Yahoo's New CEO Can't Save The Sinking Ship

| About: Yahoo! Inc. (YHOO)

By Chris Seabury

One of the biggest challenges that most firms are facing is finding a CEO able to push executives and employees to take the firm to the next level. This is when they can build off of the success that the corporation had in the past to maintain their dominance in the marketplace. The hope is that this will allow the company to adapt to the changes that are occurring inside the industry. Once this takes place is when shareholders, executives and the board of directors believe that the company can effectively adapt with any kind of transformations.

The problem is that a wide variety of firms can fool themselves by selecting the wrong CEOs. This is troubling because their lack of leadership and vision could make the company unable to respond to the demand of customers. This is the point that the firm can face the possibility of losing their momentum and market share to rivals.

In the case of Yahoo (NASDAQ:YHOO), the company has been continually dealing with these issues on regular basis. This is because the firm lost its way from the dominance that had been established in the 1990s and 2000s (by becoming one of the premier search engines on the Internet. However, the success that the corporation had in the past did not translate into continuing dominance inside the industry. Instead, Google (NASDAQ:GOOG) emerged on the scene and quickly began to take significant amounts of market share from some of the largest players in the sector.

Over the course of time executives at Yahoo believed that the company could be able to quickly evolve with these changes by having a series of partnerships with a number of firms. A few of the most notable include SBC, Sprint Nextel (NYSE:S) and Verizon (NYSE:VZ). While at that the same time the corporation was purchasing weaker competitors. The basic idea behind this approach was to help the company to compete directly against Google and to maintain the firm’s dominance inside the sector.

However, beneath the surface executives were fooled into thinking that the company was making the right choices, when in reality these moves were only causing the situation to become worse. This is because Yahoo was buying some of the weakest corporations in the industry that were losing customers to competitors. This caused the company to see large declines in market share to competitors.

It is at this point that the firm began the search for a CEO who could turn things around. As a result Yahoo would go through a number of CEOs during the process. Some of the most notable include Tim Koogle, Carol Bartz (ousted in September) and Tim Morse. This is problematic because it is illustrating how these individuals had trouble adapting the company to the changes that are taking place inside the sector.

A New CEO with the Hope That He Can Turn the Company Around

To deal with these issues Yahoo recently announced the hiring of Scott Thompson for the position. He is coming to the firm from PayPal. The basic approach that he is going to be using is to help the firm to turn around through a 100-day action plan. This is when the employees and executives will focus on a number of priorities, to include:

  • Concentrating on areas that will increase the total amounts of revenue and market growth, while avoiding partnerships and acquisitions that may not be beneficial to the company.
  • Placing team members in areas where they can be most effective in helping future growth.
  • Improving communication between employees and executives.
  • Establishing a series of short- and long-term milestones for the firm to reach.
  • Refocusing the company on various teams that can achieve the different objectives of the organization.

These elements are important, because they are showing how Thompson’s basic approach is to directly deal with issues that will help Yahoo to regain market share against competitors. Evidence of this can be seen with Thompson saying:

I say this, and some don't believe it, but I genuinely believe we're in the early days on the Internet and the impact it will have on people's lives. And if you're a media company, a display business that has 700 million people visiting its properties every month, playing in a space that's evolving so quickly, growing fast, there's a chance to redefine yourself and recreate a really big brand for consumers and advertisers in a way that could be very compelling. At PayPal, we were able to create an unbelievably compelling business because we used data to understand risk and fraud better than anyone on earth. And that was the secret sauce. We had more data than anyone else, better tools and models, and super smart people who were challenged by the problem. It doesn't seem glamorous, but that was the reason. I am more than 100% convinced that there is the same opportunity in the data that is the core of Yahoo's business.

This is significant, because it is showing how Thompson is focused on developing a strategy that will help Yahoo to be able to deal with a host of challenges and to redefine the role the company is playing inside the industry.

Can the Changes Introduced Be Effective in Turning Yahoo Around?

The current changes will more than likely be ineffective in dealing with the challenges facing the firm. The reason why is because there has been a culture inside the organization that other CEOs were unable to address. Moreover, the firm has lost its dominance in the industry with more customers turning to rivals that have better applications. At the same time a number of engineers have left Yahoo and are now working for competitors -- i.e. Google (GOOG).

This has caused the company to place key individuals in areas where they are ineffective in helping the organization to be successful. Once this occurred, the company became very bureaucratic and unresponsive to the needs of customers. These elements are important because they are showing how this basic approach allowed the firm to lose its dominance. In order for this to change there has to be some kind of catalyst that will force everyone to want to think differently.

The fact that the company is changing CEOs is an indication that there is no desire for wanting to embrace new transformations. Instead, there has been a focus on strategies have worked in the past which are combined with the new ideas of the CEO. When you put these two pieces together, it makes it difficult for any kind change to take place inside the organization. As a result the current plan will more than likely be ineffective due to the fact that executives and employees are not motivated to embrace these transformations.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.