The value of generating change
An Enron case study

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Page 3: Enron makes the change

Enron 4 Image 3Enron first experienced and made the transition from a protected to a competitive market with natural gas in the USA. In the early 1980s, buying and selling gas in the USA was a very complex process, involving a vast network of independent pipelines which distributed gas from the producer’s gas field to the final end user. The logistics of this were complicated and costly. When the industry was deregulated, Enron realised that the many existing natural gas lines could be accessed by multiple companies to create a more organised and flexible network to buy gas where it was cheap and to ship it to where it was needed.

Enron began to buy gas on the spot market and to sell it to customers seeking cheaper, yet reliable supplies. In a competitive market, the customers want to buy from the best overall providers of a good or service. Therefore, organisations exposed to competition in the production and marketing of goods are forced to be efficient, reliable, service-oriented and cost-competitive - the consumer can always choose to buy elsewhere.

Core competencies

A core competency is what an organisation does best. Enron’s core competency is supplying energy to its consumers in a way which responds to customers’ criteria about ‘best value’. For example, a steel mill may need a regular long-term supply of gas at predictable prices. Enron therefore devises a customised solution which best meets the customer’s needs – for instance by agreeing to supply gas to the steel mill at a fixed price for a five year period, or at a price which is indexed to the price of steel the company produces. Enron’s solutions are value-driven - they are specifically designed to give the customer the best possible value for money.

The company’s physical gas and electricity assets, its innovation, financial and marketing capabilities, have enabled Enron to pursue new markets and become one of the world’s largest marketers of natural gas and natural gas liquids. Enron is also a world leader in renewable energy through the development of solar and wind energy power plants and the manufacture and sale of solar and wind generation equipment. Through ongoing specialisation at the leading edge of energy supply, Enron has been able to lower consumer supply costs and, at the same time, create new products and more value for its customers.

Over time, Enron’s specialisation has enabled it to enhance its performance in energy trading by fully researching customer needs and requirements, matching the best-suited buyers and sellers, developing sophisticated approaches to the logistics of getting energy from A to B and in managing price risks resulting from price fluctuations. Enron specialises in value creation by managing innovation and responding with creative solutions to energy problems. Indeed, Enron has been ranked repeatedly as the most innovative company in the USA in a survey carried out by Fortune magazine.

Enron | The value of generating change