Donald K. Peterson
1949–

Chairman and chief executive officer, Avaya

Nationality: American.

Born: 1949, in Worcester, Massachusetts.

Education: Worcester Polytechnic Institute, BS, 1971; Dartmouth College, MBA, 1973.

Family: Married Maureen Mack; children: two.

Career: State Mutual Life Assurance Company, 1973–1976, senior analyst; Northern Telecom, 1976–1994, financial and sales positions, then CFO; Nortel Communications Systems, 1994–1995, president; AT&T Communications Services Group, 1995–1996, CFO; Lucent Technologies, 1996–2000, executive vice president and CFO; Avaya, 2000–2002, CEO and president; 2002–, chairman and CEO.

Awards: CEO of the Year, Frost & Sullivan, 2001.

Address: Avaya, 211 Mount Airy Road, Basking Ridge, New Jersey 07920; http://www.avaya.com.

■ The telecommunications-equipment executive Donald K. Peterson was the first CEO and president of Avaya, based in Basking Ridge, New Jersey. Avaya—which had been called the Enterprise Networks Group under its parent company—was spun off from the Murray Hill, New Jersey–based Lucent Technologies in October 2000. When conceiving a name for the soon-to-be-spun-off company, Peterson had thought that the made-up word "Avaya" sounded appropriate for an openminded company that would provide smooth communications among people and businesses.

AVAYA

Avaya's history could be traced back to 1869 through the storied predecessor companies of Western Electric Manufacturing Company, AT&T, Bell Labs, and Lucent Technologies. As of 2004 Avaya designed, built, and managed communications networks for more than one million businesses worldwide.

It used its communication software, hardware, and solutions to link voice and data networks for enterprises of all sizes, including government agencies and more than 90 percent of Fortune 500 companies. The company also made network-cabling products and provided consulting and outsourcing services.

Avaya held about half a million service-maintenance contracts worldwide, with 24 network-operations centers and 13 technical-support centers. It employed more than 15,000 people, including about 2,500 research-and-development professionals.

ENGINEERING AND BUSINESS DEGREES

Born in Worcester, Massachusetts, Peterson attended Worcester Polytechnic Institute, earning his bachelor's degree in mechanical engineering in 1971. He graduated with a master's degree in business administration from the Amos Tuck School of Business at Dartmouth College in Hanover, New Hampshire, in 1973. Peterson's professional qualifications included his status as a Chartered Financial Analyst and a Chartered Life Underwriter.

BEGINNING TELECOMMUNICATIONS CAREER

In 1973 Peterson began his professional career as a senior analyst at State Mutual Life Assurance Company in Worcester. He started his telecommunications career in 1976 when he was hired at Northern Telecom, headquartered in Brampton, Ontario. Over the next 18 years Peterson moved through a series of increasingly important sales and financial positions within Northern Telecom's offices in both the United States and Canada. His advancements at that company concluded with his assignment to the position of chief financial officer.

In 1994 Peterson was selected to be president of the Nashville, Tennessee–based Nortel Communications Systems. As such he was responsible for direct sales to customers involving private branch exchange (PBX), packet-switch, key, and broadband products in the United States, and PBX and key products in Canada. Peterson next served, beginning in September 1995, as the chief financial officer of AT&T Communications Services Group, where he was responsible for the supervision of all of the company's financial operations. In 1996 Peterson was selected to be the executive vice president and chief financial officer at Lucent Technologies, where he became responsible for executive management and supervision of all of the company's information systems and financial operations.

SHOWING AVAYA THE WAY

Peterson led Avaya through its October 2000 spin-off from Lucent. At Lucent he had logged a great deal of experience with regards to business communications, enterprise internetworking units, and government solutions. According to Peterson, Avaya management brought two major strengths away from Lucent: relationships with customers, 78 percent of whom were Fortune 500 companies, and technology, most importantly including converged voice and data networks, customer-relationship management software, and call-center applications. Peterson believed that Avaya's commitment to providing technology solutions that could be incorporated into companies' existing technology would prove to be the key distinction between Avaya and its competitors.

On the negative side Lucent had known that Avaya needed to be completely restructured. Lucent management had decided not to spend the time that would have been required to accomplish such restructuring so as to develop the company into a wholly owned subsidiary. In fact, when Avaya was spun off, Lucent did not even retain an investment in the company. Peterson knew that Avaya was considered a slow-growth cast-off and that its prospects did not look very good. He would have a huge job ahead of him.

JITTERY EMPLOYEES

During the unsettling times of Avaya's newfound independence, long-term employees were uneasy about the company's future. Peterson insisted that he would not tolerate those who refused to adapt to changes but realized that the best way to deal with unrest was through communication. He established a routine of either going himself or sending one of his management team to each of the company's offices in order to explain to the staff in a straightforward manner actions that were being taken. He and his team also made themselves available to answer employees' questions. Peterson believed that in such a critical time it was essential to take all of his employees' concerns seriously; on the other hand he admitted that if employees could not accept the direction in which the new company was going their services would no longer be needed.

RESTRUCTURING PLAN

Peterson knew that he needed to totally restructure the new company—which was in fact made from several old parts of Lucent—and completely alter its products in order to achieve the potential growth that had never been fully realized at Lucent. Unfortunately, at the time of the spin-off the technology market collapsed—especially in the area of telecommunications equipment—causing further problems for Peterson.

By the end of 2001 Peterson saw a small downward trend in revenues, which decreased by about 10 percent, but found that earnings were up. He felt that these results were in accordance with the cost reductions he had instituted, the operational problems he had begun to correct, and the reductions in the workforce he had made—from 34,000 employees at the time of spin-off to less than 24,000, saving the company $600 million. With regards to cost reductions Peterson reduced sales, general, and administrative costs into the 25 percent range, with further reductions of several percentage points expected to follow. Within a year of Avaya's spin-off Lucent was in terrible shape, while the fledgling company looked to be at least able to hold its own—which would not have been the case had it stayed with its sinking parent.

OVER THE NEXT TWO YEARS

During 2002 and 2003 Peterson continued to execute his business plan according to the required budget. He began to position the company as an expert link between the areas of networking and telecommunications with such Internet protocol (IP) telephony technologies as VoIP (voice-over Internet protocol, which converted telephone conversations into data packets that could be transmitted more easily and economically over communication networks), SIP (session initiation protocol, which played a key role in realizing the full potential of IP-converged networks), and VPN (virtual private networks, which provided security solutions). IP telephony was a term used to describe the transfer of voice communications—such as voice, video, data, facsimile, and voice-messaging applications—all over the same IP-based packet-switched network (the Internet) rather than over traditional circuit-based, public-switched telephone networks.

Peterson believed that companies would increasingly switch over from traditional circuit-switched telecommunications-system technologies to IP-based integrated voice and data network technologies. Part of his plan was to preserve as much of customers' existing communications investments as possible while making transitions to and adding the benefits of IP telephony. Peterson stated that customers could save up to 85 percent of existing investments through Avaya, since the company's solutions were designed to work with older systems.

Avaya touted extensive voice experience, end-to-end customer solutions, and a services organization that could design and manage the IP-telephony networks that customers wanted; Peterson made sure that all of the unique technology needed to support Avaya's customers was maintained within the company's knowledge database. Peterson worked to bring these technologies to clients either directly or through distributors and value-added resellers.

Through the end of 2002 the economy remained sluggish, especially in the telecommunications industry. Peterson saw Avaya's revenues drop 120 percent as a direct result of the economic slow-down. He was forced to lay off additional employees and implement additional cost savings; nevertheless, he continued to spend money on technical improvements, which he knew would always be critical in the high-technology environment of the telecommunications-equipment supply industry.

During 2003 Peterson held to the cost structure that he had put forth in his business plan, continuing Avaya's financial commitment to research and development of about 9 percent of total revenues, or $400 million a year. He introduced a comprehensive communications center inside Avaya's messaging business as well as a new software core for its call center, which improved its Multivantage Communications Manager—the core software that ran all of the company's equipment and systems.

By the end of 2003 Peterson had reduced Avaya's workforce to fewer than 17,000 full-time employees, with slightly more than 1,000 part-time and contract employees. On a more positive note, at that time Avaya was considered a leader in call-center technologies, having signed deals that would expand its IP-telephony and wireless-connectivity businesses.

AVAYA UNIVERSITY

Because Peterson worked under an aggressive schedule of new-product introductions in conventional communications networks and particularly in converged communications, including IP telephony, Peterson decided to rebuild training—based on a cost-efficient model—in order to meet the many work-related needs of Avaya's global workforce and its customers. Through an outsourced operation, the training curriculum was redesigned to combine the company's existing facilities and laboratories with online training.

The entire program, called Avaya University, produced a mixed-learning curriculum in which self-paced online programs were combined with problem-solving exercises managed by teachers in laboratory-style classrooms. Available to 50,000 employees and customers in 90 countries, Avaya University supported all of Avaya's product and service-training requirements. With courses delivered through the Internet, employees could access lessons wherever they were, at their own pace, and with monitored support from online instructors. By the end of 2003, 50 percent of all training was conducted online.

IN THE YEAR 2004

By the first quarter of 2004 Peterson had restructured Avaya for financial stability, invested in key growth areas, and led a successful project to increase market leadership by building a new, global brand. In April 2004 Peterson reported Avaya's fourth-consecutive profitable quarter as the company continued to expand its IP-telephony business. As other companies began to convert to IP telephony, Peterson felt that Avaya's position would allow it to capitalize on the changeover and generate profitable growth. Peterson said that the business plan that he had developed over the previous four years was proving effective, with the balance sheet showing increased strength during that period. For the fiscal quarter ending March 31, 2004, Peterson reported earnings of $125 million, as compared to the $41 million loss of a year earlier. Revenues for the quarter rose to $1.01 billion, from the $950 million of the previous year.

FOR THE FUTURE

Peterson transformed Avaya's operations and its products and services such that it emerged from its 2000 spin-off financially stronger and better-positioned to help its customers improve their businesses by integrating IP-telephony applications, appliances, and services into their processes. Peterson developed an Avaya team that could deploy applications throughout customers' businesses in order to improve productivity; such deployments entailed ensuring that customers could export applications from headquarters to branch offices and to employees who worked from remote stations. Peterson stated that the overall combination of the company's infrastructure, strong suite of application products, underlying services support, and strong IP telephony allowed Avaya to stand apart from its competition.

CEO OF THE YEAR

In 2001 Peterson was named CEO of the Year in the enterprise market by the strategic-market consulting and training firm Frost & Sullivan. The award recognized Peterson for leading Ayava through an outstanding year while the telecommunications industry as a whole was contracting dramatically. Peterson was a member of the boards of trustees of Worcester Polytechnic Institute and the Committee for Economic Development and a board member of Reynolds & Reynolds Company, a leading information manager headquartered in Dayton, Ohio.