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Entrepreneurship and Capabilities in a “Beginner” Oil Multinational: The Case of ENI

Published online by Cambridge University Press:  14 April 2011

Daniele Pozzi
Daniele Pozzi
Affiliation:
The Department of Institutional Analysis and Public Management at Bocconi University, Milan, and lecturer in economic history at LIUC University, Castellanza.
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Abstract

The entrepreneurial activity of Enrico Mattei, who headed the Italian state oil company AGIP (later ENI) from 1945 to 1962, laid the groundwork for the company's growth during the 1950s and 1960s. Mattei relied on a group of knowledgeable specialists, who were equipped with a complex set of capabilities that enabled them to oversee and perform operational tasks. The task of adapting that set of capabilities began in the latter half of the 1950s, when the firm underwent a transition from its main business of producing natural gas, which it had developed immediately after World War II, to prospecting for oil abroad.

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Articles
Information
Business History Review , Volume 84 , Issue 2: A Special Issue on the Oil Industry , Summer 2010 , pp. 253 - 274
Copyright
Copyright © The President and Fellows of Harvard College 2010

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References

1 Amatori, Franco, “Entrepreneurial Typologies in the History of Industrial Italy (1880–1960): A Review Article,” Business History Review 54, no. 3 (1980): 359–86.CrossRefGoogle Scholar Amatori portrayed Mattei as the archetypal “public entrepreneur” of postwar Italy. The issue of Business History Review in which the article was published displayed the entrepreneur on the front cover.

2 The widespread bias in the Italian literature influenced some foreign works; see, for instance, Votaw, Dow, The Six-legged Dog: Mattei and ENI—A Study in Power (Berkeley, 1964)Google Scholar ; Sampson, Anthony, The Seven Sisters: The Great Oil Companies and the World They Made (London, 1976)Google Scholar; and Yergin, Daniel, The Prize: The Epic Quest for Oil, Money, and Power (New York, 2003).Google Scholar For a complete survey on the Italian bibliography, See Pozzi, Daniele, Dai gatti selvaggi al cane a sei zampe: Tecnologia, conoscenza e organizzazione nell'AGIP e nell'ENI di Enrico Mattei (Venice, 2009)Google Scholar.

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7 The state of the art on this topic is reviewed in Wilkins, Mira, “The History of the Multinational Enterprise,” in The Oxford Handbook of International Business, ed. Rugman, Alan M. and Brewer, Thomas (Oxford, 2009), 3–38.Google Scholar

8 The consumption of liquid fuels multiplied five times from 1914 (when it was 41,300 tons per year) to 1918. Italian military and civil supplies depended entirely on Standard Oil of New Jersey and Royal Dutch Shell: during the war, there were many criticisms of the high revenues collected by the multinational oil companies, the result of the absence of a national player in the business. Pizzigallo, Matteo, Alle origini della politica petrolifera italiana (1920–1925) (Milan, 1981), 279–81.Google Scholar Just after the war, Italy's gasoline consumption was around 205,000 tons/year, and 12,662 vehicles (commercial and passenger cars) were in use among 3 of every 1,000 inhabitants. In 1938, Italy had 8.6 vehicles per 1,000 inhabitants compared with a figure of around 54 both in France and in United Kingdom (the U.S. recorded an astonishing 226). Data from Associazione Nazionale Fra Industrie Automobilistiche (ANFIA) L'automobile in cifre 2000, CD-ROM, n.d.

9 The equivalent in 1926 to 3.9 million U.S. dollars.

10 Law RDL No. 1741, 2 Nov. 1933; see also Grayson, Leslie E., National Oil Companies (Chichester, 1981), 24–26;Google ScholarKovacs, Giorgio E., Storia delle raffinerie in Italia (Rome, 1964), 83–94.Google Scholar The Italian quota—answering to the international crisis—was imposed in order to limit the expenditure of hard currency, and even to reduce production and consumption, while the French system guaranteed the state's direction through the development of a national refining industry.

11 According to the Schlumberger Oilfield Glossary, the adjective “upstream” refers to facilities or systems located in the wellbore or production train above the surface choke (http:// www.glossary.oilfield.slb.com). In oil-business jargon, it is often used as a noun, indicating the entire upstream activity (downstream indicates refining, marketing, and distribution). During the 1930s, AGIP's main bodies were its commercial and technical departments. The technical department supervised the refining plants, the fleet and, to some extent, the Autonomous Exploration Department

12 Author's interview with Claudio Sommaruga, Milan, 9 Dec. 2008.Google Scholar

13 Stokes, Raymond G., “The Oil Industry in Nazi Germany,” Business History Review 59, no. 2 (1985).Google Scholar

14 Relazione sulla visita a Berlino del prof. Francesco Vercelli e dell'ing. T. Rocco, no. 8596, sc. 123; and Relazione della missione Vercelli-Rocco sulle esplorazioni petrolifere con metodi geofisici negli Stati Uniti, no. 47781, sc. 553, Scatole Rosse/E&P/ENI Historical Archives (Archivio Storico ENI, AS ENI).

15 Before the war, in 1938, Western Europe relied on liquid fuels only for 7.7 percent of its energy needs. In 1960, the share of oil reached 38 percent, due to the introduction of American models of production and the development of the European refining industry, which was supplied by the rising production in the Middle East. In the same year, Italy relied on oil for 54 percent of its energy consumption (the country had no domestic production of coal, and imported oil was cheaper than imported coal). Data from Darmstadter, Joel, Energy in the World Economy: A Statistical Review of Trends in Output, Trade and Consumption since 1925 (Baltimore, 1971)Google Scholar.

16 Enrico Mattei (1906–62) was a young chemical industrialist from a middle-class family in Marche (a poor region in central Italy), who had started a small factory of tanning products in Milan during the 1930s. During the war, he joined the clandestine Christian Democratic Party and became one of the leaders of the Resistance movement.

17 Situazione delle ricerche petrolifere nell'Italia Settentrionale, sf.4/f.1/b.40/Presidenza Mattei/ENI/AS ENI.

18 Marcello Boldrini (1890–1969) became AGIP's new chairman. Boldrini, a professor of statistics at Catholic University of Milan, was one of Mattei's closest friends and his mentor. They came from the same small town in Marche.

19 Some of CTRP's meeting reports were reprinted in Centro Documentazione e Informazione (CEDI), Archivio Storico: Verbali Comitato Tecnico Ricerche e Produzioni (1948–1949) (San Donato Milanese, 1991)Google Scholar.

20 In 1950, production was around 300,000 cubic meters of gas; in the same period, small privately-owned fields in the Po Delta district produced at most 100,000 to 150,000 cubic meters per year. See Squarzina, Federico, Le ricerche di petrolio in Italia: Cenni storici e cronache dell'ultimo decennio (Rome, 1958)Google Scholar.

21 It would be useful to make a comparison with the French gas industry, which was developed by the public concerns Entreprise et Régie Autonome des Pétroles (ERAP) and Société Nationale des Pétroles d'Aquitaine (SNPA) after the discovery of the St. Marcet gas field in 1939. At the beginning of the 1950s, French production was smaller than Italian. ERAP still relied, more than AGIP, on the traditional use of methane as a gasoline surrogate, because the French fields were situated in the southwest, the most economically backward region of the country, hardly representing a market as profitable as Lombardy's. See Brunet, Charles, “Le gaz naturel en France,” in Atti del VII Convegno nazionale del metano e del petrolio (Palermo, 1952), 871–80Google Scholar.

22 From 1949 to 1953, AGIP's production grew from 107,000 to 2,021,000 cubic meters of natural gas. See AGIP Mineraria, Relazione sull'attività svolta nell'anno 1953 (Milan, 1954)Google Scholar.

23 After the war, the Christian Democratic Party led Italian governments for almost fifty years. The Party established a direct connection with the state-owned enterprises created during fascism, converting their original aims (in response to the 1929 crisis) into modernization and economic growth. The collusive relation between companies and the majority party eased the involvement of the state-owned enterprises in the postwar development plans, but, since the end of the sixties, it introduced increasing corruption and financial burdens. For account of this topic, see Franco Amatori, “Beyond State and Market: Italy's Futile Search for a Third Way,” in The Rise and Fall of State-owned Enterprise in the Western World, ed. Pier Angelo Toninelli (Cambridge, U.K., 2000), 128–56.

24 The oil industry relies on the only mining activity in which the operator cannot directly observe the ore deposit: before drilling, every hypothesis about the location and characteristics of oil reservoirs is thus based on data (geological surveys, samples of fossils, geophysical tests) gathered from the soil surface. Bowker, Geoffrey C., Science on the Run: Information Management and Industrial Geophysics at Schlumberger, 1920–1940 (Cambridge, Mass., 1994).Google Scholar

25 See Nonaka, Ikujiro, “A Dynamic Theory of Organizational Knowledge Creation,” Organization Science 5, no. 1 (1994): 14–37.CrossRefGoogle Scholar Nonaka describes the dialog between explicit and tacit knowledge as a “spiral” that involves the socialization of tacit knowledge, followed by externalization, the combination of different bodies of explicit knowledge, and the final internalization manifested as organizational knowledge.

26 For instance, data collected by AGIP were translated and “externalized” to the scientific community only in 1957, thanks to a conference on the West European gas fields, held in Milan and sponsored by ENI. See the proceedings in Accademia Nazionale dei Lincei, Convegno sui giacimenti gassiferi dell'Europa occidentale (Rome, 1959)Google Scholar.

27 Nonaka, Ikujiro, Konno, Noboru, and Toyama, Ryoko, “Emergence of ‘Ba’: A Conceptual Framework for Continuous and Self-Transcending Process of Knowledge Creation,” in Knowledge Emergence: Social, Technical, and Evolutionary Dimensions of Knowledge Creation, ed. Nonaka, Ikujiro and Nishiguchi, Toshihiro (Oxford, 2001), 13–29.Google Scholar Nonaka, Konno, and Toyama defined the “space” where organizational knowledge is created, through the attributes of “autonomy; creative chaos; redundancy; variety; and love, care, trust and commitment.”

28 Grant, Robert M., “Prospering in Dynamically-Competitive Environments: Organizational Capability as Knowledge Integration,” Organization Science 7, no. 4 (1996): 375–87CrossRefGoogle Scholar and “Toward a Knowledge-based Theory of the Firm,” special issue, Strategic Management Journal 17 (1996):109–22; , Penrose, The Theory of the Growth of the Firm, 44–47.Google Scholar Shared cognitive basis and languages are key factors for knowledge integration in Grant's view. By turning to contractors, AGIP could develop new competences, also overcoming the so-called “Penrose's effect,” the bottleneck resulting from scarce free managerial resources intended for training.

29 The reconstruction of the operation and mood on the northern fields is based on interviews by the author with former technicians and managers, among them Pietro Bazzana, Ugo Bini, Livio Da Rin, San Donato, 27 June 2002; Egidio Egidi, Milan, 16 May 2002 and 11 Mar. 2003; Francesco Guidi, San Donato, 23 Jan. 2003. It is useful to compare AGIP's case with similar male-only workplaces: see , Bowker, Science on the Run, 37Google Scholar ; McKenna, Chirstopher D., “Better Living through Chemistry? Industry Accidents and Masculinity at Du Pont, 1890– 1930,” Entreprises et Histoire no. 17 (1997): 9–21.Google Scholar

30 Law no. 136, 10 Feb. 1953. The law was proposed by Christian Democrat ministers very closed to Mattei in summer 1951, when politicians began to realize AGIP's successful results. The proposal became law in very short time—by Italian standards—and without significant opposition in both houses of Parliament.

31 A general framework is in Dechert, Charles R., Ente Nazionale Idrocarburi: Profile of a State Corporation (Leiden, 1963).Google ScholarSee also Pozzi, Daniele, Dai gatti selvaggi al cane a sei zampe: Tecnologia, conoscenza e organizzazione nell'AGIP e nell'ENI di Enrico Mattei (Venice, 2009).Google Scholar

32 Since 1949, the British company and AGIP owned an equal amount of the share capital of Industria Raffinazione Oli Minerali, IROM. IROM's refinery in Venice was entirely supplied by AIOC, which did not own other downstream plants or retail networks in Italy.

33 Frankel, Paul H., Essential of Petroleum: A Key to Oil Economics (London, 1946)Google Scholar ; Penrose, Edith T., The Large International Firm in Developing Countries: The International Petroleum Industry (Cambridge, Mass., 1968), 152ff.Google Scholar Due to the lack of markets for the more significant assets and to some specificity of the industry, vertical integration was the only means to allow long-term investment planning.

34 In 1932, BOD was allowed to start exploration in Mosul. The fi rst results were encouraging, but the Iraqi government required the payment of high dead rents (see note 39) to maintain the rights. In contrast, the balance among BOD's shareholders was very unstable: AGIP acquired a major share by 1934, but very soon had to reduce its participation because the Italian government did not provide the company with the needed resources—in hard currency—to maintain its position. Meeting minutes, 10 Jan. 1935, Cda AGIP (1931–1935), f.13/b.1/E&P/AS ENI; meeting minutes, 25 Jan. 1936, Cda AGIP (1935–1940), f.14/b.1/E&P/AS ENI.

35 Kogut, Bruce and Zander, Udo, “Knowledge of the Firm and the Evolutionary Theory of the Multinational Corporation,” Journal of International Business Studies 24, no. 4 (1993): 625–45;CrossRefGoogle ScholarJones, Geoffrey, Multinationals and Global Capitalism from the Nineteenth to the Twenty-first Century (New York, 2005), 7–11Google Scholar.

36 Penrose, Edith T., “The Structure of the Oil Industry: Multinationals, Governments and OPEC,” in The International Oil Industry: An Interdisciplinary Perspective, ed. Rees, Judith and Odell, Peter (New York, 1987)Google Scholar ; Marcel, Valérie, Oil Titans: National Companies in the Middle East (London, 2006), 19–28Google Scholar.

37 Karshenas, Massoud, Oil, State and Industrialization in Iran (Cambridge, 1990), 88–92Google Scholar.

38 About the Iranian agreement, see documents in b.10, 20, 21, 50 and 83/DE/ENI/AS ENI.

39 A dead rent is a fixed (one-time or repeated) payment due from an oil company to the government of a producing country to gain rights of exploration.

40 Chapelle, Jean, URSS second producteur de pétrole du monde (Paris, 1963)Google Scholar ; Jensen-Eriksen, Niklas, “The First Wave of the Soviet Oil Offensive: The Anglo-American Alliance and the Flow of ‘Red Oil’ to Finland during the 1950s,” Business History 49, no. 3 (2007): 348–66CrossRefGoogle Scholar.

41 The contracts signed in 1960 granted the Italian company 16 to 17 million tons of crude oil (from 1962 to 1966) at $1.26 US/barrel, FOB Black Sea, while the average international price was around $1.60 US/barrel (FOB Ras Tanura). Documentation in f. 187e/57/DE/ENI/ AS ENI.

42 For instance, not only was Iranian geology completely different than the Po Valley's subsoil, but the concessions were also in very difficult locations: one was in the Zagros mountains (more than 2,000 meters high), one in the Makran desert, and the last one was an offshore perimeter in the Red Sea (ENI had never drilled in the sea before). Interviews with Egidio Egidi, Milano, 16 May 2002 and 11 Mar. 2003; Ugo Colledan, Cassina de' Pecchi (Mi), 3 Feb. 2003.

43 ENI negotiated a parallel agreement with Pan American Oil Company (a Standard of Indiana's subsidiary company), keeping NIOC in the dark. When the fields entered production, the latter tried to deny the rights of the Italian partner on the basis of some ill-defined clauses.

44 Documentation about the agreement is in b. 2 and b. 57/DE/ENI/AS ENI. The oil economist Paul Frankel, at that time ENI's advisor, stated: “although Russia and ENI were mutually useful partners, there was not much love lost between them.” Frankel, Paul H., Mattei: Oil and Power Politics (London, 1966), 142Google Scholar.

45 , Penrose, The Large International Firm in Developing Countries, 142Google Scholar.

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48 See, for instance, the evaluation of foreign investments presented in meeting minutes, 30 Oct. 1964, and meeting minutes, 3 Dec. 1964, Giunta ENI (1963–1966), f.2501/b.6/ENI/ AS ENI.

49 Interview with Egidio Egidi, Milan, 11 Mar. 2003.

50 “ENI after Mattei,” Management Today (Oct. 1966): 82–89, 123Google Scholar.

51 Tallman, Stephen and Fladmoe-Lindquist, Karin, “Internationalization, Globalization, and Capability-Based Strategy,” California Management Review 45, no. 1 (2002): 116–35CrossRefGoogle Scholar.

52 Porter, Michael E., The Competitive Advantage of Nations (London, 1990), 71–66;CrossRefGoogle Scholar, Lazonick, “The Innovative Firm,” 29–55.Google Scholar Among the determinants of national advantage, Porter highlighted the relevance of the availability of adequate human capital and of a relevant domestic market, also stressing the importance of related and supporting industries in the country. Also, in Lazonick's view, the social context where the firm evolves is the key factor to success in an innovative strategy.

53 Holland, Stuart, ed., The State as Entrepreneur; New Dimensions for Public Enterprise: The IRI State Shareholding Formula (London, 1972), 106ff.Google ScholarBussolati, Camillo, Malerba, Franco, and Torrisi, Salvatore, eds., L'evoluzione delle industrie ad alta tecnologia in Italia (Bologna, 1996)Google Scholar.

54 According to the definition William Lazonick gives to innovative learning processes. See , Lazonick, “Understanding Innovative Enterprise,” 31–61Google Scholar.