Waste Management Case Study

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WASTE MANAGEMENT INC.

(NYSE: WMI)
STRATEGIC CASE ANALYSIS
Group 4: Kazim Demir, Anthony Ikhimokpa, Dung Nguyen, Jackie Tauriello, & Christina Van Zandt
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WASTE MANAGEMENT, INC.

Strategic Analysis
Waste Management (NYSE: WMI)
SUBMITTED TO:
Dr. Jifu Wang

Seminar in Strategic Management
MGT 6359
Spring 2006
BY: Kazim Demir, Anthony Ikhimokpa, Dung Nguyen,
Jackie Tauriello & Christina Van Zandt
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TABLE OF CONTENTS
Section Page
EXECUTIVE SUMMARY .........................................................................................................................................1
1. COMPANY HISTORY .....................................................................................................................................2

1.1 BACKGROUD ...............................................................................................................................................2
1.2 PURPOSE OF THE STUDY ..............................................................................................................................2
2. EXTERNAL ANALYSIS ..................................................................................................................................3

2.1 GENERAL ENVIRONMENTAL ANALYSIS.........................................................................................................3
2.1.1 Demographic Segment...........................................................................................................................3
2.1.2 Economic Segment.................................................................................................................................6
2.1.3 Political/Legal Segment.........................................................................................................................8
2.1.4 Socio-cultural Segment........................................................................................................................11
2.1.5 Technological Segment........................................................................................................................12
2.1.6 Global Segment....................................................................................................................................13
2.1.7 Summary of General Environment Analysis........................................................................................15
2.2 DRIVING FORCES ........................................................................................................................................16
2.3 INDUSTRY ANALYSIS.................................................................................................................................18
2.3.1 Description of Industry ........................................................................................................................18
2.3.2 Industry Operation ..............................................................................................................................18
2.3.3 Industry Dominant Economic Features...............................................................................................19
2.3.4 Market Growth Rate & Industry Life Cycle.........................................................................................21
2.3.5 Industry Trends....................................................................................................................................22
2.4 FIVE FORCES COMPETITIVE ANALYSIS .......................................................................................................23
2.4.1 Barriers to Entry..................................................................................................................................24
2.4.2 Product Substitutes ..............................................................................................................................25
2.4.3 Bargaining Power of Buyers ...............................................................................................................26
2.4.4 Bargaining Power of Suppliers ...........................................................................................................26
2.4.5 Competitive Rivalry .............................................................................................................................27
2.5 SUMMARY OF INDUSTRY ANALYSIS ..........................................................................................................28
2.6 COMPETITIVE ANALYSIS ............................................................................................................................28
2.6.1 Industry Competitors ...........................................................................................................................29
2.6.2 Rivals Anticipated Strategic Moves .....................................................................................................30
2.6.3 Summary of Competitive Analysis .......................................................................................................31
2.7 KEY SUCCESS FACTORS ............................................................................................................................31
3. INTERNAL ANALYSIS .................................................................................................................................32
3.1 ORGANIZATIONAL ANALYSIS .....................................................................................................................32
3.1.1 Corporate Vision .................................................................................................................................33
3.1.2 Corporate Mission ...............................................................................................................................33
3.1.3 Products and Services..........................................................................................................................34
3.1.4 Leadership ...........................................................................................................................................37
3.1.5 Organizational Culture........................................................................................................................40
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3.1.6 Structure ..............................................................................................................................................42

3.1.7 Summary of Organizational Analysis ..................................................................................................42
3.2 ANALYSIS OF FIRM’S RESOURCES ..............................................................................................................43
3.2.1 Tangible Resources..............................................................................................................................43
3.2.2 Intangible Resources ...........................................................................................................................47
3.2.3 Capabilities..........................................................................................................................................49
3.2.4 Core Competencies and Sustainable Advantages................................................................................50
3.2.5 Summary of Firm’s Resources: ...........................................................................................................53
3.3 ANALYSIS OF OBJECTIVES .........................................................................................................................53
3.3.1 Short-Term Objectives .........................................................................................................................53
3.3.2 Long-Term Objectives .........................................................................................................................54
3.3.3 Financial Objectives............................................................................................................................55
3.4 FINANCIAL ANALYSIS ................................................................................................................................55
3.4.1 Operating Groups Financial Performance..........................................................................................55
3.4.2 Growth Analysis ..................................................................................................................................58
3.4.3 Profit Margin Analysis ........................................................................................................................60
3.4.4 Financial Condition Analysis ..............................................................................................................63
3.4.5 Investment Return Analysis..................................................................................................................66
3.4.6 Management Efficiency Analysis .........................................................................................................70
3.4.7 Stock Price Analysis ............................................................................................................................70
3.4.8 Summary of Financial Analysis ...........................................................................................................78
3.5 STRATEGIC ANALYSIS................................................................................................................................79
3.5.1 Corporate-Level Strategy and International Strategy .........................................................................79
3.5.2 Business-Level Strategy .......................................................................................................................80
3.5.3 Value Chain Analysis...........................................................................................................................80
3.5.4 Summary of Strategic Analysis ............................................................................................................85
3.6 SWOT ANALYSIS.........................................................................................................................................85
3.6.1 Strengths – Internal .............................................................................................................................85
3.6.2 Weakness – Internal.............................................................................................................................87
3.6.3 Opportunities – External .....................................................................................................................87
3.6.4 Threats – External ...............................................................................................................................89
4. CURRENT STRATEGIC AND ALTERNATIVES .....................................................................................92
4.1 CURRENT STRATEGY AND STRATEGIC FIT ..................................................................................................92
4.2 ALTERNATIVES..........................................................................................................................................92
4.3 RECOMMENDATIONS ..................................................................................................................................93
4.3.1 Recommendation # 1: Fully Applying Bio-diesel as Fuel Alternative.................................................94
4.3.2 Recommendation # 2 – Capital Expansion in Waste-to-Energy........................................................101
5. CONCLUSION ..............................................................................................................................................113
6. REFERENCES...............................................................................................................................................114
7. APPENDICES ................................................................................................................................................119
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TABLE OF FIGURES
FIGURE 2-1: THE CHANGING WORLD POPULATION AROUND THE GLOBE: 1950-2050 ...................................................4
FIGURE 2-2: QUARTER-TO-QUARTER GROWTH IN REAL GDP .......................................................................................6
FIGURE 2-3: GLOBAL ENVIRONMENT SERVICES MARKET SEGMENTATION IN 2003 .....................................................20
TABLE-2-4: GLOBAL ENVIRONMENTAL SERVICES MARKET SEGMENTATION BY REGION ............................................20
FIGURE 2-5: GLOBAL ENVIRONMENTAL SERVICES MARKET SEGMENTATION BY REGION ...........................................21
FIGURE 2-6: GLOBAL ENVIRONMENTAL SERVICES MARKET VALUE FORECAST 2003-2008 ........................................23
FIGURE 2-7: PORTER'S FIVE FORCES MODEL ................................................................................................................25
FIGURE 3-1: WMI GROWTH ANALYSIS ........................................................................................................................59
FIGURE 3-2: 5 YEAR AVERAGE GROWTH COMPARISON ...............................................................................................60
FIGURE 3-3: 5-YEAR AVERAGE PROFITABILITY COMPARISON .....................................................................................62
FIGURE 3-4: GROWTH ANALYSIS..................................................................................................................................62
FIGURE 3-5: WMI PROFITABILITY ANALYSIS...............................................................................................................66
FIGURE 3-6: 5-YEAR AVERAGE PROFITABILITY COMPARISON .....................................................................................67
FIGURE 3-7: WMI SENSITIVITY ANALYSIS ...................................................................................................................78
FIGURE 3-8: FIRM VALUE CHAIN .................................................................................................................................81
TABLE OF TABLES
TABLE 2-1: GROSS OUTPUT BY INDUSTRY .....................................................................................................................7

TABLE 2-2: GLOBAL ENVIRONMENT SERVICES MARKET SEGMENTATION IN 2000 ......................................................19
TABLE 2-3: GLOBAL ENVIRONMENTAL SERVICES MARKET VALUE FORECAST 2003-2008 .........................................22
TABLE 3-1: WASTE MANAGEMENT EXECUTIVES .........................................................................................................39
TABLE 3-2: PHYSICAL RESOURCES ...............................................................................................................................45
TABLE 3-3: WASTE MANAGEMENT HOLDINGS & PHYSICAL OPERATIONS ...................................................................46
TABLE 3-4: FINANCIAL PERFORMANCE (OPERATING INCOME).....................................................................................56
TABLE 3-5: WMI GROWTH ANALYSIS .........................................................................................................................59
TABLE 3-6: WMI PROFIT MARGIN ANALYSIS ...............................................................................................................61
TABLE 3-7: LIQUIDITY ANALYSIS.................................................................................................................................64
TABLE 3-8: WMI SOLVENCY RATIOS ...........................................................................................................................65
TABLE 3-9: WMI PROFITABILITY RATIOS ....................................................................................................................66
TABLE 3-10: ECONOMIC VALUE ANALYSIS ..................................................................................................................67
TABLE 3-11: MARKET VALUE ANALYSIS .....................................................................................................................68
TABLE 3-12: VALUE DRIVERS ......................................................................................................................................69
TABLE 3-13: WMI MANAGEMENT EFFICIENCY TABLE ................................................................................................70
TABLE 3-14: WMI’S STOCK PRICE ANALYSIS ..............................................................................................................71
TABLE 3-15: DIVIDEND HISTORY .................................................................................................................................72
TABLE 3-16: INDUSTRY ANALYSIS ...............................................................................................................................72
TABLE 3-17: DIRECT COMPETITOR ANALYSIS ..............................................................................................................73
TABLE 3-18 STOW MATRIX......................................................................................................................................91
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EXECUTIVE SUMMARY
Waste Management, Inc.’s unique blend of core competencies and capabilities has
served them well within the waste management industry. This analysis will fully
investigate the ability of Waste Management, Inc. to exploit growth opportunities in a
slow growing, but expanding industry.
Key Points:
o Driving forces which affect the external environment in which waste management
companies, such as Waste Management, Inc., operate in are: regulatory
influences and government policy changes, fuel prices, and new technology that
would reduce significantly needed landfills.
o Key success factors which influence the market and fashion successful
companies include the following: rights to acquire and possession of landfills, the
ability to control operation costs, and the human factor within the firms.
Current Strategy
o Waste Management Inc.’s current strategy is to achieve operational excellence
in order to be successful for their stockholders.
Recommendations:
Two proposed recommendations for future growth are: to convert fleet to use
alternative fuel sources and expand and grow the Waste-to-Energy sector.
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1. COMPANY HISTORY
1.1 BACKGROUD
Waste Management Inc. (NYSE: WMI) provides integrated waste management
services throughout the US, Puerto Rico and Canada. The company serves municipal,
commercial, industrial and residential customers; providing collection, transfer,
recycling, resource recovery and disposal services. Waste Management is
headquartered in Houston, Texas, and the company's network of operations includes
429 collection operations, 366 transfer stations, 289 active landfill disposal sites, 17
waste-to-energy plants, 138 recycling plants and 85 beneficial-use landfill gas projects.
For the fiscal year ended December 2004, the company generated revenues of $12,516
million, an 8.1 percent sales growth from the previous year. Net income for this year
was reported at $939 million.
1.2 PURPOSE OF THE STUDY
The purpose of this analysis is to develop specific, actionable recommendations
based upon an in-depth strategic analysis of the firm, Waste Management Inc. We will
examine the company’s mission, vision, strategies, and culture, which, based upon our
internal and external analysis, have proven to be successful providers of competitive
advantage. In our first section, Waste Management’s external and internal environments
will be examined. Next, the Company’s financial performance will be measured against
the industry standards. The Company will be evaluated on previous criteria, current
strategy analysis, and predicted industry trends to access the effectiveness of their
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current strategy. Based upon Waste Management’s current strategic fit and positioning,
alternatives and recommendations will be made.
2. EXTERNAL ANALYSIS
Analyses of external environments provide WM Inc. with the information required to
develop its strategic intent and strategic mission. Strategic intent and strategic mission
influence strategy formulation and implementation actions. External environment affects
firm growth and profitability. Major political events such as the war in Iraq, the strength
of separate nations' economies at different times, and the emergence of new
technologies are a few examples of conditions in the external environment that affect
Waste Management, Inc. External environmental conditions such as these create
threats to and opportunities for Waste Management that has major effects on its
strategic actions.
2.1 GENERAL ENVIRONMENTAL ANALYSIS
The general environments are fundamentals in society that impact the industry of
which a firm operates. Firms cannot control the general environmental segments
directly, they have to understand their implication to the industry they operate in and
employ the appropriate strategies to compete effectively.
2.1.1 Demographic Segment
The demographic segment directly impacts the Waste Management industry because it
gives some indications where growth will occur and what ethnic mix and income
distribution it will reflect.
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Population Size:
The world population is increasing at a significant rate. The current population of
the world stands more than 6 billion and it is estimated to be more than 7.9 billion by
2025, and in 2050, there will be around 9 billion people in the world. On the other hand,
the population of world will increase by 45 percent from current population. (US Census,
2005, See Figure I) China and India will be the most populous countries in 2010 and
their total population will be 2.5 billion in 2010 (US Census, 2005).
Figure 2-1: The Changing World Population Around the Globe: 1950-2050
Source: US Census Bureau website retrieved 02/18/05 from http://www.census.gov/ipc/www/img/worldpop.gif
Worries about a "population bomb" may have lessened as fertility rates have fallen,
but the world's population is projected to continue expanding until the middle of the
century. Just when it stabilizes and thus the level at which it stabilizes will have a
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powerful effect on living standards and the global environment. As population size
continues to reach levels never before experienced and per capita consumption and
waste rises.
Age Structure:
Fertility in the USA was assumed to remain almost constant, near the current fertility
level of about 2.1 births per woman. For the low and high assumptions, levels of 1.9 and
2.6 births per woman were used, respectively. (US Census, 2005) Life expectancy is
projected in the middle series to increase from 76.0 years in 1993 to 82.6 years in 2050.
In 2050, life expectancy in the low assumption would be 75.3 years and in the high
assumption would be 87.5 years. (US Census, 2005) The global average age appears
to be increasing. The population aged 65 or older is projected to increase by 88 percent.
Contributing to this growth is the increasing life expectancies around the world. This
trend suggests numerous opportunities for WMI to develop residential waste services to
meet the needs of an increasingly older population. Also, WMI can imply lower price
(price discrimination) for elderly people and can increase socio-culture relationship with
the elderly people as well.
Ethic Mix:
According to the US Census, by the turn of the century, the non-Hispanic white
proportion of the population is projected to decrease to less than 72 percent with about
13 percent black; 11 percent Hispanic origin; 4 percent Asian and Pacific Islander; and
less than 1 percent American Indian, Eskimo, and Aleut. By 2050, the proportional
share shifts quite dramatically. Less than 53 percent would be non-Hispanic white; 16
percent would be black; 23 percent would be Hispanic origin; 10 percent would be Asian
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and Pacific Islander; and about 1 percent would be American Indian, Eskimo, and Aleut.
The US population continues to diversify from different countries. Ethic mix will not
affect the rising waste as much as population size will. It may generate different kind of
waste.
2.1.2 Economic Segment
Economy:
All of the nations are impacted by external economic factors in the global economy.
The USA is a super power in the world and when the USA has a recession, other
countries feel it. For instance, in 2001, the USA economy suffered and the interest rate
was the lowest in half century. Accordingly, this has led to economic growth in the last
four years (see Figure 2).
Figure 2-2: Quarter-to-Quarter Growth in Real GDP

Source: Bureau of Economic Analysis, US Department of Commerce
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Gross Output by Industry has also seen positive output in same period (See Figure 3).
Before 2005 hurricanes, industry grosses output was 59.6 billion dollars.
Gross Output by Industry

[Billions of dollars]
Release date: December 15, 2005
Line 1999 2000 2001 2002 2003 2004
1 All industries 16,908. 18,186. 18,403. 18,788. 19,732. 21,346.

0 5 2 4 1 0
2 Private industries 15,124. 16,287. 16,384. 16,632. 17,424. 18,895.

3 7 1 9 5 2
64 Management of companies and
276.5 300.6 290.4 290.7 305.2 342.4
enterprises
65 Administrative and waste management

436.9 476.4 481.0 495.4 517.4 551.7
services
66 Administrative and support services 387.9 425.6 429.7 443.3 462.0 492.2
67 Waste management and remediation

49.0 50.8 51.3 52.1 55.4 59.6
services
Table 2-1: Gross Output by Industry

Source: Bureau of Economic Analysis, US Department of Commerce http://www.bea.gov/bea/industry/gpotables/gpo_action.cfm
US interest rates continue to rise. The deficit in 2005/2006 will widen as government
spending remains strong and the pace of economic growth continues to slow. The
clean-up and rebuilding costs related to Hurricane Katrina will also be added to the
budget. The latest interest rate rise on November 1st placed the Federal funds target
rate at 4 percent. The Federal Reserve (central bank) still considers monetary policy
accommodative, and has indicated that rates will rise further at a measured pace. Fed
funds target rate will continue to rise steadily and reach 5 percent by mid-2006, as a
more neutral monetary policy stance is pursued.
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There has been a steep climb of oil prices, especially in 2005. Previous
assumptions were the long term equilibrium price of oil was approximately $20 per
barrel. Today it is believed to be at equilibrium with a price of $28 (Franssen, 2004). In
2005, the going price for a barrel of crude oil was trading at nearly $70 per barrel. This
has the potential to put the US in a serious recession that will impact the world
economy. However, the higher oil prices can have a stabilizing effect, in which it will
help lower the demand, thus, lowering prices.
Economic development coupled with ecological health was first termed
‘sustainability’ in the late 1970s. The terms ‘sustainability’ and ‘sustainable development’
were used by the United Nations’ World Commission on Environment and Development
in their report “Our Common Future” in 1987. (http://www.ga.wa.gov/EAS/CWM) Since
that time, the ideas have worked down from a world-wide platform to the practical
applications in the local economy.
Waste Management is a part of a growing movement toward a sustainable world.
Sustainability or “green” management techniques are designed to protect the
environment, save resources, and conserve energy. The utilization of Waste
Management techniques which rely on salvage, recycle, and reuse of materials, have
proven to have economic advantages for the waste management industry.
2.1.3 Political/Legal Segment
The waste management industry is complex because it involves a multitude of
scientific, technical, economic and social factors. Due to the complexity of the situation,
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it will require the cooperation of government, industry, and individuals working as
partners rather than adversaries to find a long-term solution.
Even though solid waste management has not been a high priority of the federal
government in recent years, the government could affect waste management in a
number of ways: by establishing national recycling goals and packaging standards,
adopting a clearly stated policy on source reduction, and implementing educational
programs on all approaches to waste minimization. The federal government could also
set an example for the states and stimulate markets for recycled products by requiring
government purchase of products containing recycled materials.
The U.S. is currently recycling only 10 percent of its waste (Census, 2005). The
benefits of recycling come not only from the sale of recycled materials and conservation
of resources, but also as a result of reducing expenses or from "avoiding costs." The
savings derived from not paying tipping fees for land filling or incinerating the materials
which are recycled should be included in any cost/benefit analysis of recycling. The cost
of extending the life of a current landfill or of closing an old landfill and developing a new
one must also be taken into account.
Regulations:
The major component of waste management is the collection and disposal of solid
waste in an environmentally sound manner, a significant amount of our capital
expenditures is related, either directly or indirectly, to environmental protection
measures, including compliance with federal, state or provincial, and local provisions
that regulate the discharge of materials into the environment.
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The waste management business is subject to extensive and evolving federal, state
or provincial, and local environmental, health, safety and transportation laws and
regulations. These laws and regulations are administered by the Environmental
Protection Agency (""EPA'') and various other federal, state and local environmental,
zoning, transportation, land use, health, and safety agencies in the United States and
various agencies in Canada. Many of these agencies regularly examine our operations
to monitor compliance with these laws and regulations and have the power to enforce
compliance, obtain injunctions or impose civil or criminal penalties in case of violations
(http://www.epa.gov).
The primary United States federal statutes affecting waste management business
are summarized below:
The Resource Conservation and Recovery Act of 1976, as amended (""RCRA''),
regulates handling, transporting and disposing of hazardous and non-hazardous wastes
and delegates authority to states to develop programs to ensure the safe disposal of
solid wastes. (http://www.epa.gov/rcraonline)
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA''), which is also known as Superfund, provides for federal
authority to respond directly to releases or threatened releases of hazardous
substances into the environment. CERCLA's primary means for addressing such
releases is to impose liability for cleanup of disposal sites upon current and former site
owners and operators, generators of the hazardous substances at the site and
transporters who selected the disposal site and transported substances thereto.
(http://www.epa.gov/Region5/defs/html/cercla.htm)
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The Federal Water Pollution Control Act of 1972 (the ""Clean Water Act'') regulates
the discharge of pollutants into streams, rivers, groundwater, or other surface waters
from a variety of sources, including solid waste disposal sites.
(http://www.epa.gov/r5water/cwa.htm)
Nearly everything we do leaves behind some kind of waste. Households create
ordinary garbage. Industrial and manufacturing processes create solid and hazardous
waste .Waste management regulations affect both waste management companies and
us as a consumer. Especially in developed economies, there are new policies and laws
being created regarding solid waste management, including incentives for recycling, and
controls on land filling and incineration.
2.1.4 Socio-cultural Segment
Society shapes our beliefs, values, and norms. People absorb, almost
unconsciously, a worldview that defines their relationship to themselves, others,
organizations, society, nature, and the universe. Other cultural characteristics of interest
to marketers include the persistence of core cultural values, the existence of
subcultures, and shifts of values through time.
Some industrial activity will inevitably damage the natural environment. However,
because about 42 percent of U.S. citizens are willing to pay higher prices for "green"
products, there is a large market for pollution-control solutions such as scrubbers,
recycling centers, and landfill systems.
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2.1.5 Technological Segment
In general, technological development in the waste management industry can be
characterized as a continuous improvement process (i.e., more evolution than
revolution). For the most part, companies are using and modifying existing and proven
technologies to manage waste streams in a more energy efficient and cost-effective
manner.
There have also been new and innovative waste management technologies and
products developed and commercialized for specialized applications. Some examples
are as follows:
o In the plastics sector, the University of Western Ontario has developed an
electrostatic plastic separation technology. The separation process relies on the
principle of electrostatic charge transfer to sort different plastic materials.
o In the rubber sector, Recovery Technologies Inc. has developed a cryogenic
technology that uses higher temperatures, reducing the energy expended in
cooling the chemicals involved.
o In the hazardous waste sector, Eli Eco Logic International Inc. has developed a
gas-phase chemical reduction reaction as an alternative to traditional incineration
technology to manage a variety of organic hazardous waste streams such as
PCBs, pesticides and dioxins.
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o The waste generator industry is more conscious of environmental issues and is
more willing to consider different approaches, provided they do not result in
increased costs.
Technology affects not only the waste management industry, but many other
industries as well. Recent developments in waste management technology are
providing new ways to clean up industrial wastes and yielding efficient new production
methods that are less polluting than traditional processes. Waste management
technology can even help convert industrial and other wastes into useful products. All of
these technological changes create new business opportunities for WM. While they use
these technologies, they need to work with the EPA co-operatively because the EPA
may not approve all of the technology for the waste management industry. Also,
markets for waste treatment plants, equipment and instruments are becoming uniform in
the global arena. It will boost international cooperation in the development of products
and services utilizing the new technology. The program is an excellent opportunity for
WMI.
2.1.6 Global Segment

The scope of this segment does not allow for detailed examination of individual
country market opportunities. However, the following section provides an overview of
market characteristics of selected regions. In order to provide a reasonable level of
focus, the information is concentrated on emerging markets and the United States and
Asia.
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Asian markets hold very good longer term potential for waste management
companies in most areas of solid and hazardous waste management. The Asian market
for solid and hazardous waste management was estimated at approximately $3.0 Billion
(US) in 1995 by EBI.
Demand is driven by an increasing awareness of environmental concerns, coupled
with a high level of environmental focus by international financial institutions (IFIs) and
non-governmental aid organizations (NGOs) who direct a very large amount of effort to
this region. Most internationally funded investment projects now mandate that proper
environmental studies and controls are in place.
The recent decline in the Asian economy has had an impact on the potential market
for services in the near to middle term. The impact will be felt most strongly on product
sales and services to the private sector, which require hard currency or local financing.
For this reason Asian markets, particularly those in countries most affected by the
economic setbacks such as Thailand, Korea, Malaysia, and Indonesia, may not be as
attractive in the short term. However, the need for waste management will not disappear
and service will be required at some point.
Latin America is emerging as a region of very high opportunity for waste
management companies, due to the following factors:
X Increased environmental regulation
Y Increased environmental awareness
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Z Environmental projects tied to funding sources
[ Increased economic stability
Competition throughout Latin America comes from domestic suppliers (who also are
partnership opportunities) and U.S. and European countries. The U.S. has close ties
and an established presence in many countries, and European countries often have an
advantage through exploiting opportunities for their countries to work on projects funded
by the home governments.
Eastern Europe is beginning to address the vast industrial waste problems created
over the past several decades. Many countries have initiated plans or put in to place
regulation to address these issues. However, in most countries enforcement and
compliance have been less than ideal.
There is a very large potential market, but the western Europeans are very well-
entrenched as competition. Countries in this region also may be motivated by the desire
for closer ties to the EU and chose to work with Western European firms.
2.1.7 Summary of General Environment Analysis
The biggest economic driver for waste management industry is the oil prices since
WMI operations are dependent on oil. During 2006, there has been a dramatic increase
in the price of oil and natural gas. Oil price increases constantly because of
international political issues, such as the Iraq war. Today, the world faces and discusses
the Iran nuclear program. Also, there is a great deal of speculation as to what is driving
the higher oil prices. The most accepted is the high demand from rapidly growing
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economies like China. This is compounded by destabilizing activities found in Iraq,
Venezuela, Iran, and Nigeria. WMI will try to find alternative fuels (Biodiesel, electricity,
Hybrid, etc.) for its operating necessities.
The world population has been increasing dramatically so the consumption and
waste per capita is expected to increase. Waste management will find great business
opportunities by using new technology. Improvement in technology brings new business
ideas, more comfortable devices, and greener Global.
Since waste management is critical for mankind, the industry is regulated and
protected by stiff regulations by governments. This industry has to be careful when they
enter into a new business area or imply new technology into current plants or landfills.
2.2 DRIVING FORCES
The environmental services industry is exposed to several primarily external
environment keys that shape the competitive conditions. These driving forces include
government/legal, economic, and technology segments. These driving forces will be
major challenges for firms competing in this industry and they will force firms to respond
by changing their strategies in order survive or by gaining advantages. The following are
driving forces that impact the environmental services industry directly.
The utmost driving force is regulatory influences and government policy changes.
The industry faces stiff federal, state, and local regulations concerning solid waste
landfills and pollution. EPA is the federal agency that has authority to control hazardous
and non-hazardous waste from generation, transportation, treatment, storage, and
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disposal. For example, House Bill 592 specified the new landfill standard and sitting and
design criteria as well as the closure of landfills. Firms operating in the industry must
comply with the strict regulation by upgrading the landfills to new standards, selectively
choosing landfills’ locations and following all new criteria to construct new landfills and
procedures to dispose solid waste. These regulations, depending on how often they are
changed, would effectively both not only limit available landfills to competing firms but
also make it difficult to possess right to the landfills.
It is worth to mention that landfills are must-have resource that firms need and that
gaining right to access landfills is vital to firms in this industry.
Oil prices in the past few years have surged dramatically and this makes business
communities nervous. The environmental service firms are especially not an exception.
Each service truck on average consumes 20,000 gallons of gasoline/year each way.
With the average of one-thousand ‘collecting’ trucks, an environmental service firm may
spend hundreds of thousands of dollars in fuel. Therefore, a continuous increase in oil
prices would pose a difficult challenge to the firms in effort to keep operational cost
down.
Technology in the electronic industry changes at a high rate and new products flood
the markets within months. The environmental service industry, however, witnesses a
slow change, but is very important in technology. One of the examples is a new
technology that converts waste-to-energy. This technology would eventually reduce
significantly needed landfills, a large problem that any firm faces, and thus also cuts
down expenses needed to maintain landfills from pollution. Besides, bio-gas products
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coming from the process can be used as a fuel alternative, thus making it marketable.
Mastering new technology thus plays a vital role in this industry.
2.3 INDUSTRY ANALYSIS
This section of the study will describe the nature of the environmental services
industry and the market within the US and the world. It will also discuss the trend of the
markets in the future.
2.3.1 Description of Industry
The environmental industry generally offers environmental equipment and
resources and services to the residential and business customers. Waste Management
operates in areas of environmental services, which include analysis, wastewater, solid
waste management, hazardous waste management, remediation services and
environmental consulting and engineering.
2.3.2 Industry Operation
Collection: Firms that operate in this industry provide solid waste collection services
to customers in North America from single residential to large national businesses.
Collection truck fleet is responsible for collecting waste from customers’ sites.
Transfer: A supporting network of transfer stations will transport waste collected to
firms’ landfills using long-haul trailers, barge containers and rail cars.
Disposal: Regulated by the federal government, the disposal phase is very
important and impacts both safety and our environment. At landfills, organic waste is
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processed to decomposition of organic waste. New technology, such as bio-reactor
technology, which accelerates the decomposition of organic waste through the
controlled introduction of air and liquids into waste mass at the landfills, is an example.
Recycling: The environmental services industry also offers a recycling program for
municipalities, businesses, and households across the US and Canada.
Waste-to-Energy: At some facilities, solid waste is turned into fuel for the generation
of electrical power.
2.3.3 Industry Dominant Economic Features
Market Size: As of 2003, the global environmental services were valued at $265.8
billion. The biggest sector of the market is solid waste management, which accounts for
37.2 percent of the market. Waste water accounts for 28 percent, while consulting and
engineering make up 16 percent. (DATAMONITOR, 2004)
Category % Share
Solid Waste Management 37.2%
Wastewater Treatment 28.4%
Consulting & Engineer 16.6%
Remediation & Industrial Services 9.7%
Hazardous Waste Management 6.8%
Analytical Services 1.4%
Total: 100.0%
Table 2-2: Global Environment Services Market Segmentation in 2000
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Wastewater
Treatment
Consulting &
28.4% Engineering
16.6%
9.7% Remediation &

Industrial
Services
37.2%
6.8%
Hazardous
Solid Waste
Waste
Management
Management
1.4%
Analytical
Services
Figure 2-3: Global Environment Services Market Segmentation in 2003
(Source: Datamonitor, May 2004)
The US is the largest market for the environmental services, accounting for 40.5
percent or $107 billion, followed by Europe with 31.3 percent of the market value in
2003. Asia-Pacific generates about 22.2 percent. (DATAMONITOR, 2004).
Regional % Share
The US 40.5%
The Europe 31.3%
Asia-Pacific 22.2%
Rest of the World 6.0%
Total: 100%
Table-2-4: Global Environmental Services Market Segmentation by Region
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This data suggests that the US market is still very important and significant for
major players in the US and that the solid waste segment is still attracted to them.
Figure 2-5: Global Environmental Services Market Segmentation by Region
2.3.4 Market Growth Rate & Industry Life Cycle
Strong indications suggest that the environmental services industry is at mature
phase in its life cycle. The market was not impacted by the economic downturn in 2001-
2002; however, it experiences slow growth in some large markets in North America and
Western Europe. The market has expanded at the growth rate of 3.3 percent since
1999, due to the rapid development of Asia-Pacific, East Europe and Latin America
markets. (DATAMONITOR, 2004)
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2.3.5 Industry Trends
With the global population reaching 6 billion and rising, the volume of waste created
will also continue to rise. Solid waste management, currently accounting for 37.2
percent of the market value, is still a key to the industry’s growth. It is forecasted that
the global environmental services market will achieve a value of $295 billion by 2008, at
a growth rate of 2.1 percent in the period 2003-2008. (DATAMONITOR, 2004)
Year $ Billion % Growth
2003 265.8 2.8%
2004 272.6 2.6%
2005 279.1 2.4%
2006 284.9 2.1%
2007 290.2 1.9%
2008 294.9 1.6%
Table 2-3: Global Environmental Services Market Value Forecast 2003-2008
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Figure 2-6: Global Environmental Services Market Value Forecast 2003-2008

The large US and the European markets will continue to face mature and slow
growth while the Asian-Pacific, Latin America, and Eastern Europe markets are
predicted to generate much of the growth rate.
2.4 FIVE FORCES COMPETITIVE ANALYSIS
Using Michael Porter’s Five Forces framework, Waste Management can better
analyze their strategic competitiveness. The five forces include the barriers to entrants,
bargaining power of suppliers, bargaining power of buyers, threat of substitute products,
and the intensity of rivalry among competitors. Historically, firms concentrated on
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analyzing firms within their industry group and who they compete directly. However, a
more broad analysis can identify potential competitors and customers (Hitt et al, 2005).
2.4.1 Barriers to Entry
HIGH: Explicit barriers to new entries on environmental services industry are high.
The industry depends heavily on the commercial presence mode of services. This
would limit a firm’s ability to establish a commercial presence and to employ a national
image for these services. The environmental service industry requires tremendous
investment from the new entry.
Firms operating in this industry need to possess a large supporting network of
transfer stations. These will transport waste collected to firms’ landfills using long-haul
trailers, barge containers and rail cars. Besides, new firms have to obtain the right to
specific assets such as ownership of landfills and sewage system to dispose waste.
Stiff federal regulations and restrictions limiting the use of land for landfills and
forcing firms to operate within established guideline impact significantly on the new
entry.
The environmental service is an intensive labor industry. It is affected by limitation
on the movement of human labor between regions and countries internationally.
Globally, nationality requirements prevent firms from hiring inexpensive labor from
foreign countries.
Some foreign firms may face discrimination from host countries. High taxation and
subsidization are some of the keys for such a barrier. In addition, strict environmental
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regulations from federal agencies and limited cross-border supply and consumption
compromise the penetration of foreign firms in the industry.
2.4.2 Product Substitutes
LOW: Substitution for the environment service seems to be low. There is virtually
no substitution for the environmental services at this point in time. However, changes to
reducing waste output from the customer’s side would significantly negatively impact the
industry growth. These changes result from clean operations, and green operations.
High technology would help reduce large amounts of waste and thus reduce the need
for waste services.
Threat of Entrants: LOW

•High investment Threat
•Strict regulations Buyer Power:
Of New
MODERATE
•High exit barriers Entrants
•No cross border labor LOW •Commercial & business
customer: make own
choice
Bargaining Competitive Rivalry:

Power of
Rivalry Bargaining MODERATE
Suppliers
MODERATE
Power of Buyers •Slow industry growth
HIGH MODERATE in USA
•High strategic
stakes
Supplier Power: HIGH •Intense competition
•Unionized Labor LOW
•Strong, big suppliers Threat of
•Pay premium for license Substitutes
& rights
Threat of Substitutes: LOW
•Few to zero substitutes for
Waste Management
Figure 2-7: Porter's Five Forces Model
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2.4.3 Bargaining Power of Buyers
MODERATE: The bargaining power of buyers is moderate. On the customer base
standpoint, the market for the environmental services can be divided into 3 segments:
residential, business, and industrial segments.
The residential customers do not seem to have much bargaining power over the
providers. For the economy of scale and unique physical boundary, the city or a legal
organization that manages the communities will select the waste services provider base
on its comparability for the entire community. Individuals are not entitled to the right to
choose a waste service provider for his or her household.
The business and industrial customers--especially the national industrial customer,
on the other hand, has more power to make decisions on the service provider. With its
huge size and its complex operations across the nations, the industrial customer
requires a consolidated waste service provider that is modern and big enough to serve
its needs. Thus, the business and industrial customer have significant power on the
industry.
2.4.4 Bargaining Power of Suppliers
MODERATELY HIGH: Bargaining power of suppliers is moderate to high. Key
suppliers to the environmental service industry consist of people – human labor,
landfills, network of transportation stations, and facilities to process waste collected.
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Relying on intensive human labor forces the industry to rely on real people to
perform tasks that automated machines hardly can perform. Unions that represent
these labored people can negotiate in favor of them.
Firms that operate in the environmental service industry also negotiate to obtain
ownership of landfill and licenses from the government agency to dispose waste. These
restrictions and regulations leave no choice but to force firms to pay a premium for the
license and ownership rights.
Firms in this industry necessarily utilize special tools and equipments for these
services. These equipment and tools are specially made for the environmental service
needs. The huge trucks that transport collected waste from residential or business sites
are custom made only for this kind of service in limited numbers. Thus, equipment
suppliers to the industry dictate the power on the industry.
Facilities to process waste are normally huge in size, modern, and in compliance
with strict federal regulations. They require strong, large, and competent companies to
design and make them. As a result these equipment suppliers have bargaining power
over the players in the industry.
2.4.5 Competitive Rivalry
MODERATE: Firms within this industry face moderate competition. The
consolidation movement through mergers and acquisitions in the 1990’s created
momentum for the price wars between rivals in the oversupply condition. The oblique
market features just a few compatible players in specific regions. Though there are just
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a few players in the region, the competition is fierce because of powerful customers who
prefer a modern and consolidated service provider for their national operations. In
addition, customer loyalty to a particular provider is low due to short renewal contracts.
Demand for environmental services is growing at a very slow rate, coupled with
powerful customers and low loyalty proves that the industry is fiercely intense.
2.5 SUMMARY OF INDUSTRY ANALYSIS
In the US and the EU, the environmental service industry is in the mature phase.
Growth rates for these markets are low and that of Asia and Latin America are very
good in the near future. Barriers to new entry are high due to high investment in
equipments and transportation networks and strict regulations. Substitutes for the
services are low. Bargaining power of the buyer is moderate while that of the suppliers
are moderate to high. Competition among rivals is moderate.
2.6 COMPETITIVE ANALYSIS
As the demand for more landfills increases and environmental regulations continue
tightening, the emergence for new competitors is always a threat for existing
companies. In order to remain successful and ahead of the competition, it is important
to understand who the competition is and what they are doing. This competitive analysis
will focus on competitors within the waste management industry.
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2.6.1 Industry Competitors
ALLIED WASTE INDUSTRIES, INC
Allied Waste Industries is the second-largest environmental services company in
the US behind only Waste Management (WMI) with sales of $5,734.8 million in 2005,
according to Hoover’s website on Allied Waste Industries. The company serves 10
million customers consisting of residential, commercial, and industrial throughout the
US. It operates a network of 310 collection companies, 166 transfer stations, 169 active
landfills, and 57 recycling in 37 states. Two-thirds of the company’s revenues come
from residential and commercial services. (Hoovers, 2005 – Allied Waste Industries).
REPUBLIC SERVICES, INC.
The Fort Lauderdale, Florida, based Republic Services company posted sales of
$2,863.9 million in 2005 and was ranked number 3 in the US in the environmental
services. The company offers its primary solid waste services to customers, mainly in
the Sunbelt, through its network of 140 collection companies, 60 landfills, 90 transfer
stations, and 35 recycling centers. (Hoovers, 2005 – Republic Services)
WASTE CONNECTIONS, INC.
Waste Connections operations include solid waste collection, transfer, disposal, and
recycling services. The Folsom, California, based company offers these services to
more than 1 million customers – residential, commercial, and industrial customers in
more than 20 states, mainly in the western US. The company focuses mainly on solid
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waste services in small markets and its sales in 2005 was $721.9 million. It possesses
105 collection operations, 35 landfills, and 25 recycling facilities. (Hoovers, 2005 –
Waste Connections)
2.6.2 Rivals Anticipated Strategic Moves
In the waste management industry, there are many uncontrollable factors that must
be monitored to ensure decisions are based on forecasts of future demands. A
significant amount of Waste Management’s capital expenditures is spent on
governmental and environmental regulations. The waste management industry is
subject to extensive federal, state, and provincial laws and regulations. In addition,
several environmental health, safety, and transportation laws and regulations are
enforced.
Rivals wishing to meet the demands of the market are seeking to grow through
acquisitions or expansions of new technological divisions. More modernized fleets and
better customer service are just two of the competitive strategies that the current
industry competitors thrive on. Most industry competitors are trying to establish a
reputation within the market as a ‘green’ company. A ‘green’ company is an
organization that is environmentally friendly, and in addition to the already strict
environmental laws, the company makes an effort to go beyond expectations.
Company’s that choose to emphasize their customer service focus may launch
several campaigns that may appeal to other corporations and even residential
customers. Some companies may leverage their construction and demolition services,
which can also be an avenue of competitive leverage. In addition, providing medical and
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special waste needs and recovery of hazardous materials is an avenue that may be
more popular within the industry in the future.
2.6.3 Summary of Competitive Analysis
The future of the waste management industry will surely see more challenges in the
future. The struggle of companies to meet current demands will reshape the industry.
Companies will continue to invest significant dollars in technology and environmental
quality. Companies are willing to devote the required capital to make these significant
investments to profit. With rising fuel costs and environmental devastation, there’s a
chance the waste industry may struggle in the future.
2.7 KEY SUCCESS FACTORS
According the accepted definition, “An industry's key success factors (KSFs) are
those things that most affect industry members' ability to prosper in the marketplace--
the particular strategy elements, product attributes, resources, competencies,
competitive capabilities, and business outcomes that spell the difference between profit
and loss and, ultimately, between competitive success or failure. KSFs by their very
nature are so important that all firms in the industry must pay close attention to them.
They are the prerequisites for industry success or, to put it another way, KSFs are the
rules that shape whether a company will be financially and competitively successful.
The following are key success factors in this industry:
o Rights to acquire and possession of landfills -- In the environmental services
industry, the crucial key success factor is the right to acquire more landfills and
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possession of the rights to acquire landfills and to use these assets both effectively
and efficiently. The physical assets include a huge network of collection companies,
transportation stations, and process facilities to represent the firm’s capability to
cover the market. The more a firm has the more market the firm can cover. The
ownership has the right to as many landfills as possible. This is another key to
determine the capacity of the firm to dispose solid waste, while economical (as short
as possible) distances help the firm operate more efficient and thus profitable.
o Another key success factor is the ability to control operation costs. One direct way to
cut operation costs is through transportation. Effective and efficient logistic systems
would help a lot to reduce unnecessary, extra effort to transport waste. Hauling
distance is evidently proportional to transport cost, and higher transportation cost
links directly to a disadvantage in the industry.
In addition, the human factor is significant to firms. This industry operates through
intensive labor. Using labored employees effectively and efficiently will help the firm in
shredding cost and expanding its capacity to serve more customers. This results in a
dramatic increase in market share and profit for the firm.
3. INTERNAL ANALYSIS
3.1 ORGANIZATIONAL ANALYSIS
The Company is headquartered in Houston, Texas, and Waste Management Inc. is
the leading provider of comprehensive waste and environmental services in North
America. The Company’s network of operations includes 431 collection operations, 381
transfer stations, 286 active landfill disposal sites, 17 waste-to-energy plants, 119
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recycling plants, and 90 beneficial-use landfill gas projects. The Company is strongly
committed to a foundation of financial strength, operating excellence, and superior
customer service.
This section is an assessment of Waste Management’s organizational structure,
resources, strategies, objectives, and financial situation.
3.1.1 Corporate Vision
The corporate vision identifies where the firm’s orientation for the future is in order
to best serve stakeholders’ needs. The vision incorporates current realities and any
expected future conditions to create an ideal scenario within a relevant time frame
(Cook & Hunsaker, 2001).
Based upon our analysis of Waste Management’s strategies, we have concluded
that the appropriate vision statement for the organization is as follows: “Our goal is to
have a focused, world-class supply base firmly in place and readily accessible,
producing a sustainable competitive advantage in every corner of our business.”
In review of Waste Management’s strategies and the above conclusion, the vision
statement is trying to achieve the best-in-class in each part of their business for the
future.
3.1.2 Corporate Mission
An organization’s mission statement is meant to describe a firm’s fundamental
purpose. A mission statement is a written statement of purpose that can be used to
initiate, evaluate, and refine all of an organization’s activity
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(http://www.medceu.com/course-no-test.cfm?CID=1467). It’s important for businesses
to have mission statements because they help provide quality goods and services.
Waste Management has a well-defined mission statement that demonstrates its
intentions to customers, suppliers, and shareholders, and defines how they plan to
demonstrate their abilities. Waste Management’s mission statement is: “To develop and
deliver meaningful business results.” The Company will do so by:
X Building partnerships with the Field and Functions to identify and pursue real
business opportunities and solve business problems.
Y Developing and involving a loyal, skilled, productive, and innovative supplier
base.
Z Implementing and continually upgrading the best processes, systems, and tools
available.
[ Designing, aligning, and building an organization of highly skilled, business-
oriented procurement professionals”.
By incorporating all of these aspects into their mission, Waste Management is trying
to show their stakeholders not only what their plan is to strategize, but how they plan to
achieve it. The mission statement is an integral part of the Company because it ties
their goals and strategies to a realistic idea that the Company wants to achieve.
3.1.3 Products and Services
Waste Management has several different products and services they offer to their
customers. The Company offers a full range of environmental services to nearly 21
million residential, industrial, municipal, and commercial customers. The Company
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tailors its services to meet the needs of each customer group and to provide consistent,
superior service at the local level.
The services provided by their NASW segments include collection, landfill (solid and
hazardous waste landfills), transfer, Wheelabrator (waste-to-energy facilities and
independent power production plants), recycling, and other services.
Collection—this involves picking up and transporting waste from where it was
generated to a transfer station or disposal site. For commercial and industrial collection
services, the Company typically has a one to three-year service agreement. The fees
under the agreements are influenced by factors such as collection frequency, type of
collection equipment furnished by the Company, type and volume or weight of the waste
collected, distance to the disposal facility, labor costs, cost of disposal and general
market factors.
For most residential collection services, the Company has a contract with a
franchise granted by a municipality or regional authority that gives them the exclusive
right to service all or a portion of the homes in an area. These contracts or franchises
are typically for periods of one to five years.
Landfill—Landfills are the main depositories for solid waste in North America and
Waste Management has the largest network of landfills in this country. The landfills
must be maintained to meet federal, state, or provincial and local regulations. The
operation and closure of a solid waste landfill includes excavation, construction of liners,
continuous spreading and compacting of waste, covering of landfill with earth or other
inert material and constructing final capping of the landfill. Waste Management uses
internalization, which generally allows them to realize higher consolidated margins and
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stronger operating cash flows. The Company also operates a hazardous waste facility
where they isolate treated hazardous wastes in liquid form by injection into deep wells
that have been drilled in rock formations far below the base of fresh water to a point that
is separated by other substantial geological confining layers. The Company owned and
operated 281 solid waste and five hazardous waste landfills in 2004 compared with 284
solid waste landfills and five hazardous waste landfills in 2003.
Transfer—As of December 31, 2004, the Company owned and operated 381
transfer stations in North America. The Company deposits waste at these stations, as
do other third-party waste haulers. At these stations, the solid waste is consolidated and
compacted to reduce the volume and increase the density of the waste. The waste is
then transported by transfer trucks or by rail to disposal sites.
Wheelabrator—through this service, the Company owns and operates 17 waste-
to-energy facilities that are located in 11 states in the Northeast, Florida, California, and
Washington. The waste-to-energy services are capable of processing up to 24,200 tons
of solid waste each day. The solid waste is burned at high temperatures in specially
designed boilers at these facilities, producing heat that is converted into high-pressure
steam. They use that steam to generate electricity for sale to electric utilities under long-
term contracts. The Company’s Wheelabrator operations also include six independent
power production plants that convert various waste and conventional fuels into
electricity and steam. These plants burn wood waste, anthracite coal waste (culm), tires,
landfill gas and natural gas. In addition to electricity production, the plants also produce
steam, which is sold to industrial and commercial users.
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Recycling—The Company’s recycling group is comprised of Recycle America
Alliance L.L.C. This was formed in January 2003 to improve the sustainability and future
growth of recycling programs. Recycling involves the separation of reusable materials
from the waste stream for processing and resale or other disposition. Waste
Management recycling operations include the following:
o Collection and materials processing
o Glass recycling
o Plastics and rubber materials recycling
o Electronics recycling services
o Commodities recycling
Other NASW—The Company provides in-plant services, where they outsource
their employees to provide full-service waste management to customers at their plants.
Their vertically integrated waste management operations allow them to provide these
customers with full management of their waste, including identifying recycling
opportunities, minimizing their waste, determining the most efficient means available for
waste collection and transporting and disposing of their waste. The Company also
develops, operates, and promotes projects for the beneficial use of landfill gas through
their Waste Management Renewable Energy Program.
3.1.4 Leadership
Leadership is the process of motivating others, providing direction for the firm, and
gaining commitment to the mission and vision. Leaders create and share the mission,
vision, and organizational goals to drive and create profits for the firm. Waste
Management’s success is evident by its exceptional management and leadership team.
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The Company is led by present CEO, David Steiner and the current President and
CEO, Lawrence O’Donnell III. In addition, on March 7, 2006, Mark A. Weidman became
the new president of Wheelabrator Technologies, Inc., a wholly-owned subsidiary of the
company. Based in Hampton, New Hampshire, Wheelabrator owns and operates 17
waste-to-energy facilities and six independent power production plants.
The Company’s Corporate Governance Guidelines provide an outline of the
Company’s current business practices and the primary objectives which are to
maximize shareholder value, while adhering to the jurisdictions within which it operates
and observing the highest ethical standards.
On the contrary, leadership has not always been charismatic and ethical. Waste
Management has faced their fair share of lawsuits and fraud investigations. From 1992
to 1997 the former executives (see table below) cooked the Company’s books to meet
predetermined earnings targets. Waste Management’s revenues and profits were not
growing fast enough to meet targets, so management inflated earnings by improperly
eliminating and deferring current period expenses. The Company avoided depreciation
expenses on their garbage trucks by both assigning unsupported and inflated salvage
values and extending their useful lives. They also failed to record expenses for
decreases in the value of landfills as they were filled with waste. Waste Management’s
accounting firm, Arthur Andersen, proposed that the Company used Proposed Adjusting
Journal Entries (PAJEs) to correct errors that understated expenses and overstated
earnings in the Company’s financial statements, but management consistently refused
to make the adjustments. Instead, the Company secretly entered into agreement with
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Anderson to fraudulently write off the accumulated errors over periods of up to ten
years.
Consequently, the new scheme was discovered in mid-1997, after a new CEO
ordered a review of the Company’s accounting practices. And in 1998, Waste
Management restated its 1992-1997 earnings by $1.7 billion, the largest restatement in
corporate history (as of March 2002).
WHO WAS INVOLVED?

Dean L. Buntrock Waste Management’s founder,
chairman of the Board of Directors,
and chief executive officer during
most of the relevant period
Phillip B. Rooney President and chief operating
officer, direction, and CEO for a
portion of the relevant period
James E. Koenig Executive vice president and chief
financial officer
Thomas C. Hau Vice president, corporate controller,
and chief accounting officer
Herbert Getz Senior vice president, general
counsel, and secretary
Bruce D. Tobecksen Vice president of finance
Table 3-1: Waste Management Executives
Management profited handsomely from their fraud, receiving performance-based
bonuses based on the Company’s inflated earnings, retaining their high-paying jobs,
and receiving stock options. Some also received enhanced retirement benefits based
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on the improper bonuses and/or lucrative employment contracts. On the other hand,
Waste Management shareholders lost over six billion in the market value of their
investments when the stock price plummeted by more than 33 percent. Overall, Waste
Management has overcome their fraudulent activities, and continues to handle any
lawsuits or unethical business practices fairly and with class.
3.1.5 Organizational Culture
At Waste Management, all employees and others performing work on behalf of the
Company are expected to abide by the laws and regulations that apply to their work
activities and demonstrate ethical behavior on their decisions and interactions. Some of
their current ethics and diversity initiatives include:
1. Ensuring each and every employee is in possession of a current and relevant
Code of Conduct entitles Focus on Integrity and Inclusion.
2. An operation of an integrity help line (1-800-265-9381) to assist employees who
have questions about a business issue or wish to report a suspected violation.
3. Promoting diversity representation of the Board of Directors, Senior Leadership
Team, Management, and Professional employees.
4. Proactive compliance with all EEO and OFCCP regulations.
5. Developing and delivering diversity and inclusion training to all employees with
people management responsibilities.
6. Regularly communicating Waste Management’s commitment to ethics, diversity,
and inclusion commitment.
7. Focusing strategic partnerships with community organizations that share their
diversity and inclusion commitments.
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8. Increasing our procurement spending with minority and women-owned business
(www.wm.com).
Waste Management is also dedicated to creating a culture of trust. By doing this the
Company focuses their security efforts on three different areas: safeguarding their
people, property, information, and assets; partnering with their people, customers, and
vendors; and preserving their reputation and protecting shareholder value by supporting
the highest ethical conduct. Waste Management also embraces the local communities
they are involved in and are concerned with environmental policy. In addition, the
Company places safety as a core value and a cornerstone of operational excellence.
The Company’s goal is to attain world-class safety and to be one of the safest
companies in their industry. Their plan of action is called ‘Mission to Zero,’ which means
the Company has zero tolerance for unsafe actions, unsafe decisions, unsafe
conditions, unsafe equipment, and unsafe attitudes.
The Company has over 50,000 employees and offers them a comprehensive
benefits package that includes: health, family, financial, and professional development.
The Company provides comprehensive health coverage, a prescription drug plan, a
dental plan, salary continuance, retiree medical, and an employee and family assistance
programs. If their employees have families, they offer flexible spending accounts, an
adoption assistance program, education savings accounts, and WMI scholarship
programs. The Company also offers several financial incentives and a tuition
reimbursement program. Waste Management is an industry leader with operations
throughout North America including Canada, Puerto Rico, Alaska, and Hawaii. They
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have facilities in Houston, Texas (headquarters); Phoenix, Arizona; Chicago, IL; Atlanta,
GA; Philadelphia, PA; and Hampton, NH (www.wm.com).
3.1.6 Structure
In 2002, Waste Management organized the Company into market areas to better
align their collection, transport, recycling, and disposal resources. As part of this
restructuring, they reduced the number of field layers of management and eliminated
approximately 1,900 field-level administrative and operational positions (WM Form 10-K,
2004). In February 2003, the Company reduced the number of market areas that make-
up their geographic operating groups and reduced certain overhead positions to further
streamline their organizations. This restructurization resulted in a more effective
utilization of resources and enabled them to service their customers better. In addition,
the Company also reduced the workforce by 700 employees and 270 contract workers.
The operational efficiencies provided by these organizational changes and a focus on
fully utilizing the capabilities of their information technology resources enabled the
Company to further reduce their workforce again, in order to become more efficient.
3.1.7 Summary of Organizational Analysis
Waste Management is segmented into several geographic market areas: Eastern,
Midwest, Southern, Western, and Canadian operations. The Company manages and
evaluates their operations through these five geographic groups and their Recycling and
Wheelabrator Groups. The Company has maintained exceptional safety, environmental,
and employee satisfaction ratings. Through constant improvement, motivation, and
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outstanding leadership, Waste Management has created a culture of integrity, corporate
governance, and an effective and efficient environment.
3.2 ANALYSIS OF FIRM’S RESOURCES
In analyzing a firm’s resources and capabilities, it is important to understand that
core competencies distinguish a company competitively and reflect its personality (Hitt,
et al. 2005). By identifying firm resources, we are better able to identify a company’s
core competencies that can enable the firm to be more competitive in its industry. As
the capacity to take action, these are the activities the company performs especially well
compared to competitors and through which the firm adds unique value to its goods or
services over a long period of time. However, not all of a firm’s resources and
capabilities are strategic assets; some actually may result in incompetence, because
they represent competitive areas in which the firm is weak compared to competitors.
A firm will achieve strategic competitiveness and earn above-average returns only
when it starts to take advantage of opportunities in the external environment by
efficiently using its unique core competencies. (Hitt, et al. 2005)
3.2.1 Tangible Resources
Tangible resources are assets that can be seen and quantified, such as financial,
organizational, physical, and technological resources. Examples of these include
production equipment, plants, physical structure, firm’s borrowing capacity (financial),
stock of technology, access to raw material, etc (Hitt et al., 2005).
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Organizational resources are STRONG: WMI is able to employ economies of
scale by relying on it large physical network of plants and landfills.
Through a program called Service Machine, used to track and measure customer
service performance, the firms is able to focus on retaining strong business
relationships and securing new business by continuing to improve customer service.
Another program that was established is Team 200, a group of employees that will
work closely with senior management to develop plans and strategies and address
critical issues. The firm is also implementing integrated training strategies, including
those focused on ethics, diversity and inclusion as well as safety. Finally, a main
emphasis in upcoming years is career development, and the implementation of
strategies to recruit, hire and retain valued employees. (10K Annual Report, 2004)
Additionally, WMI currently offers an In-Plant Services model, where existing skills
and resources are used to manage customers' waste needs by having WMI employees
work on-site to reduce waste, increase recycling and lower overall costs of disposal,
and to provide innovative waste service solutions.
Physical resources are STRONG: Waste Management currently enjoys a large
North American presence, including 286 landfills that are wholly owned or operated. The
large number of landfills offers WMI the advantage of covering a large expanse of
territory, with convenient access for its routes. A national presence and long history
allows the firm to provide large, multi-location commercial and industrial customers with
a single point of contact for nation-wide services at competitive pricing.
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The following table provides certain information by Group regarding the 248 landfills
owned or operated through lease agreements, and a count, by Group, of contracted
disposal sites as of December 31, 2004:
Section Landfills Total Permitted Probable Contracted

Acreage Acreage Expansion Disposal
Acreage Sites
Canadian 12 5,303 1,326 1,107 5
Eastern 44 27,984 5,926 979 7
Midwest 71 30,222 8,889 989 8
Southern 81 38,536 11,571 1,144 13
Western 36 34,092 6,501 1,272 5
Wheelabrator 4 781 289 - -
248 136,918 34,502 5,491 38
Table 3-2: Physical Resources

(Waste Management Inc. Annual Report, 2004)
Principal property and equipment consist of land (primarily landfills and other
disposal facilities, transfer stations and bases for collection operations), buildings,
vehicles and equipment. Current inventory of vehicles, equipment, and operating
properties are adequately maintained and sufficient for operations. However, additional
investments for expansion, for replacement of assets, and in connection with future
acquisitions have been announced in the company’s Annual Report (2004).
The following table summarized WMI holdings and physical operations as of
December 31, 2004 for the periods noted:
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Landfills 2004 2003

Owned or operated through lease agreements 248(a) 247
Operated through contractual agreements 38 42
Transfer Stations 381 366
Material recovery facilities 106 138
Secondary processing facilities 13 16
Waste-to-energy facilities 17 17
Independent power production plants 6 6
Table 3-3: Waste Management Holdings & Physical Operations

(a) Includes a landfill in Ontario, Canada that was held-for-sale at December 31, 2004 and divested in
January 2005. (Waste Management Inc. Annual Report, 2004)
Technological Resources are WEAK: Fleet maintenance and route optimization
remains a focus of improvement projects. The metric used for fleet maintenance is
maintenance cost per driver hour, which is improved through basic planning and
scheduling of maintenance work as well as enhanced training. For the route
optimization initiative, a proprietary software application called WasteRoute is used,
which was designed to help organize routes more efficiently. The optimization initiative
has resulted in improved productivity as well as a reduction in the number of routes.
Future plans include institutionalizing identified best practices to support future
productivity improvement.
Other technological innovations include a landfill point-of-sale system that
streamlines the transaction process, improves data quality, and provides critical
information for analysis by waste stream, by customer and by market, and that provides
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better pricing discipline. Designed to bring major improvement and cost reduction to the
operations at the company’s 786 disposal, material recovery and transfer facilities, the
point-of-sale system represents a breakthrough in applied technology in this industry. In
addition, landfill industrial sales and customer service organization were consolidated
into 15 service centers that serve the entire network with greater efficiency.
3.2.2 Intangible Resources
Intangible resources tend to be a superior and more potent source of core
competencies simply because they are much harder to emulate and harder to acquire.
These resources include knowledge, ideas, capacity for innovation, trust between
employees and managers, managerial capabilities, and the way that firm interacts with
customers, employees, suppliers and other stakeholders. Intangible resources are
beneficial in that their use can be leveraged; the larger the network of users, the greater
the benefit to each party. Proper use of these types of resources is an important source
of competitive advantage.
Human resources are STRONG: With a long history of waste management and an
extensive portfolio of acquisitions and mergers, the firm features a deep knowledge and
expertise among its management of the industry. In addition, the company is committed
to enriching its knowledge base by attracting experts in their fields. For instance, in a
push to implement integrated information systems that will better streamline operations
and offer customers a higher level of service, WMI brought in security and systems
expert Anne Rogers, who is a long-time veteran in developing corporate systems and
security.
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The human aspect of the company’s assets is valued and efforts are made to
manage them well, requiring a strong sense of stewardship and service. Programs that
have been successfully implemented demonstrated that the firm’s disciplines are built
around the relentless pursuit of improvement, as they focus on continuously examining
processes and programs, deployment of resources and investment of capital. We
challenge ourselves daily to achieve the inseparable objectives of cutting costs and
saving money while improving our processes, increasing productivity, and delivering
ever-better service to our customers.
The company also enjoyed continued success in implementing several operational
excellence initiatives during 2004. Programs such as the ‘Mission to Zero’ operational
safety program in late 2000 resulted in improvements in both total recordable incident
rate and hourly accident recordable rate, metrics used to measure progress in attaining
this goal.
Innovative resources are STRONG: Waste Management Inc. demonstrates a
remarkable ability to reinvent itself through innovative thinking and bold reorganizations.
Over the past five years, the company launched an intensive period of rebuilding the
processes and systems around their operations. New information systems to meet the
compelling need for reliable data and to bring technology into all aspects of operations
were developed. Ultimately, the firm completely overhauled the way it serves
customers, purchases goods and services, maintains vehicles and equipment,
structures routes and conduct sales, by reorganizing operating units around market
areas and created market-specific business strategies. Out of necessity, these
initiatives were developed and implemented in rapid succession over a short time.
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This capacity for making the dramatic changes necessary to remain, or return to,
competitiveness in this mature industry is a core strength for WMI.
Reputational resources are MODERATE: Waste Management Inc. is a long-
standing firm with ties to many communities and local governing bodies across North
America. As the number one largest residential waste management and collection
company in the U.S., WMI enjoys considerable brand awareness among customers.
According a statement made in the 2004 Annual Report, no single customer contributed
over 1 percent of operating revenues, demonstrating a widely diversified customer
base.
However, with great size comes greater exposure to risk. The Chicago waste
collection workers strike made a serious dent in the reputation of garbage collection
companies in the area, notably Waste Management Inc. Exposure to this risk is
inevitable, and impacts the value of the firm’s reputational assets. Finally, since many
residential customers have little choice in waste collection services, oftentimes this
service being a foregone conclusion due to community contracts with specific firms,
Waste Management may suffer from negative associations with circumstances beyond
firm control yet with negative service outcomes for customers.
3.2.3 Capabilities
Capabilities are the firm’s capacity to deploy resources that have been purposely
integrated to achieve a desired end state. They emerge over time through the intricate
interactions between tangible and intangible resources. Critical to the forming of
competitive advantages, capabilities are often based on developing, carrying, and
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exchanging information and knowledge through the firm’s human capital. Because a
knowledge base is grounded in organizational actions that may not be explicitly
understood by all employees, repetition and practice increase the value of a firm’s
capabilities. (Hitt et al., 2005)
Examples of Waste Management Inc.’s capabilities include, but are not limited to:
management’s ability to continuously reinvent processes for improvement, to identify
and acquire key physical assets, to train its human resources, and to efficiently develop
and implement innovative technology.
3.2.4 Core Competencies and Sustainable Advantages
Capabilities must be valuable, rare, costly to imitate, and non-substitutable to
become core competencies. These core competencies, in turn, can become a source of
competitive advantage for a firm, when used properly. Firms must therefore identify and
qualify their capabilities to locate their core competencies, so that they may be better
able to develop a competitive advantage. These criteria are:
o Valuable – these capabilities allow the firm to exploit or neutralize threats in its
external environment. By using capabilities to exploit opportunities, the firm
creates value for customers.
o Rare – capabilities that are rare are those that few, if any, competitor possess.
o Costly-to-imitate – these capabilities are those that other firms cannot easily
develop, due to a combination of history, culture, and/or social complexity.
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o Non-substitutable – are those capabilities that do not have a strategic equivalent
among the range of other capabilities.
Valuable
Due to its large size, and considerable free cash flow, WMI is able to identify and
neutralize physical threats by absorbing smaller strategically placed companies within
overlapping territories. In addition, the large number of landfills and permitted disposal
sites in North America provide WMI a strong base to defend against competitors.
Landfills and permits are difficult to obtain, entailing extensive governmental
bureaucracy.
Rare
Waste Management Inc. is attempting to develop a rare capability of offering integrated
services to customers, with single-point contact. With its wide range of services, WMI
provides integrated waste management services consisting of collection, disposal,
transfer, waste-to-energy facilities and independent power production plants, as well as
recycling and other miscellaneous services throughout North America.
In addition, the firm’s Wheelabrator assets in waste-to-energy technology are a
capability that its competitors do not possess. In light of the current worldwide energy
issues, this capability may be eminently exploitable for competitive advantage.
Costly-to-imitate
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WMI’s capabilities lie firmly in its overwhelming physical assets, which it acquired
over time through mergers and buy-outs. This capability is costly for competitors to
imitate by its very nature. However, it is not sustainable, and actually faces significant
risk of competition. Aggressive competitors may opt to merge, which would easily defeat
WMI’s advantage of physical size and location.
Non-substitutable
The primary capability is that it is non-substitutable, and has the potential to be the
most valuable as well as management’s ability to reinvent itself for continuous
improvement. The ability to successfully manage and navigate change programs is in
itself a capability, that, when managed properly, may become a source of competitive
advantage. The past five years has shown WMI with a remarkable ability to recover and
redesign its organization. On the surface, the organizational culture which allowed
corruption and scandal of the late 1990s has been turned into that of a progressive
company whose focus on superior customer service and technological integration has
produced over 25 percent growth per year in the early 2000s.
The only capabilities which appear to meet all four criteria are the company’s ability
to identify and absorb strategic acquisitions and its management’s ability to continuously
improve and reinvent its processes. In summary, WMI appears to have reasonably
strong likelihood of developing sustained competitive advantage within this framework.
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3.2.5 Summary of Firm’s Resources:
Overall, Waste Management Inc. features reasonably strong resources, with an
emphasis on tangible, physical resources. The sheet size and number of WMI corporate
and affiliated locations offers the firm an advantage over other firms. However, this
resource is not difficult to imitate, and must be continually reassessed as it stand
considerable risk of losing its advantage.
The capability that is most valuable and offers WMI best source of competitive
advantage is its management’s ability to continuously reinvent itself, with programs and
change for constant improvement. This system of constant self-evaluation and re-
evaluation can enable the company to better meet challenges and threats as they arise
in the external environment.
3.3 ANALYSIS OF OBJECTIVES
Waste Management, Inc. has skillfully framed its short-term, long-term and financial
objectives around its mission statement. WMI is dedicated to providing and delivering
successful business results to their customers, suppliers, and shareholders. This
involves being efficient in operations, safety procedures, and employee utilization.
3.3.1 Short-Term Objectives
Recent objectives include programs for reducing cost structure. As the economy
improved, objectives have expanded to include focusing operations on a combination of
growth, productivity improvements and continued cost cutting. Plans for growth are
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grounded in margin expansion from better pricing while continuing to cut costs, and
emphasis is placed on growing returns from new capital investments.
Improving pricing through a landfill pricing study at 30 company-owned landfills, to
gather and analyze information leading to an understanding of the reactions to price
increases in various markets in the United States and Canada.
3.3.2 Long-Term Objectives
Long term objectives include being the best-in-class. Several programs and efforts
to ensure superior levels of customer service have already been implemented.
Another long term objective is to use free cash flow to reinvest through capital
expenditures, making investments in those locations and lines of business that offer
superior margins and return on capital. The company will continue a “tuck-in” acquisition
program, primarily seeking collection operations that overlay existing WMI route
structure and are strategically located near existing WMI disposal sites. Permitted
landfills, transfer stations, or waste-to-energy facilities are also attractive acquisition
candidates.
With regards to under-performing business lines, the firm will seek exit strategies,
which may include exiting lines of businesses, not renewing or bidding on certain
contracts, or offering certain assets for sale to others.
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3.3.3 Financial Objectives
Waste Management will need to successfully manage its costs. In order to do this
several profit improvement initiatives must be implemented in order to lower its costs
and enhance their revenues. The Company must also manage better initiatives for
subcontractor costs and the effect of the rising trend in fuel prices.
Employee-related costs and expenses also threaten their operating expenses. The
Company must make sure that C-level executives and management have the right
people in the correct areas in order to secure the financial future of Waste Management,
Inc.
3.4 FINANCIAL ANALYSIS
The financial analysis section is a brief look at how well WMI has performed over
the last 5 years, in most case as compared to the industry and S&P 500.
3.4.1 Operating Groups Financial Performance
The table below shows the total revenues (in millions) contributed annually by each
of WMI’s seven reportable segments (groups) in the three-year period ended December
31, 2005. Five of these groups are organized by geographic area and the other two of
which are organized by function. Some figures are shown as a percentage for ease of
analysis.
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2005 %Change 2004 %change 2003

Eastern 361 0.8 358 6.9 335
Midwest 426 10.4 386 2.9 375
Southern 699 5.1 665 10.5 602
Western 471 13.5 415 4.8 396
Wheelabrator 305 7.8 283 23.6 229
Recycling 15 (40) 25 457.1 (7)
Other 3 125 (12) 40 (20)
Corporate (570) (35.4) (421) (13.8) (370)
Total 1,710 0.6 1,699 10.3 1540
Table 3-4: Financial Performance (Operating Income)
The southern and Western groups are clearly the strongest financial contributors to
WMI overall financial performance. However the Midwestern group is posting a
percentage revenue increment of 10.4 percent from 2004 indicating that is in a growth
mode.
Overall WMI is posting an Internal Revenue Growth (IRG) of 3.7 percent. IRG
change in revenues from: base business yield; commodities; electricity; fuel surcharges
and fees; and volumes. This was due primarily to improvement in base business yield
and an increase in revenues related to WMI’s fuel surcharge program. Revenue growth
from yield on base business is the combined affects WMI’s revenues from the pricing
activities of their collection, transfer, disposal and waste-to -energy. Some of the
improvements in operating income from 2003 to 2004 was driven primarily by
(i) revenue growth due to increased average yield across all major lines of business,
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partially offset by volume declines in transfer, residential collection and landfill
operations throughout the year; (ii) higher operating expenses incurred in 2003 as
compared with 2004 due to the first quarter’s harsh weather conditions; and
(iii) acquisitions (iv) revenue growth associated with increased base business yield for
the collection line of business, which was driven principally by residential collection
operation (v) decline in landfill amortization expense generally as a result of changes in
certain estimates related to WMI’s final capping, closure and post-closure obligations.
(vi) yield improvements in commercial and industrial collection operations and volume
growth in residential collection and transfer operations.
Some of the decline in earnings were related to hurricanes, largely due to the
temporary suspension of operations in the areas affected by the recent Hurricane;
(ii) the effects of higher landfill amortization costs, generally due to reductions in landfill
amortization periods to align the lives of the landfills for amortization purposes with the
terms of the underlying contractual agreements supporting their operations; (iii) higher
landfill amortization expense as a result of changes in certain estimates related to
WMI’s final capping, closure and post-closure obligations; and (iv) increases in salaries
and wages. (v) increased labor costs; (vi) higher fuel costs not passed on to customers;
and (vii) increases in third party transportation and other subcontractor costs.
The electric rates charge to WMI customers at their waste-to -energy facilities
increased significantly during the latter portion of 2005 as a result of higher market
prices for natural gas, which increased significantly as a result of hurricane-related
production disruptions, increased demand and increases in crude oil prices. This
increase in rates was the principal reason for the current year increase in
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Wheelabrator’s income from operations. The favorable impact of market prices for
natural gas was partially offset by higher costs of goods sold and higher repair and
maintenance costs due to the scope and timing of work performed in 2005 as compared
with 2004.
The decrease in income from operations in WMI’s Recycling Group during 2005
when compared with the prior year can generally be attributed to (i) an increase in the
rebates paid to its suppliers as a result of increased competition; (ii) costs related to the
deployment of new software; and (iii) higher subcontractor costs primarily related to
increased distances traveled by third-party truckers.
Also contributing to the increase in expenses during 2005 were (i) an increase in
non-cash employee compensation costs associated with current year changes in equity-
based compensation; (ii) increases in employee health care costs; (iii) salary and wage
increases attributable to annual merit raises; (iv) increased sales and marketing costs
attributed to a national advertising campaign and consulting fees related to WMI’s
pricing initiatives.
3.4.2 Growth Analysis
WMI’s 5 year average sales growth is significantly lower than the industry average
(it is approximately 50 percent of the 5 year industry average and about 20 percent
S&P500 which represents the market as a whole). However WMI’s 5 year average
earning per share growth is higher than the industry average and S&P 500. This is an
indication of investor confidence in WMI shares. Its EPS growth implies that the
business is capable of growing in the years ahead.
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WMI 5 Year Average

2005 2004 2003 2002 2001 WMI Industry S&P
Sales
4.4% 8.1 3.8 (1.6) (9.4) 1.1 2.23 5.22
Growth (%)
EPS Growth
30.34% 32.26 (8.68) 67.13 16 27.41 22.03 13.61
(%)
Capital
Spending (6.2)% 4.8 (6.8) (3.1) 0.75 (2.11) 15.71 4.14
(%)
Table 3-5: WMI Growth Analysis
WMI Growth Analysis
80.0%
70.0%
60.0%
50.0%
Growth Ratio
40.0% Sales Growth (%)

30.0% EPS (%)
20.0% Cap Exp (%)
10.0%
0.0%
-10.0%2001 2002 2003 2004 2005
-20.0%
Year
Figure 3-1: WMI Growth Analysis
WMI’s low capital expenditure is lower than the industry average, an indication of
cost cutting initiatives for a company that is divesting from poorly performing
subsidiaries.
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Ideally there should be a relationship between company assets and the amount of
sales that those assets generate. WMI sales growth has consistently surpassed its
capital spending growth suggesting that WMI has been coming up with new ways to
generate more revenue from existing assets.
5 Year Average Growth Comparison

(WMI Vs Industry VS S&P)
30
25
20
Value (%)
15 WMI
Industry
10 S&P
0
% Sales Growth % EPS Growth Capital Spending
-5
Growth Ratio
Figure 3-2: 5 Year Average Growth Comparison
3.4.3 Profit Margin Analysis
WMI’s income before cumulative effect of changes in accounting principles as a
percentage of revenues increased in 2005 to 9.0 percent from 7.4 percent in 2004. This
increase is largely due to a tax benefit resulting from tax audit settlements and not from
some managerial dexterity. WMI’s income from operations as a percentage of revenues
decreased to 13.1 percent in 2005 from 13.6 percent in 2004 on an increase of
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$558 million in revenue. WMI’s selling, general and administrative expenses in 2005
increased by $9 million, but as a percentage of revenue actually decreased by
0.3 percentage points to 9.8 percent.
WMI 5 Year Average

2005 2004 2003 2002 2001 WMI Industry S&P
Gross
33.98 34.26 34.83 38.02 40.32 36.44 38.84 44.79
Margin
EBITD
23.49 24.13 24.39 25.60 26.80 24.17 23.42 20.03
Margin
Operating
13.08 13.58 13.19 14.66 11.33 13.17 13.72 18.42
Margin
Pre-tax
8.35 9.41 9.64 11.08 6.92 9.08 8.83 10.02
Margin
Net Profit
9.04 7.44 6.17 7.31 4.42 6.88 5.65 11.31
Margin
Table 3-6: WMI Profit Margin analysis
Gross Margin is an indication of how much profit is left after subtracting costs that
are necessary to actually produce the goods or services the company sells (variable
cost). The operating margin is a measure how much profit is left after deducting the
basic expenses of running a (Sales, General and Administrative expenses (SG&A). The
operating margin is an effective gauge of the performance of a company's BUSINESS
activities, but not of the performance of the COMPANY itself. WMI’s 5 year average
Gross Margin is lower than the industry average indicative of high variable costs (raw
materials, fuel, direct labor, etc). Its operating margin is also lower than the industry
average, also suggestive of high overheads. However, WMI’s Pre-tax and Net
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5 Year Average Profitability Comparison

50
45
40
35
Value (%)
30 WMI
25 Industry
20 S&P 500
15
10
5
0
Gross Margin Operating Margin Net Profit Margin
Growth Ratio
Figure 3-3: 5-Year Average Profitability Comparison
WMI Growth Analysis
45.0%
40.0%
35.0%
30.0%
Growth Ratio
Gross Margin(%)"
25.0%
Operating Margin (%)"
20.0%
Net Profit Margin (%)"
15.0%
10.0%
5.0%
0.0%
2001 2002 2003 2004 2005
Year
Figure 3-4: Growth Analysis

Margins are higher than industry average indicative of an overall cost-efficiency of the
entire corporate enterprise, attributable to low interest expense. In sum, WMI seems to
have an overall economic success in managing its day-to-day business activities, with a
net profit margin higher than industry average despite gross and operating margins that
are lower than the industry average. Although there remains work to be done, this
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analysis reveals that WMI’s 2005 operating margins demonstrate a pricing progress as
well as continued managerial efforts to improve the efficiency of WMI’s operations.
3.4.4 Financial Condition Analysis
Financial strength is an important indicator of the amount of business risk a
company is taking. When business conditions turn bad, financially stronger companies
have more staying power. Not only are they less likely to face insolvency, they are also
less likely to find a need to make the sort of drastic cutbacks that might restrain their
ability to grow even after better times resume.
Liquidity Analysis
The Quick Ratio and Current Ratio at the top of the table are the most stringent
tests of financial strength of WMI. They measure the level of liquidity that is or could
become available to WMI in short periods of time. While the Quick Ratio compares its
cash and short-term investments to the financial liabilities WMI is expected to incur
within a year's time, the Current Ratio compares year-ahead liabilities to cash on hand
now plus other inflows the company is likely to realize over that same twelve-month
period.
Compared with the 5 year industry average WMI, for all practical purposes enjoys
a high level of liquidity both in the near and medium terms.
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WMI TTM
2005 2004 2003 2002 2001 WMI Industry S&P
Quick
0.82 0.74 0.6 0.61 0.64 0.8 0.8 1
Ratio
Current
1.06 0.88 0.78 0.86 0.84 1.1 1.0 1.4
Ratio
Table 3-7: Liquidity Analysis
Debt Management – Solvency Ratios
While the LT Debt to Equity Ratio looks at the company's capital base, the Total
Debt to Equity ratio takes into account both long-term and short-term debt. Long-Term
Debt is assumed to be a permanent part of the company's capital structure. The more
debt in a company's capital structure, the greater the financial leverage risk. If business
turns weak, there are some costs a company can easily reduce to protect its profits and
preserve liquidity. But interest on debt is generally not among these variable costs.
Interest must be paid even when revenues are falling. Hefty levels of debt and heavy
interest expense burdens could lead to insolvency if revenues or operating profits
remain weak for a prolonged period. The larger the Total Debt to Equity Ratio is relative
to the LT Debt to Equity Ratio, the more risk the company faces from the prospect of
rising interest rates. It is generally assumed that higher debt ratios signify greater levels
of risk. Companies with high levels of interest coverage are better able to carry more
debt.
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A hard look at WMI’s short and Long Term Solvency ratios indicates a healthy
capital base and a capital structure indicative of sound business management. With an
average Debt/Asset ratio of 0.42, WMI’s the financial leverage risk is not very high,
and in the prospect of rising interest rates, and dwindling revenues WMI can protect
itself by reducing some costs. In addition, WMI’s Total Debt to Equity Ratio relative to
the LT Debt to Equity Ratio is not significantly larger implying less risk from the prospect
of rising interest rates.
Even though higher debt ratios signify greater levels of risk, WMI is in an industry
characterized by fairly stable cash flows (seasonal variations apply though) and can
safely carry more debt than can companies whose cash flows follow volatile trends.
Comparing WMI with its industry peers indicates no weakness in their capital structure
especially considering WMI’s higher-than-industry average Interest Coverage ratio,
implying that they can carry more debt.
WMI TTM
2005 2004 2003 2002 2001 WMI Industry S&P
LT Debt to Equity 1.33 1.37 1.42 1.51 1.43 1.33 1.46 1.04
Total Debt to
1.42 1.43 1.52 1.75 1.56
Equity
Interest
3.45 3.73 3.51 3.52 2.36 3.2 2.6 3.3
Coverage Ratio
Debt/Asset 0.41 0.41 0.42 0.42 0.42
Leverage Ratio 3.45 3.5 3.64 3.74 3.62 3.5 3.6 5.7
Table 3-8: WMI Solvency Ratios
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3.4.5 Investment Return Analysis
WMI 5 Year Average

2005 2004 2003 2002 2001 WMI Industry S&P
ROE 19.55% 15.73 11.25 15.49 9.33 14.7 11.7 12.4
ROA 5.05% 4.49 3.09 4.14 2.58 4.9 2.9 2.1
Table 3-9: WMI Profitability Ratios
WMI Profitability Analysis
25.0%
20.0%
Profitability Ratio
15.0%
ROE (%)
ROA (%)"""
10.0%
5.0%
0.0%
2001 2002 2003 2004 2005
Y e ar
Figure 3-5: WMI Profitability Analysis
WMI’s five year average ROE and ROA are greater than the industry average.
Indicating that it is generating good returns on its investor capital and adequate profits
on its capital.
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5 Year Average Profitability Comparison

16
14
12
Value (%)
10 W MI
8 Industry
6 S&P 500
4
2
0
ROE ROA
Grow th Ra tio
Figure 3-6: 5-Year Average Profitability Comparison
EVA Determination 2001 2002 2003 2004 2005

EBIT 1663 1652 1576 1,685 1806
NOPAT 1135 1127 1076 1150 1233

Total Investor Supplied
Operating Capital 7715 8068 8003 8188 8171
After Tax Cost of
Capital(WACC) 6.72% 6.72% 6.72% 6.72% 6.72%
Dollar Cost of Capital=
Capital* (WACC) 518.45 542.17 537.80 550.23 549.09
EVA= NOPAT-Capital
Cost 617 585 538 600 684
ROIC= NOPAT/Operating
Capital 14.71% 13.97 13.44 14.05 15.08
ROIC - WACC 7.99% 7.25 6.72 7.33 8.36
EVA= Operating Capital*
(ROIC -WACC) 617 585 538 600 684
Table 3-10: Economic Value Analysis
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MVA Determination 2001 2002 2003 2004 2005

Price per share 27.12 21.64 26.14 28.03 31.37
Number of shares in Millions 628.02 594.6 576.12 570.21 552.52
Market Value of Equity 17031.9 12867.1 15059.78 15983 17332.55
Book Value of Equity 5392 5308 5602 5971 6121
MVA= Market Value - Book
11639.9 7559.1 9457.8 10012.0 11211.6
Value
Table 3-11: Market Value Analysis
The primary goal of most firms is to maximize shareholders’ wealth. This goal
obviously benefits shareholders but also helps to ensure that scarce resources are
allocated efficiently. Shareholder’s wealth is maximized by maximizing the difference
between he market value of the firm’s stock and the amount of equity capital that was
supplied by shareholders. This difference is called market value. A high positive MVA
here indicates that the management of WMI has created value for the firm owners.
The Economic Value Added focuses on the managerial effectiveness in a given
year. It is an estimate of the business’s true economic profit for the year. It represents
the residual income that remains after the cost of all capital including equity capital has
been deducted. It measures the extent to which WMI has added share holder value. For
the years considered this analysis indicates that WMI posted positive EVAs. Therefore
focusing on EVA helps to ensure that a company operates in a manner consistent with
maximizing shareholder wealth. Net income does not reflect the amount of equity capital
employed, but EVA does. And WMI posted a net positive EVA over the five year period
considered in this analysis. This is indicative of a good management team that has
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consistently added value. Based on this analysis, it is believed that this trend is
sustainable in the coming years.
Value Drivers 2001 2002 2003 2004 2005

Sales 11322 1121 11648 12516 13074
Growth in Sales (9.4)% (1.6) 3.90 7.45 4.46
Profitability = NOPAT/Sales 10.02% 10.06 9.23 9.19 9.43
Capital Requirement
0.88 0.89 0.95 0.93 0.86
=Capital/Sales
WACC 6.72% 6.72 6.72 6.72 6.72
Table 3-12: Value Drivers
A good look at the value drivers: sales growth, Operating profitability (OP), Capital
Requirements (CR) and the Weighted Average Cost of Capital (WACC) also indicate
high managerial efficiency. The sales growth generally, but not always, has a positive
effect on value, provided the company is profitable as is WMI.
The operating profitability measures the after tax profit dollar of sales, always
has a positive effect – the higher the better. Third, the capital requirements ratio, which
measures how much operating capital is needed to generate a dollar of sales, also has
a consistent effect - the lower the CR the better, since a low CR means the company
can generate new sales in smaller amounts of new capital. Finally, the fourth factor
WACC, also has a consistent effect, the lower it is the higher the firm’s value. According
to this analysis from all the indices considered WMI appears to be doing very well. It is
posting and continues to promise a positive and increasing Economic Value Added,
indicative that it will continue to create wealth for its shareholders. The key value
drivers are Operating Profitability (OP), Capital Requirements (CR); WACC also clearly
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indicate that the firm is rather healthy but it has growth potentials. Staying off debt has
helped WMI to keep its cost of capital low and the stock value high. Sales are
forecasted to continue increasing and short-term debt may rise somewhat but overall;
WMI is a very sound company with a strong footing on its growth path.
3.4.6 Management Efficiency Analysis
WMI TTM
2005 2004 2003 2002 2001 WMI Industry S&P
Income/
$24,000 18,000 12,000 16,000 9,000 24,000 16,000 30,000
Employee
Revenue
Per $261,000 245,000 225,000 211,000 198,000 261,000 228,000 362,000
Employee
Receivable
6.6 6.7 6.54 6.56 6.6 7.1 7.7
Turnover
Inventory
91.3 95.7 93.7 84.7 91.3 142.8 8.5
Turnover
Asset Turn
0.6 0.6 0.57 0.56 0.58 0.6 0.6 0.99
over
Table 3-13: WMI Management Efficiency Table
3.4.7 Stock Price Analysis
This stock's forward earnings yield of 4.69 percent is the annual return it would
generate if its profits remained fixed and it paid out all of its earnings as dividends. This
is normal compared with the earnings yields of other stocks in its industry, but it is
extremely healthy in absolute terms. For WMI to generate decent returns for investors, it
will probably only have to realize moderate growth in earnings or a higher valuation by
the market. Most stocks in the waste management industry have seen steadily growing
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revenue and earnings over the past three years. This stock has also seen steady
revenue growth over the past three years. In contrast to its peers, this stock's earnings
per share have grown at a very high rate over the past three years. Note that WMI’s
stock's sustainable growth rate is quite a bit less than the rate at which its earnings per
share have grown. That means that WMI will probably have to raise additional capital
from outside sources at some point if it continues to grow at its current rate.
Current 5 Year High 5 Year Low

WMI IND S&P WMI IND S&P WMI IND S&P
P/E 16.40 23.39 21.49 124.22 27.02 39.41 12.62 12.62 14.87
P/ Sales 1.48 1.87 2.88
P/Book 3.18 2.89 2.94
P/Cash Flow 7.70 8.80 12.50
P/Free Cash 25.45 24.65 28.04
Flow
Table 3-14: WMI’s Stock Price Analysis
WMI is a posting a Price-to-Free Cash Flow that is slightly higher than the industry
average indicative that they are generating sufficient cash to pay dividends or use for
other investments. The P/E ratios saw quite large swings between highs and lows and
even though the trailing Twelve Months figure is lower than the industry average the
overall picture indicates that WMI is experiencing a strong investor following and could
capitalize on this positive sentiment.
The percentage of shares owned by institutions is significantly higher and almost
doubles the industry average. The high level of demand from this very influential
investment community is an affirmation of a healthy company because of their
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Institutional Ownership usually come with expertise and size and can influence a lot
internal managerial decisions.
Dividend History 2001 2002 2003 2004 2005

Dividend $ 0.01 0.01 0.01 0.75 0.8
Year-end Yield % 0.03 0.04 0.03 2.51 2.64
S&P 500 Yield % 1.19 1.55 1.37 1.36 1.42
Table 3-15: Dividend History
WMI’s stock has a low dividend yield, which is typical of stocks in its industry. Low
dividend yields are typically associated with young companies or companies with
considerable growth opportunities. Sometimes even mature companies opt to buy back
stock rather than pay dividends, though, because that is more tax efficient for
shareholders. Note that WMI’s stock's dividend has risen dramatically over the past five
years. That is usually a positive sign for investors.
Direct Competitor Comparison
Company Symbol Price Change Mkt Cap P/E

Waste Management Inc. WMI $35.11 0.60% $19.19B $16.78
Republic Services Inc. RSG 42.17 0.60 5.80B 24.1
Allied Waste Industries AW 12.11 1.42 4.02B 26.33
Inc.
Stericycle, Inc. SRCL 67.03 -0.03 2.95B 45.23
Waste Connections Inc. WCN 39.89 1.01 1.83B 22.91
Clean Harbors Inc. CLHB 28.92 -0.48 561.97 20
Table 3-16: Industry Analysis
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WMI AW RSG Industry

Market Cap: $19.19B $4.03B $5.80B $89.71M
Employees: 50,000 25,000 13,000 498
Qtrly Rev Growth (yoy): 5.10% 25,000 13,000 7.70%
Revenue (ttm): 13.07B 5.90% 7.30% 79.39M
Revenue (ttm): 13.07B 5.90% 7.30% 79.39M
Gross Margin (ttm): 33.98% 5.73B 2.86B 27.95%
EBITDA (ttm): 3.06B 1.46B 756.00M 9.76M
NI(ttm) 1.18B 141.8M 253.7M 390.0K
EPS (ttm): 2.092 0.46 1.75 0.02
PEG (5 yr expected): 1.73 2.24 1.89 1.69
P/S (ttm) 1.46 0.69 2.1
Table 3-17: Direct Competitor Analysis
Compared with its major competitors and the industry average WMI is showing
considerable financial strength. Its net income at $1.18B is orders of magnitude than its
closest competitor RSG ($253.7). Its Earnings per share is higher than its direct
competitors and significantly higher than the industry average. WMI’s market
capitalization is also about four times that of its closest direct competitor.
WACC Analysis
To evaluate the company’s financial strength, the cost of common stock, cost of
equity, debt and the weighted average cost will be taken into consideration.
WMI beta = 1.38 (from Netscape Money and Business)
Interest rate 10 year treasury bonds = 4.5% = Rrf
Market return Rm = D1/P0 +g. = D0 (1+g)/ P0 +g
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Current Dividend Yield = 2.13% (Compustat) = D0/P0
Annual Dividend Growth rate = 6.52%
Rm = 2.13(1+6.51) + 6.51 = 8.78%
RPm = 8.78-4.5 = 4.28%
Thus, the following is the estimated cost of equity, debt and generated WACC:
Estimated Cost of Equity:
Rrf = 4.55%
Rm= 6.58%
b = 0.73
r(s) = Rrf + (r(m)-Rrf) * b = Rrf + RPm *b
= 4.55% + 4.28 %*0.73 =
r(s) = 7.67% = WMI Cost of Equity
Estimated Cost of Debt: cost of debt=rd *(1-T)
o Interest Expense paid for 2005 =$ 496M
o Total Company Debt = $8,165M
o Cost of Debt = $496/$8165 = 0.0607 = 6.07%.
o Market Value of Company Equity = Trading Price * Shares Outstanding =
" Shares Outstanding = 552.25M as at Dec 31 ‘05
o Trading Price = $30.34 as at Dec 31 ‘05
o Market Value of Equity = 30.34* 552.25M = $16,755.804M
o WACC = wdrd ( 1-T) +wpsrps + wcerce
o Preferred Stock = 0
o The Tax rate ~ 31.75%
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The Capital Structure is obtained by taking the total debt, equity and assets to
obtain the respective weights of measurement for the company.
But wd + wce = 1 (wps = 0, No preferred Stock)
Per above Total Company Debt = $8,165M
Therefore Wce = 67.2 % and Wd = (1-67.2%) = 32.8%
WACC = 37.8% *6.07 %*( 1-31.75%) + 67.2%*7.67%
WACC =0.067 = 6.72%
Free Cash flow is the cash flow from operations that is actually available for
distribution to investors, including stockholders, bond holders, and preferred stock
holders. A high positive MVA here indicates that the management of WMI has created
value for the firm owners.
The Economic Value Added focuses on the managerial effectiveness in a given
year. It is an estimate of the business’s true economic profit for the year. It represents
the residual income that remains after the cost of all capital including equity capital has
been deducted. It measures the extent to which WMI has added share holder value.
For the years considered this analysis indicates that WMI posted positive EVAs.
This is indicative of a good management team that has consistently added value and
which may sustain this trend in the coming years.
A good look at the value drivers: sales growth, Operating profitability (OP), Capital
Requirements (CR) and the Weighted Average Cost of Capital (WACC) also indicate
high managerial efficiency. The sales growth generally, but not always, has a positive
effect on value, provided the company is profitable as is WMI.
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The operating profitability measures the after tax profit dollar of sales, always has a
positive effect – the higher the better. Third the capital requirements ratio, which
measures how much operating capital is needed to generate a dollar of sales, also has
a consistent effect - the lower the CR the better, since a low CR means the company
can generate new sales in smaller amounts of new capital. Finally the fourth factor
WACC, also has a consistent effect, the lower it is the higher the firm’s value. According
to this analysis from all the indices considered WMI appears to be doing very well. It is
posting and continues to promise a positive and increasing Economic Value Added,
indicative that it will continue to create wealth for its shareholders. The key value
drivers are Operating Profitability (OP), Capital Requirements (CR); WACC also clearly
indicate that the firm is rather healthy but it has growth potentials. Staying off debt has
helped WMI to keep its cost of capital low and the stock value high. Sales are
forecasted sales to continue increasing and short-term debt may rise somewhat but
overall; WMI is a very sound company with a strong footing on its growth path.
The company’s five year average ROE and ROA are greater than the industry
average. The P/E ratios saw quite large swings between highs and lows and even
though the trailing Twelve Months figure is lower than the industry average the overall
picture reflect that WMI is experiencing a strong investor following and could capitalize
on this positive sentiment.
3.4.7.1 Sensitivity Analysis
The sensitivity analysis focus on how various variables will determine the firm’s
cash flows. A sensitivity analysis is the process of varying model input parameters over
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a reasonable range (range of uncertainty in values of model parameters) and observing
the relative change in model response. Typically, the observed changes in FCF (this
analysis the aggregate of FCF from 2002 to 2005) are noted, given changes in variables
like sales, cost of capital, COGS, SG&A, and AR. The variable for which the model is
relatively sensitive would require future characterization, and close monitoring as
opposed to data for which the model is relatively insensitive.
From the figure below, the line with the steepest slope is the curve for the sales
price. This implies that WMI’s FCF and hence value of the firm is most sensitive to
changes the sales price of their merchandise. And the higher the sales price the higher
its FCF. The FCF is also very sensitive to changes in Cost of Goods Sold (COGS), but
in this case the FCF decreases with increase in COGS. From the figure the FCF is
least sensitive to changes in the AR and the cost of capital. WMI should clearly direct
its energy on increasing sales while at the same reducing its variable costs.
Return on Invested Capital (ROIC) is greater than WACC, and therefore WMI is
adding value.
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WMI SENSITIVITY ANALYSIS ( Dollars in Millions)
20000.00
15000.00
10000.00
FCF
5000.00
0.00
-40 -20 0 20 40
(5000.00) SALES
COGS
(10000.00) SG&A
WACC
Deviation from Base Case Value (% )
AR
Figure 3-7: WMI Sensitivity Analysis
3.4.8 Summary of Financial Analysis
WMI needs to successfully manage its costs, or its future income would be
threatened. In recent years, they have implemented several profit improvement
initiatives aimed at lowering its costs and enhancing revenues, and have continued to
seek ways to reduce selling, general and administrative and operating expenses. The
analysis indicates reduction in SG&A costs; however, WMI needs to come up with
better initiatives to manage costs and the effect of the rising trend fuel price increases.
Their operating costs are also threatened by rising employee-related costs and
expenses, including health care and other employee benefits such as unemployment
insurance and workers' compensation. Significant increases in fuel prices for any
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extended periods of time will increase WMI’s operating expenses. The price and supply
of fuel are unpredictable, and can fluctuate significantly based on international political
and economic circumstances, as well as other events outside the company’s control. In
the past two years, fuel price in the US has seen double digit increases and companies
that depend on fuel for their operations are clearly threatened in their profit potential due
this trend.
3.5 STRATEGIC ANALYSIS
In this section, an analysis of the current corporate, business, and international
strategies implemented at Waste Management, Inc. will be analyzed.
3.5.1 Corporate-Level Strategy and International Strategy
According to Michael Porter, there are three generic strategies that firms can
pursue: cost leadership, differentiation, and focus. In response to an economic slow-
down, the company has pursued a cost leadership approach by fueling its growth
primarily through cost cutting. With the economy recovering and business increasing,
the company is now refocusing its strategy into a hybrid of both cost leadership and
differentiation as two-sides of the same strategy.
The company aims to fuel growth through margin expansion by both streamlining
costs, as well as increasing prices. In order to justify increased prices, the firm must
also offer a differentiated service – in Waste Management’s situation, the differentiation
lies in superior customer service and product integration.
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Internationally, the company has applied the same strategy, with little consideration
for country-related differences in market preferences and price accommodation. The
firm does not possess the scale of physical assets international, that it does in North
America and outlying territories.
3.5.2 Business-Level Strategy
On the business level, Waste Management has focused its corporate strategy on
developing the waste collection and disposal business segments. The company is
applying its strategy to focus on core businesses and related services, while divesting
poorly performing assets.
In particular, the company is applying the corporate strategy of margin expansion in
the direction of cost cutting. The company is pursuing operational efficiency in the areas
of safety, maintenance and productivity. Through best practices and market studies, the
collection/disposal segments will be able to best determine the level of price increases
in various markets throughout North America.
The strategy of differentiation will direct business level decisions by driving
improvements in the way that people make decisions as well as the level of service that
field personnel are able to provide, using increase discretionary authority.
3.5.3 Value Chain Analysis
In today’s environment, it is becoming ever more critical for firms to develop
sustainable competitive advantages. In order for decision makers to develop this
advantage, they must also understand their own firm’s resources and capabilities, as
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well as be able to evaluate these strengths and weaknesses in terms of competitive
advantage. Value chain analysis provides strategic decision makers a systematic
technique for scanning their internal organizations. By focusing on competitively
relevant strengths and weakness, decision makers can better see the potential of these
resources and capabilities for adding or subtracting value to the firm’s processes. This
understanding can then lead to generic strategies that will most likely lead to sustained
competitive advantage. (Duncan et al, 1998)
Figure 3-8: Firm Value Chain
Duncan, Ginter and Swayne (1998) present a methodology for systematically
analyzing a firm’s internal situation which would best clarify relevant strengths and
weaknesses. The methodology involves four distinct steps: surveying potential
strengths and weaknesses, categorizing organizational differences, investigating the
source of competitive advantage, and lastly, evaluating competitive advantage. By
applying this model to Waste Management, Inc. we can better evaluate the relationship
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of components of the value chain as contributors to the company’s competitive
advantage.
In Step One, a comprehensive list of strengths and weaknesses is compiled,
regardless of relevance to competitive advantage. This is to enable analysts to cover all
aspects of a firm’s strengths and weaknesses. Step Two involves categorizing these
attributes into either resources or capabilities, and evaluating each on the basis of
relevance to competitive advantage. Resources are those assets, either tangible or
intangible, that a firm uses to perform work. Capabilities are those attributes that
enables a firm to coordinate the above-mentioned resources to produce desired results.
The criteria used to judge an attribute’s relevance to sustainable competitive advantage
involves evaluating each on the basis of its value to the firm, its rarity in the industry, the
ease with which it is imitated, and its sustainability. Step three involves determining the
source of competitive advantage, such as through cost leadership or differentiation, and
finally, Step Four evaluates the firm’s competitive advantages in terms of possible
strategies. A comprehensive list of strengths and weaknesses as related to activities in
the firm value chain can be distilled from the previous internal and industry analyses:
Inbound logistics
S1: FleetRoute system – streamline routes, higher efficiency
S2: Distribution and collection network for waste-to-energy facilities – waste
streams collected in-house used to fuel clean power plants
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W1: Fuel dependant – heavy dependency on fuel for vast collection and transfer
fleet leaves firm vulnerable to oil price fluctuations
Operations
S3: Vast physical network – largest number of landfills allows WMI highest
coverage nationwide in industry, huge collection fleet and transfer stations
S4: ‘Mission to Zero’ – safety program ensures lower accident rate and
consequently lowers associated costs
S5: In-Plant Services model – offers product integration and improved customer
service and efficiency
S6: Waste-to-energy experience – over 100 years experience in pollution control
and waste to energy conversion
W2: Landfills – susceptible to frequent governmental regulation changes in
reclamation and fill policies.
Human Resources
S7: Emphasis on career development and recruitment
S8: Integrated training programs focusing on culture, ethics, diversity and
inclusion, to reinforce new attitudes since the 1999-2000 scandals
Technology development
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S9: Implementation of company-wide information management system
S10: State-of-the-art surveillance system at transfer stations and dump sites
Infrastructure
S11: Team 200 – employee team to work with executives in developing strategy
and address critical issues
S12: Innovative management, experienced change teams
S13: Disciplined use of new capital investments for growth, strong cash flow –
disciplined approach to cost cutting and margin expansion through price
increases results in strong cash flow despite weaker economy
S14: Flattened organizational chart, authority delegated to lowest levels allows
for quick decision-making and firm agility in response to customer issues
W3: Cumbersome physical network leaves company vulnerable to industry and
environmental changes; poor performing assets drive down overall performance
Service
S15: ServiceMachine - monitor customer service performance to retain strong
business relationships and secure new business
With all of the firm’s strengths and weaknesses identified, we can apply the
following assessment model to systematically categorize the activities and judge their
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competitive relevance by applying the four criteria: valuable, rare, costly to imitate, and
sustainable.
Only those strengths that are valuable, rare, costly to imitate and sustainable
contribute to a firm’s competitive advantage. Tables A and B in the appendix illustrate
those strengths that meet all four of these criteria. To classify as a weakness, activities
cannot meet all four criteria, which would render those attributes competitively
irrelevant.
3.5.4 Summary of Strategic Analysis
Overall, Waste Management has a strong strategic fit within this industry and should
continue to initiate value initiative related to the firm’s mission and values. The
Company creates added value for clients through a focused strategy, which focuses on
cost effective products and services and technology leadership.
3.6 SWOT ANALYSIS
A SWOT analysis is a tool to identify the strengths, weaknesses, opportunities, and
threats to an organization. The following is a summary assessing WMI’s internal and
external issues.
3.6.1 Strengths – Internal
Vast resources
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Waste management Inc. is the largest waste management company in the world.
As a Fortune 200 company with more than $11.5 billion in annual revenues and over
$20 billion in total assets, Waste Management has a storehouse of financial resources.
Its vast size allows it many benefits such as cost reductions through economies of scale
and the ability to attract specialized staff. Its vast financial presence also puts up
barriers to entry within the market place reducing its number of competitors.
The company also has a strong network of operations including 431 collection
operations, 381 transfer stations, 286 active landfill disposal sites, 17 waste-to-energy
plants, 119 recycling plants and 90 beneficial-use landfill gas projects. These assets
enable Waste Management to offer a full range of environmental services to nearly 21
million residential, industrial, municipal and commercial customers.
Fleet route system savings
Waste Management’s ’Fleet Route’ system helps to improve route density and
eliminate redundant routes. At the moment, the company operates about 15,000
residential and commercial routes, with each route costing around $120,000 annually.
The board plans to lower the number of routes, drivers, and trucks by about 10 percent,
resulting in $180 million in savings. The reduction of 1,500 trucks would result in roughly
$240 million in capital savings. There are no plans for driver layoffs, but the number of
drivers is expected to decrease through driver turnover, which is currently 20 percent.
Implementation costs for FleetRoute are high, totaling $20 million over the 2003-
2004 periods. These one-off costs will be more than offset by savings in 2003; savings
are expected to be about $40 million. Added to this are net capital reductions of $135
million in 2003 and $33 million of savings in 2004.
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New sales and pricing systems
The company introduced a new profitability and pricing tool in 2003. Since the
company’s customer churn rate is now less than 10 percent, it should be relatively
successful in targeting industrial commercial sales. A new pricing tool was also
introduced in 2002, which analyzes each customer’s account individually, has managed
to increase monthly revenues by $9.8 million.
3.6.2 Weakness – Internal
Fluctuations in fuel costs
The price and supply of fuel is unpredictable and fluctuates based on events
including geopolitical developments, supply and demand for oil and gas, actions by
OPEC and other oil and gas producers, war and unrest in oil producing countries,
regional production patterns and environmental concerns. Fuel is needed to run the
company’s collection and transfer trucks, and any price escalations or reductions in the
supply could increase operating expenses and have a negative impact on the
company’s consolidated financial condition, results of operations and cash flows.
Difficulty of driving volume growth
The company’s volume growth will probably remain under pressure unless the US
economy improves. The company’s expected industrial business push comes at the
right time, since volume pick-up in this segment is a much-needed advantage
3.6.3 Opportunities – External
Management systems
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The company has begun piloting its revenue management system in Phoenix,
Arizona, and expanded this during the 2003 into other markets. In early 2004
management expects the pilot to go live in Phoenix, with full rollout in 2004 and
completion in 2005. Another control system that launched in 2002 is the new fleet
maintenance control system, known as Compass. It has already been launched in 30
locations and was rolled out to around 80 locations in 2003.
Recycling
In 2003 Waste Management Inc. combined the assets and operations of key
domestic recycling processors and marketers to form the nation’s largest recycling
company, Recycle America Alliance. Recycling remains a highly fragmented business in
the
U.S. and processing capacity far exceeds demand. The goal of the alliance is to
optimize the capacity and improve the profitability of our recycling operations. The
company plans to lead recycling into the next generation as a sustainable and profitable
partner in the management of waste in North America.
’Mission to Zero’
The ’Mission to Zero’ safety program launching soon will focus on businesses with
poor safety records. In 2003, for the third year in a row, the company reduced its
Occupational Safety & Health Administration (OSHA) injury rate by more than 20
percent. Since the program’s inception, it has achieved a total reduction in the OSHA
injury rate of over 60 percent, a significant accomplishment for a company of this size.
In 2004, the company plans to focus on what is needed to improve safety within specific
business units and provide assistance in raising performance levels.
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3.6.4 Threats – External
Seasonality of business
Waste management’s business is seasonal. Traditionally, the company’s operating
revenues are lower in winter, and this is mainly due to lower volumes of construction
and demolition waste, as well as the volume of industrial and residential waste in certain
regions decreasing in winter. A winter of extremely poor weather could also cause
Waste Management to suspend certain operations.
Regulation
Waste Management Inc is subject to extensive and evolving federal, state or
provincial and local environmental, health, safety, and transportation laws and
regulations. These laws and regulations are administered by the Environmental
Protection Agency and various other federal, state and local environmental, zoning,
transportation, land use, health, and safety agencies in the United States and various
agencies in Canada. Many of these agencies regularly examine the company’s
operations to monitor compliance with these laws and regulations and have the power
to enforce compliance, obtain injunctions or impose civil or criminal penalties in case of
violations potentially adversely affecting the company.
Strong competition
Waste Management Inc encounters intense competition from governmental, quasi-
governmental and private sources in all aspects of its operations. In North America, the
industry consists of large national waste management companies, and local and
regional companies of varying sizes and financial resources. The company competes
with these companies as well as with counties and municipalities that maintain their own
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waste collection and disposal operations. These counties and municipalities may have
financial competitive advantages because tax revenues and tax-exempt financing are
available to them. Also, such governmental units may attempt to impose flow control or
other restrictions that would give them a competitive advantage. In addition, competitors
may reduce their prices to expand sales volume or to win competitively bid contracts.
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TOWS Strategy Matrix

Strengths – S Weaknesses - W
1. Vertical integration with 1. High overheads subject
decentralized management company to risk during
structure. market slowdowns.
2. Vast physical resources & 2. Recycling business

nation-wide network. vulnerable to competitive
environment.
3. Strong Cash flow & liquidity
profile 3. Landfills offer limited
capacity with finite lifespan.
4. Market leader in US with
strong brand name.
1. Technology developments SO Strategies WO Strategies.

Opportunities - O
in waste reclamation.
1. Expand business into Latin 1. Divest poorly performing
2. Emerging markets in
American Countries. assets.
developing countries.
(S2, O2, O3). (W1, W2, O3)
3. Regulations and policies
supporting clean power and 2. Consider M&A or JV in
2. Invest in Green Energy
alternative fuel sources. foreign countries with less
alternatives, such as stringent regulations. (W2,
Increased demand for
Wheelabrator and methane W3, O2, O3)
“green services.”
reclamation. (S1, S3, O1, O3)
1. Rising fuel costs. ST Strategies WT Strategies

Threats – T
2. Changing government
regulations. 1. Convert to alternative fuel 1. Reduce corporate overhead
source, such as Bio-diesel. (W1, W2, T3).
3. Steep competition from (S2, S3, T1, T2).
industry consolidation 2. Divest poorly performing
2. Invest in increased capacity assets. (W1, W2, T3)
for Wheelabrator.( S2, S3,T1,
T2)
Table 3-18 STOW MATRIX
Adapted from David, F. R. (2002). Strategic management: concepts and cases. 9 ed.: Prentice Hall.
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4. CURRENT STRATEGIC AND ALTERNATIVES
4.1 CURRENT STRATEGY AND STRATEGIC FIT
Waste Management’s current strategy is to achieve operational excellence in order
to be successful for their stockholders. The Company’s plan for growth will be grounded
in margin expansion from better pricing while continuing to cut costs, and they will apply
a disciplined approach to growing their returns from new capital investments. The
Company plans to pursue operational excellence by focusing on what they are doing
well, particularly by focusing on the areas of safety, maintenance, and productivity. They
are committed to finding the best practices throughout their organizations and
standardizing those practices and processes throughout the Company.
Their current strategic fit is high and comfortable within the industry. Not only does
Waste Management have a significant amount of cash that they could use for
emergency or investment, the Company also promotes a healthy environment.
4.2 ALTERNATIVES
Alternative 1: Establishing National Recycle Goals and Packaging Standards
This strategy responds to threats of government regulations and landfills and
also simultaneously creates golden opportunities for WMI. By working in conjunction
with the government, WMI can possibly minimize the government regulations and
create some items to their favor. With increasing consumption, landfills are
becoming full and the numbers of available landfills become limited. This initiative
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will try to urge consumers to recycle and buy reusable items, and promote the
company.
Alternative 2: Deploying Automated Trucks to Pick up Solid Waste (Threat and
Strength)
As with other firms in the industry, WMI employs a lot of human labor for its
services. This particular resource represents a large piece in WMI’s cost and its
union, in certain conditions; this would be a challenge for WMI. This alternative
favors using WMI’s strong cash in hand to deploy fleets of automated pick up trucks
in residential-customer segments. This would significantly reduce WMI’s
dependency on human labor and dramatically lower operating costs contributed by
human labor costs.
4.3 RECOMMENDATIONS
In analyzing the factors that WMI faces in the global environment, we have
eliminated the preceding alternative strategy choices. At this point, based on our
research and analysis, we are presenting two solid recommendations that will enable
Waste Management, Inc. to remain competitive within the waste management industry.
These recommendations are consistent with the strategic growth options that were
presented. Our recommendations are the following:
1. Convert fleet to alternative fuels
2. Expand Waste-to-Energy
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4.3.1 Recommendation # 1: Fully Applying Bio-diesel as Fuel Alternative
Objective
The objective of this recommended action plan is to reduce the firm’s dependency
on volatile fuel supplies, which threaten the company’s strategy of margin expansion. By
converting fleet vehicles to an alternative fuel, WMI may realize up to $225 million in
annual operating cost savings. (Refer to Calculation of Savings)
Calculation of Savings
Each route costs an average of $120,000 annually.
Current cost breakdown for each individual collection route:
$30.000 wage for truck driver
$40.000 maintenance & depreciation expense
$50.000 fuel cost
$120,000 total annual cost per route
The nationwide fleet consists of 7,500 commercial-duty diesel trucks, used for
waste collection. Each truck uses an average of 18,500 gallons per year. Annual fuel
cost for entire fleet using petroleum-based diesel can be estimated based on the 2005
national average price at $2.69 per gallon, resulting in a total $375 million operating
expense. Annual fuel cost calculated using an alternative fuel source, such as B100 -
pure vegetable oil based diesel fuel - at the 2005 national average price of $1.12 per
gallon, results in a total fuel expense of $155 million. This translates into a 24 percent
reduction in operating cost per route.
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Description of Recommended Action Plan
Bio-diesel is a diesel fuel made from American resources including virgin vegetable
oils (primarily soybeans) or recycled sources (used cooking oil). Unlike fossil based
diesel, these resources are renewable and include surplus vegetable oils and waste
products. Since the beginning of the 21st century, bio-diesel has been America’s fastest
growing fuel because it works better than petroleum in existing diesel engines, improves
our energy security, cleans our air, and supports our farm economy.
Bio-diesel is stored in much of the same way as conventional diesel. Therefore,
adding bio-diesel or bio-diesel blends does not require unusual or additional storage or
handling procedures. Bio-diesel, in any form, can be stored in storage tanks comprised
of aluminum, steel, fluorinated polyethylene, fluorinated polypropylene and Teflon.
Copper, brass, lead, tin and zinc should be avoided, and because bio-diesel can
degrade natural rubber over time, this material should not be used.
WMI can buy any bio-diesel from manufactures and store it at existing gas stations.
It doesn’t have to modify a new store.
Strategy
This recommendation is congruent with existing corporate strategy of margin
expansion through cost cutting. For the purposes of this study, we recommend the use
of a vegetable-oil based bio-diesel, due to its widespread availability and low capital
investment requirements for conversion. While still holding a minor share in total
national fuel consumption, domestic bio-diesel supply is consistent, with an annual
production of over 30 million gallons in 2003, and thousands of producers across the
U.S. (US Department of Energy, 2005) Prices are dependant upon agricultural
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production and markets such as soybeans or corn, which are considerably less volatile
than global oil markets.
Besides the primary objective of reducing operating expenses for WMI’s largest
revenue-generating division, conversion to use of alternative fuel sources would
engender significant tax incentives and open up the possibility of receiving government
incentive grants, such as the U.S. Environmental Protection Agency’s Alternative Fuel
Conversion Rebate Program in California. (US EPA, 2006)
Finally, the positive public relations that this conversion could generate would be a
tremendous asset to WMI, given the sensitivity of environmentally-conscious waste
management in today’s society. By aligning the firm with industry-frontrunners in the
area of environmental sustainability, and “green operations,” WMI may further develop
its reputational resources.
Action Plan
Conversion to bio-diesel would entail a three-phase plan:
Phase I: Program Development (3 months)
Under this phase, a committee (Conversion Implementation Team) consisting of
bio-diesel industry consultants, fleet maintenance engineers, and the Senior Vice
President of Operations, Charles E. Williams, would be established to design the
conversion process. A comprehensive plan that discusses supply chain management,
procurement, storage and dispensing, as well as maintenance, troubleshooting and
training should be developed. This phase should take not more than 3 months to
complete.
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Phase II: Pilot Program (6 months)
For the second phase, the Conversion Team would lead a small scale test
conversion in the San Jose, CA, headquarters. 125 fleet collection vehicles would be
converted to using bio-diesel, and two 50,000 gallon storage/dispensing tanks would be
allocated to providing bio-diesel exclusively. Prior to conversion, the local fleet
maintenance department and vehicle drivers would need training on the proper use,
safety and maintenance of bio-diesel operations. This phase should comprise of 6
months. All aspects of the conversion are to be documented by the Conversion Team,
such that, at the conclusion of the pilot program, a Feasibility Report is to be submitted
to the executive committee, to determine progress.
Phase III: Regional Conversion (8 months)
Once the Pilot Program demonstrates feasibility of this conversion, the executive
committee will formulate a priority schedule for regional conversion. For the final phase
of this conversion program, the Conversion Team will travel to each regional
headquarter to facilitate the conversion process. Each region should require no more
than two months for full fleet conversion. The Conversion Program document shall be
the directing standard operating procedures used during the conversion process. We
recommend that the regional conversion begin with the Western region, due to the
extremely high petroleum prices and convenient accessibility to suppliers. Full fleet
conversion should be accomplished within 17 months from launch of the project.
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August 31, 2006

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Milestones
Conversion Implementation Team – at the initiation of Phase I, a committee
should be formed to design and execute the conversion project.
Conversion Program Protocols – upon completion of Phase I, the Program
Protocols should be fully documented and published for stakeholders of Phase II.
Pilot Feasibility Study – at the completion of Phase II, a completed Feasibility
Study must be published and submitted to the corporate executive committee for
review. Feasibility Study must demonstrate that the program has achieved a minimum
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of 45 percent cost savings, as well as establishment of a sufficient supply chain.
Suppliers must exhibit a minimum of 5 years production or supply history and have a
minimum capacity of 500,000 gallons per month.
Regional Conversion Schedule – at the start of Phase III, the executive
committee must issue a priority conversion schedule delineating the order in which
regions will be converted.
Deliverables
Conversion Program Document – reference document describing standard
operating procedures for conversion of fleet vehicles to use of bio-diesel, as well as
SOP’s for routine operations and trouble-shooting. Included are procedures and policies
for fleet maintenance department, engineers, procurement, logistics, vehicle operators,
and warehousing.
Fuel Conversion Training Program – reference document describing
comprehensive training program used during conversion. Included is training for fleet
maintenance department, engineers, procurement, logistics, vehicle operators, and
warehousing.
Supplier Contracts - established contracts for minimum term of 24 months for all
regions, to ensure dependable supply.
Public Relations Strategy for Alternative Fuel Program – strategy for
incorporating alternative fuel program into all corporate communications packages,
including but not limited to, newsletters (internal and external stakeholders), press
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releases, annual reports, shareholder communication, and vendor and customer
communication.
Fleet Conversion – full collection fleet conversion to use of bio-diesel within 17
months.
Long Term Effects
• Maximize shareholder returns – by reducing operating expenses, this plan would
maximize shareholder returns by ensuring sufficiently healthy operating margin to
mitigate other market risks. Fluctuating economic factors are protected against,
either by reduced dependency on global oil markets, or by increased free cash
flow achieved by significant cost savings. This would again help the reputation of
the company by maximizing the shareholders returns, and in turn, creating a
‘green’ company in congruent with the environmental regulations.
• Building social capital (‘going green’) – use of alternative fuel sources in routine
operations would save thousands of tons of emissions annually, as well as
reduce waste and by-products produced in oil & gas industry. Production of bio-
fuels are sustainable processes, being “closed-loop” systems, which produce
zero toxic wastes.
• Increased margins – cost savings support corporate strategy of margin
expansion by increasing operating revenue.
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• Industry convergence – as significant cost savings are realized, competitors will
also adopt the use of alternative fuels. In this case, WMI need to have new
strategy and complete vision in place for a sustained competitive advantage.
Risk Assessment
Regulation:
Federal and state regulations, Energy Policy Act (EPAct) mandate the use of
alternative transportation fuels for certain governmental and municipal fleets. Bio-diesel
will become more popular as time passes, so the regulations might be changed in the
future. In addition, environmental regulations may not be as tight as they are now with
the oil industry and fuels.
Price:
The current bio-diesel price is average one-dollar per gallon based on your order.
Bio-diesel is made most likely from soybean seed producers so these producers should
be monitored carefully and Bio-diesel price is depend on demand on soybean price.
4.3.2 Recommendation # 2 – Capital Expansion in Waste-to-Energy Industry
Objective
The strategic goal motivating our action plan is to transform the firm into the US
industry leader in waste-to-energy production within 5 years, and the global
technological leader within 10 years. The process by which we propose to reach these
strategic goals is through developing key waste-to-energy resources to become a
market leader in the fast-growing, peripheral industry. The objective is to focus capital
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growth in the waste-to-energy segment of WMI’s business, with the aim of increasing
segment revenues by 40%. This action plan calls for a total capital investment of $252
million, which will enjoy a healthy return of 23% with the first full year of operation after
plan completion. Total plan timeframe is 30 months.
Waste-to-Energy: A Growing Industry
There are currently 102 waste-to-energy plants operating in the US, converting
approximately 33 million tons of waste per year (about 14% of annual total.) WMI only
controls 17 of those through its Wheelabrator asset group, processing about 5.5 million
tons per year. It is a $10 billion industry that employs more than 6,000 American
workers with annual wages in excess of $400 million.
Current governmental regulations have already begun the shift towards clean
energy. In a growing number of states, renewable electricity standards (RES)—also
called renewable portfolio standards—have emerged as an effective and popular tool
for promoting a cleaner, renewable power supply. An RES requires electric utilities to
gradually increase the amount of renewable energy resources—such as wind, solar,
and bioenergy—in their electricity supplies. To date, 20 states and Washington D.C.
have implemented minimum renewable energy standards. (Wiser, 2005) UCS projects
that state RES laws and regulations will provide support for nearly 31,100 megawatts
(MW) of new renewable power by 2017—an increase of 230 percent over total 1997
U.S. levels (excluding hydro). This represents enough clean power to meet the
electricity needs of 20.3 million typical homes. The standards in California, Texas, New
York, New Jersey, and Pennsylvania create the five largest markets for new renewable
energy growth. (UCS, 2005)
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(http://www.ucsusa.org/clean_energy/clean_energy_policies/res-at-work-in-the-states.html)
In the 2006 State of the Union address (White House, 2006) the President set a
national goal of replacing more than 75% of our oil imports from the Middle East by
2025. Since 2001, nearly $10 billion was expended domestically to develop cleaner,
cheaper, and more reliable alternative energy sources. In the address, the President
announced the Advanced Energy Initiative, which provides for a 22% increase in clean-
energy research at the Department of Energy (DOE). Such demonstrations of
governmental leadership in the areas of environmentally sustainable energy production
are also indications of trends for the future of the waste management industry.
WMI disposes of more than 120 million tons of waste annually. Only 8 million
tons are recycled and up to 9 million tons are converted to energy. With expanded
waste-to-energy facilities, WMI can realize revenues from both ends of the waste
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stream – during collection/disposal and in the sales of energy produced from the waste.
There are numerous revenue opportunities in converting solid waste to energy:
electricity, steam, gas by-products, recyclable ferrous metals, residue ash for landfill
cover and road beds.
Immediate Action Plan
Action Description What How Long
A Contract Services Negotiate partnerships with key 12 months

municipal facilities in NY
B Strategic Partnership - Expand 1,800 TPD facility in Lee 30 months
Covanta Energy County, Florida
C WTE Combustion Invest $200 million in R&D 8 months
Project (Wheelabrator) to develop zero-
emission combustion technology
The immediate action plan addresses the initial actions of the firm in pursuing
this strategy. The plan comprises three concurrent sections: Contract Services,
Strategic Partnerships for Build/Expansions, and Waste-to-Energy (WTE) Combustion
Project.
A: Contract Services
The first section of our recommendation involves initiating service contract
negotiations with identified strategic municipal facilities. As the social climate trends
more and more towards an attitude of environmental responsibility with an emphasis on
renewable energy sources, legislators and lawmakers are increasingly issuing policy
statements supporting or committing to developing Renewable Energy Standards (RES)
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guidelines within their constituency areas. For instance, New York, under Governor
Pataki’s direction, has become a national leader in the effort to encourage energy
efficiency and to promote the development and use of clean energy and renewable
energy technologies. The state of New York now invests nearly $300 million annually in
energy efficiency and renewable energy programs. (NY Governor.com 2006) Under
these influences, municipalities are finding themselves in the position of trying to
establish clean power facilities without the necessary expertise, experience or
resources. Under these conditions, Waste Management Inc. is in a favorable position to
be able to offer firm core competencies and resources in WTE to these municipalities.
Wheelabrator WTE Power Plants (2006)

A map of the firm’s WTE facilities shows that its strongest presence is in the
New England area, with the largest available infrastructure.
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As noted previously, New York is one of the nation’s largest markets for
renewable energy growth, and it is for both this reason, and the fact of existing WMI
presence in the area, that we have chosen New York as an ideal starting point for
WMI’s push for industry penetration. Through research, we have identified three
counties in New York state that have demonstrated potential for establishing service
contracts in municipal facilities: Westchester, Rockland and Orange counties. For the
purpose of this recommendation, we selected Westchester County’s facility, due to the
overwhelming demand for clean energy of local residents, which exceeds current
production capacity. The plan recommends approaching the county with a proposal to
manage the construction of 636 TPD (ton per day) capacity expansion to the existing
1,200 TPD waste-to-energy facility located in near Utica. In return for utilizing firm
resources and capabilities in this regard, WMI will accept a service agreement to
operate and maintain the expanded facility through 2014.
B: Strategic Partnerships
The next section of our recommendation focuses on establishing strategic
partnerships to build new facilities or expand existing under-capacity or out-of-date
power plants. Again, we chose to base our early growth initiatives in areas with existing
WMI plants to capitalize on area expertise and resources already at hand. We identified
a waste-to-energy plant in Lee County, Florida, which is severely under-capacity. The
population has double the state growth rate over the period 2000 – 2004 (US Census
Bureau, 2006) and the state has enacted tough RES guidelines, which the
municipalities are struggling to reach.
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We identified Covanta Energy Corporation, a subsidiary of Covanta Holdings
Company, to be a strong potential partner. Covanta Energy is a local service provider,
which constructed and has been operating the existing facility since 1994. The 1,800
TPD Lee County facility requires an 836 TPD capacity expansion, which would allow it
to continue to provide local residents with a renewable source of energy for the next 25
years, based on current estimated population growth rates and state-enacted RES
goals. The expansion would require a capital investment of $52 million, and, if plan is
implemented, construction of the expansion could begin within 18 months with
completion estimated to occur within 12 months from ground breaking. Covanta shows
consistent earnings growth with a heavy debt burden. (Covanta Energy.com, 2004)
WMI’s strong cash flow combined with Covanta's existing contract resources in that
county should prove to be advantageous for both parties.
This segment of the action plan recommends that Waste Management Inc.
propose a partnership in the expansion, with WMI providing the capital investment, and
assuming the new service agreement through 2024, after Covanta’s contract expires in
2014.
C: WTE Combustion Technology Project
The final section of our recommendation is probably the portion of our
recommendation that will contribute the most towards ensuring WMI’s future competitive
advantage in the WTE industry. This section of the action plan is the Combustion
Technology Project, which will require an initial investment of $200 million, which will
fund research and development of WTE technologies into viable production assets.
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Current WTE technology, while spurring the growth of an emerging market,
nonetheless offers many disadvantages in its process. For instance, the burning of
many biomass materials releases carbon into the atmosphere, which is a leading cause
of global warming. In many areas in the Northwest, local areas have “burning bans”, not
for burning waste, but to put a halt on burning wood in fireplaces during those times
when pollution and emissions have been deemed especially high. (EPA, 2003) The ash
by-product of the waste-to-energy process is also considered a highly toxic material that
cannot simply be released into the environment. Currently, however, treated ash can be
used as a covering to remediate landfills, since the ash possesses qualities similar to
that of concrete, hardening to provide a water-resistant barrier between the landfill and
nearby aquifers. The research that this investment will fund also works towards finding
more efficient combustion technologies to reduce the amount of ash by-product by
burning more cleanly. These technologies are already being developed, such as
gasification, a process of burning waste as extremely high temperatures resulting in
lowered emissions and virtually no ash by-product. All these characteristics translate to
lower costs for operating plants, as they continue to deal with increasingly strict RES
legislation.
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This portion of the action plan has the objective of improving energy production
efficiency by a target amount of 35%, and reducing emissions in all existing plants by
50%. This portion of the action plan will be fast-tracked to completion, with an estimated
8 months from start of the project.
8 3
Full Bio-Diesel Accumulate Expected
6-8 Conversion Savings ($200 million)
Bio-Fuels Conversion Timeline (17 months)
Recommendation: Phase #1 Accumulate cash flow
Contract Services
Covanta Energy Partnership
6 Combustion Project
Launch
Action 5
Plan #1 & #2 CONTRACT SVCS: Signed Agreements
COVANTA: Begin Construction 4
Fund R&D Project 11
Action Plan
Full Completion
This Gantt chart illustrates the concurrent nature of the recommended action
plans. Particularly noteworthy, is the simultaneous start of both the first
recommendation (Conversion to Bio-diesel) and the second recommendation (Growth in
Waste-to-Energy.) This schedule will allow the firm to accumulate cash savings derived
from the fuel conversion, and divert funds to invest in both the Expansion and
Technology projects. This timeline will allow a cash savings of $132 million to be
realized in time for the start of the Combustion Technology portion, after an initial capital
funding of $52 million towards the Covanta Partnership.
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Deliverables
By implementing these complementary action plans, Waste Management Inc.
can expect to increase WTE segment revenues to $1.09 billion per year, representing
an increase of 40% over 2005 figures. This increase in production capacity will stem
from both the added facilities acquired through service contract negotiations in New
York, as well as the strategic partnership in Florida. In addition, capacity will be further
heightened by the increase in energy production efficiency developed through the
Combustion Technology project.
Expected outcomes of this action plan includes the addition of two WTE power
plants to the Wheelabrator group – Westchester Country and Lee County – with an
overall increase in production capacity of 4,472 TPD. Current capacity is at 24,340 TPD,
and this increase represents an 18% increase in plant capacity alone.
These figures can be derived from calculating the expected production levels to
increase from current Wheelabrator production of 933 megawatts to 1.3 billion kilowatts
after successful implementation of this plan. At the national average electricity rate
(2005) of 8.3 cents/KWH, this translates to approximately $1.0892 billion in revenues.
The increased capacity will power approximately 1.5 million households, an increase of
40% from 900,000 households in 2005. National average energy consumption for US
households is 10,215 KWh annually. (Department of Energy, 2005)
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Long Term Effects
• Mitigate risk from rapidly changing socio/political climate – by diversifying into an
emerging industry that is in line with growing regulatory environmentalism, WMI
may best protect itself from the risk of increased costs in non-renewable waste
disposal operations. The regulatory climate surrounding landfills, remediation,
permit procurement and other issues pertaining to the operations of landfills and
other waste disposal facilities threaten WMI long term success.
• Building social capital (‘going green’) – utilizing existing biomass present in waste
streams that the firm is already collecting contributes to a sustainable and
environmentally sound corporate policy. Burning bio-mass to produce energy
would potentially save thousands of tons of emissions annually, as well as
reduce waste and by-products produced in the fossil fuel energy industry.
Favorable Long Term Outcome Possibility:
WMI becomes a world leader in waste-to-energy technology; replacing the Middle
East and other oil producers in control much of the world economy.
Un-favorable Long Term Outcome Possibility:
Waste-to-energy technology never materializes, as new sources of fossil fuels are
discovered. The investment in waste-to-energy still maximizes the use of a reliable and
available source of fuel that the firm is already collecting – solid waste.
Environmentalists and public sentiment will continue to revolve over the
contamination of our world and the using up of natural resources; WMI’s ability to offer
integrated waste management services that includes conversion to energy and
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recycling is in line with its current strategy of developing superior customer service and
integration to increase its pricing margins.
Risk Assessment
This strategy addresses a number of threats:
XFuel costs – take advantage of rising fuel costs and scarcity of fossil fuels
YRegulatory changes – eventually landfills will no longer be an option to disposing
of waste. Firms that have foreseen the future will be prepared with alternative waste
disposal/ waste management technologies and facilities in place.
ZEnvironmental impact and public relations
[Technology changes – other firms are already moving in this direction. With WMI’s
extensive physical resources in waste management, the firm is positioned to
become an industry leader is managed with enough foresight.
This strategy utilizes a number of core capabilities:
XWaste-to-energy technology.
YSufficient experience dealing with inorganic growth.
ZNation’s largest solid waste collector with most landfill properties (access to fuels)
[Systems integration - Handling technologies, collection logistics and infrastructure
are important aspects of the biomass resource supply chain.
\Innovation – this strategy taps the company’s ability to creatively recreate itself
into the waste management firm of the future.
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5. CONCLUSION
In conclusion, after analyzing global environment surrounding Waste
Management Inc., we discovered a significant driving force involving rapidly changing
socio/political arena which could trigger strategic change in the industry. In addition, we
identified key success factors which the firm should take into serious consideration
while structuring strategic decision and continuous improvement programs. Of special
note is the benchmark capability of effective operating cost management with regard
specifically to transportation. These influencers led to our recommendations regarding
fuel conversion and capital expansion into waste-to-energy. By adjusting fleet
operations, the firm is better able to develop its ability to mitigate risk from volatile oil
prices. And in diversifying into the waste-to-energy industry, WMI faces a future in an
emerging industry, with lessened risk exposure due to the changing nature of the
environmental services sector. We strongly recommend immediate implementation of
our action plans, which will help to ensure Waste Management Inc.’s continued
competitive advantage and industry leading position.
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6. REFERENCES
1. http://www.wastemanagement.com/
2. Waste Management Form 10K, 2004
3. Bureau of Economic Analysis, US Department of Commerce.

http://www.bea.gov/bea/industry/gpotables/gpo_actions.cfm
4. A Look Back. Waste News. January 2, 2006. Vol.11 Issue 19, p.22.
5. 2005 In Review—Memorable Quotes. Waste News. January 19, 2005. Vol. 11

Issue 17, p. 15-17
6. Waste Management Inc., SWOT Analysis. October 2005. p.1-10. Business

Source Premier.
7. Waste Management to Cut Jobs. By Jim Johnson. Waste News. August 2005.
Vol. 11, Issue 7, p.1-21.
8. Waste Firm Hires New Chief. By Bill Hensel, Jr. Houston Chronicle, Houston,
Texas. March 9, 2004. www.houstonchronicle.com
9. http://www.hoovers.com/waste-management/--ID_15374--/free-co-
factsheet.xhtml
10. http://www.epa.gov/epaoswer/osw/laws-reg.htm
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Page 118 of 125
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7. APPENDICES
Table A: ASSIST Chart

Assessment of Internal Factors for Strategic Advantage
Strength/ Valuable Rare Costly to Sustainable Resource or

Weakness Imitate Capability
S1 X X X X Capability
S2 X X X X Resource
S3 X X X Resource
S4 X Capability
S6 X X X X Resource
S7 X Capability
S8 X Capability
S9 X X X Resource
S10 X X X X Resource
S11 X Capability
S12 X X X Resource
S13 X Resource
S15 X Capability
W1 Resource
W2 X X Resource
W3 X Resource
Page 119 of 125
Page 120 of 125
Table B: Assessment of Internal Factors for Strategic Advantage
Strength/ Valuable Rare Costly Sustain- Resource Potential Location on

Weaknes to able or Source of Value Chain
s Imitate Capability Comp.
Advantage
(Unique, Cost,
N/A)
Inbound
S1
X X X X Capability Cost Logistics
S2 X X X X Resource Cost Operations
S3 X X X X Capability Unique Operations
S4 X X X X Resource Unique Operations
S5 X X X X Resource Unique Technology
S6 X X X X Resource Unique Infrastructure
S7 X X X X Capability Unique Infrastructure
Inbound
W1 Resource N/A Logistics
W2 X X Resource N/A Operations
W3 X Resource N/A Infrastructure
Page 120 of 125

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Page 1 of 125

WASTE MANAGEMENT INC.

STRATEGIC CASE ANALYSIS

WASTE MANAGEMENT, INC.

Waste Management (NYSE: WMI)

Dr. Jifu Wang

BY: Kazim Demir, Anthony Ikhimokpa, Dung Nguyen,

Jackie Tauriello & Christina Van Zandt

1. COMPANY HISTORY .....................................................................................................................................2

2. EXTERNAL ANALYSIS ..................................................................................................................................3

3.1.6 Structure ..............................................................................................................................................42

TABLE 2-1: GROSS OUTPUT BY INDUSTRY .....................................................................................................................7

investigate the ability of Waste Management, Inc. to exploit growth opportunities in a

slow growing, but expanding industry.

companies, such as Waste Management, Inc., operate in are: regulatory

would reduce significantly needed landfills.

o Waste Management Inc.’s current strategy is to achieve operational excellence

in order to be successful for their stockholders.

Waste Management Inc. (NYSE: WMI) provides integrated waste management

commercial, industrial and residential customers; providing collection, transfer,

recycling, resource recovery and disposal services. Waste Management is

headquartered in Houston, Texas, and the company's network of operations includes

was reported at $939 million.

1.2 PURPOSE OF THE STUDY

The purpose of this analysis is to develop specific, actionable recommendations

internal and external analysis, have proven to be successful providers of competitive

alternatives and recommendations will be made.

influence strategy formulation and implementation actions. External environment affects

of separate nations' economies at different times, and the emergence of new

Waste Management, Inc. External environmental conditions such as these create

2.1 GENERAL ENVIRONMENTAL ANALYSIS

employ the appropriate strategies to compete effectively.

2.1.1 Demographic Segment

distribution it will reflect.

The world population is increasing at a significant rate. The current population of

to be increasing. The population aged 65 or older is projected to increase by 88 percent.

the elderly people as well.

2.1.2 Economic Segment

four years (see Figure 2).

Figure 2-2: Quarter-to-Quarter Growth in Real GDP

Gross Output by Industry

1 All industries 16,908. 18,186. 18,403. 18,788. 19,732. 21,346.

2 Private industries 15,124. 16,287. 16,384. 16,632. 17,424. 18,895.

65 Administrative and waste management

67 Waste management and remediation

Table 2-1: Gross Output by Industry

more neutral monetary policy stance is pursued.

barrel. Today it is believed to be at equilibrium with a price of $28 (Franssen, 2004). In

help lower the demand, thus, lowering prices.

Economic development coupled with ecological health was first termed

in their report “Our Common Future” in 1987. (http://www.ga.wa.gov/EAS/CWM) Since

applications in the local economy.

Waste Management is a part of a growing movement toward a sustainable world.

Sustainability or “green” management techniques are designed to protect the

environment, save resources, and conserve energy. The utilization of Waste

proven to have economic advantages for the waste management industry.

2.1.3 Political/Legal Segment

The waste management industry is complex because it involves a multitude of

it will require the cooperation of government, industry, and individuals working as