| Many Consultants | Many
Executives Fired | A Need for Efficiency
| Software Disaster |
The Promise Renewed | Stock
Action | A Surprise for Wall Street |
Tomsho, R. 1994. How Greyhound Lines
re-engineered itself right into a deep hole. Wall Street Journal
(October 20): A1,A6.
How Greyhound Lines Re-Engineered
Itself Right Into a Deep Hole
A New Team Spent Lavishly
On Offices, Consultants, Sold Stock Just in Time: Computer System
DALLAS - In early 1993, Thomas Thompson
tried to issue a warning to his superiors at Greyhound Lines Inc.
Mr. Thompson was the vice president
in charge of developing "Trips," a computerized reservation
system that Greyhound executives were promoting as the key to the
huge bus company's future. The executives had promised investors,
lenders and securities analysts that Trips would be launched nationwide
in time for the 1993 summer travel season.
Mr. Thompson had doubts. A recent
test run in four Texas cities had been a flop, and, despite months
of tinkering, Trips couldn't guarantee anyone a bus seat. At an
executive meeting in February 1993, Mr. Thompson reported the problems
and argued for a more gradual rollout.
But J. Michael Doyle, Greyhound's
chief financial officer, quickly rejected that proposal, according
to Mr. Thompson and several other employees. As Mr. Thompson recalls,
Mr. Doyle declared, "We made these commitments, and, by God,
we're going to live up to them." He ruled out any further discussion.
Looking back, Mr. Thompson J. Michael
Doyle says, "I should have quit or just said that I couldn't
do it." Instead, most copies of his report were destroyed,
and any mention of it was purged from many Greyhound agendas, calendars
and computer files, several people say.
Mr. Doyle says he "absolutely"
never ordered or knew of the destruction of any Trips-related documents.
"I don't believe I ever cut anybody off," he said in an
interview yesterday, adding that any decision about when to introduce
Trips was based on advice from Mr. Thompson's group. "Ultimately,
it was a group decision," he said.
That April, Mr. Doyle and other
Greyhound executives flew to London, Paris and New York to promote
a $90 million stock offering based largely on the promise of Trips.
The malfunctioning system was indeed rolled out that summer.
Greyhound is still reeling from
the resulting high-speed blowout. Since then, Greyhound's bonds
have sunk to junk status and its stock has plunged to a close of
$2.1875 a share on the American Stock Exchange yesterday from a
May 1993 high of $22.75 -- a drop of nearly $300 million.
But two investors who didn't lose
out were Mr. Doyle and Frank Schmieder, then Greyhound's chief executive.
Weeks before announcing the devastating consequences of the Trips
failure, the two men sold a lot of Greyhound stock. at profits of
hundreds of thousands of dollars.
Citing pending shareholder litigation,
Mr. Schmieder declined to be interviewed. "I'd like to be able
to comment on it, but I couldn't," he said.
During the three-year reign of Messrs.
Schmieder and Doyle at America's largest bus company. the two executives
alienated employees, damaged relations with customers and misled
investors, while spending corporate funds heavily on new offices,
first-class travel and perks for themselves and other officials.
Yet, for a remarkably long time,
the two men won uncritical praise from securities analysts and investors.
That praise partly reflected a knee-jerk tendency these days to
applaud anything resembling "reengineering." When Messrs.
Schmieder and Doyle announced plans to build a computerized reservation
system, analysts cheered-without questioning its feasibility or
whether the bus industry needed it. When the two men sold off buses,
shed middle management and announced plans to squeeze productivity
from a shrinking work force. analysts cheered - ignoring the impact
on customer service.
Because analysts don't ride buses,
only Greyhound's blue-collar passengers noticed what the two executives
had wrought - a shrinking fleet stretched between dismal terminals
and manned by disgruntled workers. "They re-engineered that
business to hell," grumbles Chriss Street, a major Greyhound
Admittedly, Greyhound had been dogged
by turmoil for years. Increased automobile ownership and the discount
airlines have reduced the bus industry's share of interstate travel
to an estimated 6% from 30% in 1960. Greyhound has staggered through
a 1987 leveraged buyout from Dial Corp., two violent strikes and
reorganization under federal bankruptcy law.
In October 1991, the company emerged
from Chapter 11 in the hands of Mr. Schmieder, a lanky, 52-year-old
former merchant banker who had joined Greyhound two years earlier.
While headquarters employees knew him as an intelligent though volatile
boss, union leaders saw him as an affable negotiator who occasionally
rode the bus and ate in terminal lunchrooms. The creditors who had
appointed him chief executive were more impressed by his cost-cutting
That fervor was shared by his 46-year-old
chief lieutenant, Mr. Doyle, who had come to Greyhound in 1987 from
a finance post at Philips Petroleum Co. A brusque, compact, numbers-oriented
executive, Mr. Doyle sometimes was intimidating, some subordinates
Although neither man had much transportation
experience, they hammered together a reorganization plan that called
for relentless cutting-cutting of workers, cutting of routes and
services and cutting of the bus fleet, to 2,400 from 3,700 before
All that cutting - combined with
a plan to computerize everything from passenger reservations to
fleet scheduling - won so much approval on Wall Street that within
a month of Greyhound's emergence from Chapter 11, its newly issued
stock was trading at S13.50 a share, compared with the $4 to $7.50
expected by its own advisers.
But the cutbacks quickly hurt customer
service. In an atmosphere where headquarters employees searched
vacant offices for supplies and where some drivers said they had
to break speed limits to meet the new schedules, ridership began
to slide in 1992. Yet industry analysts remained bullish as cost-cutting
led to a year-end profit of $11 million - Greyhound's first since
1989-on revenue of $682 million.
Meanwhile, Greyhound headquarters
looked less and less like a business whose average customer earned
less than $17,000 a year. Before the Schmieder days, Greyhound occupied
a downtown high-rise near the bus terminal, and its spartan interior
was adorned with bus memorabilia.
But Mr. Schmieder warehoused most
of the memorabilia, moved into a sleek building near a tony suburban
mall and hired an interior-design firm, whose bills ran as high
as $90,000 a month. Besides $50,000 worth of fixtures, there was
money for custom-built cabinets. a $6,200 entertainment center for
Mr. Doyle's office and $4,500 for two upholstered desk chairs for
Mr. Schmieder's. "I had $10,000 to decorate my office,"
marvels Jose Oller, Greyhound's former senior vice president for
marketing. "The money spent there was unbelievable."
There was money for a $50,000 donation
to the Dallas Museum of Art and season tickets for the Texas Rangers,
the Dallas Cowboys and the Washington Redskins.
And while a new corporate travel
policy, issued by Mr. Doyle, ordered employees to make "efficient
and economical travel arrangements," he and other executives
took limousines to airports, flew first class, stayed in Ritz Carltons
and met at $295-a-night resorts. In July 1992, Greyhound's executives,
directors and their wives spent four days at West Virginia's luxurious
"Depending on where I would
go, I stayed in what the company viewed as an appropriate hotel,"
says Mr. Doyle, adding that he used frequent-flier stickers to upgrade
to first-class seats. Company records indicate, however, that Mr.
Doyle and others frequently charged the company for the cost of
Consultants of all stripes turned
up. A San Francisco investor-relations concern was paid a $5,000
monthly retainer, a Dallas executive-search firm got twice that
much, and the bills from Bain & Co. ran as high as $175,000
a month. (Ted Beneski, a vice president at Bain, says the Boston
consulting firm "identified the strategy and the implementation
necessary to drive the stock from $6 to $22.")
Also to launch the new era, Greyhound
hired Meridian Institute, a Crested Butte, Colo., consulting firm
that specialized in breaking down corporate communications barriers.
Its fees ranged from $375 an hour, plus expenses, for one-on-one
sessions with Greyhound executives, to $60,000 for a pair of "Breakthrough"
seminars in Los Angeles and Atlanta. Meridian didn't respond to
a request for comment.
At the seminars, hundreds of Greyhound
employees at a time were locked away in a motel for several days
of role-playing games. One of the games was "Circle of Truth,"
wherein small groups of managers discussed their perceptions about
one another. "I looked at Breakthrough as my booster shot to
ward off cynicism," says Ralph Borland, a longtime Greyhound
executive, who afterward felt so upbeat about Greyhound's future
that he went out and bought a new car.
Few rank-and-file terminal employees
were invited to the sessions, however, and even lower-level headquarters
workers scoffed at some of the lofty calls for teamwork and customer
service that soon appeared in the company newsletter. Such workers
were more impressed by the constant turmoil and firings.
Between 1991 and 1993, Mr. Schmieder's
salary rose 57% to $526,000, and Mr. Doyle's nearly 65% to $264,000.
But they couldn't seem to decide who else should help run the company.
"There were never-ending meetings
about who was going to get fired," says Mr. Oller, who was
hired for his marketing job in June 1992 and forced out just before
that Christmas. His successor, David Swift, lasted a year. So did
Phillip W. Taff, an old friend of Mr. Schmieder's named executive
vice president in April 1993.
In the field, old-line regional
executives were also being sacked as Greyhound staffed more and
more of its terminals with part-time workers and "customer-service
associates," who, whether they swept floors or sold tickets,
were paid about $6 an hour with little or no chance for a raise.
Greyhound reasoned that "if
people stayed around too long, they would get too sour and cynical,"
says Mr. Borland, the vice president for customer satisfaction.
At some terminals, turnover approached
100%, annually, and 30% or more wasn't unusual. In survey after
survey, employee discourtesy was cited again and again as a major
problem. Customer-service executives were sometimes shocked to find
terminal workers making fun of customers and ignoring them. On a
visit to the Dallas terminal, Mr. Oller found lost baggage being
piled up, unprotected, in a corner.
Yet even as executive spending rose,
ridership faltered and customer service deteriorated, analysts spoke
as if a turnaround was a sure thing. One reason for the optimism
was Trips, the reservation system that Greyhound had been promising
investors since its Chapter 11 days.
Trips was indeed pivotal, albeit
not to Greyhound passengers, who were accustomed to arriving at
the terminal, buying a ticket and catching the next bus. Even if
the system didn't produce a single extra rider, Greyhound was desperate
for something that would enable it to continue covering the nation
with a much smaller stable of buses and driversdown by more
than half since the late 1980s.
"It was probably the first
piece that had to get into place before we could do other things,"
Mr. Doyle says. "It was the foundation."
A Need for
In the past, Greyhound had allocated
its buses and drivers with the aid of operating data that was months
old. Now, operating on paper-thin margins, it could no longer afford
to dispatch nearly empty vehicles or to have hundreds of extra buses
and drivers on call to meet surges in demand. It also needed quick,
reliable ridership data to determine where to cut prices to respond
to competition and fill seats.
"Nobody could argue that we
didn't have to do something and do it quickly," says Mr. Thompson,
Greyhound's senior vice president for network planning and operations.
Mr. Thompson recently resigned, effective last Friday.
But almost from the start, the Trips
project that he headed was driven more by promises and projections
than technical or workplace realities.
There was the sheer complexity of
creating a bus-oriented system. An airline passenger flying from
Baltimore to Los Angeles might make one stop; the same passenger
on a bus might make 10 or more, with a slightly different group
of people filling the seats on each leg of the journey. Greyhound
technicians estimated that they would need a system capable of managing
as many as 1,800 vehicle stops a day, more than 10 times those of
the average airline. Moreover, the system would have to be simple
enough to be used in terminals where turnover was soaring and few
employees had more than a high school education.
Greyhound gave the 40 or so people
developing its system a $6 million start-up budget and a little
more than a year -- in contrast to American Airlines where a small
army of technicians has spent three decades and several hundred
million perfecting the AMR Corp. unit's Sabre reservation system.
"Every bone in my body knew that we were starting a very difficult
undertaking," Mr. Thompson says.
It was much worse than that.
| Many Consultants | Many
Executives Fired | A Need for Efficiency
| Software Disaster |
The Promise Renewed | Stock
Action | A Surprise for Wall Street |
Stockholder Suits | Top
The original software, developed
by an outside company, was a disaster. Learning to use it required
40 hours of training, and it greeted ticket clerks with a disorganized,
multiscreen barrage of options for getting passengers between any
two points. Because its data bank didn't include all Greyhound destinations,
clerks sometimes had to haul out old log books and plot journeys
When Greyhound tested the system
in Houston, Dallas, San Antonio and Austin over the 1992 holiday
season, the time needed to issue a ticket doubled -- when the cantankerous
new system didn't crash. "It was rugged, it was ragged,"
admits Mr. Thompson, who decided that he had to totally redesign
the Trips software and try to scale back or delay the summer rollout.
Instead of introducing it at the
nation's 220 largest Greyhound terminals during the busiest time
of the year, his team drew up alternatives. Mr. Thompson favored
one that called for switching Trips on along the busy Northeast
corridor in the spring of 1993, working the bugs out there through
the summer and waiting until November to add more sites.
Mr. Thompson presented his report
at a February 1993 executive meeting, but Mr. Doyle allowed no discussion,
according to persons who were there or heard about it. More than
anything else, Mr. Doyle was concerned about keeping the company's
commitments to the financial community to have the system operating
by mid-1993, according to Mr. Thompson and several other former
Mr. Doyle says that he doesn't recall
such an incident and that, well into the spring, he gave the Trips
team opportunities to stop the rollout. "They said that we
ought to press on," he asserts, adding that, throughout June
and July" we were hearing that progress was being made and
problems were being resolved."
But several Trips executives and
workers say they were discouraged from raising issues about the
system. In April, Greyhound renewed the promise of a summer rollout
when, hoping to buy 300 new buses, it filed with the Securities
and Exchange Commission an offering of four million common shares.
The prospectus pledged that Trips would improve customer service,
make ticket buying more convenient and allow customers to reserve
space on specific trips.
Some Greyhound executives were incredulous.
A few wondered just how many of its low-income passengers would
have credit cards or even telephones to make use of the system.
But their concerns were drowned out by financial necessity and the
perception, one former executive says, "that the messenger
Moreover, with Wall Street already
anticipating Trips, others recall getting variations of the same
basic message from management. "My clear impression,"
one executive says, "was that as long as we could have some
form of reservation system -- as long as we could just book one
reservation somewhere -- then by some means, we would be living
up to our obligations."
With the software still being overhauled,
the Trips team installed the cumbersome package -- the one that
failed in the Texas tests -- at 14 more terminals and warned employees
there to expect trouble. When Greyhound finally got the new software
installed at 50 locations in May, computer terminals in those places
began to freeze up unpredictably.
The Trips team grappled with a slew
of problems through the early summer as it continued installing
Trips computers in bus terminals, untangling software snafus and
expanding its computer hardware. Meantime, Mr. Thompson was told
that, at the same time it was rolling out Trips, Greyhound would
be changing its long-distance phone-service provider and launching
a nationwide toll-free number, something new to the company.
That June, Trips technicians were
in an office discussing whether there still might be a way to delay
the introduction when Mr. Doyle walked in and said it was not to
be discussed. "We sat in stunned silence for a while,: one
Trips worker recalls.
With the formal introduction at
hand and spring ridership up slightly, Greyhound stock was trading
at more than $20 a share by June 1993, up from about $12 at the
beginning of the year. The board was told that Trips was ready to
go. On July 27, Greyhound's shares rose 4.5% after it announced
higher second-quarter earnings and ridership, along with a new discount-fare
program. In most markets, the outlook for ridership was "generally
positive," Mr. Doyle told The Wall Street Journal. Also on
that day, with little fanfare. the company activated the telephone
information system designed to serve the 220 terminals hooked up
"We didn't know what was going
to happen," a former executive says. "We were just sitting
there waiting for it to crash." And it did.
The combination of terminal agents
selling tickets and more than 400 telephone operators in Omaha,
Neb., taking reservations was far more than the Trips computers
could handle. "It was like turning on a spigot to get a drink
and getting a fire hose," Mr. Thompson says.
Historically, Greyhound's phone
calls averaged 60,000 a day. The toll-free line, installed only
a month earlier, received an estimated 800,000 calls, although that
didn't necessarily indicate overwhelming customer response. Greyhound's
own surveys showed that callers had to try up to a dozen times to
get through on the new line, which recorded each attempt as a separate
call. The busy signals stemmed from trouble with the system's switching
mechanism and the slow-moving Trips software. The time Greyhound
operators were spending on the average call abruptly increased to
150 seconds from 109.
The Trips computers back in Dallas
were so swamped that, on some days, they took as long as 45 seconds
to respond to a single keystroke and five minutes to print a ticket.
The system crashed so often in some locations that agents were writing
Passengers arriving at some terminals
were told to stand in line to have their tickets reissued by the
computers. For days, passengers missed connections, were separated
from their luggage and left to sleep in terminals overnight. Lines
in the Port Authority building in New York grew so long that regional
lines' agents began calling in empty buses and luring away frustrated
Trips technicians scrambled round
the clock to try to shore up the system. By early September, Greyhound
had pulled the plug on Trips west of the Mississippi River and,
for at least one weekend, told the Omaha phone center not to take
But publicly, Greyhound didn't say
a word, and in an era when most analysts, investors and journalists
travel by plane, Greyhound's massive gridlock never made a headline.
And while unknowing investors were about to take a beating, some
Greyhound executives began exercising stock options and selling
Greyhound stock was still trading
at $21.75 a share on Aug. 4, 1993, when Mr. Doyle sold 15,000 shares
that he had purchased with options two months earlier for $9.81
a share; his indicated profit was $179,000. Also in June, he had
exercised options to buy and sell 22,642 Greyhound shares on similar
Mr. Doyle says that at the time
he was advised by Greyhound lawyers and his personal attorney that
his stock transactions were "perfectly OK." He adds that
he has lost money on about 12,000 Greyhound shares that he purchased
around that time and still owns.
In the first two weeks of August
1993, Mr. Schmieder exercised options and sold 13,600 Greyhound
shares for an indicated profit of $155,000; he currently holds about
25,000 shares, based on figures from CDA/Investnet. During the same
period, two other Greyhound vice presidents sold a total of 21,300
shares, at a profit.
for Wall Street
On Sept. 23, nearly two months after
the Trips troubles began, Greyhound stunned Wall Street by announcing
that ridership had plunged 12% in August and that 1993 earnings
would trail expectations. Greyhound stock tumbled 24%, to $11.75
a share, in a single day.
In its press release that day, Greyhound
made no mention of Trips and blamed the fall in ridership on an
uncertain economy. In an interview at the time, however, Mr. Schmieder
acknowledged that Trips needed more capacity.
At about the same time, Mr. Thompson
was relieved of his Trips duties. They fell to another vice president,
who was forced to resign in January 1994.
These days, Greyhound faces an uncertain
future. Many executives acknowledge that, by introducing the troubled
reservation system at the busiest time of the year, they drove away
existing passengers instead of attracting new ones.
The company did it again this May
when, in an urgent bid to increase ridership, it offered travelers
the chance to go anywhere for $68 or less with a three-day advance
purchase. While customers responded in droves, the Trips system
again went down. Meantime, buses and drivers were in short supply
in many cities, and some terminals were so swamped with frustrated
passengers that they simply stopped selling tickets. "People
couldn't get on the bus; we just had masses of people all over the
country," one former Greyhound executive says.
Meanwhile, Greyhound's regional
rivals continued to pick off its customers. In the first half of
1994, its operating revenue plunged 12.6%, according to Interstate
Commerce Commission figures. During the same period, the nation's
nine largest regional carriers increased operating revenues 2.2%.
For the six months, Greyhound reported a net loss of $61.4 million,
or $4.19 a share, compared with year-earlier net income of $499,000,
or four cents a share, after a $690,000 loss from an accounting
Amid mounting losses and pressure
from its largest shareholder, the Canadian investment firm of Connor,
Clark & Co., Greyhound announced in July that it would largely
abandon its long-haul business and concentrate on shorter trips.
"We are going to fish where the fish are." Mr. Schmieder
Three weeks later, he was forced
to resign. Mr. Doyle has also resigned. Now running the company
as interim chief executive officer is Thomas G. Plaskett, the former
head of Pan Am Corp. Greyhound says it expects to name a new CEO
within two weeks.
Messrs. Doyle and Schmieder, along
with the company, have been named co-defendants in two stockholder
lawsuits filed in Dallas federal court. The suits allege that Greyhound's
recent public announcements have been inaccurate and misleading,
especially with regard to the Trips problems. The company says it
will defend itself vigorously, but so far it hasnt filed any
response to the allegations.
Amid missed debt payments. Restructuring
talks with lenders and mounting layoffs and defections, sorting
out the troubles with Trips has fallen to Bradley Harslem, a former
American Airlines reservations executive hired last January as vice
president and chief information officer.
The revamped system now is up and
operating at 248 locations. although it is just beginning to produce
ridership data for planning purposes and still can't assure a passenger
of a seat on a given bus. And while training time has been reduced
to 16 hours from 40, even Mr. Harslem sometimes has trouble manipulating
the stillcumbersome Trips software in the quiet confines of his
Hoping to better understand the
company, Mr. Harslem sometimes rides a Greyhound bus to its downtown
Dallas computer center from his home in suburban Arlington. In August,
he bought a ticket one morning, only to find that the next bus to
Dallas was so full that it couldn't legally accept another standing
passenger. Terminal workers told Mr. Harslem, who hadn't identified
himself, to get on board anyway.
And so the executive now entrusted
with the key to Greyhound's future rode into Dallas sitting on the