Yahoo turns to McKinsey for cost reduction strategy

07 December 2015 3 min. read

Marissa Mayer, the CEO of internet giant Yahoo, is buckled under increasing pressure. In a bid to turn the company’s fortunes and suppress internal struggles the former Google veteran has brought McKinsey & Company on board. Key task of the renowned management consulting firm: develop a cost reduction strategy and support the firm with the exploration of new business models.

Yahoo has undergone considerable challenges in its recent history as online competition for its chief product, advertising, has heated up. Today, new entrants like Facebook, as well as giants like direct rival Google, make holding on to, and leveraging, market share more and more challenging. This year has been turbulent for the company, as its share price tumbled 30%.

Yahoo has turned to McKinsey

To keep pace the company, founded in 1994, has undergone a number of transformations of late. First former CEO Scott Thomson reformed the company around the principle of putting customers first, while at the same time he downsized the company with 2,000 staff. In 2012 Thomson was replaced by Marissa Mayer, a veteran at Google, and she has since been seeking to reimagine the purpose Yahoo! serves.

The task has not proven to be an easy one however, with the company continuing to face stiff competition as Mayer sought to bring a turnaround to the company’s fortunes. One area of acute difficulty has been in keeping executive talent on board long enough for the respective functional areas to become effectively run. In the recent past executives, like Lisa Licht, the firm’s marketing partnerships head; Alex Stamos, the firm’s chief information security officer; and Scott Burke, Yahoo's senior vice president of advertising and data platforms, have made tracks. Another area of discussion is Mayer’s M&A strategy. She has spent hundreds of millions to buy among others Tumblr en Polyvore, yet the return has yet to materialise on a large scale.

In a bid to stem the tide of executives washing out of Yahoo, Mayer has asked current executives to make a medium term commitment to the firm, requesting that they stay between three and five years. Following the request, among others, European boss Dawn Airey and marketing and media head Kathy Savitt both declared their departure from the firm, as well as development chief Jackie Reses.

The McKinsey Quaterly

Further efforts to halt the losses, and to breathe new life into the transformation process, has seen Yahoo call in the world’s most prestigious strategy and management consultancy McKinsey & Company. The firm has been tasked with considering how best to turn around the now three year turnaround of the firm, with a focus on rationalising various functional areas. The consultancy will focus on strengthening the company’s core business, with the chances of closure for the company’s more satellite projects. More details have not been unveiled – the analysis by McKinsey is expected to take a few months.

“As we move into 2016, we will work to narrow our strategy, focusing on fewer products with higher quality to achieve improved growth and profitability,” said Mayer in the firm’s third-quarter earnings statement.

The turn to McKinsey comes at a critical time for Mayer. Shareholders have been grumbling in recent months, and their patience may now have reached a tipping point. Last week the Wall Street Journal unveiled that Yahoo has opened negotiations to possibly sell its internet activities, the activity which made the firm big.