Now that we have a picture (even if a blurry one) of the symptoms, our next step would be to probe the underlying cause or causes of the organization’s lack of responsiveness.

From our outside perspective, Yahoo ships code like a startup but governs itself more like a conglomerate. So what’s behind that tension and why is organizational development treated differently than product development at Yahoo?

While we’re certain that an inside perspective will add to our understanding, we have seen similar issues before. After 7 years of helping other organizations of your scale, we’ve found the following pitfalls to be a reoccurring pattern:

Management Drift: by their very nature, managers tend to drift further away from daily interaction with customers as they monitor and control a growing pool of human and financial resources. This has two unintended consequences. First, it cuts the manager off from the feedback loop of customer behavior (which should be the business’ primary driver). And second, as managers are no longer directly impacted by this feedback loop, they create their own processes which favor consistency and control over continual learning. Product teams and management teams both fear failure, the only difference is that product teams know failure (and with it, learning) is absolutely critical to their process. Responsive firms distribute as much authority as they can away from centralized managers and back to employees who interact with customers and find ways to re-introduce management to customers.

Mirrored Structures: Every business relies on an ecosystem of other businesses to survive. As a market matures, businesses which rely on one another begin to look more and more alike (it simply makes it easier to work together). Some parts of Yahoo (media in particular) have become mirror images of a more than 200 year old advertising industry. Other parts, like publishing, inherited their process and structure from a matured (and now threatened) print industry. On a long enough timeline every strategic advantage becomes a disadvantage and while these structures can make you more efficient, they tend to do so at the cost of innovation. Responsive firms continually revisit and revise how they operate in order to avoid mirroring structures which limit their ability to seek out new opportunities.

Vertical Firewalls: Most of the time, there’s no sinister motive for silos within organizations, business units are simply incentivized by management to seek their own efficiencies as they mature. Consequently, teams prioritize strengthening internal connections which already exist, even over forming new ones. Over time, this makes each business unit increasingly fragile to disruption by technologies with horizontal impact (e.g. the web, for instance). Moreover, it makes the job of management more difficult as one organization splinters into many distinct factions. Responsive firms foster healthy horizontal tribes among self governing business units.

Confused Problem Domains: There are two kinds of tasks at the corporate level: complicated ones and complex ones. Complicated tasks are the domain of the expert, where the final solution to a problem is knowable and foreseeable given enough time and expertise (e.g. legal and accounting). Complex tasks are the domain of emergence, where optimal solutions are sought out through trial and error. Strategy is a complex problem because it relies on the outcome of a rich series of interactions (many of which are unknowable beforehand). But in most organizations, strategy is treated like a complicated problem, as if planning (and PowerPoint) can ensure your success. Just as there are two kinds of problems, there are two kinds of problem solvers. Complicated problems usually require a battalion of specialists. Complex problems require a healthy balance of generalists (to truly define the problem) and specialists (to provide domain expertise when needed). Responsive firms respect the difference between complicated and complex tasks and staff each challenge accordingly.

A Conflagration of Firefighters: All companies fight fires. Public companies, because of the quarterly treadmill, tend not to do anything but fight fires. Eventually, the best firefighters are recognized and rewarded. They themselves hire other firefighters. The culture of the organization bends around resolving dilemmas with short term fixes. Time horizons shrink. Gratification becomes harder and harder to delay. Firefighters are trying to protect the status quo, not reinvent it. Firefighters do have a place in every organization, but they cannot become the organization’s only reflex. Responsiveness requires a commitment to evolution, not to stasis. Responsive firms ensure every firefight gets processed into a higher level assessment of the firm’s evolutionary fitness to its customers and the market.

Does this sound familiar? We’re conscious that most of our opinion has been formed by public, not private, information. The reason we decided to write this letter to you and expose our practices is because we believe that Yahoo is poised (almost more than any other organization) to benefit from the learnings and practices of a Responsive Operating System. While we respect your former COO, Henrique De Castro, Responsive OS is a far more evolved model for the 21st century organization than McKinsey’s obsession with operational efficiency.

Let’s complete this OS Audit together. Nothing excites us more than helping an ambitious leader like you unlock the full potential of your people and their passions.