If Yahoo could be placed on a psychiatrist's couch, the Internet giant would be told it was suffering from an identity crisis.
For nearly 10 years, Yahoo has delivered Web services to millions of people daily, and in the process made billions of dollars. But, somewhere along the way, it has become mired in bureaucracy and an embarrassing inability to respond to its more nimble, though considerably larger, adversary, Google. The question for Yahoo now is: how do you reinvent a corporate culture and find a way to get an estimated 14,000 employees working on innovative projects once again?
More details of a plan executives hope will do exactly that should become public on Tuesday. If early media reports are correct, Yahoo will announce plans to cut between five and 10 percent of its workforce when it releases fourth-quarter earnings.
Such a move will punctuate more than a year of internal wrangling at Yahoo, beginning with the departure of chief operating officer Dan Rosensweig and entertainment head Lloyd Braun in December 2006, followed in June 2007 by chief executive Terry Semel's exit. In the almost eight months since Yahoo co-founder Jerry Yang stepped in as chief executive and Sue Decker became president, the company hasn't managed to quell investor anxiety and stem losses in key search market share.
While the layoffs are a step to reduce expenses at the still enviably profitable company, they won't solve the biggest problems at the Silicon Valley icon. In interviews with ZDNet.com.au sister site CNET News.com, Yahoo insiders, analysts and others close to the company have said changes in the executive suite have done little so far to change a company bogged down by ineffective group decision-making and a damaging aversion to taking risks.
"The biggest challenge Yahoo has is cultural," said Umesh Ramakrishnan, vice chairman of executive search firm CTPartners. "It's [moved] away from the creative company it used to be -- that's the difference between it and Google. Yang needs to bring that culture back and bring innovation to the forefront."
In fairness, many Yahoo watchers do believe that cuts, which would be the company's first major paring since 2001, would be an opportunity to start afresh. Specifically, JPMorgan analyst Imran Khan said cutbacks would help Yahoo reach profitability targets, trim poor performing units -- like its social network Yahoo 360 -- and help reinvest in search, graphical ads and partnerships.
Still, one source familiar with the situation said the proposed cuts don't weed out unproductive units or employees. Rather, Yang and Decker are likely to make cuts across the board, even within divisions that are performing well or are considered strategic imperatives, such as data services, according to the source.
"Instead of finding failing programs, they'll demoralise people hitting on all cylinders," the source said.
A culture is born
Yahoo, like Google, enjoyed a long period of growth and innovation during its first seven years. Under the direction of co-founders Yang and David Filo, and then-chief executive Tim Koogle, it defined the term "portal". It launched hits like Web-based e-mail, instant chat and Web search. In 2001, however, the dot-com bust hit the company hard, pushing its stock from a high of US$475 in January 2000 to a low of US$4 in September 2001.
Former Warner Bros chief Terry Semel joined Yahoo in 2001 to turn the company around and build a media powerhouse with close Hollywood ties.
By many accounts, the Semel era transformed the company from a freewheeling and innovative dot-com to a buttoned-down outfit where new products were subject to review by committee. Departments became responsible and rewarded for their own profits, much like many US companies. At the time, the approach made sense and Yahoo saw dramatic financial improvements.
But those "big company" controls had a downside: they caused people to think about how to protect their own turf and put themselves, instead of the company, first, according to people familiar with Yahoo.
Of course, this sort of organisation isn't unusual. Many mature organisations set up reward systems that ultimately pit one division against another -- a structure that can prevent the exchange of ideas and teamwork and stall standout products, according to Raymond Miles, professor emeritus in the University of California at Berkeley's Haas School of Business, who recently published a paper called The ideology of innovation in the scholarly journal Strategic Organization.
"Now suddenly my boss is competing with your boss, because his department is less willing to share knowledge," Miles said. But "new ideas don't pop out of... someone's head, they pop out of four or five people's heads".
That compartmentalisation causes Yahoo particular grief because technology innovation demands speed and teamwork.
Most of Yahoo's products and divisions are dependent on one another in some way, and any new product requires co-operation from multiple groups. Everyone from those various groups must be willing to say "yes" for something to happen. When compared with innovative upstarts, that innovation by consensus is a time waster, and sometimes an idea killer.
"Instead of looking for reasons to say 'yes', team leaders look for reasons [to say] 'no' if they can't control it," said one source inside the company.
In November, Yang and Decker announced a plan to address these troubles. It started with a company-wide effort called "One Yahoo" to establish new behaviours towards teamwork and decompartmentalise the company, according to sources. The idea was to emphasise that the needs of the corporation come before the needs of individual business units.
Yang and Decker talked to executive vice presidents, who were told to talk to their next in command. Still, that effort has yet to lead to tangible results, according to people familiar with the company.
Sources interviewed by CNET News.com also said that key managers, including Yang and Decker, want cultural change, but the commitment to "One Yahoo" dissipates below the vice president level, where everyday decisions need to be made. Yahoo representatives declined to comment for this article.
How has this culture affected Yahoo? Think of it from the viewpoint of an average Yahoo user. A woman might one day search for health information about the common cold, then visit Yahoo's health site and then check her e-mail. For Yahoo to sell a comprehensive advertising package to, for example, a pharmacist -- which might like to reach shoppers with a message about cold medicine -- the company's sales team ideally would sell the pharmacist a package of search ads, graphical ads on Yahoo Mail and a sponsorship deal on the health page.
To pull that off, the deal might involve leaders from search and performance ad sales; graphical ad sales and sponsorships; Yahoo Mail; and the health editorial page. If any of those leaders' interests are misaligned, the deal could fall through or not meet its full potential. Sources familiar with the company have said egos among team leaders can often get in the way of pushing through such deals.
Corporate patterns evolve over time and they're hard to change once set, according to Adam Galinsky, a professor of ethics and decision in management at Northwestern University's Kellogg School of Management.
For any company to re-engineer a culture, it must overhaul all elements, Galinsky said. A company must have clear vision -- or a compelling reason why change is necessary -- define a strategy for the organisation, set up a reward system that supports that vision and hire people who fit into the vision. For example, if you want people to work in teams but you reward them individually, the reward system doesn't work.
"Where most companies fail is when they change one part, but they leave all the other elements intact," Galinsky said.
