Yahoo Current Strategies - Case Study Example

Name: Tutor: Title: Yahoo Case Study Course Date: Yahoo Case Study Introduction Yahoo! was launched in 1995 by David Filo and Jerry Yang. They created the company while undertaking their doctorate theses in Stanford University. Yahoo! realized its revenue through advertising online. The excellent of performance of the company was thwarted along the way. The complex organization structure and absence of a clear framework for decision making made the company to loss out on important business deals (Percy & Elliott, 2009). There was need for chance. This paper explores the current strategy of the company, challenges being faced by the company, core competences and provides recommendations for further growth of the company. Strategic position of the company and having a decisive stand are important. Current Strategy Since its inception Yahoo! has grown tremendously before it commenced realizing the current challenges. Among is current strategy, Yahoo! Continued to embrace acquisition as a method of expanding and increasing its market share. From 2002 to 2006, Yahoo had acquired a total about 27 companies. Among these acquisitions it is Overture that proved very significant to Yahoo! Overture gave Yahoo! an opportunity to have its own search engine instead of depending on Google search engine. Yahoo! established itself as a large company that could be relied upon by customers. Despite declining revenues, the company has got a large market share and it is popular among internet users. Close of 500million users visited Yahoo! home page. It popularity resulted into high turnover during the early years of its launch. The company is engaged in restructuring as it seeks to reclaim its lost glory (Hof, 2006). The company also has diversified in many services and hence giving it an opportunity to receive customers from different works of life. The company used the top down decision making process and hence delaying decision making. Creativity was not also encouraged as the company top management had to approve everything that other workers engaged in. reducing the levels of management has to be a priority to the top management of Yahoo! The company does not specify in a single services that is majorly engages in and hence providing unclear path to dedication of workers. Yahoo! engaged the services of high profile executives such as Neil Budde, Lloyd Brown, and David Katz from Wall Street Journal Online, ABC Television, and CBS Television respectively. The company hoped to inject new ideas into its strategic plan by getting the services of reputable executives. The high profile executives will probably develop new plans that will help Yahoo! to grow and reclaim its lost glory. The company also embarked on a vigorous restructuring exercise where close to its forty units were scaled down to only five. Yahoo! changed its organizational structure to enhance decision making and delivery of service to the customer. Issues/factors facing Yahoo Yahoo! faced technicalities in its invention as far as advertising was concerned. When it incorporated Overture there was a high traffic of advertisement which came in that needed human intervention to operate. This proved to be very tedious to the company. This setback resulted into Google overtaking Overture in terms of advertisement revenues. Yahoo! became a victim of its own success. Irrespective of relevance the highest bidder of advertisement was given the top slot. Consequently Yahoo! was known to have a cluttered or congested page that left many customers confused. This disadvantage drove many customers to rival companies such as Google which had well customized pages. Although Yahoo! remained popular with over 500 million visitors every month, Google surpassed it in terms of revenue collected owing to the efficiency and effectiveness of organization. Customers viewed Google home page as user-friendly and simple. Lack of a clear identity also affected the chances of Yahoo! growth. It was challenging to define a clear strategic plan of growth when the company did not have a clear identity. The company could not define itself vivid and customers could not tell whether it was a search engine, media company, or a portal. Other companies were very clear about their area of specialization and gave Yahoo! stiff competition. Such companies included MySpace, Google, and eBay. Yahoo! lost its identity while trying to diversify into many areas of business. Other companies were doing well in their areas of specialization and customers preferred them to Yahoo! The company possessed an ambiguity as to whether it was a media company or a tech company. Despite Yahoo! being popular among Web visitors, Google still had more revenues demonstrating that organization is what really mattered. The company had numerous acquisitions such as Upcoming.org, Konfabulator, Flickr, Webjay, and Del.icio.us, however, the acquisitions could not be successfully integrated into Yahoo! operations. A user had to login separately into these components of Yahoo! and this made it laborious for customers. The organization structure of Yahoo! proved to be another impediment to its growth. Yahoo! had a complex matrix organization structure which resulted into responsibilities which were overlapping. The bureaucracy that was present in the company meant that there was a very slow decision making procedure. Hence the company could not react in time to challenges which were facing it in times of stiff competition from new entrants into the market. The top-down approach adopted by the company did not at all encourage creativity. All important decisions were being made by the top mangers while the people on the ground had to carry out orders from above. This method did not encourage the growth of other departments and creativity among the members of the organization. There is no initiative that could be implemented without permission from the top brass being granted (Hill, & Jones, 2007, p.112). The organization structure encouraged very little cooperation between different teams that were in the company. For instance, display and such teams could not communicate with each other! The organization was poor and customers complained that they could spend a lot of money without being recognized by the display people. Competition stifled the chances of Yahoo! growth. The company was slow in negotiating with other companies when it came to making business deals and this made it lose out on important decision such the deal with YouTube. Google went ahead and acquired YouTube. This can be attributed to the complex organization structure. Moreover, rivalry within the company resulted into slow decision making process. The company also failed in its bid to acquire Facebook (Enz, 2009, p.61). The delayed launch of the new product Panama led to plummeting stocks of the company in the stock market. Procrastination and slow decision making cost the company reputation and performance. Due to the fact that the company engaged in many services it was presented itself to many rivals who were established in their area of specialization. Absence of a clear blue print of strategic development made the company not to come out with a clear path of development. The company engaged in numerous product development efforts and services. This arrangement derailed its progress. Core Competences Yahoo! had several core competences which allowed it to remain competitive particularly in the early years after its launch. Yahoo! was renowned for its innovation and it offered customers with variety of services. These services represented the versatility of the company. The launch of new products like Panama helped to boost the sales revenue of the company. When the launch of Panama was delayed, the company witnessed a drop in its stock by 22% in one day. A dynamic and versatile workforce present at Yahoo! Corporation offered the company the chance of exploiting a variety of skills and competences in its growth plan (Chen, 2005, p.43). The floating of the company stock on the stock exchange helped in the growth in the prospects of investment in the company. The company could also access huge amount of capital for investing activities since it had investors’ respect and loyalty. The company is among the first ones to start online advertising and it benefited from loyalty of the customers that saw it as a leading providers of internet services. The company has the financial muscle to employ the top most managers and strategist to assist it in coming up with a successful growth plan. Yahoo! has a sizeable market share that can be very productive if used well (Hitt, Ireland, & Hoskisson, 2010, p.264). The familiarity that users have with the company is a scoring point when it comes to advertising. The company can spent less on advertising and still reach out to many users on the internet. Yahoo! has an advantage of using its global presence in developing its market share. Strategic Recommendations Yahoo! is viewed as a pioneer of many things in internet advertising, nevertheless, being slow to react to situations has made it to lag behind other rivals in the market. It is important for the company to narrow down on the specific type of service it offers so that it may reduce congestion of its home web page. Customers are confused with the display system being used by Yahoo! and fear that their money will not get the deserved value (Mandorf, 2011, p.114). The company has made the write move of considering restructuring its structure from a complex matrix that inhibits decision making. The process of decision making has to be enhanced in the organization. The lean structure of the organization will encourage creativity and fast decision making within the organization. Overlapping of responsibilities occasioned by a complex matrix structure was very costly for the company. Overlapping duties occasioned idleness or redundancies in some members of the organization. The lack of effectiveness and efficiency in the human resource utilization resulted into loss of money on the part of the company. Lack of specialization in the activities that the company provides continued to confuse clients (Lee, 2001, p.62). Reviewing the job descriptions of every position is important towards defining the role and duties of every worker or employee. Seizing chances when they present themselves is very important. The initial dilly dallying of the company has cost it on major deals like that involving YouTube. It is confusing for the company to lack a clear sense of identity. This makes it difficult for customers to identify with the company. The company has to define its area of specialization and focus on providing the best for the customers. The company can create subsidiaries instead of having a congest home page. The supervisors and managers on the growth should be given the opportunity to make important decisions that will help in taking advantage of opportunities that present themselves (Leibold & Probst, 2007, p.61). Empowering departments to make decisions and avoiding the top-down kind of communication being used is an important step that will enhance quick decision making within the company. The company has to develop a long term strategic development plan that offers the company with a path or course to follow. As suggested in the plan matrix structure has to be demolished and a lean structure has to be developed. Having a focused approach to business is very important since it will ensure concentration and quick delivery of service. Being decisive and empowering departments to make decision is an important step towards ensuring that is quick decision making in the company (Mital, 2007, p.114). The company has to do away with business units on the home page that are not performing well. A software program has to be developed to deal with the traffic of advertisement as opposed to using human intervention which can be unreliable. Conclusion Yahoo! commenced well and performed exceptional well following the early years after inception. However, its progress later on begun to waver and the company found itself lagging behind industry rivals such as Google. The management at Yahoo considered the challenges that the company was facing and this led to massive restructuring that saw many people laid off to increase efficiency in the company. Overlapping of duties was being brought about by the complex matrix structure that the company was using. There are core competences that the company could exploit to its own advantage in the market. The challenges being faced by Yahoo! are numerous but there is chance to turn the weakness into strength if the right decisions are made. The recommendations provide some of these strategic decisions that can be implemented to ensure growth of the company’s revenues. Bibliography Enz, C.A., 2009, Hospitality Strategic Management: Concepts and Cases, John Wiley & Sons, London. P.61 Percy, L. & Elliott, R., 2009, Strategic Advertising Management, Oxford University Press, New York. Hof, R, 2006, Five steps to get Yahoo! back on track, BusinessWeek. Hill, W.L.C, & Jones, G.R., 2007, Strategic Management: An Integrated Approach, Cengage Learning, New Jersey. P.112 Mandorf, S., 2011, Strategic Management of Complexity: Mastering of Complexity in small and medium-sized enterprises (SME) within a Balanced Scorecard (BSC) Analysis for the special case of the additional Perspective "E-Business", GRIN Verlag, Boston. P.121 Mital, 2007, Cases in Strategic Management, Tata McGraw-Hill Education, New Delhi. P.114 Chen, S., 2005, Strategic Management of e-Business, John Wiley & Sons, London. P.43 Hitt, M.A., Ireland, D.R., & Hoskisson, R.E., 2010, Strategic Management: Competitiveness and Globalization, Concepts, Cengage Learning, New Jersey. P.264 Leibold, M., & Probst, J.B.G., 2007, Strategic Management in the Knowledge Economy, John Wiley & Sons, London. Lee, O., 2001, Internet Marketing Research: Theory and Practice, Idea Group Inc (IGI), New York. APPENDICES 1. Macro-environment analysis Political factor Order of Importance Issue +/- Effect on Growth 1 Yahoo! experienced problems due to internal wrangles and rivalry between the CEO Timothy A Koogle and the President Jeffrey Mallet. The internal squabbles derailed the company from its vision. The company could not adapt in time to the changing environment. Product launch was delayed product launch owing to this internal turmoil. - 2 The company had political good will to carry out its operations. + Overall Rating: (BALANCED) Economic factor Order of Importance Issue +/- Effect on Growth 1 The company was received well and through an IPO in 1996, the sell of 2.6million shares raised US38.8 million. + 2 Yahoo! acquired Overture at the end of 2003 for about US$1.6 billion. Overture dominated search-related advertising, its revenue was twice that of Yahoo! + 3 The company raised revenue through online advertising, primary banner ads, and ad placement fees, sponsorship, promotion direct marketing, merchandising, and sponsorships. + 4 The business units were reduced by Semel from 44 to only 5. In an effort to consolidate its position, Yahoo! secured some acquisition deals. + 5 In 2003, Internet advertising was the fastest-growing advertising medium. Internet was valued at US$12.5 billion by 2005. It had grown by 30% as compared to the previous year. Display advertising share was at 20% with US$2508 million, sponsorship was at US$627 million, rich media was US$5142 million, classifieds US$2132 million, slotting fee US$125 million, e-mail US$251, and lead/referrals generated about US$753 million. + Overall Rating: (+ POSITIVE) Socio-cultural factor Order of Importance Issue +/- Effect on Growth 1 Yahoo! employees were of the opinion that the home page suffered for having too many cooks in the kitchen. - 2 No major cultural threats affected the company. + Overall Rating: (Balanced) Technological factor Order of Importance Issue +/- Effect on Growth 1 The company was unclear about its own identity. It could fall among a search engine, a portal, or a media company. Others sites had specialized in specific areas. + or - 2 Yahoo! home page was cluttered as compared that of Google. Customers preferred Google because it was user-friendly. + or - 3 Despite Yahoo! being established earlier it lacked the innovation spirit exhibited by Google. The home page was congested with so many icons. + or - Overall Rating: ( NEGATIVE) Legal factor Order of Importance Issue +/- Effect on Growth 1 Rarely did Yahoo! get entangle in any legal tussle. + or - 2 + or - Overall Rating: (+ POSITIVE) Sustainable Environmental factor Order of Importance Issue +/- Effect on Growth 1 There was no threat to the environment as Yahoo! contacted its business. + or - 2 + or - Overall Rating: (+ POSITIVE) Demographic factor Order of Importance Issue +/- Effect on Growth 1 Increase in the internet use favored the growth of Yahoo! + 2 Yahoo! was the most visited site on the internet and it averaged about 500 million monthly visitors in the year 2006. + Overall Rating: (+ POSITIVE or NEGATIVE or BALANCED) International factor Order of Importance Issue +/- Effect on Growth 1 Yahoo! growth was being eroded by new arrivals. There are so many service providers who were offering the same products in an efficient manner. - 2 Cross-border trading is affected by the national boundaries and differences in regulation policies. - Overall Rating: (NEGATIVE) 2. Industry environment analysis Threat of new entrants Factors (affecting the threat of new entrants) Analysis Threat Rating of New Entrants Economies of scale: Whether large-scale production is necessary for cost-efficiency. It is not a must since even Google had low revenue but registered high profits are compared to Yahoo! efficiency and effectiveness matters most. MEDIUM Proprietary product differences: Whether existing products are unique and difficult to replicate. Other competitors can easily copy and surpass what Yahoo! is doing. There are so many companies that started after Yahoo! and attained more revenue that Yahoo! Uniqueness in terms of customer value is yet to be achieved at Yahoo! LOW Brand identity: The existence of established brands. Google and other search engines are giving Yahoo! a run for its money. Many companies have grown to a formidable level. HIGH Buyer/customer switching costs: The difficulty of switching from an existing producer to a new entrant There are many customers who switched to Google when they realized that it is more user-friendly and simple to use. It is very easy for customers to switch to other brands that are offering better services. HIGH Capital requirements: Whether high capital requirements are needed for entry into the industry. The capital for an internet company establishment is high but not prohibiting. Many companies have managed to come up. MEDIUM Access to distribution: The ease of distributing products to customers. The ease and accessibility of the internet business provide an environment that allows quick distribution. HIGH Absolute cost advantages: The degree of absolute cost advantages that existing organisations have. The existence of absolute cost for existing organizations is very low. LOW Government policy: The degree of government ownership or regulation in the industry. The government is only concerned with paying of taxes and defending the welfare of the customers. LOW Expected retaliation: The extent to which existing competitors will retaliate new entrants. The other companies are prepared to invest new ways of reaching out to the customer in case of new entrants. New entrants have to be prepared for intense head to head competition. HIGH Overall Rating: ( HIGH) Bargaining power of suppliers Factors (affecting the bargaining power of suppliers) Analysis Rating of Supplier Power Differentiation of inputs: The extent to which the supplier’s input is crucial to the final product. Suppliers’ input towards the final product is very crucial. The cluttered Yahoo! home page was deserted for other user-friendly companies like Google. HIGH Switching costs of suppliers and firms in the industry: Whether suppliers have locked in their customers into staying with them. The suppliers have to appeal to their clients with the quality of service and there is no power of having customers locked. LOW Presence of substitute inputs: The level of importance a supplier’s input has to the performance of the producer’s final output. Whatever the supplier does at the input level is crucial to the final input. The presence of substitute inputs very real. HIGH Supplier concentration relative to industry concentration: The amount of suppliers in the industry. The industry is not very crowded with many suppliers but the level of competition is high. LOW Importance of volume to suppliers: The degree to which suppliers value large volume sales, which is an indicator of their likeliness to bargain. Suppliers want to make high sales with the aim of realizing a high profit margin. HIGH Cost relative to total purchases in the industry: Whether the supplier’s cost is a minor or large part of the total cost of supplies. The cost of purchases is high and makes a substantial part of the purchases. HIGH Information about supplier’s product: The complexity or uniqueness of a supplier’s product may cause the industry to be wary of substitutes. Many players in the industry understand what the others are doing. LOW Supplier profitability: The financial performance of suppliers affects their ability to bargain. The bargaining power is affected by the financial performance of industry players. HIGH Decision makers’ incentives Whether the supplier offers incentives to the purchasing decision maker in order to gain more power. The suppliers have to appeal to the buyers with their products and variety of services. HIGH Threat of forward integration The ease of suppliers entering the industry due to their size and power. Other suppliers can easily enter the industry so long as they have enough power and size. HIGH Overall Rating: (HIGH) Bargaining power of buyers Factors (affecting the bargaining power of buyers) Analysis Rating of Buyer Power Differentiation of outputs: The extent to which the industry’s output is crucial for the buyers. Industry’s output is very important to the buyers and they judge performance through them. HIGH Switching costs of buyers: Whether industry players have locked in their customers into staying with them. A buyer can easily switch to a supplier of his own choice. HIGH Presence of substitute outputs: The level of importance the industry’s output has to the buyer. Substitutes are very prevalent in the industry. HIGH Industry concentration relative to buyer concentration: The amount of buyers in the industry in relation to the amount of industry players. The buyers are very many as compared to the suppliers in the industry. The services offered over the internet are also very many. LOW Importance of volume to buyers: The degree to which buyers value large volume purchases, which is an indicator of their likeliness to bargain. This is not important to the buyers LOW Cost relative to total buyer purchases: Whether the industry’s cost is a minor or large part of a buyer’s total purchases. The industry’s cost is a minor part of the buyer’s total purchase. LOW Buyer information about the industry output: The complexity or uniqueness of an industry’s product may cause the buyer to be wary of substitutes. The buyers are very much informed about the industry’s product. HIGH Buyer profitability: The wealth of buyers affects their ability to bargain. The wealth of the buyers does not affect their ability. LOW Decision makers’ incentives: Whether the industry offers incentives to the buyers in order to gain more power. The industry offers flexibility and uniqueness LOW Threat of backward integration: The ease of buyers entering the industry due to their size and power. There is high possibility of buyers entering the industry owing to their size and power. HIGH Overall Rating: (LOW) Intensity of industry rivalry Factors (affecting the intensity of industry rivalry) Analysis Rating of Industry Rivalry Industry growth rate: Industry rivalry will be fairly low when the industry is growing fast. Industry rivalry is very when the industry is high HIGH High fixed costs: If fixed costs are high in comparison to total costs, competitors will engage in marginal cost pricing. The competitors have to engage in marginal cost pricing due to high fixed costs. HIGH Intermittent overcapacity: Periods of severe rivalry when supply exceeds demands (due to expansion by competitors). The industry has limited players who cannot result into such a situation LOW Product differences: Differentiated products lead to reduced rivalry. Simplicity and ease of access define the efficiency of applied a supplier. LOW Brand identity: If brands are important to customers, competition will reduce. In this industry brands are not important but the quality of service. LOW Switching costs: Low switching costs for buyers cause increased rivalry between competitors. It does not cost anything to switch from one supplier like Yahoo! to Google hence the level of rivalry is high. HIGH Informational complexity: Rivalry is reduced when buyers find it difficult to understand product differences. Buyers understand almost everything about the industry products. LOW Concentration and balance: If there are many competitors in the industry, with some aiming to change their industry position, rivalry will be considerable. Increase of competitors will lead to increase in rivalry. HIGH Diversity of competitors: The background of competitors affects how they view the industry. The background of competitors has implications on future performance. MEDIUM Corporate stakes: The commitment of competitors to the industry influences their propensity to live through poor results. The competitors’ commitment is important for resilience. HIGH Exit barriers: High costs to withdraw from an industry influence competitors to stay. There is no exit barrier in this industry LOW Overall Rating: (MEDIUM) Power of substitutes Factors (affecting the power of substitutes) Analysis Threat Rating of Substitutes Relative price/performance of substitutes: Whether the price/performance of substitutes rates well in comparison to the industry’s product. The performance of other players affects buyers’ choice. Price rates are important. HIGH Switching costs: The level of difficulty for buyers to switch from the industry product to a substitute. There are no switching cots in this industry LOW Buyer propensity to substitute: The tendency of buyers to switch products (due to time and effort required to make the switch) There is no effort required to switch to another service provider. High Overall Rating: (HIGH) Read More