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Shapes of organizational Shapes of

organizational
change: the case of change

Heineken Inc.
Sjoerd Beugelsdijk and Arjen Slangen 311
Department of Organization and Strategy, Tilburg University, Tilburg, Received January 2001
The Netherlands, and Revised May 2001
Accepted July 2001
Marco van Herpen
Boston Consulting Group, Baarn, The Netherlands
Keywords Organizational change, Models, Management
Abstract This paper is based on the punctuated equilibrium model of organizational change.
We argue that there are multiple ways in which organizational change takes place. More in
particular, by looking at the interaction between the two types of organizational change (radical
and incremental), we identify two shapes of organizational change. We illustrate this by means of
a case study of a large, Dutch beer-brewing company. The study focuses on a major change in the
distribution system of beer and a period of structural inertia, caused by long CEO tenure. The
problems associated with the subsequent CEO succession and the different levels of management
that interact in these change processes are also discussed. This leads to the identification of a
number of drivers and determinants of shapes of organizational change.

Introduction
The intention of any organizational change is to move the organization from its
current state to a more desirable state (Ragsdell, 2000). However, organizational
change can be accomplished in several ways: either through radical change or
through incremental change. We will look at the interaction between these two
types of change by making use of the punctuated equilibrium model of
organizational change (Tushman and Romanelli, 1985). By doing so, we
identify two shapes of organizational change. We also elaborate on the link
between these shapes and the role of an organization's top and middle
management. A case study of a large, Dutch beer-brewing company illustrates
our ideas and leads to the identification of a number of factors that drive or
determine the particular shape of organizational change that is observed.
In the next section the theoretical framework for this paper is provided. We
will elaborate on the punctuated equilibrium model of organizational change.
Subsequently, we will argue that previous research on organizational change
has left some interesting issues unaddressed. After that, the research method
that was used in this study will briefly be discussed. This section is followed by
a description of the case study that we conducted. The insights resulting
from this case study are presented in the conclusion. Finally, a number of Journal of Organizational Change
Management,
Vol. 15 No. 3, 2002, pp. 311-326.
The authors are grateful for the valuable comments and suggestions provided by Sjoerd # MCB UP Limited, 0953-4814
Romme, Harry Barkema, Sytse Douma and two anonymous reviewers. DOI 10.1108/09534810210429336
JOCM implications, limitations, and suggestions for further research will be
15,3 discussed.

The punctuated equilibrium model

As stated in the introduction, the punctuated equilibrium model of
organizational change proposes an interaction between radical and incremental
312 change. The punctuated equilibrium model was developed by Tushman and
Romanelli (1985). They argue that organizations progress through convergent
periods punctuated by reorientations which demark and set bearings for the
next convergent period. Convergent periods are relatively long time spans of
incremental change and adaptation, whereas reorientations are relatively short
periods of radical, discontinuous change.
Change is theorized to occur on five domains of organizational activity:
(1) organizational culture;
(2) strategy;
(3) structure;
(4) power distributions; and
(5) control systems (Romanelli and Tushman, 1994).
These five activity domains have been selected because they are important to
organizational survival and central to organizational activities (Romanelli and
Tushman, 1994). They constitute a firm's so called ``strategic orientation''.
The activity domains individually and as they interrelate with one another
result in differing levels of performance and inertia which are, in turn,
basic factors affecting organizational change. Inconsistent or inappropriate
activities, within any of the activity domains, will be associated with lower
performance and/or failure. Furthermore, activities must also be consistent or
coupled with each other to achieve high performance. So, performance is a
consequence both of appropriate activities and of achieving consistencies in
and among organization activities (Tushman and Romanelli, 1985).
In addition to performance, organization-environment and intra-
organizational consistencies are associated with the development of structural
and socially-anchored inertia. Inertia denotes an organization's resistance to
radical change. This resistance is the result of the interdependence of
organizational subunits, as subunit managers try to maintain a complex
network of commitments and relationships (Romanelli and Tushman, 1994). As
a result of structural inertia, organizations develop coherent systems of shared
understandings that support continuation of the established patterns.
According to the punctuated equilibrium model, radical and discontinuous
change of all or most organizational activities is necessary to break the grip
of strong inertia, because resistance to change prevents small changes in
organizational subunits from taking hold or substantially influencing activities
in related subunits (Romanelli and Tushman, 1994). The radical change leads
to a strategic reorientation. It should be noted that a reorientation does not
involve changes in a firm's core values and beliefs. Reorientations, which also Shapes of
involve a discontinuous shift in core values and beliefs, are called re-creations organizational
(Tushman and Romanelli, 1985). change
Tushman and Romanelli (1985) distinguish two basic forces that lead to
radical change: sustained low performance resulting from a lack of consistency
among activities in the activity domains, regardless of the appropriateness of the
overall strategic orientation, and major changes in competitive, technological, 313
social and legal conditions of the environment that make the current strategic
orientation, regardless of its initial success, no longer effective:
When reality breaks in on managers who have failed to anticipate or react to slow-moving
and imperceptible glacial shifts of this kind, their reaction may have to be fast and
transformative for the organization to survive (Dunphy and Stace, 1990, p. 70).

Organizations that undergo radical change exhibit a so-called ``double-loop

learning process''. Double-loop learning occurs when error is detected and
corrected in ways that involve the modification of an organization's underlying
norms, policies and objectives (Romme and Van Witteloostuijn, 1999; Miner
and Mezias, 1996).
Although the punctuated equilibrium model suggests a dichotomous
distinction between radical and incremental change, others (Dunphy and Stace,
1990, p. 72; Stace and Dunphy, 1996, p. 94) argue that there are four types of
change. The first type is ``fine tuning'', where organizational change is an
ongoing process characterized by the fine tuning of the ``fit'' or match between
the organization's strategy, structure, people, and processes. The second type is
labeled ``incremental adjustment'', which is defined as a stage of incremental
adjustment to the changing environment. The third type of change involves
``modular transformation''. In this case organizational change is characterized
by major re-alignment of one or more departments or divisions. The last type of
change is the ``corporate transformation'', where organizational change is
corporation-wide and implies radical shifts in strategy and revolutionary
changes throughout the whole organization. The first two of these types of
change clearly coincide with the concept of incremental change and the latter
two with the concept of radical change as identified in the punctuated
equilibrium model.

Unexplored issues
Despite the large amount of research that originated from the punctuated
equilibrium model (e.g. Romanelli and Tushman, 1994), some interesting issues
have been left unexplored or have not been researched in detail. These issues
relate to the order in which organizational change takes place and the role of an
organization's top and middle management in this matter.

Shapes of organizational change

The first issue that, to the best of our knowledge, has not been examined before,
concerns the order in which change occurs within an organization. When an
JOCM organization faces an opportunity or a threat, either internal or external, it often
15,3 reacts and adapts in order to successfully deal with the opposed opportunity
or threat. This reaction may differ by case. Furthermore, along the way, an
organization may realize that the initial reaction was incorrect. When this is the
case, an adaptation may occur.
There are two key questions regarding the initial type of organizational
314 change and the subsequent transition from one type to the other. First, when
does an organization initially change incrementally and when radically?
Second, why does a transition take place from an incremental change process to
a radical change process or the other way around?
These questions suggest that two possible shapes of organizational change
can be identified[1]. The first consists of an organization that initially changes
radically and, after that, gradually fine tunes its practices to the new situation
that has arisen. This situation can be characterized as initial radical change
followed by incremental change. This change process is graphically depicted in
Figure 1. The horizontal axis represents time, while the vertical axis represents
the degree of effectuation of the necessary change.
Second, an organization may initially change incrementally, but, at a certain
moment, a transition to radical change may take place, possibly because the
initial incremental change process does not lead to the desired state/outcome.
This process is graphically depicted in Figure 2.
In a later section of this paper, we link the two situations described above
with particular situations that a large, Dutch, beer-brewing company has faced
over time. The aim is to identify the key factors that drive or determine the
shape of organizational change that was observed.

Figure 1.
Initial radical change
followed by incremental
change

Figure 2.
Initial incremental
change followed by
radical change
The role of top and middle management Shapes of
A second interesting issue that has largely been left unaddressed concerns the organizational
role of an organization's top and middle management in the different shapes of change
organizational change distinguished above. Although these roles have never
been linked to these shapes, they have received some attention in previous
literature. For example, Tushman and Romanelli (1985) argue that only
executive leadership can mediate between forces for convergence and forces for 315
change. While middle management can sustain convergent periods, only
executive leadership has the position and potential to initiate and implement a
strategic reorientation. Barkema and Vermeulen (1998) elaborate on the
characteristics of the executive team. They find that there is an optimal team
tenure variation, which allows the executive team to perceive and understand
disconfirming signals and not yet be hampered by communication and
coordination problems. A similar line of reasoning applies to the size of the top
management team: team size initially promotes unlearning and change, but
eventually has an adverse effect.
The above makes clear that executives themselves may also be constrained
in their perceptions by inertial forces of a convergent period. Therefore, radical
change will occur most frequently after a sustained performance decline or
major environmental change.
It has frequently been argued that the installation of a new chief executive
officer (CEO), even in the absence of a performance decline or major
environmental change, will significantly increase the likelihood of radical
organizational change (Romanelli and Tushman, 1994). One of the reasons is
that a CEO often begins work in an atmosphere of expectancy about change.
The period closely following his installation often provides the best
opportunity for signaling that a new regime is in place. In addition, a new CEO,
especially one that comes from outside the organization, stands uncommitted
to the strategies and policies established by his predecessor. Moreover, his
information and experience may lead the new CEO to have a different
understanding of effective or appropriate organizational actions than his
predecessor had.
Although a new CEO who comes from within the organization may also
initiate radical change, reorientations or re-creations are most frequently
initiated by outside successors who have no commitment with the organization
(Tushman and Romanelli, 1985). However, while internal executives are less
likely to initiate radical changes, they are more likely to successfully implement
these changes. The reason is that external executives often face substantial
resistance when implementing a radical change. Simply stated, resistance is the
exertion of power against some other source of power which occurs along a
vertical axis of organizational relationships (Young, 2000). This suggests that
middle management may also play an important role in organizational change
processes.
The aim of this paper is to apply the above insights on the two shapes of
organizational change that were distinguished. To the best of our knowledge,
JOCM this has not been done before. The key questions regarding this matter are the
15,3 following. First, what is the role of an organization's top and middle
management regarding the initial type of organizational change that takes
place? Second, what is the role of an organization's top and middle
management in the transition from one type organizational change to the other?
We will try to identify these roles by, as stated earlier, analyzing a number of
316 situations that a large, Dutch, beer-brewing company has faced over time. This
leads to the identification of a number of drivers and determinants of
organizational change that relate to (the actions of) an organization's top and
middle management.

Method
The research methodology we employ in this paper is a case study. A major
disadvantage of this research methodology is that no general results are
obtained. That is, the obtained results may not be seen as generally valid.
Further research will have to be conducted in order to find out if the results
obtained in this study are valid for other companies in other industries.
The company that was examined in this study is the large, Dutch beer-
brewing company Heineken. Several reasons can be given to support this
choice. First, Heineken has a long history and, as a result, has had to deal with
a lot of challenges that required organizational change. Second, this long
history is relatively well documented. Third, a large variety of information
sources concerning Heineken are available. The information sources that we
used in this study are annual reports, articles published in journals and
magazines, books and the Internet. These sources provided detailed
information about several organizational challenges that Heineken had to cope
with in the past. A final reason supporting the choice for Heineken is that it
underwent a CEO change in the late 1980s that had a relatively large impact
on the organization.

The case study

This section concentrates on two situations that illustrate the occurrence of
different shapes of organizational change within a single organization
(Heineken Inc.)[2]. First of all, the focus is upon a major change in the
distribution system that took place after the Second World War. Second, the
situation at Heineken in the 1980s and the beginning of the 1990s will be
scrutinized. This period was characterized by inertia caused by long CEO
tenure. Top executives fulfill a prominent role in an organization's propensity
for either inertia or change (Hambrick et al., 1993). The ultimate CEO
succession that took place within Heineken will be related to existing theory
on organizational change. As stated earlier, the examination of these two
issues will result in a number of drivers and determinants of organizational
change.
Change in the distribution system Shapes of
By the end of the 1940s Heineken made an important decision concerning the organizational
distribution system of beer from factory to consumer. Until then, Dutch change
breweries sold their beer to pubs via agents, who served as the ``eyes and the
ears'' of the beer market for these breweries. The agents and brewers were
mutually dependent. Heineken had three commercial directors who were active
in the region of respectively Amsterdam, Rotterdam and 's Hertogenbosch. 317
The commercial policy was highly determined by these agents. It was of
crucial importance for the breweries to serve as many pubs as possible. An
impressive system of loans and discounts was developed in order to realize as
many selling points as possible. This implied that a lot of pubs were financially
dependent on a single brewer. In 1947 Heineken's general manager Feith
decided to change this traditional distribution system radically.
During his two-year stay in the USA, future CEO Freddy Heineken,
grandson of the founder of the Heineken corporation, had observed that
consumption patterns would change radically in coming years. He foresaw the
impact that the introduction of the refrigerator and the television would have
on the way of life. Consumption patterns indeed gradually changed in the 1950s
and the 1960s. The refrigerator and the television caused people to visit the pub
less. As a result, Heineken had to reach the consumer via the supermarket,
because that would be the new place where people would buy their beer. This
implied that the traditional distribution system should be abolished and
supermarkets and wholesalers would become important parties in the new
distribution system.
The decision to change this system was not expected and, moreover,
encountered considerable resistance from the three main commercial
managers. First of all, the change implied that their crucial position between
brewer and pub owners came to an end. Second, the new system demanded a
new way of doing business. This necessary change in culture encountered
heavy resistance from these salesmen. Instead of the ``cozy'' atmosphere of
doing business in and with pubs, the contacts with wholesalers and
supermarkets were far more business-like[3]. The impact of this radical CEO
decision can easily be shown through some simple figures. While the amount of
beer consumption went up from ten litres per person in 1949 to 45 litres in 1968,
Heineken's market share rose from 21 per cent to 39 per cent.
The decision radically to change the distribution system can be seen as a
controlled form of organizational change. This coincides with the view on
organizational change that can be labeled ``rational adaptation theory''.
According to this view, organizational change is the result of a designed
change in strategy of individuals in an organization in response to
environmental changes, threats and opportunities (Hannan and Freeman,
1984). The anticipation of future developments in the beer market made
Heineken's CEO decide to change the distribution system radically. The fine
tuning of the changes initiated and imposed by the CEO was performed by
middle management.
JOCM Structural inertia and CEO succession
15,3 In this section we focus upon two aspects of the Heineken corporation. First, the
turbulent period in the 1980s and the beginning of the 1990s will be examined.
During this period, inertia plagued the company. This was especially the case
for Heineken Netherlands. Second, the period around the ± probably most
important ± CEO succession in the history of Heineken will be studied. After a
318 period of 20 years, CEO Freddy Heineken withdrew and a new CEO took over.
Furthermore, the dynamics that surrounded the actual succession in 1989 will
be unraveled.

Structural inertia and lock-in

Since the beginning of the 1980s, the first signs of saturation of the Dutch beer
market became clear to the marketing department of Heineken. The market
share of normal lager dropped. This resulted in a loss of market share for
Heineken of 0.5 per cent each year. The reason for this was twofold. First,
Dutch people started preferring low-priced supermarket beers. Second, there
was an increased interest in all kinds of special beers from Belgium and
Limburg. The general director of Heineken Netherlands, Snoep, decided that
the solution for Heineken was to diversify its product range. However, as CEO
Freddy Heineken did not see or was not willing to see the urgent need for
diversification, the majority of initiatives into this direction were blocked. This
can be explained by the fact that an executive's cognitive abilities are
negatively affected by tenure in an organization (Boeker, 1997; Barkema and
Vermeulen, 1998). Or as Finkelstein and Hambrick (1996, p. 82) put it:
Executives are believed to increase commitment to their paradigms with organizational
tenure, becoming overconfident in the traditional organizational routines. Sources of
information become narrow and restricted and information is more finely filtered and
distilled.

In 1984, there was a change in the position of general director as Oostra

succeeded Snoep. This new general manager was a relative outsider, as he
came from Akzo Italy. He found an organization that had ``fallen asleep'' and
took all kinds of actions to get the Heineken organization ``alive'' again. First, he
set up creativity prizes to stimulate the creativity of the employees. Second, he
closed down Heineken's old production establishment in the center of
Amsterdam. Finally, he reduced the numbers of managers and hired some new
fresh graduates. Despite all these changes and refreshing initiatives, Oostra
was not able to give real direction to Heineken Netherlands, which, according to
Dunphy and Stace (1990, p. 155), is a necessity for successful transformational
leaders. Moreover, all these changes led other managers from Heineken
Netherlands to leave the firm because they were unsatisfied with the proposed
changes. This confirms the popular view that when you bring in an outsider,
some of your people will head for the exits (Lorsch and Khurana, 1999).
Outsider Oostra was not able to overcome the resistance against the changes
mentioned above. Consequently, he was appointed as a member of the ``Raad
van Bestuur''[4] of Heineken in 1989, where he became responsible for
Heineken's activities in Asia. Cannella and Lubatkin (1993) argue that internal Shapes of
sociopolitical forces can impede the ``shock''-effect of selecting an outsider. This organizational
may explain Oostra's inability to change the company. change
Van Soest succeeded Oostra. Contrary to Oostra, he had a history in
Heineken as a general manager in Ireland. Van Soest concluded that Heineken
had become a bureaucracy. He decided to focus on the reduction of red tape and
wanted to make Heineken vivid again. However, none of his plans were realized 319
for several reasons. First of all, he was considered not to be the right man at the
right place. Second, his Irish way of managing did not coincide with the Dutch
way. Third, his behavior was ambiguous. More specifically, on the one hand he
wanted to cut in the organization, but, on the other hand, he had his office
decorated with marble[5]. By doing so, he did not demonstrate personal
commitment to the vision, which is a necessary characteristic of a successful
leader (Dunphy and Stace, 1990, p. 155).
Almost a year after Van Soest became general manager he was forced to
resign, as well as some of the other members of the management team. His
successor was Strobos. He also concluded that Heineken had become a ``fat''
organization[6]. Lock-in and structural inertia plagued the company, since the
success in the years before was perceived to be normal. The factors that explain
structural inertia were indeed mostly internal to the organization (cf. Hannan
and Freeman, 1984).
Strobos concluded the problem was twofold. First, the diversification
mentioned earlier was required. Second, he concluded, there was a cost problem
at Heineken Netherlands. Together with his management team he published a
``green book'' in which it was argued that if nothing would change, returns
would be zero. Meanwhile, income per barrel had decreased from 15 guilders in
1982 to only nine guilders in 1989. The high costs were partly caused by the
intense phase of internationalization that Heineken underwent during this
period. This required a number of supporting staff services that worked for the
foreign subsidiaries. When these services were not needed anymore or when
the foreign subsidiaries had set up their own supporting staff, these services
were ``kept alive'' at Heineken Netherlands, causing high costs. Another factor
that caused extra organizational costs was the political conflict between
production and marketing people. Over the years, this led to the existence of
different ``islands'' within the Heineken corporation, which, for example, led to a
two-year delay in the introduction of beer cans[7]. This conforms with Hannan
and Freeman (1984), who argue that if interests among members of an
organization are diverse and if outcomes depend heavily on internal politics,
organizational outcomes cannot easily be matched rationally to changing
environments.

CEO succession
In 1989 an important CEO succession took place at Heineken. After 20 years of
being chairman of the Heineken corporation, Freddy Heineken resigned. His
successor was Van Schaik. As mentioned earlier, Freddy Heineken heavily
JOCM influenced the organization. The positive relationship between the power of a
15,3 CEO and his (or her) tenure has been described by Hambrick and Fukutomi
(1991). They argue that the longer the CEO's time in office, the stronger the
association between the characteristics of an organization and the
characteristics and personality of the CEO. Barkema and Pennings (1998) have
also shown that the power of a CEO increases with tenure. A large part of the
320 marketing of Heineken was developed by Freddy Heineken personally and, if
not developed, he decided on all kinds of projects. Since the start of his
leadership, he organized the top of Heineken according to a matrix structure. A
member of the board was not responsible for a specific region only, but also for
a specific function. As a result, board members had to confer on almost every
decision that had to be made.
The matrix structure functioned rather well during the period that Freddy
was CEO since he had so much influence that he more or less ``forced'' his board
members to act in a cooperative and harmonious way[8]. Dunphy and Dick
(1982, p. 36) label this type of management ``management by edict'', which
corresponds with a directive or even coercive style of (change) leadership
(Dunphy and Stace, 1990, p. 78). The failure to delegate authority did not limit
viability initially, but, in accordance with Hannan and Freeman (1984), the
failure to delegate power did cause problems in the end. More specifically, the
system turned out not to work under Freddy's successor Van Schaik, who was
seen as a transitory figure because of his relatively high age. Several members
of the board were busy positioning themselves as the new chairman. The
situation reached its climax in the spring of 1990, as one of the competing board
members withdrew.
Van Schaik's position was weakened even further by the internal problems
at Heineken Netherlands. These problems can, to a certain degree, be attributed
to the fact that Freddy Heineken had blocked the necessary changes that the
marketing department suggested. The strong forces not to change and
diversify Heineken's product range may be seen as a ``commitment to the status
quo'' (CSQ) (Hambrick et al., 1993) or ``status quo tendency'', which can be
defined as:
A persistence with existing goals and plans even when there is irrefutable evidence that these
goals and plans are failing (Dunphy and Stace, 1990, p. 151).

Sociopsychologists relate these kinds of ``denial''-processes to cognitive

dissonance.
During the period of power struggle, a major international consultancy firm
was asked to advise Heineken. They concluded that:
. the decision structure at the top had to be restructured;
. the brand of Heineken as a lager had to be accentuated again;
. costs should be reduced; and
. the decentralized decision structure in Europe needed to be abolished.
To change radically the marketing of Heineken, a new marketing firm was Shapes of
chosen and the 22-year-old relationship with the existing marketing firm was organizational
ended. The decision structure was changed and a chief financial officer (CFO) change
was incorporated into the board, which had not been the case until then.
Unconfirmed sources state that Freddy Heineken was not happy with the
actions undertaken by Van Schaik and that he was looking for another
chairman who was doing business more in line with his thoughts of how to run 321
a company like Heineken. This is in line with studies that found that incumbent
CEOs have a relatively strong tendency to believe that their successors should
be like them. Hambrick et al. (1993) refer to this phenomenon as ``self-cloning''
or ``homosocial reproduction''.
Not surprisingly, a new CEO change took place in 1993, as Vuursteen took
over from Van Schaik. The relatively short time that Van Schaik had been in
office may be explained by the fact that change was necessary at the moment
Van Schaik took over, as well as by the fact that Freddy Heineken still fulfilled
an influential role in the organization because of his large shareholdings. It also
illustrates the popular view that it is virtually always a mistake to move a
former CEO into a position where he (or she) can still play a role (Lorsch and
Khurana, 1999). Cannella and Lubatkin (1993) also argue that the dismissal
context and the possible presence of an heir influence outsider selection.
New CEO Vuursteen ± with a history at Philips ± did not have any
experience in the Heineken corporation, and, furthermore, came from outside
the beer industry. His commitment to the status quo can therefore be expected
to be relatively low (Hambrick et al., 1993; Datta and Guthrie, 1994). Moreover,
he had studied at the agricultural university of Wageningen, which made his
functional background fit with the core activities that Heineken undertakes in
the beer industry (cf. Datta and Guthrie, 1994).
Since Van Schaik was not able to change the organization, especially
Heineken Netherlands, the resulting poor performance led to the selection of an
``outsider'' to succeed ``insider'' Van Schaik. This conforms with Datta and
Guthrie's (1994) finding that firm-specific experience is not rewarded in the
context of poor performance. Vuursteen started a new and powerful marketing
campaign and changed the structure of the company from a relative ``familiar''
style of doing business to a more universal multinational style (Smit, 1996,
p. 282). Management became increasingly international and new managers
were hired who came from outside the company.

Conclusions
This section puts the two situations that were discussed above into the theoretical
framework that was presented earlier. This leads to the identification of a number
of factors determining the shape of an observed organizational change.

Change in the distribution system

As described in the previous section, Heineken observed that patterns of beer
consumption would change dramatically after the Second World War. By
JOCM pro-actively altering the traditional distribution system, Heineken considered
15,3 the environmental developments as an opportunity. General manager Feith
radically changed the organization. Distribution would no longer be oriented
merely on pubs, but also on supermarkets.
The change in the distribution system can be seen as a radical change,
initiated by top management. It fits into the punctuated equilibrium model of
322 organizational change. The ``unusual'' part of this particular change is that it
can be seen as a traditional strategy. There does not seem to be a period during
which a level of management tried to incrementally change the organization.
This is an example of the traditional view of successful management as
described in the rational adaptation theory of Hannan and Freeman (1984).
Middle management of Heineken can be seen as the part of the organization
that had to carry out and fine tune the radical change initiated by top
management. However, there was considerable resistance from the commercial
managers, but they did not have the power to block the proposed change. The
same holds for lower management and sales people, who also did not agree
with the change. After the radical change was implemented in the first stage,
some small, incremental changes had to be made in order to fine tune the
organization to this new way of doing business. This shape of organizational
change corresponds with the one that was graphically depicted in Figure 1.
Two main conclusions can be drawn from the analysis of the change of the
distribution system. First of all, it seems that an observed, unexpected,
important challenge (either an opportunity or a threat) results in an
organizational change process that consists of initial radical change succeeded
by incremental change. Second, the Heineken case also suggests that top
management reacts proactively in case of such a challenge and leaves the
actual implementation and fine tuning of the radical change to middle
management.

Structural inertia and CEO succession

As described earlier, the 1980s and the beginning of the 1990s were a turbulent
period for the Heineken corporation. Environmental changes in the beer market
made it necessary for Heineken to adapt its strategy and organization. The
necessary organizational changes were initiated by middle management, but
were to a large extent blocked by incumbent CEO Freddy Heineken. This
implies that the support of top management is usually necessary to execute
required changes.
Other reasons can also be put forward to explain why Heineken had
problems with changing the organization. First of all, all general directors who
were appointed at Heineken Netherlands (in chronological order: Oostra, Van
Soest and Strobos) found an organization that had fallen asleep. This made it
difficult for them to change the organization. Second, Oostra was considered to
be an outsider, which makes it difficult to implement required changes due to
resistance on the part of the members of the organization. Third, Van Soest had
a management style that did not fit with the organizational culture of Heineken. Shapes of
This decreased his ability to get changes implemented. organizational
The retirement of Freddy Heineken provided an opportunity for other change
managers to change the organization. The first new CEO, Van Schaik, was not
able to change the organization drastically. He was considered to be a
transitory CEO, which weakened his position. Furthermore, Freddy Heineken
still fulfilled an influential role within the organization, which sustained inertia. 323
The next CEO, Vuursteen, an outsider, was able to change the organization
radically. His successful change policy may (partly) be caused by the fact that
he was appointed with the approval of Freddy Heineken, although the latter
person's presence had become less noticeable.
The organizational change process described above suggests a long period
of incremental change, caused by inertia due to long CEO tenure and the
appointment of a new CEO who was considered to be an ``insider'', eventually
followed by radical change caused by the appointment of an ``outsider'' CEO,
who had no affection with the company. This change process corresponds to
the change shape that was graphically depicted in Figure 2.
A number of key factors that drive or determine this shape of organizational
change can be identified. First of all, it appears that structural inertia initially
results in incremental change until structural underperformance eventually
leads to radical change. Second, structural inertia seems to be caused by long
CEO tenure. This leads to a lower degree of effectuation of proposed necessary
changes by middle management. The Heineken case also shows that structural
underperformance eventually leads to radical organizational change due to
the appointment of a new CEO who is considered to be an outsider. The
appointment of such a CEO (Vuursteen and Oostra, respectively) led to a
number of middle managers resigning, which had not been the case until then.
We conclude from this that middle management is more likely to resign after
the appointment of a new CEO when this new CEO is considered to be an
outsider initiating radical change. Finally, it seems that a new CEO may be less
likely to agree upon the changes proposed by middle management when the
retired CEO continues to fulfill an influential role within the organization.

Implications, limitations and suggestions for further research

The main implication of this study is that the way in which organizational
change processes take place should not be underestimated. Organizational
change can take place in different ways, depending on the initial type of
organizational change (radical or incremental) and the transition from one type
to the other. Our results indicate that even a successful company like Heineken
has undergone different change processes when faced by different challenges.
The study also provides interesting insights in the different levels of
management that are involved in the two shapes of organizational change that
were distinguished.
Obviously, this study suffers from a number of limitations. First, a case
study leads to conclusions on the basis of only one observation. Second, one
JOCM case study cannot address all the issues (Pitcher et al., 2000). Third, despite
15,3 Tushman and Romanelli's (1985) distinction between radical and incremental
change, the general feeling with change literature is still rather uncomfortable,
in the sense that radical and incremental change are likely to depend on the
researcher's perception of change. Taylor (1999) illustrates this clearly. He
finds that:
324
Many lower level employees in the organization described the organizational changes as
being completely incremental, while senior managers tended to make sense of the changes as
being discontinuous and revolutionary.

Organizational change may thus have many different interpretations (Ragsdell,

2000). And indeed:
The formulation of theoretical models which imply one or other of the dimensions is
primary, is to impose a hierarchy of privilege and oppression that is arbitrary in that it has
no grounds on which to assert its truth claims over alternative claims (Grice and
Humphries, 1997).

Additional research concerning the issues examined in this paper is needed,

especially empirical research with respect to our findings. However, since this
paper, to the best of our knowledge, is the first one to address issues concerning
the order in which organizational change can take place and the levels of
management involved in this matter, it may be more productive to perform a
number of additional (multiple) case studies first. This may strengthen the
external validity of this study (Eisenhardt, 1989) and may result in a more solid
basis for large-scale empirical research.
Finally, future research could try to identify circumstances under which a
transition from one type of organizational change to the other does not take
place. This will be especially interesting for organizations in which
only incremental change is observed, since organizations characterized by
continuous radical change are highly unlikely to exist.

Notes
1. The term ``shape'' stems from Dunphy and Dick (1982, p. 2).
2. This section is to a large extent based on information provided by Smit (1996).
3. Interview between Smit and Heineken manager Van Rossem.
4. Traditionally, Dutch companies are managed by a clearly defined ``Raad van Bestuur'', in
which top executives jointly make up the top level in a company's hierarchy, rather than a
CEO (as, for instance, in the North American setting).
5. This ``ambiguous behavior'' becomes apparent from interviews between Smit and several
Heineken employees, including Freddy Heineken.
6. This statement stems from an internal Heineken document titled ``Beleid Jaren '90'',
published by Heineken on January 25, 1990.
7. This can be concluded from an interview between Smit and Heineken manager Baars.
8. In this respect, Van Schaik describes the other members of the board of directors besides
Freddy Heineken as ``the three pigeons'' (Fortune, 1981).
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