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4/6/2005
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Tony Kontzer
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Q&A: Siebel CEO On Strategy, Competitors, And Simplicity

Michael Lawrie discusses competition with Oracle, SAP, and Salesforce.com, and other threats that await the company and its new strategy.

Michael Lawrie has made a lot of changes in the nearly one year since he became CEO of Siebel Systems. Lawrie recently spoke with InformationWeek senior editor Tony Kontzer about why Siebel needed change, the competition with Oracle, SAP, and Salesforce.com, and even what advice his 16-year-old son has to offer. Here are edited excerpts:

InformationWeek: You're coming up on a year with the company. What has surprised you the most?

Lawrie: I've been surprised at the strength of our products and the quality of the people. Those have been the two positive surprises. On the negative side was the inability to go tackle what I consider to be one of the most difficult business problems, which is helping customers get business results. What surprised me was how uncoordinated [and] unsynchronized we were as a whole on really helping the customers and taking accountability on how customers get those business results. That's different than customer satisfaction. Does the software work based on the spec? Well, yeah, it does. But that's not the point. The point is, is that software helping you, Mr. Senior Executive, to run your business more effectively? We didn't have a focus on that. We had a focus on does the software work. But in the scheme of things, that's jacks or better. What surprised me was how fragmented the company was. It didn't have that single mission, which was to help customers be successful. It's not so much that we don't want to sell things. We want to sell things. But we're listening and we're getting more focused on what can we do to help you, Mr. Customer, be more successful. That was one of the things that was really lacking.

It was a negative for this phase of the business. It was not a negative five years ago. Five years ago, it was a positive. Things change. What's positive after five years often can become a negative. And a lot of the things we're doing today, five years from now might be negative. The key is, do you have the talent, the management system, to reinvent yourself based on how the market shifts? When the whole dot.com thing blew up, all of a sudden people returned to fundamentals. They didn't buy the hype. They didn't buy the vision. They said show me the money. Show me how this helps me be more productive. Show me how this gets me a tangible return--and oh, by the way, I want you at the table to help me get that return. That's a characteristic of a vibrant company--the ability to reconfigure yourself, reinvent yourself, based on changing customer and market requirements. And they shift. The current stage we're in may go another 5 or 6 or 7 years. But it won't stay forever.

InformationWeek: Bruce Cleveland (senior VP and GM of Siebel's on-demand and SMB units) says you brought a bit of the IBM culture with you in realigning how the company is managed, most importantly empowering more people to make bigger decisions. And you've brought in some new executives you feel can handle that accountability. Why are those changes so important to Siebel's evolution?

Lawrie: You can't scale a company when only three or four people make all the decisions. It's great in the early stages, but you don't become a $3 billion company, or a $5 billion company, if you can't scale. Processes need to be put in place to allow for that scalability, while at the same time developing accountability deeper in the organization. So we manage the company by a series of teams, which I chair. We get together every Tuesday morning at 8 o'clock, no matter where in the world we are. We have an investment-review board--this is where we make decisions about where we'll invest in technology. So how much engineering resources are we going to put into analytics, versus UAN (Siebel's Universal Application Network middleware integration technology), versus core CRM. Do we need to make an investment in more field resources to drive analytics? We have a deal team, which makes decisions on and does analysis of what companies we should be acquiring. We have a strategy team that looks at key overriding strategic imperatives to consider. For instance, what do we think of this notion of end-to-end suites versus best of breed?

The reason for putting a different management system in place was first to scale, and second to develop a new generation of executives. You don't become a good executive if you never make any decisions and you're never held accountable for those decisions. So part of scaling a company is also being able to build a management team that has the depth and the talent to take on those increased responsibilities. You need a management system that allows people to grow as businesspeople. You don't get an Eileen McPartland (SVP of global services) to come in if she can't make decisions about services, or if she can't input into the strategic decisions of this company the point of view of services. So it's not so much IBM, it's that you have to do that if you want to build a scalable company.

As a CEO, you've got a lot of different levers that are available to you to get a company moving again. You don't get a company moving overnight. This isn't measured in quarters. It's measured over years. You can look at the strategy as a lever you can pull as the CEO. Well, we've changed the strategy. You can change the management system, and we've done that. You can take a look at your acquisitions and your de-acquisitions. We've done that. You can take a look at your leadership team, and we've been doing that, and there's more coming there. Then you can look at the culture--the real underbelly of the company. How do things really get done here? Well, the way things really got gone at Siebel was they were pushed up to a couple of people to make decisions. As long as you did that, you were never really accountable if things went wrong. You did what you were told, you worked very hard, and as long as you had the right people involved, you were immune from the accountability. That doesn't scale.

Bruce Cleveland can come over and tell me all day about his problems, and I'll give him some coaching and suggestions, and if he wants me to make a decision, I'll make it. But at the end of the day, I'll hold him responsible for that business. Eileen McPartland--she runs services, she's accountable, she gets paid, and she gets rewarded, all based on how well services does. That's culture. That's the underbelly of how things really work, that unwritten code. You can't transform a company unless you get at that unwritten code.

InformationWeek: Customer-relationship-management started as an enterprise application category, but that seems to be changing as the on-demand software-delivery model grows and small companies increasingly adopt CRM-like functionality. How does a changing Siebel reflect that?

Lawrie: Siebel's going to position itself around customer-facing systems. So we're not going to get into ERP systems, we're not going to try to build general ledgers, because that would be a science project for Siebel, and we're not going to build HR systems. We're going to build systems for our customers that help them manage their customers much more effectively. Take our acquisition of Edocs (Web self-service software) last year. In the old definition of CRM, would you consider that CRM? No friggin' way. But in this new context of customer-facing systems, it fits perfectly. The market that we used to participate in was basically a $20 billion market, and we had a commanding position in it. The new market that we are defining for ourselves is a $100 billion-plus market. I'm just a simple boy who says it's better to compete in a $100 billion market than it is to compete in a $20 billion market.

IInformationWeek: As you position the company around front-end technologies, are there certain areas you've identified that you feel need to be addressed?

Lawrie: I think it's more a question of, are there areas that you should accelerate in? Order management is an interesting area. Our latest release, we put a big investment in order management, which previously we did not have. We looked at an acquisition there, but we chose to go build it ourselves. With Web self-service, we were sort of nowhere, so we elected to go buy our way into that space (with the acquisition of Edocs Inc. last year). But it's different by industry. That's why we've organized ourselves by industry. In the banking industry, there seems to be an opportunity in teller branch banking. Everybody thought the Internet was going to disintermediate the brick-and-mortar bank, but it didn't work out that way, so now people have got to go reinvest in the systems that run branches. Automobile companies have dealer systems, telecommunications companies have billing systems. Each industry has a different set of customer-facing applications. So what we're trying to do is buy into those areas, like Web self-service, that cover multiple areas.

Customer facing systems are harder. They're nonlinear, they're dynamic. They involve processes around unstructured work, around more intellectual capital than physical capital. That's one of the reasons why CRM has been more difficult. But the reward there, and the potential to break through, is much greater than in other spots. The whole application-software business is changing--it's changing from 'I sit in a building, build something, push it out and monetize it over a large customer base.' More and more, it will be developed as a service. Some will be custom-built, and then we package and monetize out. We'll be developing it with customers rather than in a room somewhere and pushing it out.

InformationWeek: Are there any areas that you would identify as vulnerabilities for Siebel that you're focused on?

Lawrie: Yes, we have two really tough competitors. One is SAP, which is more at the high end of the enterprise space, as they try to take their very strong position in back-end systems and expand that into the front office. Definitely a threat, definitely a major competitor. The other threat is Salesforce.com, coming up from underneath with a whole new model. Salesforce.com is much bigger than our on-demand business, but we're beginning to get more comfortable now that we're really sort of in the game, and that we can go win. Our win rates last year were in the single digits, and now we're in the 40% to 50% range. The issue is now we have to expand the awareness that Siebel is in this business.

InformationWeek: Keeping in the theme of competition, since Oracle, which isn't exactly known for customer service, has swallowed a major CRM competitor in PeopleSoft, do you see that as an opportunity for Siebel and its new customer-centric strategy?

Lawrie: It's exactly what we see. But it's not so much Oracle, it's about application-software players in general. We do think that there is a strong desire on the part of software customers to acquire software differently, and to get their software partners more focused with them on delivering on that tangible business result, so yes, we do think that is the opening. And we do think that's the strength Siebel has, that we understand those customer-facing systems. That's why we're resisting the siren song to go buy an ERP company. That's not our strength.

SAP and Oracle are really sort of fighting each other. They're trying to get each other's maintenance streams, they're outbidding one another for Retek. Maybe that gives us some time to strengthen our portfolio, get our business reoriented to what we're trying to deliver for our customers. We're staying very, very focused. That doesn't mean there won't be bumps, but I'm looking for the overall trend line. What's this look like over time?

InformationWeek: Can you provide a bit of detail on the way you've changed the compensation model for your sales force?

Lawrie: They get compensated for selling to the customers our whole range of capabilities, not just application software. They get paid for services, because we think services with our partners is important to delivering the business result. If you didn't pay them for services, do you think they'd care about it? Maybe from an altruistic sense. But my experience is, people care about what they get paid for, and what they get measured on. Well, if you don't pay them on services, you don't pay them on on-demand, you don't pay them on this or that, it's not like they're going to sell.

InformationWeek: If the emphasis is shifting from selling to investing in customer success, how do you translate that to revenue growth?

Lawrie: It's not that we aren't focused on sales. The issue is, how do you sell, not do you sell. We are now selling solutions to just point products. So the focus is not at all off of selling. We're very aggressive on selling. But now we're selling the whole capability so the customer can get better business results.

InformationWeek: To use a sports analogy, would it be fair to say Siebel has been in a sort of pre-season mode since your arrival and now you're ready to start playing the real games?

Lawrie: There's certainly some truth to that. We had to go out on the free-agent market and pick up some new players. We needed to get some new coaches. We needed to take a look at the plays we were running, put a new offensive scheme in place, and put a new defensive scheme in place. We went out and won a couple of preseason games, and lost a couple of preseason games. But now we've gotta go play. We're going to win some games, and we're going to lose some games, but at the end of the day, what's the record over a period of time? It's a really pretty straightforward thing. I had my son (who's 16) read the annual report mock-up, and I said, 'So what does this say to you?' And I listen very carefully to what he says. He said, 'Gee, this has a different feel to it. It feels more about people and customers.' It's a great test, because the simpler the messages, the more compelling they are. I'm not a big believer in complex strategies. I am a big believer in fairly straightforward strategies that can evolve and be flexible over time. That's what we're trying to build here. People can't rally around complexity. They can rally around simplicity. So Siebel--it's all about the customer.

Return to the story:
Will Nice(r) Sell?

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