Avaya plans deep integration with business apps

Customers can expect newly private Avaya to push harder to integrate its communications software into business applications, industry analysts were told at the company’s two-day briefing last week.

“We believe this is the area where this industry is going,” says CEO Lou D’Ambrosio, referring to applications that can automatically trigger communications to speed up business processes.

That is but one highlight of the insights Avaya executives offered in their first shot at analysts since the company was bought for $8.2 billion earlier this year and taken private. Other directions include focusing more on small and midsize businesses, shaking up its sales force, improving services and fixing problems with its supply chain.

The company is pitted against Cisco, Nortel and Alcatel-Lucent for dominance in VoIP technology, placing first or second with Cisco in most categories. For instance, Infonetics places Avaya first in sales of IP PBXs and Cisco first in sales of desktop IP phones.

But the real battleground, analysts say, is for integrating VoIP with software that runs businesses to improve business efficiencies by speeding business processes along from step to step. As a result, all the top VoIP vendors are partners with Microsoft and its Office Communications Server and other software developers.

Avaya already has a significant partnership program called DevConnect to bring about these communications-enabled business processes, he says. Its partners include Bearing Point, IBM, SAP, Microsoft and Verizon.

“The long-term winners in VoIP are those who figure out how to create a community around themselves. DevConnect is by far the most mature of these [VoIP] vendor-development programs, moreso than Cisco,” says Zeus Kerravala, an analyst with the Yankee Group who attended the analyst event. “The value is all the things you can embed VoIP into.”

The company will shake up its sales force to accomplish this, D’Ambrosio says. By the end of the year, it will hire 350 salespeople, retrain many of them and perhaps lay off some that don’t snap around to selling Avaya hardware and software as solutions integrated into customer business processes rather than as isolated products.

The sales force is being realigned to address specific industries. “Is this perfect yet?” D’Ambrosio says. “No. There’s still some box-sellers versus solutions-sellers. We’ll try to improve their skills or remove them from the company.”

“They have a lot of legacy, buy-a-line type of salespeople,” Kerravala says, “and that’s not what we need to go forward.”

For Avaya employees who stick around, they’ll have a new criterion in the formula to figure out their bonuses: customer delight, D’Ambrosio says, as a way to combat shortcomings in customer satisfaction, particularly its service division.

The company is opening a service hub in Colorado and new offices around the world. “Our service is not what I would call extraordinary,” D’Ambrosio says. “That is not where we want to be.” But he says the company has key indicators that show it is improving and the goal is to make the services world-class.

He has implemented a policy that for the top 250 Avaya customers, if customers register complaints of a certain severity, he is notified by e-mail, whether the problem is already resolved or not. And he contacts the customer to let them know what’s going on.

The company also plans to spend $60 million more on marketing to raise awareness of its products and services, D’Ambrosio says.

Avaya also plans a major effort to develop products tailored to small and midsize businesses, not just cut-down enterprise-grade products or beefed-up versions of consumer gear, D’Ambrosio says. The business structure of this effort will be in place by the end of the year, he says. These smaller customers need gear designed specifically for them to address the scale of their deployments and their level of in-house expertise, says Frank Dzubeck, president of Communications Network Architects, an industry analysis firm. “We’re really talking [midsize businesses] here,” Dzubeck says. “Small could be you or me working from home.”

The company plans to stay committed to these smaller entities, D’Abrosio says, unlike Avaya thrusts in the past that were undercut by separate enterprise and small-business units that duplicated expenses, developed different strategies and perhaps sent multiple representatives to Avaya channel partners to sell the gear.

He says small and midsize businesses will get their own development and sales teams but use a common back-end supply and purchasing system to remain efficient.

“Small and medium business is a really big growth opportunity for somebody,” Kerravala says. “But no VoIP company has a clear lead yet. The first to crack that nut has a lot to gain. I think Avaya is among the likelies.”

But the process will take time. “Avaya needs to develop products for that area,” he says.

The company plans increased investment in research and development fueled by savings amounting to hundreds of millions of dollars by pinching pennies in its supply chains and procurement methods, D’Ambrosio says.

The supply chain could benefit most, he says. “We screwed up our supply chain earlier this year, but now we have better supply-chain practices than we have had for four years,” he says. “It’s still not world-class, but we will take what has been an Achilles’ heel for us and make a world-class supply chain.”

Avaya’s new owners, Silver Lake Partners and TPG Capital, can help out there, says Gene Franz, managing director of TPG. “We have supply-chain manufacturing expertise,” he says, based on its significant investment in PC maker Lenovo.

Expect Avaya to buy other companies to accomplish some of its goals, but not to sell off units that might reap quick profits, says Greg Mondre, executive director of Silver Lake. “Acquisitions are built into the investment plan, not divestments,” he says.

While some private takeovers result in chopping up the target companies and selling the parts for a quick buck, Franz and Mondre say they consider Avaya a long-term investment that they want to succeed as a whole.

The owners feel Avaya can still grab a higher percentage of VoIP infrastructure sales, and Franz thinks it can flourish in more overseas markets. If Avaya does buy other businesses, look to software companies as likely targets, Kerravala says. “That’s one way to find developers that want to code on your stuff,” he says.

D’Ambrosio says he expects to be able to make quick progress in these areas and others because the company is now privately held and free of the quarter-to-quarter demands of stockholders.

This is important to Avaya because it is in the middle of a shift from being a traditional TDM voice-equipment vendor to being a software vendor, Kerravala says. “Just transitioning from a TDM vendor to a software vendor is tough enough, but convincing Wall Street to back off on profit demands for a few quarters would have been impossible,” Kerravala says.

The new owners include all 11 members of the company’s executive team who have invested millions of dollars each in some cases, and 10 of whom have bought in at more than the level suggested to them by Silver Lake and TPG, D’Ambrosio says.

All in all, pulling Avaya out of the financial markets has given it new energy, he says. “In a public environment, ther

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