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Enron and the New Integration Model Jeff Skilling Southern Methodist University March 27, 2001.

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Presentation on theme: "Enron and the New Integration Model Jeff Skilling Southern Methodist University March 27, 2001."— Presentation transcript:

1 Enron and the New Integration Model Jeff Skilling Southern Methodist University March 27, 2001

2 2 UB-SMETHODIST-0301 Enron Annual Revenues 20.3B 31.3B 100.8B 40.1B + 54% + 28% + 151%

3 3 UB-SMETHODIST-0301 $0.87 $1.00 $1.47 $ % + 18% + 25% Earnings Performance (Recurring Per Diluted Share)

4 4 UB-SMETHODIST-0301 Management Efficiency Source: msn-MoneyCentral © ,000 32,000 43, Mil 894, Mil Income per Employee Revenue per Employee Enron Industry S&P Utilities Enron Industry S&P Utilities

5 5 UB-SMETHODIST-0301 Enron Market Value* 12.8B 18.9B 62.5B 31.8B *Uses baisc shares outstanding at 12/31

6 6 UB-SMETHODIST-0301 Enron Price/Earnings Ratio

7 7 UB-SMETHODIST-0301 Total Return to Shareholders Jan 1, 1990 to February 28, Dec 97 Dec 96Dec 95 Dec 94 Dec 93 Dec 92 Dec 91 Dec 90 Enron Corp. S&P 500 Pipeline Avg. Utility Avg. E&P Avg. 1,151% 354% 571% 246% 183% Dec 00 Dec 99 Dec 98 Note: Calculated to February 28, 2001 Jan 01 Feb 01

8 8 UB-SMETHODIST-0301 Enron Corp Enron Transportation Services Enron Wholesale Services Enron Energy Services Enron Broadband Services

9 9 UB-SMETHODIST-0301 Cost of Interaction Value of Specialization $ Economic Trade-Off Volume

10 10 UB-SMETHODIST-0301 Barter Economy Creation of Money Evolution of Economic Trade-Off 1300s $ Volume

11 11 UB-SMETHODIST-0301 Barter Economy Creation of Money Transportation & Communication Evolution of Economic Trade-Off 1300s 1800s $ Volume

12 12 UB-SMETHODIST-0301 Barter Economy Creation of Money Transportation & Communication Internet & InfoTech Evolution of Economic Trade-Off 1300s 1800s 2000s $ Volume

13 13 UB-SMETHODIST-0301 Types of Interaction Costs Price of Successful Economic Transactions Legal & Regulatory Information Seeking & Gathering Inventory Payments Logistics Credit

14 14 UB-SMETHODIST-0301 Cost of Interaction Mining Financial Institutions U.S. India 30-40%60-70%55% 40-50% Source: McKinsey

15 Business Structure Transformation Costs Interaction Costs Total Costs Finished Product Finished Product Transformation Interaction Transformation Costs Interaction Costs Total Costs

16 16 UB-SMETHODIST-0301 Cost of Teller Transaction $1.50 $0.30 $ (Bank) 1995 (ATM) 2000 (Internet)

17 17 UB-SMETHODIST-0301 Length of Time to Provision Bandwidth 6-8 months 2-3 months < 1 second 1995TodayNext Year

18 18 UB-SMETHODIST-0301 Length of Time to Execute a Long-Term Gas Contract 9 months 2 weeks < 1 second 2-3 years

19 Transformation Costs Interaction Costs Total Costs Finished Product Finished Product Transformation Interaction Change in Economics of Business Structure Transformation Costs Interaction Costs Total Costs

20 Wheres the Opportunity?

21 Wheres the Opportunity? Not Cost Competitive

22 Wheres the Opportunity? Commoditized Overcapitalized Globalized Cant make compensatory return in traditional asset business

23 Wheres the Opportunity? Creating low cost, dependable market interfaces Market making Logistics Back office Trade finance

24 Wheres the Opportunity? Virtual Integration Providing packaged turnkey solutions for customers Complex structures Differentiation Customization

25 25 UB-SMETHODIST-0301 Enron Opportunity Traditional Model New Model Asset intensive Vertically integrated Slow moving and rigid Hierarchical Brain power intensive Networked Real options oriented Fast moving & entrepreneurial

26 26 UB-SMETHODIST-0301 Enrons Corporate Culture Structure Flat/Horizontal Staff Best & Brightest Strategy De-integration/ Virtual Integration Super- ordinate Goal Crusade for free markets Style Loose/Tight Shared Values Respect, Integrity, Communication & Excellence Systems PRC

27 27 UB-SMETHODIST-0301 Somewhere out there is a bullet with your companys name on it. Somewhere out there is a competitor, unborn and unknown, that will render your strategy obsolete. You cant dodge the bulletyoure going to have to shoot first. Youre going to have to out- innovate the innovators. Gary Hamel, Leading the Revolution The Challenge of TomorrowReinvent!


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