By KRYSTLE CHOW
Published in the Ottawa Business Journal newspaper and website.
July 11, 2011 (July 12 on OBJ.ca)

Click here to view this article on OBJ.ca.

New chief Rich McBee touts consistency, focus as hallmarks of the new Mitel

Mitel’s new chief executive, Rich McBee, doesn’t mince words when it comes to talking about his company’s performance lately.

“We missed our earnings and guidance, and that’s the kiss of death – it shakes the confidence of the market and they start asking, ‘Do you know what’s going on with your business?’ After all, it’s our guidance; no one was forcing us to put out that guidance,” he says.

Mr. McBee says it became evident something was wrong as he studied the telephony technology company’s strengths, weaknesses and opportunities during his first few months on the job. While the firm had great products and services and a good management team, he says it needed reorganizing and a tighter focus.

That led to a restructuring in early May that saw Mitel shuffle its executive ranks, as well as reducing its geographic sales operations to two parts, and its business to just three core divisions: the DataNet/CommSource reseller business and the NetSolutions network and hosted services, which each represent about $80 million of Mitel’s total business, and its main communications solutions unit, which makes up about $500 million.

Mitel’s stock did enjoy a slight boost following the move, but there’s no doubt its current value at around $4 is a far cry from the $13.08 high on its first day of public trading.

Analysts have commented that it may be a matter of public perception and poor timing; the earnings stumbles, combined with Mr. McBee’s move into the CEO role following former chief Don Smith’s retirement, so soon after the IPO may have given the impression of a “company in transition,” according to JMP Securities analyst Douglas Ireland in an earlier OBJ interview.

However, Mr. McBee says he isn’t afraid of making radical changes and reorganizing, even if the timing might seem inconvenient. “With the fact that there is a new CEO, people expect some changes. And with the stock price being at an all-time low, we’re thoughtful about it, but we need to make changes that make change. I’m not concerned it looks bad, as I’m here to turn the company around.”

Meanwhile, Mitel’s market performance indicated a need for the company to build credibility, he says. And one way to do that is to expand the company’s operating margins, increase its profitability and maintain consistent growth.

“We’re not looking for a home run … where everything is just perfect. We didn’t get in overnight and we’re not looking to get out overnight,” he says. “If we’re focused on consistently executing our strategy for several quarters, people are going to recognize that and we’ll be rewarded.”

That includes sticking with the company’s traditional focus on the small and medium-sized business market, despite analyst observations that the space has been battered by the recent downturn.

In fact, Mr. McBee says concentrating on the SME market that Mitel knows best will drive more consistent business than a broad big-enterprise play, in which Mitel might be a good “stalking horse” bid but would most likely only serve to drive the price down.

Meanwhile, the firm is reshaping its complicated relationship with its channel partners and resellers. Previously, Mitel would work alongside them sometimes, but at other times it would be vying against them for business.

“It was not a healthy environment, so we stopped that,” says Mr. McBee, adding he realized it would be more productive to take advantage of resellers’ established customer ties instead.

“Most customers prefer to buy from a trusted adviser, not directly from the manufacturer.”

As well, Mitel’s refreshed strategy also includes taking a more rigorous look at its international expansion activity; while the firm has several overseas offices, many are merely outposts for Mitel’s U.S. or Canadian business.

“We want to be there in a real way with real resources and investment, so we’re looking at the best country or countries to invest in, not just to do business there,” says the company’s chief.

It’s a methodical approach, and Mr. McBee says it’s starting to work.

“We’re starting to see consistency, repeatability and standardization of work. The key is to keep getting better, not perfect, but better,” he says. “And sometime in the future we’ll be able to say, ‘Hey, we’re rocking,’ and see the hallmarks of a well-run business.”