Global Headquarters: 5 Speen Street Framingham, MA USA P F Business Value Highlights

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1 Global Headquarters: 5 Speen Street Framingham, MA USA P F R O I W H I T E P A P E R K r o n o s I n T o u c h : S i m p l i f y i n g a n d L o w e r i n g t h e C o s t s o f W o r k f o r c e M a n a g e m e n t Sponsored by: Kronos Randy Perry March 2013 Lisa Rowan E X E C U T I V E S U M M A R Y As with many business processes today, workforce management has become highly regulated and complex and, as such, more critical to successful business operations. At the same time, the costs of doing business are on the rise. Bottom line, employers are under pressure to lower costs while improving accountability and employee satisfaction. Kronos commissioned IDC to conduct an independent ROI analysis of its InTouch time clock. InTouch, in addition to time capture, allows employees to check their hours, schedules, and time-off balances and to request time off right on the device. Business Value Highlights Kronos title InTouch delivers a three-year ROI of 537%, with a payback period of 4.2 months. Benefits include: Saved each time clock user 4 5 hours per year ($9,103 per 100 users) Reduced time-tracking burden for employees' managers, payroll, and human resources by hours per year ($26,802 per 100 users) Reduced overpayments, saving each company $14,619 per 100 users annually Replaced older systems and helped reduce costs associated with time capture and tracking by $8,725 per 100 users annually This document is based on an analysis of 10 interviews conducted in 2012 with Kronos customers. IDC identified how Kronos InTouch is delivering financial benefits in support of workforce management. Companies in the study showed: Exceptional ROI. Strong returns were experienced by each of the interviewed companies on their investment in InTouch. On average, the companies saw a payback in less than five months (after deployment) and an exceptional ROI of 537%. Enhanced employee productivity. The most significant benefit was the streamlining of the time capture and tracking process, which generated significant time savings (40 minutes to over 12 hours) per employee for employees using the devices to clock in every day, with an annual benefit of $9,103 per 100 users. Enhanced productivity associated with time-tracking activities. Employees' managers, payroll, and human resources (HR) were able to save hours per year. Total productivity gains averaged $26,802 per 100 users annually.

2 Reduced cost of operations overpayments. Organizations enjoyed a variety of benefits by automating and improving the accuracy of time capture, tracking, and management operations, which reduced overpayments, saving each company $14,619 per 100 users annually. Reduced cost of operations optimized systems. By replacing antiquated and less functional "systems," InTouch helped reduce costs associated with time capture and tracking. Savings totaled $8,725 per 100 users annually. S I T U A T I O N O V E R V I E W The ways in which we shop, interact with coworkers, and stay in touch with friends and family have all undergone big changes in recent years. We now live in an instantaneous feedback world. Younger people entering the workforce are particularly attuned to the user experience and expect that technology in the workplace will mirror what they use in "real life." Therefore, the technology younger workers encounter on the job needs to be current and easy to use. This phenomenon is not limited to just younger workers as older workers represent the largest growth group adopting social sites and smartphones. Everyone is looking for a consumer-like experience. Workforce management, including scheduling and time capture, is an area that directly touches the workforce in multiple ways in a single shift and throughout the workweek. As such, the user experience and ease of use of systems used by employees need to keep up with the demand for a consumer-like experience. A modern approach can be a key factor in the workforce's overall view of the employer. Making workforce management processes easier to understand and building an employee experience that is more modern can both lower costs and improve employee morale. K r o n o s a n d t h e K r o n o s I n T o u c h T i m e C l o c k Kronos is a global leader in delivering workforce management solutions in the cloud. Tens of thousands of organizations in more than 100 countries including more than half of the Fortune 1000 use Kronos to control labor costs, minimize compliance risk, and improve workforce productivity. Kronos takes the complexities involved with recording time and attendance transactions, scheduling diverse workforces, and managing employee absence and simplifies them. The company also offers solutions for HR and payroll and for volume recruiting of hourly workers. Kronos is helping businesses around the globe better manage their workforce. Kronos InTouch Over the past 10 years, the world of workforce management has fundamentally changed from single-point solutions to integrated workforce management suites that can be deployed onsite or in the cloud. But time clocks, fundamental tools used to track and manage the workforce, weren't keeping up with the times. Kronos InTouch changes all that. 2 # IDC

3 Kronos InTouch provides a unique user experience that reshapes the way organizations think about and the way employees interact with the workforce management system. The simple touchscreen time clock is designed to meet current and future needs. While traditional time clocks rely on physical buttons, small displays, and fixed menus to collect and manage employee labor data, InTouch combines the latest hardware technology with a powerful consumer-oriented interface to deliver a high-tech modern user experience. With InTouch, basic tasks like punching have been simplified. To record their time, employees simply present the badge technology of their organization's choice, and the punch is automatically accepted and confirmed with an audible tone and a bright green indicator. InTouch can incorporate the latest in biometric identification to identify an employee and validate the employee's true identity to eliminate buddy punching. Employees simply touch the biometric reader and they are automatically identified. Other InTouch features and benefits include: Seamless integration with workforce management software Built to work in the cloud with secure communications protocol Large 7in. touchscreen with wide VGA full-color LCD providing a simple and intuitive user experience Optional biometric identification and verification increasing payroll accuracy and preventing employees from buddy punching Support for all major badge formats so organizations can use the system that works best for their workforce Multiple languages to support employee preferences In addition to time capture, employees can check their hours, schedules, and time-off balances and request time off right on the device. The InTouch app platform extends the functionality of the clock beyond workforce management. Many other types of applications can be deployed to InTouch, including: Company policy information Benefit plan information Cafeteria menu (Employees can even place orders for meals for pickup in the cafeteria.) Kronos also offers a software development kit that allows partners, customers, and third-party developers to build their own applications for InTouch IDC #

4 B U S I N E S S V A L U E O F K R O N O S I N T O U C H This section explores the demographics of the companies interviewed as well as financial benefits in the areas of employee productivity and cost reduction, qualitative benefits realized, and ROI and payback. S t u d y D e m o g r a p h i c s In fall 2012, IDC interviewed 10 organizations that had deployed Kronos InTouch time capture devices. The organizations are medium sized to large, with an average of 7,033 employees. InTouch is used daily by nearly half of the employees, affecting an annual payroll of $89.2 million. The study base represents a broad range of experiences from industries such as entertainment, food service, government, healthcare, hospitality, manufacturing, and retail. The interviews were designed to elicit quantifiable information (see Table 1) as well as anecdotes so that IDC could interpret the full impact of InTouch devices on the organization. T A B L E 1 D e m o g r a p h i c s Employees 7,033 Employees using InTouch to clock in 3,412 Average hours per week 34.5 Average clock-ins/clock-outs per shift 3.1 Annual payroll Number of Kronos InTouch systems 36.8 Months InTouch has been installed 5.1 Clock-in technology enhancements Biometric 50% Proximity card 30% Multilanguage 20% Remote support 60% Industries Source: IDC, 2013 $89.2 million Entertainment, food service, government, healthcare, hospitality, manufacturing, and retail Although some of these companies were long-term Kronos customers, most had deployed InTouch only in the past six months. Prior to deploying InTouch, 40% of the organizations were not Kronos customers and were using paper-based systems to track time, while 60% were using some other time capture device. These organizations selected Kronos InTouch primarily because it is easy to use and they like the form factor its size, touchscreen, and modern look. Five of the organizations interviewed have implemented optional biometric identification readers, and three have proximity RF systems. 4 # IDC

5 ($) F i n a n c i a l B e n e f i t s A n a l y s i s Overall, the organizations recognized financial benefits (see Figure 1) from the following areas: Enhanced productivity. The most significant benefit was the streamlining of the time capture and tracking process, which generated significant time savings for employees using the devices to clock in every day as well as employees' managers and payroll and human resources personnel responsible for dealing with time-tracking activities. Organizations in this study were able to save from 40 minutes to over 12 hours per employee clocking in and hours per year for those personnel supporting time-tracking activities. Total productivity gains averaged $35,905 per 100 InTouch users annually. Operations cost reduction. By replacing antiquated and less functional "systems," InTouch helped reduce other costs associated with time capture and tracking. Total operations cost savings averaged $23,344 per 100 InTouch users annually. F I G U R E 1 A v e r a g e A n n u a l B e n e f i t s ( p e r U s e r s ) 70,000 60,000 50,000 40,000 30,000 $59,250 $2,613 $1,226 $8,725 $9,103 $14,619 20,000 10,000 $22,963 0 Human resources time savings Payroll time savings Other cost savings Employee time savings Reduction in overpay costs Manager time savings Source: IDC, IDC #

6 Optimized Employee Productivity Nearly all of the companies interviewed mentioned InTouch's ease of use as a primary reason they adopted the technology. Ease of use translates to quicker clocking in and out, increasing the efficiency of those processes and adding time for all employees to be engaged in their job. In addition to ease of use, biometric and proximity technologies reduced error rates and the need to repeat the clock-in process. For one organization with a high percentage of non English speaking employees, each employee was able to add from as little as 30 seconds to as much as 15 minutes per week. Time savings from quicker clocking in and out added 3.05 hours per year of productive time per employee. Self-service capability is the other major contributor to employee productivity. As of the time the interviews were conducted, most of the self-service use is for time-off requests (94%), followed by checking time balances (75%), self-scheduling (16%), and shift swapping (14%). Self-service is still not being fully exploited, and only 50% of potential users are actually using the capabilities. Two of the organizations have yet to deploy self-service, and one has only half of its clocks equipped. Of the other seven organizations, approximately 75% are using self-service. Because of its limited usage, self-service has not had as significant an impact on employee time (yet) as quicker clocking in. On average, self-service added 1.6 hours per year of productive time per employee. For each hour added per employee using InTouch to clock in and for self-service activities, another 2.3 hours were saved by managers and human resources and payroll personnel involved in time tracking related processes. In more detail: Managers. 64% of the optimized productivity value is generated by liberating managers from the tasks associated with time tracking and management. Employee self-service releases managers from having to manage time-off requests. But managers also benefit from having better and more accurate information, which results in better decision making. So managers are spending less time in the office reconciling time cards and can more efficiently plan schedules. Each manager saved about 94 hours per year. Human resources. In many companies, employees bypassed their managers and went straight to the HR department to ask questions regarding vacation time accruals, sick time, and so forth. For HR, this activity was very disruptive as HR personnel had to drop whatever they were working on to help. Because the employees are now using InTouch self-service to access the information that they would normally seek from the HR department, each HR employee who had been fielding these inquiries saved 75 hours per year. Payroll. Here is where automation has had the biggest impact. Most of the organizations indicated that tracking time is 50% of one person's job. By automating that process and thereby reducing data entry and data corrections, organizations were able to cut that in half. Each payroll manager saved just over 200 hours per year. 6 # IDC

7 Table 2 shows how the productivity benefits break down by type of employee. T A B L E 2 E m p l o y e e P r o d u c t i v i t y S a v i n g s Hours per Year Saved per Individual Annual Savings per 100 Users ($) Employee time savings 4.7 9,103 Manager time savings ,963 Payroll time savings ,613 HR time savings ,226 Total productivity savings 35,905 Source: IDC, 2013 Operations Cost Reduction Organizations in the study enjoyed a variety of benefits from reducing the costs associated with time capture, tracking, and management operations. Of primary value was the reduction of overpayments from incorrect payroll caused by overcounting, buddy punching, and other tracking errors. Buddy punching was a problem cited by only four of the companies, three of which solved the problem with biometric identification technology. More problematic for most of the organizations were the manual systems they were using for time capture, tracking, and reporting. In addition to automated documentation eliminating human error in recording and reporting time, InTouch provided controls for clocking in, restricting time access to work areas, enforcing and recording mandatory breaks, and eliminating unauthorized overtime. InTouch automated the time collection, tracking, and management process, which eliminated the liability of human error that was costing these companies hundreds of thousands of dollars (2% of their annual payroll). InTouch automated the time collection, tracking, and management process, which eliminated the liability of human error that was costing these companies hundreds of thousands of dollars (2% of their annual payroll). One of the companies moving from paper-based time tracking and reporting put it this way: Now that we have the system that calculates overtime for us, we're getting a lot of savings in overtime. Before we were on a paper system and we were incorrectly coding and there was a lot of creative interpretation to our rules. No one was really checking oh 5 hours overtime, ok, yeah, pay 5 hours overtime. The fact that we didn't follow state statute was a large portion of our problem. The hundreds of thousands of dollars we were losing were caused by the inaccuracy of code reporting, or not understanding how things are properly done, as opposed to just theft. What we like about the Kronos InTouch is that it's all rules based. So we can be consistent across the entire organization regarding how we calculate overtime. In addition to internal savings from more accurate time reporting, organizations were able to recognize savings from reduced fines and legal costs. Having a system that generates more reliable records mitigates the risk of lawsuits brought by employees 2013 IDC #

8 who feel they have been cheated out of their due pay. Not only did InTouch significantly reduce errors in time-related pay calculations, but documentation supporting the timetracking process made it more difficult and expensive for employees to sue. In total, more accurate time recording accounted for a savings of $14,619 per 100 users per year. Other cost reduction benefits are driven by the technology advantages over the systems that InTouch replaced and include the following: Eliminating the maintenance costs of old technology Switching from swipe (barcode or magnetic stripe) to RFID card technology, which greatly multiplied the average life span of the badge, reducing replacement costs Eliminating cards, and the costs associated with cards altogether, through the use of biometric identification technology Reducing the cost of change by providing for the future flexibility of clocking-in technology by making the switch to biometric identification seamless and not requiring the replacement of each unit The combination of these other cost-saving benefits saved each organization $8,725 per 100 users per year. Q u a l i t a t i v e B e n e f i t s R e a l i z e d Clients cited various qualitative benefits they are enjoying in addition to cost savings through InTouch. They reported improved ease of use, flexibility in clocking-in technology, more features for employees, improved visibility for both employees and supervisors, greater accuracy, multilingual support, and little or no training needed. In more detail: Ease of use. A client in the discrete manufacturing industry remarked, "It's immediately intuitive what you need to do when you approach it. All you have to do is to go to the clock and make a selection." "It's immediately intuitive what you need to do when you approach it." Support for a variety of badge formats. With InTouch, employers can move among different types of employee badges and methods of clocking in as InTouch supports a variety of time capture methods. A client in the hospitality industry observed, "If we decide, in the future, to go from a barcode to a proximity card, we can. So it's more about future flexibility. That was a huge piece for us, because otherwise, you have to buy add-ons for the old clocks." Reduced use of costly point of sale (POS). A restaurant chain that is rolling out InTouch first to new franchise locations noted that the incidence of missed punches is much lower than in its many other locations that use the point of sale for clocking in. Employees at the new locations are also able to request time off, review their time, and review their schedules things employees in the older locations with POS cannot do. Also, with InTouch, fewer POS devices (which are costly to acquire and to maintain) are needed. Eliminating POS devices frees up store real estate for other purposes. In addition, the client shared, "One thing that 8 # IDC

9 we're getting with the InTouch that we're not getting with the POS, is that we don't have any integration issues. So the integration with the POS fails frequently it's about the stability of the data for us." Improved visibility and putting information at employees' fingertips. One city manager reported, " time off just goes into the system once they request it, so it's already there. In the past, employees never had visibility for their accruals, except their paycheck. And if they had a question, they had to put in a question to the timekeeper. And the timekeeper had to call payroll it was a real hassle." At the same time, this city was able to redeploy almost 100 people dedicated to the role of timekeeper. Timekeepers are no longer needed as the approval process and other functions reverted to the supervisor. Greater accuracy with biometrics. Kronos InTouch can offer greater accuracy with punching in via biometrics. While in some instances biometrics are used only for verification, InTouch offers actual timing in via biometrics. As a seasonal manufacturer observed, employees claiming to have lost their badge to avert being docked for tardiness cannot make such a claim if they can use their finger. At the same time, this city was able to redeploy almost 100 people dedicated to the role of timekeeper. Timekeepers are no longer needed as the approval process and other functions reverted to the supervisor. Multilanguage support. For organizations with multilingual needs, InTouch supports numerous languages with ease. This was a real boon to a discrete manufacturing firm with a need for Spanish and French in addition to English. The company switched from a computer-based method that was giving non English speakers trouble. InTouch thus eliminated the challenge and made the employees self-sufficient. Intuitiveness. Clients reported that little or no training is required and any training that is needed can be rolled out right to InTouch. Comprehensiveness. Kronos is unique in offering end-to-end solutions that include complete workforce management software as well as the time capture devices themselves. All other workforce management vendors offer just the software they must interface to third-party time capture devices. R O I A n a l y s i s IDC uses a three-step methodology for conducting ROI analysis: Gather quantitative benefit information during the interviews using a before-and-after assessment. In this study, the benefits included IT staff productivity increase, user productivity increase, and IT cost reduction. Create a complete investment (three-year total cost analysis) profile based on the interviews. Investments go beyond just the solution's hardware and software. Over the course of three years, IT departments spent staff time installing and configuring the new solution, removing old equipment and/or software, and maintaining the new solution. Ancillary costs directly related to the solution, such as user input to planning, outsourced installation, configuration or maintenance costs, and IT staff or user training, are also included in the analysis. Calculate the ROI and payback period by conducting a depreciated cash flow analysis of the benefits and investments over a three-year period IDC #

10 ($) Because the full benefits of the solution are not available during the deployment period, IDC prorates the benefits on a monthly basis and subtracts the appropriate amount for the deployment time from the first-year savings. IDC uses a discounted cash flow methodology to calculate the ROI and payback period. ROI is the ratio of the net present value (NPV) and discounted investment. The payback period is the point at which cumulative benefits equal the initial investment. IDC uses a standard 12% discount factor (which allows for risk and the missed opportunity cost that could have been realized using that capital). Figure 2 shows the undiscounted cash flow analysis. Organizations in this study made an initial investment of $19,859 per 100 users, which included the purchase and implementation costs for technical training and end-user training and the IT labor required to deploy. Based on that investment, the organizations realized average annual benefits of $59,250 per 100 users. Over a three-year period, each company saw cumulative net savings of $154,847 per 100 users. F I G U R E 2 T h r e e - Y e a r P r o F o r m a C o s t B e n e f i t A n a l y s i s ( p e r U s e r s ) 180, , , , ,000 80,000 60,000 40,000 20, ,000-40,000 $(19,859) Initial deployment $154,847 $95,915 $57,856 $59,947 $59,947 $36,983 $(1,015) $(1,015) $(1,015) Year 1 Year 2 Year 3 Investment Benef its Cumulative cash f low Source: IDC, # IDC

11 Table 3 constitutes a three-year view of the financial impact of Kronos InTouch solutions on a "per 100 users" basis. IDC uses a 12% cost of capital to discount cash flows. The three-year ROI analysis shows that on average, the organizations in this study spent $22,296 (discounted) per 100 users on technology refresh and received $142,116 (discounted) per 100 users in benefits for a net present value of $119,820. All companies in the study experienced strong returns on their investment in InTouch. The value of their productivity savings equaled 1.4% of annual payroll. On average, the companies saw a payback in less than five months (after deployment) and an exceptional ROI of 537%. T A B L E 3 T h r e e - Y e a r R O I A n a l y s i s ( p e r U s e r s ) Average Benefit (discounted) $142,116 Investment (discounted) $22,296 NPV $119,820 ROI 537% Payback 4.2 months Annual productivity savings as a percentage of payroll 1.43% Total investment as a percentage of payroll 0.28% Note: IDC applies a standard 12% discount factor to allow for risk and the missed opportunity cost that could have been realized using that capital. Source: IDC, 2013 C H A L L E N G E S A N D O P P O R T U N I T I E S Kronos sees few competitive threats in the end-to-end workforce management market. Possible challenges could come from client organizations that are resistant to new technology or are hesitant to put such powerful capabilities in the hands of the workforce. Some clients reported delaying adding additional features to InTouch as they fear doing so will "hold up" the line to clock in. There is also the potential for economic conditions to worsen, which may delay HR technology investments. In terms of opportunities, there are potentially unexplored uses and deployments for InTouch. While the primary purpose of InTouch is to capture time for hourly workers, there may be settings where salaried workers could take advantage of its capabilities. For example, in some settings, salaried workers may find tracking project time with InTouch superior to the methods they use today. In the future, applications such as lighting or climate control may be in the reach of InTouch IDC #

12 Kronos clients are quite satisfied with Kronos InTouch, citing its ease of use, improved visibility, and time savings. IDC concludes that Kronos InTouch is offering excellent payback and is providing a superior experience to organizations using it. C o p y r i g h t N o t i c e External Publication of IDC Information and Data Any IDC information that is to be used in advertising, press releases, or promotional materials requires prior written approval from the appropriate IDC Vice President or Country Manager. A draft of the proposed document should accompany any such request. IDC reserves the right to deny approval of external usage for any reason. Copyright 2013 IDC. Reproduction without written permission is completely forbidden. 12 # IDC