Avaya CEO: Nortel Acquisition Gets Avaya To 85 Percent Indirect By 2012

"Our channel focus is not a sales strategy, it's a company strategy," said Kennedy during an opening keynote to the 950 or so partners attending the 2010 Avaya Americas Partner Conference in Nashville, Tenn. "We realize we have a long way to go to be what we think we need to be in the industry. Pending the Nortel acquisition, we expect another increase in relevance."

The speech was Kennedy's first large keynote address to Avaya's partner base since taking the reins as Avaya's CEO in January.

The speech also comes as Avaya is investing heavily in growing its indirect sales through channel partners, coupled with a new, streamlined global partner program, Avaya Connect, also unveiled Wednesday.

Kennedy stressed that Avaya would need to keep its product portfolio vibrant but also focus on services, an area, he said, that had crossed the 50 percent mark this year in terms of Avaya's overall gross margin.

Kennedy spoke highly of his predecessors, interim CEO and now board chairman Charles Giancarlo and former Avaya CEO Louis D'Ambrosio, but also said previous leadership became too focused on individual functions so that Avaya's various segments became "siloed."

"The executive staff was doing a very admirable job," Kennedy said. "Sometimes you can be so focused on your function or silo, the work required to get things across silos wasn't happening. Managing transitions in the past was not effective; there was too much 'silo-ism' and a lack of communication."

Kennedy described the past year as a "period of survival" and said the steps Avaya had taken to weather the downturn -- principally focusing on a channel-oriented sales strategy -- had paid off with quarterly increases in revenue, gross margin, EBITDA and cash balance.

However, both he and Todd Abbott, Avaya's senior vice president of sales and president of field operations, recognized that Avaya's transition to channel growth "could have been better."

Kennedy said bringing Nortel into Avaya would drive up its market share in both the telephony and contact center segments.

He illustrated four areas that he said would define the networking and infrastructure paradigm over the next decade: network processing -- the "routers, gateways, switches and possibly servers that try to subsume software functionality to participate in realtime communications;" directory and exchange; and the continued growth of cloud computing and managed services.

He also sought to describe Avaya as a "fit for purpose" company, and used BlackBerry maker Research In Motion to explain. "RIM is a company people argued would go away for a long time as others got into the mobile space. But they stayed focused on the enterprise, and it was simple and channel-friendly," Kennedy said.

He described companies like Cisco and Microsoft as not being fit for purpose -- their portfolios are too broad, he said, to specialize -- whereas specialty players like Polycom and Tandberg have "hit a ceiling" in how their portfolios could grow.

"The efficacy of that is that both are now up for sale," he said. "We're aware that there are ceilings. Our need is to drive innovation so we are more and more differentiated and fit for purpose in a less complex solution.

"People need to see our value readily; it has to be immediately apparent," Kennedy added. "We are developing software that is going to save footprint, save energy, save operations and maintenance support, where others are just going to take what they have and try to make their multipurpose assets be the surviving assets in the industry."

In a later keynote, Abbott said that in the past year Avaya learned that being channel-centric is about leveraging partners for products and complementary services, not shifting Avaya's direct business onto channel partners and expecting a smooth transition.

He reiterated how Nortel would help boost Avaya's portfolio and partner base and how Avaya would be a better bet than Siemens, Cisco and other competitors Abbott identified by name.

"We love it when these guys take on so many battles and get diverted as they figure out what they want to be when they grow up," Abbott said.

According to Kennedy and Abbott, the successful acquisition of Nortel's enterprise unit will put Avaya in the ballpark of $6 billion in annual revenue, with employees between 15,000 and 20,000.

Abbott said Avaya would add between 1,000 and 1,100 Nortel salespeople to its sales organization. He also said Avaya had recruited about 145 Nortel channel partners around the world in the past year, and asked that Avaya partners "trust us, because we know we're not the easiest company to onboard with."

"I hope we've gained some credibility with you," he said. "We are dead serious about channel-centric. You don't have to tell me we are not the best marketing company. I already know. We know we have to get better at this."

He declined to discuss product portfolio road maps for the Nortel integration, given that the acquisition is still pending -- "if you don't like it, talk to your senator," he said -- but that Avaya would treat Nortel's integration "like a launch" and that the road map would be available within days of the acquisition's approval.