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Enron Case Study

Organisational Communication and Leadership
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on 3 October 2013

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Transcript of Enron Case Study

Enron Case Overview
Formed in 1985 threw two companies - Houston Natural Gas and InterNorth
Soon became the largest trader of natural gas in North America and the UK
Expanded and began trading coal, pulp, paper, plastics and metals
In Decemeber 2000 shares on the NYSX hit a 52-week high of $84.87
A year later, Enron filed for bankruptcy - shares valued at <$1
Often considered to be the most spectacular corporate collapse in history
Overview of Presentation
Analyse 3 communication issues
Individualistic Culture (Hofstedes Dimensions)
Other Cultural Dimensions occording to Hofstede
Competitive vs Cooperative - Rank&Yank (Schein's model)
Recommendations for past and future - advantages and disadvantages
Concluding summary
What is Culture? And Cultural Levels?
Culture and Multi National Corporations
Hofstedes Cultural Dimensions
Individualism & Competiveness
Uncertainty Avoidance & Foreign Expansion
Hofstede "is the collective programming of the mind... distinguishing one group of people to another."
Culture is learnt, not inherited
Culture is also layered, numerous layers exist within a country

Most important layers in the case include;
Organisational level
Social level
Gender level
McLarney and Dastrala discuss culture within MNC's
Enron Era organisations focus on the quantitative aspects such as labour and production costs
There are however several tangible risks involved in investment - these are cultural in nature
Numbers convey investment, while culture determines the longevity of an investment
Organisations looking to expand internationally should be dynamic in their cultural approach, unlike Enron who seemed quite rigid.
Developed by Geert Hofstede
Used to explain observed differences between cultures
Four primary dimensions - fifth later added

Individualism - Collectivism
High Power Distance - Low Power Distance
High Uncertainty Avoidance - Low Uncertainty Avoidance
Masculinity - Femininity
Long-term Orientation - Short-term Orientation
In hindsight, Enron was said to have had a very toxic culture
USA #1 in Individualism - 91/100
A high national level ≈ High organisational level
Two key faults
Reward system - Based on individual success
Employees forgot the big picture and made 'bad' deals

Performance review process - Lowest 15% fired annually
Ensured that no-one helped one another. Everyone was in it for themselves, stabbing each other in the back whenever they had a chance
Dabhol Gas Project - 1991
Political instability in India ensured project never ran smoothly
Adler "management should strive for a cultural synergy of the company’s own culture with the desirable aspects of the national culture"
USA quite weak on uncertainty avoidance = willing to take risks
Enron looked to exploit the Indian political landscape for their own game, but underestimated India's cultural values and signed a MOU
Ultimately, Enron risked failure by trying for foreign investment as they misaligned their culture and values with that of their host country
Scheins Model of Culture
Miller "When organisations are in times of dynamic growth there is little doubt that the culture will be one of confidence and aggresiveness... analysts of Enron believe that the culture of confidence and agressiveness turned into one of cockiness and arrogance"
The culture had a pronounced ripple into other issues
Scheins Model of Culture - Underlying Assumptions
Cheney "What members of the culture see as truth" - but may not be conscious of it
Employees up and down the heirarchy were individualists
Valued their personal success rather than the success of the group
Emphasis on money - humanity was missing
Believed the company needed to expand quickly in order to exist
Employees needed to be controlled in order to work hard
The whole of an organisation is greater than the sum of its parts
Very different to Enron's espoused values and beliefs...
Scheins Model of Culture - Espoused Values and Beliefs
Espoused values are rationalisations about current behaviours or aspirations for future conduct
Enron's code of ethics (RICE);
Respect
Integrity
Communication
Excellence
"Enron stands on the foundations of its vision and values... every employee is educated about the companies vision and values... everything we do evolves from Enron's vision and values statements"
However, values seemed to revolve around the 'me' factor
Scheins Model of Culture - Artifacts
Typically includes dress code, technology or furniture - Artifacts are visible structures and processes within the organisation
Visible heirarchy eg. rank and yank
Rank and Yank
Employees rank one anothers performances
Lowest 15%
Everyone was in it for themselves
Parking Garage - Featured large signage with business virtues
Recommendations
Prior to merger - external company to facilitate exchange
Culture starts from the top with executive management - encourage a low power distance
Adopt a more open working environment
Put a positive spin on company policy - review systems (rank&yank)
Positive Culture - Reward system
Adopt an open workplace environment
Employ external organisations to aid with the merger
Culture starts from the top and ripples down
Full transcript