American Express (A) Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Synopsis

In the year 1850, Henry Wells, William Fargo, and John Butterfield initiated an express mail business that eventually laid the foundation of American Express. With the passage of time, the company expanded and started operating in money order transfers as well by the end of 1882. Furthermore, the company added Traveler’s cheques as another function in the company’s services. In the mid-1950’s, the company expanded its horizons and introduced plastic money in the form of cards and further Gold cards that became the premium offerings of the company.

In the late 1980’s, there was a major shift in the company’s overall strategy and the company initiated an effort to enter into the business of financial services. This aim of the company to become a financial service provider encouraged the management to use acquisitions as a major tool for creating an investment banking arm. In order to achieve this objective acquiring Sanford I., the second largest security firm in the country that allowed the company to form Shearson/Amex. The CEO of the company, Lames Robinson III continued with the strategy of acquisitions to make the hold of the company in the financial sector stronger.

However, with the takeover of Harvey Golub as the new CEO of the company, shift in the focus occurred that led the company to emphasize more towards its card business. The major offerings of the company include Gold and Platinum cards that are targeting mostly niche markets and premium customers. These cards have been a part of the company’s offerings for a long time.

With the passage of time, the company decided to cater mass market for which it launched Optima card that was later on replaced by Blue card. With the induction of the Blue card, the portfolio of the company grew stronger, and the offerings are now catering to many markets. Furthermore, the company offers some exclusive products like the centurion, which is an exclusive product for the loyal customers. Express Pay is a card that is workable over RFID systems, and it can be regarded as charge cards that are also part of the portfolio but termed as exclusive offers. The Red card is also among the offerings of the company, but is only offered in the UK and also the Plum card which only caters small business owners who can avail discount through this card (SHELL).

The initiative of the company to enter into the banking sector is a major change in the company’s strategy as the company entered the market as a commercial bank and also offered cards like Visa and Master. The company decided to stay in a plastic card system and focus towards commercial banking while closing all other business lines of the company. Overweening the financial performance of the company, it is evident that the overall financial growth of the company is quite impressive with around 9.82% increase in its net income. Besides that, the company also witnessed a growth of around 3% of its revenues and 7% of book value.

Amex has faced intense competition in the card business, especially from Master and Visa, who are regarded as premium players in this segment and have been targeting the mass - market. In such situation, Amex wants to consider opportunities that will help in combating this threat from competition or the company is also considering staying focused towards its niche market strategy. This strategy has been quite successful, but the options are wide, and the opportunities are there to exploit for the company.

Evidence

This data has been gathered from different sources and it has been analyzed that depicts the financial performance of the company since 2010. In 2009, the gross profit margin was 77.7%, which is quite high as compared to the industry average that is 35% and 50% from last years. The reason for this shift is due to the growing focus and rebuilding of the company towards "spend centric business model". This has resulted in increasing the consumer transaction volume in a state where the economic crunch pushes the sales to a higher level of the company.

From 2008, the net profit margin of the company fell to 17.3%, which was still high because the industry average was 12%. There was a fall of 16.3%. Despite their lower operating cost tried to pave the way for an average profit figure, but it still continued to fall than the previous years. Furthermore it also predicts that from now on, the margin will continue to decline..........................

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In January 1993, American Express board met to decide who will succeed James D. Robinson III as chairman and chief executive officer. Board must act in the media spotlight, and intensive testing investor, after a leak has shown that there is a conflict between members of the Board of Directors that Robinson was asked to leave. Board had to find a way to calm the public's concern about the future of American Express, at the same time the choice of the leadership structure that will lead American Express in the foreseeable future. The case raises some important questions revolving around the continuity of the CEO and performance review: that the board considered in making decisions when asked CEO to resign? What processes can pay the Institute so that such battles for succession CEO does not come? "Hide
by Jay W. Lorsch Source: Harvard Business School 30 pages. Publication Date: April 25, 1994. Prod. #: 494093-PDF-ENG