Stalking The New Avaya: CEO Kennedy Covers The Bases4:51 PM EST Tue. Nov. 02, 2010
Kevin Kennedy became CEO of Avaya in January 2009, and has presided over some of the company's biggest-ever changes: an ongoing retooling of its executive ranks, a complete revamp of its indirect channel strategy, and a blockbuster acquisition of Nortel's former enterprise unit, which meant that a formerly bitter networking competitor is now part of the Avaya umbrella.
With the dynamics of the UC and collaboration space changing rapidly -- and plenty of competition for Avaya both veteran and upstart -- Kennedy has his game face on, and is looking at ways to both grow business and make sure channel partners stay profitable. Kennedy sat down with CRN Networking Editor Chad Berndtson for an exclusive interview at Avaya's recent Americas Partner Conference in Las Vegas, excerpts of which follow.
Photos are courtesy Avaya, taken during Kennedy's opening day keynote address.
Our purpose was to accelerate and embrace channel dependency and engagement. By and large, that's working pretty well. We now have fine-tuning to do to make that as effective as possible. But the partners, numerically, have stayed with us to a greater extent than we expected, per plan. The second reality is that these things are hard -- the majority of these kinds of integrations don't go so well. You measure that with a couple of metrics, including attrition rate, how many people stay with you. I think the Nortel people are feeling pretty good. They are thrilled to have innovation to sell again, which was something that had been in a bit of a drought given the bankruptcy of the prior asset.
And lastly, one thing that happened, one thing that I'd misjudged but has been a blessing for us, is that here were people who were a piece of a telco company. All we do is enterprise, so there's a common goal, a common customer set, and people unified around that. The people side has worked out as well or better than we expected.
The good news is that it's much easier to move a base and endear yourself to a base when you have something wonderful like new products. If it were not for SIP, which gave us a rapid embrace versus a displacement message and approach, this would not have been a good judgment for us. But given that, so far, so good. It would have been a bad choice if the choice was just to acquire a customer base. You have to acquire the channel and you have to drive a conversation.
We made three very large investments that were discretionary, but quantitatively significant. One is we made investment in a combined roadmap that promoted the best technologies, and we communicated it in 30 days. Customers that had been living with the drama [of Nortel's bankruptcy] for a year had low expectations. So, one, we cleared up uncertainty, and two, we communicated the roadmaps quickly, and we gave people something to decide to believe in or not. Marrying the best of both technologies was a positive because it meant, for the proponents of either Avaya or Nortel, it wasn't a lose-lose, it was a win-win. We also said, we're going to support the products you have for five years, where they might have thought we would move to discontinue all these projects capriciously. Saying we'll do that for five years costs us money.
The next thing we said was, take Aura and embed it into things like the [Nortel] CS1K. Allow people to stay the course. That costs money. The last thing, there were triple-digit millions of dollars at our expense to continue to allow all these products to be order-able, and there are also hubs and technologies to support. So that's a price tag of about five or six percent on top of any purchase, but that's not something we passed along to the customer base, that's us saying, we're going to put our best foot forward. All of those decisions could have been made in different ways, but all of those were made in favor of our channel partners and our customers.
You're correct in that the customers and channel partners by and large have stayed with us. I personally believe that if we'd made other decisions, we wouldn't be in as good a shape.
[Brand stewardship] is making sure there is a detailed set of expectations between the partner, the customer and our selves for how we manage the Avaya brand. If our product were to fail or an upgrade or an installation were to not go according to plan, at the end of the day, the black eye is with the equipment supplier.
But as we moved briskly from a direct model to an indirect model, we didn't necessarily choreograph the roles and responsibilities of the partners and ourselves. If you ask each partner what they expect from us and from them in each scenario, you might get lots of different answers. So as we improve, we're trying to script and choreograph what those interactions look like, how frequently they might occur, with what cadence, day to day versus strategic. That's all part of learning. That's stewardship: you always want to be close to your customer making sure the right conversations are being had by the right people.
The general context is that I've probably fought Microsoft four times in my career, in different technologies. Their successes would not be seen as iconic in realtime communications. In the mid-1990s, Microsoft went into the business of software routers with the intent to put companies like Cisco out of business. By 2000, they exited that business. Another [area] might be mobile software, where there's been a decade and a half investment, and that may have reached double-digit market share at some point but is now in single digits. I could give you two more examples that I won't put you to sleep with. While huge a Goliath -- a proprietary bearer, and we have to be reverent -- real time communications has not been their centerpiece for longstanding success.
What's happened in the last nine months, and what I think is important, is that in the customers we're interacting with, we're answering questions about Microsoft at a lesser rate today than we were nine months ago. I don't exactly know why but I can offer hypotheses, and they come not in the questions Avaya is answering but in the absence of questions about Microsoft. One question I'm being asked is, 'Well, we've got more Macs and iPads in our enterprise, and can we get your Flare software on iPad?' It's about Apple and iPad. It's about Apple, and iPad, and using Flare there. It's not about people asking me about Microsoft per se, although we'd like to interoperate in a Microsoft environment.
The second piece is whether it's Apple or Android, or netbooks, or Google, the elements of the consumer environment that are penetrating and pounding the enterprise are getting bigger and bigger and bigger. For those customers that believed in a view that all things were centered around the PC, it's in fact the diffusion of the consumer market that's bringing in a lot of new devices.
Another piece is that, when you think intellectually about Microsoft's trojan horse, it's a platform called Exchange that is the efficacy of its legacy, and Active Directory. With a Flare environment, we can take and confederate directories. My belief is that with the urge of the consumer environment and confederation across that boundary, we are answering fewer questions about Microsoft. It's about Apple and other environments that have become far more relevant in the enterprise.
The last piece I have seen is around virtual desktop integration, which has a new level of relevance. It's been around for many years and in many different forms, but people are finding that the PC environment, distributed out to 200,000 to 300,000 people, is a difficult thing to keep upgrading, controlling and so on. That's another thing that's changed in the last nine months.
At its general level, Skype is one more form of connection that people want to have. Secondly, it's an example of our commitment to being an ingredient in the cloud. That gets us to the next stage. What's different technologically is that Skype is peer-to-peer SIP development, and we've moved to more of a hub-and-spoke implementation, which is more compatible for the enterprise. Both of us are leaders in SIP, and both of us are willing to segue to have the right version for the enterprise, which is more secure.
We have a firm belief that there are user experiences unique to the enterprise, which is why we do focus on devices, too. RIM [Research In Motion] did a phenomenal job being focused on the enterprise for years. We are taking that same point of view and saying, we can solve a people-first user experience that makes conference calls easier. Skype is very complementary, but we put an enterprise experience on top.
One form is managed services, which is one way. Skype is another way. We will be working with other people that have hosted services to use Aura as their embedded session capability, and we'll look to embed Aura session management where we can. I think we're in our infancy there, and there's a lot more work ahead of us.
We want to be on other desktop video devices, and other manufacturers' devices, be they pads, Windows devices, Apple devices, anything that is touch-screen oriented if it's a big-enough screen. Our goal is to get hi-def video and the ability to express conferencing and all the complexity of the enterprise through the devices that people buy every day. I think the next major push for us is on other peoples' devices.
Since we have brought Flare out on our own hi-def device, we've gotten requests for bigger devices and smaller devices. We will be thinking about that, but we will stay in the world of hi-def. Going downmarket, if we do, is going to be more about our software. Having a great experience that is unique to an enterprise-class user, we'll stay toward the high end of it.
We would, although in the near-term, they'd be more to the point of view of technology fill-ins. If there are areas where we can bolster our performance or scale, then yes, we would. The company has been through a lot in the past year, though, if you tuck in too many, sometimes it's like body blows. The surprises and the strain have hit a point where they're ebbing and we've got to let the company heal and grow. Our focus is on healing and growing. If we can make ourselves stronger, sure, but don't expect another big one in the near-term.
I would say that there are places in the conferencing space, the video space and software communications that have niches, and where we could become inspired to make a small tuck-in at some point. But the emphasis is on acceleration, not strain.
I think the team is strong. There are things we can do to further simplify the business. Billing is an example where simplifications can occur. Our channel processes and ordering processes, we're in a stage of converting those, where rather than having two, we have one, and that is optimized so it's less painful for people. We'll have a few more years of that kind of work, but from a financial perspective, there's not a lot more restructuring drama. If it exists, it's usually in a particular region, or it's surgical. So now it's about getting our processes streamlined, not just converged. And I am proud of the team.
I think there is a true statement about turnarounds in general, and that is, you go through phases. Sometimes we're right in a particular phase, and sometimes people say, 'This is not fun,' and want to go do something more fun. When you're hired, you're putting out fires and changing things and have to manage the business, so it comes down to what people enjoy doing, and what's fun. Almost all of the executives that come and go in a turnaround, and this is true for other turnarounds I've done, are about the skills and the fun factor that are right for the intensity of that job.
I have no idea. It's ultimately up to the owners. My job is to make sure we can create the environment for it, and that means getting the gross margins and the business models in the right place, and getting our net debt divided by EBITDA in the right zone. We're headed in the right direction.
You know -- and this may surprise you -- for our investors, the timeline is not a topic that comes up at board meetings. They're clear: get market share and get the metrics right. I am very fortunate we have great owners.