Waste Management Analysis

Strategic Analysis
Waste Management Corporation

Vu Le

MGMT 595 – Dr. Walters

TABLE OF CONTENTS

EXECUTIVE SUMMARY

INDUSTRY ANALYSIS

I. Market Overview
II. Products
III. Value Chain
IV. Competition Analysis
V. Key Success Factors
VI. Five-Force Analysis
VII. General Environment Analysis
VIII. Strategic Groups
IX. Key Issues and Future Scenarios

COMPANY ANALYSIS

I. Company Overview
II. SWOT Analysis
III. Financial Analysis
IV. Current Strategy
V. Problems and Issues
VI. Recommendations

REFERENCES

Executive Summary

Waste Management, Inc. (WMI) is the leading company in waste management industry. This analysis will address key characteristics of the market as well as key characteristics of Waste Management, Inc.

The first part of the analysis includes market overview, products, value chain, the nature of industry competition, key success factors, five-force analysis, general environment analysis, strategic groups, and key issues.

The second part of the analysis includes WMI overview, SWOT analysis, financial analysis, WMI’s current strategies, current problems and issues, and some recommendations for the company.

Some key points from the analysis include:
The market is almost saturated and highly competitive.
Strict regulations by the government on waste management services and operations.
The trend of acquisitions and mergers within the industry in the recent years.
Key success factors include ability to control operation cost, ability to achieve economy of scale through acquisitions, and ability to build core competencies by focusing in core business.
WMI’s current strategy is trying to improve its R&D and operation.
Recommendations focus on solutions to WMI’s current issues.

INDUSTRY ANALYSIS

I. MARKET OVERVIEW

WM Inc. operates under waste management services industry. The waste management services industry involves with collection, treatment, and disposal of waste materials that are generated by industry, institutions, and household, as well as providing services that related to waste disposal. Under waste management industry, approximately 60% of the revenue comes from public-sector customers, while approximately 40% of the revenue comes from private-sector customers (USITC). Public-sector customers that include households, institutions, and small businesses, usually rely on the municipal disposal system or disposal services from government entities. Private-sector customers that include industrial and commercial firms can contract with private firm directly for waste disposal. According to Environmental Protection Agency (EPA), the wastes generated from public-sector account for 55-65%, while wastes generated from private-sector account for 35-45% (EPA).

The two main types of waste material are solid waste and hazardous waste. U.S is considered the largest market in the world for solid waste, while its hazardous waste market is relatively smaller. The hazardous waste is strictly defined and regulated by the Resource Conservation and Recovery Act (RCRA). Most hazardous waste management firms are operating under limited area. On the other hand, solid waste is not regulated so strictly, unlike hazardous waste. Solid waste market consists of approximately 11,200 firms; hazardous waste consists of approximately 1,200 firms (EBI).

II. PRODUCTS

Waste management firms provide various types of services for both public-sector and private-sector customers. The main services from waste management firms include waste collection, landfill, transfer, energy generation from waste, recycling, and other services such as environmental consulting. In general, wastes are collected from sites where they are generated to transfer to waste facility. They are sorted into different categories. Part of the wastes would be used either for recycling or into waste-to-energy process. The rest of the wastes would be disposed in landfill facilities. The waste collection and disposal are activities that generated most revenue for firms. Firms in the industry can make contracts with their customers to provide services. A typical contract would last for 5 or 10 years (WMI Financial Statement). Recycling and waste-to-energy services are becoming more important to firms as environmental awareness is rising among communities.

III. VALUE CHAIN

Figure 1- Waste Management Value Chain- Source: Ligon. P

The value chain shows firm “parts of its operations that create value and those that do not” (Hitt). Most of the companies in waste management industry operate under six major categories of activity: collection, transfer, treatment and disposal, recycling, waste-to-energy, and remediation. Among major services, revenue generated from waste collection accounts for 50%, treatment and disposal for 15%, and remediation for 15% of the total industry revenue (Hoovers).

Figure 2- Waste Management Primary Activity Value Chain

Collections:

Collection involves with picking up wastes from where they are generated by using garbage truck. A collection network is built among several of local areas through commercial and industrial collection service and residential collection service contracts. Several factors affect the price of collection services. Those factors include:
- Collection frequency
- Type, volume and weight of waste materials
- Distance to disposal facility
- Labor costs
- Disposal costs

Transfer:

Transfer involves with using a supporting network of transfer stations to deliver waste materials from where they are generated to disposal site such as landfills, or to firm’s waste treatment facilities. Wasted are accumulated then compacted to reduce the volume. Depend on the size of the collection areas, various types of containers and trucks are being used to make sure that one employee can take care of one specific area in a cost-effective way.

Treatment and Disposal:

For the wastes which have no value, those wastes are taken to landfills or incineration facilities for disposal purpose. The disposal activities must be operated under strictly regulated government and environmental laws. The waste landfills must “meet federal, state, provincial, and local regulations during its design, construction, operation, and closure.” (WMI 2012). Firms that own landfill also have regular maintenance for safe conditions and maximized space. Recycling

Recycling involves processes of assorting and converting wastes material into useful materials for further usage. Recyclable materials may include glass, metal, paper, plastic or textile. Firms use assorting and recycling technology to convert wastes into raw materials. Those materials are sold back to manufacturing industries to reproduce goods for consumers. Several factors affect the price of recycling services. Those factors include:
- Market value of materials
- Degree of processes required
- Type, volume and weight of material

Waste-to-energy

Waste-to-energy involves the process of converting wastes into energy by using electricity or heat from incineration. Energy produced from wastes can be in form of electricity or fuel commodity such as methane, methanol, ethanol, and synthetic fuel (Chartis). There are new technologies developed recently that are able to extract energy from wastes without using traditional direct combustion. Many firms are spending on R&D to develop better technologies for their waste-to-energy facilities in order to reduce costs, increase efficiency and work better environmentally.

Remediation

Remediation involves with cleaning, isolating and removing pollutants and contaminants from certain site such as crude oil spills on the ocean, contaminated land, or contaminated plantation in order to protect the environment.

IV. COMPETITION ANALYSIS

The waste management industry is highly concentrated. The 2007 four largest firms concentration for NAISC 562 - waste management and remediation services, is 32.3%. The concentrations for eight, twenty, and fifty largest firms are 37.3%, 45.9%, and 53.1% respectively (U.S. Census). Before 2008, the biggest players in the market were Waste Management Inc., Republic Services Inc., and Allied Waste Industry Inc. These three companies has accounted for almost 50% of the industry 's revenue (Waste Age). On June 2008, Allied Waste Industry was purchased by its competitor - Republic Services. The market for waste management is highly competitive. Thus, companies are on the trend of consolidation for the purpose of improving their value chain for better efficiency.

Figure 3 – Waste Management Top Firms

The table above has shown the top firms in the industry included Waste Management, Republic Service, Sims Metal Management, Covanta Holding, Waste Connection, Clean Harbors, Stericycle and Casella Waste Systems. Most of the firms concentrate on one market segment - Republic Service, Waste Connections, Casella Waste Systems on non-hazardous solid wastes, Sims Metal on metal wastes, Clean Harbors on hazardous wastes, and Stericycle on medical wastes. Among those firms, only Waste Management Inc. has it businesses on both hazardous and non-hazardous segments. According to Waste Age, the rest of the industry is highly competitive; and firms operate in various segments (Waste Age).

The market share of waste management industry is shown as below:

Figure 4: Waste Management Market Share 2012 – Source: Waste Business Journal

V. KEY SUCCESS FACTORS

The key success factors are defined as the activities “that must go well to ensure success for an organization” (Boynton). Thus, it requires close attention from firms to maintain its survivability and competitive advantages. Key success factors in each industry are different due to the nature of a specific industry. The following are key success factors in waste management industry:

1. Ability to achieve economy of scale from acquisitions.

The waste management industry has been regulated strictly overtime due to environmental issues. Since 1980s, the number of landfill has been decreased from over 8,000 to 1,600 (Henricks). It becomes critical for firms to acquire the right to landfills. Top firms in the industry have been continuing with their acquisitions activities since 1980s in order to use their assets efficiently. With more networks of landfills and transportation facilities in various states, firms can control its cost more efficient through logistic activities. The possession of landfill is especially important for large firms such as Waste Management Inc. According to its financial statement, landfill sites account for about 57% of its total assets (WMI Financial Statement). Moreover, through acquisitions, firms can also acquire advanced technologies and diversify operation risks.

2. Specialization in core businesses.

Firms in the industry have different strategies to grow and maintain their businesses. However, except Waste Management Inc., most firms focus on their core businesses. Sims Metal Management focuses on metal recycling; Covanta Holding focuses on electric power generation; Clean Harbor focuses on hazardous waste management; and Stericycle focuses on medical wastes. This strategy allows firms to acquire competitive advantages through expertise on their fields. With acquisition of smaller businesses on the same field, firms can also have synergy for better operations.

3. Ability to maintain profit margin through controlling operation cost.

As the gas price continues to rise over the last 10 years, it has a big impact on waste management firms. Moreover, factors such as regulations, competitions, and environmental related lawsuits have also affect firms in the industry. Thus, most firms can only achieve a medium level of profit margin. For instance, some top firms’ profit margins are Waste Management 6%, Republic Service 7%, Sims Metal Management -5.7%, Clean Harbors 5.9%, and Casella Waste System -16%. From their financial statements, it is notable that some firms such as Waste Management, Sims Metal Management, and Clean Harbors have much higher operating expenses in the last 5 years. Thus, in order to maintain its competitive advantage, firms need to play close attention to its value chain, especially logistics system, to reduce costs and ensure profitability.

VI. FIVE-FORCE ANALYSIS

Five-force model is a useful tool for a firm to identify whether an industry has profitability potential. Firm also can identify “the most advantageous position for the firm to take in that industry, given the industry’s structural characteristics” (Hitt).

1. Threat of New Entrant – LOW

There are numbers of reason that threat of new entrant to waste management industry is low. First of all, most firms in the industry continue to expand to take advantage of economy of scale. This strategy allows firms to provide services with lower price. When a firm plans to enter the market, it would need huge financial resources to compete top players in the field. The right to access and possess landfills is also an important factor for new firms. Without a vast network of facilities and transportations, the quest of sustainability would be very challenging due to high operation costs. Moreover, without prior experience dealing with strict regulations from the governmental entities, new firms would need time to build their expertise. Even with advanced technology, it is likely that new firms would eventually be bought out by large competitors. Thus, threat of new entrant is low.

2. Threat of Substitution – LOW

Waste disposal is a basic need for customers in waste management industry. There is almost no other ways to dispose waste other than recycling. And without technology from waste management firms, customers or other organizations would not have the ability to handle the wastes. Also, recycling is a service offered within the industry. Thus, it is clearly that the threat of substitution is low.

3. Bargaining Power of Suppliers – HIGH

According to the previous analysis on value chain, there are two main types of inputs from the suppliers: energy and fee to use landfills. High percentage of waste management firms’ operation cost comes from the fuel that is used for garbage trucks as well as electricity that is used for recycling and waste-to-energy activities. On the other hand, in order to use the limited number of landfills, firms need to bargain with landfills’ owner. It would be hard for firms to bargain over the suppliers because without those inputs, firms cannot operate properly. Moreover, both energy price and landfills are controlled; thus, it would be reasonable to say that the bargaining power of suppliers is high.

4. Bargaining Power of Customers - MEDIUM to HIGH

For the basic services as in solid waste management, most states’ waste management service is dominated by one or two firms. For example, Sims Metal Management focuses on middle and south states, while Casella Waste Systems focuses on east states. However, there is still competition on price and services among those firms. After a contract with a typical customer is over, that customer can always choose the other firm with lower price. Thus, it would be hard to say that the bargaining power of customers is either low or high. For hazardous waste management, customers can always choose the better service providers due to the wide coverage of firms. However, with respect to some special fields such as harbor cleaning or medical waste treatment, there are dominated firms on these areas. Thus, with all of those factors, the bargain power of customers would be medium to high.

5. Competitive Rivalry Within The Industry – HIGH

Even though the market is highly concentrated, price cutting strategy is common in waste management industry. Firms are not only competing with national competitors, but also regional competitors. Moreover, with new technology developed on recycling and waste-to-energy field, price cutting strategy would be use even more heavily. Currently, because the market is at its saturated stage, and there is not much space for growth, firms will be likely to compete intensively. Thus, the competitive rivalry within the industry is high.

VII. GENERAL ENVIRONMENT ANALYSIS

1. Demographic Factors

Under demographic factors, population growth is the most important factor that affects the waste management industry. As the population keeps growing, the demand for resources would be higher which lead to higher level of wastes. According to Worldwatch Institute’s report, the amount of wastes “generated globally is projected to double by 2025 as prosperity and urbanization continue to advance” (Gardner). Among all of the developed countries, U.S. produces the highest output of wastes (Gardner).

Figure 5: Municipal Solid Waste Generation Rates – Source: Investors Insight

Figure 6: United States Population – Source: Immigration EIS

The two charts above show the link between population growth and generated wastes rate. We can see that as the population grows, the generated wastes rate grows also. Thus, there will be future demand for landfills and demand for wastes treatment solutions concerned with environmental issues as the U.S. population continues to rise. 2. Technological Factors

Technological factors have an important role in waste management industry. The firms within the industry are improving its technology and making innovation continuously. There are many reasons for technology improvement. First of all, firms want to reduce its operation costs when the gas price continues rising. Waste management firms has been using Geographic Information System (GIS) and Geographic Positioning System (GPS) to optimize haulers route in a cost efficient way, as well as developing engines that meet the Environmental Protection Agency (EPA) new regulation - Clean Air Act (Rogoff). Many new technologies have been developed in the recent years “in the form of gasification, incineration, bio-mass solution, and disposal.” One of the most recent technological trends is the development of technology that can generate energy from the landfill gas. Over the last five years, there are more than 300 projects concerned about the landfill gas generation (Ludwig). Moreover, the goal of new technology will be to convert 90% of waste materials into useful products (Zintro N.). Thus, the innovation trend could bring many potential opportunities to firms within the industry.

3. Political/Legal Factors

Due to rising concerns about the environment and responsibility to oversight environmental issues, the federal government has applied many restriction and regulations on waste management activities. Most of the regulations are recommended by the federal government to the states. States may choose to apply their own rules or follow the federal government’s regulations (USITC). According to United State International Trade Commission, for solid waste, the key legislations are Solid Waste Disposal Act (SWDA), Resource Conservation and Recovery Act (RCRA), and Pollution Prevention Act (PPA). For hazardous waste, the key legislations are Resource Conservation and Recovery Act (RCRA), Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). Those legislations are passed by Congress. Responsible to enact those legislations, the Environmental Protection Agency (EPA) tries to maintain the national environmental standard by enforcing firms to follow the regulations. Legal factors are among the reasons for recent acquisitions and mergers in the recent years. Due to low profit margin, high operating costs, landfill facilities closure, and cost of regulations compliance, many firms are facing challenges to remain profitable.

4. Sociocultural Factors

The sociocultural factor reflects society’s beliefs, norms, value, and attitude. The health issues are one of the concerns during the second decade of 21st century (Hitt). As people in U.S. are more willing to use environmental-friendly products, it is a challenge to waste management firms to limit their damage to the environment as well as invest more into non-polluting activities such as recycling and waste-to-energy operations.

5. Economic Factors

Figure 7: Waste Collection Services - Source: Reports from the Census Bureau

Economy can have a big impact on waste management industry’s performance. As the graph shown above, we can notice two down-turns on waste management industry. The first one is from 2001 to 2002; this is the time when U.S. economy faced recession after a long period of growth. The second one is from 2008-2009; this is the period which U.S. economy faced the most recent recession. Total revenue from waste management services were dropped noticeably. This might be due to the reluctance of customers to use high price services which leads to intensive competition among firms to acquire a piece of market share.

In addition, according to report from National Environmental Agency, the GDP of a country is positively correlated with amount of wastes generated per year. The relationship is shown below:

Figure 8 – Municipal Waste Collected and GDP – Source: National Environmental Agencies.

Hence, firms operating within waste management has to access to economic conditions to formulate proper strategy for growth or sustainability.

6. Global Factors

Global market can bring both opportunities and risks to firms which are planning to expand internationally. According to statistics, the U.S. market accounts for 34% of the global waste management market, the following key markets European countries and Japan account for 30% and 26% of the global waste management market (USITC).

Figure 9: Solid and Hazardous Waste Management- Global Market. Source: USITC

In developed countries such as U.S., European countries, and Japan, the market structures have many similarities. The waste management industries are saturated and dominated by a few firms. Firms within the industry have to compete severely and follow regulations strictly. However, in developing countries, the markets are underdeveloped due to lack of technology, regulations, and capitals. Despite of the underdevelopment, developing countries are experiencing rapid growth over the recent years. This could bring potential opportunities for firms to expand their market globally. In the global market, the environmental concern is also an important factor. According to USITC, about 30% of WTO country members have agreed to follow the environmental regulations by the General Agreement on Trade in Services (GATS).

VIII. STRATEGIC GROUP

The strategic group is defined as “a set of firms that emphasize similar dimensions and use a similar strategy” (Hitt). Competition is likely to occur within one strategic group than others. Thus, it is critical to use strategic group as a tool for competition analysis in an industry. Based on previous analysis on waste management industry’s main competitors, the strategic group map is shown below:

Figure 10 – Strategic Group in Waste Management Industry – Source: Vu Le

From the strategic group map, we can see there are three main groups in waste management industry. The first group consists of Waste Management, Republic Services and Municipals which has roughly 70% of the market share and controls most of the landfills. The strategies of this group would be continuing to acquire more landfills and providing variety of services. This group also has competitive advantage compare to others smaller firms due to its size and diversification structure. The second group consists of Casella Waste System and Waste Connection. This group has slightly same strategies with the first group. The only main difference is that its market size is much smaller than the first one. The second group provides a wide range of products and services. The waste collection and waste facilities of firms in second group locates in different states. The last group consists of small firms that focus only on their main segments. Firms in the third group include Covanta Holding, Stericycle, Clean Harbors, Sims Metal Management and other small firms.

IX. KEY ISSUES AND FUTURE SCRENARIOS

With the above analysis, three key issues for waste management would be addressed to help waste management firms to have better preparation for the future. Those three key issues include:
- The trend in increasing waste material, the minimization of waste effort by communities, the demand for better waste treatment
- The acquisitions and mergers trend within U.S. waste management industry
- Opportunities in the global market

With the population is growing, it is expected that the amount of waste materials in U.S. would continue to rise. Looking for better waste treatment solutions is always a challenge that firms have to encounter since the beginning. However, with the number of landfills are decreasing and more regulations from federal government which lead to severe price competition, firms need to find a new way to stay profitably, especially the small firms. One of the best ways to do so is to invest capital into technology development. This process will take firms both significant resources and time. However, this innovation process would be inevitable when competition does not only come from domestic firms but also international firms. Firms need to build their stronger positions in the market by both acquiring and developing technologies. Moreover, firms need to take initiative to put effort in building good relationship with the government by complying with federal, state, and local regulation as well as building relationship with their stakeholders. By doing so, it would help with firms’ sustainability in the long run. Another important trend recently concerns with waste and energy minimization in productions. Many countries have policy to motivate industrial organizations to limit their waste and the use of hazardous substances. One example is the 3R approach - recharge, retention, and reuse - applied by many countries included Japan (Chandak). Thus, it is critical for firms to change from old perspective of “waste management” into “resource management” which does not concern about dispose waste efficiently but also dispose waste in a way that is both beneficial for the future generation and profitable.

The second key issue concerns with the acquisitions and mergers trend within U.S. waste management industry. According to industry experts, there is no evidence to show that this trend will stop in the near future (Henricks). Both large national firms and small regional firms are active in acquisition activities. The forces that drive acquisition include getting market share, acquiring advance technology, and achieve economy of scale for efficient operations. Thus, firms should be prepared for this trend and find opportunities to expand their operations either vertically or horizontally. Maintaining low operation cost is the key for survivability.

Lastly but not least, expanding domestically is only one of many options for growth. International markets such as Latin or Asian countries would bring many opportunities for firms. Firms need to find favorable conditions to operate in those countries. This strategy can be done in various ways such as acquisitions of foreign firms, transferring technologies, contracting with foreign government, and so on. Opportunities from foreign countries seem appealing; however, there are some disadvantages on doing business globally as well. One of the disadvantages for firms is that the movement of wastes from U.S. to other countries will be regulated more in the future due to new regulations and agreements between countries (USITC). Regulations in the foreign markets could pose a threat to firms that does not have an adequate understanding of the foreign countries’ legal system. Consequently, understand the domestic and global markets structure is critical for waste management firms nowadays.

COMPANY ANAYSIS

I. COMPANY OVERVIEW

Waste Management Inc. is founded in 1987 under the name “USA Waste Services, Inc.” in Oklahoma. In 1995, it is reincorporated in Delaware. In 1998, it was in a merger with Illinois-company called Waste Management Inc. to form Waste Management Holdings Inc. During the same year, it changed its name to Waste Management Inc. until now. WMI is based in Houston, Texas. WMI is the leading company in the U.S. waste management industry, providing services in collections, transfer, recycling, and disposal. It also provides services in Canada and Puerto Rico. WMI operates in almost every state in the U.S. Its services focus on both solid waste and hazardous wastes. In 2012, WMI asset is $23.1 billion with revenue of $13.6 billion. WMI has 44,300 employees, owns 271 landfill sites, and 287 transfer stations throughout the nation. Its customers include residential, commercial, industrial, and municipal customers. WMI is also the leading company in waste-to-energy area. It has 22 plants that create renewable energy from wastes (WMI 2012).

1. Leadership

According to WMI financial report, its leadership members include:

Figure 11- WMI’s Leadership Positions - Source: WMI’s Website

2. Mission Statement and Vision

The company mission statement is to “maximize resource value, while minimizing - and even eliminating - environmental impact so that both our economy and our environment can thrive.” That mission statement has guided WMI to serve customer’s needs better, take responsibility for the communities, and provide ongoing innovation to improve the environment. WMI has proposed “We Think GREEN Everyday” to reflect its mission and vision. According to WMI, think GREEN means (WMI):

- Great Operation:
Be safe
Do it right the first time
- Respectable Brand:
Have pride
Be clean. Be professional
- Empowered Employee:
Fix it. Fix it now
Have fun
- Engaged Customers
Prefer us
Recommend us
- Neighbors of each other and our environment
Treat everyone with dignity and respect
Protect the environment

3. Culture

In 2012, WMI has 44,300 employees. Currently, WMI has a strong focus on ethical issues. It provides training and supports to its employee to understand and act according to ethical standards. According to WM’s Code of Conduct, WM has a focus on integrity and inclusion. It is stated that “Our people make up the fabric of Waste Management. Integrity makes that fabric strong. Inclusion makes that fabric unique” (WMI Code of Conduct) Its goal is to create a working environment where everyone is ethical and respectable. Part of the reason that WMI has such focus on ethical standards is due to its previous ethical issues. In 1999, WMI was sued for false accounting statement by its officers (PBS). In 2003, WMI once again faced lawsuit for false accounting statement and ended up playing $457 billion (CNN Money). WMI’s employees’ benefits include packages for health care, family care, and financial and education benefits. WMI also cares about its employees’ safety. It has launched Mission-to-Zero plan in 2000. The goal of the plan is to “reduce number of accidents and injuries to zero” (WMI). According WMI, the rate of injuries has been decreased by 85% from 2000 to 2009.

4. Goals

WMI believes that three short-term goals should be achieved for its growth and leadership in the industry:
- Know its customer’s needs the best in the industry
- Derive more value from wastes over time
- Improve operation efficiency
Its long-term goals include:
- Growth market share by focus on current customers, through acquisitions, and by investing in new segmentation especially green segmentations
- Grow customer loyalty
- Improve operation and cost structure.

5. Products

WMI’s main services include collection, landfill, transfer, wheelabrator, and recycling.

Collection services serve two main types of customer: commercial and industrial customers and residential customers. WMI contracts with commercial and industrial customers through a typical three-year contract. For residential customers, WMI contracts with municipality and homeowners’ association to server a typical area.

Landfill services concern with waste disposal. WMI owns 271 landfills - the largest network of landfills in U.S. Most of the landfills are for solid waste disposal. Among those landfills, there are five hazardous waste landfills that meet strict regulations from the government.

Transfer services concern with transfer, consolidate, and compact waste materials at transfer stations. WMI operates with 287 transfer stations in the U.S. A part of the transfer stations is acquired through lease with third parties such as municipality.

Wheelabrator services concerns with waste-to-energy activities. WMI owns 17 waste-to-energy facilities and five power production plants. In those facilities, waste materials are burned in high temperature and converted into energy. WMI is planning to expand these size and number of waste-to-energy. In 2010, WMI invested $318 million on waste-to-energy business. WMI’s recycling activities include material processing, plastic material recycling, and commodities recycling. WMI owns in total 107 waste material recycling facilities.
Other services provided by WMI include WM Sustainability Service consulting services for organizations, WM Healthcare Solutions - medical waste treatment, and other services that is supplemental for WMI operations.

6. Core Competencies

Core competencies are defined as “capabilities that serve as a source of competitive advantage for a firm over its rivals” (Hitt). Core competencies are built over time from its resources and capabilities. It is the firm’s main muscle to compete against competitors. To qualify as a core competency, a firm’s capability must meet four criteria: valuable, rare, costly-to-imitate, and non-substitutable. Capabilities are the unique resources that enable firms to achieve its goals (Hitt). WMI’s capabilities would include:
- WMI’s vast size which allows firm to achieve economy of scale.
- WMI’s strong and healthy financial assets which allow firm to acquire new technology and engage in acquisition activities.
- WMI’s innovative ability to continuously improve technology as the leading company in recycling and waste-to-energy.
- WMI’s huge transfer network and high number of landfills and facilities.
- Integrated and wide range of services.

Based on the four criteria above, WMI’s capabilities would be evaluated in which whether or not they can be qualified as rare, valuable, costly-to-imitate, and non-substitutable:

Figure 12- WMI’s Capabilities and Criteria for Core Competencies
On the first two criteria - valuable and rare, all of WMI’s capabilities qualify because in the current competitive industry, there are only a few competitors possess all of those capabilities. In term of size, financial condition, and network, the only firm that have comparable size is Republic Services with $19,600 billion in assets and $8,100 in revenue (WMI has $23,100 in assets and $13,600 in revenue). However, Republic Services does not provide wide rage services as WMI as Republic Services ' business only focus on handling non-hazardous wastes.

On the third criteria - costly-to-imitate, WMI’s vast size, huge network, valuable assets, and wide range of services, most firms in the industry cannot achieve those capabilities due to limited financial capabilities, at least in the short-term. However, WMI’s strong financial condition which can be used to acquire technologies can be easy to imitate by its competitors through acquisitions and mergers. One example is the acquisitions of the second largest firm in the industry - Allied Services - by the third largest firm - Republic Services.

On the last criteria, only WMI’s innovative capabilities can be qualified. WMI has always been one of the largest firms; it keeps expanding its business through acquisitions to become the largest current firm in the industry. Its business covers many market segments as well as supplemental services that give synergy to the whole operation. Thus, over decades, WMI has brought in many technologies as well human assets. Those assets are significant for WMI to keep its innovation in hand and can be used for continuous operation improvement. That ability helps WMI to be the leading company in recycling and waste-to-energy services. Therefore, based on the four criteria, WMI’s only capability that is qualified as firm’s core competency is its innovative capability.

II. SWOT ANALYSIS

1. Strengths

Waste Management is the largest waste management company in U.S. as well as in the world. Its assets are $23.1 billion dollars with total revenue of $13.6 billion dollars in 2012. WMI provides in every states in U.S. Its size allows WMI to achieve the economy of scale to reduce operation costs as well as obtain certain level of diversification. WMI also has good financial conditions which enables the firm to engage in acquisition activities actively. In addition, WMI owns the highest number of landfills -271 landfills - in the U.S. (WMI 2012).

Due to its vast size, WMI owns a lot of subsidiaries which allows the firm to have an entrepreneurship environment. Employees in the company are actively seeking opportunities to enter in new market segment within the industry. The size of the company also flourishes teamwork and innovation. Employees are treated well and are concerned about their health issues with many protection policies such as Mission Zero (WMI 2012).

Compare to other competitors, WMI has a competitive advantage in recycling and waste-to-energy technology. WMI is one of the first companies which developed waste-to-energy technology. It is believed that WMI is the leading firm on recycling and waste-to-energy segments. WMI is continuing to further invest in related field technologies. Moreover, WMI also provides special services that small companies do not have enough capital to operate such as medical waste treatment, and hazardous treatment.

2. Weaknesses

Due to its nature of operation that inevitably damages the environment, WMI faces many potential lawsuits from communities and other environmental organizations. In 2011, WMI faces a lawsuit from Commonwealth of Massachusetts for the environmental violations. WMI had to pay $7.5 million settlement (Messenger). Those lawsuits can negatively affect the company’s image and reputation.

Another weakness of WMI is that its corporate culture does not seem efficient enough. From GlassDoor website, WMI is rated only at 2.8/5. There are many complaints about the company centralized structure which ideas are not adequately valued (GlassDoor). It seems common that in the waste management industry, not many companies pay much effort on marketing. Even though WMI is well-known in the industry, it does not spend a lot in marketing budget. As the price-cutting competition becomes more severe, WMI should pay attention to marketing activities.

3. Opportunities

As a leader in waste management industry, WMI has a lot of opportunities to enter new potential market segments such as waste-to-energy and recycling. Also when the amount of wastes continues to increase over the years, finding a solution for better waste treatment would significantly improve the company profitability. WMI can not only expand in the domestic market where it already dominates, it can also move into global markets where there are many potential growth opportunities such as Latin America and Asia. Another opportunity is to build strong relationship with environmental organization to make programs concerned with environmental safety which can improve the company image over the long run. This also helps WMI deal better with lawsuits with support from communities.

4. Threats
According to WMI financial report, its business is affected by seasons especially during winter time. Poor weather during winter or natural disaster such as Katrina can dramatically make a negative impact on its operation.

Another important factor is that the waste industry is at its saturated level which leads to high competition between firms. Not only compete with other competitors, WMI also have to compete with municipalities which has tax advantage that can give better price than the firm.

New regulations with rising environmental concerns would pose a threat to WMI operations. WMI has to continuously improve its facilities in compliance with new regulations. Cost of following compliance is inevitable and would limit its profitability.

New technology development could bring both opportunities and risks to the company. Especially in the case that WMI’s competitors are the first who get new innovations, WMI might lose it competitive advantages.

III. FINANCIAL ANALYSIS

Figure 13 – Financial Ratios

On June 27, 2013, WMI’s number of outstanding shares is 467.02 million shares.WMI’s price per share is $40.6. Its market capitalization is $18.7 billion compared to waste management industry’s market capitalization - $190.8 billion. WMI’s PE is 23 compared to waste management industry’s PE - 34.

Figure 14 – WMI 2012

From the above calculated ratios based on WMI’s financial statements, some important keys can be concluded below:

- The sale growths of WMI in 2010, 2011, and 2012 are 5.9%, 7.2% and 1.5% respectively. Such differences in sale growths are due to a few key issues. The sale was high in 2010 because of the 2010 oil-spill event in Gulf Coast. WMI has earned extra revenue from the Gulf Coast clean-up project. In 2011, WMI experienced high growth in sales due to two reasons. The first one is extra revenue from WMI’s new acquisitions of Oak Leaf Global Holdings. The second reason is the improvement of recycling commodity prices. However, in 2012, the decreased price in recycling commodity has an impact on WMI’s sale growth. Therefore, WMI’s business is seasonal and somehow dependent on recycling operation.

- For profit margin analysis, WMI’s profit margin decreased from 8.42% in 2009 to 6.01% in 2012. The rising fuel price which leads to higher operation cost is one of the reasons of lower profit. Another reason is the intensive competition in the market with price-cutting activities. Competition leaded to the loss of some long-term contracts such as South Florida contract. The firm’s revenue is negatively affected in 2011 and 2012.

- For liquidity analysis, both of the quick ratios and current ratios are lower over time. It shows that WMI is it less favorable condition than before. However, this does not mean that WMI’s financial condition is unhealthy. During the last five years, WMI has used its current assets to acquire new businesses such as Oakleaf Global Holdings in 2011 and to expand new facilities such as six new landfill gas-to-energy in the same year. In 2013, WMI acquired Greenstar, LLC - a recycling company.

- For the solvency ratio, WMI’s leverage ratio is 3.6 in 2012 which is equal to the industry’s average. With WMI’s total debt is about 70% of its total assets, it would be a little high compare to other industries. However, considering the nature of waste management industry which firms need abundant of capital to expand at this period, WMI’s solvency ratio is at reasonable level.

- For efficiency ratio, WMI’s inventory turnover is about 80-90 which means it takes 3-4 days for its product to stay in the inventory. WMI’s inventory turnover is high because WMI mainly provides services instead of manufacturing physical products.

- During the recent years, WMI’s ROE and ROA is on the decreasing trend. This is mainly due to the higher operation cost and lower price of recycling commodities. Compare to the industry average which ROE is 8.5%, WMI seems to bring more profits to its shareholders even in 2012 which WMI’s ROE is 12.77%.

IV. CURRENT STRATEGY

To maintain its leading position in the waste management industry, WMI has found many strategies to do so. The three levels of strategies are corporate-level, business-level, and functional-level.

At corporate-level strategy, WMI continues its expansion in order achieve its goals. The benefits of expansion through acquisitions include lower risk by diversification, getting synergy from operations by sharing activities, and having more market power. In addition, expansion can help firm achieve economy of scale to reduce operation costs. In the recent years, WMI’s main acquisitions include Oakleaf Global Holdings in 2011 and Greenstar in 2013. Both of those two new acquisitions are related to recycling and waste-to-energy segments.

At business-level strategy, WMI’s goal is to be the company who understand its customer the best than any of the competitors (WMI). In 2011, WMI improved its customer set-up and account management to deliver service faster. It also renovated its call center in an effective way. Furthermore, WMI is improving its web application to help its customers find the solutions quicker. It has been actively engaged in price-cutting activities as well as builds integrated services to provide more value to its customers. WMI is one of few firms in the industry that customers can find almost any types of services that relate to waste treatment. WMI is also the only firm that handles both non-hazardous and hazardous waste materials. Therefore, WMI is using both cost leadership strategy and differentiation strategy.

At functional-level strategy, WMI is using its vast transfer network and facilities to reduce costs which add value to its operation. Furthermore, WMI is trying to invest in new technologies that help recycling and waste-to-energy operations. In 2011, WMI has partnerships with Agnion Energy, Agilyx, Fulcrum BioEnergy, and Genomatica to develop organic-energy-related technologies. Moreover, WMI also improved its trucks with natural gas to help protect the environment.

V. PROBLEMS AND ISSUES

From core competencies, SWOT and financial statement analysis, WMI problems and key issues include:
- Facing potential environmental lawsuits and the cost of compliance to environmental regulations.
- A centralized structure that may limit creativity and innovation.
- The need of more effective and ethical management teams due to the previous lawsuits on reporting misconduct.
- The slow rates of growth in traditional segments such as solid waste collection, transfer and disposal
- The need to expand into potential markets such as recycling and waste-to-energy
- High operation costs due to falling prices on recycling commodities price and inefficient subsidiaries.
- The need to build stronger resources to attain valuable capabilities and core competencies.
- The need to build good relationships with its stakeholders
- Limited experiences and capitals in global markets

Those problems and issues are challenging for WMI for its short and long-term future. To deal with those challenges, WMI will need certain new strategies. Some recommendations are provided in the next section. Those recommendations are some alternatives to WMI’s current strategies. They may improve the firm’s business as well as give certain level of risk to the firm.

VI. RECOMMENDATIONS

1. Develop temporary cutting-cost program

Cutting-cost programs may include eliminating unproductive labor forces and reselling or disbanding inefficient subsidiaries. This strategy is concerned with short-term goals. It will help WMI to deal with problems in high operation costs that would make a positive impact on the next 3-5 years. By cutting cost, WMI can not only save time and attention to inefficient subsidiaries but also save its financial assets to spend on better programs. One type of program I recommend is creating a Re-Evaluation Acquired Subsidiaries (REAS) program base on criteria such as value of subsidiaries’ technology, level of sharing activities, and opportunities for growth in both short and long-term. The REAS team would rank all previous acquisitions in term of long-term and short-term development. Long-term subsidiaries would take longer time to develop and require more financial capital to invest in. In contrast, short-term subsidiaries would take less time and financial capital. Depend on the situation of WMI, the REAS team might choose to focus on certain group of subsidiaries at a time. For instance, when WMI is in the need of new technologies in recycling, more focus should be put in short-term recycling projects.

2. Replaces the traditional collection process

WMI can develop an innovative team to find alternative ways in collection process. The traditional collection process involves with garbage pick-up trucks. This method is costly to maintain due to rising fuel price. One alternative way to renovate this process is to test a new pick-up system that uses automatic trucks without the involvement of human labor. Recently, new technology on automatic vehicle is emerging such as Google Self-Driving Car. Leading companies in the auto industry such as GM are also working in such projects (Keane). Another alternative way is to use short-distance airplane, old railroad systems, or underground systems create new transfer networks.

3. Partnership with government, local authorities, education institutions, and foreign partners.

Currently, government has many projects and concerns with environmental issues. One of the current issues is whether or not importing nuclear wastes from foreign countries to U.S. This idea is introduced by the Global Nuclear Energy Partnership (GAP). WMI could take initiative as the leading firm in waste management industry to be a part of the projects. Those efforts would help WMI to build long-term relationships with the government. It also can be a reliable source of profits and innovations. Not only be active in national projects, WMI can partnership with local authorities to improve local environment. One recommendation is to renovate old energy plants such as Zion Nuclear Power Plants which its license will be expired in 2013, Kewaunee Power Station in 2033, and Crystal River Nuclear Plant in the next few years (Berniesteam). Furthermore, investing in universities and education institutions is an affordable way to get new technologies, improve operations, and has access to human capitals. WMI can spend 2-3% of its R&D annual budget in those institutions.

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