Kronos: Release the power of labour for Chinese manufacturing

Kronos is the global leader of Workforce management. As the labour cost is growing steadily in China during recent years, it is more and more important to improve the efficiency and performance of labour in China.So, workforce management has become the strategic way to improve the competence of Chinese manufacturing enterprises.How could Kronos help Chinese manufacturers to dramatically improve overall labour efficiency? With relative questions, I interviewed Mr. Dick Cahill, the vice president and general manager of international operation who is responsible for driving Kronos' growth and continued leadership throughout established and new markets outside the U.S. and Canada. Dick has more than 25 years of sales and management experience in the enterprise software and services sector. Mr. Maxwell Miao, the general manager of Kronos greater China also joined the interview.

Mr. Dick Cahill, the vice president of Kronos

Pei Huang: Would you please briefly introduce the background of Kronos serving global workforce management market?
Dick Cahill: Since its establishment in 1977, Kronos has been focused on how to do a better job in workforce management and how to make workforce management a competitive weapon at the high end. We often discuss with our customers about their status and future of workforce management considering their employees, because ultimately our customers are very sensitive to the cost of human resources. So how does Kronos help workforce to become more productive and what's the secret of Kronos' fast growth in the market? I think that control is the core in the evolution of Kronos. Only when you start to control what is going on with the workforce, can you make a decision planning, execute, automate, and innovate. Kronos care about controls. At the same time, we ensure compliance of workforce that follow the laws and regulations on guaranteeing the safety, health, and other rights and interests of employees and build into automation to get more productivity.

Whether it is manufacturing, retail, hospitality or ahealthcare, anyone in those businesses is highly depended on employees. Then how do we focus on getting employees to become more productive with more satisfaction on the customer side and more royalty on the employee side? I think first of all, employees have to know what they are doing, and then they have to do the right thing at the right place and right time.
Take the hospitality industry as an example. When the hotel is completely full, there is no need to have so many people. Then what else can be done to drive customer satisfaction? Once I worked in India and lived in Leela Palace. Every time when I walked into the Leela Palace, there were always two or three people greeting me at the door. They know my name. Although they are providing just a little additional value, they make me feel that I am a valued customer. Our workforce management should really take customers as very high-end customers as possible because customer satisfaction is so important.

Pei: Can we say that Kronos invent workforce management?
Dick: Although it is not created by us, Kronos is a very important proponent and practitioner of all the components in workforce management. Kronos believes at the very high end that employees are critical to a company's success and profitability.

Maxwell: Kronos is a pioneer and a leader in providing solutions in workforce management. It is a philosophy sense, if you can't measure it, how can you improve it? Time clock with a chip inside was invented soon after the foundation of Kronos and became a selling point of the company as well as a basis of workforce management evolution.
Dick: What we used to refer to as "time clock" is now what we called "data collection". Without data collection device, you can't get all the information of employees like when they come and leave, how much they are working, and what they are doing, so decisions can't be made immediately and effectively. But if you use data collection, you can make decisions quickly.

Pei: When you deploy the software in manufacturing companies, how can you both manage the efficiency and employees’ satisfaction? Are there any employees that don’t want their supervisors to know much of their working details?
Dick: One thing we talk about executives when we move forward with projects is about how to manage employees with change management. We normally work with the company to put together the change management programs. It's necessary to show the employees the value and help them to create more value. Our data collection device itself allows employees to get better access to their data so that they can look how many holidays do they have or at what time can they apply for a holiday. They can text their manager from mobile device like blackberry and ask for approval rather than do it on the paper so as to improve efficiency greatly. The system provides the instant visibility into what employees are doing. So there is more possibility for employees to get benefits over the systems. It is also more possible for them to get fairness through the system. Since the pay of the overtime work is high, the overtime shifts of the employees are based on whether they have a better relationship with the manager. After the implementation of the system, it becomes much fair. The system will automatically arrange those available employees with high productivity to take the overtime shift. So employees can be fairly treated by using Kronos workforce management systems.

Pei: Is there pressure or problems from the work union during the implementation of your systems?
Dick: We did have problems with work unions. We normally talk to unions about compliance and risk prevention. According to regulations and laws, companies have right to do the alcohol test to see whether employees coming through the mine have drunk. If they do, they will not be allowed to go through the mine. Although unions did not like that, we kept pushing on the fact that it is not going to stop people from drinking but to guarantee the safety of the entire team. Normally the people who don’t like this are the people who take advantages of the system.

Pei: what's the secret of Kronos of becoming a company with revenue over $800 million in this niche market?
Dick: There are multiple reasons.
Firstly, people do care about their workforce systems. We have large business share in mature markets in the U.S., but outside the U.S.is not. We hope to achieve 50% of revenues outside the U.S., so our opportunity for growth in the future is outside the U.S. We are very focused on labour-intensive verticals like healthcare, service, logistics, distribution, retail, manufacturing, and government. Our entire business teams including our engineering organization are divided according to different industries so as to provide good services to our different customers. The different needs of our manufacturing, energy, and CPG customers require us to deeply focus on verticals and provide precise solutions in different industries. For retailing, we provide vertical solutions aiming at different types of retail enterprises. The biggest advantage of Kronos is that we have deep understanding of our focused industries. Most conversations that I have with customers even today are not about Kronos, it's about their business. When they feel comfortable that they understand we know their business then they feel comfortable doing business with Kronos.
Secondly, Kronos is conservative. In the U.S., we grew up the business and then moved out in the early 1990s into the U.K. and Australia. Then we took a long time to decide could we go to Europe, China, or India. Because of the close industrial chain collaboration between the enterprises in U.S. and U.K. and the enterprises in China and India, China and India became an opportunity for us five years ago. But the European market outside the U.K. has been running for a year and half. Because the Europe market is so important to us, we must play it. The real way we got out into the market was our customers. That's what has been driven our growth of company. We have large manufacturing customers like GM or GE that moving around the world. Sometimes we have to stay what countries they stay because they have specific requirements. We are now covering over 100 countries cross the world and we have great potential growth in international market. China is very critical to our success. Chinese companies are very important to us when we moving out in China. Besides, we are very focused on Chinese leading and international companies.
So we are slower and more conservative to ensure our strategy is right, and then we can be faster. It's a winning strategy. IT infrastructure companies can work the same way around the world, companies like Kronos should take into consideration at very deep level during their internationalization. That's why Kronos has been very successful, because its conservative strategy ensures every step it takes is right.

Pei: Please analyze the competition status in the workforce management market and give me some data of the share of Kronos in the market and the proportion of your revenues from hardware and software.
Dick: Our market share in the U.S. software market is about 35% to 40%. SAP and Oracle plays in the international market, because they have some components in workforce management. The reason of winning those businesses is we get very detailed about our clients. In most of our markets, the competitors are local. For example, all the countries have local health institutions and some have involved in retail business. There are different healthcare vendors scattered in different countries to provide workforce management software for these local institutions, but normally they don’t scale the business like Kronos do worldwide. For example, our top French competitor is a local company. It is very small but knows the French market. But in the international market, you won’t see many worldwide players in the market.
Our revenue proportion of software and hardware is 60% of software and 40% of hardware. It used to be equal, but now software is growing because now more value added modules have come into the business. Also growing is our management service business because many customers are moving to SaaS based services. Our software is open and can be integrated with our data collection device as well as systems from other vendors. We are growing at an accelerating pace in international business. It’s nearly 50% last quarter and we expect similar growth this quarter. One thing that we talk about regularly is not where we are going but the things we will stop doing. Although we are growing very fast, we will cut cost in places where we have done a lot of work but no result in returns, because we have to focus on our business. We have 3,300 employees in total among which 700 people are running international business. We are focusing on building our team. I often go to different countries to meet with everybody and communicate with them about the value they created for our customers. China is an important market for us. I come to China every quarter at minimum to visit our customers. In the international market, we have built an office in the Middle East and Brazil. We are very careful in expansion in emerging markets. Only when we find the need for workforce management in one area grows rapidly will we run business in this area. For example, we haven't run business in Russia so far.

Pei: I know that you have OLE in workforce management, please share the development and practice of OLE philosophy.
Dick: When we talk about OLE in the manufacturing, we ask our customers several questions: If anything is running the right way, then why is productivity down? How do you improve labour productivity to the overall productivity of the line? What’s really going on in that line? We care about if employees are doing the right thing at the right time and what’s their productivity so as to help them improve efficiency.
Maxwell: Recently we signed with a famous auto parts company. They started to initiate this project because of lean manufacturing. They have changed their shop floor layout and put a new lean manufacturing process in the place, but they found their productivity had not been increased. Eventually, they found problems with people and didn’t know how to improve overall productivity of the labour force. So they came to us and finally realized lean manufacturing through implementing workforce management and improving efficiency productivity. So OLE is a key component to make an entire lean enterprise. If you have only lean production process and production line, it is not enough. You need to have a lean labour force management.

Pei: When potential customers want to implement your system, who is the decision maker? Maybe it's not HR Director?
DICK: It's typically the head of operations. If it's a manufacturing plant, it will be the plant manager; if it is a retail enterprise, it's usually the regional operation manager. HR Director and CIO will participate, but mostly it’s the operation manager and factory director. So we need to talk with operation managers about how to improve labour force efficiency and performance, because it is them that concern this issue the most. Actually, workforce management is one part of human asset management but it is closely connected with MES. Workforce management is a core system supporting the business operations.

Pei: Several years ago, China released a new labour law which has increased labour cost greatly in some industries. So what’s your suggestion for CEO of manufacturing companies, how can they maintain profits?
Dick: Years ago, it used to be cheap in finding labour and the productivity didn't have to be the metric because profits can be gained from extensive operations. Now labour cost is going up incredibly, so manufacturers need to become more productive. That's what Kronos do. Firstly about data collection, you have to make sure the data you get is clean. Then you make decisions, start to plan, and use that data to make sure right people in right place at right time. It is a real vision for Kronos because ultimately Chinese labours should be as productive as other developed countries around the world. In Mexico, they have very low productivity. Since the labour cost is low, Mexican enterprises haven't realized the importance of workforce management, which is a big problem for them because productivity has to go up with the increasing labour cost, otherwise it will be hard for them to sustain. I'm more worried about if there is available labour in China in three years because the availability of labour is reducing. So it is the right time for Chinese enterprises to focus on labour productivity and workforce management.
Maxwell: For fast growing countries like China, nobody can avoid or stop the phenomenon of the increasing labour cost. China is at Lewis turning point. The first generation of workers can stand a poor life. They just collect money and send money back in the countryside to support the family. But the lifestyle of the second generation of workers is totally changed. Those post 90s have entirely different life expectations. That is a situation you have to manage as a manufacturing CEO. You need to face the reality that growing labour cost is inevitable in China. The only choice is to find the way to improve productivity. Then you can maintain at certain level of margin or profits, otherwise you are out of business.
Dick: 3 years ago, most Chinese companies would not like to talk about cost. Today every company wants to talk about it. It's driving Kronos to have more conversations with companies about how we control productivity because if you can’t control the cost you need to control output.
Maxwell: Now the situation goes upside because of the labour shortage. Several years ago, after the Spring Festival it was all of the workers lining up out of the factory to try to find a job. Now factories look for labour force everywhere and put them on the bus right at the railway station.
Dick: It's very interesting running the international businesses for Kronos because every peculiar country has its own nuances. In the U.S., people are very consistent with their problems and solutions to the problems. But the situation in other countries are different, for example in Australia, there is no unemployment. Their key problem is 30% of employee turnover and even 35% in retailing. So the conversation between Australian companies and Kronos is how to train entry level workers effectively and make them qualified for the job quickly. It’s very difficult, because you know the employees will leave at the end but you have to spend a majority of budgets on training and retaining. The situation in Europe is different. It is high in unemployment, so the problem is about how to make people back to work. Customers want to sit down with someone who really understands their problems in dealing with workers.

Pei: You know Foxconn is very famous manufacturing company and they made many electronic products. However, employees in Foxconn committed suicide successively in a time because of low salary and high pressure. Then, the company raised the salary for several times and moved the factory to China inland provinces. The founder of Foxconn, Mr. Guo once said he wanted to use robots to replace the human workers. Besides, last year some workers in Japanese joint ventures in Guangdong also struck because of low salary which resulted in production halts for several weeks. If these companies use workforce management from Kronos, what will change? How to improve labour relations?
Dick: If using Kronos workforce management system, the simple thing would change is that workforce management will make employees to understand more about business and feel no more about being controlled. The system itself allows more fairness to come in for people who want to be treated fairly and who want to get overtime shifts so as to ensure work efficiency and reasonable payment. Every year when Apple releases the contract, they want the product to be cheaper. So manufacturers like Foxconn are in the middle of sandwich because if you give a lower pay and treat those employees badly, they eventually stop everything. Then your productivity comes down. So the right way is to increase productivity.
Kronos does not typically try to manage the productivity directly, but you will see productivity through appropriate work management and appropriate rewarding system based on accurate measuring of performance. I think Foxconn should look at the problem from two aspects: one is reasonable scheduling to make the best use of employees; another is to build a reasonable rewarding system. In addition, highly qualified leaders should be cultivated to treat employees more fairly and promote their work performance.
Maxwell: I think to solve those problems companies, two things should be improved. First, you need to improve work condition; second, you need to improve salary. But it is a company not a charity business. Company sees to find margin. The only way to increase the salary is to improve productivity. Recently, I had a talk with the CEO of Johnson & Johnson. He shared with me a very interesting phenomenon. In the United States, people are not like overtime because they would like to spend more time with their families. Here people want overtime because of the pay. So companies should find a way to fully compliance with labour laws. They can arrange scheduling based on employees' working desire, skills, and performance to ensure fair treatment and appropriate motivation. Our workforce management system can help automate these processes.

Pei: When a customer buys your software, he needs to concern the integration with ERP, MES, or even HRM systems. How do you solve this problem?
Dick: We mostly have open APIs and we integrate it very well with Oracle, SAP, or any other systems.
Maxwell: This is the strength of our technology. We have WIM (Workforce Integration Manager) to integrate with other systems. Besides, we are a SAP certified partner. So it is very easy for most of our SAP, Oracle, and PeopleSoft customers to use Kronos workforce management system. For example, Dalian FAW-Volkswagen used our workforce management system and integrated it successfully with SAP at ERP level.

Pei: What's your competitive advantage compared with other workforce management software?
Dick: Compared with other large management software, Kronos is more professional and more focused. Our workforce management software is based on both rich theoretical and practical experience. For more than thirty years we have deeply focused in the segment of workforce management. More than 40,000 enterprises have used our workforce management solutions.

Pei: Do you also offer consulting services for your customers to help them realize lean workforce management in China?
Maxwell: Yes, we are starting to launch workforce management related consulting services. For example, we can help companies to bring more value through workforce management diagnosis and labour assessment. Besides, we talk with them about implementation methodology. We are working on promoting our consulting services continuously.

Pei: Max, what's your view of the prospect of workforce management software market in China? What are the difficulties and challenges you encounter in promoting solutions in China? How to educate Chinese market?
Maxwell: First of all from the view of macro-economy, since the labour force is going up, Chinese companies care more about compliance with labour laws while increasing productivity and reducing costs. We have both opportunities and challenges in Chinese workforce management market. The opportunity is that company cares about how to improve productivity and save the cost. But the difficult challenge for us is normally there is not a budget beforehand for workforce management. Many companies may have a continuous improvement, lean product, or time keeping project. But actually they need to understand that full visibility of labour resources in manufacturing process is the key in realizing the entire lean production and continuous improvement.
This takes time to educate and coach. Our strategy is from two aspects:
One is from positioning perspective. We are highly focused on those leading international companies like Haier and those excellent companies who have a lean internal management like Yanfeng Visteon in auto parts industry. They understand a missing piece of efficient workforce management to improve overall management. They just don’t understand workforce management software can exactly solve the issue.
The other one is from sales perspective. We have named 20 top name accounts for each sub-vertical. In marketing, we will cooperate with the professional media like e-works to introduce international leading ideas of workforce management to China. We also build partnership with consulting firms and universities to promote the ideas in order to accelerate the process of accepting and applying workforce management software in Chinese manufacturers.
So our strategy is from two perspectives. One is to stay focus in workforce management market and set up reference customers. The other is to build an ecosystem of promotion such as marketing, partnership building, education and training to accelerate the application of workforce management system in Chinese manufacturing, retailing, and other industries.

Pei: May be another opportunity is that there are not so much players in this market compared with ERP market.
Dick: You need to look at this problem dialectically, because when there are no players, you wonder if there is a market and when there is a large market demand, the players come. We are now making every effort to develop workforce management in emerging markets like India and China. We focus those U.S. companies who entered into Chinese manufacturing market because they have expectations on productivity and compare productivity of their plants in different countries. Therefore, they are happy to use our workforce management solutions. In addition, I will be very glad if we have the opportunity to cooperate with universities, especially those famous management courses in universities to promote workforce management ideas and develop workforce management market together. We will discuss with universities about cooperation and build Kronos Workforce Management Research Institute in China.

Pei: Actually the international economy is still weak. More and more Chinese companies are facing with great challenges. Under this situation, how much value can workforce management system bring to these companies in realizing growth and transformation?
Dick: Obviously, during the downturn of the economy the competition will be fiercer. So companies need to be more productive, lean and quick by applying workforce management system. In difficult times, if you have to dismiss some employees you should use workforce management system to make sure those dismissed employees have a lower efficiency and to make sure you are at the right time to do the dismissal. So workforce management is kind of helping companies arrange appropriate scheduling, improve productivity, and compliance with related laws and regulations. I think the international market is still strong because the value it provides for companies is still strong. In the next few years, Chinese companies will become more active around the world. They may acquire international companies in the process of internationalization. Therefore, their business processes need to be regulated. By applying workforce management system, they can realize a true people oriented company in building digital enterprise. These years, Chinese companies are becoming very interested in workforce management. Every time I talk to them, they are full of expectation for workforce management. Now many companies have realized business visualization and process automation, but they only lack the most important labour resources management. The application of workforce management has been the most important differentiation between excellent companies and ordinary companies. Workforce management will be the cornerstone of Chinese manufacturing transformation and upgrading.

Pei Huang, Dick Cahill and Maxwell Miao

For Chinese version, please visit: http://www.e-works.net.cn/interview/leader_365.htm

English editor: Jessica Tan

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