How Can Yahoo Get Back on Track?

How Can Yahoo Get Back on Track?

SHARE

Two globally respected analysts were recently polled on how they would get the shine back on a declining Yahoo if they were appointed chief executive of the business. They had notably polarized views on what they felt to be the company’s challenges; hence they prescribed equally different remedies.

Right or wrong in their estimate, each would not be alone in the growth conundrum arena that faces many business decision-makers today. The one analyst thought that Yahoo’s biggest problem was a lack of competitive technology, something that has seen the company fall rapidly behind the likes of Google.  His assertion was that the solution lay in bringing a new hard-hitting technology product.

The second analyst attributed Yahoo’s lackluster performance down to what he thought was an outdated business model that was rendering’s Yahoo’s product offering seemingly weak relative to that of its peers.

Different strategies

If the above wannabe CEOs were given further room to develop the turnaround business case for Yahoo, the capital and human resource commitments to make each plan happen would be significantly different.

The risks pursuant on each option and its set of actions would be day and night apart and generally the execution of each recommendation would take different timelines to produce results. One and not both options would build a decidedly better Yahoo while the other would compound the problems of a company already in trouble.

Fortunately for the two analysts, the Yahoo story is a hypothetical case that was played out in a control environment.

For the immediate-past incumbent CEO at Yahoo, Carol Bartz, the growth conundrum cost her the top job after being released for failing to restore web service company to its former glory. Growth for a once No1 Internet search engine, has suddenly become the highest stakes game, summed up by the Chairman of the board’s statement of intent; The board is “committed to exploring and evaluating possibilities and opportunities that will put Yahoo on a trajectory for growth and innovation and deliver value to shareholders,”

Strategy decay

Such is the growth question’s significance that it separates star CEO’s and boards from pretenders. Now than ever before, the growth bull’s eye has become an increasingly elusive target to hit. Mistakes in the pursuit of growth can be costly, in some instances hard to come back from especially where such growth involved capital projects or acquisitions.

If earnings have flat-lined and the share prize tanked, chances are the business now needs an injection of new energy, but where should your organization start given the complex array of issues to take into account and deal with?

Naturally, business is cyclical due to constantly changing market and competitor conditions. Periods of boom are punctuated by slow spells as businesses adjust to changed conditions. Intelligent executives work hard to prolong the boom cycle, while they strive to limit the onset of slow spells.

Should they occur, as they inevitably will, intelligent executives adopt aggressive strategies to limit the toxic effects to the business in the short and long term. However, a different kind of contraction than a short-term bleep must be vigilantly watched. Businesses experiencing a protracted period of flat-to-low growth in a market where their peers are outperforming their sector have more to be concerned about.

Chances are that such businesses have hit ‘strategy decay’: the gradual misalignment between the organization’s competitive value proposition and its delivery model with the market’s perception of value.

Some indicators of strategy decay are the following:

  • Turnover growth with flat or declining profits year-on-year: this reflects a business that is working a larger and larger market for a smaller and smaller return
  • Declining turnover with increasing profits: this reflects a business that is enjoying temporary profitability due to aggressive cost cutting, income from disposals or product prize increases that improve margins. All of these in the long-term are unsustainable
  • Rising ROCE with declining PE multiple: This reflects a business that may be giving shareholders healthy returns in the short term but the market is not confident about the business model’s future ability to sustain that run
  • The oldest business units and products account for the bulk of turnover and profit: this reflects a business that is overly dependent on an old portfolio of rents, patents and customer bases, with very little by way of new assets to sustain its competitiveness and profitability in the long run
  • Convergence of strategies in the industry are making it difficult to differentiate businesses and consolidation becomes the only viable option to survive in the long-term

Even the best-conceived corporate and business strategies wear out with time because markets and competitor actions are a constantly moving target. Forward thinking businesses therefore manage the ever-present threat of strategic decay ahead of each business cycle. Our observation is that those kinds of businesses are not many. T

he majority of executives are too busy responding to shareholder andmarkets pressure to deliver the next quarter results. They manage strategy decay by exception, choosing to respond to crises in piecemeal fashion rather than act in a proactive and structured way. In our South African and broader African business environment it is not too difficult to spot companies that have hit a brick wall on growth options.

Just like the story of Yahoo, they are effectively playing catch-up in a market where immediate competitors keep raising the bar while the rate of global change far outstrips the speed at which the organizations are re-inventing themselves

Industries in trouble

There is no shortage of people wanting to own an airline in Africa. Start-ups are plentiful but there is little in the performance of established players like SAA, BA/Comair and Mango etc. to suggest that there is excess demand. It is a heavily churned industry defined by prize wars, international oil prize and heavily exposed to consumer sentiment.

It is an industry akin to a lagoon that is a pleasure to frequent in times of calm and a nightmare to be caught in by a raging storm. Margins are squeezed as fewer passengers fly in a global economic crunch; couple that with the volatility of fuel costs and you have a cocktail of disaster.

The usual escape route of expanding to new routes and code sharing has been beaten to death, and even that has created its own problems with Africa’s difficult legal and legislative terrain either cumbersome to get hands around or sabotaging well intentioned plans to the extent of folding them altogether.

SA Express’s recent mission to the DRC got grounded even before it took off, taking with it some R30m of sunk costs in a desperate charge to find new sources of revenue growth

Fixed line telecommunications businesses are deep in the mire after mobile offerings completely obliterated what was left of years of a stagnant business models and non-existent product and technology development. The growth of data is an opportunity sailing to the sunset that these archaic businesses simply cannot exploit without having to reinvent their entire infrastructure, a mammoth task to undo given decades of investment in what is now liability assets that cannot respond to market and competitor shifts.

For Telkom for example, it is all-hands-on-deck as the company scurries to salvage some respectability after years of poor performance signified by losses in excess of six figures even for the newly launched mobile subsidiary. The ill-fated Nigerian excursion for the state company ended in tears.

Even a renowned industry turnaround artist closed the door and walked away fearing for his own reputation in the contamination that was destined to happen. Happen it did and the outcome does not make for happy reading There are very few books that have enjoyed the trust of readers for centuries, more than newspapers and magazines.

Not any more because the world has suddenly changed and continues to do so at an alarming rate. The technology tsunami is revolutionizing product platforms, disrupting advertising patterns and income streams as well as changing the way we all consume media.

The popularity of mobility, portability and interactivity has altered the prospects of print, and digital platforms are entering the fourth wave of development, which means any player still stuck to the print model is all but out of contention. Their demise is a question of time.

What more with social media creating a global on-line newspaper; survival in this industry is a case of must-do and not optional revolutionary thinking. Avusa Media is a case in point where investors are getting nervous because the growth story has evidently stalled. The business stayed routed to an outdated business model for far too long and is now susceptible to sniper fire from just about every direction as digital media platforms rule the roost.

Finding new pastures

The innovation revolution is sweeping across just about every industry in every sector, and it is no buzzword. A management team still debating its validity is not going to last, every organization must find new sources of value to stay afloat in a volatile world

  • Define the business’s vision for innovation behind a compelling business case. In other words, get to grips with where, how and why the business has slowed down. Frame the issues in a compelling statement that pinpoints the fragile aspects of your business and build an organization-wide coalition to go and change the game
  • Get the organization’s leadership from board to executive to own and champion the innovation mission. By-standers in positions of responsibility transmit negative energy to staff and give an impression that the innovation ‘fad’ is an inconvenience to the status quo: giving an impression that if ignored enough it will fade away and life will go on as usual
  • Get the right culture embedded in the organization. Cultural resistance is the biggest hindrance to innovation as identified by the latest Booz 1000 Innovation study results for 2011. Old beliefs, behaviors, attitudes and assumptions can frustrate the process of innovation. Hierarchies and established dogmatic tendencies usually frustrate creativity that is needed to generate innovative ideas. Leaders raised in a culture that values staff obedience; control and fear-driven diligence in people will struggle to get passion out of them, the sole food of innovative mindsets
  • Get the innovation formula and mix right. Define clearly what the innovation thrust for your business needs to be. Given the extent of strategy decay in the industries we outlined above, nothing less than a holistic business model renewal will create meaningful, new sources of growth. Some businesses may have business models that are still working and relevant but may need innovative business processes or new products to be launched
  • Test the innovation logic thoroughly. Project the payback of the innovation portfolio you are recommending and see a four to five year value build up to justify commercialization of ideas. The innovation logic must map back to the initial process of framing the fragile aspects of your existing model as well as staying true to the broader strategy and value philosophy of the business. Look for innovation ideas that can be supported to thrive within the current capabilities of the business to avoid a performance lag of the idea while the business tries to acquire the right capabilities to execute the ideas
  • Institutionalize an innovation process that will ensure a high-pressure innovation pipeline. Put staff at the heart of the innovation process that works top-down and bottom-up
  • Ring-fence the innovation ideas, their incubation, funding, implementation, and performance measurement from the mainstream operational parameters. Expecting innovation ideas to deliver at the level of established businesses performance benchmarks in terms of expected returns on investment too quickly can frustrate and jeopardize the business renewal effort.

Driving growth through innovation is a creative process. It requires leadership that can free up the business to explore and venture into unchartered territory. The biggest enemy of innovation therefore is the organization itself and its legacy management models of the past.

If there are entrenched, outdated management models, getting outside expertise to design and kick-start the process, transfer skills and get the business on its way to new pastures may be the right thing to do. It will not be a quick fix for the likes of Telkom and Avusa Media, it may be a long trudge in difficult conditions but results are sure to come in the long run.

Lizwe Nkala
Lizwe Nkala is an influential corporate strategist working at executive and board levels of large corporations. He is the MD of Flamingo Moon Consulting and a founding partner of the Strategic Thinking Institute, where he coaches executives and presents tailored strategic thinking seminars and webinars, and provides strategic thinking tools and templates on a subscription basis for corporate clients. For more, visit www.flamingomoon.co.za
  • Fudley Bez

    @Lizwe: What is your take on why in the finance sector the likes of Standard Bank and Absa, and in retail the likes of Mr Price, are posting commendable results. As a consumer I see little noticeable signs of innovation, so their winning formula must be based on some other trait. Hope you can shed some light?

    • lizwe

      Hi Fudley, great question that most executives should learn from. Of the four major SA banks, the one that has a discernible innovation strategy is FNB and it is intertwined with their marketing strategy(listen to Steve ads) as well as their corporate culture(All about helping). Not only is it being implemented, but it is incentivised as well with the bank paying out some R9m to staff in innovation bonuses last year. The FNB Fuel Rewards program is a brainchild of one of its innovation cells that came out directly out of its staff. The other banks may be trying to follow suit, but their efforts are fragmented to say the least with no clear-cut innovation theme championed at the highest levels of the management hierarchy. Capitec bank is on a value-innovation path with the no frills banking package that thrives on cost transparency and therefore competitiveness. So one would argue that their model is also fairly clear to follow although in the long run it will need to be reviewed as competitors copy and erode the cost adavantages Capitec may be enjoying at present. Mr Price is a good example of product innovation where clever range selection and tasteful in-store merchandising and cost-effective and aesthetic shop design(Mr Price Home) combine to bring premium-brand feel to everyday accessible and reasonably priced offerings. It is product-based innovation that when repeatedly applied results in cost benefits for them as higher sales volume per sq brings down their unit costs continuously.