Shapes of Organizational Change of Heineken - Essay Example

? Organizational Change Organizational Change Sjoerd, B., Arjen, S., and Marco, V. H. 2002. Shapes of organizational change: the case of Heineken Inc. Journal of Organizational Change Management, 15(3): 311 – 326. The paper focuses on Heineken, which is a Dutch beer-brewing company. It relies on the equilibrium model of organizational change that can be classified as either radical or incremental. The authors conducted a case study of Heineken Company in order to learn the interaction between radical and incremental organizational changes. The case study focuses on the beer distribution system and the structural inertia as a result of a long serving CEO. The case study also dwelled on the problems encountered in the company as a result of subsequent CEO successions and how these problems affected different levels of management. Organizational change is introduced so as to move the organization from the current state to a desirable state (Ragsdell, 2000). This can be achieved in several ways such as radical change and incremental change. The interaction between these two models can be evaluated using the punctuated equilibrium model of change. This is helpful for identifying two shapes of organizational change and elaborating on the link between these shapes. It also helps identify the role played by the top and middle management in implementing the two types of organizational change. A case study of Heineken can be used to illustrate the shapes of organizational change and the application of the punctuated equilibrium model. The company is ideal for identifying the factors determining a particular shape of organizational change. The research method was a case study of the Dutch beer brewing company. However, the findings of the case study cannot be generally valid since the research did not provide any general results. Further research is necessary before the findings can be extended to other companies in other industries. Heineken was selected due to the long history that is well documented with numerous sources of information regarding the company. On the other hand, the long history means that the company has dealt with several challenges of organizational change. The available sources have detailed information regarding the challenges experienced by Heineken when dealing with organizational change. In the late 1980s, the CEO of the company was changed, which had a large impact on the organization. Therefore, the choice of the case study was ideal since there were several journals and reviews that provide information about the company. The levels and changes in management make it easy to apply the punctuated equilibrium model of organizational change. Tushman and Romanelli (1985) developed the punctuated equilibrium model that proposes an interaction between incremental and radical organizational change. They argue that convergent periods experienced in an organization cause reorientation that demarks and sets the bearing for the coming convergent period. Long time spans of incremental change are referred to as convergent periods, and short periods of radical and discontinuous change are called reorientations. Organization change occurs in five domains: organization culture, structure, strategy, power distribution, and control systems (Romanelli and Tushman, 1994). These domains are central to activities of the organization and important for its survival. Activity domains interact in different levels of performance and inertia, which are the basic factors for organizational change. Inconsistent activities lead to low performance and organizational failure. High performance is achieved when activities are consistent and coupled to each other. Although the punctuated equilibrium model suggests a distinction between radical and incremental change, Stace and Dunphy (1996) propose four types of change. The first type is fine tuning where change is a continuous process characterized by a match between strategy, structure, processes, and people. The second type is incremental adjustment to the environment. The third type is modular transformation characterized by re-alignment in one or more departments. The last type is corporate transformation characterized by radical change in the whole organization. Despite the enormous research conducted on the punctuated equilibrium model, some issues have not been explored in detail. The order in which organizational change occurs has not been resolved together with the role of the top and middle management. The model does not explain when an organization undergoes radical or incremental change. The reason behind incremental then radical change or vice versa has not been explored. On the other hand, organizations undergoing radical change have a double-loop learning process (Miner and Mezias, 1996). This occurs when an error is detected and corrected by changing the underlying policies, norms, and objectives (Romme and Van Witteloostujin, 1999). In the 1940s, Dutch breweries sold beer to pubs via agents who were on the lookout for market changes. Heineken had three commercial directors in charge of Amsterdam, Rotterdam, and Hertogenbosch. These agents determined the commercial policy for the company. Freddy Heineken observed that the introduction of the television and refrigerator would change the way people visited pubs. Indeed a change in consumption patterns took place in the 1950s and 60s as people visited the pubs. People would buy beer in supermarkets and Heineken had to reach the customers through the supermarket chains. This would change the traditional distribution system and introduce supermarkets and wholesalers in the distribution. The decision to change the distribution system received resistance from the commercial directors as it was not expected. The new system abolished the position of the agents and introduced a new way of doing business. The change in culture experienced heavy resistance from salesmen. This radical change increase the consumption per person from ten liters in 1949 to 45 in 1968 and the market share rose from 21 to 39 percent. The radical change in the distribution system is a form of organizational change. This coincides with the rational adaptation theory of organizational change. In this case, individuals in the organization design change in response to environmental changes, threats, or opportunities leading to organizational change (Hannah and Freeman, 1984). The CEO anticipated future changes in the beer market and initiated radical change to the distribution system. The middle management performed fine tuning to the changes initiated by the CEO, which outlines the role of management in organizational change. It has been argued that the introduction of a new CEO increases the chances of radical change (Romanelli and Tushman, 1994). The CEO often begins to work in an atmosphere of expectancy regarding change. An outsider CEO stands uncommitted to the strategies of the predecessor making change inevitable. The first signs of beer saturation in the Dutch market were noticed in early 1980s by the marketing department at Heineken. The Dutch people preferred cheap beer in supermarkets and they had increased interest in beer from Belgium and Limburg. The company began losing its market share at a rate of 0.5 percent annually. The director of Heineken Netherlands recommended product diversification as a solution. The CEO was not willing to introduce product diversification and blocked most initiatives. This indicates that tenure in an organization blocks the cognitive abilities of an executive (Boeker, 1997). In 1984, the general director of Netherlands was changed and an outsider (Oostra) took over. He set up creativity prizes to stimulate employee creativity and closed the old production in Amsterdam. He also reduced the number of managers and hired new graduates. These changes forced several managers to leave Heineken for other organizations. According to Lorsch and Khurana (1999), introducing an outsider will force some people to exit the institution. The outsider failed to overcome resistance to change by Heineken employees. Oostra was succeeded by Van Soes, who was Heineken’s general manager in Ireland. He focused on reducing the red tape and reducing bureaucracy. He did not succeed since he was not considered to be the right person and his Irish ways of management contradicted those of the Dutch. He was also concerned with cutting the organization but decorated his office with marble. This did not demonstrate his commitment to the vision, which is a required characteristic for leadership success (Dunphy and Stace, 1990). In 1989, Freddy Heineken resigned as CEO and Van Schaik took over. Freddy had a strong influence in the organization and was a major shareholder. According to HamBrick and Fukutomi (1991), the power of a CEO is determined by tenure and a long serving CEO has strong relations with the organization. Freddy had developed a matrix structure at the top of Heineken and made most marketing decisions. This structure did not work for Schaik as the board considered him a transitory figure. He experienced problems due to unimplemented marketing strategies and Freddy was still influential. According to Hambrick et al. (1993), incumbent CEOs expect successors to behave like them, which may introduce problems in the organization. In 1993, a new CEO from Philips took over and was able to influence the changes due to limited commitment to the status quo. He changed the management to become international and managers from outside Heineken were hired. The paper implies that the process of organizational change should not be underestimated. The change can occur in different ways depending on the initial type. Successful companies like Heineken have experienced organizational change faced with different challenges. The study has limitations in that conclusions can be drawn from one observation. The paper only deals with changes in distribution and management and does not address other subunits of the organization. One case study cannot address all the issues experienced at Heineken that introduced different changes. Types of change in this case study depend on the researcher’s perception of change and may conflict with change literature. Organizational change can either be radical or incremental. Heineken anticipated changes in the consumption pattern and introduced radical changes to the distribution system. The change in distribution was a radical change introduced by top management. Heineken considered the changes in the environment to be an opportunity and it was able to increase its market share. Structural inertia resists change as was the case in Heineken that forced several managers to quit. Middle management is responsible for fine tuning changes introduced by top management. Directors and managers at Heineken refined the changes introduced by the CEOs. References Boeker, W. 1997. Strategic change, the influence of managerial characteristics and organizational growth. Academy of management journal, 40 (1): 152-70. Dunphy, D.C and Stace, D. 1990. Under new management, Australian organizations in Transition. Sydney: McGrawhill. Hambrick, D.C. and Fukutomi, G. 1991.The seasons of a CEO’s Tenure. Strategic management Journal, 16(4): 719-42. 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