What Explains the Lack of Innovation at American Express

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Hello

Please, answer the questions that are listed at the end of the case in a clear and concise manner.

Please note that your reports will be strictly checked on plagiarism.

Format Around 550 words (excluding questions)

What Exp lains the Lack of Innovation at American Express? Is It Hubris, Inertia, or Lack

of Capability?

Th e lac k of innova tion an d en trep reneu rial focu s at America n Exp res s (AmEx ) may be becaus e

of hub ris, ine rtia, an d a lac k of capab ilit y. Th e firm’s pe rformanc e in 201 4 was no t, by an y means ,

wha t stakeho lde rs expec t. Pa rtly in respons e to its poo r financ ial pe rformance , the firm

announce d plan s to reduc e its workforce by up to 4,00 0 employees .

Th e los s of two of its major pa rtne rsh ips , with Cos tco an d Je tBlue , con tribu ted to AmEx ’s poo r

pe rformanc e in 2014 . Its pa rtne rsh ip with Cos tco , which ha d invo lve d an exc lus ive co – brande d

cred it ca rd, was pa rticu larly da mag ing . At its peak , this co llabo rative relationsh ip ha d accoun ted

for app rox imately eigh t pe rcen t of AmEx ’s total revenues . Interes ting ly, ca rdho lde rs use d this

co -brande d ca rd for man y othe r pu rchase s ou tside of Cos tco , as abou t 70 pe rcen t of the

revenu e gene rated by the ca rd ca me from its us e in othe r venue s bes ide s Cos tco .

Los ing a major cou rt cas e also affec ted AmEx ’s 201 4 pe rformance . In pa rt, the cas e in ques tion

su rface d becaus e AmEx cha rge s eac h merchan t highe r fee s whe n a cus tomer use s its ca rd to

mak e a pu rchas e tha n do othe r major cred it ca rd co mpan ies suc h as Visa an d Mas terCard.

AmEx ha s a con trac t with eac h merchan t us ing its ca rd tha t doe s no t allow the merchan t to

reco mm en d to the cus tomer to us e a differen t ca rd or to offer discoun ts tha t inc reas e the

attrac tivenes s of othe r ca rds . A fede ral judg e ruled tha t this requ iremen t by AmEx was in

“res traint of trade ” and , the refore, violated an titrus t laws. Th is is impo rtan t becaus e AmEx may

hav e to reduc e its fee s cha rge d to merchan ts, an d if so , it may hav e to dec reas e the rewards

pa id bac k to cus tomers. In turn, it cou ld los e so me cus tomers if the rewards beco me equa l to or

les s tha n co mpe titors’ ca rds .

AmEx ha s no t enhance d its pu rchas ing techno log y in so me time. Fo r ins tance , so me hav e

exp resse d conce rn tha t AmEx ha s lagge d co mpe titors relative to techno log ica l advance s tha t

fac ilit ate cus tomers’ process ing of ca r ren tals an d mak ing res tau ran t rese rva tions . Historica lly,

cus tomers an d po ten tial cus tomers viewed AmEx as the mos t pres tigiou s co mpan y from which

to ho ld a ca rd. Th is be lief resu lted in a stron g bran d imag e for AmEx ca rds . In pa rt becaus e of the

brand , cus tomers with highe r inco me leve ls preferred to us e an AmEx ca rd. Recen tly though ,

so me of its highe r-inco me clien ts hav e chose n to leav e AmEx an d to us e othe r firms’ ca rds

ins tead . Demons trating this prob lem is a long -time clien t’s dec ision to conduc t bus ines s with

ano the r ca rd co mpan y becaus e the rewards bene fits assoc iated with tha t ca rd are supe rior to

thos e offered by the AmEx ca rd. After study ing ca rd offering s ava ilab le to him, this cus tomer conc lude d tha t by switch ing to a differen t ca rd, he wou ld ga in thousand s of do llars in add itiona l

rewards . Th e fac t tha t he use s the ca rd for almos t all of his pu rchase s inc rease d the impo rtanc e

of hav ing acces s to a ca rd with highe r rewards in respons e to frequen t ca rd use .

In respons e to its poo r 201 4 pe rformance , AmEx announce d a rene wed focu s on affluen t

cus tomers an d more bene fits for thos e ho lding (an d us ing ) the firm’s ‘Gold Card.’ It will offer

doub le po ints for res tau ran t pu rchase s an d a pe rsona lize d trave l se rvice .

Add itiona l innova tion s in 201 5 an d beyon d appea r to be a founda tion for reve rsing the firm’ s

fortunes . Comm itti ng to crea tive us e of da ta ana lytics is an exa mple of an innova tion enhanc ing

the firm’s pe rformance . In co mm en ting abou t this, a bus ines s writer sa id the following : “America n

Exp res s is ha rness ing the po wer of its da ta to migrate man y trad itiona l processe s from legac y

mainframes to Big Data process ing env iron men ts, resu lting in dramatic improve men ts in spee d

an d pe rformance .” Th e firm is also expand ing its efforts to de live r exc lus ive acces s an d bene fits

to its ca rdho lde rs. Th e following exa mples de mons trate thes e efforts: “Consu mers ca n be

forgive n if the y forge t America n Exp res s is a financ ial se rvice s firm an d no t an even t produce r.

From stag ing conce rts at the Apo llo Thea ter to des ign ing an interac tive vide o expe rienc e

fea turing NBA play s to prov iding U.S. Ope n tenn is fan s a profess iona l swing ana lys is, the

co mpany ’s ac tiva tion s touc h seve ral area s of its ca rdho lde r’ lives .” Thus , while failing to innova te

con tinuous ly con tribu ted to AmEx ’s poo r pe rformanc e in 2014 , the firm no w appea rs to be

emphas izing innova tion as a mean s to prov ide the ou tco mes stakeho lde rs expec t.

Sou rces : 2017 , America n Exp res s se rve s up ne w, innova tive expe rience s an d bene fits to he lp

ca rd membe rs an d fan s ac e the 201 7 US Ope n Tenn is Cha mpionsh ips , America n Exp res s

Homepage , ww w.americanexp ress .co m, Augus t 16 ; C. Mang lan i, 2017 , America n Exp ress :

Using da ta ana lytics to rede fine trad itiona l bank ing , Digital Innova tion an d Trans formation ,

ww w.digit.hbs .org, Ap ril 2; E. Dexhe imer, 2015 , AmEx is los ing its milli ona ires ,

Bloo mbe rgBus ines s, ww w.bloo mbe rg.co m, Feb rua ry 12 ; J. Dav idson , 2015 , W hy America n

Exp res s use rs shou ld be worried abou t the ir rewards , Mone y, ww w.mone y.co m, Feb rua ry 20 ; H.

Stou t, 2015 , W ith reva mpe d go ld ca rds , bruise d America n Exp res s returns focu s to affluen t, New

York Times , ww w.ny times .co m, Feb rua ry 26 ; J. Ke ll, 2015 , Visa rep lace s America n Exp res s as

Cos tco ’s cred it ca rd, Fo rtune , ww w.fortune .co m, March 2; H. Tabuch i, 2015 , Amex to as k for stay

of ruling proh ibiting merchan ts from promoting othe r ca rds , New York Times , ww w.ny times .co m,

March 25 ; J. Carne y, 2015 , America n Exp res s strugg les to kee p up , W all Stree t Jou rna l,

ww w.wsj.co m, Ap ril 6; 2015 , Stronge r do llar drive s revenu e do wn at America n Exp ress , New

York Times , ww w.ny times .co m, Ap ril 16 .

Cas e Discuss ion Ques tion s 1. Th is Mini-Cas e sugges ts tha t a lac k of con tinuou s innova tion con tribu ted to America n

Exp ress ’s (AmEx ) poo r pe rformanc e in 2014 . Assu ming this is true , wha t fac tors migh t preven t

a firm the size an d scop e of AmEx from be ing ab le to innova te con tinuous ly?

2. Use material from Chap ter 4 to iden tify the bus iness -leve l strateg y AmEx uses . W ha t

dimens ion s do yo u be liev e AmEx shou ld emphas ize to us e the strateg y yo u iden tifi ed

success fully ac ros s time?

3. W ha t ac tion s do yo u be liev e AmEx shou ld tak e to es tab lish an en trep reneu rial mind -se t amon g

employee s throughou t the co mpany ?

4. Th is Mini-Cas e inc lude s desc ription s of recen t AmEx innova tions . Do yo u an ticipa te tha t mos t

of thes e innova tion s resu lted from au tono mou s strateg ic behav ior or from induce d strateg ic

behav ior? W hy ?