Avaya CEO: Running to WinAvaya CEO: Running to Win

Last fall, as Avaya approached the end of its Chapter 11 process, the company announced that Jim Chirico would become its new CEO. Chirico took on the role in October 2017, replacing Kevin Kennedy, who retired after nine years at Avaya's helm.

Chirico isn't new to Avaya. He's been with the company over the past 10 years -- most recently as COO and global sales leader. Prior to joining Avaya, Chirico served as executive vice president, Global Operations, Development and Manufacturing at Seagate, including an eight-year stint in Singapore managing global operations. He started his career at IBM.

Jim Chirico, Avaya

Chirico describes himself as a results-oriented, operational CEO that places significant value on team, talent, and transparency. He believes "great people make great teams and great teams make great companies." Among his first actions as CEO, he simplified the organizational structure and installed a new management team with the objective of "instilling responsibility and driving accountability."

Chirico is a native of New York, and a graduate of Providence College. He resides in North Carolina, and is married with two daughters and a son. He occasionally greets guests as the owner of Fishy Fishy Cafe in Southport, N.C., and you might find him on a marathon course, too, as he's an avid runner.

Chirico assumes the leadership role at Avaya during a pivotal time. The company exited its 11-month Chapter 11 process last December. In addition to a new CEO, Avaya now has a new board of directors, new shareholders, a revamped leadership team, and recently became a publicly traded company. (Just this morning Avaya is ringing the Opening Bell to celebrate its listing on the New York Stock Exchange.)

It's been a whirlwind period since he assumed the CEO role, in part because the company's biggest customer-facing event, Avaya Engage, takes place this month in New Orleans. It wasn't easy to get on his calendar, but I did have a brief conversation with him to get a glimpse into the new Avaya.

If 2017 was a year of restructuring, what's the goal for 2018?
Growth.

In 2018, we will have the unique opportunity to put our stamp on the future of Avaya. We must first stabilize and optimize the business and secondly invest in our future to create an Avaya that will lead the industry for years to come. So, let me address stabilizing and optimizing. The fact is the restructuring process over the past year was unsettling for customers, partners, and employees. So first we need to reset and then continue to build on the trust and loyalty they've shown in 2017 as we work through 2018. Stabilizing also means laying the groundwork for leading with a clear vision and solid objectives. They have been well received, and I believe we're restoring our credibility.

Secondly, in 2018 it's about investing to win. This means expanding on, investing in, and focusing on technologies that position the company for future growth. It's all about investing in R&D and innovation with a lens toward long-term revenue creation. No company can cut its way to prosperity. As a result, Avaya's future will be led by increased spending on innovation and a clear path toward revenue growth.

Continued to Page 2: Chirico's long-term goals, growth, and more

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So that's next year; what about longer term? What are the goals for the Chirico era at Avaya?
Long term, it may sound a bit cliché, but it is about continuing to deliver innovative solutions and services, and delivering shareholder value and growth. It's also about the company's character and being a company known for having the best talent in the industry and one that not only faces the toughest challenges but wins.

Let me go back to when I started 10 years ago. We needed to transform the company to one that had a best-in-class business model. We were bleeding on every operational front. We successfully transitioned to top quartile performance via operational execution. Secondly, about five years ago we needed to transform from a hardware-centric business to a software and services company. I'm proud to say we've successfully moved the business to about 80% software and services revenue, 60%+ recurring, and EBITDA is north of 25% of revenue, just as examples. Now we're embarking on the next transformation, which is centered on the digital experience. Avaya will lead the industry in this digital transformation, partnering with customers along the way. We have rich history and heritage here, the best talent in the industry, the largest customer base, the best IP and innovation, and now the wherewithal to invest and a track record of execution.

Executing to win starts with employee engagement, giving purpose to the work, making sure the teams are aligned around the strategy and the customer -- having a winning attitude. At the end of the day, what matters is the final score on the scoreboard.

You'll sometimes find Avaya CEO Jim Chirico greeting guests at a cafe he owns in Southport, N.C.

How do you intend to restore revenue growth at Avaya, and how long do you think it will take?
Actually, we're seeing growth in many areas of the portfolio, like cloud and professional services.

Let me step back and give you more background. When we went through transformation from a hardware to a software and services company, it put the topline under pressure. That is mostly behind us now. We're going to be at the forefront of the next transformation of our industry -- a digital transformation that leverages the cloud, big data, and AI, as an example. So first is stability in 2018 and investing for growth. Second, as I noted, with our financial strength we have the flexibility to invest in our core, adjacencies, and new markets. In order to accomplish this, we're going to take advantage of our strong business model and new capital structure, which freed up over $300 million of cash to invest.

As an example of growth, the contact center industry is on the front end of the transformation to the cloud -- maybe 10% of the way there.

I'm sure it's nice to have Chapter 11 behind you. My sense is Avaya was prepared and deliberate when the process started. As you were there throughout it, can you share some of the surprises that occurred last year?
Let me give you an honest reflection. I'm not sure we fully appreciated the complexity of the process and what it meant to employees, customers, and partners. And for a while it seemed like every day we were reacting to something in the press that our customers or partners heard or our competitors spread. Distractions. So, we kept the teams focused on the customers and delivering value and we erred on the side of over-communicating to stay above the noise. Competitors took their best shot at us, but we not only retained the business but exceeded our targets.

The last year has also given me an appreciation of how pervasive our brand and technology is in the market. I heard countless times from customers and partners that they were behind us, wanting us to succeed. They came through for us at an important time -- especially the channel, which is truly an extension of Avaya, a trusted partner.

One should keep in mind that Chapter 11 was never about solvency. It was about addressing the capital structure -- cleaning up the balance sheet. Throughout the process we stayed focused on areas that we could manage and delivering solutions our customers required.

Usually new leadership takes some time to learn the business before implementing changes. Since you've been at Avaya for 10 years, can we expect rapid changes?
Rapid, yes... and thoughtful. The first 100 days have been fast-paced. We've brought on a new management team, one that's action-oriented and willing to disrupt and they know what good looks like with a track record of execution. We've brought on a new board with diverse and relevant backgrounds, formed a business unit entirely focused on cloud, and we've rebalanced research and development priorities to increase focus on emerging tech and cloud.

I'm also taking a formal approach to transformation. We can't underestimate the importance of disruption to facilitate a transformation. I'm being directive where I need to be but also fostering collaboration, looking for feedback and empowering the teams to make changes. You have to walk the walk in order for the rest of the organization to realize it's not just words, it's coming out in the actions and, in turn, the results. It's my job as a leader to lay out the journey for the company, put the right capital structure in place, then execute and organize the business to sustain growth.

These are important points. Our previous prevailing emotion was best characterized as being cautious. And the fact is, a while back Avaya crossed a line from being aggressive to being cautious. For me cautious translates into a fear of taking risk, indecision, and as a result paralyzes organizations. We will not be cautious; we will be thoughtful and confident. We're going on offense.

Continued to Page 3: Chirico's take on market differentiation, debt, UC, and more

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Avaya has some diverse and impressive competitors. You sit between large companies with broad portfolios and venture-funded startups. What's Avaya's approach to differentiation?
We're differentiated in many ways. First, we're the most trusted name in the industry, be it in tenure, experience, innovation, or technology. As a result, more than 90% of Fortune 100 companies rely on Avaya to run their daily operations. We're proven, have global reach and scale, and are the partner of choice. We're going to continue to build on our heritage of game-changing innovation -- leading the digital transformation. We have over 6,000 patents, over 2,000 engineers, and now the flexibility to increase our investment in R&D. Lastly, we're building out our ecosystem with our customers and partners to bring new and innovative solutions to the marketplace.

Even with the new debt restructuring, Avaya still has nearly $3 billion in debt. Does that concern you?
Our leverage ratio is 3.4x EBITDA, compared to over twice that prior to going through the process. Reducing our debt by over $3 billion frees up significant cash flow for the business to invest. You combine that with our best-in-class business model, meaning we are very profitable, generating a significant amount of cash, and we can now be aggressive where we weren't before. At this point in time, it's a good capital structure to move forward.

Do you feel relationships were damaged during Chapter 11?
From my perspective, anytime a company goes through a restructuring process, it's disruptive. As such, some relationships become strained and some relationships become stronger. That's a fact. Independent of this process, we live in a competitive world and need to earn our seat at the table each and every day.

Customers? No, I wouldn't say [the relationship was] damaged. But anytime someone goes into Chapter 11 it does raise concerns. So, we implemented weekly/monthly calls with top customers and partners. And throughout the process we've done what we said we were going to do. We over-communicated. And through each step of the process, we kept building confidence.

Employees? I can't give enough credit to our employees for how they handled restructuring. The teams were resilient, committed, and remained focused on customers -- great ambassadors. They didn't let things that they couldn't control get them down. [And they paid] a lot of attention to customer value.

To build on what I said, something we recognize and don't take lightly is that we have to reinforce the trust our customers and partners have given us every day. And it's measured by actions, not words. We don't take this for granted, and won't rest on our laurels. As we went through the debt-restructuring process, the silver lining was the realization of how committed the customer and partner community was. Internally, the teams didn't let themselves get too distracted. They didn't let things they couldn't control get them down.

Avaya's commitment to contact center is clear. How do you feel about UC?
We remain a leader in both, and UC remains a critical segment in our business. UC solutions remain critical for our customers, and even though the market is changing, there are areas of growth. Cloud is obvious, but also endpoint segments such as huddle rooms, and applications. Equinox Meetings Online is also in a growing market, and its native integration with a large installed base is a competitive advantage.

Tell me where Zang fits in your vision.
Zang is an innovative team that helps us develop cloud applications, such as Zang Spaces, which is being integrated into Equinox for adding collaboration features to our Web/video conferencing. The team is also focused on the expansion of the core technologies and how they will be deployed as we aggressively move more and more to the lower end of the UC market with cloud offerings.

Zang is also a cloud connectivity platform, which we've expanded internationally, and will accelerate our cloud efforts as it's our intention to also offer voice and messaging services to our customers -- some of them will prefer BYOC (bring your own carrier) but we are seeing demand for an end-to-end solution, including voice/SMS traffic. We plan additional investment into the platform to build out more synergies.

To capitalize on the opportunity with Zang, we're moving that team into the recently announced cloud business unit.

Hear more from Avaya at Enterprise Connect 2018, March 12 to 15, in Orlando, Fla. Register now using the code NOJITTER to save an additional $200 off the Advanced Rate -- extended through this Friday, Jan. 19, or get a free Expo Plus pass.

Dave Michels is a contributing editor and analyst at TalkingPointz.

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