The Collapse of Enron: Managerial Aspects

Executive summaryby reappraising their delivery process they can
Its revenues made up US $139($184) billion, assetsrevolutionize and significantly improve their approach to
equaled $62($82) billion, and the number of employeesmanufacturing companies and their marketplace. Robin
reached more than 30,000 people in 20 countriesWood (2001) gives the example of such operations
around the world.management implication in Daewoo company, which
While Enron Corporation was so highly praised by theunderstood that it can specialize and differentiate its
outside observers, internally it had highly decentralizedproduct by adding definite bundle of benefits to its
financial control and decision-making structure, whichproduct which includes additional supporting services.
made it practically impossible to get coherent and clearOperations sector is the heart of these changes that
view on corporations' activities and operations. Ofare made by leading companies to improve their
course, the problem was not exclusively due to poorperformance and increase customer base.
managerial performance, all the departments of theThe survival of commercial company depends on
corporation were involved in the ruining corporateability of the organization to focus and shape its
ethical values and principles, but executives andoperational resources to meet the expectations of its
managers bear primary responsibility for the absencestakeholders: customers, employees and shareholders,
of corporate culture, clear accountability andexpressed in organizational strategy (Russel, 1995) .
transparence of the company. If operationsIrrespective of economic sectors the company
management worked properly, in its full force, and if itoperates in, the ability of operations management of
was given possibility to work in such a way, therethis company to fulfill those above-mentioned tasks
could be a chance of escaping the tragedy.depends on their understanding that it is necessary to
Enron Corp brief historymake trade-offs. They cannot avoid the situation of
Enron Corporation was one of the largest globalworking under constraints and have to understand their
energy, services and commodities company. Before itcapabilities and constraints to provide significant inputs
filed bankruptcy under chapter 11, it sold natural gasinto strategic decision-making process involving further
and electricity, delivered energy and other commoditiesresources of the organization.
such as bandwidth internet connection, and providedOperations managers in the organizations are not
risk management and financial services to the clientsempowered to make strategic decisions, but they play
around the world.important role in shaping the organization's strategy
Enron was based in Houston, Texas, and wasand contribute to the strategic thinking ( Pasternack,
founded in July 1985 (though company with EnronViscio, 1998). Operations managers should be able to
name emerged still in 1930 (Swatz, Watkins, 2003)) bytranslate strategic aims and objectives into clear
the merger of InterNorth of Omaha in Nebraska, andoperational objectives and actions and to implement,
Houston Natural Gas. Enron Company quicklydesign and improve the products of the company
developed from merely delivering energy to brokeringthemselves and the processes of their delivery. They
energy futures contracts on deregulated energyhave to know how changes incorporated to external
markets. In 1994, the company started to sell electricity,factors influence the operation and how changes in
and in 1995, it entered European energy market. By theone aspect of the operating system influence other
middle 2001, Enron employed about 30,000 peopleaspects.
globally (McLEan, Elkind,2003).Also, operations managers need to know how
Questionable accounting methods and techniquestechnological changes impact organization's capability
provided Enron with possibility to be listed as seventhof delivery, and to incorporate their conclusions into
largest United States company and was expected tostrategic process (Peters, Waterman, 1982). Therefore,
dominate the market which the company virtuallythe heart of operations thinking includes the ability to
invented in the communications, weather and powerthink dynamically and systematically across time and
securities (Bryce, 2002). But instead the corporationspace (Miller, 1998). Besides traditional tasks of
became the largest corporate failure in the globaloperation management, new perspectives and
history and an example of well-planned andobjectives emerge connected with the emergence of
institutionalized corporate fraud. Enron became wealthynew trends and developments of operations
due to its pioneering marketing and promotion ofmanagement, such as total quality management, shop
power and communications bandwidth services andfloor control, global supply chain management,
risk management derivatives, including such innovativemanufacturing planning software, and others.
and exotic items as weather derivatives.Total quality management has become one of the
In 1999, Enron launched an initiative of buying and sellingmost important developments of the operations
access to high-speed Internet bandwidth, and alsomanagement. The quest for higher level of products
Enron Online was launched as a Web-based tradingand services quality is caused by the globalization of
site, making Enron e-commerce company. In 2000, themarkets, on the one hand, and increasing litigation over
reported revenues of the company made $101 billion. Itservice or product failure. The relationship between
had stakes in almost 30,000 miles of gas pipelines,quality and market share performance is doubtless.
either owned or accessed 15,000 miles of fiber-opticThose firms that fail to understand the issue of quality
network and had stakes in global operations onfind themselves on the bottom of their industry
generating electricity (Thomas, 2002).hierarchy. A significant share of the responsibility for
In the result, for five years in a row, from 1996 to 2000,quality standards rests on the operations manager.
Enron was named "America's most innovativeGlobal supply chain management is another very
Company" by Fortune magazine, and headed the listimportant component of operations management. The
of Fortune's "100 best companies to Work for inworld economy is becoming more global than ever.
America" in 2000. Enron reputation was undermined byLooking for lower production costs, more flexibility and
rumors on bribery and political pressure with thelocal risk reduction, companies are seeking to
objective of securing contacts in South and Centraloutsource and produce services and products on
America, Philippines and Africa. The Enron was blamedglobal scale (Heizer, 2004). Operation managers are
to use its connections with Clinton and Bushresponsible for fulfilling the task. Project management is
administrations to express pressure in their contracts.yet another task of the operations management
The events were followed by a series of scandalsdepartment. Operation managers bear responsibility for
involving irregular accounting methods bordering onnumerous projects which range from considerable
fraud which involved Enron and Arthur Andersencapital projects to specific ones such as installation of
accounting firm and led Enron on the verge ofnew information system.
undergoing the largest bankruptcy in economic historyEffectively managing projects involves fulfillment and
in November 2001 (Emshwiller, Smith, 2001).delivery them in timely manner and within the budget
Since Enron was always considered a blue chip stock,(Stevens, 2001). In a word, operations management is
the bankruptcy was a disastrous and unprecedentedindispensable component of the organization, since it
event in the global financial world. Enron's downfall wasfulfills numerous important functions of the company.
definite when it was found out that a considerableOperations manager handles daily running and
share of its profits resulted from deals with so-calledfunctioning of the organization.
special-purpose entities, limited partnership under controlThe implication of poor managerial performance for
of Enron. It resulted in the possibility of not reportingthe collapse of Enron Corporation
many of the company's losses in its financialNow it is necessary to find out and analyze whether
statements. The final plan of Enron's bankruptcyoperations management of Enron Corp performed all
included creation of three new businesses whichthe functions mentioned above and what was the
would be spun off the company.quality of their activity.
The reorganization process started in 2003 with theThe Enron did have operations management
creation of three companies - CrossCountry Energy,department, which, according to their official source,
Prisma Energy International, and Portland Generalfulfilled the following functions: setup accounts and
Electric. CrossCountry Energy was sold to CCEnotify utilities, agency agreement from customer, verify
Holdings L.L.C., with the money to be used for thethe format of invoice, setup invoice data transfer, test
repayment of the debts, while Prisma Energyalgorithms of invoice and file transfer to the customer,
International and Portland General Electric shoulddetermine the reporting requirements of the customer
emerge as independent companies descendant of(Enron Energy Services, 2000). As it is seen from the
Enron (Swatz, 2003).source, the functions of very operations management
Operations management scope of functionsdepartment are very limited. There are other
To understand the reasons of this bankruptcy and themanagement departments which perform the
level of managerial implication in the qualityfunctions of operations management stated above:
performance of the company, particularly that ofoperations facility management, commodity
operations management, it is necessary to outline themanagement, energy asset management, financial
main functions of operations management and impactoperations, and capital management. Though, most of
it should have of functioning of the organization.functions performed by these departments, according
The principal task of operations management isto the source, are purely executive and lack integration,
effective transformation of inputs into "desired outputs"systematic vision, responsibility, control and creative
of the company (Shafer, 1997). The outputs areaspect. Besides limited scope of functions assigned to
traditionally understood in manufacturing andoperations management in Enron Corporation, another
profit-making context within the organizations. Butimportant point concerns the quality of their
recently it has been recognized that operationsperformance and overall corporate culture and
management is a discipline which is not limited withatmosphere created within corporation. As it was
such narrow functions; it can be deployed in practicallymentioned above, ideally, the functions of operations
any area where the organization aims at achieving itsmanagement include creating ethic values, integrity,
objectives (Barnett, 1996). For instance, non-profit orcompetence and clear accountability within the
public sectors have to learn to optimize their internalorganization. Enron's management failed to comply
operations and processes in the situation of limitedwith these tasks.
resources; service companies come to conclusion thatRead the full version of this article here.