Student IDs: 6305M Course Name: Managing Innovation Assignment Number: MI2 Course Leader: Stelios Kavadias Kamal Munir Word Count: 1967 We confirm that this submission is our own unaided work, except as specified below; all sources are fully acknowledged and referenced; the submission does not contain material that has already been used to any substantial extent for a comparable purpose. Table of Contents Introduction.
3 Introduction to Avaya. 3 Avaya’s Business Model 4 Avaya’s Financial Position. 4 Avaya’s Fall from Top: 5 Reasons behind the Fall: 7 Avaya’s 12 Dimensions of Innovation. 9 Conclusion: next steps. 10 Bibliography. 12 Introduction This paper explores the innovations in the Business Communications & Networking Industry, focusing on Avaya and analysing its fall from its erstwhile position as a market leader in the industry and pondering over the possible avenues where Avaya can focus to regain its glory days.
The analysis also explores the dimensions of innovation that Avaya has and offers recommendations as to next steps. The paper is organized as follow: 1) Introduction to Avaya2) Avaya’s Business Model3) Avaya’s Financial Position4) Avaya’s fall from the top5) Reasons behind the fall6) Avaya’s 12 dimensions of Innovation7) Conclusion: next stepsIntroduction to AvayaAvaya is a technology company, established in 2000 – a spinoff off Lucent Technologies – offering software solutions and networking products & services that facilitate business communication & collaboration for enterprises. Avaya’s core competencies are Unified Communications, Contact Center and networking/telephony products that allow enterprises to collaborate and communicate in a more efficient manner – thus increasing productivity.Avaya’s core competencies include:· Providing an end-to-end converged networking platform for customers.· One of the biggest competitors of Avaya was Nortel. Avaya acquired Nortel in 2007.
· Nortel acquisition has allowed Avaya to:o Implement state of the art SIP (Session Initiation Protocol) based architectures.o Leverage the best and most high performing router / switch (Nortel Media Server) in the industry. This has enabled Avaya to start offering multimedia solutions at almost negligible costs when compared with its competitors. o Adopt Linux based architectures that are highly efficient, stable, scalable and maintainableo Leverage Nortel’s highly dedicated and loyal client base.o Start offering Web based management tools for its offerings when historically it could only offer console based management tools.· Historically very high focus on Innovation, Research and Development.
· One of the best networking solutions in the industry.· Leaders in Unified Communications.· Leaders in end-to-end Contact Center Solutions.· Ability to integrate & leverage its superior Networking, PBX, Unified Communications and Contact Center Portfolios.Avaya’s Business Model”Avaya has a segmented business model, with slight differences between customer segments. The company’s customers include small and medium businesses, multinational enterprises, and government organizations. They operate in a wide variety of industries, including retail, manufacturing, energy, transportation, financial services, and media and communications.” (Cleverism, 2017).
Avaya caters to both the large enterprises and midsize enterprises (100-2000 employees) and has a range of product offerings and sales plans for these different market segments. For these, Avaya offers both Unified Communications and Contact Center solutions. The key differentiating factor in favour of Avaya is that by leveraging its high-end technology, Avaya is in a position to provide highly reliable and useful engagement solutions for all – thus empowering small and medium sized business with the same technology available at the disposal of large enterprises (Dewing, 2015). According to Avaya, the value proposition it offers is based on Accessibility, Price, cost reduction and brand/status (Cleverism, 2017).
Since Avaya’s business model is segmented, it needs to ensure that its products can be supported universally across different market segments. Avaya is able to achieve it using Avaya Global Services – its support arm supporting every customer. Once the Avaya Sales team identifies and receives initial consent from a prospective customer, Avaya Global Services teams are able to easily provide end-to-end on boarding and support to the new customer – thus making it an easy transition. Avaya’s Financial PositionOnce a market leader in the Networking & UC sectors, Avaya filed for Chapter 11 bankruptcy in January 2017 to reduce its debt load of approx.
$6.3b after failing to reach a deal with buyout firm Clayton, Dubilier & Rice, which had been in the lead to acquire it. (Reuters, 2017). On Nov 28th, 2017, Avaya Inc. was cleared to exit the chapter 11 filing – bringing to an end its yearlong effort to restructure its debt.
Post chapter 11 emergence, Avaya will likely be valued at $5.7B with a debt of $2.9B (Christie, 2017).As mentioned in their annual financial results for 2016, “For fiscal 2016, Avaya reported revenue of $3,702 million, down 9% compared to fiscal 2015, or down 8% in constant currency. GAAP gross margin for fiscal 2016 was 60.6%. Non-GAAP gross margin was a record 61.5%.
GAAP operating loss was $262 million, reflecting $542 million of impairment of goodwill and intangibles. Non-GAAP operating income was $756 million in fiscal 2016 compared to $718 million in fiscal 2015. Fiscal 2016 adjusted EBITDA of $940 million represented a record 25.4% of revenue, and was $40 million higher compared to fiscal 2015. Cash flow from operations was $113 million and free cash flow was $17 million for fiscal year 2016, reflecting one-time payments of approximately $82 million for a legal settlement and advisory fees. Cash and cash equivalents totalled $336 million as of September 30, 2016, an increase of $67 million from the prior quarter and up $13 million from fourth quarter 2015″ (Avaya, 2017). This was primarily because of debt repayments, that the company earning almost $4B annually was still reporting an annual operating loss. And this phenomenon had been the focus for quite a few years till 2016 (when things really went out of control).
Avaya’s Fall from the Top: As can be seen from the figure displayed below, till 2006, Avaya was a market leader in all of its product offerings (Esquibel, 2006, p. 3). These product offerings include telephony, Unified Communications, Contact Centres, Enterprise Messaging, Unified Messaging, etc. This leadership position was in spite of the strong competition from industry majors like Cisco, Siemens & Alcatel Lucent. Of all the product offerings mentioned above, Avaya’s revenue was contributed mainly by its offerings in the Unified Communications (UC) & Contact Centers space.
However, by 2013, its market share started diminishing as can be seen in the figures displayed below. By 2013, Avaya had lost its market leadership position and a considerable market share in Unified Communications to Cisco and Microsoft. And by 2017, it had lost its market leadership position in Enterprise Contact Center to Cisco.
Reasons behind the Fall: Although it can be argued that Avaya’s diminishing market share could be attributed to its high debt repayments (Avaya, 2017), we should never forget that Avaya started out as an Innovative Technology Company. As you can see from the chart below, Avaya’s annual reported revenues had been on a decline steadily since 2010 but were highlighted since 2014. The figure above displays the decreasing revenues of Avaya. (Segre, 2017)This happened at a time when the industry was moving frantically towards Cloud enablement and cloud based offerings. As can be expected, falling revenues lead to cost cutting and tightening operation costs and as a result cost cutting measures were duly put in place.
The chart below shows how, because of declining revenues, an organization based on technology had cut down its focus on R&D.The above figure displays the decreased R&D spending by Avaya. (Segre, 2017)Additionally, since Avaya claims itself to be a technology company focused on innovation, one factor that can be a strong indicator of its innovative strength is a measure of the number of successful patent filings by Avaya. However, looking at the patent data, it is quite evident that Avaya’s focus on innovation had started to shake from its professed philosophy.
This is not surprising since its focus was primarily on fiscal consolidation and as a result the innovation took a back seat. As can be seen from the chart displayed below, there was a consistent rise in the patents granted to Avaya till 2010 and after that, there was a consistent decline in the same. Thus, considering the above-mentioned data, it does not come as a surprise that Avaya was headed towards a gradual disaster – and it culminated in Avaya filing for bankruptcy in November 2016.Avaya’s 12 Dimensions of Innovation Based on the article from MIT Sloan Management Review (Sawhney, 2006, p. 75), the below is an analytical snapshot of the innovative features offered by Avaya categorized according to the dimensions mentioned in the article. Dimension Achieved Innovation Description / Comment Offering × The original offerings were developed by AT&T & Lucent which Avaya inherited and built upon strongly. These solutions were predominantly premise based.
Avaya has not really been able to innovate and move with times in terms of creating innovative cloud based software solutions that provide the same functionality as their premise based solutions. Additionally, Avaya’s offerings have largely been restricted to premise based UC & Contact Center solutions. They have not increased/diversified their offerings. Platform ? Avaya solved & improved upon the internet telephony offerings and developed the Contact Center & Avaya AURA platforms for standardization. Solutions ? Avaya created highly scalable and reliable Unified Communications & Contact Center solutions for enterprises that enabled them increase productivity at a lesser cost. Customers ?/× Avaya has successfully met the premise based customer needs where the customer wanted solutions to increase their productivity.
However, Avaya has NOT been able to meet the customer needs where the customers were more inclined towards a Cloud based software solution. Customers Experience ? Avaya has changed the way enterprise customers collaborate and communicate through their contact center and unified communications solutions. Value Capture ? Avaya offers excellent value in terms of accessibility, price, cost reduction and brand.
Process ? Avaya has adopted the latest and greatest software development & delivery processes that enable them to have quick turnaround times. Organization ×/? Organization innovation goes beyond the scope of this paper. Supply Chain ? Avaya has implemented a long-term, five phase action plan based on a clear vision to address various challenges and has used technology as an enabler to create a supply chain organization focused on continuous improvement. (Powers, 2015) Presence ? Avaya has been able to create new distribution channels and innovative points of presence. They have also ensured that 3rd party vendors are able to utilize the Avaya offerings and offer value added services.
Networking ? Avaya has established strategic partnerships & alliances with market leaders like A10, Salesforce, Algo, Arecont, Genetec, Pelco, etc for better market reach and customized customer solutions. Brand ?/× Although Avaya enjoys an extremely strong brand value, it does so only for enterprises that are willing to afford premise based software solutions. Avaya has NOT been able to create a brand value in the market segment that needs cloud based software offerings. Conclusion: next stepsAlthough Avaya’s core capabilities have allowed it to capture market share in the past, they have failed to innovate continuously with changing market paradigm – especially when the industry has moved towards portable, affordable and customisable cloud based solutions. Consequently, they have ended up losing market share resulting in dwindling revenue streams.As reported in late December 2017, Avaya has been able to restructure its debt and emerge out of Chapter 11 bankruptcy (Chirgwin, 2017). Although this is a cause for some cheer within Avaya circles, it must be noted that this will only help Avaya in terms of fiscal manoeuvring. To recover its lost glory, Avaya will have to go back to the drawing board and kick start the innovations that it was once renowned for.
Avaya should begin with allocating more funding and investing in R&D and recreating a culture where divisions getting more patents granted are rewarded. Another area that Avaya will need to focus immensely is coming up with a strategy to enter new markets where it doesn’t have a presence – like Latin America, Russia, South Africa, etc. and start with offerings where it has expertise i.e.
premise based services. At the same time, it should focus on developing cloud based solutions that can augment or replace its existing offerings. This is the only way Avaya will be able to expand its presence, get new customers, enhance customer experience and thus build upon their existing brand value.
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