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How Siebel Systems became a star

After seven years, the company's idea is still rock-solid, the market is receptive, the corporate culture is assiduously adhered to, and the founders are as focused on their mission as ever.

    The idea was rock-solid, the market was ready, the corporate culture was in place, and the company founders, by their own admission, were "maniacally focused" on their mission.

    That was seven years ago, when Pat House and Tom Siebel first launched Siebel Systems with 12 employees and "the worst address on the planet" in Palo Alto, Calif. Today, the idea is still rock-solid, the market is still receptive, the corporate culture is assiduously adhered to, and the founders are as maniacally focused on their mission as ever.

    And according to House, it is paying off big time. Siebel Systems is now headquartered in San Mateo, boasts 6,200 employees in 130 offices around the world, and is a leading supplier of e-business application software. "It's brain surgery," House, Siebel's co-founder and executive vice president, says seriously. "It really is."

    House, who co-authored the book "Cyber Rules," spoke about "Leadership & eBusiness in a Customer-Driven World" at Wharton on Dec. 7 as part of a whirlwind four-city, 48-hour visit to the northeast.

    Even so, Siebel was hardly immune to the volatile currents that battered technology stocks for much of last year. On Dec. 19, soon after an analyst predicted that the company's growth was slowing, its stock fell by 12 percent though it recovered before the end of the day. The stock has lately been trading in the $70s, well below its 52-week high of nearly $120 per share.

    House and Siebel launched the company in 1993 with 25 years of tech company experience each under their belts and a clear vision of how they wanted the new company to operate. "We knew from our prior experiences that the application of technology to sales, marketing and service could change a business radically," House says. "We 'got' early on that this opportunity was in front of us."

    The two set out to generalize technology in ways that all businesses could benefit. Their mission was to become the world's leading provider of e-business software applications.

    Today, Fortune magazine has named Siebel the fastest-growing company in America. BusinessWeek, in its "Info Tech 100 Annual Report," calls Siebel the world's highest-performing software company. In October, Fortune named House to its annual list of "The 50 Most Powerful Women in Business."

    Pleasing all the people
    The foundation on which Siebel is built is the belief that to succeed, companies must create and sustain the highest levels of customer satisfaction, and they must apply sophisticated information technology to identify, acquire and retain the most profitable customers. The goal is to deliver greater value to customers by continuously improving the quality of the customer experience.

    "When people have a choice, they choose service over anything else, including price and product attributes," House says. Moreover, businesses typically spend five to 10 times more to acquire a new customer than to retain an existing one. Therefore, recurring revenue from loyal customers is critical to business success.

    "If you increase customer service, you sell more products and you reap more profits," House says. What kind of businesses benefit most from this outlook? "Any business that has customers--telecommunications, banks, retail, insurance, brokerages."

    On Siebel's client list are such industry giants as Ford, Lockheed Martin, Chase Manhattan Bank and Charles Schwab. Its largest growth area is government agencies, which, House says, "surprised us" but is understandable. "The Social Security Administration, the Internal Revenue Service, the post office are coming under the threat of competition," she says, and therefore see the need to increase customer satisfaction to remain competitive.

    Just as Charles Schwab changed the dynamics of the investment industry by developing a system of telephone-based transactions--and then changed the paradigm again by moving to the Internet, while still maintaining active branch offices--so should all organizations look for ways to build sales and service opportunities, House says. A bank, for instance, should be able to maintain a dialogue among all of its departments so that it can build customer databases that improve support and service. That, House says, is what Siebel products do: provide "multichannel, seamless software solutions."

    Today, according to House, the market is only 5 percent saturated. "Ninety-five percent lies ahead."

    But although House and Siebel saw this niche and seized it, they had no illusions that they would remain alone forever, and from the beginning, they sought a way to distinguish themselves from others in the wildly extravagant high-tech world.

    Pride in ownership
    They did this first by remaining old-fashioned and cautious, foregoing venture capital and the loss of control that goes along with it. Siebel was from the start--and remains today--an employee-funded company. "Every nickel came out of our own pockets," House says of the early days, "and no one took salaries." Instead, everyone received stock.

    No one seems to be complaining. Shares of Siebel have risen a remarkable 1,200 percent since the company went public, making millionaires out of many of the company's early employees. "The amount of wealth that was created..." House begins without having to finish the sentence. "To this day," she says, "every Siebel employee is a shareholder."

    While many companies pay lip service to the notion of encouraging their employees to "act like owners" instead of mere employees, Siebel created a culture in which "those who work here will think and feel like owners because they are," she says.

    The company's sales performance appears to bear out House's upbeat remarks. In the nine months ended Sept. 30, Siebel's revenues doubled to $1.1 billion from $557 million in the same period a year ago. Net income, too, shot up to $158 million in the first nine months of last year, compared with $72 million in the same period of 1999.

    So seriously does Siebel take its customer service mantra that the company bases its compensation program on the satisfaction of its clients. It has established a system of customer evaluations every six months, with a third-party audit. In other words, Siebel's success is based on its customers' success. Some 40 percent of the pay of Siebel's salespeople is based on customer evaluations rather than on the traditional commissions. "Our mantra is: 'Do whatever it takes to make the customer successful and satisfied,'" House says.

    As an example, she points to Chase Manhattan Bank, "a huge Siebel customer." On average, each of its customers owns 1.5 products. If that's increased to two products, it will double the profitability of the company. "By using our products, single customers increased revenues 16 percent; customer satisfaction increased 21 percent. The metrics are staggering.

    "Businesses are coming to understand that customer satisfaction is more critical than product functionality, distribution or geographic borders," she continued. "The level of satisfaction that customers have fosters loyalty and the ability to cross-sell."

    No scruffy-looking Nerf-hurlers
    Maybe even more radical than Siebel's pay structure is its corporate culture, which House calls "a culture of responsibility." Believing the company could distinguish itself by the way its employees comported themselves, House and Siebel demanded from the start--and demand to this day--high standards of professionalism in everything from business objectives to dress and physical environment.

    There are no scraggly, barefoot techies in shorts and T-shirts tossing Nerf balls through baskets hanging in office doorways. People are required to dress appropriately for the job they do. "Engineers have to be fully clothed," House says dryly. Employees who face customers must wear ties and jackets, hose and heels. Everyone arrives on time and prepared for meetings. Doors are always open, even conference room doors.

    "That's the value of hindsight," House says of the culture envisioned by her and Siebel. "We had done it before...We have a bias for action, and we lead by example, personally illustrating the behavior we want. You have to do it. You can't just say it...For a relatively new company, we have a very disciplined approach. It's a return to rational, old-fashioned values."

    And while other technology companies might dot-bomb around them, House sees Siebel growing and thriving in the future--while holding its core values intact.

    "We have a 100 percent commitment to customer satisfaction, complete professionalism, the highest levels of business ethics, and professional courtesy," House says. "Let's face it. We're never going to look like a Porsche. We'll always look like a Volvo."

     
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