Yahoo's Problem: Bartz Is the Wrong Type of Turnaround CEO

Yahoo (YHOO) performance is nothing to yodel about, and that's a problem for CEO Carol Bartz. During her 18 month tenure, revenue has continued to drop, missing analyst expectations four out of six quarters, as Dawn Kawamoto points out in DailyFinance.

Some major investors are already disenchanted with the CEO. Given that CEOs can generally count on 18 to 24 months to prove their worth, Bartz is already in the countdown phase of her time with Yahoo. But for all the strategic mistakes she has made -- and there have been some clunkers -- investors should blame the board, for the directors and search committee made the biggest blunder. They assumed that all turnaround CEOs are the same, and that's a huge miscalculation.

I'll admit to being a big critic of Bartz, as I think she's made some bad calls from day one:

  • Even when talking about how she wants Yahoo to be the center of its customers' online lives, Bartz doesn't get that companies must revolve around their customers or have a strong tie that binds everyone together. But she has focused on what the company wants from the customers, and not on what the company must do for the customers.
  • Bartz has a colossal ego that may have helped her get to the top of a major company, but that keeps her from doing what she really must.
  • Bartz cannot clearly and simply articulate what the company does, even as customers spend less time on the company's sites.
  • A $3 billion stock buyback, which would suck up most of Yahoo's cash on hand, is a massive mistake and an attempt to juice the stock price independently of the company's performance.
There are two types of turnaround CEOs. One is the consummate operations person who can stop the money leaks, cut under-performing staff and activities, and get a company onto solid ground. People who specialize in this area are generally smart (by necessity), largely tactical -- and often temporary. The point is to get the economic ship floating and then to move on.

At least in terms of the focus on operations, Bartz is this type of turnaround CEO. But for a company like Yahoo, that's only part of what is necessary to cure the problem. The second half is a strategic turnaround, in which you take an organization that doesn't know where to go and develop a direction based on markets and the company's expertise and its assets.

In 2005, Forbes wrote this of her:

Since 1992, Bartz, 56, has transformed Autodesk from an aimless maker of PC software into a leader of computer-aided design software, targeting architects and builders. Bartz is now taking Autodesk into new places, like mapping software, movie special effects and software catalogs for infrastructure such as roads and bridges. Autodesk's stock has beaten the software sector's slump, probably because Bartz encourages risk taking with her "fail fast-forward" rule: If it doesn't work, that's OK, just move on swiftly.
However, Autodesk was traditionally a leader in CAD. Bartz may have returned the company to what it had been, but that's paring away the distracted overgrowth from a healthy plant.

Yahoo had a different underlying problem of direction. It started as a portal -- a convenient place to find useful things online. Unfortunately for the company, consumers no longer need portals. The web is decentralized and most people use a combination of browser bookmarks, search engines, and recommendations to find what they want. This is why Bartz has been unable to cleanly define Yahoo. It has always been a hodgepodge collection of different information sources and services.

The problem well predates Bartz, and frankly, the board should have seen this issue coming. The company needed someone with experience redefining the fundamentals of a business and making it relevant. It's similar to what Lou Gerstner did at IBM, walking away from the presumed need to break the company into parts and, instead, turning it into a major services provider. Steve Jobs did much the same in his second stint at Apple (AAPL), pushing the company toward consumer electronics.

Bartz has sold off some parts of Yahoo, but that won't help because this is a case where subtraction doesn't leave a tight core. Unless she can either find or create that core, and fast, by this time next year we won't have Carol Bartz to kick around any more.


Image: user lusi, site standard license.

Featured in SciTech