Organizational failure and the fall of Enron

Organizational Failure That Caused the Fall of Enron

The fall of Enron shook up the business society from its roots. This large magnate had been able to embezzle millions of dollars, to risk the savings of individuals and to jeopardize the stability of the firm -- and up until the end, to lie about it. A question is being posed relative to the possibility of organizational behavior theories to have predicted the fall, or at least to have explained it in the aftermath.

The specter of organizational theories is extremely vast and it basically includes efforts to explain the elements which impact the behavior of individuals and groups of individuals within an organizational climate. In other words, "organizational behavior (OB) is the study and application of knowledge about how people, individuals, and groups act in organizations" (Clark, 2010). It can assess elements as varied as the remuneration strategies implemented by the firm, the organizational values, the company objectives, the model of management and so on (Miner, 2002).

In the case of Enron, organizational behavior theories could have been used to predict the fail by having identified the organizational failures in leadership, management and organizational structure. This was not however the case and the embezzlement carried on for sustained periods of time, until it became virtually impossible to revive the firm and recuperate any loses. But had OB strategies been integrated and used, it might have been possible for the problems to have been identified early on. In this case, the difficulties would have been dealt with more quickly and more effectively, with the ultimate result of fewer people having been hurt and less money having been lost.

At this stage however, organizational behavior theories can only be used to explain the failure of the organization. Three specific elements are noteworthy: the managerial act, the leadership style and the organizational structure. Each of these elements is briefly described below:

1. The managerial act

From the standpoint of the managerial act at Enron, it has to be noted that this followed a top-down style, through which the decisions were implemented at the top, without much consideration of the bottom (staff members), who were simple asked to implement the decision as they came. Emphasis was placed on resource allocation, remuneration of the top managers -- through sometimes luxurious premiums and bonuses -- or financial sufficiency -- often created through loans.

2. The leadership style

At the level of the leadership style, a distinction has to be made between management and leadership in the meaning that leadership refers to people, whereas management refers to technical details -- such as resource allocation, financial consideration and so on. As a general specification, the Enron leadership style was that of the follower. The employees were not encouraged nor empowered. Transparency was virtually inexistent. Whenever conflicts or intriguing findings would arise, they would be hushed up.

3. The organizational structure