The Collapse of Enron: Managerial Aspects

Law Order Series Finale - The Collapse of Enron: Managerial Aspects

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Its revenues made up Us 9(4) billion, assets equaled () billion, and the estimate of employees reached more than 30,000 citizen in 20 countries nearby the world.

While Enron Corporation was so very praised by the covering observers, internally it had very decentralized financial control and decision-making structure, which made it almost impossible to get coherent and clear view on corporations' activities and operations. Of course, the qoute was not exclusively due to poor managerial performance, all the departments of the corporation were complicated in the ruining corporate ethical values and principles, but executives and managers bear original responsibility for the absence of corporate culture, clear responsibility and transparence of the company. If operations administration worked properly, in its full force, and if it was given possibility to work in such a way, there could be a opportunity 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 lesson 11, it sold natural gas and electricity, delivered vigor and other commodities such as bandwidth internet connection, and provided risk administration and financial services to the clients nearby 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 industrialized from merely delivering vigor to brokering vigor futures contracts on deregulated vigor markets. In 1994, the company started to sell electricity, and in 1995, it entered European vigor market. By the middle 2001, Enron employed about 30,000 citizen globally (McLean, Elkind,2003).

Questionable accounting methods and techniques provided Enron with possibility to be listed as seventh largest United States company and was unbelievable 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 administration derivatives, along with such innovative and exotic items as weather derivatives.

In 1999, Enron launched an initiative of buying and selling passage to high-speed Internet bandwidth, and also Enron Online was launched as a Web-based trading site, development Enron e-commerce company. In 2000, the reported revenues of the company made 1 billion. It had stakes in almost 30,000 miles of gas pipelines, whether 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 associates to Work for in America" in 2000. Enron credit 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 piquant irregular accounting methods bordering on fraud which complicated 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 all the time 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 important share of its profits resulted from deals with so-called special-purpose entities, microscopic 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 associates - CrossCountry Energy, Prisma vigor International, and Portland general Electric. CrossCountry vigor was sold to Cce Holdings L.L.C., with the money to be used for the repayment of the debts, while Prisma vigor International and Portland general electric should emerge as independent associates descendant of Enron (Swatz, 2003).

Operations administration scope of functions

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

The important task of operations administration is sufficient 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 administration is a discipline which is not microscopic with such narrow functions; it can be deployed in almost any area where the society aims at achieving its objectives (Barnett, 1996). For instance, non-profit or group sectors have to learn to optimize their internal operations and processes in the situation of microscopic resources; service associates come to closing that by reappraising their delivery process they can revolutionize and significantly heighten their coming to manufacturing associates and their marketplace. Robin Wood (2001) gives the example of such operations administration 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 further supporting services. Operations sector is the heart of these changes that are made by foremost associates to heighten their performance and increase customer base.

The survival of commercial company depends on ability of the society 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 administration of this company to fulfill those above-mentioned tasks depends on their understanding that it is important to make trade-offs. They cannot avoid the situation of working under constraints and have to understand their capabilities and constraints to furnish important inputs into strategic decision-making process piquant further resources of the organization.

Operations managers in the organizations are not empowered to make strategic decisions, but they play foremost role in shaping the organization's strategy and lead to the strategic reasoning ( Pasternack, Viscio, 1998). Operations managers should be able to translate strategic aims and objectives into clear operational objectives and actions and to implement, produce and heighten the products of the company themselves and the processes of their delivery. They have to know how changes incorporated to external factors sway the performance and how changes in one aspect of the operating theory sway other aspects.

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

Total ability administration has come to be one of the most foremost developments of the operations management. The quest for higher level of products and services ability is caused by the globalization of markets, on the one hand, and expanding litigation over service or product failure. The relationship in the middle of ability and market share performance is doubtless. Those firms that fail to understand the issue of ability find themselves on the bottom of their manufactures hierarchy. A important share of the responsibility for ability standards rests on the operations manager. Global furnish chain administration is another very foremost component of operations management. The world economy is becoming more global than ever. Looking for lower yield costs, more flexibility and local risk reduction, associates are seeking to outsource and produce services and products on global scale (Heizer, 2004). performance managers are responsible for fulfilling the task. Task administration is yet another task of the operations administration department. performance managers bear responsibility for numerous projects which range from important capital projects to definite ones such as factory of new information system.

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

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

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

The Enron did have operations administration department, which, agreeing to their valid source, fulfilled the following functions: setup accounts and inform utilities, department agreement from customer, verify the format of invoice, setup invoice data transfer, test algorithms of invoice and file transfer to the customer, rule the reporting requirements of the customer (Enron vigor Services, 2000). As it is seen from the source, the functions of very operations administration department are very limited. There are other administration departments which achieve the functions of operations administration stated above: operations factory management, commodity management, vigor asset management, financial operations, and capital management. Though, most of functions performed by these departments, agreeing to the source, are purely executive and lack integration, systematic vision, responsibility, control and creative aspect. Also microscopic scope of functions assigned to operations administration in Enron Corporation, another foremost point concerns the ability of their performance and whole corporate culture and atmosphere created within corporation. As it was mentioned above, ideally, the functions of operations administration consist of creating ethic values, integrity, competence and clear responsibility within the organization. Enron's administration failed to comply with these tasks.

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