Terry Semel, chairman of Yahoo, is set to come under heightened pressure this week following the leak over the weekend of an internal memo that amounts to a stinging indictment of his leadership of the flagging internet company.

The memo, written by Brad Garlinghouse, a senior vice-president, paints a picture of a company that lacks a cohesive vision, has become beset by bureaucracy and has lost the edge to compete with faster-moving internet companies.

“Heads must roll,” Mr Garlinghouse concludes, with the sacking of senior executives who have failed to stop the rot and a 15 to 20 per cent cut in the company’s overall headcount. “The direction needs to come decisively from the top.”

The outspoken attack on Yahoo’s supposedly dysfunctional culture, first reported in the Wall Street Journal, follows a series of setbacks that have cast doubt on the turnround that Mr Semel oversaw when he arrived at the company in 2001.

In spite of mounting a series of acquisitions, Mr Semel has not been able to match the growth of a new breed of internet companies built around services such as search and social networking.

While Mr Semel arrived at Yahoo with a plan to narrow its focus to a smaller number of services, Mr Garlinghouse’s memo accuses the company of spreading itself too widely.

“I’ve heard our strategy described as spreading peanut butter across the myriad opportunities that continue to evolve in the online world,” he says. “The result: a thin layer of investment spread across everything we do and thus we focus on nothing in particular.”

The criticisms levelled against Yahoo include a lack of “a focused, cohesive vision”; the separation of its operations “into silos that far too frequently don’t talk to each other”; a “massive redundancy that exists throughout the organisation”; and an organisational structure “that has become overly bureaucratic”.

Yahoo did not comment on the criticisms but said the e-mail was a sign of the “open, collaborative culture” inside the company.

Mr Garlinghouse’s memo, which was directed at senior management at Yahoo, goes on to propose three main steps to reverse Yahoo’s slide. Calling for a clearer vision, he argues that Yahoo should quit non-core businesses and eliminate many of its overlapping products.

He also calls for a greater level of accountability, putting Yahoo’s main services under the control of a new group of more powerful general managers.

The final part of the overhaul would involve a reorganisation to eliminate the current business unit structure.

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