Reasons Behind Yahoo!'s Four-Year Slump

The press has shown little mercy in criticizing Yahoo! (YHOO) this year. And deservedly so.

The four reasons most often cited for the Internet company's missteps over the last four years have namely been the people at the top:
(1) Terry Semel;
(2) Jerry Yang;
(3) Sue Decker; and
(4) the Board of Directors.

They all received glowing press coverage when Yahoo! was riding the general ad market recovery and shift to digital ads in 2002 to 2004. But now they are being slammed in various business media for their actions, and in some cases inactions, that have since led to stagnation and decline.

It's normal to blame organizational failures on the leaders at the top -- consider Dick Fuld at Lehman Brothers, Vikram Pandit at Citigroup (C) or even a market-maker like Bernie Madoff. Group leaders and their choices are, in the end, responsible for group actions and outcomes.

But there are four other reasons to account for Yahoo!'s decline in the past four years:
(1) A lack of product leadership;
(2) self-isolated leadership;
(3) a culture tolerating non-performance; and
(4) the use of a matrix organizational structure.

Each of these problems traces back to choices made, consciously or not, by senior leadership. Until Yahoo! recognizes and understands these issues, the company won't be changed. This is why the choice of the company's next CEO is so important.

The right CEO will see these issues clearly from Day One and change them; the wrong CEO will be oblivious to them. Unfortunately for Yahoo! shareholders, the people selecting the next CEO will be the people on the board who've missed the four reasons for the company's recent poor performance of late.

Over the last few weeks, I've reached out to several senior and mid-level former Yahoo! employees, asking them to offer up an explanation for what has brought down Yahoo!. They agreed on a number of points, despite the fact that they come from different functional groups. Each of the people I contacted spoke to me on condition of anonymity.

Even though they had moved on to exciting new jobs, they expressed regret about the current state of Yahoo!, especially since they felt that they had gained a lot from their time at Yahoo!. Each person agreed that the company was fixable and that the decision about who will be named as the next CEO was critical. Most were pessimistic that the company would achieve its potential.