Case Study

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To help you demonstrate the ability to analyze real life cases applying concepts from the text.To prepare you for working in teams in the workplace.

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CASE STUDY 6 THE RISE AND FALL OF ENRON In July of 1985, Houston Natural Gas merged with InterNorth, a natural gas company based in Omaha, Nebraska. This merger formed Enron, a natural gas pipeline company with over 35,000 miles of pipe. In 1989, Enron expanded beyond the pipeline business and began trading natural gas commodities. In 1994, Enron began trading electricity. Soon, Enron was the largest trader of natural gas in North America and the United Kingdom and the largest marketer of electricity in the United States. Enron went on to trade coal, pulp, paper, plastics, metals—even bandwidth. As Enron expanded, its value as a publicly traded company was enhanced. By December 2000, Enron shares on the New York Stock Exchange hit a 52-week high of $84.87. Less than a year later, Enron filed for bankruptcy and its stock was trading for less than $1, marking the most spectacular corporate collapse ever. What happened? How did a company riding as high as Enron (a sign greeting visitors at corporate headquarters in Houston hailed it as “the world’s leading company”) fall apart so quickly and so completely? Many explanations for the collapse have been offered, including quick expansion, risky business ventures, slavish attention to stock prices, questionable or illegal accounting practices, and dishonest communication with shareholders. Interested parties in government, business, the media, and academia will spend many years sorting out the extent to which these issues were factors in the failure. However, very soon after Enron’s fall, many analysts were suggesting that a key contributor to the collapse of Enron was its organizational culture (Hassell, 2001; “Houston, we have a problem,” 2001; Sloan, 2002). When organizations are in times of dynamic growth, there is little doubt that the culture will be one of confidence and aggressiveness. If the organization is to successfully branch out and deal with competition in the marketplace, managers and workers often develop a strong culture that exemplifies Peters and Waterman’s (1982) call for autonomy and entrepreneurship. However, analysts of Enron believe that the culture of “confidence and aggressiveness” turned into one of “cockiness and arrogance” and that this culture—together with issues of finance, accounting, and business development—led to the most dramatic crash in U.S. corporate history. As Sloan (2002, p. 21) notes, “What made Enron successful—innovation and daring—got the company into trouble.” Hassell (2001) discusses a number of “cultural indicators” and “cultural values” that, in retrospect, may have spelled doom for Enron (see also Sloan, 2002). Consider just a few: • Employees up and down the hierarchy adopted a “cocky” attitude after their fast and meteoric growth. As Hassell (2001, p. 29a) explains, “[t]he arrogance at Enron became a palpable force.” This attitude gave Enron executives and workers the belief that they could tackle anything— even projects that seemed questionable to the outside observer. • The reward system at Enron, initially based on group and team performance, increasingly relied on individual performance. When Jeffrey Skilling was CEO, one performance review process became known as “rank and yank” (Hassell, 2001). In this system, employees ranked each others’ performances, these rankings were combined, and the lowest 15 percent were laid off each year. Hassell (2001, p. 29a) quotes a former Enron employee on this system: “Because of that, you never helped one another. Everyone was in it for themselves. People stabbed you in the back.” • Enron’s reward system also highlighted the importance of individual accomplishment with big bonuses and promotions for those who landed important deals each quarter. Another former Enron employee explains: “It took everyone’s eye off the big picture and made them focus on pushing deals through the system, even if the deal was a bad deal” (Hassell, 2001, p. 29a). • One eye at Enron was always on the price of its stock. As Hassell (2001, p. 30a) states, managers and workers alike were “eager to keep the company growing and the stock price soaring.” This attention to stock may have led to risky decisions about deals and ventures and to questionable ways of accounting for those deals. Hassell (2001, p. 30a) quotes an industry analyst: “They booked all the deals’ profits upfront, even though the payoff would not be for 5 years, 10 years, or 15 years. When you do that, there is an urgency to book new deals, because all the old profit is already booked. When you push the outer limits like that, it puts tremendous pressure on everyone in the company.” • The concentration on stock price was enhanced because most employees were heavily invested in Enron stock through retirement investment programs—e.g., 401(k) s. This, of course, increased the pressure to perform at all levels as employees’ individual fiscal stability was tied to the performance of the company. Sadly, many Enron employees lost hundreds of thousands of dollars in retirement savings when the company collapsed. While it thrived, though, attention to stock prices drove many employees. As a former senior executive described, “Everyone was just too excited about the stock price and how rich we were getting. The company sold its soul for a higher stock price” (Hassell, 2001, p. 30a). Hassell (2001, p. 1a) begins his Houston Chronicle article about Enron by stating, “If the incredible collapse of Houston’s most powerful company were written like a whodunit, there would be no shortage of clues to sift through in search of the culprit behind it all.” This puts the analysis of organizational culture in a nutshell—it is sifting through messages, stories, behaviors, and values to find clues to the workings of an organization. Discussion Questions 1. Consider Schein’s “onion model” of organizational culture. What were the values and underlying assumptions at Enron? How do you think those values and assumptions were illustrated in overt artifacts and behaviors? 2. How were various aspects of Enron’s culture interconnected? Did the culture form a coherent whole? Do you believe there may have been subcultures at Enron that could be differentiated? How might these subcultures have been defined? 3. Do you think there is anything that could have been done—in terms of organizational culture—to “save” Enron? If you had been a communication consultant at the corporation, what might you have suggested in 1995? In 1998? In 2001? Purpose To help you demonstrate the ability to analyze real life cases applying concepts from the text. To prepare you for working in teams in the workplace. Assignment This assignment involves two parts: 1) writing a team analysis of a case study and 2) delivering an in-class team presentation. Presentations Your group will make a 20-25 minute case presentation in class. In-class case presentations will be due at the end of the semester. Visuals are encouraged if they help your presentation and case analysis. The presentation is worth 50% of the project grade. Paper Supplement your analysis with related information to your case. The length of your paper should be 1500 – 2000 word minimum (6-8 pages) paper. Organize your paper according to the five Roman Numeral points listed below in the format section. Respond fully to each of the five points and answer each point thoroughly. Format Your group is responsible for delivering the following in your paper and oral presentation. I. A detailed description of the case, its background and issues. II. An analysis that defines or describes the core communication decision, dilemma, or problem of the case. This analysis MAY generate a specific plan for organizational change or an outline of a workshop or document that would be useful to the organization if you have chosen a local company. III. Answer thoroughly each case question accompanying the case. The team process may generate many ideas for answers. Consolidate those ideas with others and make sure each one lines up with the content in the chapter. (NOTE: back up your answers with evidence from the case and argument regarding relevant chapter concepts. Remember, the goal of the case method is to apply theory to the real world, not to generate solutions based on their own personal experience.) IV. A list of resources (physical, monetary, human resources) needed for implementation of the proposed solution to the problem. V. A statement of expected benefits or expected impact of the proposed solution. Evaluation You will be evaluated on your ability to analyze the case into the areas outlined above, to work cohesively in a team, and present the case material to the class. Written papers will be judged on overall content, APA style, and grammar/spelling. The paper will be evaluated separately using standard outline format (Roman numerals to represent the five sections)
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Running head: ORGANIZATIONAL CULTURE CASE STUDY

Organizational Culture Case Study
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ORGANIZATIONAL CULTURE CASE STUDY

Organizational Culture Case Study
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Case Description, Background, and Issues
In 1985, Enron Corporation was founded. It provided energy, services, and commodities

and was based in Houston, Texas. The company was founded following a merger between two
small companies, InterNorth and Houston Natural Gas. The merger proved successful as the
company went on to employ an estimated twenty thousand people and expanded to the provision
of other goods and services related to energy such as electricity and natural gas and others such
as pulp and paper. The expansion proved to be successful since soon after venturing into these
different products in 1994, Enron became the largest trader in natural gas in the United States
and the UK and the largest marketer of electricity in the former. Its revenue skyrocketed to over
a hundred billion dollars in the year before its downfall, with Enron being named as the most
innovative company in the United States for six years in a row by Fortune.
Enron’s success reflected in the stock market as well. Its value as a publicly traded
company rose as it maintained a record share price of $ 84.87 in December 2000 after having hit
a high of $ 90 in the summer of the same year in the New York Stock Exchange. At this point,
most of the employees had bought the stock intending to benefit from the windfall gains; in fact,
executives at the company made significant profits by selling their stocks as the share price
continued to rise.
In less than one year, however, there was a dramatic change as the previously highly
priced stock plummeted to as low as $ 1 and sunk lower to trade at less than that. Enron filed for
bankruptcy and went on to become the most notable collapse of a previously highly regarded
corporation. The collapse of the corporation has since been attributed to different reasons. One of

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ORGANIZATIONAL CULTURE CASE STUDY

the most probable cause is the manipulation of the company’s financial records. The company’s
accounts, for instance, failed to account for liability properly. Instead, Enron transferred its
liability to appear attractive to investors which explains its perpetually rising stock prices. Other
reasons include the company�...


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Excellent resource! Really helped me get the gist of things.

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