As he prepares for his VoiceCon Orlando keynote, Kevin Kennedy talks about his early days at the helm, and how the industry has changed just in the brief time since he took over at Avaya
At VoiceCon Orlando 2009, on March 31, the industry will get its first chance to hear from Avaya's new CEO, Kevin Kennedy, who will deliver the event's opening keynote. Kennedy was named CEO late last year and officially took over January 1, after serving as CEO of JDS Uniphase and also working at Cisco and Bell Labs.
Before giving his VoiceCon keynote, Kennedy agreed to do a phone interview with No Jitter. In the course of a 20-minute conversation, he described the changes he's bringing to Avaya, as well as the changes that have occurred in the industry just since he took over at the first of the year. He said Avaya remains profitable, and he confirmed that the company has done layoffs this year as part of ongoing restructuring efforts. He also described how Avaya is working to compete with Cisco and take business away from Nortel as the latter makes its way through Chapter 11 bankruptcy.
Following is a transcript of my interview with Kevin Kennedy:
NJ: Could you give me a sense of what your top priorities have been over the past 6 months, and how you’ve gone about trying to achieve those goals?
KK: Sure. I joined January 1, so I'm here about 2 ½ months, and I'd say the first thing to do is to effect the transition from your predecessor, so Charlie [Giancarlo] and I had about 2 or 3 weeks of real time overlap to pass the baton. During that time, I met with a lot of the employees, town hall meetings, so forth, and mentioned why I came, what I thought the unwritten destiny of Avaya would be. I've been meeting with customers during that period of time, going through the management disciplines.
At a strategy level, I think Charlie and I will have a very smooth transition. No major changes there. From the point of view of how we're executing, there are three workflows that I've initiated. One is to continue to restructure the company given the economic climate. The second is to focus on transitions: So new product transitions, pricing transitions, how to do our channel transition. And then the third is growth. So what will be the things that we will intentionally grow that will lead us out of the recession, and how do we evolve our go-to-market. So those 3 cross-functional things are probably the nuance that I have brought to the company over the last 30 to 60 days. And all relatively execution-oriented, if you will. And I've continued to meet with customers and constituents. So it’s been a full two and a half months.
NJ: Sounds like it. You used the phrase, "Unwritten destiny of Avaya." What do you think is the unwritten destiny of Avaya? What's the vision for what Avaya will look like in a year, two years, however long?
KK: A couple of things have changed--I consciously made a decision to sign onto Avaya around the 1st of November, my first day at work was the first of January, and in January we had a bankruptcy of one of the competitors in the marketplace. We had another competitor sort of up the ante in the way they're playing and declare their intentions in the server world. And so the competitive environment actually changed quite a bit. And I’d say the benefit of that was that I think the enterprise asset that is Avaya was the gem of the former Lucent fold. It today in its market is unique in the sense that it’s one of the enterprise assets that still has an excellent cash flow and is profitable. It's private, so it’s a little bit different than a Cisco. But frankly, in a bear market, being private so that you can focus on execution is a good thing. And so we’re in a moment in time when the competition is changing slightly. Our strength is a good thing. And I think the unwritten destiny is to become recognized as the specialists in real-time communications. And I think that’s what we’re going to do is learn how to just execute and be the choice for people who want open, best in class real-time communications.
NJ: You mention the bankruptcy with Nortel, and Avaya’s been sort of openly going after Nortel customers. We've got an ad on our website from Avaya saying, Here are the four reasons why Nortel customers should switch to Avaya. And Avaya made the deal with Shared Technologies, they’re not giving up Nortel but they're adding Avaya. How successful has Avaya been since January 14th in winning Nortel customers over to Avaya?
KK: I don't know the statistics. There are two forms of engagement. One is end customers and the other would be channel partners, you mentioned one in particular. And I'd say that while we have seen positive outcomes on both, I'd say the one that I was surprised at the speed of engagement and response was specifically on the channel side. And so I think times are changing. It will ultimately be beneficial for Avaya, but only time will tell.
NJ: What have the channel partners been telling you about what their thinking or their motivation is as they go through this period?
KK: At the end of the day, it's a time of uncertainty for people. And when people become uncertain, they look for alternatives, they look for contingencies, and I don’t think it’s any more complicated than, uncertainty tends to drive slightly different behaviors around backup plans and alternatives.
NJ: And I do have to ask this question: Avaya was mentioned in the Wall Street Journal last week as being one of the companies that’s examining the possibility of purchasing Nortel Enterprise out of bankruptcy. Can you confirm or deny that?
KK: I can’t comment on rumors, as you might guess.
NJ: Talking about the channel here, back in October, at I think the Avaya analyst meeting, Charlie Giancarlo announced the goal of Avaya going from 55% indirect sales to like 75%-85%. Can you give me any sort of an update on the progress that’s been made so far on that projection from October?
KK: I don’t think that ratio has changed dramatically. The challenge that a company in our space is dealing with is that bookings and revenues have softened since that particular point in time. Let me add a little more color to those numbers. Those numbers are the same, they vary a little by territory. Some territories were higher and some not as high. And if you actually were to look at it from a unit volume perspective, it's probably in the 60-75% range of the product is deployed through channels. So revenues are one thing, units are the other. We’re well along the curve, but we will continue to embrace those kinds of numbers that Charlie put out for us.
NJ: So you remain committed to that plan?
KK: That’s correct.
NJ: Since you, at a previous point in the past, had been with Cisco, and obviously Charlie had as well: What do you feel like you and—to the extent you understand what Charlie’s thinking—how did that experience of being a part of Cisco, how has that informed your thinking about how to compete against Cisco?
KK: I think there are 2 sides to that. One is that I think we learned to have a priority on execution. And secondly, to look for new markets and try to catch new markets with speed and put the risk on other adjacent markets so there is always something to bridge to. And so I'd say on the positive side, that kind of thirstiness brought to Avaya is something that we hope to infuse and speed up its velocity moving forward.
In terms of competing against, I think one is you have a reference for what they’re capable of. What I would say is that I think the imperative for Avaya is we have to have an increasing sense of differentiation in our solutions, and we will. The mistake would be for somebody to try to take Cisco head-on. We will continue to compete through differentiation.
NJ: You've talked in terms of execution. What has that meant in terms of Avaya? How have you tried to improve execution at Avaya?
KK: These three workstreams are good examples. One of the interesting parts of Avaya is that Charlie came in, he sent a strong message for each of the functional areas to look outside the company, find out what best in class was, and begin to mobilize around best in class functions. And so that's a great thing. What that has done for me was, as I engaged in the company in January, fundamentally most of the leaders here wanted to change and be excellent. And so that's great. The challenge with that is sometimes you can take that charge and be excellent within your own silo. And as you know, it takes the quarterback and it takes a lot of people to win a ball game. So the reason I brought in this notion of focusing on three workstreams, one is the restructuring or productivity increase; the second was getting our transitions right. So for example, this company has done a number of acquisitions and some of them have not always been so successful. So that's a form of a transition. Do we know why they weren't? What would we do different the next time? When we introduced pricing, we may have done it fine for a direct sales force, but how did we make the channels feel when we did the last pricing change? So execution on pricing and the channel transformation was key. And then the third was, are we fully aligned on what the next go-to-market areas are?
Let me give you an example, and this will sound a little bit funny, but I hope that the metaphor is useful to you. When you're trying to get individuals or individual entities to work together, I use an example of Boy Scouts on a lake. They're headed across the lake; a storm comes, the kids get anxious and they end up in the water. The sun comes out, the kids crawl back into the canoes. If the scoutmaster goes to the rear of the canoes and pushes them, in about five minutes, all the canoes will be more completely dispersed in the lake. Almost democratically. If the scoutmaster goes to the front and pulls them to the other side where they were headed, actually they begin to line up like a set of ducks and they all get to their destination. And so my point here is that we had the functions, or Charlie had the functions mobilized, and trying to become best in class. We certainly had work to do, but focusing them on three primary workstreams and pulling them across to the other side was sort of the stage where the company had to move to, and that's what I've put in place.
NJ: In terms of the market now, I haven't really asked you the basic question of what you’re hearing from customers. Certainly anecdotaly and what market data we've seen, and you've alluded to, customers are in retrenchment and may not be buying. How would you characterize the buying and selling environment these days?
KK: The economy has slowed, so let's be clear. And at the end of the day, most companies are watching their cash flows, and that means things are being prioritized inside. I would say that with almost all the customers I have spoken with, they all have three or four things they're trying to deal with. One is, they're being asked to save money. The second is, they have some form of an imperative around green. So, their server rooms are too big, consume too much power, and so they need their communications devices to have smaller footprints. The third is, they're one bank [for example], and it was just announced that they’re buying another bank, and the CIO has to integrate the infrastructure of the bank down the street. So there’s usually some form of consolidation. And then fourth, there’s the needs of the business user: The sales guys want Salesforce.com implemented, or they want to be able to read something on their Blackberry, so there's a mobile need. So there's a business user need that's unfulfilled and needs to be prioritized. So I'd say almost everyone we speak to has at least three out of those four issues on their mind, and I think that’s really what I'll be speaking about at VoiceCon is that usually out of an era of distress, the seeds of some new economics are born for the IT leads, and I think that we're actually about to birth a set of technologies that will help on all four of those areas.
Those are the common themes. Cash flow constraint is key, people therefore prioritize on how do you fix any of those four items, and if you can provide solutions that have a return within a year, you tend to get prioritized closer to the top of the list rather than the bottom of the list. And that's what we’re working on.
NJ: Do you feel like you have any visibility in how long you expect customers to be in this mode?
KK: I don't have visibility to events. I'd say I've gone back to history and these kinds of slowdowns, my observation would be, tends to be in the 8 to 12 quarter range. So we're certainly some number of quarters into that. So we'll just see. I don't know the events, but you know, people haven’t stopped planning. They haven't stopped trying to look at what the next way of saving money is. And so that’s what we’re going to do to help the industry is help them look for good ROIs on communications gear.
NJ: You mentioned a couple of times that you've done some restructuring. Last year, Avaya had about 400 layoffs. Have there been additional layoffs since the first of this year?
KK: Charlie, in December, I think, made a comment that by the end of calendar 2009, about 12% of the workforce would be reduced from whatever it was in December. And I'd say we have done some things that will take that number up a couple of points. We've also looked at merit, bonus and all those other things. So we are conserving our cash. But all in the same order of magnitude of what has been stated before.
NJ: And you said that the company right now is still profitable?
KK: Yes.
