CASE 16
Eni SpA: The Corporate Strategy of an
International Energy Major
TEACHING NOTE
■ SYNOPSIS ■
Since its privatization in 1995, Eni has metamorphosized from a widely diversified, inefficient, state-owned
corporation into a highly profitable, shareholder-owned, international energy major. This corporate
transformation has been achieved by three successive CEOs, each of whom has pursued a similar vision and
corporate strategy for Eni. This strategy is built around a geographically focused, vertically-integrated
natural gas strategy, with a strong emphasis on organic growth in exploration and production.
The case traces Eni’s 60–year history, from its founding as a state-owned oil and gas company through its
privatization and restructuring during the 1990s, and its subsequent growth and development. This provides a
background to the situation that faced the recently-appointed CEO, Claudio Descalzi, in May 2015.
■ POSITION IN THE COURSE ■
I typically have used the Eni case to introduce the corporate strategy part of my strategic management
courses. Because Eni’s corporate strategy combines vertical integration, diversification, and multinational
■ TEACHING OBJECTIVES ■
I use this case to develop the students’ skills in the following:
Identifying, articulating, and analyzing a company’s corporate strategy
■ ASSIGNMENT QUESTIONS ■
1. What has Eni’s corporate strategy been over the past two decades?
2. Evaluate Eni’s corporate strategy in terms of its alignment with (a) the characteristics and
requirements of its industry environment and (b) Eni’s resources and capabilities?
3. What current developments threaten Eni’s performance?
4. Looking ahead over Eni’s next 4-year planning period (2016-9), what changes in Eni’s corporate
strategy would you recommend? How should Eni allocate its resources across its different
businesses and between different geographical areas? In particular:
a. Should Eni continue to focus most of its capital investment on its upstream business?
■ READING ■
R. M. Grant Contemporary Strategy Analysis (9th edn.), Chapter 11 “Vertical Integration and the Scope of
the Firm.” Also, as a background to analyzing Eni’s business scope, see Chapter 13 “Diversification
Strategy,” especially the section on “Competitive Advantage from Diversification” (pp. 348–352).
■ CASE DISCUSSION AND ANALYSIS ■
Eni’s Corporate Strategy
I begin by asking students to describe Eni’s corporate strategy. The tendency is for students to use Eni’s own
articulation of its strategy in terms of “core business focus,” “reserve replacement,” and “organic growth.”
Where?—Eni’s corporate scope
The key to identifying the principal features of Eni’s corporate strategy lies in recognizing the differences
between Eni’s corporate scope and that of the other oil and gas majors. The difficulty here is that the case
1. Upstream focus. Eni’s emphasis over the past two decades has been on upstream expansion. In recent
years, 90% of capital expenditure has been on exploration and production (see Table 3).
2. Downstream gas. One of Eni’s most distinctive features is the size of its downstream presence in gas.
2. Vertical integration. Eni is vertically integrated from exploration to retailing. Indeed, Eni can claim to
be among the most integrated of the oil and gas majors. In particular, it is highly vertically integrated
3. Limited presence in petrochemicals. For some years Eni has sought to divest its chemical activities.
4. Geographical scope. Eni is one of the least internationally diverse of the oil and gas majors. Its
exploration and production (E&P) activities are primarily focused upon Africa and the former Soviet
5. Other businesses. Eni has almost no involvement in non-petroleum businesses—renewable energies in
particular.
From a dynamic perspective, can we look at where Eni is going and what type of company it is seeking to
become? The general direction of Eni’s strategy comprises the following thrusts:
Eni as an energy company: the definition of Eni as a petroleum-based energy company has
Vertical integration—increasingly this involves not only an emphasis on pipelines to link
upstream gas supplies with downstream markets, but also LNG which allows Eni to use its gas
reserves in West and East Africa to supply Asia.
How?—Eni’s competitive advantage
The information in the case points to several distinctive advantages that Eni possesses in its major
businesses:
Relationship management and innovative upstream deal-making. Across a range of politically and
culturally-diverse countries—Libya, Congo, Kazakhstan, Russia, Venezuela—Eni has demonstrated
Future direction
The direction of Eni’s development appears to be consistent with its competitive advantages and
with considerations of industry attractiveness.
Eni’s emphasis on upstream investment is consistent both with the profitability of oil
Evaluating Eni’s Strategy
Eni’s performance. As a starting point to evaluating Eni’s strategy, I begin by asking the class how well Eni
has been performing in recent years. The obvious answer is: very well—growth in output, sales, and
Fit with Eni’s external environment and its internal resources and capabilities:
To appraise Eni’s strategy at a deeper level we need to examine the extent to which Eni’s strategy fits with
the industry environment and with its resources and capabilities. For example:
1. Eni’s emphasis on E&P is justified by the attractiveness of this sector. So long as oil prices
exceed $40 a barrel, it seems as though investments in E&P will generate attractive returns.
2. Upstream emphasis on Africa and the former USSR. Eni’s geographical focus has been
determined partly by timing: it was forced to seek reserves in localities not already dominated by
3. Limited presence in downstream oil. Eni’s limited presence in Refining and Marketing (mainly
confined to Italy) is justified by the shrinking demand in Europe for petroleum products and the
4. Vertical integration in gas. The case is (shows that?) vertical integration in gas is very different
from that in oil: gas is difficult to transport and store and the markets for gas (both spot and
Other features of Eni’s resources and capabilities that have influenced its strategy are the following:
Eni’s Italian nationality. To begin with, Eni is not American: although Eni lacks the political and
military clout of having the backing of the US government, its Italian nationality is an advantage
in dealing with countries where anti-Americanism is prevalent, e.g. in much of the Islamic
Issues that Eni Currently Faces
Eni’s strategy shows considerable stability and continuity over the past two decades. Given the performance
this strategy has delivered and its apparent fit with the circumstances of Eni’s external and internal
environments, there seems little reason to change it. However, circumstances have changed. In particular,
Descalzi is having to address several major threats:
1. Future industry attractiveness. Eni’s strategy was founded on the belief that the most attractive sector
for new investment is upstream. The collapse of oil prices during 2014-15 as a result of weaker
2. Regulation of the European gas market threatens Eni’s vertically-integrated gas strategy. European
rules on competition in natural gas have forced Eni to divest its Italian gas distribution network and
3. Political upheaval in host countries. Turmoil in North Africa and the Middle East and difficult
political relations with Russia call into question Eni’s emphasis on these countries. However, Eni’s
experience in Libya suggests that its long-term commitment combined with flexibility, can allow
(enable?) operational stability even when there is political chaos.
4. Environmental concerns. A major long-term issue for the industry is pollution and global warming.
Recommendations for Eni’s Corporate Strategy 2016-2019
The medium-term outlook for Eni is unfavorable: the current low oil price environment hits the primary
source of Eni’s profit. Also in downstream markets the prospects for profitability appear to be poor. Given
the outlook, Eni should drastically reduce its upstream capital investment to a level that can be financed
out of operating cash flow.
Beyond this, it is not obvious that any fundamental re-alignment of Eni’s corporate strategy is called for:
In terms of the geographical distribution of Eni’s upstream business, it seems that this matches
Eni’s emphasis on natural gas and its integrated gas strategy also appear sound. The trends
With regard to specific aspects of Eni’s corporate strategy:
a) Should Eni continue to focus most of its capital investment on its upstream business? The
depressed outlook for oil prices (with growing supplies from the US, Canada, Iran, and Iraq)
suggest that Eni might reduce its heavy upstream concentration in favor of downstream
investment—however downstream gas looks more attractive than downstream oil (especially in
Europe).
b) The future of Eni’s chemicals business. Petrochemicals are a global business where competitive
advantage requires scale, low cost feedstocks, and proprietary technology. Eni lack all three.
However, its inability to find a buyer for its chemical business suggests that its strategy of becoming a
d) Should Eni continue to invest in power generation? Electricity represents an aspect of Eni’s vertical
integration strategy in gas. Given a shortage of power generation in most emerging market
countries (including most of the countries where Eni produces oil and gas), power generation may
offer Eni opportunities for a more comprehensive engagement with producer countries as well as a
profitable area of business.
e) Should Eni invest more heavily in renewable energy sources (e.g. wind power, solar power, and
Organizational Developments
Eni’s transformation has involved not just its external strategy, but also its internal organization. From a
highly politicized holding company with weak corporate power, Eni has emerged as a shareholder–
orientated, multidivisional corporation with financial discipline and strong cost control.
Eni has moved from a holding company structure to a multidivisional structure several decades after its
peers. After several other oil majors broke up their divisions in order to make their businesses more nimble