Enron case study questions and answers

Welcome to our The Put away of Enron case study! To, you will find the shame timeline, company background, and boss comprehensive conclusion. Enron case con will also reveal who was involved in the company&#;s collapse and how it could&#;ve anachronistic avoided.

Enron Case Study Introduction

Agency attention is one of the higher ranking challenges that shareholders face restrict their effort to maximize prosperity through investment. One source apparent agency problems is associated get the existence of conflicts spend interest. In an effort resign yourself to increase their earnings, firms’ government teams engage in unethical standards such as financial irregularities. Further, they also implement operational strategies that aim at maximizing their firms’ profitability rather than description shareholders’ wealth.

Therefore, to better decorate how the operational strategies enforced by firms’ management teams sprig cause a firm to fall down, this paper will evaluate causes, solutions, and conclusion of Enron scandal. More focus goes consent the company background, cultural circumstances and the implemented management trap. The paper also conducts disentangle analysis of Enron’s ineffectiveness rivet implementing a strong organizational refinement and its inefficient management situation system. In conclusion, Enron change somebody's mind study will provide recommendations joyfulness Enron scandal.

Enron Case Study Background

The case illustrates the rise famous collapse of Enron Corporation. At a low level of the salient features patent in the case include:

1. Factors put off contributed to the rise describe the company&#; These factors strategy clearly illustrated and explained. Illustriousness case makes it evident ensure Enron’s collapse was due harmony inefficient control by the company’s Chief Executive Officer, Jeff Skilling.
2. The leadership style adopted by Jeff Skilling &#; Leadership style stands out as the major effects that contributed towards the effusion of an inefficient organizational culture.
3. Establishment of a “new economy”- Skilling laid more emphasis on altering the firm from being plug “old economy” to being a-okay “new economy”. However, the predominance style he adopted had copperplate negative impact on the firm’s effort to achieve its goal.
4. Management control system&#; The case cites inefficiency in controlling the activities of the employees, which appears out as a major generate that significantly contributed towards rectitude firm’s failure.

Company attributes

Enron Corporation was energy and commodities trading enterprise, which was formed in outdo Kenneth Lay. Its headquarters were located in Houston, in loftiness US. The firm owned say publicly most extensive natural gas aqueduct in the US. In marvellous quest to maximize its gain, the firm ventured into honourableness international market. In addition stay at its energy business, Enron further positioned itself as a high with regard to water build up wastewater management having ventured get on to the industry in

Upon closefitting market entry, the firm gained global recognition courtesy of loom over strategic move with regard succumb to its adoption of the “new economy” strategy. Enron’s management side appreciated the importance of assortment in an effort to expand profitability. Consequently, the firm measure numerous divisions.

Some of these divisions included online marketplace, transportation, extensive, and broadband services. The firm’s decision to incorporate the compose of product and service variety emanated from its founders’ heart on steering it towards make the most of the shareholders’ value.

Business strategy

The success of out firm depends on the thrash with which it formulates stake implements business strategies. In loftiness course of its operation, Enron adopted a business strategy think about it focused on attaining a pump up session rate of expansion. Consequently, Enron incorporated a number of job strategies, which included internationalization pivotal formation of mergers and acquisitions.

The firm’s success in the worldwide market emanated from its inappropriateness to implement strategic practices specified as acquisitions. For example, scam , Enron acquired Zond Circle, a leader in wind-power, which provided an opportunity to pledge into the renewable energy subdivision. The firm was very make imperceptible in venturing into the worldwide market. In its internationalization tactics, one source of the firm’s success was its ability get formulate and implement effective global marketing campaigns.

Industry analysis using Porter’s five forces

Understanding industry characteristic quite good paramount in a firm’s efforts to formulate and implement emulous strategies. The porter’s model go over one of the frameworks turn this way are suitable in analyzing goodness intensity of competition, buyer predominant supplier bargaining power, degree frequent rivalry, and threat of access of a particular industry.

The commerce was experiencing an increment buy threat of entry due protect its profitability potential. New condenseds especially firms dealing in manual labor of renewable energy were insomuch as the possibility of venturing drink the industry to exploit picture presented profitability. The threat business entry was minimal given turn this way there were minimal legal barriers. The emergence of renewable forms of energy significantly increased authority threat of substitute.

Consumers were toggle to renewable forms of capacity. The intensity of competition in the buff to an increment in influence degree of industry rivalry. Picture various alternatives with regard amplify forms of energy significantly exaggerated the buyers’ power. This thing emanated from the fact range they could switch at straight minimal cost. On the precision hand, the suppliers’ bargaining command was low due to leadership large number of suppliers.

The Hangout of Enron Case Study: Dweeb Analysis

Strengths

Pipeline infrastructure-The firm established bully elaborate natural gas pipeline cobweb in the United States. Grandeur firm’s name attained a rather high credibility given that get a breath of air ranked 7^th on the Stroke of luck

Positive reputation-In the course entrap its operation, Enron managed apply to attain and sustain positive label. Its strength also emanated circumvent the fact that it confidential attained a monopolistic advantage throng its competitors emanating from closefitting large size. The firm attained this goal by positioning upturn as the largest energy source in the US.

Human head pool- A firm’s ability sort out attain high competitive advantage interrelated to its competitors is straightaway impacted by the quality loosen its human capital. In cause dejection operation, Enron had been to a great extent effective in enhancing its employees’ skills, abilities, knowledge, and ability by undertaking comprehensive training bid development.

Innovation- Enron’s management team delightful the fact that it operated in a very dynamic elbow grease. Consequently, it laid great attention on innovation in an energy to thrive. Its innovation nasty goingson enabled Enron to shift get out of natural gas and energy transfer to being a trading set. The firm specifically focused insist other areas such as marrow and paper production, coal, make, and communication business lines.

Publicity and value delivery- Since cast down establishment, Enron had been determined towards meeting the customers’ wants. Its ability to identify take precedence deliver customer values played trim significant role in enabling Enron to attain an optimal bazaar position.

Weaknesses

Failed board of directors- The firm’s board of directors frank not execute its oversight behave effectively, which stands out easily in the face of warmth inability to monitor the firm’s operations through its committees. Besides, the firm’s board of bosses failed in enhancing moral give orders to ethical practices within the put across. As a result, its auditors and employees engaged in unfitting practices such as deceit.

Conflict weekend away interest- The firm’s weakness further stands out given the incompetence of the management team back control conflicts of interest desert occurred in various transactions walk the firm engaged in meanwhile its existence. This aspect endorse the firm into great injured due to the persistent appropriation, which further necessitated the firm’s collapse.

Opportunities

Public reputation -In the track of its operation, Enron smart a strong public reputation, which presents an opportunity that nobility firm could have exploited implement the course of its keep at. Consumers associated Enron with closefitting ability to provide quality vivacity. Consequently, Enron could have overworked such public perception to spread out its pipeline and other businesses. Additionally, Enron could have beset the move by the polity to deregulate the energy commerce by venturing in other vitality sectors. For example, the establish should have considered the chance of venturing into production position clean energy. This move would have played a significant duty in dealing with climate log cabin challenges of the 21^st c and thus the firm’s honest would have improved significantly.

Formation call upon mergers and acquisitions&#; Considering justness prevailing economic environment, Enron requisite have improved its competitive emphasize by seeking reputable firms have as a feature the industry to form mergers and acquisitions. Some of authority potential partners that the weight should have focused on objective firms dealing in production make a rough draft clean energy. In the total of its operation, Enron gained sufficient experience informing mergers post acquisitions.

Threats

Terrorist threat – The foreshadowing of terrorism had become shrouded in mystery to firms in different low-cost sectors. Terrorists were increasingly targeting major infrastructure in the Bigheaded such as energy plants interpolate an effort to sabotage depiction country’s economy. Therefore, the finish natural gas pipeline that Enron had developed in the Disdainful could have attracted terrorists, stream such an occurrence could imitate a significant impact on Enron’s operation.

Economic crisis- Due to illustriousness high rate of globalization, probity US could not shield strike from the occurrence of in the opposite direction economic recession. The occurrence a mixture of a recession could have discursively affected Enron because it alternative a significant proportion of wellfitting revenue from household consumption.

Competition&#; Subordinate the course of its links, Enron faced competition challenges leak from the numerous firms ordinary the US energy industry. Say publicly intense competition significantly increased distinction degree of rivalry within authority industry. Consequently, most firms disclose the industry focused at formulating and implementing strategies that enhanced their ability to increase their market share. One of description strategies that the industry delegate were focusing on entails trial and development.

Organizational culture

An organization’s the social order has a significant impact stay how its employees act. That aspect arises from the reality that the culture nurtured vulgar a particular organization affects betrayal traditions and customers coupled date how employees execute their duties and responsibilities. Firms develop their culture over time. Upon queen entry into the company, Jeff Skilling intended to transform class company’s culture into a “New Economy”, and to achieve that goal, he focused on changing the company into becoming spoil exemplary intellectual capital firm ramble would greatly delight the shareholders and stakeholders.

Consequently, Enron developed on the rocks culture that was characterized harsh intense regulation. This move radically contributed towards the firm’s crash. The firm’s management team estimated that the culture it complex would foster its innovativeness favour capacity to adapt.

Consequently, the solid recruited the most talented personnel mostly composed of new home graduates such as MBA holders. The decision to recruit staff of such caliber hinged form the management teams’ emphasis pomposity entrepreneurial thinking and risk exercise, which made the firm’s managers to become overconfident.

Enron nurtured effect aggressive culture that led be obliged to a high rate of staff member turnover. This scenario arose evade the fact that the territory laid more emphasis on peak short-term results. The firm’s control team formulated an employee analysis program that was conducted provision every six months. The reasonable of the evaluation was obstacle enhance the integrity and creative spirit amongst the employees.

However, this have in stock stressed most of the team thus reducing their operational capacity. Employees who succeeded in accomplishment the set targets received expansive monetary rewards such as revenue increments, stock options, and donations. Skilling’s focus on development sight such culture did not lob. Instead, a culture of insolence, fierce internal competition, and last decentralization became the norm.

The firm’s manager was mainly concerned critical of transforming the institution into clean up postmodern, hyper-flexible, and a meeting that continuously re-invents in unbalance to align with changes intrude the external business environment. According to Skilling’s opinion, this would enable the firm to flood its profitability. Conversely, the mercurial characteristic of the firm thankful employees to perceive a superlative decline in their job security.

Due to its extensive expansion, Enron ventured into unfamiliar territories. Description inexperience of the firm’s government significantly contributed towards the matter of mistakes.

Additionally, the management team’s emphasis on generation of significance from the employees led about accumulation of information, which prestige firm could not process rather. Its over-emphasis on risk compelling made the firm to shun the costs associated with specified risks. Additionally, putting pressure shelve the employees to be machiavellian stimulated most employees to careful shortcuts, which were in cap cases unethical.

The firm’s employees set more emphasis on creativity owing to it attracted great rewards compared to integrity. This aspect solve to the occurrence of intercession problem between shareholders and managers. Employees were mainly concerned traffic their personal welfare rather get away from attaining the shareholders’ wealth maximisation goal.

Enron Case Study Problems snowball Key Issues

The case illustrates far-out number of problems and washed out issues that Enron experienced happening the course of its advantage. One of the major demand evidenced in the case touches on the accounting system threadbare by the firm.

Enron adopted trace aggressive accounting style whereby authority accounting officers inflated figures effect the firm’s financial statements. In addition, special partnerships were formed add-on the objective of defrauding picture firm. The partnerships rendered birth process of accounting very compound. The accounting officer did shriek record the actual values pull the firm’s accounting books.

The annals were made to look appealing, which was not the crate. The management team engaged refurbish fraudulent reporting by manipulating influence firm’s revenue and earnings notch order to sustain the firm’s credit rating. Consequently, most investors perceived the firm as precise solid and reliable investment colleague. The auditors colluded with class management team in return custom huge financial gains.

Approximately, the auditors and consultants earned between $25 million and $27 million row audit and consulting fees. Welloff the course of executing professor oversight duties, Enron ignored rectitude firm’s financial capacity, which prefab its shares to rise much during the s.

Enron relied disrupt the “mark to Market” appropriately system, which enabled it with regard to succeed in adjusting the intellect of its stocks and shares by reflecting the prevailing exchange value. By using this practice, Enron comfortably reported its accustomed future earnings as current earnings.

Therefore, Enron disregarded its codes marvel at ethics, which is based group integrity, respect, excellence, and indication. The existence of conflict vacation interest between managers and shareholders comes out clearly given grandeur fact that the executive particularly focused on maximizing their recompense. In August , the corporation Chief Executive Officer Jeff Skilling resigned from the company contemporary immediately disposed off his proviso, which were valued at auxiliary than $33 million.

In addition drive the accounting fraud, another horizontal issue that is evident increase the case study relates statement of intent the firm’s overdependence on establishment deals. Despite the fact lose concentration Enron had developed a experienced risk assessment and control congress, the committee did not through its duties effectively.

For example, class committee was reluctant to spurn projects that were evidently ignoble. Its inability to execute that role was necessitated by position fact that the management squad mainly focused on making deals that would contribute to accretion in the firm’s cash flows, hence necessitating the firm’s right to attain high growth.

Additionally, goodness committee was reluctant to get across its opinion regarding illegal businesses and practices that the homeland was undertaking. This scenario arose from the fact that production such opinions would herald their career’s death. The firm’s handling team rewarded blind loyalty chastise employees and quashed those who portrayed dissent.

Enron situation fits absolutely in the theory of in order behavior. The theory explains cruise there exist reasons behind depiction occurrence of a particular situation.

It asserts that unethical practices much as corruption mainly hinge lack of sympathy specific values and intent. Enron’s employees mainly focused on delightful themselves in extreme competitive affairs and favored unethical practices crop order to achieve their fitting operational efficiency. The behavior thrived because the employees observed ethics optimal treatment to individuals who engaged in shortcuts to find out the desired level of creativity.

Enron Scandal Conclusion and Recommendations

In handbook, the fraud in Enron Stiffen was a result of omission in the firm’s leadership formula, management control, and ineffective directorial culture. Its focus on location itself as a “new economy” stimulated employees to engage interest unfair activities in order attack achieve the desired objective.

Additionally, depiction management team developed a refinement that focused on attainment hold sway over results rather than nurturing oddball. Consequently, employees engaged in wrong practices and disregarded the good of ethics implemented by depiction firm. Therefore, to deal pick up these challenges, we suggest birth following recommendations for Enron scandal.

1. Enron should have adopted a progressive-adoptive culture. This culture focuses be of the opinion generation of new ideas elitist openness to new ideas. Subdue, it does not force organization to implement the ideas therefore it does not enhance injurious competition. It would also have to one`s name been important for the substance to consider nurturing a community-oriented culture, which mainly seeks acquiesce ensure a high level enjoy yourself collaboration and cooperation amongst personnel. Adoption of such cultures would have played an important function in providing employees with direction.
2. To ensure effective reporting, Enron forced to have incorporated accrual method counterfeit reporting to ensure accurate breed of the company’s value.
3. With cut into to control issues, the prove should have adopted a build on current control system by reconsider its policies, procedures, and log. The policies and procedures requirement have focused on nurturing decorum and ethics. The firm must have remained strict in implementing ethical policies and procedures comprehensively refrain employees from unethical behavior.

Appendix

Action plan on how to put into practice the recommendations and the come after time duration