Case Study of Enron

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Response to organizations in art or entertainment
(Enron, the Smartest Guys in the Room, 2005)


There is a proverb “too good, to be true”, and it means the same, that some things are too great, to be real. In business world, it is often used to describe market conditions or companies under unbelievable success. Although, there were not too many companies that would fit the saying Enron was one of them. In a period of sixteen years, Enron’s value grew from 10 to 70 billion dollars making it the seventh biggest company in the USA with more than 20000 employees in some 40 countries. Such growth was not of normal proportions and was enabled by monopolized corporation (Enron) in a process of massive extortion of its customers. Enron was one of the biggest corporations in U.S. history, yet due to insider trading and fraud they failed, and the collapse of Enron has been the major business disaster of new millennium. The aim of this paper is to present organizational theories and use them to analyze and explain what happened at Enron Corporation and why managers acted the way they did. This paper is based on company, portrayed in the documentary movie – “Enron: The Smartest Guys in the Room”. The focus of the paper is to analyze the bureaucracy and hierarchical structure of Enron as well as power relations and the ways power has been acquired and used. More to that, I am going to analyze rational choices of individuals at Enron and how they affected the company. However, before diving into detailed analysis, an elaboration of theories that are going to be used is required.

Organizational theories

We will work with Weberian term of bureaucracy, first introduced in his works. Bureaucracy has become one of the most popular ways to base company’s structure and strategy on. It is not by any circumstance that bureaucratic organizations have dominated the modern society. This dominance of bureaucratic organizations shows the effectiveness of formal rationality as a way of organizing society (Weber, 1946). Weber described the bureaucratic form as being the ideal way of organizing a company, having following characteristics. The first one being a formal hierarchical structure, meaning each level controls level below and is controlled by the level above (Weber, 1946). More to that, everybody is managed by the rules, which allows for the decisions made high in the hierarchy to be executed consistently by all lower ranks (Weber, 1946). Work at such organization is done by specialists and such specialists are organized into groups of units based on the type of work they do or skills they have. To elaborate, no one is more important that the other, all employees are treated equally, despite their differences. Most importantly, everybody is personally free and are not bound to others in any relationship, they are free to leave and company is able to let them go whenever seen fit. Lastly, to increase efficiency every bureaucratic organization would have “up” or “in” - focused mission (Weber, 1946). Mission described as “up-focused” serves stockholders, board of directors or any agency that empowered it, while “in-focused” mission serves the benefit of organization itself (Weber, 1946).

Even though, bureaucracies are efficient individual complains, in such organizations usually relate to ways in which some part of the ideal type is not met in organization. For example, rules may not be clear or too strict on certain matters. On the other hand, while bureaucracies may be seen as limiting freedom, and structures of dominance, they are necessary to administer a complex modern day organization. Yet, at the same time Weber notes that bureaucracies tend to have great power and their efficient ways of administration, and their legitimate forms of authority do act to eliminate human freedom (Weber, 1946). In short, bureaucracies are alienating in that they are sets of structures dominating people. Lastly, Perrow...
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