Corporate Strategy Analysis: A Case Study on Eni SpA

This case study analyzes the corporate strategy of Eni SpA, examining its integrated operations, particularly its upstream strategy and vertical integration in the natural gas sector. The analysis assesses the alignment of Eni's strategy with the industry environment, resources, and capabilities, highlighting the company's strong position in the gas industry. The study identifies current developments, such as political instability and market liberalization, that threaten Eni's performance and profitability. It then proposes necessary changes to the corporate strategy, including adjustments to investment levels and potential divestments. Finally, the study evaluates Eni's organizational structure, emphasizing the need for internationalization and improvements in internal systems to align with the evolving energy industry and its strategic goals.

Running head: CORPORATE STRATEGY ANALYSIS
CORPORATE STRATEGY ANALYSIS
Name of the Student
Name of the University
Author Note

1CORPORATE STRATEGY ANALYSIS
Table of Contents
Corporate strategy of Eni...............................................................................................2
Alignment of the corporate strategy with industry environment and resources and
capabilities..................................................................................................................................3
Current developments that have threatened the performance of Eni.............................4
Changes required in the corporate strategy of Eni.........................................................6
Evaluation of the current organizational structure.........................................................7
References......................................................................................................................9

2CORPORATE STRATEGY ANALYSIS
Corporate strategy of Eni
As discussed by Baaij (2017), the corporate strategy that has been followed by Eni in
the last twenty years was mainly based on the development of integrated operations in the
industry. The two CEOs of the organization were from different backgrounds. However, the
strategies that had been implemented by both of them were quite similar in nature. The
Upstream Strategy or Discipline Growth has been implemented by the CEOs of Eni in order
to maintain its operations. The organic growth was a major part of the strategy that had been
implemented by Eni in order to sustain in the Oil and Gas based industry in a successful
manner (Castaldi & Giarratana, 2018).
As opined by Bowen, Baker and Powell (2015), the capital expenditure of the
organization had increased three times within the year 1998 to 2014. Eni has integrated with
the upstream by investing more capital expenditures increased from $9.6 billion with 65.7%
capex on E&P average annual capex to $15.7 billion with 90.3% capex on E&P. Another
evidence is looking at its M&A activity for upstream oil and gas, the revenue of Eni with
mergers and acquisitions among the petroleum majors has increased $36 billion in 1995 to
$160 billion in 2013 (Dhir & Dhir, 2015).
From a static approach, reviewing the scope of Eni’s activities can show how this differs
from the other majors. In reviewing the allocation of Eni’s assets and capital expenditures
across sectors, vertical activities, and geographical areas, the following observations can be
made:
1. One of Eni’s most distinctive features is the size of its downstream presence in gas. Most
of the oil and gas majors have only small downstream gas businesses; for Eni, gas
distribution and marketing has always been a core business. This is part of Eni’s long

3CORPORATE STRATEGY ANALYSIS
association with natural gas – unique among the international oil and gas majors, Eni’s
original business was based on gas not oil (Andreou, Louca & Petrou, 2016).
2. Eni is vertically integrated from exploration to retailing. Eni can claim to be among the
most integrated of the oil and gas majors. In particular, it is highly vertically integrated in
gas, where it owns a large downstream business as well as upstream reserves and
pipelines linking the two. Recently, Eni has extended forward integration in gas through
building power plants. Also, Eni has not outsourced engineering, construction, and
oilfield services as have most of its competitors. In particular, Eni has majority ownership
of Snamprogetti, which designs refineries, chemical plants, and a range of other energy
facilities, and Saipem, which undertakes subsea drilling and construction (Dhir & Dhir,
2015).
Alignment of the corporate strategy with industry environment and resources and
capabilities
a) As discussed by Gu, Yang and Strange (2018), the corporate strategy that had been
implemented by Eni based on integrated business operations had been able to provide major
levels of support in the growth of the organization. However, the strategy was not capable of
aligning the operations of the organization with the changes that have been experienced in the
external environment and industry. Although the company had formed a unique position in
the gas industry and gained a huge share in the market, the policies developed by the
European Commission were not able to support the organization in terms of its operations
and growth (Furrer, 2016).
b) As discussed by Park, Song and Lee (2017), on the other hand, the corporate
strategies that have been implemented by the organization are effectively aligned with the
capabilities and resources that have been gained. The resources have been able to play a

4CORPORATE STRATEGY ANALYSIS
major role in the ways by which organizations are operating in the industry. The organization
has acquired the required systems that can be implemented for the proper alignment with its
corporate strategies (Picone & Dagnino, 2016).
Eni’s sectoral allocation of resources:
i. Eni’s emphasis on E&P is justified by the attractiveness of this sector. So long as oil
prices exceed $20 a barrel, it seems as though investments in E&P will generate
attractive returns. Also, Eni appears to have strong technical capabilities in several E&P
activities – especially in offshore exploration. However, it is not apparent that Eni has
particular competitive advantages upstream: Eni is a high-cost producer relative both to
the national oil companies (Saudi Aramco, Kuwait Oil., PDVSA) and the other majors
(Di Guardo, Harrigan & Marku, 2018).
ii. Plans to exit chemicals are also justified by similar considerations of industry
attractiveness – petrochemicals have been a low-profit industry in recent years.
Moreover, Eni has few advantages in chemicals – it lacks scale, global reach, and cost
efficiency (its feedstock is relatively high cost); nor does it possess any particularly
strong proprietary technologies.
iii. Downstream gas is a profitable sector – especially for Eni. However, it’s not clear that
new investments will offer anything like the return on existing investments, especially
investments outside Italy (Mayer, Stadler & Hautz, 2015).
Current developments that have threatened the performance of Eni
According to the Thompson, Strickland and Gamble (2015), political instability i.e.
turmoil in the Arab, deteriorating relationship between the West and Russia had also led to
the decline in the price of oil in different countries like, Egypt, Iraq, Libya, Nigeria.

5CORPORATE STRATEGY ANALYSIS
Underinvestment is also a major factor that has an impact on the operations of different
organizations in the industry. The downstream activities of Eni have been affected in a
negative manner by the changes that take place in the prices of oil in different countries. As
European Union efforts to liberalize the European gas market, it will threaten Eni’s
profitability. The profitability levels related to downstream activities of the organization had
also reduced in the recent times (Picone & Dagnino, 2016).
Mincato’s intended strategy over the next four-year period may be summed as “more
of the same” – a continued focus on investing in E&P while also expanding Eni’s
downstream position in European gas markets. In both businesses, Eni’s approach is to
combine internal expansion with bolt-on acquisitions. Given Eni’s successful performance
since 2000, it is difficult to argue that Eni should be pursuing a radically difficult strategy; at
the same time, it is important to consider the potential pitfalls of the strategy and the
assumptions upon which the strategy is based (Singh et al., 2018). Three issues appear to be
particularly important:
1. Competition in downstream gas. European rules on competition in natural gas place
ceilings on Eni’s market share in primary and secondary gas distribution in Italy. As a result,
Eni has sought to grow into other European gas markets (mainly through acquiring local gas
distribution companies). How well equipped is Eni to prosper in competitive gas markets?
Eni’s downstream gas heritage is as a monopolist, it has little experience of competitive
marketing (Su & Tsang, 2015).
2. Future industry attractiveness. Eni’s strategy has been strongly influenced by the
belief that the most attractive sector for new investment is upstream. Certainly, the events of
2000–4 and escalating oil prices have done little to contradict this belief. However, current
high prices are primarily a reflection of supply shortages resulting from political instability

6CORPORATE STRATEGY ANALYSIS
and lack of infrastructure in a number of leading producers – Iraq, Iran, Venezuela, and
Russia. One possible scenario for the upstream industry is that the stability and new
investment might result in major increases in supplies from these countries. The result might
well be lower prices and profits (especially for high-cost producers like Eni).
Changes required in the corporate strategy of Eni
a) As discussed by Mayer, Stadler and Hautz, (2015), the corporate strategy of Eni
was mainly based on the ways by which it has huge levels of investments in the expansion of
oil and gas-based reserves. The CEOs of the Eni were highly skeptical of the growth of the
organization based on its operations with the mergers and acquisitions. The Eni thereby made
investments in the development of oil fields in different countries of the world. However, the
reduction of high levels of investments in development of oil and gas fields is necessary for
Eni in order to reduce the costs based on production (Thompson, Strickland & Gamble,
2015).
b) As discussed by Andreou, Louca & Petrou, (2016), the divestment of the chemical
business and the construction and engineering-based business of Eni is necessary for the
proper growth of the organization in the fast-changing environment. The growth of Eni is
based on the ways by which the organization is able to maintain its investments in different
types of business operations. The construction and engineering-based sector of the country
will also prove to be quite effective for the future operations of the organization (Di Guardo,
Harrigan & Marku, 2018). Eni needs to maintain certain level of its investments and
operations in different types of businesses in order to stay competitive in the environment.
The competitiveness of the organization is based on the ways by which it is able to develop
the various businesses in different countries (Mayer, Stadler & Hautz, 2015).

7CORPORATE STRATEGY ANALYSIS
c) The vertical integration-based strategy that has been implemented by Eni has been
quite effective for the growth of the organization. The company can continue its operations in
natural gas as it will prove to be similarly effective in the future operations of Eni. The
continued implementation of vertically integrated strategy will prove to be effective for Eni
in different countries along with Europe (Park, Song & Lee, 2017).
d) The investments can be made by Eni in the development of renewable energy-
based sources. The strategic goal that had been set by the organization based on fulfilment of
the energy related needs of Italy for a long term will be fulfilled effectively with investments
that can be made in the use of natural gas. The different types of energy sources that can be
considered by the organization for investment mainly include, solar power, geothermal power
and wind power (Gu, Yang & Strange, 2018).
Evaluation of the current organizational structure
As opined by Bowen, Baker and Powell (2015), the major change that has been
implemented in Eni is based on making the company more integrated in nature. The
transformation of the organization from holding company to multidivisional
corporation is a major factor that is related to its operations. The strength of corporate level
functions has also been increased in the process. The achievement of greater integration is
also based improvement of the financial control, high levels of internal auditing,
establishment of the code of ethics and the different risk management procedures as well
(Sun & Govind, 2018).
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. Yet, it still has some way to go in aligning its internal structure, systems,

8CORPORATE STRATEGY ANALYSIS
and culture to the requirements of the changing energy industry and its own strategy. Some of
the key priorities appear to be the following:
i. Internationalization. Eni is becoming increasingly international – especially in E&P –
as a result of a series of acquisitions. Yet its top management is almost wholly Italian,
and Italian is its common language in an industry where English is the norm.
Compared with other leading oil and gas companies, Eni lacks diversity in terms of
nationality, ethnicity, gender, and educational background (Mayer, Stadler & Hautz,
2015).
ii. Structure. Eni has moved from a holding company structure to a multidivisional
structure several decades after its peers. Yet several other companies have been
breaking up their divisions, declaring that divisional structures are insufficiently
nimble and entrepreneurial. For example, BP replaced its divisional structure by much
smaller business units each reporting to the corporate centre (Thompson, Strickland &
Gamble, 2015).
iii. Openness, flexibility, and decentralized initiative. Eni operates a system of lifetime
employment. Most of its managers began working for Eni directly after graduation
and a small minority have experience gained from working for other companies. The
culture and management systems tend not to encourage risk taking and initiative.
Communication is primarily vertical. Eni lags behind most of its peers in the adoption
of systems of knowledge management. Eni’s vertical integration strategy in gas and
its upstream strategy of collaboration with governments and national oil companies is
likely to require substantial coordination and collaboration across Eni’s different
divisions and associate companies – this will inevitably require flexible approaches to
horizontal communication and cooperation (Di Guardo, Harrigan & Marku, 2018).

9CORPORATE STRATEGY ANALYSIS
References
Andreou, P. C., Louca, C., & Petrou, A. P. (2016). Organizational learning and corporate
diversification performance. Journal of Business Research, 69(9), 3270-3284.
Baaij, M. M. (2017). Comments on 'Diversification strategy and the roles of the centre. Long
Range Planning, 50(1), 17-19.
Bowen, H. P., Baker, H. K., & Powell, G. E. (2015). Globalization and diversification
strategy: A managerial perspective. Scandinavian Journal of Management, 31(1), 25-
39.
Castaldi, C., & Giarratana, M. S. (2018). Diversification, Branding, and Performance of
Professional Service Firms. Journal of service research, 21(3), 353-364.
Dhir, S., & Dhir, S. (2015). Diversification: Literature review and issues. Strategic
Change, 24(6), 569-588.
Di Guardo, M. C., Harrigan, K. R., & Marku, E. (2018). M&A and diversification strategies:
what effect on quality of inventive activity?. Journal of Management and
Governance, 1-24.
Furrer, O. (2016). Corporate level strategy: Theory and applications. Routledge.
Gu, J., Yang, Y., & Strange, R. (2018). Firm Diversification and Financial Performance:
Evidence from Manufacturing Firms Worldwide. In Contemporary Issues in
International Business (pp. 297-315). Palgrave Macmillan, Cham.

10CORPORATE STRATEGY ANALYSIS
Liu, E. X. (2016). Portfolio diversification and international corporate bonds. Journal of
Financial and Quantitative Analysis, 51(3), 959-983.
Mayer, M. C., Stadler, C., & Hautz, J. (2015). The relationship between product and
international diversification: The role of experience. Strategic Management
Journal, 36(10), 1458-1468.
Park, S., Song, S., & Lee, S. (2017). Corporate social responsibility and systematic risk of
restaurant firms: The moderating role of geographical diversification. Tourism
Management, 59, 610-620.
Picone, P. M., & Dagnino, G. B. (2016). Revamping research on unrelated diversification
strategy: perspectives, opportunities and challenges for future inquiry. Journal of
Management & Governance, 20(3), 413-445.
Singh, D., Pattnaik, C., Gaur, A. S., & Ketencioglu, E. (2018). Corporate expansion during
pro-market reforms in emerging markets: The contingent value of group affiliation
and diversification. Journal of Business Research, 82, 220-229.
Su, W., & Tsang, E. W. (2015). Product diversification and financial performance: The
moderating role of secondary stakeholders. Academy of Management Journal, 58(4),
1128-1148.
Sun, W., & Govind, R. (2018). Geographic diversification, product diversification, and firm
cash flow volatility: the moderating effect of firm dynamic capability. Journal of
Strategic Marketing, 26(5), 440-461.
Thompson, A., Strickland, A. J., & Gamble, J. (2015). Crafting and executing strategy:
Concepts and readings. McGraw-Hill Education.

11CORPORATE STRATEGY ANALYSIS

12CORPORATE STRATEGY ANALYSIS