Enron Essay Example | Topics and Well Written Essays - 2000 words

Enron - Essay Example Within about 5 years of the emergence of the Internet and the Web, electricity consumption linked to this new phenomenon had surged to 8 percent of total consumption. Naturally enough, this caught the eye of the prosperous energy trader down in Houston. How could Enron play in this exciting new game (Jorion 2003, p. 6) In order for a firm to have a reasonable chance of success in the realm of the Internet, it needed to be able to control its risks. Well, this was something that Enron was in a very good position to do. In fact, very few companies in the 1990s were as well positioned as Enron to play in this game (or so it seemed). "What Enron has been about for a long time," said Jeff Skilling, then Enron's chief operating officer, "has been making and restructuring markets. If you look at the present phenomenon, the Internet, it also comes into existing markets and dramatically overhauls them. That's something we started doing in the mid-1980s. The Internet just gives us the juice to extend more products across more markets more quickly (Jorion 2003, p. 6)." In particular, Enron got interested in the exotic-sounding world of broadband, which is a catch-all term for high-speed access to the Internet through the use of fiber-optic cable. Broadband is little more than a data pipeline of great bandwidth, or carrying capacity. (Or more precisely, bandwidth "determines the speed at which data can flow through computer and communications systems without interference (Jorion 2003, p. 6)." Even at the time-even amid all the Internet hype and hoopla-people knew that the nascent broadband/ bandwidth industry was a dicey proposition. "The market will not be for the faint of heart or the ill-prepared," one observer commented. "Success will require careful consideration of the appropriate market entry strategy. Organizations must ask the tough questions, such as 'what's my appetite for risk' (Jorion 2003, p. 6)" Well, in Enron's case, the answer was "big appetite." In the spring of 1999, Enron created a company called Enron Communications, Inc., that soon changed its name to Enron Broadband Services (EBS). It began selling a standardized bandwidth product, effectively turning the elusive concept of bandwidth into a commodity (Jorion 2003, p. 6). WHAT WENT WRONG For a while, and especially from a particular perspective, it worked. That perspective, of course, was the price of a share of Enron stock. People loved the idea of Enron and the Internet converging. Within 9 months-that is, the period between year-end 1999 and September 2000- Enron's stock price soared. In fact, it more than doubled-from $44 to $90 (Jorion 2003, p. 6-7). For a group of ambitious and self-impressed executives-especially those with heavy stock options-stock-price fever is something like heroin addiction. It goes from being a nice-to-have to the be-all and end-all. And over time, you need more and more of the stuff to get those good feelings. (In fact, when you do not get the stuff, you start feeling bad.) Management got accustomed to a high and rising stock price-and so, by the way, did Wall Street (Jorion 2003, p. 7). When stock-price fever sets in, lots of other temptations begin