Turnaround Strategies: Waste Management Cleans Up Its Act

The Problem: You name it.

Waste Management, cofounded in 1968 by billionaire investor Wayne Huizenga, expanded its trash disposal business by buying up local operations around the world. But the company was hit by accounting scandals in 1998, and it eventually lost more than $20 billion in shareholder value between May and December of 1999. All told, the largest trash hauler in the United States suffered net losses of more than $2 billion from 1997 to 1999. When the turnaround team of CEO Maury Myers and CIO Tom Smith took over in 1999, Waste Management was completely decentralized and “didn’t have much [for] legacy systems,” says Smith, noting the company’s AS/400s had “no functionality.”

The Solution: A complete shakeup.

Myers and Smith, who had worked together before at America West Airlines and trucking company Yellow Corp., launched their trademark turnaround strategy, which involved traveling to offices coast to coast, stabilizing the systems that existed at the company, installing a financial system enterprisewide and creating an IT program to track profitability. They also planned to pay down debt and consolidate the company’s far-flung units. After those initial moves, Smith began replacing every system in the company, starting with the legacy billing system, a vehicle routing system and a new fleet maintenance system, all integrated with each other.

The Situation Now:

Waste Management’s recovery is on track although the lagging economy has put a drag on earnings. The company had revenue of $11.3 billion in 2001 and reported second-quarter net income for 2002 of $217 million, up from $191 million last year. But the company said it was less optimistic about the rest of 2002 because the economy is not recovering as quickly as it expected. Smith reports that the company will spend about $70 million this year on new systems. Implementations of PeopleSoft financials, human resources and payroll were complete by the end of 2001, and a new data warehouse allows company officials to perform monthly reviews with all field operations. “Two years ago everyone was complaining about the quality of the data,” Smith says. “During the last six months there have been no complaints, and we can now get down to business issues.” Smith adds that Waste Management has saved $75 million on new procurement systems that allow it to buy all of its supplies online.

Leadership:

CEO Myers and CIO Smith have been at the helm since the start of the turnaround in 1999.

Challenges Ahead:

Smith says the bulk of the new systems will be rolled out over the next 18 to 24 months and that “the risk is that we will overwhelm the field with too much change too fast.” Many of the new systems are in pilot stages, so the coming months will reveal whether they can save the company money.

What the Experts Say:

“The whole industry is under margin pressure, but Waste Management is fairly stable,” says Kevin Monroe, an analyst at Thomas Weisel Partners in New York City. “The turnaround is going according to plan. I’m not sure how much of this is due to the technology, but the [IT] investments are generally seen as a positive.”