Shapes of

Organizational

Change The Case of Heineken Inc.

Introduction

The paper makes use of the punctuated

equilibrium model of organizational

change.

It identifies two shapes of organizational

change: Radical, Incremental.

It elaborates the link between these two

types and role of management.

Introduction

The paper (and the presentation) is

divided into three parts.

Part I provides the theoretical framework for organizational change.

Part II describes the case study and

relates it to the theoretical model

Part III presents the conclusion.

Part I:

Theoretical

Framework for

Organizational

Change

Punctuated Equilibrium Model

Punctuated Equilibrium: Rapid change occurs for relatively shorter periods of time

sandwiched between larger periods

where little change occurs.

Ch

an

ge

Time

Radical Change

Incremental Change

Punctuated Equilibrium Model

Two types of Change are described:

• Radical Change

Radical change occurs in the reorientation periods,

which are relatively shorter periods, and a large

discontinuous change occurs.

• Incremental Change

Incremental change occurs in the convergent

period, which are relatively larger periods, and

small continuous change occurs.

Domains of Organizational

Activity

There are five domains that constitute

firm’s strategic orientation:

• Organizational Culture

• Power Distribution

• Control Systems

• Structure

• Strategy

Domains of Organizational

Activity

These five domains are

important to organizational

survival and central to its

activities.

These activity domains result

in differing basic factors

affecting change:

• Inertia

• Performance

Basic Forces That Lead

Radical Change

There are two basic forces that

can bring Radical Change in an

organization:

• Sustained Low Performance or

Lack of Consistency in activity

domains

• Major change in technological,

social, legal environment.

Double Loop Learning Process

Double Loop Learning: A condition in which error is

detected and corrected in ways

that involve the modification of

organization’s norms, policies,

and objectives.

Organizations that undergo

radical change exhibit Double

Loop learning Process.

Four Types of Organizational

Change (by Dunphy & Stace)

Fine Tuning: Process of matching between organization’s strategy,

structure, people, and processes.

Incremental Adjustment: Stage where

organizations adjust to the changing

environment.

These two types correspond to

incremental change.

Four Types of Organizational

Change (by Dunphy & Stace)

Modular Transformation: Major realignment of one or more departments occur during this stage.

Corporate Transformation: Corporation wide organization change occur and a revolutionary shift in organization strategy happens.

These two correspond to radical change.

Unexplored Issues

A few issues related to this topic

are still left unexplored.

These issues are:

• Shapes of Organizational Change

• Role of Top and Middle

Management.

Shapes of Organizational

Change

The first unaddressed issue is related to the order in which organizational change occurs.

When organization has to deal with an internal or external threat or opportunity, an adaptation occurs.

The two key questions regard to the order of transition from one type of change to another.

Shapes of Organizational

Change

When organization change from

incremental to radical?

De

gre

e o

f C

ha

ng

e

Time

Shapes of Organizational

Change

When organization change from radical

to incremental?

De

gre

e o

f C

ha

ng

e

Time

Role of Management

Second issue that has been left

unaddressed is the role of top and

middle management in change.

According to Tushman and

Romanelli, “Only top management can bring radical change. While

middle management brings incremental change.

Role of Management

A major change in Top

management brings about

Radical Change.

For example, “Installation of a

new CEO”.

The middle management has the

job of fine-tuning the everyday

activities.

For example, “Redefinition of

person’s job”.

Part II:

Case Study:

Heineken Inc.

Heineken International Heineken International is a Dutch

brewing company.

It was founded in 1864 by Gerard Adriaan Heineken in Amsterdam.

Heineken owns over 125 breweries in more than 70 countries and employs approximately 54,000 people.

It brews and sells more than 170 international premium, regional, local and specialty beers

The Case Study

This part concentrates on

occurrence of two changes in

Heineken International:

• Change in the Distribution System

• Structural Inertia and CEO

Succession

Traditional Distribution System

Till 1940, beer was sold directly to the pubs and bars.

Heineken agents were the ones that carried all the selling procedures.

It was important to serve as many pubs as possible.

Most of the selling strategies focused pubs.

Change in Distribution System

Freddy Heineken foresaw the future change in consumption

patterns, during his two year stay

in USA.

He predicted that the innovation

of Television and Refrigerator will

decrease the number of people

visiting pubs.

He decided to change the

traditional way of beer distribution.

Changes in Distribution System

Heineken decided to reach the

customers via the super market.

They considered wholesalers and

super markets ass important

parties in the new distribution

system.

Abolishment of the traditional

distribution system occurred

along with the innovation in

technology.

Resistance to Change

The decision to change the

distribution system was not

accepted by the commercial

managers.

Managers were concerned that

the importance they used to get

by selling directly to pubs will

come to an end as the focus shift

towards super markets.

Results of Change in System

The total beer consumption

went up from 10 liters per

person to 45 liters per person.

The market share of Heineken

increased from 21% to 39%.

During this period all the fine-

tuning was done by the

middle management.

Structural Inertia and Lock-in

The market share of normal lager

dropped, since 1980.

This resulted in a loss of market

share for Heineken.

Heineken start dropping 0.5%

each year.

Reasons for market share drop

Dutch people start preferring low

price super market beer.

Increased interest in all kinds of

special beers: Belgium and Limburg.

Managers decided to diversify their

range.

This decision was not supported by

the CEO, which kept the plan from

executing.

CEO Succession

After the resignation of Freddy

Heineken in 1989, Van Schaik

became next CEO.

Van Schaik failed to carry on

the system that Freddy

Heineken left behind.

People started not to support

Van Schaik for political reasons

and the presence of Freddy in

the Board of directors.

Freddy

Heineken

(1923 – 2002)

CEO Succession

After Van Schaik, Vuursteen

became the CEO of Heineken

International.

Since he was an outsider and he

had the support of Freddy, he

brought about radical change.

He started a new and powerful

marketing campaing and

changed the structure of the

company.

Part III:

Conclusions

Change in Distribution System

Heineken considered the environmental development as opportunity.

They radically changed the distribution system.

This change was initiated by top management.

Despite the middle management disagree but lack of power persisted the change.

Role of Middle Management

After the initial radical change

incremental changes had to occur

at the middle level to fine-tune the

change.

An observed unexpected challenge

results in initial radical change is

succeeded by the incremental

change.

Top management reacts proactively

and leave the implementation onto

the middle management.

Structural Inertia and CEO

Succession

Environmental changes in the beer

market made it necessary for Heineken to

make an adaptive strategy.

Middle management initiated the

changes.

These changes was largely blocked by

Freddy Heineken.

Retirement of Freddy gave an opportunity

to bring change.

Structural Inertia and CEO

Succession

Van Schaik was not able to bring change

because he was a transitory CEO.

Karel Vuursteen succeeded as an outsider

so he implemented the change

successfully.

Inertia was caused by the long tenure of

CEO era.

Here, the initial incremental change was

followed by the radical change caused

by the outsider CEO.

Final Words

The research paper perfectly relates the

theoretical model with the case.

The research paper fails to make a

generalization as it can be applied to only

one organization.

Further research is needed to generalize

the research and address all the issues.