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Summary:

There has been much debate lately about where Yahoo has gone wrong and what it needs to do to right itself. Salim Ismail, formerly of Yahoo’s in-house incubator Brickhouse, believes that the company’s problems lie in its very structure.

Neo in the Matrix

When Carol Bartz was hired, I was quoted in the New York Times saying that Yahoo should be taken private. A year later, I’m even more convinced that it’s the company’s only option. Here’s why.

There are some great strategy discussions about what Yahoo can do — notably from Jason Calacanis and Reid Hoffman.  However, as insightful as these assessments are, very few pundits see the real structural issue at play, which is Yahoo’s fossilized organizational structure. When turning Yahoo around the first time, Terry Semel implemented a classic matrix structure to manage the company. Products like Front Page, Messenger, Mail and Flickr are on the verticals, while organizational functions like PR, legal, privacy, branding, etc. are on the horizontals. This structure is used by most large organizations in the world, and it’s great for managing growth as well as for checks and balances.

But it is terrible for accountability or speed. Whenever you launch or change a product, you have to get clearance from legal, PR, branding, privacy etc, which inevitably takes time. The matrix structure also prevents any real risk taking. The legal department, for example, wants the same ToS across all the products. Brickhouse was created to circumvent this issue. Set up outside and away from the mother ship, we hoped to be the tugboat that pulled the big tanker around. It worked for a while, but the Microsoft bid pretty much derailed that effort. The company had to focus all its energies to fend off the bid, which was necessary but incredibly disruptive to morale and productivity.  In addition, the Matrix had woken up and was attacking our unit (the best analogy I’ve found for this is that whenever you do corporate incubation, the immune system of the company will come and attack you — but that’s a whole other post).

The matrix structure works great in older, slower industries, but on the Internet, the two attributes you must have are speed and risk. Very simply, Yahoo’s organizational structure is antithetical to the industry they’re in. Over time, that structure has calcified and today, Yahoo is a 14 year old dinosaur in the industry it helped form.

Inevitably, the people get blamed.  However, the fastest NASCAR racing team cannot win if you take the car off-road against ATVs on sand dunes. What needs to happen at Yahoo is a deep restructuring to strip out the org structure and push accountability, control and risk back out to the edges.  Let a product manager have full control and put themselves on the line in exchange for flexibility.  For example, at Brickhouse, we could choose whether or not to launch on Yahoo’s servers or avail ourselves of other internal or external services (in theory, at least. But this restructuring is a massive task and essentially requires major surgery on the company.  That is simply not possible while Yahoo is public and its constant focus is the hamster wheel of the quarterly numbers. The only option for Yahoo is to take the train off the tracks.

Importantly, this issue is not unique to Yahoo; it’s a structural mismatch between control systems needed at any large, public company and the high metabolism of the consumer internet. Google was also falling into that structural trap, and Larry Page’s first steps were to reorganize to try and avoid that fate.

Ashkan Karbasfrooshan has a good analysis of the numbers, which shows that Yahoo, despite having as many users as Facebook, is worth just 1/20 of Facebook, despite being profitable and having higher revenues.

There is clearly a tremendous upside to play for, and like many ex-Yahoos, I bleed purple on the inside.  I hope someone steps up and does the right thing — Yahoo is an important foundational piece of the Internet; it deserves to be saved from the Matrix.

Salim Ismail is the founding Executive Director and current Global Ambassador at Singularity University, based at NASA Ames. He’s a former Vice-President at Yahoo and ran Brickhouse, their internal incubator.

Image courtesy of Flickr user Sudhee.

  1. As an Ex-Y! too, i totally agree with this, however one point to make, while brickhouse was a great team, it epitomizes what many corps get wrong about their innovation plays. Having a separate “ninja” team that is responsible for all the smart plays, gives everybody else in the org the out they need not to have to be innovative, it legitimizes mediocracy in the rest of the organization, because innovation becomes “not my job” for everybody else.

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  2. I agreed. I’ve amazed from where you got this point? Really nice one explanation and I would love to do so. Yahoo makes all one and new. Nice article Salim. Thanks.

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  3. Please, what is with the title, Salim? Let’s leave the sensationalism to hacks like MG Siegler. The reason I read GigaOM, and not TechCrunch, is exactly due to his absence. Emulating that sort of writing is beneath you.

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    1. But the name is brilliant. Did you read the article? It is directly relevant to the matrix structure …

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  4. oh god please stop it all of you. first of all, brickhouse was a flop. secondly, people have been writing these idiotic “intervention” blogs for years now regarding yahoo. the patient doesn’t want to be saved. move on.

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    1. Youplayyouknowitall Tuesday, September 13, 2011

      Excuse me “who” is the patient? Are you seriously talking about and for all those 14000 people???

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  5. Salim, re Brickhouse, the analogy I have is that when you try to inject fresh DNA into the gene pool of a company the organism rejects it like an organ transplant gone bad (similar to your immune system analogy) because it perceives the new ideas as an attack

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    1. So then why not inject in small doses / incrementally so that the Yahoo! immune system gradually assimilates. Rome wasn’t rebuilt in a day, I love and therefore hope Yahoo! just does it. ;-)

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  6. When I look back at my time at Yahoo, I feel really sad at all the wasted opportunities. Yahoo was blessed with incredible teams more than capable of developing and launched winning products, only to be crushed and punished by the organizational machine.

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  7. Great Article Salim, Yahoo may not have been that popular these days but yes its still its a great medium..Surely there would be better things ahead for Yahoo

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  8. Nilofer Merchant Tuesday, September 13, 2011

    I’m not convinced that Yahoo (or any big enterprise) with a different cultural norm can be turned around. That said, I think you’ve got a nugget here worth exploring for small companies — how do you scale without getting becoming “big” and start to do this crazy hierarchical thinking.

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  9. Brilliant FORGE Tuesday, September 13, 2011

    Salim, I agree that the matrix only makes sense for certain support functions that you really should centralize, usually due to policy and oversight (e.g., HR, Legal). Shoving other functions like Design and Research into a matrix role tends to slow down execution and hinders innovation. But, as another ex-Yahoo, I agree with Tim. I’m not sure that I would characterize Brickhouse as executing successfully until the Matrix “attacked it”. Everyone within Product & Engineering organizations should be responsible and accountable for the innovation and evolution of their respective products. Creating a separate “innovation group” that exists somewhere else in an ivory tower only makes sense if that group is chartered with the creation of an entirely new product. There are historical examples of that having some mixed success (e.g., Apple’s original Macintosh team delivered, but alienated the rest of the company). But, if the innovation is supposedly being applied to an existing product line, you can be certain that the core team will feel alienated and exhibit “organ rejection” when you try to inject that innovation back into the core product.

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  10. Great post, thanks.

    As someone who works a lot on matrix management I often see the matrix structure getting the blame for lack of clarity and speed. In my experience is not the structure at fault but the way people work together within it. There are plenty of slow hierachical compnaies who lack innovation too!

    In fact companies often introduce a matrix to give them more speed and flexibility. But unless you give people the skills to operate within this more complex and fast moving environment they can easily create bottlenecks and delays.

    A well-run matrix requires the decentralised decision-making and autonomy you correctly identify as essential.

    If a matrix becmes centralised it is indeed ineffective – this is not the fault of the structure which is actually flexible to either interpretation.

    My advice to Yahoo would be to stop worrying about the structure and focus on the skills of their people and clarity of their goals and priorities. More on creating speed in my book Speed Lead – faster, simpler ways to manage people, teams and projects in complex companies.

    Kevan Hall

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    1. Kevin, my counterpoint would be that you can’t have a matrix structure for an internet company. It simply can’t operate with the required nimbleness and speed.

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