Laidlaw International Inc
Integrative Case Analysis
Catherine Proschko
MGT 4335
November 30, 2006
Executive Summary
Laidlaw International Inc. is a company that has faced serious trouble in the past. After
filing for bankruptcy in 2001, Laidlaw reemerged in 2003 selling unprofitable business
segments, shedding massive amounts of debt, and seeking to rebuild the corporation. Despite
financial difficulties and less demand for consumer transportation, Laidlaw has continued to
remain the industry leader in its three business segments.
This analysis will investigate the corporate-level of Laidlaw International Inc. by
analyzing the mission and goals of the company, the utilization of vertical integration,
diversification, and strategic alliances within the company, and by identifying the strongest and
weakest segments of Laidlaw. A full financial analysis will be prepared to show comparisons of
Laidlaw to its competitors as well as to emphasize Laidlaw’s own financial trends over the last
three years.
After the corporate-level analysis, Laidlaw Education Services will be investigated at the
business-level. This analysis will include a SWOT analysis, identifying the business’ strengths,
weaknesses, opportunities, and threats. The threats will be further investigated through the
application of the five forces model. This analysis will also identify the business’ core
competencies and generic business strategy. Finally, it will be determined if Laidlaw Education
Services has a sustainable competitive advantage.
The conclusion of this analysis will be a list of specific recommendations for Laidlaw.
These recommendations will aim to guide Laidlaw through the future years of rebuilding the
company, as well as suggest procedures to help Laidlaw maintain its industry leadership.
Section 1: Corporate-Level
Part 1: Brief History of Laidlaw International
Today, Laidlaw International is the United States and Canada’s leading provider of
school bus and inter-city bus transportation services, but this is not how the company began. In
1924, Robert Laidlaw formed a trucking service company in Ontario, Canada. Michael
DeGroote purchased Laidlaw Transit in 1959 and took the company public in Canada in 1969.
The company began operations with the name Laidlaw Inc. Hoping to compete in several
related industries, DeGroote went on a shopping spree of acquisitions.
Laidlaw entered the solid waste management industry in 1969, the public transit industry
in 1972, and the educational transportation industry in 1979. Laidlaw sought to expand the
business through acquisitions and accordingly “bought 78 waste service firms and 30 passenger
service businesses” from 1988-1991 (Hoovers, Inc., 2006). With the success and need for
focused attention on these new industries, Laidlaw decided to leave the trucking business. The
company once again expanded into a new industry segment in 1986 by acquiring GSX, a
chemical waste management company.
Laidlaw continued its strategy of expansion by acquisition by joining the medical
transportation industry. However, to continue this expansion, they began selling off some of
their waste management businesses. With the purchases of MedTrans, Careline, Inc, American
Medical Response from 1993-1996, Laidlaw was well on its way to becoming a leader in this
industry. The most commonly known acquisition for Laidlaw came with the purchase of
Greyhound Canada and Greyhound United States.
With this many acquisitions in a period of twenty years, Laidlaw was faced with a
significant amount of debt, and in 2001 they filed for Chapter 11 bankruptcy protection. The
company reached an agreement with creditors to reduce most of its debt partially by taking a
$1.1 billion dollar goodwill impairment. In 2003, Laidlaw emerged from reorganization and
went public on the NYSE as Laidlaw International. The company also moved its corporate
headquarters from Canada to the United States.
After the reorganization, Laidlaw sold its struggling healthcare transportation segment
which was faced with lawsuits and financial difficulties. Laidlaw plans to focus on its school
bus and Greyhound bus lines.
Part 2: Corporate-Level Analysis
1. Does the corporation have a formal mission statement? Does it define the
corporation, provide a vision, and articulate the corporate philosophy? Give
examples. If it doesn’t have a mission statement, explain the impact on the company
of not having one (be specific).
Laidlaw does not have a formal mission statement. Their website states that they are “a
holding company for North America’s largest providers of school and inter-city bus
transportation and a leading supplier of public transit services” (Laidlaw International, Inc.,
2006). This statement describes what business they are in, but lacks the three important qualities
needed for a good mission statement.
A good mission statement should first give a definition of the business, including who the
customers are, what needs they have, and how the company will meet these needs. Laidlaw fails
to do any of these. They should include that their customers are school children and everyday
travelers who rely on buses as a means of transportation. Laidlaw should also state how they are
going to meet these customers’ needs.
The second element for a quality mission statement is a business vision for the future. This
should state where Laidlaw wants to be in the next five to ten years. Finally, Laidlaw should
include a section on the company’s core and aspirational values. The core values should state
what values the company is based on, and the aspirational values should include what the
company strives to be.
The lack of a mission statement can greatly affect a company. Mission statements help
organizations gain focus, remain consistent, and provide information to users. Laidlaw’s lack of
a mission statement has led them to make many decisions in the past that are not consistent with
their company’s core business, such as purchases in the waste management transportation
industry. Laidlaw acquired these businesses, and after losing a lot of money, were forced to sell
them and focus on its core businesses of public and educational transportation. With a mission
statement to provide focus and consistency, Laidlaw might have avoided these purchases that
were not consistent with the company’s successful industries.
2. Is their mission statement appropriate for them? Explain. If it doesn’t have one,
write a good one and explain why yours is appropriate.
As noted in question 1, Laidlaw lacks a formal mission statement. Therefore, here is a
proposed mission statement.
“Laidlaw International, Inc. will strive to maintain our position as the lead holding
company for North America’s largest providers of school and inter-city bus transportation and
as the leading supplier of public transit services. We provide bus transportation to over 2
million school children each day and offer 3,700 locations to value conscious Greyhound
travelers across the United States. We will gain customer satisfaction though continuous
improvement in safety and environmental awareness, while maintaining extensive routes and low
costs. These goals will be accomplished through our continuing dedication to safety, cost
reduction, professionalism, and improved customer satisfaction. Laidlaw is aware of the effects
of burning fossil fuels. We will continue to fund programs to find alternative means of fuel.”
This is a better example of a mission statement because it states who the customers are
(school children and value conscious travelers), what their needs are (bus transportation to school
and across the United States), and how Laidlaw will meet these needs. It also has a vision for the
company (to maintain their leadership positions), as well as a list of the company’s core and
aspirational values.
3. How vertically integrated is the corporation? If it is vertically integrated, is it
pursuing a strategy of taper or full integration (or both)? Give examples.
Since Laidlaw International is a service provider it does not pursue much vertical integration.
To pursue vertical integration a company must either produce inputs for its products or use its
own outputs. Laidlaw utilizes a small amount of tapered backwards integration. Most of
Laidlaw’s buses are purchased from suppliers such as Bluebird, General Motors, and Nova Bus.
However, the Greyhound segment has produced some of it own buses and inputs through the
Motor Coach Industries.
As a whole, Laidlaw does not pursue a lot of forward integration. Forward integration
occurs when a company owns steps of the supply chain moving towards the consumer. The only
portion of Laidlaw that utilizes limited tapered forward integration at all is the Greyhound
segment that owns 100 of 2,000 bus terminals (Greyhound, 2006).
Because Laidlaw does not pursue much vertical integration, it could be missing out on some
opportunities associated with vertical integration such as: building barriers to entry, improved
product parts quality, and improved scheduling. Of these three, scheduling is the biggest issue
for Laidlaw (specifically the Greyhound segment). If Greyhound owned more bus terminals,
they could guarantee less layover times between bus stops and more consistent arrivals and
departures. Because most of the terminals Greyhound uses also serve as bus terminals for other
transporters, Greyhound customers will not get the best or most personal service that could be
obtained through Greyhound owned terminals.
4. How diversified is the corporation? If it is diversified, are there gains achieved from
relatedness? Alternately, if the company is pursuing unrelated diversification, what
benefits or losses is it experiencing from this approach? Explain.
Laidlaw has always pursued related diversification. From there beginnings as a trucking
company, Laidlaw has acquired many other businesses related to the transportation industry.
Laidlaw International has three main segments in their corporation: Greyhound bus lines,
education services, and inter-city transit services. Whereas the ultimate consumer is slightly
different for each segment, all three of these services involve bus transportation.
Laidlaw has seen some benefits from related diversification. Starting as a trucking company,
Laidlaw set out to offer efficiency to its customers and safety to its drivers. After expanding into
the education services industry, Laidlaw kept this same focus and has seen positive results.
Utilizing their LPS logistics and planning software to offer efficient bus routes and keeping
safety their main priority, Laidlaw Education Services has focused on two of the company’s
main strengths (discussed later in the paper) which has allowed them to greatly expand this most
profitable segment of Laidlaw International Inc.
Another advantage of related diversification is the ability to turn poor performers around.
However, Laidlaw has failed to take advantage of this concept. They purchased Greyhound who
has been known for financial difficulties over the last fifteen years in which it “filed for Chapter
11 in the midst of a three-year strike in the early 1990s, and posted annual net losses six times
between 1994 and 2002” (Tita, 2004). With the knowledge and previous success in related
transportation industries, Laidlaw should have structured Greyhound around their core
competencies, improving Greyhound’s poor performance. However, Greyhound has continued
lose revenue, downsize, accumulate debt, and drag down Laidlaw’s public image.
5. Is the corporation engaged in strategic alliances? If so, discuss the key relationships
in terms of benefits gained by both partners.
Not much can be found on the strategic alliances of Laidlaw for one main reason. Laidlaw
does not actively pursue strategic alliances. As mentioned previously, Laidlaw has had a history
of major acquisitions. This means that instead of joining forces with another company to
mutually benefit each other, Laidlaw would simply rather buy the company out. This has caused
problems for Laidlaw because of the heavy expense and debt associated with acquisitions.
However, more recently after the 2001 bankruptcy, Laidlaw has begun venturing in to some
strategic alliances. The best example is the strategic alliance between Greyhound and Amtrak.
This alliance benefits Amtrak because passengers who need transportation from a major railroad
stop to other areas will not have to search for transportation. Greyhound is benefited because by
offering deals with Amtrak, they will receive most of these passengers seeking alternative
transportation to smaller cities. By pursuing more strategic alliances and fewer acquisitions,
Laidlaw could still earn revenues associated with other companies and industries, while avoiding
the heavy costs associated with buying and running these companies.
6. Which division/business is most successful for the corporation? Justify.
All of Laidlaw’s three main segments are facing difficulties after the restructuring; however,
the segment that is most successful is Laidlaw Education Services. The education services
branch, which consists of mainly home-to-school and extracurricular travel, accounts for over
50% of Laidlaws total income. The Education Services segment’s revenue increased over $22.4
million from 2004 to 2005 and earnings have been increasing steadily over the last few years
(Laidlaw International, Inc., 2006). Laidlaw’s other two segments, Public Transit and
Greyhound, have not seen the same steady increases in revenue and earnings as the Education
Services segment.
Another success of this segment is the retention rate of its contracts. Once a long-term
contract has been entered, the education services division retains 66% of these contracts
(Laidlaw International Inc., 2005 Annual Report). A final pro of Education services is its share
in the market. While over 70% of educational services are provided by school districts,
Laidlaw’s Education Services branch is the largest private service provider. Laidlaw operates
41,000 buses, twice as many as the next largest school bus provider, who only operates 20,000
buses (Laidlaw International Inc., 2005 Annual Report). These representations show the
importance of this branch to the overall health of Laidlaw. The importance of this segment is
also shown in annual reports of Laidlaw that lists the Education Services as the long time
primary focus of the company.
7. Which division/business, if any, detracts from the corporation’s success? Justify.
As Laidlaw has faced bankruptcy and restructuring in the past five years, none of its three
main segments are performing spectacularly. Even with overall poor performance, the
Greyhound segment is easily the segment that is harming the corporation’s financial success and
public reputation.
As previously mentioned, Greyhound has struggled to find success for many years. Also in
recent years, “a sluggish national economy, post-Sept. 11 anxiety about traveling, and
competition from discount airlines have helped keep Greyhound in the doghouse” (Tita, 2004).
While Greyhound does account for forty percent of Laidlaw’s revenues, it also carries an
exorbitant amount of debt. Greyhound owes “$140 million to its pension fund, $200 million to
holders of long-term debt and $230 million in the form of leases” (Lambert, 2005). Because of
this amount of debt, after the post-bankruptcy reemergence, creditors would only agree to lend
money to Laidlaw if they would stop investing so much in Greyhound. Therefore, Greyhound
has had to take drastic measures to try to remain afloat in the transportation industry.
Over the past two years, Greyhound has “cut 1,200 employees, slashed new bus orders,
leaving itself with an aging fleet (and a 5% jump in maintenance expenses), eliminated free
companion tickets and raised prices on trips of 1,000 miles or more an average 5%” and they
plan to reduce bus stops by about 75% in the next two years (Lambert, 2005). Greyhound has
tried to be a low cost bus transporter with extensive routes throughout America and Canada.
However, by raising prices and cutting routes, Greyhound is eliminating any competitive edge it
might have had over discount airliners and other low cost bus providers.
Greyhound has also suffered a number of bus wrecks in recent years, probably caused in
part by the previously mentioned aging fleet. These wrecks have stirred up even more bad press
for Greyhound. Because of their continuing financial difficulties and weakening public image,
Greyhound is becoming a major problem for Laidlaw.
Part 3: Financial Analysis
1. Provide a full financial analysis of the corporation over the past three years,
including comparisons to industry averages or leading competitors. All financial
information and comparisons must be presented graphically, not numerically.
This financial analysis includes analysis of Laidlaw International over the past three years, as
well as comparisons to two of its leading competitors, Coach USA and National Express
Corporation. Both of these companies financial information were given in British pounds, so an
exchange rate calculation was used to present these companies information in US dollars for
comparison purposes. All information for the financial analysis comes from the Laidlaw, Coach
USA, and National Express Corporation financial statements found on their company websites.
Short -Term Solvency : Current & Quick Ratios
Current Ratio Compairsons
1.60
1.40
1.20
atio
1.00
urrent R
0.80
0.60
C
0.40
0.20
0.00
2003 2004 2005
Year
Laidlaw Coach USA National Express Co
The current ratio is a liquidity measure used to assess a company’s ability to pay its creditors
over the next year. As represented in the graph above, Laidlaw has maintained a current ratio
over 1.3 for the past three years. A current ratio over one represents a positive note in the fact
that Laidlaw can sufficiently pay for its current debt and still have money left over. Compared to
Coach USA and National Express Co, Laidlaw is doing extremely well. These two companies
have been barely over or below a current ratio of one for the past three years, meaning they will
not be able to properly pay for current debt. Laidlaw is in a better financial position to
adequately pay for its short term debt obligations than its competitors.
The quick ratio is another liquidity measure used to assess the ability to pay current creditors.
This calculation is like the current ratio except inventories are removed from current assets
because they are not considered to be very liquid. Since all three companies are service
providers, they do not have inventories, and thus, the quick ratios would be exactly the same as
the current ratios. Also due to the lack of inventories, no inventory turnover ratio is needed.
Short -Term Efficiency : Receivables Turnover
Receivables Turnover Comparisons
16.00
atio
14.00
eceivable Turnover R
12.00
10.00
8.00
6.00
4.00
2.00
R
0.00
2003 2004 2005
Year
Laidlaw Coach USA National Express Co
A company’s receivable turnover ratio evaluates how efficiently a company is collecting
their accounts receivable. The receivable turnover shows how many times per year the company
is turning over receivables, with a higher number representing more turnovers per year.
Probably because of the bankruptcy and reemergence from 2001-2003, Laidlaw struggled to
collect money from their debtors and had a very low, poor receivable turnover. However, in the
last two years, Laidlaw has doubled their turnover, showing major improvement in receivables
management, as well as improved cash flow. Compared to Coach USA and National Express
Co, in 2003 Laidlaw was significantly below its competitors, in 2004 it was about average, and
in 2005 it greatly exceeded its competitors.
Short -Term Efficiency : Days’ Sales in Receivables
Days' Sales in Receivables
250.00
Days in Receivables
200.00
150.00
100.00
50.00
0.00
2003 2004 2005
Year
Laidlaw Coach USA National Express Co
Another more intuitive way to evaluate receivable turnover is to look at how many days it
took to collect receivables. This chart shows just how bad Laidlaw was at collecting receivables
in 2003. It took them over 200 days on average to collect their receivables, while their
competitors took about 50 days. This lengthy time to collection might have helped contribute to
the bankruptcy in 2001. If Laidlaw had been better at collecting its receivables, they would have
had more cash available to pay interest as it came due.
However, this chart also depicts the significant improvement Laidlaw has accomplished in
collecting receivables over the last two years. In 2005, Laidlaw collected its receivables in 25
days, about half of what it takes their competitors. Again, this low number of days in receivables
means more efficiency and an increased cash flow for Laidlaw in comparison to their
competitors.
Long Term Solvency : Debt to Asset Ratio
Debt to Asset Comparisons
2003
Year
2004
2005
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
% Debt Leveraged
National Express Co Coach USA Laidlaw
The debt to asset ratio is a long-term solvency tool that measures how much of the firm is
financed through debt. There is no percent that is necessarily better than the others. Different
industries finance with more or less debt. Debt is normally a cheaper form of financing than
equity because interest payments on debt reduce net income and ultimately, taxes. Therefore,
companies try to finance with as much debt as they can without overburdening themselves with
interest payments.
From this chart, we can see that, compared to Coach USA and National Express Co,
Laidlaw finances with about the same amount of debt or a little below the average of its
competitors. However, in 2005 Laidlaw decreased their debt leverage by about 20%. This is
probably because of their reemergence from bankruptcy. Recall from earlier in the paper that
Laidlaw had acquired too much debt and was forced into bankruptcy. Therefore, after the 2003
reemergence, Laidlaw began attempting to shed some of this debt to avoid extensive interest
payments and remain profitable.
Long-Term Solvency : Times Interest Earned
Times Interest Earned Comparison
10.0
Times Interest Earned
8.0
6.0
4.0
2.0
0.0
2003 2004 2005
(2.0)
Year
Laidlaw Coach USA National Express Co
The times interest earned ratio is a long-term solvency measure that tells how many times
a company could make its interest payments. A times interest earned ratio over 1.5 indicates a
pretty strong position because a company can pay its debt obligations and still have money left
over. For all three years Laidlaw is below its competitors, which is not a great sign. Its
competitors can better handle debt and will have more money to spend elsewhere.
However, Laidlaw’s times interest earned ratio has improved over the last three years. In
2003, Laidlaw had a net loss and therefore could technically not pay off its debtors. This makes
sense because in 2003 Laidlaw had just reemerged from bankruptcy due to the fact that they
could not meet debt obligations. Laidlaw’s steady increase in this ratio shows a better handling
of debt and should result in more money left over once interest payments are met.
Profitability Measures : Profit Margin
Profit Margin
10.0%
0.0%
2003 2004 2005
Profit Margin %
-10.0%
Laidlaw
-20.0% Coach USA
National Express Co
-30.0%
-40.0%
-50.0%
Year
The profit margin ratio evaluates how efficiently a company manages its operations. In a
more basic sense, the profit margin ratio shows what percent of sales is profit (or in other words,
how much profit is made from every dollar of sales.) In 2003, Laidlaw had a net loss and
therefore, a negative profit margin which meant for every dollar of sales, they were actually
losing money. Coach USA and National Express Co earned between three and five cents for
every dollar of sales from 2003 to 2005. Laidlaw began improving in 2004 and earned one cent
for every dollar, but were still not competing with their competitors. However, in 2005 Laidlaw
surpassed its competitors and earned seven cents of profit for every dollar of sales. This
improvement shows that in 2005 Laidlaw ran its operations more efficiently and managed their
costs better than its competitors.
Profitability Measures : Return on Investment
Return on Investment Comparisons
80.0%
70.0%
60.0%
50.0%
40.0%
ROI
30.0%
20.0%
10.0%
0.0%
-10.0% 2003 2004 2005
Year
Laidlaw Coach USA National Express Co
Return on Investment (ROI) measures how much profit is made for every dollar that is
invested in the company. A company’s goal should be to have ROI numbers greater than interest
rates because this means they are earning its investors a higher return than they could earn
investing somewhere else. Coach USA and National Express Co.’s ROI are in the range of 30%-
50% from 2003 to 2005. These numbers look good for Laidlaw’s competitors because the
interest rates were significantly lower (around 3-4%) meaning a high return for their investors.
On the other hand, Laidlaw’s ROI varies widely from 2003 to 2005, showing a riskier
investment. In 2003, Laidlaw’s ROI was almost 80%, meaning an extremely high return for
Laidlaw investors. However, ROI declined significantly, and was only about 7% in 2004. It was
still higher than the interest rates, about 3%, and earning investors a higher return. However, in
2005, Laidlaw’s ROI was negative, meaning the company was actually losing money on their
investments. Thus, it would have been better for Laidlaw’s investors to invest somewhere else in
the market.
Management Effectiveness : Earnings per Share
Earnings Per Share
$3.00
$2.00
$1.00
$0.00
EP
2003
($1.00) 2004 2005
($2.00)
($3.00)
($4.00)
($5.00)
Year
National Express Co Coach USA Laidlaw
Earnings per share measures how much management is focusing on maximizing share
holder wealth. In 2003, Laidlaw had a net loss due to bankruptcy and therefore, had a negative
earnings per share. However, since 2003, Laidlaw’s earnings per share has increased to over two
dollars in 2005. This shows that management has been focusing on maximizing shareholder
wealth after the reemergence from bankruptcy. In 2003, Laidlaw’s earnings per share was much
lower than their competitors. However, in 2004 and 2005, Laidlaw’s earnings per share has been
growing and higher compared to Coach USA and National Express Co, showing that Laidlaw is
striving harder than its competitors to keep shareholders happy.
2. Is the company in a strong financial position? Explain.
Laidlaw is definitely a company that has experienced financial difficulty in the past,
especially in 2001 when they filed for bankruptcy. However, I feel that the company is starting
to rebuild after the bankruptcy and get into a much stronger financial position. First, Laidlaw’s
short-term solvency looks good. Their current ratio is over one, meaning they can sufficiently
pay for its short term debt and still have money left over. Despite struggling to collect
receivables in 2003, Laidlaw has continued to shorten the time it takes to collect receivables and
has well surpassed its competitors in this aspect.
A major cause of the 2001 bankruptcy was too much long term debt. Laidlaw has taken
measures to severely reduce their debt and interest payments. Laidlaw's profitability margins
were horrible in 2003 following the bankruptcy, but continue to improve and pass competitors.
This means Laidlaw now earns more profit for every sales dollar than its competitors do, proving
an increase in operational efficiency. Finally, earnings per share has also increased significantly
since 2003, again passing Coach USA and National Express Co. This means Laidlaw’s
management is more focused on increasing shareholder wealth than its competitors.
Overall, Laidlaw was in a pretty poor financial situation in 2003 and was behind its
competitors in most aspects. However, because of the shedding of debt, improved operational
efficiency, and a change in management philosophy, Laidlaw now beats its competitors in almost
every financial calculation presented above. Laidlaw still needs to be careful in the future since
they are so fresh out of bankruptcy, but I believe they are taking the right steps for continued
future profitability.
Section 2: Business-Level
Part 1: Internal Analysis
1. Identify the business’ key strengths. Why are these strengths?
• Safety is a key strength for Laidlaw Education Services. Because this division focuses on
transportation to and from school, safety is an essential asset to the firm. Parents are
concerned with the safety of their children, and Laidlaw bases there company culture
around this concern. With safety features like two-way radios, Child Check Mate System
(a feature to guarantee that all children are safely off the bus), and Crossing Control
Arms, Laidlaw Education Services is staying on top of current safety technology and
always working to further improve the safety of their passengers.
• Employee hiring and training is strength for this business segment. Laidlaw feels that in
order to maintain safety, bus drivers and other employees should be carefully hired,
properly trained, and exposed to on-going job training. The Education Services
segment’s strength in their employees comes from two places: their extensive selection
process and full service training. When hiring, Laidlaw utilizes an Avatar Selection
System, which “involves structured telephone interviews, applications that provide
background information on candidates, realistic job previews, written exercises and
structured personal interviews” (Laidlaw Education Services, 2006). Once selected, bus
drivers must complete at least 35 hours of initial training before they begin their bus
routes. This 35 hour initial training is 30% more training than state law requires
(Litchfield Public Schools, 2006). They must also pass all certification exams, and are
required to attend at least five hours of continuing training a year, as required by state
law.
• Technology is strength of Laidlaw’s Education Services. As mentioned safety features
and hiring techniques utilize Laidlaw’s technology. Another important way technology is
helping Laidlaw is through the use of its own technology consulting firm, LPS. LPS
maintains Education Services’ planning and logistics software and also implements and
maintains these systems for numerous school districts that can not afford to do this on
their own. LPS has two important functions. First, the planning software allows Laidlaw
and other bus providers to utilize the most efficient bus routes. Secondly, the logistics
software has a type of GPS system, called Auto Vehicle Location systems that use real-
time coordinates to track the school buses (LPS, 2006). Locations of the school buses are
known at all times creating yet another important safety feature for Laidlaw. This
technology helps Laidlaw Education Services provide safe and efficient bus
transportation, but it also allows them to stay ahead of competitors.
• Economies of Scale is a final strength of Laidlaw’s Education Services. Because Laidlaw
runs over 40,000 buses, they can spread the overhead and staff/driver salaries over many
districts and jobs. This equals lower costs to clients for Laidlaw because if one school
district had to pay all these costs for one bus, it would be very expensive.
2. Identify the business’ key weaknesses. Why are these weaknesses?
• Limited market share is a weakness of Laidlaw’s Education Services. Although it is the
largest private provider of education transportation, over 70% of educational
transportation is operated by school districts. This means that Laidlaw does not have the
majority of the industry and therefore, must strive to maintain existing customers and find
a way to attract new customers.
• Loss of key customers is another weakness of Laidlaw’s Education Services. As
mentioned above, Laidlaw does not have a significant share in the market of education
services and must strive to maintain its existing customers. While Laidlaw’s Education
Services does boast a retention rate of 66% of long-term contracts, over the years, it has
failed to retain important, high dollar clients. An example of this is the loss of a five-year
contract with the City of Boston worth $50 million a year (Lambert, 2005). To stay
profitable, Laidlaw Education Services must find a way to deal with school district
cutbacks and avoid losing these key clients.
3. What are the core competencies of the company and how is the business leveraging
them?
The main core competency of Laidlaw’s Education Services is their total devotion to safety.
As previously mentioned, Laidlaw Education Services is founded on their dedication to safety.
Their website even states “Laidlaw believes that you can never do too much when it comes to
ensuring the safety and well-being of children aboard a school bus.” This attitude is just one
element that makes safety a core competency of Laidlaw Education Services.
The second element that makes safety a core competency is Laidlaw’s hiring and training
policies. Laidlaw’s Education Services spend considerable time hiring and training their
personnel to ensure the safest bus drivers around. The final piece that makes safety a core
competency is Laidlaws technology. State of the art safety equipment is installed in every
Education Services bus to provide safe transportation to school children.
The combination of attitude, employees, and technology make safety a core competency for
Laidlaw educational services. Safety is definitely valuable to the company because clients only
want to work with companies with established safety records, plus accidents can cause firms
millions of dollars. Safety is rare because not every firm uses as much effort to ensure safety,
but instead may focus energy elsewhere, like on cost cutting. Laidlaw’s total devotion to safety
is definitely inimitable because it is only that specific combination of three things that brings
about safety. While another company could copy the technology and training techniques, the
overall corporate culture would be very difficult to imitate. Finally, there is no substitute for
safety.
4. What is the generic competitive strategy pursued by the business? Explain.
Laidlaw’s Education Services is definitely following a focus strategy because they only
provide bus services for educational purposes (primarily to and from school and extracurricular
activities). They do not offer bus travel to a broad range of users, but strictly focus on school
children.
Within this focus strategy, Laidlaw Education Services it is hard to determine whether
Laidlaw Education Services is striving to be a differentiator or cost leader. Because they offer
and promote safety, Laidlaw is attempting to give customers a perceived uniqueness of the
services they offer and become a differentiator. Through this idea of superior safety, as well as
well trained employees and innovative technology, Laidlaw feels they offer a better and different
product than their competitors. Laidlaw Education Services is also beginning to offer unbundled
services, such as outsourced technology services for planning and logistics. These services are
used mostly on school districts that operate their own school bus services, but lack the money
and technology to efficiently manage planning and logistics. These additional services seek to
differentiate Laidlaw from competitors who only offer actual educational transportation.
However, Laidlaw also has an advantage of economies of scale because they run much larger
operations than a single school district. Because of these economies of scale, Laidlaw Education
Services is also seeking to be a focused cost leader. It is possible for a cost leader to somewhat
differentiate, or for a differentiator to take advantage of some economies of scale, but Laidlaw
needs to be concerned about being stuck in the middle of cost leadership and differentiation. If
they do get stuck in the middle, they will probably fail because they will not have a strategic
advantage in either respect.
5. Does the company posses the appropriate set of competencies to pursue the generic
competitive strategy identified above? Justify.
To be a successful focus differentiator, an organization must first have an extensive
knowledge of the focused segmentation of customers. Laidlaw International has been in the
education services industry for over 30 years, so they have built up a knowledge base on what
education transportation users need. They have acquired other education transportation
companies and have adapted to the needs of this specific segment. They also meet the
requirements of being a differentiator because by emphasizing and offering safety features and
outsourced technology resources, they seek to add a sense of uniqueness to their product.
If Laidlaw is primarily trying to be a cost leader, than they have the advantage of exploiting
economies of scale in relation to a single school district. However, they would need to cut down
on some of the expensive technology and research they use for improved safety. They should
also switch their corporate culture to one of cost reduction instead of the focus on safety.
Overall, Laidlaw needs to focus on whichever generic strategy is best suited for them. Based
on current company philosophy, I would suggest they lean towards a focus differentiator who
takes advantage of economies of scale, but would sacrifice lower costs for superior safety.
Part 2: External Analysis
1. Identify the business’ key opportunities. Why are these opportunities?
Laidlaw Education Services’ main opportunity in the external environment is to continue
their expansion of unbundled information technology services. As the CEO of Laidlaw
Education Services says, “This concept of unbundled services focuses greater attention on the
true needs of customers and positions us to fulfill their unmet needs,” (School Bus Fleet, 2006).
Laidlaw is already the number one full-service private provider of educational transportation
services, now they need to focus on the customer and expanding other profitable services.
Laidlaw Education Services offers two very important unbundled services: computerized
routing and maintenance services. Both of these services use extensive technology that is too
expensive for most school districts to run themselves. First, as mentioned earlier, Laidlaw’s
technology firm LPS maintains computerized routing and planning services for Laidlaw and
outsourced customers. These logistic services include a GPS to constantly keep track of all
school buses and high-tech planning strategies. As school administrators are pressed to ensure
student safety, efficient planning, and low costs, Laidlaw Education Services needs to make sure
they capitalize on this opportunity and offer this service both efficiently and at a fair cost.
As a second unbundled service, Laidlaw Education Services also uses a proprietary software
system called VTrak to ensure the best quality maintenance is provided. The VTrak system, on
a weekly basis, sends “full maintenance data — including inspection status, repair costs,
licensing warranties, mileage and other information — to the central management system”
(School Bus Fleet, 2006). The maintenance records are then compiled and checked by regional
management to ensure that Laidlaw and other users’ fleets meet state and national requirements.
This is an important feature for Laidlaw to offer because it ensures both safety and compliance.
It can also be offered at a much cheaper price to school districts because they will not have to
purchase this very expensive software, but can instead, for a small fee, share the system with
Laidlaw. Both of these unbundled services represent a great opportunity for Laidlaw Education
Services to keep expanding, even to those school districts that do not use Laidlaw for their full-
service education transportation needs.
2. Identify the business’ key threats. Why are these threats?
Laidlaw Education Services is facing two main threats: competitors and rising fuel costs.
First, while Laidlaw Education Services is the largest private provider of educational
transportation services, over 70% of these services are provided by local school districts.
Laidlaw is trying to compete with independent school districts by offering better safety measures
(including safety features on the buses and extensive training) however, there are still many
school districts that just simply do not need to outsource educational transportation.
The second threat is rising fuel costs. As depicted in the graph below, gas prices have been
rising steadily over the last five years, sometimes increasing as much as 24% over the previous
year’s gas price (Energy Information Administration, 2006).
Increasing Gas Prices
3
o rs
2.5
G s P e in d lla
2
1.5
a ric
1
0.5
0
2002 2003 2004 2005 2006
Year
Because of increased prices of crude oil, stricter environmental regulations, and the ongoing war
in Iraq, the price of fuel is not expected to significantly decline in the coming years, but just
continue to rise. This poses a potential threat to any transportation service provider relying on
gasoline. For this reason, Laidlaw hedges future contracts for about 24% of its fuel purposes
(Laidlaw International Inc., 2005 Annual Report). A futures contract is a contract to buy goods
at a later date for a set price to hedge away any price risk. This type of hedging is a good
practice, but Laidlaw needs to pursue this strategy more intensely to reduce the threat of rising
fuel costs.
3. Is the business as a whole dealing effectively with environmental opportunities and
threats? Explain.
Laidlaw Education Services is dealing pretty well with environmental opportunities and
threats. They are beginning to stress the importance of expanding their unbundled services and
are taking advantage of this opportunity to provide services to school districts that do not need
the traditional education transportation services. As far as threats go, Laidlaw knows they can
not out compete independent school districts that control 70% of the market, so instead are
focusing on safety and those unbundled services to maintain their majority share of the private
education transportation market. Finally, as previously mentioned, Laidlaw Education Services
is attempting to hedge away the threat of rising fuel prices by entering into futures contracts to
guarantee lower prices. However, they need to enter into these contracts for more than just 24%
of fuel purchases to further reduce this threat.
4. Apply the five forces model to the industry in which the business is based. What does
this analysis tell you about the nature of competition in the industry?
Rivalry among competitors
Laidlaw Education Services’ main rivals are independent school districts. In some instances,
Laidlaw can not compete with these competitors because outsourced bus transportation would
not be feasible for a very small district needing only one or two buses. However, in larger
districts, there is much rivalry to offer the safest and cheapest educational transportation. As far
as competition with private education transportation providers, there is intense rivalry because
there are often price wars and the costs to switch from one provider to the next are fairly low.
Threat of new entrants
The threat of new entrants into the education transportation services industry is fairly low
because there is not much market share to gain. Because over 70% of educational transportation
is provided by school districts, with another large portion being provided by Laidlaw and other
large providers, there is very little reason for a new firm to enter this market because they could
not gain enough market share to be profitable. Also, firms like Laidlaw, who have been in the
industry for over 25 years, have created a barrier to entry by maintaining well established
reputations as cost leaders and safety innovators.
Threat of substitutes
This is an area that Laidlaw needs to focus their attention on. Substitutes for school bus
transportation include walking, bicycling, and carpooling. For those older school children that
live closer to school, walking and bicycling could pose a very serious threat because they would
be a cheaper, healthier and a more environmentally friendly alternative to buses. Also, if
accident rates increase or the price becomes too expensive, more people will look to carpooling
for their transportation needs. Although this option takes more time and effort from parents,
safety and cost savings will be reason enough to substitute carpooling for bus transportation.
Bargaining power of customers
Bargaining power of customers is determined by the extent of a company’s dependence on its
customers. Because Laidlaw Education Services provides educational transportation to over
1,000 school districts, it is not largely dependent on any one customer, and therefore, no one
customer has much bargaining power. However, as previously mentioned, Laidlaw Education
Services does need to be careful not to lose important high dollar long term contracts, such as the
loss of the 5 year $50 million dollar contract with the City of Boston.
Bargaining power of suppliers
The bargaining power of suppliers depends of a company’s dependence on the supplier.
Because Laidlaw Education Services uses primarily Blue Bird school buses, Blue Bird has power
over Laidlaw. However, because Blue Bird makes school buses for almost every major
educational transportation provider, Laidlaw is not a significant enough client to exude much
bargaining power over Blue Bird. Therefore, it would be a good idea for Laidlaw to reduce its
dependence on Blue Bird and purchase its buses from numerous suppliers.
Analysis of the education transportation industry shows that there is much competition
between private transportation providers as well as with independent school districts to provide
safe and cheap transportation. There are few entrants to this fairly saturated market and the
threat of substitutes is high because cheaper, safer, and more environment friendly alternatives
exist. Bargaining power generally lies with the supplier and not with the large amounts of
buyers. Competition in this industry is to maintain market share through product differentiation
and cost reduction.
5. In what stage of its life cycle is the industry in which the business is based? Explain.
The education services industry is in the maturity stage in its product life cycle. In the
maturity stage, companies seek to keep their market share, while maximizing profits through
increased product differentiation, expansion into new markets and cost reduction. Laidlaw
Education Services is attempting to keep their market share through product differentiation by
emphasizing their superior safety. By offering unbundled services, such as logistics and
planning software and maintenance services, Laidlaw Education Services is expanding into new
markets in an attempt to gain customers who may not need full service educational
transportation. Finally, there is an increased emphasis on cost reduction among competitors in
the industry.
6. What are the implications for the business of being in this stage of the life cycle in
terms of the intensity of competition both now and in the future?
The competition in this industry will continue to be intense. There will be increased pressure
to reduce costs and improve safety. The companies that will best survive these pressures will be
the ones who can create economies of scale by providing extensive services to many schools in
order to spread overhead costs among many customers. These companies will provide services
ranging from full service education needs, to routing planning and logistics, to maintenance
services, and training services. They will also successfully differentiate their product in terms of
safety, efficiency, or some other means. Laidlaw is in pretty good position to face these
pressures because they have achieved economies of scale and successfully differentiated their
product through safety and superior innovation.
Part 3: Overall Business-Level Analysis
1. Does the business have a sustainable competitive advantage? Justify.
Laidlaw Education Services is in the position to have a sustainable competitive advantage for
many reasons. First, because of Laidlaw Education Services total devotion to safety, through
maintenance, hiring, training and innovative technology, they have created a corporate culture of
safety that is valuable, rare, inimitable, and non-substitutable. In addition to safety driven, full
service education transportation services, Laidlaw Education Services also offers additional
services (maintenance and logistics planning) to independent school districts who can not afford
these services on their own. These extra services help Laidlaw Education Services maintain their
majority share in the private educational transportation market, by expanding their customer base
to include otherwise self-sufficient school districts. Laidlaw Education Services have also taken
advantage of economies of scale, thus, enabling them to keep costs low.
While Laidlaw Education Services does face the threats of a largely dominated market (70%
operated by independent school districts) and rising fuel costs, they are taking steps to remain
ahead of the competition. The additional unbundled services help maintain market share and
futures contracts guarantee lower fuel prices. Laidlaw Education Services still stresses safety
and will continue to market their services as superior in terms of safety.
Overall, Laidlaw Education Services is properly leveraging its strengths, improving its
weaknesses, taking advantage of major opportunities, and trying to remain protected from
possible threats. As a focus differentiator, Laidlaw Education Services promotes uniqueness in
its product through safety and innovation, while at the same time keeping cost low by taking
advantage of economies of scale. It is taking the necessary steps to maintain its competitive
advantage.
Section 3: Recommendations
• Continue to rebuild the company
After reemergence from bankruptcy, management sold non-profitable segments to focus
on Laidlaw’s core services. Laidlaw must continue to focus on its most successful
business, Laidlaw Education Services, but at the same time seek to fix the problems
associated with Greyhound. The core competency of safety and innovation should be
utilized throughout the company in order to differentiate Laidlaw from its competitors
and maintain Laidlaw’s reputation of superior safety.
• Write a formalized mission statement
Include a formal mission statement for the entire corporation in order to identify
customers, their needs and how Laidlaw plans on fulfilling them. Include a vision and
goals for the future, as well as a statement about Laidlaw’s corporate culture that is
devoted to safety. This mission statement will give the company a sense of direction and
should prevent decision-making and actions that are inconsistent with company goals.
• Pursue increased vertical integration
Laidlaw should increase the amount of vertical integration they pursue. By utilizing
backward integration to manufacture their own buses, they could ensure top quality buses
and reduce the bargaining power of suppliers. The Greyhound and Laidlaw Transit
Services segments could benefit from forward integration by operating their own bus
terminals, which would drive down costs and improve scheduling.
• Engage in more strategic alliances to keep debt low
A major problem Laidlaw has faced in the past is too much debt. A major reason for
Laidlaw’s exorbitant amount of debt was too many acquisitions. Laidlaw should engage
in strategic alliances with those companies they feel offer valuable services that would
benefit Laidlaw. This will still give the benefits associated with a acquiring a company,
but will not require the large amount of debt.
• Increase the number of services provided
Laidlaw should continue to offer their traditional services of bus transportation.
However, they should also expand the services provided. A successful example is
Laidlaw Education Services unbundled services (logistics planning and maintenance
services). The two other segments should also provide maintenance services and
Greyhound should look into offering rental car services to help their customers reach
their ultimate destination. Expanding business segments to offer additional services will
broaden their customer base as well as help maintain current market share.
• Hedge fuel costs
As fuel costs continue to rise, Laidlaw should continue and even expand the amount of
futures contracts entered into to hedge away risk associated with rising fuel costs. While
a premium will have to be paid to enter into these contracts, more money will be saved by
guaranteeing lower costs of fuel in the future.
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http://www.laidlaw.com/phoenix.zhtml?c=145371&p=irol-earnings
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http://www.laidlaw.com/phoenix.zhtml?c=145371&p=irol-earnings
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Lambert, Emily. (2005). Doghouse on Wheels. Forbes, Vol. 175, Pg. 94
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