American Express Case Study

CASE ANALYSIS:

AMERICAN EXPRESS

BACKGROUND:

James D. Robinson III became the chairman and CEO of American Express Corporation (Amex) in 1977. For the past 30 years, Amex had a distinguished record of increasing earning year after year. However, when Robinson took charge of the company, Amex's three core businesses were experiencing trouble. First, Fireman's Fund, Amex's property/casualty insurance company, has inconsistent incomes. Second, the American Express International Bank underwent loss of income because of reduction in its assets and Third World loan defaults. And third, the market of Amex's largest sector, Travel Related Services (TRS) was mature and had low growth potential. Also, the company was facing serious competition from other charge cards, MasterCard and Visa. Robinson aimed at maintaining "The Record" of the company.

After taking charge of Amex, Robinson appointed Lou Gerstner as the head of Amex's Travel Related Services (TRS) to revitalize growth in the mature business. Gerstner transformed the card business by generating new products, services and marketing goals. He repositioned the card for use not only by business travelers but for any purchases the customers wanted to make. Focus on overseas expansion increased the geographic coverage of the card business. TRS made significant strides under Gerstner's leadership.

Robinson envisioned Amex as a "broadly defined service company." He devised a strategy of growth and diversification using the acquisitions approach. Several industries were considered for diversification, including entertainment, communications, and financial and insurance companies. Unsuccessful attempts were made to buy Walt Disney, Philadelphia Life Insurance and McGraw-Hill. Salim Lewis, Robinson's friend and an investment banker, thought that large companies with a wide range of offerings would dominate the future of the financial industry. This changed Robinson's vision for Amex from a "broadly defined service company" to a "financial service institution.

In June 1981 Amex purchased Shearson Loeb Rhodes, a large brokerage firm, for $930 million. Sanford Weill (Sandy) was made the president of Amex and Peter A. Cohen was appointed as the CEO of Shearson. Shearson was a large firm dealing in the volatile brokerage business as opposed to the stable credit services business of Amex. The objective was to sell Shearson's securities to Amex cardholders and Amex cards to Shearson's clients. However, there was a sharp contrast in the organizational culture of the two entities. Shearson was a young company with open lines of communication and entrepreneurial spirit. On the other hand, Amex was mature, formal and centralized. Despite these differences, the merger was successful and increased the revenues