The Hidden Cost of Transformation

Yahoo under Marissa Mayer - a case study on the hidden cost of transformation and why it's a price CEOs often pay for with their jobs and reputations.

The case for transformation at Yahoo 

In 2012, at a time when Facebook had almost 5000 staff, high-profile tech-investor and entrepreneur, Naval Ravikant, declared in an interview that “any entrepreneur today worth their salt could build Facebook with a few hundred people.”

What could be dismissed as hyperbole was in fact an attempt to highlight how much easier it had become over a few short years to develop digital products. According to Ravikant, this accelerated rate of technological progress accounts for why companies like “Facebook and Google are in the situation that (all) large companies end up in where the founders know that 80% of the people aren’t needed, they just don’t know which 80%, they’re all lost in the politicking.”

According to Ravikant, if unaddressed, this problem of organizational bloat ultimately leads to the onset of a terminal decline phase for the organization in question. For Ravikant, Yahoo, the one-time darling of the stock market, but by 2012, an ailing web services provider, was an exemplar of this phenomenon - accounting for why when Ravikant was asked what Yahoo’s newly appointed CEO, Marissa Mayer, should do, he said without hesitation:

“She’s got to get in there and clean house. That’s Marissa’s job. You’ll know if she does her job if she fires a bunch of people. (In fact), Yahoo needs to figure out what businesses it’s not in, cut all of those. (So), Yahoo doesn’t just need to fire people, it needs to exit entire businesses, and focus down on a new set.” Finally, he added, “The future is mobile.” 

 

“The transformation of an iconic company back to greatness”

Over the two years that followed, Mayer would follow Ravikant’s advice so closely one was left wondering if she had the tech investment guru on speed dial. 

Under Mayer, the strategy was refocused around mobile. Numerous failing products were cut, while new ones were launched, and the workforce was equally ruthlessly cut by a third, including the axing of whole departments and entire regional workforces.

But despite all this, far from achieving Mayer’s goal of restoring Yahoo to a top-tier tech firm, or as she had put it, “the transformation of an iconic company back to greatness”, the decline of Yahoo continued unabated. 

New products failed to deliver. Revenues failed to recover, and worse, the company found itself engulfed by one high-profile operational disaster after another.

For example, under Mayer Yahoo experienced the two biggest security breaches in internet history – failures caused by “lax security” and compounded by the fact that Yahoo only initially notified 26 of the three billion account-holders involved. While on another occasion, it was widely reported that a group of staff had been accidentally fired after their names appeared on the wrong list.

In the final analysis, the beleaguered Mayer found herself at the helm of a company that had slumped in value from 128 billion dollars to an all-time low of minus four billion dollars.

The mystery of what went wrong

The decline of Yahoo under Mayer was an outcome that would leave commentators baffled for years to come. For example, Nicholas Carson was so unable to resolve the wide-ranging post-mortem he authored for the New York Times into a decisive explanation that he resorted to invoking a universal law that he imagines governs the lifecycle of companies. 

“All breakthrough companies, after all, will eventually plateau and then decline,” he opined. While in the case of Yahoo, according to Carson, it just happened faster than most, because, “In the technology industry, things move fast.” Finally, he added, “Yahoo grew into a colossus by solving a problem that no longer existed.”

But such a hypothesis is patently undermined by the existence of all the tech firms that are as old if not older than Yahoo and still going strong, like IBM, Microsoft, Apple, Oracle, Adobe, Cisco, and HP, to name but a few. 

For that matter, what about companies still going strong after a century of trading? Companies like Coca-Cola come to mind, and Boeing, Equifax, UPS, L L Bean, Kraft, P&G, and many others - and never mind companies approaching their third century of trading, like Lloyds of London. 

 

 

Meanwhile, the idea that Yahoo became a colossus by solving a problem that no longer existed brings us no closer to the answer, given the real question is why Yahoo, unlike all the aforementioned companies, was unable to react to an inevitably changing world?

Chief talent scientist at the Manpower Group, Tomas Chamorro-Premuzic, was at least prepared to be more candid with the readers of the Harvard Business Review about his own inability to conclude his post-mortem of Mayer’s term with a decisive explanation.

Chamorro-Premuzic began by examining Mayer’s personality, then her experience, even her gender, before getting bogged down by the fact that the organizational landscape can be “complex and abstract”, a world where “actions and decisions are not always easy to track”, and a CEO’s performance can be “hard to quantify”. 

Finally, he effectively threw up his hands and conceded defeat when he ended by declaring, “it is difficult to draw conclusions with an N of 1, and that is the situation we have here: one CEO, one job, one company.”

Understanding the real hidden cost of transformation

However, we contend that a conclusion can be drawn. But only if we approach the problem obliquely - by turning our attention away from the c-suite, the products, imagined pseudo-physical laws of the universe, and instead focus on what the leadership of most companies recognizes to be the real source of every organizations’ value, namely its people, and in particular, the unsung heroes that keep the organization running on a day-to-day basis.

By definition, unsung heroes are not high-profile individuals like their counterparts in the c-suite. He or she is often not even a manager. But these are the individuals with the team working ethic that ensures they couldn’t do enough to help a colleague in need; or the initiative and conscientiousness to go the extra mile for a customer; and they are oftentimes the custodians of the hard-earned tribal knowledge of how the organization works, how to get things done, and who can be relied upon to help.

 

 

We’ve all met these unsung heroes at some point in our career, often fondly remembering them for helping us settle in and get our own feet under the table. They are the heart and soul of every organization, without whom the organization struggles to function - and the problem is when the ax is indiscriminately wielded at the departmental, business line, or even team level, they are lost to the organization.

But even more measured business transformations fair little better in this regard. In the first instance, as management consultants will privately admit, this is because there is no methodology in their arsenal that can allow them to reliably divine who really makes a difference in a given team.

One might assume the problem could be resolved by direct observation over time. But aside from the fact that retaining fleets of management consultants to observe the workings of an organization would almost certainly be prohibitively expensive, it would fail in any case, given it would fall foul of the observer effect, i.e. the disturbance of the observed system by the act of observation.

This problem cannot even be side-stepped by an organization attempting to “clean house” by turning to its own managers to identify who should be retained. The strategy is inevitably undermined by all ”the politicking” referred to by Ravikant, a dynamic that is part and parcel of life within every collective human enterprise. 

In practice, this means that when deciding who to keep, it’s often the manager’s own interests, rather than the best interests of the company, that determines the outcome. As such, the loss of people who make a difference and embody the desired culture is not arrested.

Thus, the reality of business transformation is that the staff cuts that accompany them are never surgically conducted in strict accord with the best interests of the company. But rather, the process is more analogous to the ax being wielded in the dark, damaging the organization’s effectiveness, diluting its culture, and leading to the onset of the demoralization that inevitably accompanies the simultaneous weakening of the organization and strengthening of the cabals within it that are driven by self-interest.

When we take this hidden cost of transformation into account, it becomes easy to understand why Yahoo’s operating standards began to deteriorate culminating in the calamitous data breaches; or why the organization was unable to muster the creative and intellectual firepower required to bring new products to life and stay relevant in a changing world. 

Ultimately, as Mayer found out the hard way, it’s easy to see why the hidden cost of transformation is a price CEOs often pay for with their jobs and reputations.

 

Why ‘turning on the lights’ is easier said than done

When management consultants draw attention to the shocking rate of business transformation failures, why then do they focus on lesser issues rather than the concomitant hemorrhaging of capabilities that eclipses all the other problems?

The answer is because it’s easier to focus on talking points like creating a greater sense of urgency, or not creating a powerful enough guiding coalition, or telling the CEO to buck up his ideas when it comes to vision. Whereas the challenges associated with turning on the lights to allow the leadership to understand what’s really going on in terms of people, processes, and outcomes, seems daunting to say the least.

To start with, the organization would need to adopt a new management methodology; one that was intuitive enough for all levels of the organization to understand and internalize; yet powerful enough to rehabilitate a workforce whose very job titles and department names often serve to reinforce the idea that they exist to deliver mechanistic outputs rather than being the custodians of outcomes that contribute to the very wellbeing of the company.

Such a methodology would, for example, allow call center workers to reacquaint themselves with the idea that their job is not answering phones, but rather answering phones is incidental to their real purpose, which is solving customer problems - a purpose that directly contributes to the top-line goal of retaining customers.

At this point the focus of tracking could shift from outputs to the relationship between activity and outcomes. However, in the case of data-intensive and complex business operations, and particularly in the case of large organizations, where scale is also a factor, adopting such a methodology would immediately run into the challenge of how to go about tracking all the metrics involved.

The problem is that any attempt to automate such a task would require the technical prowess to pull and blend data from any number of different systems, many which were never designed to serve as data sources. The problem is then greatly magnified by the fact that the set of metrics that need to be tracked is not set in stone, but ever-evolving, given change is a constant in modern business.

Such an ongoing data integration challenge would constitute an intolerable burden for any organization, while the alternative of thousands of worker-hours lost to a daily grind of manually updating metrics would be equally intolerable.

 

 

The solution in principle

Given the challenges, for the methodology to be viable in these scenarios, a software system would be required to complete the solution - one that was capable of securely connecting to as many applications and processes as was necessary to synthesize and track all the metrics associated with everyone’s objectives; yet do so without the need for coding, with its associated costs and delays, which in turn would ensure the system could keep pace with business change.

As a baseline, such a solution would allow for the real-time automated updating of all the metrics involved, leaving everyone unburdened with the task of data entry, while free to continue using the applications with which they are familiar. 

Such a solution would also immediately pay for itself simply by virtue of the fact that it would allow for the decommissioning of any number of enterprise applications engaged in piecemeal attempts at arriving at the same holistic picture that this singular enterprise solution would be able to deliver.

But the real value of such an integrated approach would arise from how the combination would allow for a real-time and interconnected view of how activity at all levels was contributing to vision, strategy, and high-level goals. In turn, this would foster in the workforce not only the sense of purpose that comes with being able to see how one’s efforts are making a difference to the very well-being of the company, but also the initiative to make the changes required to better do so.

Meanwhile, the leadership would have been empowered with nothing short of a single source of objective truth capable of allowing them to finally understand the relationship between people, processes, and outcomes. In effect, the lights would have been turned on across the enterprise, allowing for strategy itself to be validated, including transformation strategy.

A tried and tested solution exists

You could be forgiven for assuming that such a union of methodology and tech exists only as blue-sky thinking on concept boards concerned with exploring the future of enterprise solutions. 

But in fact, the methodology not only exists, by this point it has been rigorously tried, tested, and refined in the business world for over thirty years. It is known as Objectives and Key Results, or simply OKRs.

The Gtmhub platform completes the solution by allowing for the successful adoption of OKRs across the enterprise, supported by a company and partner network with the vision to understand the true potential of the methodology.

The combination of OKRs and the Gtmhub platform is being used right now in hundreds of diverse companies to turn on the lights, ensure no more unsung heroes are lost, and ultimately set the stage for the leadership to be remembered for securing the long-term future of the companies in question.

In contrast, and somewhat ironically, Mayer should have understood the power of OKRs, since she came from Google, one of the early adopters of the methodology. As such, surely her real failure was simply that she failed to connect the part OKRs had played in the success and meteoric rise of Yahoo’s competitor, the purpose-driven ethos OKRs helped to foster at all levels, and just how beneficial it had been for everyone at Google to be able to base all their decisions on the single source of truth OKRs afforded them.

Instead, as Carson confirms, but without ever seeming to realize the full significance of his testimony, Mayer will be remembered as a leader who, despite being “reared in Google’s data-obsessed culture…. seemed perfectly comfortable with going with her gut.”