In continuation with our previous article on ‘Strategies to learn from big business failures – I’ where we analyzed three prominent business case studies (Blockbuster, Kodak and Hummer) to help entrepreneurs and business owners derive meaningful tips for building effective business strategies; in this article we are presenting two more significant business case studies that shook the world – given the high stature and spiraling growth trajectory these two companies experienced during their golden eras but only to meet bankruptcy in the future.
Enron
Enron Corporation was founded with the merger of two small regional companies – Houston Natural Gas and InterNorth, in the year 1985 and was headquartered in Houston, Texas. Enron started as a natural gas pipeline company and was world’s largest energy trading company and was also seventh largest corporation in the United States at one point in time. Enron was in the business of trading of energy supplies. The company brought innovation in the energy sector by designing and offering financial instruments to protect customers against abrupt price hikes in the prices of energy products. These instruments could be traded in the Wall Street like stocks and bonds. Enron reported sales figure of $100.8 billion in 2000 from $13.3 billion in 1996. In the year 2000, Enron registered a net income of $979 million and had an employee headcount of 19,000. Enron also rolled on with the dot-com boom with enrononline.com – its web-based trading platform.
So where did Enron go wrong? The internal problems started for Enron with its derivative business. The company made huge investments in its derivative business and trading ventures where it encountered severe losses. Already riding on the high horse of success Enron resorted to hiding its losses and debts and showing fictitious revenues in its books to retain the faith of investors by entering into complex partnerships. Eventually, the truth came out and the company went bankrupt.
In the form of energy derivatives, Enron brought something very innovative. But to keep the mystique of its quick success and growth in stock prices up and running, the company resorted to accounting practices which were not in congruence with the ethics of accounting standards with the alleged intention of distortion and concealment of facts and figures.
Lessons Learned
The case of Enron provides an important lesson in corporate governance and accounting ethics. Business entities must look forward to setting exemplary standards of corporate governance and business ethics in all the areas of management. Great companies are not just built on financial performance but primarily on the foundation of strong principles, discipline, leadership and excellent business management skills. It is equally important to ensure that the accounting practices are in tune with the accepted accounting standards, statutes and ethics so that material facts and figures are not concealed and stands revealed to the stakeholders involved.
Great companies are not just built on financial performance but primarily on the foundation of strong principles, discipline, leadership and excellent business management skills
Input Sources: [(1), (2), (3), (4), (5), (6)]
Polaroid
Polaroid was founded by Edwin H. Land (a scientist) in the year 1937 in Cambridge, Massachusetts (U.S). The company’s initial product line was polarised sunglasses. The company had the patent for its polarizer technology. During the phase of World War II, Polaroid prospered as a defence contractor for supplying products like Vectograph, IR Night Viewing devices, ski and anti-glare goggles, 3D Imaging devices and other advanced optical instruments.
But what made Polaroid a worldwide commercial success phenomenon was its invention and marketing of the instant camera in 1948. Riding on the successful model of the one-step photographic system and with patented technologies, Polaroid enjoyed a monopoly over the market of instant photography for the decades to come. From the early 80s, Polaroid started taking baby steps towards electronic and digital imaging. In 1998-99, the company was the number one seller of digital cameras in the U.S. In 2001, the original Polaroid Corporation was declared bankrupt.
The instant camera was a hit primarily because it solved many problems of customers and businesses at one go. With one-step photography, customers were no longer required to wait for days to get their photos processed. Secondly, customers had the privilege of retakes in case the photograph was not as intended (which is quite the case with digital photos and especially selfies nowadays). Thirdly, it was a tool of great assistance in the field of insurance, investigation, real estate etc.
Lessons Learned
Polaroid held on to its notion of an instant hard-copy print of photographs for too long. The possibility of digital storage of photographs gave the liberty to customers to store, view, take print-outs of or even transfer their photographs whenever they want. The gravity of this impending change (coming together of digital technology and photography) was undermined by Polaroid in spite of its early research and development works in digital photography as if it was obsessed with photographic chemistry.
The gravity of this impending change (coming together of digital technology and photography) was undermined by Polaroid in spite of its early research and development works in digital photography as if it was obsessed with photographic chemistry.
Technology is a powerful and dynamic element in the world of business. It can not only change the way business processes are executed but can also have a profound impact on product design and development. Advanced technologies lead to advanced products and advanced business processes which are capable of solving more problems and fulfilling more needs of customers more effectively and efficiently. This leads us to three important conclusions for modern day business enterprises.
- Remain updated on the developments in the field of science and technology affecting business products, business processes and business environment.
- Periodical reviews and brainstorming on the impact of technological changes on business and its environment and preparation of action plan.
- Financial planning to support the incorporation of or migration to new technologies.
Input Sources: [(7), (8), (9)]
Although business growth and expansion is desirable it does not imply compromise with ethical standards of corporate governance and financial accountability and reporting. Authenticity, transparency and compliance in accounting practices, books of accounts and financial reports go a long way in helping a company build goodwill and loyalty. Secondly, technology has and will continue to alter the fate of businesses. Future products and processes will be increasingly technology-driven.
To refer part one click here
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Author Bio
Rupal Agarwal
Chief Strategy Officer
