plummeting advertising sales and stock prices

plummeting advertising sales and stock prices

Instructions/Descriptions

plummeting advertising sales and stock prices

LEARNING UNIT 7 CASE STUDY

Chapter 9

Case: Yahoo

After a $100 million loss, plummeting advertising sales and stock prices, and layoffs that cost 800 employees, including the previous CEO, their jobs, one would have to ask how such a phenomenally successful company like Yahoo could have ended up in this position. One key problem was the organizational structure; with just 3,200 employees, Yahoo had 44 different business units. By comparison, General Electric, with 300,000 employees, had only 13. This left the organization unmanageable and unfocused. Department managers would focus their efforts on advancing their departments without regard for the company as a whole.

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Furthermore, Yahoo didn’t even have a direct sales unit. Why was this? During the peak of Yahoo’s success, they didn’t need it. Customers were throwing themselves and their advertising dollars at the company, and in an effort to optimize market share, if a company didn’t buy into Yahoo’s services, Yahoo would quickly move on.

Yahoo’s corporate culture didn’t help the lack of direction. Everyone, including the previous CEO, worked in cubicles, which had promoted an overly informal culture with no controls. Employees played soccer in an open space outside the company boardroom, even while board meetings were going on. Any ideas were welcomed and pursued without needing feedback or approval, even though nobody knew which ideas would actually work. Because people didn’t want to stifle creativity, Yahoo began experiencing resistance when efforts were put into focusing on producing profits.

The largest and most immediate concern would be Yahoo’s organizational structure. Yahoo began assessing its current structure and systematically analyzing each of the 44 departments to determine what the unit did, how it benefited the company, and why it should continue to exist. Ultimately, Yahoo adopted an organizational structure based on product departmentalization, reducing the number of units from 44 to 4.

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Yahoo also needed to address the issue of centralization. While decentralization can have advantages, Yahoo’s decentralization had degenerated into chaos, loosing all focus on the direction of the company as a whole. Yahoo’s executive management introduced “network optimization.” This meant all parts of Yahoo should strive for profits, but they should also feed business opportunities to other parts of the organization. One example would be Yahoo’s consolidation of its search capabilities with purchases of Inktomi and Overture search firms. Yahoo also established a product council to evaluate business plans and significant proposals. Since projects now required approval from the product council before going forward, managers had to plan and prepare extensively or else their ideas would get rejected.

Finally, Yahoo’s organizational culture underwent significant changes as well. Executive management moved out of the cubicles into separate offices. Such measures helped provide order and structure to a culture, which in turn imposed constraints on the chaotic development and production processes. Executive management also allowed for a considerable amount of time in the restructuring process, which helped wean Yahoo away from its tendencies for instantaneous decision making.

ANSWER THE FOLLOWING QUESTIONS:

1. Did Yahoo use reengineering to address its organizational problems?
2. What example of reengineering can you cite that Yahoo instituted?

LEARNING UNIT 7 CASE STUDY

Chapter 9

Case: Yahoo

After a $100 million loss, plummeting advertising sales and stock prices, and layoffs that cost 800 employees, including the previous CEO, their jobs, one would have to ask how such a phenomenally successful company like Yahoo could have ended up in this position. One key problem was the organizational structure; with just 3,200 employees, Yahoo had 44 different business units. By comparison, General Electric, with 300,000 employees, had only 13. This left the organization unmanageable and unfocused. Department managers would focus their efforts on advancing their departments without regard for the company as a whole.

Furthermore, Yahoo didn’t even have a direct sales unit. Why was this? During the peak of Yahoo’s success, they didn’t need it. Customers were throwing themselves and their advertising dollars at the company, and in an effort to optimize market share, if a company didn’t buy into Yahoo’s services, Yahoo would quickly move on.

Yahoo’s corporate culture didn’t help the lack of direction. Everyone, including the previous CEO, worked in cubicles, which had promoted an overly informal culture with no controls. Employees played soccer in an open space outside the company boardroom, even while board meetings were going on. Any ideas were welcomed and pursued without needing feedback or approval, even though nobody knew which ideas would actually work. Because people didn’t want to stifle creativity, Yahoo began experiencing resistance when efforts were put into focusing on producing profits.

The largest and most immediate concern would be Yahoo’s organizational structure. Yahoo began assessing its current structure and systematically analyzing each of the 44 departments to determine what the unit did, how it benefited the company, and why it should continue to exist. Ultimately, Yahoo adopted an organizational structure based on product departmentalization, reducing the number of units from 44 to 4.

Yahoo also needed to address the issue of centralization. While decentralization can have advantages, Yahoo’s decentralization had degenerated into chaos, loosing all focus on the direction of the company as a whole. Yahoo’s executive management introduced “network optimization.” This meant all parts of Yahoo should strive for profits, but they should also feed business opportunities to other parts of the organization. One example would be Yahoo’s consolidation of its search capabilities with purchases of Inktomi and Overture search firms. Yahoo also established a product council to evaluate business plans and significant proposals. Since projects now required approval from the product council before going forward, managers had to plan and prepare extensively or else their ideas would get rejected.

Finally, Yahoo’s organizational culture underwent significant changes as well. Executive management moved out of the cubicles into separate offices. Such measures helped provide order and structure to a culture, which in turn imposed constraints on the chaotic development and production processes. Executive management also allowed for a considerable amount of time in the restructuring process, which helped wean Yahoo away from its tendencies for instantaneous decision making.

ANSWER THE FOLLOWING QUESTIONS:

1. Did Yahoo use reengineering to address its organizational problems?
2. What example of reengineering can you cite that Yahoo instituted?

plummeting advertising sales and stock prices

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