Lincoln’s comments:
A well-researched, thoroughly analyzed, clearly written study of an interesting company.
Recommendations, too, are thoughtful, balanced, nicely laid out, and derive from the analysis.
You really come to grips with the nuances of Enron culture, with its up- as well as its downsides.
The one area where I think your analysis could have been more on target is in recognizing the
inconsistency of some of your informants’ claims about the culture. Clearly, “profit and moneymaking are not the only core values of this company. Flexibility, responsiveness, competitiveness,
challenge, innovation are all quite legitimate core values and they come across strongly. Bear in
mind that practicing managers are not always completely clear on concepts such as culture. They
may be hell-bent on making money, but that doesn’t necessarily mean that money-making is all
that they’re about. As the “culture paradox” says, they make money, not because that’s all they
value, but because they have strong, shared norms and values in place that enable them to
outperform the competition on multiple dimensions.
Enron Corporation
BA205 Organizational Behavior
History of Enron Corporation
Houston Natural Gas Corporation and Internorth Inc. merged in 1985 to form Enron
Corporation. Since its conception, Enron has distinguished itself as an innovative, prominent
leader in the natural gas market. Enron, headquartered in Houston, is the largest trader of natural
gas and electricity in North America today. Enron also markets and trades other commodities,
including water, paper, coal, chemicals, and fiber-optic bandwidth. Its telecommunications arm,
Enron Broadband Services, is building a national fiber-optic network and creating a market to trade
bandwidth capacity. The success of Enron’s aggressive strategies is demonstrated by the rise in its
stock price from a split-adjusted $3.20 per share in 1985 to $80.63 per share on November 20,
2000. In this same period, revenues increased from $10.3 billion to $40.1 billion and net income
improved from a loss of $54.7 million to $919.0 million.
As a result of its ability to discover new business opportunities, transform traditional
industries, and enter new ones, Fortune magazine named Enron “Most Innovative Company” for an
unprecedented fifth consecutive year in 2000. A cornerstone of Enron’s success, as shown in this
paper, is its commitment to a culture that fosters innovation.
Enron’s focus on innovation has been demonstrated throughout its history. As a newly
formed company in the mid-1980’s, Enron pioneered the trading of natural gas when natural gas
markets were deregulated. When Enron entered the electricity market in 1993, it revolutionized the
industry by facilitating a market to trade electricity. Enron was also among the first energy
companies to expand beyond traditional energy markets by entering the telecommunications
industry. Enron has even entered the e-commerce sector by partnering with leading high-tech
companies to form Enron Online, a business-to-business website that facilitates the trading of
commodities.
2
Factors of Success
What is the story behind Enron’s success? Enron is not wedded to specific industry
strategies. Rather, it has an overall strategy that calls for creating an environment and culture of
creativity and idea generation. “Enron is a laboratory of innovation… [Enron’s entrepreneurial
approach] calls for new insights, new ways of looking at problems and opportunities… try
something different…change a goal…change a habit…change a mind”i. Enron has an exceptional
ability to leverage its intellectual capital. Individuals are empowered to do what they think is
best;”[Enron’s] philosophy is not to stand in the way of our employees” ii.
This environment spurs the innovation that enables Enron to revolutionize traditional
energy markets and successfully enter new ones outside of the energy industry. “Enron’s primary
competitive advantage is to identify opportunities and gain a first-mover advantage that we never
surrender. Enron often introduces a product or concept before the competition even senses that a
market exists”iii.
Methodology &Research Focus
In order to understand Enron’s culture and its relationship to its success, we performed a
cultural audit of Enron’s San Francisco office. The San Francisco office opened in 1994 with three
employees whose main function consisted of long-term wholesale natural gas and electricity
transactions. Initially, the office focused on restructuring long-term contracts between independent
power producers and utility companies. To leverage changing market conditions, the office began
developing power plants in 1997. In 1999, the California Energy Commission issued Enron a
permit to construct its first power plant in California. Today, the office has grown to ten
professionals and two administrative staffiv. Nine of the ten professionals have worked at Enron’s
corporate headquarters.
The cultural audit consisted of extensive primary and secondary research. Initially, we
developed an understanding of Enron through analysis of firm documents (annual reports, website,
3
etc.) and third-party firm and industry reports. Next, we created an in-depth interview template and
a quantitatively based survey to administer.v A literature review revealed best practices in cultural
auditing and was used to develop the interview template.vi We asked employees their perspectives
on Enron’s culture and how it affects employee behavior. Employees were also questioned on the
culture’s advantages and disadvantages relating to different aspects such as autonomy,
communication, and empowerment. The survey asked respondents to numerically evaluate aspects
of the office culture.
Seven present employees and one former employee at all levels of the organization were
interviewed for approximately one hour each. Nine employees completed the assessment survey.vii
This cultural analysis identifies the prevalent cultural characteristics of Enron that are both
beneficial and damaging to the San Francisco office, gives recommendations on changes that
would benefit the organization, and briefly identifies potential barriers to implementing these
changes.
Cultural Overview and Strengths
Our findings affirm that the culture of Enron’s San Francisco office is strong and well
defined. Specifically, the culture is entrepreneurial and innovative, values merit over hierarchy,
emphasizes both team and individual behavior, focuses on profits (especially in the short-term),
emphasizes responsiveness, and fosters internal competition. A ‘sink-or-swim’ mentality also
pervades the culture; the firm gives employees significant responsibility and opportunity to
succeed, but little training and guidance. Communication with other groups is infrequent and can
lead to a feeling of isolation for the San Francisco office.
Survey and interview results show significant agreement among employees at different
organizational levels on cultural characteristics. In the survey asking respondents to rank the
prevalence of cultural attributes on a scale from one to five, responses for eight of eleven attributes
4
show standard deviations of one point or less for all respondents. In other words, the staff display
consensus regarding specific cultural traits. This consensus signals a well-understood and
consistent culture. Interview results are similarly congruent.
The following section outlines the key traits of the San Francisco office’s culture and
identifies its strengths where appropriate.
Entrepreneurship and Innovation
Almost every interviewee describes the culture as entrepreneurial and innovative. Several
mention that Enron “lets 1000 flowers bloom” by experimenting with new ideas and then focusing
on the successful blooms. Survey responses rank innovation in the office as 4.4 out of 5 (where 5
equals “extremely innovative”) with a standard deviation of 0.5.
An innovative and entrepreneurial spirit permeates all levels at the firm and all types of
employees. Autonomy and empowerment, two traits closely related to innovation, are high in the
firm. “Employees are empowered to try new things and use their skills and talents to the fullest,”
says [a mid-level manager]. On the survey question referring to employee behavior with “1”
representing extremely self-directed and “5” representing extremely closely-guided, the mean
response of 1.9 supports the perception of autonomy at all levels. “Employees take a tremendous
amount of ownership in their work and have a tremendous amount of latitude on how they decide
to complete their tasks,” reports [an employee in the management development program]. As a
result, the firm stays nimble, creative, and responsive.
Enron Online is a spectacular example of grass-roots innovation. As [a high-level manager]
explains, “Some people just started doing it [Enron Online] and grew it gradually. The product was
ready before any at the top knew about it.” The website now trades over 1,200 products and has
executed over 350,000 transactions with a gross value of over $183 billion since its inception in
late 1999.
5
Numerous complementary cultural norms and management practices relate to and sustain
the entrepreneurial culture. Conflict and failure are acceptable and necessary in solidifying new
ideas. For instance, in evaluating a potential project, a team calls a “shooting holes” session where
it presents the project to a larger group that consequently shoots holes in the project by identifying
problems. The team then calls in-house experts to address criticisms and propose solutions.
Management accepts failures as the price for innovation, though repeated failures incur punishment
(e.g. little or no bonus, banishment to undesirable wings of the firm, etc.).
Entrepreneurship and innovation are critical strengths of the culture and main competitive
advantages for the firm. Similar to Southwest Airlines, the Enron culture provides a sustainable
advantage difficult for other firms to mimic. [A mid-level manager] points out that Enron’s cultural
distinctiveness, specifically its entrepreneurial culture, gives it a significant advantage over other
firms in the industry. As demonstrated by its winning of Fortune’s “Most Innovative Company
Award” for a record five consecutive years, outsiders (including the stock market) recognize the
firm for its legacy of innovation. Indeed, the legacy continues with the firm’s recent launching of
broadband services and trading, services clearly out of the range of traditional energy companies.
Meritocracy
The Enron culture exudes meritocratic ideals that reinforce the atmosphere of innovation.
Staff consistently ranks intelligence and initiative as top qualities valued at work. Over 70% of
surveyed employees assert that Enron is “extremely merit-based” in terms of promotion. [An
employee in the management development program] indicates, “Bonuses are reflective of people’s
performances.” [A high-level manager] observes, “Our culture is one where everybody can come
up with ideas.”
As the congruence model demonstrates, multiple organizational facets must align in order
to best achieve organizational objectivesviii; indeed, the cultural value of meritocracy is also
reflected in the structure, processes and even physical layout of the firm. Merit-based advancement
6
and compensation two to four times greater than the industry average help attract and promote high
performing employees. Open office interiors, glass doors and walls, and flat organizational charts
also align with the cultural norms shunning hierarchy and formal procedures.
Trading Orientation: Profit-Driven and Short Term Focused
“Enron has a ‘trade anything’ mentality,” holds [a mid-level manager]. An undeniable pillar
of the culture stems from the traders that drive much of its success. [A high-level executive] adds,
“Enron’s first cultural trait is that Enron is commodity and trading oriented. Our tradition from
trading permeates the whole culture of Enron. We are built on those traditions and measured by
that standard.” While the San Francisco office is slightly more traditional, most of Enron’s offices
resemble a trading floor; rows of people work around long tables with no separate offices even for
senior managers.
As a result, a short term, profit driven mentality defines the culture. Responding to the
question asking for the top five qualities valued in employees, senior managers’ first answers are
the ability to make deals and profits. [A mid-level manager] outright states that profits and results
drive the culture.
The trading culture, profit mentality and incentive structure also foster a short-term focus
that seems to benefit the bottom-line. [A mid-level manager] says, “Every year, base level for
bonuses are set to zero; thus, a long-term contract signed last year will add no benefit to this year’s
bonus or goals.” Therefore, employees must work hard to generate more revenue and higher
profits every year.
The focus on profits also complements the spirit of innovation. Enron’s bottom-line
atmosphere motivates employees to develop their own products and services on behalf of the firm.
It was a highly motivated and financially rewarded associate (one step above entry level) who
pitched and helped develop Enron’s paper trading practice.
7
Responsive and flexible
A trait also in-line with the entrepreneurial and innovative environment is the culture’s
responsiveness and flexibility to market conditions. All survey respondents rank Enron as
“flexible” or “extremely flexible.” As opposed to its slower moving, convention-clinging
competitors, Enron actively takes advantage of market changes and shows a willingness to redefine
itself to respond to changing market conditions. In 1997, the San Francisco office saw
opportunities in power plant development. Though headquarters traditionally frowned upon plant
development, the group boldly responded to the market opportunities and executed one of Enron’s
largest transactions in 1999. “Enron is in business to make money. We are not wedded to any
particular strategy,” says [a high-level manager].
“Sink-or-Swim”
Enron hires people who are “young, self-confident, and self-starters” without industry
experience and exposes them to the front line with minimal training and high expectations. [A
mid-level manager] says, “Training? Not much.” Vicky Ha adds, “For the most part, employees
learn by application.” In addition to minimal training, employees also receive limited guidance.
[A high-level manager] tells employees, “Try anything that makes sense.” [A mid-level manager],
summarizes Enron’s high expectations when he says, “Produce or you’re gone.”
This “sink-or-swim” notion, which throws new employees into their jobs with minimal
training and guidance and expects them to produce, is one of the unique traits that fosters and
sustains Enron’s innovative culture. The young employees that Enron tends to hire are free from
pre-existing industry conceptions that may anchor their decisions and hamper their ability to think
outside the box. Additionally, these employees may be more tolerant of risk than experienced
employees because of their younger age. Placed into a competitive work environment with high
demands to produce, these employees respond with innovative solutions that do not conform to
traditional industry thought processes.
8
Balance of Independence and Team-Orientation
Enron’s culture embraces both independence and teamwork. When employees were asked
on the survey whether Enron is team-oriented or independent, responses averaged 3.1 with a
standard deviation of 1.1. This result shows that nearly all employees at different levels agree that
Enron is both independent and team-oriented.
[A high-level manager] defines this cultural trait best: “It is individuals who come up with
ideas but it is teams that actually implement those ideas. Once you have an idea, there is no
problem finding team members.”
Enron gains several advantages from this balance between independence and teamwork.
As an advantage of independence, in developing new business ideas, Enron employees can save
time by initially brainstorming ideas on their own, thus avoiding the unnecessary intervention of
group members. As an advantage of teamwork, employees can pool resources and leverage the
expertise of all levels of the organization when creating teams to further enhance ideas and provide
feedback.
Weaknesses
The strong entrepreneurial, competitive culture that distinguishes Enron as an innovative
organization also leads to negative implications. This portion of the analysis examines the
unconstructive effects of Enron’s culture relative to the following characteristics: formal
communication, trading orientation, competitiveness, and “sink or swim” mentality.
Formal Communication
While our results show that Enron employees sustain informal communication among
groups, employees cite that formal communication between groups and other offices is infrequent,
as processes and incentives do not encourage the development of relationships outside of offices or
divisions. [A mid-level manger] attributes poor communication between groups to Enron’s action-
9
oriented, fast-moving culture. He summarizes that “we are moving too fast to coordinate and
communicate experiences.” Most employees felt that so much must get done on a daily basis that
not enough time exists to maintain relationships, especially ones that have no direct impact on sales
results.
This lack of emphasis on formal communication hinders effective knowledge management
practices. To transform knowledge from employees into explicit information that organizations
learn from, knowledge management principles require knowledge sharing, management support,
technology support resources, and qualitative and quantitative measurements.ix1Knowledge allows
better management decisions, thus an organization that rewards knowledge sharing will have a
competitive advantage.x Poor knowledge management practices do not align with Enron’s
innovative culture, where learning and experimentation are essential to stay ahead. To efficiently
complete projects that require creative thinking, individuals must not only understand the goals and
objectives, they must also have access to resources that pool relevant information.
Lack of formal communication practices can also cause discrepancies over the best ways to
communicate. From various interviews, we discovered that employee perceptions differ
significantly on processes to exchange information. For example, upper management states that
meetings are not a priority and few, if any, take place on a daily basis. On the other hand, [those in
the management development program] feel meetings are important communication tools;
however, they expressed that they spend too much time (50-60%) in meetings. These
inconsistencies may create confusion among employees.
Trading Orientation: Profit-Driven and Short-Term Focused
Enron’s profit-driven environment gives minimal incentives for employees to improve their
management skills or to proactively contribute to the professional development of younger
employees. Employees are rewarded based on concrete earnings results rather than “soft” skills
10
such as leadership and mentoring. By excluding recognition and other incentives, Enron fails to
motivate employee actions that are beneficial to Enron but do not directly result in earnings.
Enron’s short-term focus does not foster a long-term perspective that integrates goal-setting
objectives. [A mid-level manager] describes Enron as having a “short-attention span”. Long-term
strategic goals are not only difficult to develop at Enron, they are also difficult to implement.
Some projects, such as power plant development, that may be profitable to Enron in the long-term
are difficult to execute because they do not produce tangible earnings for several years. In fact,
after obtaining its first power plant permit in California, Enron sold its rights before construction of
the plant actually began. Enron’s short-term orientation leads to the exclusion of projects or
initiatives that prove beneficial to the company in the long run.
Competitive Environment
Characteristic of an entrepreneurial culture, groups at Enron are driven by their own profits
and sometimes operate as separate entities. This inherently creates conflicts and an emphasis on
individual or group achievement. When making decisions, groups or managers can make better,
more informed decisions if they incorporate the experiences and intellectual knowledge of
employees throughout the organization into the process. When individuals or groups act as
separate entities, such as in meetings between the wholesale and retail groups where each group
sits on opposite ends of the table to conduct negotiations, they fail to pool each other’s resources
and experiences such as in joint decision-making.
In addition, the competitive environment adversely affects the San Francisco office’s ability
to complete long-term deals involving the sale or purchase of natural gas or electricity. Because
the San Francisco office and the trading group that prices long-term deals are in different profit
centers, the trading group has incentive to profit from long-term deals that the San Francisco office
tries to execute. As a result, prices given to potential customers have two layers of margin built in,
decreasing the probability of completing these long-term transactions.
11
“Sink-or Swim” Mentality
Although it is highly effective in promoting innovation, Enron’s “sink or swim” mentality
does have some negative impact on morale. Increasing demands and responsibilities that are
associated with highly autonomous and self-directed environments create negative stress for some
employees. Several respondents describe Enron’s environment as chaotic, and characterized by
little coordination. [A mid-level manager] says that the intense atmosphere creates tremendous
pressure to produce, which is simply “not fun.” Just to keep up, [one employee] says employees
often have to work 12-hour days. Oftentimes, when employees are under stress or feel
overworked, companies experience high turnover rates, more physical ailments, or decreased
employee motivation. While employees cited high job satisfaction at Enron, the three-to-four year
turnover rate is high compared to the industry average.
Because of Enron’s self-motivated, risk-taking philosophy, it is difficult for it to recruit
individuals with industry experience who fit into Enron’s culture. A high-level manager says that
employees at Enron have to be self-starters, motivated, and willing to take risks. Instead of hiring
employees with industry experience, Enron aims to recruit well-rounded, younger people who can
meet expectations of the challenging and demanding culture. In order to attract top talent, Enron
must pay 2-4 times the industry average with the risk that employees without relevant industry
experience will not get up to speed quickly.
When employees leave an organization, implicit knowledge they have acquired also exits
the firm. At Enron, when employees are not self-directed or fail to prove a good fit, management
reassigns them to another office or places them on undesirable projects. Interviewees did not
indicate that management tries to find a meaningful training program or assign alternate, rewarding
tasks. Instead, management resorts to quick, immediate solutions, a practice that fits with the fastpaced, cutthroat environment of Enron. This is not necessarily advantageous to Enron’s learning
curve, given that knowledge is such an important asset to organizations.
12
Recommendations
Based on the cultural analysis, Enron should focus on the following areas for change: the
compensation structure, knowledge management, feedback, and mentoring. We describe
recommendations for each area below, implementation (if appropriate), benefits, and barriers to
enactment.
Compensation Structure
Currently, Enron’s compensation plan (salary and bonus) exclusively rewards short-term
(less than one year), individual profit contributions.
Recommendation 1: Enron should base compensation on a mixture of four factors: individual,
group, and departmental performance as well as effective development/management of staff.

Implementation – Weighted averages of individual, group, departmental, and personnel
management performances will comprise the overall compensation evaluation. 360 degree
performance evaluations or similar personnel managerial assessments will measure effective
management.

Benefit 1 – Destructive, internal competition will diminish, and intra-group/intra-departmental
collaboration will increase as employee rewards consider group (the structural unit below
department) and departmental performance in addition to individual achievement.

Benefit 2 – Managers will be motivated to better develop and manage their staff cultivating a
supply of future leaders.

Barriers – Managers may initially resist evaluation based partially on people management
skills. Some high performing individuals may resist being judged on group or departmentalwide performance. Thus, the firm could initially negotiate with managers to determine the
percentage of bonus determined by the four factors.
13
Recommendation 2: Enron should not restrict evaluation periods for compensation adjustment to
exclusively one year.

Implementation – Currently, projects with lengthy lead times (over one year) do not contribute
to an employee’s annual compensation evaluation; in the future, compensation evaluation
periods will be more flexible to reward long and short term projects.

Benefit – Longer-term projects and strategies with lengthy initiation periods will be rewarded.
The firm will be better equipped to develop and implement longer-term actions and strategies.

Barriers – Minimal
Knowledge Management
Enron’s current knowledge management is substandard, informal, and ad hoc.
Recommendation 3: Enron should establish a separate knowledge management group to facilitate
knowledge sharing, capture, and dissemination.

Implementation – The knowledge group’s activities will center on generating knowledge
sharing documents (e.g. weekly email newsletters describing current projects and deals
throughout the department) and facilitating knowledge capture and dissemination (e.g.
developing and maintaining knowledge sharing databases to capture key project documents,
learnings, process templates, etc.). Projects will not be considered complete (and thus bonuses
not paid out) until employees have contributed to knowledge databases at the conclusion of
each project; thus, employees will be motivated to contribute.

Benefit 1 – Communication, networking, and collaboration will increase throughout the
organization as employees see and access others’ projects, learnings, and documents.
Employees will also be able to better identify and use experts across the firm.

Benefit 2 – Enron’s knowledge assets will increase, even as employees leave the firm. Explicit,
formalized knowledge assets are crucial to Enron since it is dependent on innovative ideas and
rapid execution while suffering from high turnover.
14

Barriers – A major roadblock to establishing effective management systems is the lack of
incentives to contribute to the knowledge sharing databases. This roadblock is addressed by the
added requirement for bonus payout outlined in the above implementation plan.
Feedback & Mentoring
Currently, employees complain of little or no feedback and guidance from supervisors.
Recommendation 4: Enron should institute a formal and frequent feedback process.

Implementation – Enron will sponsor monthly lunches where an employee and his/her
supervisor meet to give each other feedback. Consultants should train employees to better
understand the goals and process of performance appraisals.

Benefit 1 – Managers will be able to offer more timely and effective guidance, better motivate
employees, and receive feedback on their own managerial styles.

Benefit 2 – Employees will become more empowered to discuss advantageous changes to the
work environment. Harmful stress and turnover will potentially decline as a result.

Barriers – Some employees may not see the value in more frequent feedback. Thus, there will
be a need for the training and subsidized lunches (discussed in the implementation section).
Recommendation 5: Enron should establish a mentoring program for all employees.

Implementation – Employees will decide to choose or be assigned mentors. A mentor should be
more senior to his/her prodigy, but not a direct supervisor.

Benefit 1 – A mentor will be able to offer emotional support and advice, critical in
environments with high stress.

Benefit 2 – A mentor will provide long-term career guidance within Enron, linking prodigies
with opportunities and people in the employee’s area of interest.

Benefit 3 – A mentor will be available to mediate conflicts between the prodigy and his/her
supervisor or co-workers.
15

Barriers – Employees may not see the value in mentoring, especially with the additional time
required to mentor. Thus, Enron could recognize highly effective mentors (those most sought
after) with awards or boost the mentor’s personnel development score in the compensation
evaluations mentioned in the first recommendation.
Finally, Enron should consider fostering deeper core values in addition to its profiteering
culture. Cultural values beyond profit are a common denominator for excellent, sustainable
companies while companies whose only articulated goals are financial under perform relatively
speaking.xi For example, deal making can be widened and deepened to mean creating value in a
broader sense, contributing to society by increased efficiency, less risk, and reliable service.
Innovation and the creation of opportunities could similarly be identified as key core values. As
research indicates, these non-financial, transcendent cultural values are crucial as they can unify an
organization, motivate, and provide greater meaning.
Conclusion
Dominance and coherence of culture is an essential quality of excellent companies, without
exception. xi Our interviews and surveys of Enron employees found Enron’s San Francisco culture
to be strong, pervasive, and consistently shared across employees at all levels. We found the
culture to have many positive attributes which manifested themselves in high employee satisfaction
and a high level of innovation and entrepreneurial achievement. However, we also found problems
that were caused by Enron’s fast-moving and competitive culture. Namely, we discovered
inadequate communication channels, high levels of stress, poor knowledge management, and an
excessive emphasis on short-term earnings. To rectify these problems we recommend that Enron
modify its compensation structure, institute a knowledge management group, provide more formal
and frequent feedback to employees, and establish a formal mentoring program.
i
ii
Enron website
Enron Annual Report, 1999
16
iii
Ibid
San Francisco office organizational chart appears in Appendix 1.
v
Interview questions and survey forms appear in Appendices 2 and 3.
vi
“Measuring Organizational Culture: The Cultural Audit,” Ben Fletcher & Fiona Jones, Managerial Auditing Journal,
1992
vii
Survey results appear in Appendix 4.
viii
The Congruence Model: “Components of any organization exist together in various stages of balance and
consistency – what we call ‘fit.’ The higher degree of fit – or ‘congruence’ – among the various components, the more
effective the organization,” Competing by Design, D. Nadler and M. Tushman
ix
“What do we talk about when we talk about knowledge?” Working Knowledge, 24.
iv
x
xi
“What do we talk about when we talk about knowledge?” Working Knowledge, 6.
In Search of Excellence, T. Peters and R. Waterman; Built to Last, J. Collins and J. Porras.
17