In early 2001 Enron became the greatest energy company in the world and sped to be the ďworld’s greatest companyĒĚ. The company accumulated the vast amounts of assets, its top-management included the intellectually elite of the USA, and Enron had numerous opportunities to expand and favorable political climate.
However during the three years Enron went from the 7th largest company in the country to financial ruin. Rich Kidwell, the Financial Advisor in Merrill Lynch, said ďI don’t know if there was anything that they could do. Enron was like a house of cards and it was only a matter of time before they were blown down.ĒĚ (Porter & Clark, p.2)
Through the SWOT analysis of the Enron at the late 1990th I tried to examine the situation and then suggest the opportunity to avoid collapse.
Main stages of Enron’s history
1. Pre-Enron period.
1930 Ēď the foundation of Northern Natural Gas Company in Omaha, Nebraska.
1979¬† – the foundation of the holding company InterNorth Inc.¬† Northern Natural Gas became its leading subsidiary.
1985 ¬†– InterNorth bought Houston Natural Gas, Kenneth Lay became the CEO, ¬†merged company re-organized and renamed as ďEnronĒĚ.
1989 – Enron together with its Gas Bank started to trade gas futures with the fixed price.
1990 – Enron started the world expansion.
1999 – EnronOnline was started. Enron began to trade in internet with buyers and sellers all over the word.
2000 – Stock price of Enron reached an all time high of $90.
2001 Ēď In October Enron posted its first quarterly loss in four years. In December¬†¬† Enron filed for bankruptcy protection.
The attractiveness of the industry – energy industry is one of most attractive in the world.
2. Unique size ¬†of company and its operations compared to other commodity companies.
3. The advantage in assets Ēď Enron owned the largest company-owned natural gas pipeline system in the USA.
4. The highest credit rating (7th from 500 according the ďFortuneĒĚ magazine).
5. An excellent company reputation.
6. Adoption of new technology; large internet sales.
7. Market-making abilities; service and price advantages.
8. Great market share and competitive advantage.
9. Ambitious top-management and consistent expansion plan.
10. Political influence on the market regulation laws.
Lack of moral and ethical behavior among top management. Efforts at gaining political influence among with¬† hostile climate within the company were employees afraid to express their opinion or ask about the business legality.
2. Unpublished agreements with auditors.
3. Domination of private interests of top management over common interests of the company. ¬†Enron’s chief financial officer Andrew Fastow formed many small offshoots to build top executives wealth while mounting company debt.
4. Strong dependence on the rating and stock price.
5. Aspiration for work on the deregulated market.
6. Conflicts of interest in company’s infrastructure, its financial transactions and accounting practices.
7. Insufficient control measures and defective accounting and financing methods.
|opportunities1.¬†¬† Consistently adapt to market regulation laws.
2.¬†¬† Decrease the expansion rate for some stabilization
3.¬†¬† Us—É the name recognition to enter and consolidate new markets, especially abroad (Europe, Asia and Africa still have a great potential for energy business).
4.¬†¬† Develop the new business (EnronOnline) simultaneously with consolidation of the traditional business.
5.¬†¬† Use more transparent accounting practice.
Termination of some partnership contracts.
2. New contracts of former partner with Enron competitors.
3.¬†¬† Newer technology could provide alternative energy sources, thus the profits from oil and gas could fall.
4. New regulation laws on the energy market could influence the Enron profit too.
5. Currency fluctuation in markets outside the U.S.
6. Political instabilities in some markets
7. Tariff trade barriers
As far as I can see, the market position of Enron was incredibly strong. The company had all the advantages of industry and position. The threats were standard for any large international company and the opportunities were numerous and easy-achieved. Analyzing the weaknesses I understood that the main company weakness was the politic of Enron’s top-management. I agree with industry experts that the breakdown in ethical and moral business practices was the cause of collapse. Rich Kidwell said ďfraudĒĚ is the thing that directly led to the downfall of Enron. CLU and ChFC at
AUL Tower Agency Joe McGee gave a similar response. (Porter & Clark, p.18)
It is clear that changes in the company culture and operational control management are necessary along with changes to accounting methods.
Enron went down in history of corporative America as an example of what the lack of ethics and moral in ¬†business practices can do to even the seventh largest corporation in the US. Ethical management control systems, defective accounts and the hostile ¬†organizational culture were those problems that led to downfall of Enron.