Yahoo hires consultants to advise them on layoffs. Did they make the right choice?

by Jay Bhatti on October 22, 2008

I know a thing or two about consultants. I used to be one for nearly 5 years in the fast paced world of high tech consulting on Wall Street. We would advise banks on everything from what database to buy, to how best to setup global technology infrastructure and headcount.

When I heard that Yahoo hired Bain to help them figure out what to do with their organization, I started having some reservations about such an approach.

It’s not that I feel hiring consultants is a bad thing. On the contrary, if you need a specific technology implemented and don’t have in-house expertise, or if you need some detailed market research, then a consulting firm is by far the best option since they work with various companies in your industry. But, if you hire consultants for corporate strategy, then you are asking for potential problems.

Hiring consultants can represent an unnecessary waste of resources. As a VP or C level executive, you should already know more about your business than some hired hands that comes in for 6 weeks to propose a “transformational” roadmap on how to reshape your company. In addition, often times a company already has a sense of what needs to be done, and will look to consultants merely for justification or validation for their actions.

After I left the world of consulting and joined the tech industry, I was surprised to see how many times senior executives would hire consultants, wasting hundreds of thousands of dollars on a consultant’s recommendation, that in the end was no different than what the executive wanted in the first place. Not that an executive is likely to complain about the cost. More often than not, transformational consultants are brought in as an executive scapegoat to blame for the layoffs or change.

Yahoo, in hiring a consulting firm for its corporate strategy will likely face warranted and unwarranted criticism from both sides.

One of the reasons why Yahoo might have made its decision public was to show the market and their employees that they were being as careful and diligent as possible in determining what cuts needed to be made. In hiring a top company like Bain, they undoubtedly hope the marketplace will view their hiring as an indicator of their desire to get the best possible advice and implement the best plan.

Yet, in my conversations around Silicon Valley, there’s a vastly different vibe in response to the news on Yahoo. There’s a strong sentiment among insiders that Yahoo hired Bain because they do not have the operational leadership in place at the top and management is disconnected from the workings of the organization. In addition, Yahoo management wants to disconnect themselves from certain hard decisions and having a consultant is the easiest way to save face.

One person I spoke with cited the management principles of Jack Welch, who has no patience for any of his executives that would choose to bring in management consultants. Jack firmly believed that if you have to bring in an outsider to tell you how to run your business, then maybe you belong someplace else. One of the people I spoke with even went as far to say that Yahoo’s decision to hire Bain only proves that Jerry Yang is not the right person to run Yahoo.

I feel as though the comments on Jerry are a little harsh as I’m personally a big fan of Jerry Yang and what he’s done. I respected his stance during the Microsoft bid, and being an entrepreneur in Silicon Valley myself, I know how hard it is to create a valuable company, hire great people, and navigate through the rough times that come in the tech sector every few years. After listening to people complains about Jerry Yang, I often ask them how many multi-billion dollar companies they’ve started?! Jerry created one of the darlings of the Internet and the most visited site in the world, yet he’s still getting blasted for every move he makes or does not make. While I certainly don’t agree with everything Yang’s done at Yahoo, I have a tremendous amount of respect for the decisions he’s made and the challenges he faces today.

Unfortunately for Yahoo, there is really no right way of doing what has to be done. Had they not hired Bain and the layoffs include the wrong groups, then people will blame them for not thinking through the process. However, even if Yahoo gets the ideal outcome and strategy in the long-term, it will still be perceived by some people, that the management was weak for having to go outside for something that could and should be done by senior leadership directly.

Ultimately, Yang will need to disregard the short-term noise people in the valley and Wall Street make. He’ll need to make the final call on what strategy to implement, and regardless of where that plan comes from, if it is the right one for Yahoo, I am sure Yang will pick it.

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