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The Collapse of Enron

The Collapse of Enron

The downfall of Enron Corporation is one of the most infamous and shocking events in financial world in the whole history of the mankind, and its reverberations were felt on global scale. Prior to its collapse in 2001, Enron was one of the US leading companies and frequently considered among top 10 admired corporations and most desired places to work, and its board was often recognized among the best five US companies in accordance with the Fortune magazine. Its revenues made up US $139$184 billion, assets equaled $62$82 billion, and the number of employees reached more than 30,000 people in 20 countries around the world.

While Enron Corporation was so highly praised by the outside observers, internally it had highly decentralized financial control and decisionmaking structure, which made it practically impossible to get coherent and clear view on corporations activities and operations. Of course, the problem was not exclusively due to poor managerial performance, all the departments of the corporation were involved in the ruining corporate ethical values and principles, but executives and managers bear primary responsibility for the absence of corporate culture, clear accountability and transparence of the company. If operations management worked properly, in its full force, and if it was given possibility to work in such a way, there could be a chance of escaping the tragedy.

Enron Corporation was one of the largest global energy, services and commodities company. Before it was filed bankruptcy under chapter 11, it sold natural gas and electricity, delivered energy and other commodities such as bandwidth internet connection, and provided risk management and financial services to the clients around 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 developed from merely delivering energy to brokering energy futures contracts on deregulated energy markets. In 1994, the company started to sell electricity, and in 1995, it entered European energy market. By the middle 2001, Enron employed about 30,000 people globally McLEan, Elkind,2003.

Questionable accounting methods and techniques provided Enron with possibility to be listed as seventh largest United States company and was expected 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 wellplanned and institutionalized corporate fraud. Enron became wealthy due to its pioneering marketing and promotion of power and communications bandwidth services and risk management derivatives, including such innovative and exotic items as weather derivatives.

In 1999, Enron launched an initiative of buying and selling access to highspeed Internet bandwidth, and also Enron Online was launched as a Webbased trading site, making Enron ecommerce company. In 2000, the reported revenues of the company made $101 billion. It had stakes in almost 30,000 miles of gas pipelines, either owned or accessed 15,000 miles of fiberoptic 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 Americas most innovative Company by Fortune magazine, and headed the list of Fortunes 100 best companies to Work for in America in 2000. Enron reputation 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 involving irregular accounting methods bordering on fraud which involved 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 always considered a blue chip stock, the bankruptcy was a disastrous and unprecedented event in the global financial world. Enrons downfall was definite when it was found out that a considerable share of its profits resulted from deals with socalled specialpurpose entities, limited partnership under control of Enron. It resulted in the possibility of not reporting many of the companys losses in its financial statements. The final plan of Enrons 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 companies CrossCountry Energy, Prisma Energy International, and Portland General Electric.

Operations management scope of functions

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

The principal task of operations management is effective transformation of inputs into desired outputs of the company Shafer, 1997. The outputs are traditionally understood in manufacturing and profitmaking context within the organizations. But recently it has been recognized that operations management is a discipline which is not limited with such narrow functions; it can be deployed in practically any area where the organization aims at achieving its objectives Barnett, 1996. For instance, nonprofit or public sectors have to learn to optimize their internal operations and processes in the situation of limited resources; service companies come to conclusion that by reappraising their delivery process they can revolutionize and significantly improve their approach to manufacturing companies and their marketplace. Robin Wood 2001 gives the example of such operations management 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 additional supporting services. Operations sector is the heart of these changes that are made by leading companies to improve their performance and increase customer base.

The survival of commercial company depends on ability of the organization 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 management of this company to fulfill those abovementioned tasks depends on their understanding that it is necessary to make tradeoffs. They cannot avoid the situation of working under constraints and have to understand their capabilities and constraints to provide significant inputs into strategic decisionmaking process involving further resources of the organization. .

Full version of this article is available at The Collapse of EnronAnastasia Kurdina is a person of manifold gifts. Almost every her writing is followed by lavish testimonials from satisfied customers. Anastasia specializes in marketing, management, sociology, history, world cultures, literature and art. She is a Poet, an Analyst, an Artist, a Critic, . . Get to know her better now at Custom Research Papers. Here you can find articles and samples on various subjects and order your custom paper online.