On Thursday, Avaya filed for Chapter 11 bankruptcy, in an attempt to reduce their $6.3 billion debt load. They will continue to operate during the reorganization, with the intention of reorganizing the business backed by a one year $725 million loan from a Citigroup affiliate.
Taking even more debt on was necessary as suppliers, fearful of Avaya’s ability to pay them, were tightening up payment terms. When you make hardware, you need your suppliers to deliver.
Call Center is the Problem Child
The major trouble spot is the Unified Communication (UC) portfolio, especially the call center portion. Avaya had tried to sell the call center business last year for around $4 billion. Apparently they were close to a deal with the buyout firm Clayton, Dublinier & Rice LLC, but it didn’t happen. Now, they are saying that they won’t try to sell the call center business, because no one will pay what Avaya thinks it’s worth (a.k.a. “would not maximize values for its customers or creditors”).
But, they have to sell something. If it isn’t the call center business, it will have to be some or all of their successful networking business or perhaps some of their cloud assets.
It Goes Back to the Nortel Acquisition
In my view, the problems stem back to the Nortel acquisition in 2009. Both Avaya and Nortel had two call center systems (small business and Enterprise) that were not compatible with each other. That meant the combined company had four separate incompatible systems for Avaya customers to choose from. And two sets of “next-gen” technology. Existing customers knew that product consolidation meant that there would be winners and losers in the product line, and that they were going to be negatively impacted.
I have worked with more than one organization that viewed their call center system as an annoyance and a necessary evil. Within those organizations, there would be little enthusiasm for the cost and disruption forced by a vendor’s migration strategy.
The message to customers was, especially in the crucial early days, confusing at best. And competitors were not shy of feeding the fear, uncertainty and doubt.
So what now?
What Should an Avaya Call Center Do?
There’s no need to panic. What you have will continue to run for the foreseeable future. There’s always good money in keeping systems going and the existing Avaya base is large.
But, from whatever angle I look at this from, I can’t come up with a positive outcome in the midterm. All the major UC and call center vendors are struggling with what is commonly referred to as “the move to the cloud”1, while working to maintain revenues selling what they have.
To have to make this shift while under the constraints of bankruptcy has to be doubly difficult. Avaya is going to have to make some very tough decisions in order to stay alive.
And, it all feels like “deja vu all over again”, with what happened when Nortel was in the same position. Everyone putting on a brave face, saying that “there’s great product in the pipeline”, the user groups and channel stating that they are confident, etc., etc.
So, it’s time to put this on your radar. And if you’d like to discuss what this means to your call center and IT future, please feel free to contact me.
1Often, for call center vendors “a move to the cloud” means cloud enabling what you have. Great – you change the cost equation for the customer (monthly expense vs. capex), and pull away a bunch of maintenance from the end customer. But, the cloud center offering still looks similar to what was offered traditionally. I believe that the customer engagement model is fundamentally changing, and traditional may no longer suffice.