The sudden leadership change raises questions about the health of Siebel Systems. It also comes on the eve of the company's European user conference, which will be held next week in Barcelona.

Tony Kontzer, Contributor

April 13, 2005

3 Min Read

Forget about Siebel Systems Inc.'s so-called Chapter 2. It's straight on to Chapter 3 for the troubled customer-relationship-management software maker, which Wednesday named former Andersen Consulting and Webvan Group CEO George Shaheen to replace Mike Lawrie 11 months after the longtime IBM veteran was picked to succeed founder Tom Siebel.

The sudden leadership change raises questions about the health of Siebel, which appeared to be on a road to recovery before it revealed last week that first-quarter revenue would fall well short of expectations. It also comes on the eve of the company's European user conference, which will be held next week in Barcelona.

Exactly how Shaheen's leadership will differ from Lawrie's was far from certain based on a conference call with analysts Wednesday that offered few details of any planned changes. Shaheen's rallying cry throughout the call sounded strikingly similar to the strategy outlined by Lawrie repeatedly over the past year, when he trumpeted the idea of "customer success" as the key to Siebel's future. "We're going to continue to focus sharply and diligently on creating customer value," Shaheen said. "That's the end game for us."

The apparent firing of Lawrie--Tom Siebel said only that, based on the company's performance over the past year, "the board determined that a change was necessary"--also came as a portion of shareholders were poised to gather in New York this week to discuss the company's future in the wake of its expected revenue miss.

Most disturbing to the shareholder who organized that meeting, Herbert Denton, president of Providence Capital Inc., a specialist in giving shareholder advice, is the fact that Siebel is sitting on more than $2 billion in cash. Shaheen pledged Wednesday to establish a plan to put that money to use. "What our shareholders are asking us to do is to tell them how we're going to put it to work for their benefit," he said. "We take that very seriously, and we'll be addressing that."

While Shaheen's longstanding history as a Siebel board member should appease those who questioned the hiring of an outsider to take over for Tom Siebel, the company still faces some daunting challenges, says Joshua Greenbaum, an analyst with Enterprise Applications Consulting.

The hiring of Sheehan is an acknowledgement by Siebel's board that bringing in an outsider to get a fresh perspective on the company was a failed strategy, and that an insider was needed to restore confidence, Greenbaum says. But that may not be enough. "There's a lot of scuttlebutt in Silicon Valley that this company is seriously in trouble," Greenbaum says. "Lawrie was doing a great job of executing the strategy he was told to execute. It was simply the wrong strategy."

Greenbaum doubts that Siebel can successfully fend off apps vendors Oracle and SAP on the high end, on-demand CRM pioneer on the low end, and also continue to invest in its slow-developing analytics business. And he agrees that putting its cash to use--most likely to make key acquisitions--is key to its continued survival.

But Siebel also needs to take a hard look at its product line and deliver something innovative that will generate new revenue. "Their core isn't working, and the new stuff isn't delivering," he says. "It's a pretty grim picture."

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