The Collapse of Enron: Managerial Aspects

Executive summary

Its revenues made up US $139($184) billion, assets equaled $62($82) billion, and the number of employees reached more than 30,000 people in 20 countries around the world.

While Enron Corporation was so highly praised by the outside observers, internally it had highly decentralized financial control and decision-making structure, which made it practically impossible to get coherent and clear view on corporations' activities and operations. Of course, the problem was not exclusively due to poor managerial performance, all the departments of the corporation were involved in the ruining corporate ethical values and principles, but executives and managers bear primary responsibility for the absence of corporate culture, clear accountability and transparence of the company. If operations management worked properly, in its full force, and if it was given possibility to work in such a way, there could be a chance of escaping the tragedy.

Enron Corp brief history

Enron Corporation was one of the largest global energy, services and commodities company. Before it filed bankruptcy under chapter 11, it sold natural gas and electricity, delivered energy and other commodities such as bandwidth internet connection, and provided risk management and financial services to the clients around the world.

Enron was based in Houston, Texas, and was founded in July 1985 (though company with Enron name emerged still in 1930 (Swatz, Watkins, 2003)) by the merger of InterNorth of Omaha in Nebraska, and Houston Natural Gas. Enron Company quickly developed from merely delivering energy to brokering energy futures contracts on deregulated energy markets. In 1994, the company started to sell electricity, and in 1995, it entered European energy market. By the middle 2001, Enron employed about 30,000 people globally (McLEan, Elkind,2003).

Questionable accounting methods and techniques provided Enron with possibility to be listed as seventh largest United States company and was expected to dominate the market which the company virtually invented in the communications, weather and power securities (Bryce, 2002). But instead the corporation became the largest corporate failure in the global history and an example of well-planned and institutionalized corporate fraud. Enron became wealthy due to its pioneering marketing and promotion of power and communications bandwidth services and risk management derivatives, including such innovative and exotic items as weather derivatives.

In 1999, Enron launched an initiative of buying and selling access to high-speed Internet bandwidth, and also Enron Online was launched as a Web-based trading site, making Enron e-commerce company. In 2000, the reported revenues of the company made $101 billion. It had stakes in almost 30,000 miles of gas pipelines, either owned or accessed 15,000 miles of fiber-optic network and had stakes in global operations on generating electricity (Thomas, 2002).

In the result, for five years in a row, from 1996 to 2000, Enron was named "America's most innovative Company" by Fortune magazine, and headed the list of Fortune's "100 best companies to Work for in America" in 2000. Enron reputation was undermined by rumors on bribery and political pressure with the objective of securing contacts in South and Central America, Philippines and Africa. The Enron was blamed to use its connections with Clinton and Bush administrations to express pressure in their contracts. The events were followed by a series of scandals involving irregular accounting methods bordering on fraud which involved Enron and Arthur Andersen accounting firm and led Enron on the verge of undergoing the largest bankruptcy in economic history in November 2001 (Emshwiller, Smith, 2001).

Since Enron was always considered a blue chip stock, the bankruptcy was a disastrous and unprecedented event in the global financial world. Enron's downfall was definite when it was found out that a considerable share of its profits resulted from deals with so-called special-purpose entities, limited partnership under control of Enron. It resulted in the possibility of not reporting many of the company's losses in its financial statements. The final plan of Enron's bankruptcy included creation of three new businesses which would be spun off the company.

The reorganization process started in 2003 with the creation of three companies - CrossCountry Energy, Prisma Energy International, and Portland General Electric. CrossCountry Energy was sold to CCE Holdings L.L.C., with the money to be used for the repayment of the debts, while Prisma Energy International and Portland General Electric should emerge as independent companies descendant of Enron (Swatz, 2003).

Operations management scope of functions

To understand the reasons of this bankruptcy and the level of managerial implication in the quality performance of the company, particularly that of operations management, it is necessary to outline the main functions of operations management and impact it should have of functioning of the organization.

The principal task of operations management is effective transformation of inputs into "desired outputs" of the company (Shafer, 1997). The outputs are traditionally understood in manufacturing and profit-making context within the organizations. But recently it has been recognized that operations management is a discipline which is not limited with such narrow functions; it can be deployed in practically any area where the organization aims at achieving its objectives (Barnett, 1996). For instance, non-profit or public sectors have to learn to optimize their internal operations and processes in the situation of limited resources; service companies come to conclusion that by reappraising their delivery process they can revolutionize and significantly improve their approach to manufacturing companies and their marketplace. Robin Wood (2001) gives the example of such operations management implication in Daewoo company, which understood that it can specialize and differentiate its product by adding definite bundle of benefits to its product which includes additional supporting services. Operations sector is the heart of these changes that are made by leading companies to improve their performance and increase customer base.

The survival of commercial company depends on ability of the organization to focus and shape its operational resources to meet the expectations of its stakeholders: customers, employees and shareholders, expressed in organizational strategy (Russel, 1995) . Irrespective of economic sectors the company operates in, the ability of operations management of this company to fulfill those above-mentioned tasks depends on their understanding that it is necessary to make trade-offs. They cannot avoid the situation of working under constraints and have to understand their capabilities and constraints to provide significant inputs into strategic decision-making process involving further resources of the organization.

Operations managers in the organizations are not empowered to make strategic decisions, but they play important role in shaping the organization's strategy and contribute to the strategic thinking ( Pasternack, Viscio, 1998). Operations managers should be able to translate strategic aims and objectives into clear operational objectives and actions and to implement, design and improve the products of the company themselves and the processes of their delivery. They have to know how changes incorporated to external factors influence the operation and how changes in one aspect of the operating system influence other aspects.

Also, operations managers need to know how technological changes impact organization's capability of delivery, and to incorporate their conclusions into strategic process (Peters, Waterman, 1982). Therefore, the heart of operations thinking includes the ability to think dynamically and systematically across time and space (Miller, 1998). Besides traditional tasks of operation management, new perspectives and objectives emerge connected with the emergence of new trends and developments of operations management, such as total quality management, shop floor control, global supply chain management, manufacturing planning software, and others.

Total quality management has become one of the most important developments of the operations management. The quest for higher level of products and services quality is caused by the globalization of markets, on the one hand, and increasing litigation over service or product failure. The relationship between quality and market share performance is doubtless. Those firms that fail to understand the issue of quality find themselves on the bottom of their industry hierarchy. A significant share of the responsibility for quality standards rests on the operations manager. Global supply chain management is another very important component of operations management. The world economy is becoming more global than ever. Looking for lower production costs, more flexibility and local risk reduction, companies are seeking to outsource and produce services and products on global scale (Heizer, 2004). Operation managers are responsible for fulfilling the task. Project management is yet another task of the operations management department. Operation managers bear responsibility for numerous projects which range from considerable capital projects to specific ones such as installation of new information system.

Effectively managing projects involves fulfillment and delivery them in timely manner and within the budget (Stevens, 2001). In a word, operations management is indispensable component of the organization, since it fulfills numerous important functions of the company. Operations manager handles daily running and functioning of the organization.

The implication of poor managerial performance for the collapse of Enron Corporation

Now it is necessary to find out and analyze whether operations management of Enron Corp performed all the functions mentioned above and what was the quality of their activity.

The Enron did have operations management department, which, according to their official source, fulfilled the following functions: setup accounts and notify utilities, agency agreement from customer, verify the format of invoice, setup invoice data transfer, test algorithms of invoice and file transfer to the customer, determine the reporting requirements of the customer (Enron Energy Services, 2000). As it is seen from the source, the functions of very operations management department are very limited. There are other management departments which perform the functions of operations management stated above: operations facility management, commodity management, energy asset management, financial operations, and capital management. Though, most of functions performed by these departments, according to the source, are purely executive and lack integration, systematic vision, responsibility, control and creative aspect. Besides limited scope of functions assigned to operations management in Enron Corporation, another important point concerns the quality of their performance and overall corporate culture and atmosphere created within corporation. As it was mentioned above, ideally, the functions of operations management include creating ethic values, integrity, competence and clear accountability within the organization. Enron's management failed to comply with these tasks.

Read the full version of this article here.

Anastasia Kurdina is a person of manifold gifts. Almost every her writing is followed by lavish testimonials from satisfied customers. Anastasia specializes in marketing, management, sociology, history, world cultures, literature and art.

Anastasia Kurdina is not an essay writer in a common sense. She is a Poet, an Analyst, an Artist, a Critic, ... . Anastasia is one out of a few writers who remember "how it all started" :) . It is she who sometimes accomplished every second order when Your Personal Writer was nothing more nor less than 3 writers and one webmaster; it is she who has still been accomplishing special orders, which naturally go beyond regular write-me-an-essay orders.

Get to know Anastasia better, click the link below:
Custom-written Essays and Term Papers

---

Minding Your Global Manners

To say that today's business environment is becoming increasingly more... Read More

Communicable Corporate Diseases Hurting Business Sexcess!

Enron Executive goes to prison for 10 years, Martha Stewart... Read More

Business Ethics: An Oxymoron

An oxymoron: the juxtaposition of contradictory words or concepts. That... Read More

Private Carrier Pepsi Embraces Diversity Amongst Employees

Many companies claim to be committed to diversity, but private... Read More

Ethics In The Workplace

Workplace Ethics is a subject that we have all heard... Read More

The Everyday Business Ethics Crisis Or Im Mad as Hell and Not Going to Take it Anymore

Breaking news may feature the Enron debacle, WorldCom activities, or... Read More

Do Organizations Serve Us Or Do We Serve Organizations

We have seen an erosion in the confidence that society... Read More

Ethics in Business...A Lost Art

While watching Face the Nation one Sunday earlier this year,... Read More

Conflict: Not Necessarily a Bad Thing

I got yelled at tonight. Not the type of yelling... Read More

Ethics? How To Take the Measure Business

When asked to write a small piece pertaining to ethics... Read More

Financial Projections in Business Plans

One of the most difficult sections to write in a... Read More

Diversity

I know that diversity has been a big topic of... Read More

Selling Truth as a Differentiator

The last few years have been a period of heightened... Read More

Business Ethics

There is much talk today about ethics in business -... Read More

Enron?s Ultimate Victim: Ethics

FROM the 'MORAL HIGH GROUND', where we imagine ourselves, the... Read More

What is a Ponzi Scheme?

This is for those who don't believe me when I... Read More

MacDonalidisation: Braverman, Taylor & Mayo

Background: George Ritzer defined McDonaldization as "...the process by which... Read More

Are You Selling Out Your Integrity?

Integrity in business is a quality that is highly under-rated... Read More

Dont Hate Them Because Theyre Beautiful

Tonight I'm going out with two extremely impressive ladies who... Read More

Vice of Buggery at FTC

At the Federal Trade Commission we have seen attorneys who... Read More

No Credit is Due: Bad Telemarketing

Just a few minutes ago I was debating what to... Read More

The Armaments Industry and Holy (?) Roman Emperors

"The time for fixing every essential right on a legal... Read More

Ethics in Business - Please Have Some

Is your business ethical?What I mean is "Does your business... Read More

Is Good Neighborliness Good Business?

[Note: This story is not a criticism of Buddhism. It... Read More

How To Detect Liars In Your Business & Personal Life

We live in a world full of lies and deception.... Read More

Brain Development and Due Process

DUE PROCESSAfricans, especially Nigerians are stereotyped on the internet and... Read More

Tales from the Corporate Frontlines: Shifting Culture and Climate in Todays Corporate World

This articles relates to the EngagedMetrics core competency Culture and... Read More

Six Reasons to Give

If you run a business, you undoubtedly feel many pressures... Read More

The Collapse of Enron: Managerial Aspects

Executive summaryIts revenues made up US $139($184) billion, assets equaled... Read More

Top 10 Principles for Positive Business Ethics

This morning, I read about a company using on-line auctions... Read More

The Social Implications of Computing

Directed by Mark Harrison, "Visions of Heaven and Hell" is... Read More

Tales from the Corporate Frontlines: Diversity And Success, In The Workplace

This article relates to the Diversity in the Workplace Competency,... Read More

Business Ethics: An Oxymoron?

Why do I believe good PR and business ethics are... Read More