Heineken Company’s Challenges in Strategic Positioning

Current Strategic Position

Balance of Resources

The internal challenges are affecting Heineken include management of its human resources, and rigid operations where the company has focussed on alcoholic products only.

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Product Portfolio

In Europe, Heineken is the leading distributor of alcohol and has over 250 brands of beer. Table1 below is a summary of some of the brands and the various locations where they have substantial market share. The brands contribute to the overall performance of the company. Table 1: Heineken’s Brands and Locations

Brands Locations
Dos Equis, Kaiser, Tecate, and Cristal The U.S.
Bintang, Anchor, Tiger, kingfisher Asia Pacific
Mutzig, Star, Primas The Middle East and Africa
Gold and Cruzcampo Western Europe
Russian Oxota, Zywiec Eastern and Central Europe
Heineken, Amstel Globally

The brands form an internal strength for the company and contribute to its strategic position. Despite the success, one challenge the company faces is over-reliance on the European market, and its brands are not readily accepted in the U.S. market (Wehring 2014).

Financial performance

Based on financial forecasts, it is expected that by the close of 2016, Heineken sales will reach €21,134 million. In addition, the projected net income will be €1,997 million, and the dividend per share is to increase to €138 million (Heineken 2015). Also, the financial forecasts show that debt has continued to decrease. In 2013, the debts stood at €10,758 million, and by the close of 2016, the debt is projected to decrease to €72,772 million (Heineken 2015).

From the financial outlook, it is clear that the projected increase in sales and the decrease in the debt level by the fourth quarter of 2016 places the company at a strategic position to continue performing well. In addition, the good balance sheet increases the bargaining power of Heineken when getting into future strategic alliances. However, the company’s profits have been on the decrease (Van Daalen 2014).

Research and Development

Heineken has been investing heavily in research and development. This has been due to the desire to enhance production technology and have a better understanding of the customers. As a result, the company has been working with different service providers to assist in the research and development (Rooney 2014). For example, in conjunction with Tribal DDB Amsterdam, Heineken launched Heineken Ignite, one of a kind interactive bottle (Heineken Ignite 2014).

Analysis Using Management Models

SWOT Analysis

There is a need for Heineken to carve a niche that is sustainable in the beer industry. Appendix 1 is a summary of the SWOT analysis.

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Strengths

  • Heineken has many brands that have been accepted globally.
  • Heineken has stable revenue due to a strong brand portfolio in over 70 countries. This enhances the company’s image and contributes to its revenue streams.
  • The company boasts of efficient breweries that produce quality alcoholic drinks.
  • The breweries are located in the different countries hence reducing the distribution costs, i.e. the breweries are in close proximity to the consumers.
  • The company has perfected in advertising. For example, it has excellent branding, and it is renowned for sponsorship of world sports events.

Weaknesses

  • The company has been unable to maintain corporate values in all the countries of operations.
  • There is over-reliance on the European market.
  • The advertising and promotion have mainly focused on international brands, and hence the other brands have not been able to penetrate the international market.

Opportunities

  • Strong capital and revenue base that places Heineken at a strategic position for the acquisition of other small players.
  • The company still has the potential to expand its product lines and cover more countries.
  • The company can diversify its production to include energy drinks hence capture the many non-alcohol drinkers.
  • The international presence places the company at a better place to carry out extensive advertising campaigns to increase the customer base. For example, the use of modern technology, such as social media platforms.

Threats

  • Fake imitations present a great threat to the company in different countries of operations.
  • Heineken faces increased regulation of beer products in many companies and negative perceptions due to the illegal underage alcohol consumption.
  • There is stiff competition from other international brewers such as UB Group, Coors and local producers in the different counties of operations.
  • The beer industry has had slowed growth due to international economic downturns.

EFQM Excellence Model

Heineken has put in place enablers that contribute to its performance. It has invested in programs to improve its human resources across the globe. The company has segmented its operations into five regions, each with a human resource manager to oversee the operations of the company. In addition, its 125 brewers have adopted modern technologies in order to ensure efficiency in production. The company has been cultivating a culture of excellence across the countries of operations.

SPACE Matrix analysis

SPACE matrix involves both the internal and external outlook of the company. Based on financial and financial parameters, Heineken has good prospects to increase its market share. Appendix 3 is a detailed score of the parameters used to assess the internal strengths of the company.

Financial strength

Heineken has a positive market position in relation to the current cash flow, income, return on equity and the return on investment. The average score of 3 for the financial strength shows that Heineken has a strong financial base, which can be used to enhance the internal outlook.

Competitive advantage

In relation to competitive advantage, there is a clear depiction that the main challenge affecting the company is the inability to devise measures to deal with competition. The average score of 1.25 in the various spheres of competition shows that the company needs to devise internal strategies to address the challenges.

Based on the above analysis, the following is a summary of the internal challenges that Heineken faces:

  • Strategic challenges.
  • Decreasing revenue streams in the U.S. and Europe.
  • Over-reliance on the European market.
  • Increasing competition.

Recommendations

Concerning human resources, the employees should be re-trained to ensure that they can compete with the industry’s best players. To increase the market share across the globe, Heineken should enhance customer loyalty, product quality, and increase the amount of cash available in circulation for the business, and resource utilisation. It should also put in place strategies to enhance competitiveness, overcome international regulations and branding based on technology in order to defeat the challenge of counterfeits. Investment in modern technology such as the interactive bottle will help in overcoming the counterfeited products. The company should strive to create a unique culture of efficiency, quality and excellence, which will help set it apart from its competitors.

Individual Contribution

Introduction

In order to aid in the group work, the individual contribution was critical to the success of the task. As a result, extensive research was carried out to determine the internal challenges that Heineken is facing and the probable measures to improve the strategic position of the company. In order to achieve adequate knowledge about the various processes that are needed for the company to improve its strategic positioning, various management models were reviewed and applied to assess their applicability in the case of Heineken.

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The models included SWOT analysis, SPACE Matrix, and EFQM Excellence model. The application of the models in the analysis of the internal strengths of Heineken showed that there are areas that need improvements if the company is to maintain its current market position and increase the market share across the globe.

Based on the research, the key areas of improvement identified included the need for employees to adopt a culture of performance, invest in technology that will assist in overcoming revenues lost through counterfeit brands, and redesign the marketing strategies for other regions such as the U.S. These findings reflect the challenges the company faces due to the over-reliance on the European market; there is a potential risk to be in a situation of financial difficulties it experienced during the financial crisis that affected Europe.

Steps were taken to Complete the Group Work

The first step was the formation of a group that was supposed to analyse the strategic positioning of an international company. The second step was a selection of the company to be analysed. The group members brainstormed and agreed to analyse Heineken. Each member was required to carry out extensive research about the company and review some management models. The third step was deliberation on how to gather the required data.

The group members agreed that secondary information was to be gathered from the Internet and scholarly articles. Therefore, each member embarked on individual research. The fourth step was the presentation of the individual research findings to the group. The fifth step entailed discussions and in-depth analysis of the internal factors that affected the company based on the findings from the members. Finally, the information was compiled to produce the final report.

Overview of Heineken International

The research started by reviewing the background information about Heineken International; a brewing company that was founded in 1864. Since its inception, the company has grown to become a leading international brand. It has 125 brewers, and it is available in over 70 countries. This makes Heineken to be the third-largest brewer in the world. The company has been in the beer industry for over 150 years.

Research on Strategic Management and Processes Applied to Gather Information

In order to have a clear understanding of strategic positioning, it was necessary to carry out general in-depth research on strategic management. The individual study established that there were various management models that are usually applied to determine the position of a business, the prospects and the possible measures an enterprise can take to remain competitive in delivering its mandate (Rollwagen, Hofmann & Schneider 2008).

Kathuria and Porth (2007) noted that the main aim of business analysis is to determine the processes that can be employed to increase the market share and create a strong brand. This is normally based on an in-depth understanding of the internal factors affecting the performance of the business and the external environment that the business cannot control. In the case of Heineken, the individual analysis focussed on the internal factors that affect the ability of the company to remain competitive.

The task entailed independent research to enhance understanding of the issue at hand. The research relied on secondary sources to gather crucial data about Heineken. Academic sources about the various management models and the strategic management processes were applied as the basis for informing the discussion. The knowledge gained was then integrated with factual issues affecting the company. Therefore, the following are the key areas of individual research that contributed to the overall analysis.

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Research Areas

The research areas entailed the analysis of the financial situation of the company and the identification of some models that were used to evaluate the current strategic position of the company. In relation to the financial situation, a comprehensive study was carried out to establish projected revenues for the year and the debt situation of the company. This was undertaken based on clear knowledge about the significance of a strong financial base in supporting operations of any business. In this respect, a balanced scorecard for the company was examined. This entailed evaluation of the Key Performance Indicators (Cai et al. 2009).

Cai et al. (2009) noted that a balanced scorecard is a system for strategic management and planning. It is normally applied to align the activities and the vision for a business. The key finding during the research was that strategic management plays an imperative role in enhancing the communication processes within an organisation, and it improves the performance of an organisation. For example, in relation to Heineken, the main parameters were the financial situation, the organisational culture and the product portfolio, i.e. evaluation of the company based on four perspectives.

The first perspective that was examined was the business process. This was mainly in relation to the product portfolio and the human resource orientation. The second fundamental element was the customer perspective. This involved a critical probe of how the enterprise has segmented its internal operations in order to ensure that customers realise the value in the various brands. A key finding was the existence of different product lines in different regions that ensured that different needs for the customers were met. The third perspective was a financial performance which analysed the current situation and projected situation.

Finally, growth perspective was examined. This was in relation to the current market position of the company. The perspectives provided a holistic understanding of the strategic position of the company and the possible challenges the company was facing. Therefore, the analysis gave a platform for further investigation by the application of various management models.

Balance of Resources

There was a need to know how Heineken has been managing its resources and how they are strategically aligned to benefit the company. This related to the management of human resources. Therefore, before the analysis, and extensive individual research was carried out to determine the balance of resources. Based on the secondary research from the Internet and scholarly articles, it was established that the balance of resources helps in determining how different resources complement each other, the role of the human resource and the degree of flexibility within an organisation (Ericksen & Dyer 2010; Chong 2007).

Thus, the analysis of the balance of resources helped the group to have a comprehensive understanding of the current operations within Heineken International and how they influence the present and future changes in the company.

Environment of Operation

The environment of operation plays a great role in the success of any business. In Europe, the market for alcoholic drinks has been growing, and there is great potential for the beer companies that are strategically aligned to exploit the resources (Euromonitor 2013). This, coupled with the expanding economies of some developing countries, present a great opportunity for Heineken to expand.

However, in order to exploit the resources, the research established that there was a need for good management of the internal business environment. Concerning the internal resources, it was established that Heineken was facing the challenges of employees who have not adopted the company’s performance-driven culture. For a long time, employees have considered Heineken as a lifetime employer, and hence most of the employees tend to relax once they are hired. For instance, during the review of the company, it was found that across the 70 countries of operations, Heineken has employed 90,000 people.

Discussion of the Management Models

Organisations are always devising new strategies so that they can overcome the unpredictable competitive environments (Winnard et al. 2014). The major approach has been to strengthen the internal operations of the businesses as a measure for resilience. As a result, there is a need to use management models to evaluate the internal operations of a business. Management models are used to assist managers in assessing an organisation in order to have an in-depth understanding of their operations (Bratton 2007). This is important in establishing viable strategies that can be used by the business to gain a competitive edge.

Management models form a basis for understanding business dynamics. They are crucial in the analysis of the business situation, and they indicate the possible measures that can be employed by the business in order to improve performance and gain a competitive edge (Hammer 2007). The key analysis models used in the case of Heineken included the SWOT analysis, EFQM excellence model and application of the SPACE matrix to understand the strengths and weaknesses of the company. The analysis of Heineken based on the three models was comprehensive research that provided an overview of the models. This entailed the use of scholarly articles to determine the suitability of the models. The researcher examined the pros and cons of the models, as outlined in the following section.

SWOT Analysis

According to Ayub (2013), a SWOT analysis helps organisations to uncover opportunities that a business can exploit. It is based on understanding the strengths, weaknesses, opportunities and threats of an organisation. Ayub (2013) stated that with a clear understanding of the four concepts, the management could eliminate the weaknesses and exploit the available opportunities. Chang and Huang (2006) argued that actions taken by organisations result in some internal and external changes. Coman and Ronen (2009) pointed out that the model provides marketing intelligence for internal and external processes. However, Finnegan (2010) pointed out that many managers have not embraced the model. Agarwal, Grassl and Pahl (2012) argued that the model is based on subjective perception; it does not embrace quantification and has the less prognostic performance.

EFQM Excellence Model

The international business environment is not at a standstill. It keeps on changing, thus for any company to remain competitive, it has to continually innovate and improve in the different areas of operations. According to Rompuy (2012), companies need to understand, balance, and manage the needs of the stakeholders effectively. The EFQM excellence model provides a framework that helps management to comprehend and manage the complexities that relate to the cruise ship environment. Rompuy (2012) noted that it ensures continuous improvement. For instance, the model is used in the establishment of the cause and effect relationship.

The fundamental concepts of the EFQM Excellence Model are based on sustainability and creating an organisational culture. For example, enhancing the culture of safety, health, and environmental excellence is important for all businesses. The eight fundamental concepts of the model are illustrated in appendix 2. In addition, Pyke et al. (2007) noted that the EFQM excellence model is based on the enablers and the results. For instance, for organisations to have a clear strategic direction, there is the need to invest in measures that improve their human resource and enhance partnerships which are key in creating a strategic direction for the business.

SPACE matrix

This is a management tool that is used to analyze and determine the strategic position of a company (Maxi-Pedia, 2015). SPACE is an acronym for Strategic, Position, and ACtion, Evaluation. It analyses the internal strategic dimensions of a company in relation to the financial strength and competitive advantage (Worden 2005). Secondly, it analyses the external strategic dimension of the company in relation to environmental stability and the industry strength. Appendix 3 is the SPACE matrix for Heineken.

Application of the Findings

The research findings of the EFQM excellence model assisted in determining the management processes that have enabled Heineken to maintain the strategic position. This was in relation to the roles of the model in determining enablers and their contribution to the outcome of an organisation. Based on the model, there was a clear understanding of the measures Heineken has undertaken to enhance performance and the culture of excellence among the employees. For example, based on the model, it was found that the organisational culture within the 125 brewers affected the efficiency of the organisation.

Besides, the overall investment of the company in various operations influenced the value chain. The other model that was used for the analysis was the SPACE matrix. The model entailed the use of scores for the various parameters in order to provide the real outlook of the internal strategies of the company. For example, the financial score. The findings from the two models have employed in understanding the challenges that Heineken was facing and supplemented the findings from the SWOT analysis. This was critical in overcoming the possibility of subjectivity in conducting the SWOT analysis.

For example, the use of scores for the parameters led to the objective recommendations that were provided by the group. It is evident that the contributions of the individual group members led to a better understanding of the task and approaches that can be used to analyse and devise strategies to position Heineken strategically.

Conclusions and Recommendations

Based on the above research, it was evident that Heineken has a good strategic market position. In addition, the company has been doing well in relation to its market presence in over 70 countries. The research on strategic management in relation to Heineken pointed out that the current environment of operation favours Heineken though there are still many threats that the company has not addressed. For example, the threat of competition and the over-dependence on European market poised a possible danger to the company. Also, the company needed to adopt a new work culture.

This was due to the fact that there was a concern for lack of performance-driven culture as outlined by Woods (2015). Thus, there was an indication for the need of strong performance culture among the employees and the need for Heineken to diversify its products in order to ease the pressure of competition from the local brands in the various countries where its brands are sold.

Concerning human resource management, the employees should be re-trained to ensure that they compete favourably with other international players. This should be done by a human resource a management team that emphasises on efficiency and strong work values. In line with the mandate of a motivated workforce, an example was set in 2014, when the company appointed Porter Martin as a human resource manager for the UK; this was part of a plan to strengthen its global HR strategy where each region was mandated to ensure that the human resources are up to the task. Such strategies targeting human resource management are based on the understanding that employees play an integral role in assisting businesses to gain a sustainable competitive edge (Katou & Budhwar 2006; Woods & Wall 2007).

Therefore, to increase the market share across the globe, it sufficed that Heineken has a responsibility of aligning its operations. The recommendations provided were that Heineken should improve customer loyalty, product quality, and increase the amount of cash available in circulation for the business, and resource utilisation. Also, from the SWOT analysis and SPACE matrix, it was evident that Heineken has some weaknesses and threats. As such, the company should leverage on its strengths and opportunities as outlined in the SWOT analysis to reduce the number of risks involved in the business.

It should also put in place strategies to enhance its competitiveness, meet the international regulations and ensure that branding is based on modern technology in order to overcome the challenge of the counterfeits. Such strategies will help the company to maintain and gain a higher market share in the alcohol brewing industry. As noted, the company has been investing very much to improve its human resource. Therefore, it is recommendable that it continues with the strategy. Also, Heineken should strive to build a unique culture of efficiency, quality and excellence, which will help set it apart from the competitors.

Appendices

Appendix 1: SWOT matrix of Heineken

Strengths

  1. Diversified income streams
  2. Brand recognition
  3. Big share in the global market
  4. Breweries located near the markets
  5. Perfected in advertising and promotions of the brands

Weakness

  1. Over reliance on single market.
  2. Negative publicity due to legal issue of underage drinking.
  3. Focusses on the global brands
  4. Weak corporate values

Opportunities

  1. Strong capital and revenue base
  2. Potential to expand its product lines and cover more countries
  3. Has the potential to diversify its products

Threats

  1. Competition
  2. Fake imitations
  3. Increased regulations of beer in many countries

Appendix 2: EFQM Excellence Model

EFQM Excellence Model

Appendix 3: SPACE Matrix for Heineken.

INTERNAL ANALYSIS Rate EXTERNAL ANALYSIS Rate
Strategic Position
Financial Strength
  1. Cash flow
  2. Net Income
  3. Return on equity
  4. Return on Investment

Average

3
4
3
2
3
Strategic Position
Industrial Strength
  1. Growth potential
  2. Resource utilization
  3. Profit potential
  4. Financial stability

Average

1
2
1
4
2
Competitive Advantage
  1. Market share
  2. Control over other aspects
  3. Customer Loyalty
  4. Product Quality

Average

1
2

1
1
1.25

Environmental Stability
  1. Inflation
  2. Competitive pressure
  3. Risks involved
  4. Barriers to new entry
  5. Demand viability

Average

-3
2
0
2
1
-0.4

References

Heineken 2015, Heineken financials. Web.

Rooney, B 2014, Big changes are brewing. Web.

Van Daalen, R 2014, ‘Heineken profit declines, post lower sales in Europe’, The Wall Street Journal, vol. 1, no, 2, pp. 1-3.

Wehring, O 2014, Analysis-Time for Heineken to make a European break: Just-drinks. Web.

Ayub, A, Razzaq, A, Aslam, M & Iftekhar, H 2013, ‘A conceptual framework on evaluating SWOT analysis as the mediator in strategic marketing planning through marketing intelligence’, European Journal of Business and Social Sciences, vol. 2, no. 1, pp.91-98.

Bratton, J 2007, Strategic human resource management, Palgrave Macmillan, London.

Budhwar, P & Aryee, S 2008, ‘An introduction to strategic human resource management’, Strategic Human Resource Management: Building Research-based Practice, vol. 1, no. 1, pp. 9-32.

Cai, J, Liu, X, Xiao, Z & Liu, J 2009, Improving supply chain performance management: A systematic approach to analyzing iterative KPI accomplishment. Decision Support Systems, vol. 46, no. 2, pp.512-521.

Chong, E 2007, ‘Role balance and team development: A study of team role characteristics underlying high and low performing teams’, Journal of Behavioural and Applied Management, vol. 8, no 3, pp. 202-211.

Coman, A &Ronen, B 2009, ‘Focused SWOT: diagnosing critical strengths and weaknesses’, International Journal of Production Research, vol. 47, no. 20, 1-12.

Ericksen, J & Dyer, L 2010, ‘Toward a strategic human resource management model of high reliability organisation performance’, The International Journal of Human Resource Management, vol.16, no. 6, pp.907-928.

Euromonitor 2011, Global Performance and Prospects for Beer, Euromonitor International. Web.

Euromonitor 2013, Alcoholic industry Statistics. Euromonitor International. Web.

Finnegan, M 2010, Evaluating SWOT’s value in creating actionable, strategic intelligence, Erie PA, Mercyhurst College.

Hammer, M 2007, The process Audit, Harvard Business Review. Web.

Heineken Ignite 2014, Heineken’s first interactive beer bottle. Web.

Kathuria, R, Joshi, M & Porth, S, 2007, ‘Organisational alignment and performance: past, present, and future’, Management Decision, vol. 45, no. 1, pp. 503-517.

Katou, A & Budhwar, P 2006, ‘Human resource management systems and organisational performance: a test of a mediating model in the Greek manufacturing context’, The International Journal of Human Resource Management, vol.17, no. 7, pp.1223-1253.

Maxi-Pedia 2015, SPACE Matrix Strategic Management Method. Web.

Pyke, C, Gardner, D, Wilson, J, Hopkins, P & Jones, S 2007, ‘Achieving best value through the EFQM excellence model’, Journal of Finance and Management in Public Services, vol. no. 1, pp. 29-40.

Rollwagen, I, Hofmann, J & Schneider, S 2008, ‘Improving the business impact of foresight through human resource management’, Technology Analysis & Strategic Management, vol. 20, no. 3, pp. 337-349.

Winnard, J, Adcroft, A, Lee, J, Skipp, D 2014, ‘Surviving or flourishing? Integrating business resilience and sustainability’, Journal of Strategy and Management, Vol. 7, no. 3, pp. 303-315.

Woods, D 2012, Interview with Michael O’Hare, chief HR officer at Heineken. Web.

Woods, S & Wall, T 2007, ‘Work enrichment and employee voice in human resource management-performance studies’, International Journal of Human Resource Management, vol. 18, no. 2, pp. 1335-1372.

Worden, S 2005, ‘Applying SPACE matrix analysis and Strategic Leadership’, Journal of Business Ethics, vol. 57, no. 3, pp. 221-239.

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