What Explains 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

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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 ?


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