Wednesday, April 18, 2012

Yahoo has a strategy...?

“We don’t have to reinvent who we are, but we do need to reinvent our experiences … We have to move and think like a growth company.”- Scott Thompson, CEO, Yahoo.

Many of us have been wondering what new strategies Yahoo’s new CEO will launch to revitalize the company aside from massive layoffs. Just this week media outlets reported that Yahoo’s first quarter earnings experienced the first real growth since 2008 (2). While this increase and other promising words from Yahoo’s CEO was enough to increase investor confidence, it’s clear that Thompson and other worried shareholders are not celebrating just yet. This week’s readings on developing strategic options coincide with Yahoo’s recent announcement of future strategies. Known for focusing on too much for too long, Yahoo’s new CEO seems to be tackling this longstanding flaw by guiding the company into a new strategy focused on “consumer, regions and technology.”[1] With roughly 700 million users visiting their site per month, they have a lot of catching up to do if they want to compete with Google.[2]

Following one of Robert Simon’s strategy evaluation checkpoints, Thompson is attempting to focus organizational resources on one “primary customer”—Internet users who will use their popular (improved) services (i.e. email, YahooAuto, Flickr).[3] By laying off 14% of the company’s workforce, Thompson claims to be shutting down some of Yahoo’s inefficient products in order to run a leaner and more profitable operation. This risky action could backfire when it comes to strategy implementation. We don’t know if Yahoo has enough talented workers to produce competitive online products. We also don’t know if these layoffs will negatively impact worker morale. Similar layoffs in the past could arguably be a type of “faulty financial engineering” to make financial statements look positive and keep investors and shareholders at bay.[4]

In “The Perils of Bad Strategy,” Richard Rumlet[5] identifies a strong leader as someone who, “identifies the one or two critical issues in a situation—the pivot points that can multiply the effectiveness of effort—and then focused and concentrated action and resources on them.” He cautions organizations to stay away from template-like strategies that are full of feel-good empty words, incomplete objectives, and illusive goals. The main take away, is that a “good strategy” should include 3 main components: “diagnosis, a guiding policy, and coherent actions”. All of these components focus organizations and their efforts on defined and urgent problems and realizable solutions. One example of Yahoo’s guiding policy is to enhance data mining efforts and follow user preferences/trends in order to improve their adverting position. But maybe just like Kodak, this attempt is a little too late. Top competitors are already leaps ahead of Yahoo in developing and implementing data mining methods. Following Carroll and Mui’s advice, Yahoo’s leadership must analyze underlying assumptions in Thompson’s strategy and ask the right questions before they pursue real growth strategies.

[3] Robert Simons, “Stress-Test Your Strategy: The 7 Questions to Ask”. Harvard Business Review, November 2010.

[4] “Seven Ways to Fail Big: Lessons from the most inexcusable business failures of the past 25 years,” Paul B. Carroll and Chunka Mui, Harvard Business Review

[5] Richard Rumelt, “The perils of bad strategy.” McKinsey Quarterly, June 2011.

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