Harvey Golub: Recharging American Express

Presented By:Archana Sundarakrishna

Chinmoy Kumar NandaDeepak Jayaram

Prasanth KeerthiseelanMayank Bhat

The Robinson Years: 1977-1990Robinson had a larger company in mind.Robinson strove to make American Express

the largest financial supermarket in the world.

Significant acquisitions like Shearson Loeb Rhoades,

The Boston Company, Trade Development Bank Holdings, Investors Diversified Services (IDS) ,financially troubled Lehman Brothers Kuhn Loeb and E.F.Hutton , a brokerage house on the verge of bankruptcy.

The Robinson Years : cont…..Organization : Robinson divided American Express

into separate , largely autonomous businesses, each with its own chairman and CEO. Each card for example, had its own management structure, credit process, financial organization, customer service organization etc.

Culture & Management Style: Described as complacent and arrogant. Managers frequently treated bank cards as local shopping

cards rather than serious competition. Lost the American Airlines deal to Citibank leading to

steady exodus of cutomers. Robinson was focused externally and was not a hands-on

manager. He liked deals and the strategy followed from the deals.

Debates and contentions were the dominant mode, “Let’s see where the chips fly”.

Politics were rife and internal communications suffered. “You could not challenge up”.

People were rewarded for thoughts and suggestions, not results.

A Question of SurvivalStrategic Failure: The financial supermarket approach produced a holding company with

little clear direction. Everyone retreated to their own silo. Between 1987-1991 the company’s stock lost half its value, zealous

overexpansion and poor deal making, coupled with stock and real estate market reversals, led to massive losses and a billion dollar write off in 1990.

• Competition in cards: Co-branding and entry of large, non-bank players dramatically change the

industry. Market shifted to the “Value Oriented Customers”.

• Erosion of the Core Business: Although Amex’s corporate card business continued to exhibit strong

growth, the personal card business grew slowly grew slowly in the 1980’s and began to decline after 1990. The quality of people being added was not known.

Merchants were unhappy about paying fees that averaged 100-150 basis points more tha other cards. The highly publicized “Boston Fee Party” dented the image further.

• Problems in Consumer Lending: Faced with increased competition , American Express entered the credit

card business in 1987 with its Optima card.

Righting a Sinking Ship: 1991-1992 In July 1991, Robinson asked Harvey Golub, who was running IDS

to become president of American Express. Three months later Golub added the posts of chairman and CEO of TRS.

In Feb 1993, Robinson was asked to step down and appointed Golub CEO of American Express.

Three hallmarks of his style; a commitment to principles, an intense focus on the reasoning process, and an insistence on open,issue-oriented, fact-based discussions.

Never tells anyone what to do, pays more attention to how you think, always tests the thinking process.

Golub had very broad scope, brilliant at creating an overarching strategy and dissecting the minutiae of problems. He was conceptual and logical rather than emotional, but with ability to tackle problems creatively.

He always emphasized on how a particular decision was made?He was far less interested in people having the right answer than

in their thinking about issues the right way.He always got to the bottom of the issues, and focused on deeper

questions.

Changes in Performance EvaluationGolub changed TRS’ performance metrics and

variable compensation system.He wanted to get the metrics right, he emphasized

group and team incentives, judging performance not against budget but by what you should have done , given the circumstances.

He publicly graded managers from G1 to G5 based on their performance in five categories: shareholders , customers, employees, reengineering and quality.

He looked at how the results were achieved and made the criteria more subjective and more objective at the same time.

For example, if someone meets net income goals but gets them by cutting advertising expenses, he won’t get a good rating.

Triage at TRSOn his very first day, Harvey Golub decided to

centralize and consolidate TRS. It was the first step in blowing up silos created by Robinson.

He found out that the basic card business was “in great danger of being marginalized”.

He articulated five broad priorities to address the slide at TRS:

Fix the Optima credit problem Rebuild customer relationship Build the cheque and corporate card business. Reduce cost structure by 1 billion $.

Organization and RolesIn 1992, he appointed Randy Christofferson, a

former consultant and strategic planner as Senior Vice President of Quality and Reengineering for TRS and head of the Reengineering initiative.

Randy took ownership of the reengineering initiative, and did not delegate it.

He was always present in project meetings and attended training sessions.

Ensured that monitoring and reporting system were in place and expanded the compensation criteria to include reengineering.

Concepts and Frameworks

Two frameworks provided organization and guidance.

First, all reengineering projects were assigned to categories and each category was managed separately.

Cost projects expected to find cheaper ways. Structural projects to physically change how where

work was done. Strategic projects would cut across organizational

boundaries.

• Second tool , the process blueprint, provided a more detailed map. It identified the five phases of reengineering – opportunity identification, opportunity assessment, project selection and design, implementation.

• An 80/20 rule prevailed where managers were asked to identify 20% of projects that would give 80% cost savings.

Tracking and ResultsChristofferson worked with CFO of TRS to

establish a detailed tracking system. Savings were measured at three points in the process.

An identified save was a project’s estimated cost savings

An implemented save indicated that physical changes in process or structure had taken place.

A realized save meant that net savings had actually been booked.

Between 1992-1994 TRS reduced its cost by $1.4 billion.

Turning the Ship: 1993-1994Leveraging the Brand : Golub viewed the brand as “the

biggest corporate asset” and saw himself as a brand manager. Since retail brokerage and investment banking did not fit the

citeria, Shearson, Lehman, the Boston Company and other non core business were either sold or spun off. IDS was retained and remained AEFA.

The parent company also adopted the goal of becoming the “world’s most respected service brand”.

Building a Principles-Driven Organization: Golub hoped to turn American Express a principle driven organization, where managers behaved according to principles and values rather than policies, rules and procedures.

Corporate Metrics: Customer Health of the Franchise measures. Employee Values Survey Report cards

Setting a Course : 1994-95One Operating Company: In the fall of 1994,

Golub articulated a new goal : American Express would become one operating company, rather than a collection of separate, loosely-connected businesses.

He did not believe in the term “Corporate Strategy”.

Golub’s intention was to leverage the brand while redesigning the organization around “shared utilities”, common processes and platforms that would support diverse products and functions.

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