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The Man in Siebel's Hot Seat

On Apr. 13, George Shaheen took one of the hardest jobs in the software business: turning around troubled Siebel Systems (SEBL). The company is mired in a three-year revenue slide, as the once-hot market for customer-relationship-management software has cooled and Siebel now faces tough new competitors in Oracle (ORCL), SAP (SAP), and scrappy upstart (CRM).

As if that weren't enough to give a new CEO agita, Shaheen is facing a shareholder revolt led by a new class of investor: hedge funds itching for a quick sale of the company they believe could be worth more as part of a larger outfit (see BW Online, 6/8/05, "It's Siebel vs. the Rebels").

But Shaheen insists Siebel has a good shot at going it alone. He says he'll draw off the strength of the company's four key assets: a talented staff, a strong balance sheet with $2.2 billion in cash, leading-edge technology, and the biggest client base of any of the customer-relationship-software players. "There are a lot of companies out here that are not as rich in those four assets as we are," he says.

Shaheen, who spent his first two months on the job out of the spotlight -- meeting with customers, holding town-hall gatherings with employees, and digesting research reports -- recently sat down with BusinessWeek Online reporter Sarah Lacy for his first interview. He discusses his plans for Siebel, getting along with hard-charging chairman and founder Tom Siebel, and what he learned from his last job as CEO of dot-com flameout Webvan. Following are edited excerpts of the conversation.

Q: You've been on the Siebel board for 10 years, but did you realize all the challenges you would face as CEO?

A: The management change fired up some anger that I wasn't aware was out there. We also got a new class of investor in here with a new set of interests that wasn't apparent at that time. I think the press got a bit mischievous in this rumor stuff. [Since Shaheen took office, there have been press reports that Oracle was in talks to buy Siebel and speculation over financier Carl Ichan's 4.5-million-share purchase.]

Somebody called me one day and said, "Pat House [Siebel co-founder and vice-chairman] was seen at Oracle." Listen: The press knows that if that were to happen, nobody can talk about it. If that were to happen, trust me, Tom would not be walking into Oracle. I don't think Larry would be walking in here. Unless somebody really slips up, no one is going to see or know anything.

Q: You've talked about execution as one of the challenges facing Siebel. What do you mean by that?

A: The effectiveness of how well we managed our product portfolio. How wide is it? How deep is it? How wide and deep does it need to be? I have product over here that we support in 19 languages. I can't even think of 19 languages. We have products that we built and agreed to build for a customer that we have not been able to find another market to sell into. To me, that's an execution challenge.

We didn't have our investment process right. We didn't have our market analysis right. We have 4,000 users out there. I'm sure we have extremely happy ones, I'm sure we have some that are okay, and I would assume we have some that aren't so happy.

I don't know how sophisticated we are at selling into our existing client base. I think we can do better. We have some complexity in our sales force -- in the organization of it -- that makes us less nimble and has multiple points of approval before decisions can be made. And we're not that big of a company. We should be very nimble.

So when I talk about execution, it's those types of things that I think we can do better: Save us money, make us more relevant to the marketplace, and have a more efficient sales process.

Q: You have some new products coming out next month, including one that lets customers mix and match smaller components to build their own solutions. Longer term, do you see Siebel's traditional packaged customer-relationship-management software becoming a much a smaller slice of overall revenues?

A: Every company gets in trouble when the core product comes under siege. Do they have product behind it that can ramp up? Thank God, we have a way to deal with that. Actually we have three offerings: Analytics, Nexus, and On Demand. So I feel if we can execute, and we have a vision.

I would like to get this company to a certain size. I'm not greedy. I would like to get us to $400 million a quarter. We're $330 million now. And I would like to get our profit margins on that higher. Then I would like to take a sigh of relief and focus us on getting back to $2 billion. [After that] I'd like to start talking about: Can we double it in five years?

Q: There's a lot of skepticism among investors, analysts, and customers that even better products won't be enough to hold off SAP or Oracle. Why don't people give Siebel much credit for the potential of these new products?

A: I don't think people know Siebel anymore. I think Siebel has gone radio silent. It's always a mistake. If you don't tell your own story, somebody's going to tell it for you. And the question should be: Why did you do that? And I don't know. I really don't know.

Q: Did the board ever try to understand why Siebel went silent?

A: Not that I remember, I'm sorry to say. I didn't see it until I got in here. I'm surprised at the vitriolic nature of some of the comments about Siebel. I'm really surprised. Here's a company that a man built -- a man with his own money. And he built the thing, and he shared the wealth with a lot of people. A lot of people did very well here. Maybe [it's] because the company was so successful. People always like to comment when that changes and when you're not out there writing your view of the world -- then it gets defined for you, and you're on the defensive.

Q: There has been talk that some investor may launch a proxy battle over some board seats at the next annual meeting if things don't change. Do you feel you're under pressure to produce quick results?

A: I think any CEO who doesn't feel pressure on performance is in a different world than I live and breathe in. At the end of the day you have to do what you think is right. You know, I've been asked a lot over the years about leadership. I think leadership is sort of simple. I think that to be a good leader you have to have a vision. You have to have courage to go after it. And you have to have a reasonable track record of success. It may not be right and then you have to be willing to change, but you try to do what's right.

I mean, take this cash issue. There are debates on that. Well, I'm not burning it off. I want to have the option to put it to work. Why would anybody give it away when, in fact, you aren't sure in your own mind yet that you can't do better for the shareholders with a meaningful acquisition? It's hard to give it back when you know you haven't yet exhausted the analysis on what you might do with it to grow the business. I want to do the right thing. This has got to be a long-term game.

Q: Did you learn anything at Webvan that's helpful in this situation?

A: It was different. Webvan was ahead of its time. Somebody will solve that problem. I did not design Webvan or build it. I came in on the eve of the IPO -- and my first year there was getting it to work. It didn't even work that well. [We] had a lot of meltdowns, but I would tell you after the first year we had that thing in pretty good shape. When you think back, at that time when there wasn't much broadband, it was ahead of its time.

The basic mistake on the business model was it was built for scale. It was built under the belief that if you build it they will come. We could have serviced all of San Francisco out of that Oakland center. There weren't enough loyal customers for repeat shopping, and the reason is a huge behavioral science problem. Much bigger than any of us knew.

Q: Do you regret going there?

A: I did it for the right reasons. I did it because it was time for me to leave [Andersen Consulting]. I felt I wanted to leave on top. I never thought [Webvan] was worth what people said it was worth. I didn't think it would go bankrupt, but I didn't think it would be as financially lucrative as it might have appeared. I went because it was here [in the Bay Area], and I lived on the road for 15 years.

You know you can put your family in abuse only so long -- you have to check back in. I felt [Webvan] would give me an opportunity to do that. What really appealed to me was that it was a mature industry where technology could change it, and I liked the thrill of that. Anybody who tells you they go into a failed situation and doesn't have any regrets is daft. Or they're not that competitive. No one wants to have the final point in their career a failure. So this [Siebel] is an opportunity to win again.

Q: How involved is Tom Siebel in running the company?

A: That's the question I was waiting for. I see it this way: The reality at Siebel Systems is we have a founder in the mix. OK? It's a fact. A man that built the CRM market and formed it and became the market leader. So he's a man with a point of view and he's a man with a pedigree in this space. So he's important for me to listen to, to bounce things off of. He doesn't come in here every day. He doesn't meddle. He will engage me when I go to him -- and I go to him. I bounce things off of him.

So far it's been just fine. I think he's comfortable, and I'm comfortable. And he doesn't want to run the company. Now he and I have known each other for 10 years. He doesn't intimidate me. And I don't think I intimidate him. He knows I just want to do what's right -- do what I can to see if we can get this company back growing again.

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