Avaya hires IBM for business transformation project

Avaya Inc. wants to simplify and enhance the way it interacts with customers and partners. To accomplish that, it has launched a business transformation project to standardize and streamline its core operations globally.

At the IT level, the project calls for revamping Avaya's software architecture by upgrading and extending its use of SAP AG ERP (enterprise resource planning) and Siebel Systems Inc. CRM (customer relationship management) applications and replacing an assortment of older, less integrated software programs.

Avaya, a maker of computer networking equipment, expects that standardizing on SAP and Siebel will give it a consistent software architecture globally for its core business processes, including sales, billing, customer service, supply chain management and finance. This would support Avaya's ongoing and extensive transformation of these business processes to simplify and standardize them globally.

"We started this transformation with a focus on serving our customers and partners more effectively ... and on continuing to push the envelope around being easier to do business with," said Jack Denault, vice president of business transformation at Avaya.

The transformation is also expected to help increase revenue and improve the bottom line. In its second fiscal quarter of 2003, ended March 31, Avaya's revenue dropped to US$1.08 billion, from US$1.27 billion in 2002's second fiscal quarter, while its net loss narrowed to US$16 million, or US$0.04 per share, from US$63 million, or US$0.63 per share.

Avaya launched its transformation project around October 2002 and brought in IBM Corp.'s Business Consulting Services (BCS) team about five months ago to provide business-transformation consulting and system integration services, Denault said. The contract with IBM runs for three years. "We're moving forward," he said.

The companies declined to disclose the contract's value, but Illuminata Inc. analyst Jonathan Eunice estimates it is worth at least US$200 million, big in the context of consulting and systems integration engagements.

The win would be even more impressive for IBM if the client had been a company IBM has no other business relationship with, Eunice said. Avaya has business alliances with both IBM Global Services (of which IBM BCS is a division) and Siebel. Through the two separate alliances, Avaya markets and delivers products and services jointly with IBM Global Services and Siebel. Still, the win for IBM BCS is a strong endorsement, Eunice said.

IBM BCS was formed last year as a result of IBM's US$3.5 billion purchase of PwC Consulting from PricewaterhouseCoopers. IBM BCS was formed with about 30,000 PwC Consulting employees and another 30,000 employees from an IBM division called Business Innovation Services.

For IBM BCS, the Avaya project currently ranks among its most important ones, an IBM official said.

"It's in a group of top-tier engagements we've got that offer the full breadth of our capabilities," said Sam Kapreilian, the global relationship partner for the Avaya project at IBM Business Consulting Services.

The project is also big in the scope, depth and scale of the business transformation that is at its heart, said Illuminata's Eunice, who has been briefed on the project. Avaya is adjusting its business to go from being a conventional provider of products and systems to being a provider of capabilities that can be procured in different ways, Eunice said. "That's an important, long-term transition," he said. For example, a client that previously bought a product from Avaya now may want to lease it for a period of time, and have Avaya come and optimize it with services on a regular basis, he said.

Buyers of networking equipment are no longer interested in getting single boxes from their providers, IBM's Kapreilian said. Instead, they want a more comprehensive, encompassing engagement with services, integration and consulting wrapped around the actual products, a shift Avaya is making well. "They're emerging as an e-business-on-demand provider," he said.

Avaya has used SAP applications since it was created in 2000 as a Lucent Technologies Inc. spin-off. Now it is upgrading globally from version 3.1 to version 4.6 of the SAP suite, a process that is expected to be completed over the next 12 months, Kapreilian said.

Avaya had been using Siebel sales force automation software and will now expand its Siebel use significantly to areas such as delivery of services to customers and project management. In those two areas, Avaya had used software from other vendors, Avaya's Denault said. Most of the core modules of Siebel 7.5 will be installed at Avaya, IBM's Kapreilian said.

The initiative is progressing well, thanks in part to solid internal support for it, Avaya's Denault said.

"What we're doing ... is endorsed and has a lot of support within Avaya. That's a wonderful thing: the commitment all the way up to the senior leaders is very strong. We have been able to gather a lot of momentum behind this initiative very quickly," he said.

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