Business Disaster: La Trobe University- Essay Writing Assignment

Contents

1. Introduction
2. Instance 1: Lehman Brothers Downfall
3. Instance 2: The Collapse of Enron
4. Instance 3: Vodafone’s Social Media Backfire
5. Manager: Thread between Organisational Decisions, Command and Control
6. Conclusion
7. References

1. Introduction

Accuracy and real-time integration of information plays a dramatic role in a business. With new risks and nature of threats to businesses appearing recently, it becomes inevitable to focus upon keeping the information accurate and tested. Information is not just used by a company to understand the present situation and make next level of action-plans, but also to ensure that no inaccurate piece of information leads to the eleventh-hour neglect. The value of using accurate and tested information is not merely important for the management personnel, but also for everyone working from the ground level of the corporate ladder (Cotton, 2014). In the absence of correct data, poor decision making would be achieved, finally leading to a business disaster.

The causes of inadequate information could be many. There might be less, no, or censored information existing. Information, undoubtedly, has been one of the most concrete pieces leading to the make or break of a business. The statement is further supported by a few examples that the world witnessed. The examples of poor or inaccurate information leading to failure of business are many. The case of Ariane 5, Hadron Collider, Enron, and Bernard

Madoff are apt to take this discussion forward, but the cases chosen for detailed analysis are for Enron, Lehman Brothers, and Vodafone.

2. Instance 1: Lehman Brothers Downfall

Filed for bankruptcy in 2008, Lehman Brothers ended its 164-year old history. The company reported $619 billion in debts, and counts among one of the largest disasters in history. The company had around 25,000 employees working with it close to the time of its downfall (Webb et al, 2000). The company was started in the form of a general store by Henry Lehman back in the year 1844. In collaboration with Emanuel and Mayer, Henry Lehman formed Lehman Brothers. The company had a long history of surpassing the then-going- on disasters that took a lot of other giants along. Lehman Brothers witnessed the Great Depression of 1930, both the world wars, and capital shortage at the time of American Express in the year 1994.

The lag in getting the correct information started in the year 2003, when the company took five mortgage lenders. The revenues plunged with an increase of 56% from the year 2004 to the year 2006. The company securitized close to 10% more mortgages between 2005 to 2006. The company reported a gross income of $4.2 billion, which set a record. The break in the profit-making started with the failure of Bear Stearns Hedge funds. As a result, Lehman

Brothers had to shut its BNC unit. The entire issue of the company’s downfall revolved around its poor handling of important information due to involvement of multiple strategic partners. The management of Lehman Brothers made overtures to several potential strategic partners. At the point of 66% spike in credit swaps of Lehman’s debts, the prime fund clients and investors pulled themselves out (Swedberg, 2010).

The case of Lehman Brothers bankruptcy raised various questions: ‘How to ensure that important information is handled well?’, ‘How to ensure that the exchange of information from important sources is secure?’ and ‘How to foresee the big-picture related losses that a company might face due to small steps taken around the exchange of information?’

3. Instance 2: The Collapse of Enron

The collapse of Enron, one of the largest corporations of America, shook lives of thousands of employees along with various pension funds. The company presented an example of an overnight bankruptcy. Further, it had been a great example of how a company’s fake book-keeping and passing on inaccurate information stop the financial bodies and concerned stakeholders from getting the real picture of how the business is performing in real. The company’s story started with Jeffrey Skilling, CEO of the company, who had started to hide the actual state of financial losses (Lucci, 2003). The company performed various acts of building assets and instantly projecting them as generating profits in their books. The assets had not been perfectly functional in real, but Enron projected fake figures to present a bright picture of the company in front of its stakeholders. This led to a general impression that the company is in strong position to handle any likely losses and the money of the stakeholders is secure (Seabury, n.d.).

Another exchange of poor information was witnessed when the company took several business school graduates by paying them luxuries and comforts to project the healthy picture of the company. This action was taken forward on the similar lines by the fresh CFO of the company, Andrew Fastow, who believed that presenting a good picture of the business would help come out of the losses by other channels of investment (Moriceau, 2005). The bottom line of the analysis of Enron’s case identifies that not just the company’s poor management skills resulted into the downfall of Enron, but the intentional lack of passing information to the concerned stakeholders led to a steep collapse.

4. Instance 3: Vodafone’s Social Media Backfire

Delivery and collection of information through the use of social media has become a recent and popular means between companies and customers. The company not just propagates about its values, but also uses social media to collect the perception of the customers to grab a higher market share. The case of poor information management from Vodafone in Australia makes an apt example of the same. The case presents to us not just a scenario of mishandling

of company information but also poor control over security.

Arthur Kotsopoulos, someone not employed with Vodafone Australia presented himself to be a Vodafone employee with certain fake set of information made easily available to the public. He portrayed his designation as ‘Social Media Expert’ of Vodafone, while the company could not identify as well as control such actions. This piece of information could not be handled properly by the company management leading to a perception among the people that

Vodafone professional is insulting them openly (Jue et al. 2009). Arthur used terms like ‘mentally retarded’ for some customers openly on the social media networks, along with writing blogs on the behalf of the company. Due to poor handling of information on the behalf of the company, the image of the company had to face backfire from the customers.

5. Manager: Thread between Organisational Decisions, Command and Control

To highlight the statement, any business disaster is either the fault of the management professional or nobody’s. Poor handling of information or passing on inappropriate set of information needs a sense of ownership from all the dimensions of a company, which is compromised due to the fact the employees and the management are bound with a contractual agreement. This gives only a few people good reasons to precisely secure the sensitive

information. This usually causes lack of interest in using the information appropriately, further causing business disasters in small or big forms.

A Manager must understand that the easy but secure access to the information gives an easy channel to the company owners to make profitable decisions. If the information is not handled appropriately, or passed on inappropriately, the decision-making might end up happening on either gut feeling or going on in a wrong direction. The Manager needs to have the most updated and accurate set of information in hand, in order to prepare required plans and reports. Mishandling of data by a Manager could make a small thing end up into a big set of losses incurred by every stakeholder related.

The Manager has a key role to handle, analyse, interpret and direct the information to the domain that is going to use the information for the benefits of the company. The Manager also adheres to the announced protocols of the company and gets the real picture clear in front of the internal as well as the external clients (Porter & Miller, 1985). If the Manager understands the importance of the adequacy and appropriateness of the information, the departments are able to make right decisions, align the tasks with the company objectives, and take safe steps further. Any lag in following these roles and failure in passing commands or controlling the situation on time would lead to similar disasters as witnessed in the past.

6. Conclusion

Despite highlighting the fact strongly that inappropriate set of information either used or projected by the company could gradually cause downfalls to the company, it is important to understand that the responsible management professional could be a guiding point to every action. The history of all the business disasters might have various reasons, but improper distribution and utilization of information by the management of a company has always formed one of the key reasons (Laudon & Laudon, 2004).