SWOT Analysis: The Fall Of Enron Case Study

THE FALL OF ENRON

CASE ANALYSIS

By

Working Group N1, PGP 1, Section 3

Abhishek Rajan 14F303

Pankaj Pandey 14F328

Parvathi Jayakumar 14F330

Shruthy D 14F345

Vinayak Prabhu 14F359

Problem Statement

How a highly successful and once profitable company Enron could have ensured ethical compliance and thus avoided its fall.

SWOT ANALYSIS OF ENRON:

Strengths:

1. A market leader in energy sector which has created its own brand equity by being innovative and employee centric company.

2. Very strong risk management system.

3. Ken Lay, the CEO was very influential in politics and government thereby lobbying for deregulation of markets.

4. Employee’s bonus was very high (sometimes 100%) and was based on present values of future inflows.

5. The company

The accounting was skewed because of two issues. The first is that its trading business involved complex long term contracts which was accounted by using mark-to-market accounting. This accounting methodology was challenging because it overstated its operating income by recognising the present value of stream of future contracts as revenue. The second challenge was the unethical practices being followed in SPE’s to hide debts.

• Diversification Strategy

Enron always motivated new ideas and innovation in its organization. Sometimes this led to venturing into unrelated sectors without accessing the risk involved into such investments. Various risk assessing tools such as RAC and DASH were available with the management to access the risk associated with any new venture but management seldom used it. This diversification strategy sometimes gave the benefit of doubt in the investors mind in terms of its viability and returns associated with it.

• Auditing and

Cons:

•The energy industry they are into is very volatile industry with fluctuating prices. Staying into the same industry would have caused them become more vulnerable to the economic changes associated with this industry.

• Alternative 3: Organisation culture

Enron being performance driven company always motivated employees to innovate and deliver value to the organisation. This sometimes created a pressure on to the employees to perform in any circumstances and hence motivated them to adopt to unethical practices. Thus there is a requirement of a mechanism to first stop these practices from taking place and even if it happens there should be a set of measure in place to check. Hence Enron should set a code of standards of ethical behaviour to be complied by everyone

Pros:

• The practices are already in place and it has been imbibed in the organisational culture but it just needs to be emphasised upon.

• Will motivate employees to work ethically.