The Collapse of Enron: Managerial Aspects

Executive summaryIts revenues made up USbenefits to its product which includes additional
$139($184) billion, assets equaled $62($82) billion, andsupporting services. Operations sector is the heart of
the number of employees reached more than 30,000these changes that are made by leading companies
people in 20 countries around the world.While Enronto improve their performance and increase customer
Corporation was so highly praised by the outsidebase.The survival of commercial company depends
observers, internally it had highly decentralizedon ability of the organization to focus and shape its
financial control and decision-making structure, whichoperational resources to meet the expectations of its
made it practically impossible to get coherent andstakeholders: customers, employees and
clear view on corporations' activities and operations.shareholders, expressed in organizational strategy
Of course, the problem was not exclusively due to(Russel, 1995) . Irrespective of economic sectors the
poor managerial performance, all the departments ofcompany operates in, the ability of operations
the corporation were involved in the ruining corporatemanagement of this company to fulfill those
ethical values and principles, but executives andabove-mentioned tasks depends on their
managers bear primary responsibility for the absenceunderstanding that it is necessary to make
of corporate culture, clear accountability andtrade-offs. They cannot avoid the situation of
transparence of the company. If operationsworking under constraints and have to understand
management worked properly, in its full force, and iftheir capabilities and constraints to provide significant
it was given possibility to work in such a way, thereinputs into strategic decision-making process involving
could be a chance of escaping the tragedy.Enronfurther resources of the organization.Operations
Corp brief historyEnron Corporation was one of themanagers in the organizations are not empowered to
largest global energy, services and commoditiesmake strategic decisions, but they play important role
company. Before it filed bankruptcy under chapter 11,in shaping the organization's strategy and contribute
it sold natural gas and electricity, delivered energyto the strategic thinking ( Pasternack, Viscio, 1998).
and other commodities such as bandwidth internetOperations managers should be able to translate
connection, and provided risk management andstrategic aims and objectives into clear operational
financial services to the clients around the world.Enronobjectives and actions and to implement, design and
was based in Houston, Texas, and was founded inimprove the products of the company themselves
July 1985 (though company with Enron nameand the processes of their delivery. They have to
emerged still in 1930 (Swatz, Watkins, 2003)) by theknow how changes incorporated to external factors
merger of InterNorth of Omaha in Nebraska, andinfluence the operation and how changes in one
Houston Natural Gas. Enron Company quicklyaspect of the operating system influence other
developed from merely delivering energy to brokeringaspects.Also, operations managers need to know
energy futures contracts on deregulated energyhow technological changes impact organization's
markets. In 1994, the company started to sellcapability of delivery, and to incorporate their
electricity, and in 1995, it entered European energyconclusions into strategic process (Peters, Waterman,
market. By the middle 2001, Enron employed about1982). Therefore, the heart of operations thinking
30,000 people globally (McLEan,includes the ability to think dynamically and
Elkind,2003).Questionable accounting methods andsystematically across time and space (Miller, 1998).
techniques provided Enron with possibility to be listedBesides traditional tasks of operation management,
as seventh largest United States company and wasnew perspectives and objectives emerge connected
expected to dominate the market which thewith the emergence of new trends and
company virtually invented in the communications,developments of operations management, such as
weather and power securities (Bryce, 2002). Buttotal quality management, shop floor control, global
instead the corporation became the largest corporatesupply chain management, manufacturing planning
failure in the global history and an example ofsoftware, and others.Total quality management has
well-planned and institutionalized corporate fraud.become one of the most important developments of
Enron became wealthy due to its pioneeringthe operations management. The quest for higher
marketing and promotion of power andlevel of products and services quality is caused by
communications bandwidth services and riskthe globalization of markets, on the one hand, and
management derivatives, including such innovativeincreasing litigation over service or product failure.
and exotic items as weather derivatives.In 1999,The relationship between quality and market share
Enron launched an initiative of buying and sellingperformance is doubtless. Those firms that fail to
access to high-speed Internet bandwidth, and alsounderstand the issue of quality find themselves on
Enron Online was launched as a Web-based tradingthe bottom of their industry hierarchy. A significant
site, making Enron e-commerce company. In 2000,share of the responsibility for quality standards rests
the reported revenues of the company made $101on the operations manager. Global supply chain
billion. It had stakes in almost 30,000 miles of gasmanagement is another very important component
pipelines, either owned or accessed 15,000 miles ofof operations management. The world economy is
fiber-optic network and had stakes in globalbecoming more global than ever. Looking for lower
operations on generating electricity (Thomas, 2002).Inproduction costs, more flexibility and local risk
the result, for five years in a row, from 1996 toreduction, companies are seeking to outsource and
2000, Enron was named "America's most innovativeproduce services and products on global scale (Heizer,
Company" by Fortune magazine, and headed the list2004). Operation managers are responsible for fulfilling
of Fortune's "100 best companies to Work for inthe task. Project management is yet another task of
America" in 2000. Enron reputation was underminedthe operations management department. Operation
by rumors on bribery and political pressure with themanagers bear responsibility for numerous projects
objective of securing contacts in South and Centralwhich range from considerable capital projects to
America, Philippines and Africa. The Enron was blamedspecific ones such as installation of new information
to use its connections with Clinton and Bushsystem.Effectively managing projects involves
administrations to express pressure in their contracts.fulfillment and delivery them in timely manner and
The events were followed by a series of scandalswithin the budget (Stevens, 2001). In a word,
involving irregular accounting methods bordering onoperations management is indispensable component
fraud which involved Enron and Arthur Andersenof the organization, since it fulfills numerous important
accounting firm and led Enron on the verge offunctions of the company. Operations manager
undergoing the largest bankruptcy in economichandles daily running and functioning of the
history in November 2001 (Emshwiller, Smith,organization.The implication of poor managerial
2001).Since Enron was always considered a blue chipperformance for the collapse of Enron
stock, the bankruptcy was a disastrous andCorporationNow it is necessary to find out and
unprecedented event in the global financial world.analyze whether operations management of Enron
Enron's downfall was definite when it was found outCorp performed all the functions mentioned above
that a considerable share of its profits resulted fromand what was the quality of their activity.The Enron
deals with so-called special-purpose entities, limiteddid have operations management department, which,
partnership under control of Enron. It resulted in theaccording to their official source, fulfilled the following
possibility of not reporting many of the company'sfunctions: setup accounts and notify utilities, agency
losses in its financial statements. The final plan ofagreement from customer, verify the format of
Enron's bankruptcy included creation of three newinvoice, setup invoice data transfer, test algorithms
businesses which would be spun off theof invoice and file transfer to the customer,
company.The reorganization process started in 2003determine the reporting requirements of the
with the creation of three companies - CrossCountrycustomer (Enron Energy Services, 2000). As it is seen
Energy, Prisma Energy International, and Portlandfrom the source, the functions of very operations
General Electric. CrossCountry Energy was sold tomanagement department are very limited. There are
CCE Holdings L.L.C., with the money to be used forother management departments which perform the
the repayment of the debts, while Prisma Energyfunctions of operations management stated above:
International and Portland General Electric shouldoperations facility management, commodity
emerge as independent companies descendant ofmanagement, energy asset management, financial
Enron (Swatz, 2003).Operations management scopeoperations, and capital management. Though, most of
of functionsTo understand the reasons of thisfunctions performed by these departments,
bankruptcy and the level of managerial implication inaccording to the source, are purely executive and
the quality performance of the company, particularlylack integration, systematic vision, responsibility,
that of operations management, it is necessary tocontrol and creative aspect. Besides limited scope of
outline the main functions of operations managementfunctions assigned to operations management in
and impact it should have of functioning of theEnron Corporation, another important point concerns
organization.The principal task of operationsthe quality of their performance and overall corporate
management is effective transformation of inputsculture and atmosphere created within corporation.
into "desired outputs" of the company (Shafer, 1997).As it was mentioned above, ideally, the functions of
The outputs are traditionally understood inoperations management include creating ethic values,
manufacturing and profit-making context within theintegrity, competence and clear accountability within
organizations. But recently it has been recognizedthe organization. Enron's management failed to
that operations management is a discipline which iscomply with these tasks.Read the full version of this
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