The Collapse of Enron: Managerial Aspects

Executive summaryIts revenues made up USof these changes that are made by leading
$139($184) billion, assets equaled $62($82) billion,companies to improve their performance and
and the number of employees reached more thanincrease customer base.The survival of
30,000 people in 20 countries around thecommercial company depends on ability of the
world.While Enron Corporation was so highlyorganization to focus and shape its operational
praised by the outside observers, internally it hadresources to meet the expectations of its
highly decentralized financial control andstakeholders: customers, employees and
decision-making structure, which made it practicallyshareholders, expressed in organizational strategy
impossible to get coherent and clear view on(Russel, 1995) . Irrespective of economic sectors
corporations' activities and operations. Of course,the company operates in, the ability of operations
the problem was not exclusively due to poormanagement of this company to fulfill those
managerial performance, all the departments ofabove-mentioned tasks depends on their
the corporation were involved in the ruiningunderstanding that it is necessary to make
corporate ethical values and principles, buttrade-offs. They cannot avoid the situation of
executives and managers bear primaryworking under constraints and have to understand
responsibility for the absence of corporate culture,their capabilities and constraints to provide
clear accountability and transparence of thesignificant inputs into strategic decision-making
company. If operations management workedprocess involving further resources of the
properly, in its full force, and if it was givenorganization.Operations managers in the
possibility to work in such a way, there could be aorganizations are not empowered to make
chance of escaping the tragedy.Enron Corp briefstrategic decisions, but they play important role in
historyEnron Corporation was one of the largestshaping the organization's strategy and contribute
global energy, services and commodities company.to the strategic thinking ( Pasternack, Viscio,
Before it filed bankruptcy under chapter 11, it sold1998). Operations managers should be able to
natural gas and electricity, delivered energy andtranslate strategic aims and objectives into clear
other commodities such as bandwidth internetoperational objectives and actions and to
connection, and provided risk management andimplement, design and improve the products of
financial services to the clients around thethe company themselves and the processes of
world.Enron was based in Houston, Texas, andtheir delivery. They have to know how changes
was founded in July 1985 (though company withincorporated to external factors influence the
Enron name emerged still in 1930 (Swatz,operation and how changes in one aspect of the
Watkins, 2003)) by the merger of InterNorth ofoperating system influence other aspects.Also,
Omaha in Nebraska, and Houston Natural Gas.operations managers need to know how
Enron Company quickly developed from merelytechnological changes impact organization's
delivering energy to brokering energy futurescapability of delivery, and to incorporate their
contracts on deregulated energy markets. Inconclusions into strategic process (Peters,
1994, the company started to sell electricity, andWaterman, 1982). Therefore, the heart of
in 1995, it entered European energy market. Byoperations thinking includes the ability to think
the middle 2001, Enron employed about 30,000dynamically and systematically across time and
people globally (McLEan, Elkind,2003).Questionablespace (Miller, 1998). Besides traditional tasks of
accounting methods and techniques providedoperation management, new perspectives and
Enron with possibility to be listed as seventhobjectives emerge connected with the
largest United States company and was expectedemergence of new trends and developments of
to dominate the market which the companyoperations management, such as total quality
virtually invented in the communications, weathermanagement, shop floor control, global supply
and power securities (Bryce, 2002). But insteadchain management, manufacturing planning
the corporation became the largest corporatesoftware, and others.Total quality management
failure in the global history and an example ofhas become one of the most important
well-planned and institutionalized corporate fraud.developments of the operations management.
Enron became wealthy due to its pioneeringThe quest for higher level of products and
marketing and promotion of power andservices quality is caused by the globalization of
communications bandwidth services and riskmarkets, on the one hand, and increasing litigation
management derivatives, including such innovativeover service or product failure. The relationship
and exotic items as weather derivatives.In 1999,between quality and market share performance is
Enron launched an initiative of buying and sellingdoubtless. Those firms that fail to understand the
access to high-speed Internet bandwidth, and alsoissue of quality find themselves on the bottom of
Enron Online was launched as a Web-basedtheir industry hierarchy. A significant share of the
trading site, making Enron e-commerce company.responsibility for quality standards rests on the
In 2000, the reported revenues of the companyoperations manager. Global supply chain
made $101 billion. It had stakes in almost 30,000management is another very important
miles of gas pipelines, either owned or accessedcomponent of operations management. The world
15,000 miles of fiber-optic network and hadeconomy is becoming more global than ever.
stakes in global operations on generating electricityLooking for lower production costs, more flexibility
(Thomas, 2002).In the result, for five years in aand local risk reduction, companies are seeking to
row, from 1996 to 2000, Enron was namedoutsource and produce services and products on
"America's most innovative Company" by Fortuneglobal scale (Heizer, 2004). Operation managers
magazine, and headed the list of Fortune's "100are responsible for fulfilling the task. Project
best companies to Work for in America" in 2000.management is yet another task of the
Enron reputation was undermined by rumors onoperations management department. Operation
bribery and political pressure with the objective ofmanagers bear responsibility for numerous
securing contacts in South and Central America,projects which range from considerable capital
Philippines and Africa. The Enron was blamed toprojects to specific ones such as installation of
use its connections with Clinton and Bushnew information system.Effectively managing
administrations to express pressure in theirprojects involves fulfillment and delivery them in
contracts. The events were followed by a seriestimely manner and within the budget (Stevens,
of scandals involving irregular accounting methods2001). In a word, operations management is
bordering on fraud which involved Enron andindispensable component of the organization, since
Arthur Andersen accounting firm and led Enron onit fulfills numerous important functions of the
the verge of undergoing the largest bankruptcy incompany. Operations manager handles daily
economic history in November 2001 (Emshwiller,running and functioning of the organization.The
Smith, 2001).Since Enron was always considered aimplication of poor managerial performance for
blue chip stock, the bankruptcy was a disastrousthe collapse of Enron CorporationNow it is
and unprecedented event in the global financialnecessary to find out and analyze whether
world. Enron's downfall was definite when it wasoperations management of Enron Corp performed
found out that a considerable share of its profitsall the functions mentioned above and what was
resulted from deals with so-called special-purposethe quality of their activity.The Enron did have
entities, limited partnership under control of Enron.operations management department, which,
It resulted in the possibility of not reporting manyaccording to their official source, fulfilled the
of the company's losses in its financial statements.following functions: setup accounts and notify
The final plan of Enron's bankruptcy includedutilities, agency agreement from customer, verify
creation of three new businesses which would bethe format of invoice, setup invoice data transfer,
spun off the company.The reorganization processtest algorithms of invoice and file transfer to the
started in 2003 with the creation of threecustomer, determine the reporting requirements
companies - CrossCountry Energy, Prisma Energyof the customer (Enron Energy Services, 2000).
International, and Portland General Electric.As it is seen from the source, the functions of
CrossCountry Energy was sold to CCE Holdingsvery operations management department are
L.L.C., with the money to be used for thevery limited. There are other management
repayment of the debts, while Prisma Energydepartments which perform the functions of
International and Portland General Electric shouldoperations management stated above: operations
emerge as independent companies descendant offacility management, commodity management,
Enron (Swatz, 2003).Operations managementenergy asset management, financial operations,
scope of functionsTo understand the reasons ofand capital management. Though, most of
this bankruptcy and the level of managerialfunctions performed by these departments,
implication in the quality performance of theaccording to the source, are purely executive and
company, particularly that of operationslack integration, systematic vision, responsibility,
management, it is necessary to outline the maincontrol and creative aspect. Besides limited scope
functions of operations management and impact itof functions assigned to operations management
should have of functioning of the organization.Thein Enron Corporation, another important point
principal task of operations management isconcerns the quality of their performance and
effective transformation of inputs into "desiredoverall corporate culture and atmosphere created
outputs" of the company (Shafer, 1997). Thewithin corporation. As it was mentioned above,
outputs are traditionally understood inideally, the functions of operations management
manufacturing and profit-making context withininclude creating ethic values, integrity, competence
the organizations. But recently it has beenand clear accountability within the organization.
recognized that operations management is aEnron's management failed to comply with these
discipline which is not limited with such narrowtasks.Read the full version of this article
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