How to save a sinking ship: lessons from Marissa Mayer’s experience at Yahoo ⁰

When former Google employee Marissa Mayer joined Yahoo as its CEO in 2012, she inherited the company’s vast problems. Though it was once seen as one of the first tech behemoths, Yahoo’s inability to come up with ground breaking products like Google and others, put it in a slow, steady decline. Mayer was immediately tasked with trying to reinvigorate the stagnating company. Her focus was to find a way to identify and retain talent, while phasing out ineffective employees. However, Yahoo’s new management policies have brought about much debate and criticism from HR experts. A controversial book by journalist Nicholas Carlson titled “Marissa Mayer and the Fight to Save Yahoo!” paints a highly critical view of Mayer’s first years as CEO. In response others have defended her, arguing that she has done the best she can with the resources available, but has become a scapegoat for poor management, like so many other women in powerful positions.

Whichever side of the debate you’re on, having to downsize while injecting new energy into a company is a difficult task many face. An analysis of some of the strategies implemented can serve as a guide to the best practices and pitfalls to avoid when facing this dilemma. What can your company learn – good or bad – from Yahoo’s experience?

Transparency through weekly FYI meetings

One of the first seemingly positive changes Mayer instituted was a weekly ‘FYI’ meeting. In these meetings all Yahoos submit and vote on the most popular questions they want answered about any aspect of the company’s decisions, practices and plans. Mayer and other senior management then answer the top questions in front of the entire company. These meetings were created as a way to improve transparency and bottom up feedback from employees.

Previously, Yahoos were often kept in the dark about company issues, having to read about them in the news. According to a 2014 survey by the American Psychological Association, 1 in 4 workers don’t trust their employer, while 1 in 3 believe their employer is not always honest and truthful with them. Trust is strongly tied to how transparent a company is towards its employees. Having a stake in how the company behaves makes it more than just a job, but a community in which employees are considered to be valued members.

Being able to see how individual efforts are contributing to a company’s success and goals can also build a stronger sense of purpose and motivation at work. The same survey reported that employees who feel valued are 92% more likely to feel satisfied at work and 91% more motivated to do their best. In return, hearing from employees helps companies to identify hidden issues of interest in advance and come up with more insightful solutions in coordination with those working on the ground.

However, these meetings are treated more as one-way informational sessions and there is often no follow up to the issues that are raised. The low point came when Mayer took to the stage to read a children’s book about spending money to the audience after being asked tough questions about the company’s financial decisions. In his book Carlson gives an insider’s perspective to Yahoo’s confidential FYI meetings, providing some of the most popular questions launched at Mayer and her team, including their responses. The questions give an insightful look into other controversial management policies undertaken by Yahoo.

Quarterly Performance Reviews

Some of the most popular FYI questions were directed at the new Quarterly Performance Reviews. To solve the downsizing dilemma Mayer implemented this system to help make tough employee cutback decisions. Rather than assessing employees based on the same standards, the positive side of this system is that it revolves around employees setting their own quarterly goals. Managers then evaluate employees based on their progress. Encouraging employees to set professional goals is a great way to boost motivation and professional development.

Various studies support Goal Setting Theory, which first became popularized by psychologists Edwin Locke and Gary Latham. According to Locke and Latham’s theory there are five dimensions which must be considered for goal setting to be an effective motivational tool: clarity, challenge, commitment, feedback and complexity. Ten years of study on this subject led them to conclude that when setting goals that were specific and challenging, but manageable, subjects were 90% more productive than those who set easy goals for themselves.

However, in Yahoo’s case, this method was being used to decide who would stay and who would get the axe. This meant that rather than being encouraged to come up with goals strictly for the purpose of improving, employees set goals with job security in mind. In effect this tactic may actually have undermined the potential benefits of goal setting.

For one it can greatly impact employees’ motivation for creating goals. Instead of basing goals on how they can contribute to the team, employees may base goals on what will get them the best and safest results. Discouraging employees from creating challenging goals or trying something new essentially stifles innovation, the opposite of what Yahoo was trying to achieve. On the other hand, this may lead some employees to set overly challenging goals as a way to stand out and impress their manager. Overwhelming oneself with unattainable goals will only lead to demotivation and burn out. In this way goals are not seen as a way to challenge and improve but a battle plan for keeping your job.

Placing employees into “Buckets”

Based on whether employees reached their goals, managers would have to put them into one of five “buckets”: greatly exceeds; exceeds; achieves; occasionally misses; misses. Rather than being free to place employees into buckets as they thought best, managers were pressured at times to put good employees into lower level rankings to meet quotas, essentially stack ranking with a new name. According to Carlson, one of the most popular questions from the FYI meetings was:

“I was forced to give an employee occasional misses, [and] was very uncomfortable with it. Now I have to have a discussion about it when I have my QPR meetings. I feel so uncomfortable because in order to meet the bell curve, I have to tell the employee that they missed when I truly don’t believe it to be the case. I understand we want to weed out mis-hires/people not meeting their goals, but this practice is concerning. I don’t want to lose the person mentally. How do we justify?”

The endless announcement of companies ditching stack rankings in recent years has greatly discredited the practice. Companies including Accenture, Adobe, Deloitte, Microsoft and even the founder of the system GE, have all contributed to its decline. They found that stack ranking increased competition between peers leading to a lack of teamwork. Top employees often don’t want to work together and risk being ranked lower in comparison. In the end, this tactic does not necessarily leave you with top employees but those who were favored by management or able to fight to the top.

A scathing article published by Vanity Fair in 2012 described Microsoft as a falling (or crashing) star of the tech world. Similar to Yahoo, the article discussed its rise and steep decline due to a failure to stay competitive with innovative new ideas from giants like Google, Apple and Facebook. Based on a number of interviews with past and current employee, the root of the problem was clearly attributed to the fierce office politics created by its stack ranking system. Bill Hill, a former Microsoft manager explained, “They used to point their finger at IBM and laugh… now they’ve become the thing they despised.” Johann Garcia, a former Microsoft product manager posited, “Google was so far ahead and we had so much infighting. A lot of people became so unhappy and just lost all momentum.” In a 2013 memo from HR Chief Lisa Brummer, Microsoft announced its decision to completely do away with its curves and ratings and move towards more regular feedback to boost teamwork, agility and innovation.

GE’s former CEO Jack Welch, the founder of stack ranking, designed the system to downsize its oversized employee base and stay competitive with Asian markets. Its decision to ditch stack ranking in 2013 came as a shock to the HR world. In an interview with Quartz, Susan Peters, head of human resources at GE, explained their decision to ditch stack ranking, “It existed in more or less the same form since I started at the company in 1979… But we think over many years it had become more a ritual than moving the company upwards and forwards.” It’s not only inconsistent with the goals of fostering teamwork and innovation in a company, it’s also incompatible with the needs of today’s workforce. As Peters explained, “The world isn’t really on an annual cycle anymore for anything… I think some of it to be really honest is millennial based. It’s the way millennials are used to working and getting feedback, which is more frequent, faster, mobile-enabled, so there were multiple drivers that said it’s time to make this big change.” As the number of companies using the system has declined from 49% to 14%, Yahoo is moving in the opposite direction.

Acquisitions

During this time Yahoo also began a strategy of acquiring fast rising start-ups and growing companies, most notably Alibaba and Tumblr. The company was therefore able to bring in lots of new innovative hires from these companies. However, there were two problems with this strategy. First, many of these teams were close knit and enjoyed the start-up life. Joining a big company and having more rigid demands on the kinds of projects they could work on, while their ‘baby’ was either acquired by Yahoo or disbanded was spirit crushing. A popular FYI question from this group was:

“Recent acqui-hire with real technical chops, yet I spend a vast amount of time satisfying the needs of bureaucracy and unable to focus on making a real difference. The amount of time wasted on “metawork” is astounding (e.g. have posted graded goals but still required to send a summary of accomplishments for the qtr in an email to my manager). Focus is about removing distraction – not just the properties/platforms but also the process. Stop killing my will to care – let us do real work!”

Second, it was demoralizing for current employees who found it hard to get a raise, while they were being joined by new co-workers making higher salaries. One employee wrote in an FYI question: “Told to wait 2 years for promotion, then no opportunities available — what happened to investing in people? (310 votes).” Creating a strong company culture is essential in any company, especially when taking on aqui-hires. Yahoo’s system of fierce competition has not fostered the type of environment where a strong culture can be implemented to help retain employees and successfully on board new hire.

Working from home

Finally, one of the most unpopular decisions regarding company culture was Yahoo’s ban of telecommuting in the hope of improving productivity. One of their main arguments was that having people in the office together more often would encourage collaboration and thereby innovation. In reality, this move sparked a great debate over telecommuting amongst experts, and encouraged the University of Illinois to conduct a study on the practice. The study found that employees who telecommute are actually just as productive or in some cases even more productive when working from home.

With this change Yahoo was trying to attack a symptom rather than the root of the problem. Pitting employees against each other in a stack ranking style system actually discourages collaboration. The experiences of companies that ditched this system have shown that employees are more likely to try and undermine the competition than work together.

When employees feel they are listened to, have positive development goals in place, have a positive working environment (relations between employees and managers) and are encouraged to challenge or innovate there is not a strong need for companies to monitor their progress. Self-motivation and productivity are strongest when employees enjoy greater job satisfaction.

Alternatives to Yahoo’s methods

Despite some of the growth and reinvigoration Yahoo has felt as a result of these changes, it has yet to make Fortune’s list of best places to work and even missed the cut for the Fortune 500 list of top companies in 2014 and 2015. Will and can Yahoo make the switch now? What does it take to break out of this cutthroat culture?

Greater transparency can create a deeper sense of trust between employer and employee. Yet, information on the company’s activities alone is not enough. As the backbone of operations employees want to have a say on the direction the company is going in and especially in the way their work is being managed.

A greater focus on interpersonal skills is important for good company culture fit and teamwork. Implementing a system for giving 360-degree feedback would be less biased and provide less chances for employees who are merely trying to curry favor with the boss to rise to the top. Getting feedback from peers gives better insight into how the employee fits into the team and how well they work with others. Allowing employees to evaluate their managers also lowers the risk of favoritism and unfair management policies.

Termination should be a separate process from goal setting. Goal setting should not be linked to job security. To reap the motivational and productivity benefits of goal setting techniques, employees should be free to create goals based on professional development. Giving more frequent feedback and coaching to employees will help them to realize these goals and grow, increasing the number of top performers in your existing workforce.

Work should also be put towards improving on people’s strengths rather than weaknesses. According to researcher and applied psychology expert Michelle McQuaid, 64% of employees believe they are more successful when building up their strengths as opposed to weaknesses. This can have a major impact on motivation as employees who have strengths discussions with their managers are 78% more likely to feel their work is appreciated and making a difference within the team. This can only happen if managers and employees are giving more feedback to help each other identify and grow their skills together.

The main thing Yahoo got wrong is that they attributed low productivity and innovation to their employees. What companies like Yahoo often fail to realize is that they don’t have a people problem, they have a management problem.

This article also appears in Work&Place

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Andrea Hak works as a content writer at Impraise, a web based and mobile solution for actionable, real-time feedback at work.

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