The lack of innovation and entrepreneurial focus at American Express (AmEx) may be because of hubris, inertia, and a lack of capability. The firm's performance in 2014 was not, by any means, what stakeholders expect. Partly in response to its poor financial performance, the firm announced plans to reduce its workforce by up to 4,000 employees.
The loss of two of its major partnerships, with Costco and JetBlue, contributed to AmEx's poor performance in 2014. Its partnership with Costco, which had involved an exclusive co-branded credit card, was particularly damaging. At its peak, this collaborative relationship had accounted for approximately eight percent of AmEx's total revenues. Interestingly, cardholders used this co-branded card for many other purchases outside of Costco, as about 70 percent of the revenue generated by the card came from its use in other venues besides Costco.
Losing a major court case also affected AmEx's 2014 performance. In part, the case in question surfaced because AmEx charges each merchant higher fees when a customer uses its card to make a purchase than do other major credit card companies such as Visa and MasterCard. AmEx has a contract with each merchant using its card that does not allow the merchant to recommend to the customer to use a different card or to offer discounts that increase the attractiveness of other cards.
A federal judge ruled that this requirement by AmEx was in "restraint of trade" and, therefore, violated antitrust laws. This is important because AmEx may have. The lack of innovation and entrepreneurial focus at American Express (AmEx) may be because of hubris, inertia, and a lack of capability. The firm's performance in 2014 was not, by any means, what stakeholders expect. Partly in response to its poor financial performance, the firm announced plans to reduce its workforce by up to 4,000 employees.
The loss of two of its major partnerships, with Costco and JetBlue, contributed to AmEx's poor performance in 2014. Its partnership with Costco, which had involved an exclusive co-branded credit card, was particularly damaging. At its peak, this collaborative relationship had accounted for approximately eight percent of AmEx's total revenues. Interestingly, cardholders used this co-branded card for many other purchases outside of Costco, as about 70 percent of the revenue generated by the card came from its use in other venues besides Costco.
Losing a major court case also affected AmEx's 2014 performance. In part, the case in question surfaced because AmEx charges each merchant higher fees when a customer uses its card to make a purchase than do other major credit card companies such as Visa and MasterCard. AmEx has a contract with each merchant using its card that does not allow the merchant to recommend to the customer to use a different card or to offer discounts that increase the attractiveness of other cards. A federal judge ruled that this requirement by AmEx was in "restraint of trade" and, therefore, violated antitrust laws. This is important because AmEx may have

Questions

1. This Mini-Case suggests that a lack of continuous innovation contributed to American Express’s (AmEx) poor performance in 2014. Assuming this is true, what factors might prevent a firm the size and scope of AmEx from being able to innovate continuously?

2. Use material from Chapter 4 to identify the business-level strategy AmEx uses. What dimensions do you believe AmEx should emphasize to use the strategy you identified successfully across time?

3. What actions do you believe AmEx should take to establish an entrepreneurial mind-set among employees throughout the company?

4. This Mini-Case includes descriptions of recent AmEx innovations. Do you anticipate that most of these innovations resulted from autonomous strategic behavior or from induced strategic behavior? Why?