Operational risks
Change initiative overload
Many change programmes and projects are running on Group, regional and local level. Examples are greenfield operations, creation of back office shared service centres, acceleration of implementing Heineken best practice processes based on common information systems, centralising IT and outsourcing of non-core activities. The scope and breadth of the organisational changes may threaten effectiveness of business operations. Company-wide strategic programmes are steered by the Executive Committee, whilst change projects at regional and local level have direct attention of the management teams. Since allocating sufficient management capacity to the many change projects in addition to managing the regular business is considered critical, priority setting is monitored closely. Clear target setting is in place on achieving the main change objectives. Risk management structures are overall well embedded, however further structuring is required. Sufficient programme and project management skills need to be ensured.
Reorganisations from Fit2Fight
Many reorganisation projects (amongst others, centralisation of back office activities, closure of breweries and other right and downsizing activities) have been realised, are underway or are in preparation. Highest impact is in the supply chain, wholesale business and support functions in Europe. The risk is that due to social unrest, the production quality and supply continuity would affected, which might negatively impact financial performance and Company reputation. The operating companies concerned manage reorganisation projects with care; the right speed, alignment with relevant industrial and external relations and consistent communication to employees. Contingency plans have been put in place.
Acquisitions and business integration
In the pursuit of further expansion, Heineken seeks to strike a balance between organic and acquired growth within the limits of a conservative financing structure. In acquisitions, specifically in emerging markets, Heineken will be faced with different cultures, business principles and political, economic and social environments. This may affect corporate values, image and quality standards. It may also impact the realisation of long-term business plans, including synergy objectives, underlying the value of newly acquired companies.
In order to mitigate these risks, Heineken has further strengthened its business development and integration activities, which includes significant involvement from relevant Group departments, operating companies and regional management in carrying out effective due diligence processes and preparing take charge and integration plans. The Heineken Common Systems Strategy is highly supportive to integrating acquired businesses.
Supply continuity
Discontinuity of supply of our products could affect sales and market shares. This is not considered a major risk due to the relative size and spread of operations. An exception is the supply of beer products from the Netherlands to the USA, one of Heineken’s most profitable markets. Securing supply of fast-growing innovations like DraughtKeg is also considered critical, since we also depend on partnerships. Monitoring supply continuity risks was further structured in 2007, but requires embedding. Securing timely supply |of raw and packaging materials is strongly coordinated by our central purchasing discipline.
In 2007, the production infrastructure in Western Europe was evaluated. This resulted in strengthened central coordination with respect to production allocation and a corresponding realignment of our investment strategy.
IT security
Heineken’s worldwide operations are increasingly reliant on information systems. Heineken has a strict IT security policy to ensure confidentiality, integrity and availability of information. In 2007 compliance monitoring was further structured by self-assessments and audits. The progressive centralisation of IT systems and infrastructure has a positive impact on ensuring IT security measures.