Why Yahoo's Year-End Closure Is Stupid

Rob Enderle

I have two books floating in my head, one tentatively titled "How to be a Great CEO," and the other "Stupid CEO Tricks." Unfortunately, I have a lot more material for the second at the moment. Case in point: Yahoo's announcement this week that the company will close down for the final week of the year.


(Update 12/22/09: Yahoo represents that they notified employees in April of this move and updated the internal Web site at the end of November to reflect the closure, which they claim to be immaterial to operations or the SEC. None of this was apparently reported at these times. They have declined to provide any of the related documentation citing company policy not to release internal information of this type. According to Yahoo, no other publication has asked for this documentation.)


The company spin is almost painful to read. There are a lot of things wrong with what Yahoo is doing, from signaling a severe financial problem to showcasing an executive staff that still doesn't appear to know what business Yahoo is actually in.


Year-End Plant Closures


Many companies close down for the year's final week and doing so often is institutionalized for a number of reasons. Such closures mostly grew out of industries with substantial plants that need to be shut down from time to time for preventative maintenance. Some types of maintenance require the entire facility to be taken offline for safety reasons, and since a lot of folks take the holidays off anyway, this becomes a good time to get that work done.


Excess inventories provide another good reason. If you have too much stock, building more will mean having to dramatically lower prices over an extended period and will damage profitability. It is better to stop production to drop inventories so you can maintain price and protect margins. We see car companies do this quite (too?) often.


If you aren't in manufacturing, year-end closures are common if the company's customers also are largely shut down over this period. There simply isn't enough to do. While it can be fun, because there are a lot of parties, shutting down simply reflects the reality that little is being done anyway. Autodesk, where Carol Bartz, Yahoo's new CEO came from, likely fits this model.


Finally, site shutdowns are common because of severe liquidity problems. However, if you have to shut down a site because you don't have cash and can't get timely credit, the likelihood that you'll reopen the site is somewhat remote. And getting credit if you've shut your plant down is generally harder than if you can show ongoing operations.


None of these situations should apply to Yahoo but the last, and if it is this short of cash, the company is in worse shape than many of us have been led to believe.


Doing a Shutdown


You typically want to give at least three months' notice (the more, the better) for a shutdown because working groups need to shift loads so that things that need to be finished by a certain time still get finished. At year end, even if you are on a fiscal and not a calendar quarter, you still have to close the books for the quarter, which can be difficult if no one planned for the last week off.


From an employee perspective, you need to allow enough time to assure your employees can actually take the time off. There are the personal logistics of two-earner families needing to coordinate. Trip planning isn't an instant thing. More problematic is that if these things are done suddenly, the employee doesn't have a chance to complete timed projects and might instead have to do them while on vacation. In effect, the company then isn't really shutting down; it is simply eliminating an earned vacation and having the employee work from home.


In some locations, vacations can't be arbitrarily eliminated and could result in labor or legal issues, not to mention really pissing off employees who weren't prepared for this.


This potentially damages employee loyalty and productivity (though we do need time off to recharge), and creates the appearance of an elitist, uncaring executive staff. None of this bodes well for a company long term.


A week's notice makes this action look punitive against employees, and it does not reflect well on Yahoo's executive staff.


Yahoo's Business


Often when a new executive team comes into a vastly different business, it takes them a while to learn which practices aren't appropriate for the new company. For Autodesk, a shutdown tied to a customer slowdown is likely a reasonable decision if employees and customers are given proper notice.


However, Yahoo is in the media business and its customers, many of whom may be planning to go on the Web while on vacation, might be using Yahoo more at the end of the year rather than less. Depending on the weather, many could be stuck at home with little to do and if Yahoo were to focus on capturing these potential customers, it might see a benefit. Adobe and Apple, other tech companies reportedly also doing year-end shutdowns, are in different businesses.


In short, Yahoo's market is not known for doing year-end shutdowns. Yes, key staff often takes this time off, but general operations continue because Yahoo's users likely expect it (advertisers don't stop advertising over the holidays, either). There are big sales coming from Yahoo customers that need focus and the Consumer Electronics Show in January, at which Yahoo has generally had a large presence, requires lots of work to do right. That work now likely will be rushed.


Wrapping Up


Messing with employees if you don't know what you are doing is foolish because it can have massive unintended consequences. In this case, Yahoo is signaling extreme financial distress that might not exist, it is punishing employees who might have to work at home while on vacation time, and it is demonstrating that the new executive staff is still clueless about Yahoo's business.


There is no real positive here other than the possible savings on utilities and the removal of some accrued vacation from the books. Loyalty and disloyalty are earned, and Yahoo picked the wrong one to earn here. By doing this last minute, Bartz looks desperate, inexperienced (not helped by recent unfortunate public comments), and uncaring with regard to her employees. (She is already having some severe labor problems). None of this bodes well for Yahoo long or short term.

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