Ravi Sethi on creating a mini-Bell Labs at Lucent Spin-off Avaya and stressing the D part of R&D When Lucent Technologies spun off its enterprise networking business last September as Avaya Communications in its Murray Hill neighborhood, Bell Laboratories veteran Ravi Sethi was a prize catch for Avaya. Sethi is now president of Avaya Labs, leading a team of about 3,000 scientists and engineersmost of whom are from Bell Labsin efforts to develop voice and data networks and products for customer relationship management and unified communications.

BUSINESS NEWS: The Avaya spinoff was primarily designed to help Lucent get rid of unwanted, slow-growing businesses. How did Avaya benefit? Also, are the profiles of the 3,000 plus engineers who came over from from Bell Labs consistent with Avaya”s requirements?
Sethi: It was a great thing for Avaya to be spun out. It allowed us to have a whole set of products solutions and people who had the relevant experience. I want to assure you that the people who came to Avaya were part of a functioning business. These were the people who had made the products in the first place; the people who invented the enterprise networking products. We”ve set up a research organization where we have hired people one by onethese are people who are the strongest in the business. We got a really solid group of people.

BUSINESS NEWS: You also have a portfolio of patents. Do they match your needs?
Sethi: We have about 1,500 patents or patent applications, which is an enviable collection. They were seamlessly transferred from Lucentwe went through a process of deciding which patents we got and which patents they got, and there is an agreement which gives us the rights. The profiles of the patents are consistent with our businessesthey will provide us with the technology base we need.

BUSINESS NEWS: Does the autonomy (independent of Lucent) that Avaya now has give it a different set of strengths, such as more flexibility?
Sethi: Sure. There is a perceptible difference. What it allows us to do is to focus our energies on the needs of enterprises. If I look at the projects that are being done in our research labs, our people are looking at what enterprises need, and are thinking about what will make their job easier in everything from how to make communications natural and how to make it productive to how to make it easier to manage. The autonomy allows us to invest more in R&D. We are making the investments that are necessary to make our portfolio the most vital one that you can make. The truth is, our R&D spending has gone up. (Avaya CEO Donald Peterson says the company will spend 8.1 percent of 2001 revenues on R&D. At Avaya”s current sales pace, which yielded revenues of $3.6 billion in the first half of 2001, that works out to R&D spending of $583 million.)We can now decide how much we want to invest in a particular activity. Actually, most of the investments are in the “D” part of R&D. Here, we are investing in those projects that will clearly lead to the products we want and bring those products faster to market. For example, we have been very fast in introducing Internet protocol-enabled products last year. In the “R” part, we are into projects that will throw up communications solutions for enterprises, such as looking at how customer contact be made natural and easier. Here, our people are looking at how does one do communications routing better, [and these are] based on mathematical analysis. Between the “R” and the “D,” proportionately more of the effort is going to what our own needs are.

BUSINESS NEWS: Lucent has been working on restructuring the work structures at Bell Labs to make it more market-oriented than it is. How have you designed the work profile at Avaya Labs?
Sethi: On the “D” part, our people are already focused on getting products out. On the “R” part, I first of all recruited people one by onesome from Bell Labs, some from outside, some fresh from the campuses. Of the 3,000 engineers who are in product development work, almost all came from Bell Labs. In the research group, which is smaller and is targeted to go up to a 100, we will end up with a third coming from Bell Labs and two-thirds from outside.

BUSINESS NEWS: What is coming out from Avaya in terms of new products?
Sethi: Yes, we are working on a steady stream of products (such as in enabling business communications across differing technology platforms to handle voice, data and video and creating customer relationship management modules). Not everything we are working on will end up as a product, but those capabilities are what will enable the next generation of communication productshow to make contact easy over a variety of networks, through any channel that you want. We are making it easy to integrate the communications into business applications so that when a customer calls an enterprise, the latter can focus on the job that needs to get done while the communication infrastructure is taken care of. In other words, the context that is needed to make this interaction with the customer go through is therethe network that”s needed to support it is all there. We are looking at new switch designs. For example, our folks are working on a multi-phase switch, where by using queuing analysis (of incoming calls), we are able to increase the throughput through the switch significantly. These switches are different from the phone switches that Lucent sells in that they are local area networking or data networking switches used in any kind of business organization, not just phone companies. We sell to 78% of the Fortune 500 companies, who are in any industry you can think of. So, we are working on a lot of new things.

BUSINESS NEWS: Avaya has a legacy of several mature products that came from Lucent which don”t enjoy promising growth prospects or profit margins. How will R&D work at Avaya Labs try to increase potential profit margins, either by improved designs that lower costs or designing newer applications?
Sethi: Most of our new investments are going into growth markets. There is a whole list of growth markets (such as those that address management of relationships with customers, business partners, employees and through supply chains). All those new markets have tremendous growth. Our data networking business doubled since last year. At Avaya Labs, our focus is on how we are going to grow the business and do it profitably. n