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Will Avaya’s Five-Step Transformation Strategy Generate a Stronger Outlook for 2023?
If 2022 was a problematic year for Avaya, 2023 did not reset the media dial. Amid speculation from the Wall Street Journal in mid-December that a chapter 11 bankruptcy filing was imminent, there were reported layoffs (though Avaya has not publicly disclosed the number) and stock shares fell 97% throughout the year (roughly $20 to $0.20). Now, Avaya faces potential lawsuits for stock inflation allegations and received a continued listing standard notice from NYSE – all the while Channel Futures notes CEO Alan Maserek received a $6 million cash award as a long-term equity incentive (subject to recapture provisions in the event of voluntary departure).
What is Avaya’s plan for turnaround in 2023, and how much of this media speculation is accurate? Maserek has outlined a five-step transformation strategy, listed below with my commentary and media analysis:
1. Product strategy
Industry analyst Jon Arnold has commented that some patent selloffs may occur to meet Avaya’s financial objectives. However, Avaya’s first move is addressing the major problem its customers and partners have faced since its chapter 11 filing in 2017 by cleaning up a confusing product portfolio. Most of my conversations with Info-Tech members on Avaya focus on clarifying product roadmaps and initiatives. Avaya acknowledges that the company has too many product lines and will seek to narrow its focus moving forward. My view is that this is a welcome future-oriented move, providing a better structure for aligning products with any given company’s requirements. Several end-of-sale announcements were made through November and December last year.
2. Organizational clarity
Avaya’s planned go-to-market strategy provides some clarity on which core product lines will continue. There are three approaches: on-premises (Aura, CC Elite, and IP Office), cloud-based (Avaya Cloud Office and the Experience Platform), and hybrid options for cloud services delivered to single-tenant customers. I take note of this last option: despite the amount of marketing we see for shifting organizations to CCaaS, the majority of organizations operate on hybrid contact center models. While the cloud-only provider market is crowded (think of Five9, Zoom, Nice – and now Genesys has gone all in with cloud), this leaves a substantial number of organizations requiring assistance. Avaya could be one of a few vendors left to fill that void; as CX Today reports, the percentage of Avaya’s R&D budget spent on contact center innovation will increase from 54% to 64%.
3. Culture and talent
Maserek has stated that they want Avaya to be a destination place to work. While building an attractive place to work takes time, Avaya has an apparent uphill battle here. In the context of layoffs and whistleblowers, I do not see overwhelmingly positive employee experiences emerging until Avaya’s balance sheet has been determined and stabilized. Of course, Avaya’s layoffs are not occurring in a vacuum. The tech sector has roundly been announcing layoffs as its wave of growth throughout the pandemic begins to crest. This is not to say Avaya’s internal management throughout the pandemic is completely excused; it is to say that large tech companies seem to be responding in the same way to the expected economic downturn this year.
4. Cost structure
Interlinked with company restructuring and product streamlining is Avaya’s requirement to cut costs. Industry analyst Dave Michels comments that Avaya has identified cost reductions that will yield savings of $524 million. These savings have been ongoing; however, Avaya has not recently released detailed earnings statements. The overall impact this reorganization will have on Avaya’s revenue remains vague.
5. Balance sheet
Ultimately, the success of all the above steps depends on the looming problem of debt restructuring. While the markets have been shaken by a potential chapter 11 filing, the likelihood now is that Avaya will resolve its balance sheet outside the courtrooms. Stock inflation allegations will likely also settle outside of court. In my view, the main concern is whether Avaya can improve its market value to remain listed on NYSE. NYSE requires an average closing price of the common stock to be more than $1.00 over a consecutive 30 trading-day period. Avaya has six months to turn this around. The timing and situation looks tight; until the balance sheet is resolved, Maserek remains resource-constrained. While active searches are underway for a roster of C-suite positions, these will probably remain unfilled until Avaya’s financial situation has been clarified.
Of these five steps, my strongest takeaways for Avaya’s 2023 are streamlining product strategy and clarifying go-to-market initiatives; these remain the likely route for instilling market confidence and solidifying customer retention. However, the success of these steps is contingent on time – the longer a resolution to addressing the balance sheet remains unknown, the more Avaya risks losing further control of media speculation. While we will not have to wait until the end of 2023 to see the results of this resolution, meaningful transformation of the five-step plan will almost certainly be a multiyear project.
Avaya’s own statement on its business transformation can be found below:
In recent months, Avaya has made substantial progress across four key steps of their transformation: resetting product and go-to-market strategies; simplifying external reporting structure and realigning internal organizational structure; revitalizing culture; and rightsizing their cost structure. In addition, Avaya remains engaged in constructive discussions with their financial stakeholders to enhance the company’s capital structure, increase liquidity and accelerate investments in innovative products and solutions.
Avaya is working toward a comprehensive resolution to strengthen the company’s balance sheet, which we view as the fifth and final step in our business transformation. These discussions remain active and ongoing.
While decisions that impact the company’s people are difficult, Avaya is confident these actions are in the best interest of Avaya and our key stakeholders. Importantly, Avaya has made significant progress in our business transformation while continuing to invest in long-range product roadmaps and we will continue to provide our customers with outstanding communications solutions, including as it relates to service and support. Avaya remains committed to mitigating customer impact from the important actions they are taking to strengthen the business.