Innovation Corrupted: the Rise and Fall of Enron

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Q1: MBA’s were lured into working for the company with $20,000 signing bonuses and prospects of annual bonuses of up to 100% of salary. Additionally, all recruits were put on a pedestal “so they would develop a sense of superiority.” A two-week program also strove to impress Enron’s newest elite with images of Enron as “a cosmopolitan, global company with unlimited opportunities.” The company developed a reputation of being innovative and hiring only top professional staff—candidates were seen to have a high level of technical competence and an excellent track record. Moreover, the employees were convinced that both the intentions and the commitment of the company executives were aligned with the employees’ interests. Specifically in 1998, MBA’s from various prestigious universities turned down offers from very promising companies in order to work for Enron. Enron rewarded their associates with huge corporate benefits. These employees were rewarded on the basis of merit. Q2: Legislative reforms enacted between 1978 and 1992 liberated Enron to its demise. These reforms effectively allowed companies to merge and diversify, unbundle services, and buy and resell gas and electricity at whatever prices they saw fit; as a consequence, barriers to entry also fell. According to the case, traditional industry players were soon joined by many new, virtually unsupervised power generators and traders–including the newly formed Enron Corporation. As per the soundness of the business model developed by Skilling and Lay for gas and other products, the model seemed to work well within the energy and electricity industry; however, it failed in other markets in which Enron did not own a comparative informational advantage. Enron’s diversification did make sense. Enron defined itself as a different kind of supplier to the traditional natural gas customers;
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