Yahoo! Inc. (YHOO), Microsoft Corporation (MSFT): Reorganization Is Not a Panacea for All Corporate Problems

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Some firms which were once on the cutting edge now find themselves struggling to keep up with the competition. As revenue slips and competitors continue to innovate, once-successful companies try to breathe new life into their firms by reorganizing. Whether working from the bottom up or the top down, companies are striving to reform themselves.

Working from the top down

On July 17, 2012, Yahoo! Inc. (NASDAQ:YHOO) brought Marissa Mayer on board as CEO. Hiring this 13-year Google veteran was Yahoo!’s first step in becoming more “tech-focused.” Though revenue decreased 7% in this year’s second quarter, there is still hope for Yahoo! under Mayer.

She made her intentions known; she will gladly sacrifice short-term gains to develop a stronger future for her company. This outlook should make investors more confident in her decisions. We can also ground our confidence in the results we already see. For example, Yahoo! Inc. (NASDAQ:YHOO) managed to increase search traffic 5% since last year after years of decline. (A feat rarely accomplished in the industry.)

Mayer also strives to shift Yahoo! Inc. (NASDAQ:YHOO)’s focus to mobile apps. Hundreds of engineers at Yahoo! currently work to develop better mobile app services. The firm is also in talks with Apple about preinstalling additional Yahoo! apps on iPhones. Even though Yahoo! lags behind mobile app competitors, it has seen an increase of users. Only 8% of iPhone users had Yahoo! apps on their phones in July 2012. That percent double by June 2013.

Mayer faces a hard battle rebuilding Yahoo! Inc. (NASDAQ:YHOO), but her progress during her first year boosts hope and morale in the firm. A steady stream of job applications continues to flow into Yahoo!. 10% of these applications in the second quarter are previous Yahoo! Inc. (NASDAQ:YHOO) employees who chose to return. As employee confidence returns, so should investor confidence.

Revamping the organizational chart

Microsoft Corporation (NASDAQ:MSFT) faces great challenges in the ever-changing tech environment. PC shipments continued to decrease in the second quarter and global unit shipments dropped by 10.9% in the second quarter. Windows 8 was not well received by the public, doing even worse than Vista sales in 2007. And Microsoft felt pressured to drop the price on its Surface RT tablet by $150. To overcome its many challenges, Microsoft Corporation (NASDAQ:MSFT) is taking a play out of Apple’s and Google’s playbooks. The firm aspires to shift its strategy and become known more for services and devices that run its software and less known for the software itself.

To execute this strategy, Microsoft Corporation (NASDAQ:MSFT) plans to flatten its organizational structure. The firm is currently divided into product groups that function separately from one another. The new setup will have managers overseeing functions (such as marketing or finance) instead of specific products. Reorganization will allow the firm to pursue the new strategy. However, it is too late for this strategy to work for Microsoft as it tries to enter the mobile market.

Microsoft Corporation (NASDAQ:MSFT) successfully executed the strategy with its Xbox, becoming associated with the game console and Xbox live service. But the firm is too late to the smartphone and tablet game. Some 61% of cell phone owners in the U.S. own smartphones. And the number of Americans upgrading their smartphones is down 9% from 2011 to 2012. Even with its partnership with Nokia, whose Lumia phones run Windows, Microsoft has little hope in conquering the smartphone market.

The tablet market provides little hope for Microsoft Corporation (NASDAQ:MSFT). As you can see, Microsoft commands an unimpressive 0.9% market share of tablets.

Microsoft’s restructuring effort may help the firm change its strategy, but that strategy provides no guarantee of success. It is too late to the game and will not make a name for itself as a smartphone maker, tablet maker, and service provider.

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