Shaheen faces tough market as Siebel's new CEO

 Newly named Siebel Systems Chief Executive Officer (CEO) George Shaheen offered few concrete details about his plans for the company in a Wednesday conference call following his appointment, frustrating analysts who hoped for greater clarity on the impetus for Siebel's sudden executive shuffle.

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Shaheen was joined on the call by Tom Siebel, who has generally shunned public appearances since stepping down last May as CEO of the company he founded. Siebel remains the company's chairman.

"After a comprehensive review of the company's operations and performance, the board determined that a change was necessary," Tom Siebel said on the call. Pressed by analysts for more detail on where deposed CEO Mike Lawrie went wrong, Siebel reiterated, "This is all about performance. That's the only issue."

San Mateo, California-based Siebel Systems said last week that its first-quarter sales missed expectations by a wide margin. Siebel also missed expectations in last year's second quarter, which ended less than two months after Lawrie took over as CEO. Siebel hit its financial targets in 2004's third and fourth quarter, but Tom Siebel said those results weren't good enough.

"Look at the company's performance over the last quarters," Siebel said. "In general, they did not meet investors' expectations. They did not meet our internal expectations."

Shaheen's appointment to the CEO post is permanent, Siebel said.

Shaheen, a member of Siebel's board since 1995, said he will focus on improving Siebel's execution. He did not discuss any specific changes he would implement, however, or talk about radical revisions to the company's strategy.

"I believe the key role I have as CEO going forward is to deliver on the promise of creating customer value," Shaheen said. "We are not running this company for short-term results. We are going to invest in it and invest in our future."

Several observers with knowledge of Shaheen's management style said he seems an excellent choice to lead Siebel.

"I could not be more pleased," said Mark Johnston, president of Tier1 Innovation LLC, a Denver services company that focuses on Siebel deployments. Johnson previously worked at Andersen Consulting, now Accenture Ltd., during Shaheen's tenure as Andersen's managing partner.

"[Shaheen] has more experience than anybody I can think of in terms of executing on a plan," Johnston said. "Lawrie may have set the tone for what 'Siebel Chapter 2' is going to look like, but in the last nine months, I really hadn’t seen anything in the way of execution. Shaheen understands services; he understands the role of partners. I definitely see this as a positive move for Siebel."

Enterprise Applications Consulting Inc. principal Josh Greenbaum called Shaheen "legendary" for his management of Andersen Consulting's complex separation from auditing company Arthur Andersen  not long before the auditing company collapsed in Enron's wake. As Accenture, Andersen Consulting went on to become a leading IT consultancy,

"He's a very, very strong executive," Greenbaum said.

Shaheen also served as CEO of Webvan Group, a now-extinct delivery service that became one of the dot-com era's most expensive debacles. Greenbaum is willing to give Shaheen a pass on full responsibility for that disastrous venture: Like a lot of others, Shaheen "drank the Kool-Aid" and was caught up in the mania of the Internet bubble, Greenbaum said.

During his brief tenure, Lawrie talked of keeping a close eye on costs and encouraging Siebel to push into high-growth areas, like the SMB (small and medium business) market and the hosted CRM (customer relationship management) space. Last year, Siebel began building a channel program and released a new version of its flagship software, aimed at smaller companies.

Customer Rob Verratti, vice president of WestStar Bank in Vail, Colorado, said he appreciated Siebel's attentiveness to his needs. Verratti went live in September with a 100-seat deployment of Siebel's SMB-aimed Professional Edition.

"We will pay close attention to Siebel's commitment to our market during this transition," Verratti said. "Given the support that we've had from them thus far, I don’t expect any material change."

Siebel's relationship with its partners changed for the better after Lawrie took over, according to Rich Woll, executive vice president of Plano, Texas, systems integrator EVerge Group.

"From a standpoint of their embracing the channel, the relationship has never been stronger," Woll said.

Still, he sees daunting challenges in the market. "I see more activity out there, but there haven't been a lot of closings," Woll said. "Sales cycles are extending. It's getting harder and harder to close enterprise software sales."

That's the crux of the problem Siebel faces. Squeezed on the high end by full-service ERP (enterprise resource planning) vendors like SAP AG and Oracle  and on the low end by the hosted CRM providers, led by Salesforce.com, Siebel is caught in a tenuous position in a changing market.

"Enterprise applications is about either being big or being innovative, and right now, Siebel isn't big enough and they’re really not innovative enough," said Forrester Research analyst Erin Kinikin. "I think Lawrie did a good job of identifying Siebel's opportunities for growth. You can't shift an ocean liner overnight."

Siebel's investors are growing impatient waiting for it to chart a new course. Institutional investor Providence Capital  had scheduled a meeting on Wednesday afternoon in New York to discuss with other major shareholders its concerns about Siebel's prospects. Siebel is sitting on a cash stash of $2.2 billion, which some investors would like to see it use either for acquisitions or a stock buyback.

Some analysts were unusually pointed in their criticisms of Siebel on Wednesday's conference call. During the call, Siebel's stock sank 4 percent in trading on the Nasdaq exchange, to $8.64. "I think the reaction is clearly disappointment that there's not more specificity on this call," one analyst chided Shaheen and Siebel. "I think you're getting the real-time reaction here."

For years Siebel has been viewed as a potential acquisition target, and the company's poor first-quarter results stepped up speculation that Siebel would cast around for a buyer. Smith Barney analyst Tom Berquist said in a recent research note he thought it likely Siebel would be acquired within the year; Prudential Equity Group LLC analyst Brent Thill said Wednesday he sees potential for the company to sell itself.

But when it comes to naming potential suitors, industry analysts come up blank. Microsoft  revealed last year that it considered buying SAP, but it backed away from the deal and now claims to have no interest in a large enterprise applications acquisition. Close Siebel partner IBM  avows at every opportunity that it doesn't want to be in the applications business. SAP has the funds to take over Siebel, and might consider doing so to gain share against saber-rattling Oracle, but it has its own CRM business. Few other companies in the industry could afford Siebel, which has a market cap of around $4.5 billion.

"There's no obvious buyer," said Forrester's Kinikin. Enterprise Applications Consulting's Greenbaum said that if Siebel wants to reconfigure its business, it will need to do the acquiring. He thinks the company would benefit from buying smaller vendors to build a more complete ERP offering.

Although financial analysts are gloomy about Siebel's prospects, Johnston from Tier1 Innovation said their dire words haven't spooked customers. "It drives me crazy. This is purely a Wall Street phenomenon," he said. "When we're engaged with customers, there are no concerns whatsoever about Siebel's viability."

Kinikin said Siebel, if it's going to survive as a stand-alone vendor, will need to convince Wall Street to give it the time to find a way out of its position in the "mushy middle" of the shifting CRM market. She's dubious about how soon Shaheen can show improvement where Lawrie could not. Her conclusion: "There may be no quick fix."