Looking at Enron as a Loosely Coupled System

I think that Enron is a great example of a company as a loosely coupled system. There are a few main points that I got out of the section “Organizations as Loosely Coupled Systems” (Scott and Davis, Pg. 93-94). First, rules do not always govern actions. This clearly applies to all aspects of Enron. The company itself did not comply with accounting regulations set forth by the government and reported consistent earnings when in fact the company was losing money. Also, employees themselves, such as the CFO Andrew Fastow, participated in illegal and fraudulent deals with people both inside and outside of the company. In addition, company members did not follow the rules and standards within Enron. There are numerous examples of this. For one, almost all of the company’s executives used Enron to pay for their own personal expenses with some spending millions of dollars. Also, different departments within the company made deals that were not approved by RAC, the company’s risk division in order to reach personal performance goals and earn bonuses.

The concept of loosely coupled systems also states that people or divisions within organizations often do not connect their “talk” with their “actions”. When it comes to Enron, people did not follow through on what they said they were going to do. There were hundreds of deals that were made by the company’s various divisions that were not executed properly or executed at all. Also, the company repeatedly assured its accountants at Arthur Andersen that its books would be under control and that it would not misrepresent its financial standing. More importantly, the company’s directors lied to Wall Street and the public for years about the company’s successes and profits.

A third point I got out of this section from Scott and Davis is that structural units are often loosely coupled within a company. “The organization is a coalition of groups and interests, each attempting to obtain something from the collectivity by interacting with others, and each with its own preferences and objectives” (Pg. 94). This is a perfect quote for describing Enron. The divisions within the company often had little knowledge (other than the upper level executives and managers) of what the other units of the company did or how successful these departments were. Workers typically only cared about their own division and wanted to receive recognition for their own work and how it had impacted the company’s success. They sometimes even competed with other divisions and hoped that other divisions would fail so that they would look better.

Overall, I think this is a great concept that I hope to use to describe Enron. I have looked up a few resources on Google Scholar to help me understand this concept even more. In particular, I found this article to be very helpful. It talks about how there are different elements within an organization that are interconnected to some degree. I think that it agrees a lot with the concepts in Scott and Davis but discusses them in more detail.


One Response

  1. As to your first point about rules, I think it is important that the reason is not due to malicious intent. Rules do not govern actions because the organization is open to the environment and the turbulence of the environment means that actors in the organizations are faced with situations for which there is no pre-conceived or planned response.

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