Mitel – Changing Engines in Mid-Air

For years, analysts like myself have been saying that Mitel has great technology, but a lousy channel strategy and mediocre marketing. The company’s direct sales people were competing with its channel partners, which you can imagine didn’t make the channel partners too happy. With new leadership – a new CEO (Rich McBee), and new head of its North American business (Phil Keenan), Mitel is changing this. At its industry analyst conference, which was held in conjunction with its annual partner conference, Rich McBee explained that the conference is “all about partnerships,” noting that, “Mitel has been a good partner and a bad partner at the same time.” McBee and Keenan initiated changes so that Mitel would no longer compete with its channel. McBee explained to the analysts, “When I went to Mitel I looked at three things: the people, product, and potential.” In his first 90 days, he found that there were some good surprises, namely that the products are better than he thought they were. He realized that “Mitel is a technology innovation company and is innovating the heck out of things. But the world is full of companies with great products that never make it in the market.” He found that there was inherent go-to-market and channel conflict, and in some cases buildings were divided by direct and indirect sales people who couldn’t talk to each other. “The company was competing with itself,” which was exacerbated by the Inter-Tel acquisition.

At the general session with the channel partners, McBee announced, “In the past we’ve had some competition. Going forward you won’t be competing with Mitel.” Naturally, there was a big round of applause from the audience. He explained that Mitel’s strategy is to simplify the business, focus its portfolio, align channels for success, and exploit Mitel’s leadership in virtualization.

In terms of simplifying the business, Mitel was reorganized into three business units: Mitel Communications Solutions, which is the product and services business; Mitel NetSolutions which is a CLEC under Mitel, and Mitel DataNet which distributes third-party products to partners and customers. These are three distinct lines of business with different business models.

To focus its portfolio, Mitel is investing in a single software stream for its Mitel Communication Director products, investing in a single unified communications & collaboration application portfolio, and a “truly virtual” portfolio. McBee gave hints about several breakthrough projects that he couldn’t talk about yet. There’ve been a lot of updates as far as products, including a refresh of the 3000 and 5000 products, a product name change for Mitel’s Audio Web Conferencing, which is now Mitel Collaboration Advanced, with a new interface and capabilities; new mobility options, as well as other changes.

Aligning the channels for success involves “making products available how customers want to buy them.” Product development and sales will be more in synch, and the channel and product portfolio will now mesh. Mitel’s main focus is now in the 100-2,500 user space, although they can sell higher and lower. The new sales model is to replace Mitel’s direct sales team with a Direct Touch sales team that acts as an external sales team and is focused on prospecting for new opportunities in medium-sized companies. All sales in the mid market will go through the channel (although there may be some exceptions if necessary). Mitel expects to grow from 35 Direct Touch people to 60 in a short amount of time. For large deals, partners will work with the Direct Touch team, and for smaller deals they’ll work with their Channel Account Managers.

It will take some time for the channel partners to understand how this new model will work, and Mitel still has a lot of issues to sort out and decisions to make in order for the new model to succeed, but based on the channel partners I spoke with at the conference, they’re very excited about the changes. Some of the partners noted that they’ve already seen changes and are very encouraged by them, and are very optimistic for the future. The partners I spoke with refer to themselves as Trusted Advisors – they’re not just box sellers, and instead they work with their customers to understand their business needs and challenges, and work to find the best solutions for them. Mitel reiterated throughout the conference that it is a best-of-breed provider, and that its channel partners are the ones that put together the total solutions for customers.

Aside from the channel changes, the key theme of the conference was virtualization. McBee noted that Mitel has a leadership position in virtualization, and over 300 partners have sold virtual solutions, and sales are growing 45% quarter over quarter. The company has been working very closely with VMware, and now that it has had success with server virtualization, it’s going to move to desktop virtualization. According to Carl Eschenback, co-President of VMware, “VMware and Mitel have the first industry UC platform built in a virtual appliance form factor,” noting that Mitel has “the only UC platform completely decoupled from physical hardware.”

Changing its channel model won’t happen overnight, and there will probably be some glitches along the way. But at least Mitel is taking action and moving in the right direction. As Phil Keenan said, “We ripped the bandaid off, but this is the right thing to do.” He noted, “We’re changing engines in mid-air, moving to this hybrid direct touch model.” I agree that this is the right thing to do, and I think it will make a big difference to the company and its partners. The partners I spoke with certainly agree.

It was very refreshing to hear from executives that mistakes were made and they’re working hard to correct them. All of the Mitel people we spoke with – from the CEO to the CTO and on down, were candid and open. Other analysts felt the same way, which was evident when I tweeted that “My BS meter has hardly gone off during the conference. Very open, forthcoming,” and other analysts agreed in their retweets.

Mitel still has challenges – it needs to beef up its marketing and increase its name and brand recognition (“Mitel Who?”). This is critical and will take a lot of work – and money. And while the company has a head start in its virtualization strategy compared with its competitors (according to not just Mitel, but VMware as well), its competitors are also working diligently on virtualizing their products and will eventually catch up. The company’s stock price has been dropping since the initial IPO, and this will have to be addressed as well.

All in all, I was very pleased with what I heard, and it looks like Mitel is back in the game.