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Requirement
Analyze the rise and fall of the Enron Corporation:
The documentary "The smartest guys in the room (Gibney) tells a story about Enron's development and fall, ending up with a complete bankruptcy and one the biggest scandals in corporate America. But before going bankrupt it was one of the most successful companies in the US, saluted for its innovation and growth.
The question is: How can we, using organization theory, explain the rise and fall of the Enron corporation?
The question should be answered using at least 3 theories/models about organizations from the curriculum.
Solution
Company Overview
The rise and fall of Enron deal with the collapse of Enron Corporation resulting from the criminal trials for various top executives of the company during their Enron Scandal depicting the involvement of Enron traders in the crisis of California electricity.
Enron Corporation was an American commodity, energy, and Services which was based in Houston, Texas. The company employed around 20,000 employees before bankruptcy and was considered as the major natural gas, electricity, pulp and paper companies and communication in the world and has revenues of $111 billion. It was termed as America's Most Innovative Company by Fortune for around six consecutive years.
The financial conditions were seen to be sustained substantially in 20012 by the systemic, institutionalised and creatively planned accounting fraud was terming the organization as Enron Scandal. Since then the company is a well-known name in the cased with corruption and willful corporate fraud. The accounting practices and related activities were brought into questions in the whole United States. The scandal by Enron was seen to affect the greater business which caused a dissolution in the Arthur Andersen accounting company.
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During late 2001, a bankruptcy protection was filed by Enron in the Southern District of New York and selected Manges, Gotshal and Weil as their bankruptcy counsel. During 2004, the organization ended in bankruptcy and is considered as the most complex bankruptcy cases in U.S. history (Gibney, A., 2005).
The paper discusses the success and failure of organizations using the three theories/ models which are:
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Competing Values Framework
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Mintzberg management model and
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Trait and Transformational Theories of Leadership
Discussion
Various management theories related to the organization help in offering a lens by which the organizations and managers of the organization can be viewed. These theories help in reflecting a perspective on the management and the organization and help in mobilizing the arguments, ideas and explanations for making sense of practice along with influencing the practices. A framework is provided using the theories for analyzing the strengths and weakness of the managerial system. Therefore the case of rising and fall of Enron Corporations has been discussed by using the three management theories.
The Competing Values Framework (Goodman, E.A., Zammuto, R.F. and Gifford, B.D., 2001) along with the management model by Mintzberg’s (1976) are highly valuable at examining the failures and success of the organizational culture. The CVF model depicts four quadrants namely, control, compete, create and collaborate. This model has integrated various management models and assists the organization and their managers in order to balance the managerial concepts like efficient activities versus innovation and change in an organization, stability, and control versus flexibility and adaptability; respecting the employee versus setting the objectives and goals. Both the models will emphasize on the skills required by the management. However, the Mintzberg's model will focus entirely on the roles of managers and their need for action in the internal and external planes and CVF focuses on integrating the competing skills and values for developing a balanced individual approach.
Each model was applied to the Enron corporations to seek unique vintage ideas that highlight various strengths and weaknesses. A wide range of skills for the managers was selected from the given models like encouraging compliance, leading teams, managing oneself and others, scheduling and leading the unit or the organization and compared with the skills of management of Enron Corporation. The model of management by Mintzberg focuses primarily on managing the places and position in the organization and the roles and sub-roles played by a manager. The model is highly prescriptive, detailed and action-orientated in nature. On applying the model to the managers and staff of Enron Corporation, it can be suggested that the managers were highly excelled at competencies like project managing, negotiating, managing change, firefighting, and politicking. This lead to the achievement of commendable success of the corporation in a short span of time.
Through the Competing Values Framework, it was suggested that the managers of Enron were not rated highly on the basis of their ability to communicate honestly and clearly as they were seen to withheld information and data from their workers and staff thereby neglecting the essence of communication as the true states of the organization. These skills were not even adapted in the hour of crisis and on the eve of bankruptcy. Although the managers were good and effective communicators when it came explaining the goals and objectives of business. In spite of wielding their power in an effective manner while making profits, the managers and staff were seen to lack the ability to use power ethically and ended up using their authority and power for retaliation in the crisis time. This explains the abrupt fall of the organization even after attaining the highest position in the market.
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Place Your OrderBoth the models are seen to present convergence between the competencies explained by each one of the models. Both the models help in offering the different perspective and explain the success and fall of Enron Corporation and both the models explain the key weaknesses present the management team of Enron contributing to the downfall of the company. The Mintzberg Model helps in conceptualizing the practice of managing as a combination of science, art, and craft. On this basis, the management of Enron is compared suggesting that the managers of the organization adopted their managerial styles which focused primarily on the science and arts of management along with overlapping it with craft. The managers of the company were seen to adopt a managerial posture which connected externally, and some of the managers were reluctant in nature. This can further be explained by saying that the leadership of Enron did not have an equilibrium of individual approached towards their management and their top management was further seen to have no balance in their management styles as they failed to provide perspectives, strengths, and viewpoint to their teams.
The Same conclusion can be provided by CVF framework but with a different perspective. The management was seen to excel in the external focuses competencies on the “create” and “compete” quadrants of the model. By seeking the strong competitive and strong focus with the cultural orientation towards innovation and change, it can be seen that the Enron Corporation had adopted an adhocracy culture with a strong market presence. However, the imbalance in their managerial styles, organizational culture and focus lead to leaning and toppling of the organization. The managerial team of the organization was not seen to integrate the competing values and practices and did not demonstrate behavioral complexity which would have made the organization more effective in its operations. They had adopted a unitary managerial posture which ended up contributing towards a myopic vision and therefore fostered a culture which was initially successful and ended up becoming highly toxic.
The organization initiated with a balance of all four quadrants of the organization but later became unstable. Whereas the Mintzberg highlighted the managerial posture for the managers and their team. The organization, therefore, lacked a correct balance of managerial postures with crafts, arts, and science.
On evaluating the case study with the Trait and Transformational Theories of Leadership, it can be seen that the organization lacked the vital key trait of integrity which impacted the organization in the worst way possible. Enron managers and especially the executive leaders were seen not to exhibit the trait of integrity within their organizational culture. For example, Jeffery Skilling was highly intelligent, confident and determined. He had an ability to provide a clear vision to the organization. His leadership style can be portrayed and exemplified especially in the scenario of maximization of the share value and profits of Enron. The maximization of profits was taken aggressively in the case of the leadership style of Skillings to such an extent it did not take into account the trait of integrity seriously. This lack of integrity in the organizational structure of Enron projected a serious issue for the company and the group members and leaders like Andrew Fastow started to encounter the circumstances which required them to have an honest disclosure of the financial reports and information. Only a very few number of the staff members were given the external motivation from their leader Skilling and told the truth regarding the real financial situation of Enron. Those selected people who lacked enough integrity to speak about the matter and reveal the truth concerning the financial losses of Enron were fired, dismissed and demoted. This lack of integrity from the leaders of the organization resulted in fostering a “me-first” attitudes along the ranks of management of Enron.
Regarding the transformational leadership model, it can be seen that the leaders like Rebecca Mark, Jeffery Skilling, and Kenneth Lay were exceptional transformational leaders at the organization. Their leadership helped the organization to achieve unprecedented heights and inculcated the cultural values like creativity, innovation, and risk-taking in their workforce at Enron Corporation. This helped the organization to hail titles like “American’s Most Innovative Company,” “The #1 CEO in the USA” and “No.1 in Quality of Management,” and Skilling was presented as “The #1 CEO in the USA”. Their short-term personal behavior provided immense success to the organization but had toxic long-term health effects on the company.
From the leadership theories, it can be seen that the hierarchy of leadership did not abide to the moral standard and focused only on making money. Therefore Enron eventually emerged out as the moral-less transformational leadership which can be viewed as an asset initially and weakness in the future driving the organization to attain its highest financial heights and emerging in the deepest valley. The absence of the moral form of transformational leadership became a double edged sword which leads to cutting off the leaders of the organization from the financial reality surrounding them. Therefore, the coupling of lack of integrity with this leadership led to the feeding of narcissism culture which eventually permeated throughout their organization.
References
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Gibney, A., Alberti, M., Coyote, P., Cuban, M., Davis, G., Ellwood, A., Fastow, A.S., Hauser, M., Kliot, J., Lay, K.L. and Lerach, W.S., 2005. Enron: The smartest guys in the room. Magnolia Home Entertainment (Firm).
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Goodman, E.A., Zammuto, R.F. and Gifford, B.D., 2001. The competing values framework: Understanding the impact of organizational culture on the quality of work life. Organization Development Journal, 19(3), p.58.
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Mintzberg, H., Raisinghani, D. and Theoret, A., 1976. The structure of" unstructured" decision processes. Administrative science quarterly, pp.246-275.
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