce management license-based software solutions market, traditionally enjoying high margins, steadily growing revenue, and a solid client base around the world.
The software industry, however, was moving to a new business model known as “software as a service” (SaaS). In this model, customers pay vendors monthly subscription fees for software services delivered through the cloud as they use them. This differs from the old on-premise model, in which clients pay up front for licensed software that they manage and install themselves. The competitive landscape was changing as well, with established competitors introducing cloud offerings and start-up workforce management providers bringing SaaS solutions to the market.
For a nearly 40-year-old provider of on-premise software, making the shift into a pure SaaS company was daunting. The new demands put pressure on all Kronos departments to adapt. Kronos knew it needed to significantly change many aspects of its business operations in order to deliver a differentiated SaaS customer experience.
Meeting customer expectations—and the reality of selling and delivering SaaS solutions—meant rethinking the current capabilities and processes that Kronos had built over the years. Kronos had to become even more efficient, consistent, and collaborative. It had to use new tools, techniques, and processes foreign to the on-premise world, but commonplace with SaaS.
The Kronos shift began modestly. Realizing that SaaS would be an important growth opportunity, Kronos first focused on building its expertise. In 2012, the company acquired SaaShr, a startup that had built a SaaS human capital management suite targeting small and midsized businesses. To further build the SaaS business, Kronos reassessed its technology and product development for enterprise customers as well. “We were going through the growing pains of trying something new and needed extra support to ensure our success,” recalled Senior Vice President Jim Kizielewicz.
Kronos leaders engaged in a deep introspection. Kronos set a goal of building a company that derived 65% of revenue from cloud-based SaaS by 2019, which represented a complete transformation of the business.
Having never undergone a transformation of this nature before, Kronos turned to The Boston Consulting Group to compare its existing capabilities against SaaS best practices, and help develop a comprehensive transformation roadmap that delivered on its ambitious targets. The roadmap required changes in each focus area, along with timelines for implementing each step. “We looked into the business areas we needed to affect change. And once we identified the specific items, we saw the light at the end of the tunnel,” recalled Kizielewicz.
Kronos, in partnership with BCG, identified six major focus workstreams that would together transform the business as a whole, rather than just change individual functional areas. “Across market examples, we’ve analyzed the drivers of success in SaaS transformations. We worked closely with Kronos to bring that perspective and prioritize functions that would be most impactful for them in leading a successful shift to SaaS,” recounted Roger Premo, BCG’s software and SaaS sector lead.
The comprehensive transformation roadmap had the following goals:
To coordinate and lead this change program, Kronos established a Transformation Management Office (TMO). The TMO was assigned a full-time leader and a clear executive sponsor (Kizielewicz). Work was organized in line with the work streams outlined by the transformation roadmap, each with a team leader responsible for keeping all related initiatives on track, updating stakeholders on progress, and engaging employees.
The team leads managed all aspects of their work streams, but reported to the TMO lead weekly to make sure that deliverables were on track and that obstacles are removed. More importantly, all work stream leaders met monthly for an all-day workshop “to make sure we were all in lock-step with progress, understood synergies and dependencies between the work streams, and could bring different functional perspectives to all of the collective work that was happening,” explained Senior Director Lisa Pratt, who leads the Kronos TMO.
To ensure all 5,000-plus employees understood what it meant to be in a services business and mobilize them behind the transformation, Kronos launched a multi-pronged communication campaign called “Make the Shift” to inform, inspire, and connect employees to the transformation. “This investment in program and change management has been critical to their success. Far too often, we see companies underestimating the challenges on this dimension,” said Sushmita Banerjee, who led the project for The Boston Consulting Group.
The SaaS transformation has already fundamentally changed the organization and made a demonstrable impact on Kronos’ business. Ninety percent of new product bookings are in the Kronos Cloud. Nearly 75% of the company’s 30,000 customers use its cloud services. More than 60% of Kronos revenues are now made on a recurring basis.
Cloud services have powered this strong growth. Annual revenues have risen from $0.8 billion to $1.2 billion in five years. Annual revenue growth for cloud-based solutions has jumped to 89% in 2015. Perhaps most impressive, Kronos has been able to maintain high profit margins through the transition—a rarity for any organization attempting to transform the business.
Although Kronos is still living the transformation, the leadership team and BCG are confident that the company is on the right path.