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.

Radical Change
Incremental Change
Change

Time
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?
Degree of Change

Time
Shapes of Organizational
Change
 When organization change from radical
to incremental?
Degree of Change

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
 Thispart concentrates on
occurrence of two changes in
Heineken International:
• Change in the Distribution System
• Structural Inertia and CEO
Succession
Traditional Distribution System
 Till1940, 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 Freddy
and the presence of Freddy in Heineken
the Board of directors. (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.