Critical analysis report – American express

Executive Summary

This purpose of this paper is to study the various organizational structures followed by businesses to align resources to enable them to achieve the objectives of the firm. The organization structure varies across organizations as per their need, which is triggered from their size, operating locations, scale of business, variety in the product and services.

American Express has been taken as the case organization to study the application of the organisation structure theories. The secondary source analysis was used as the methodology to study the organisation structure and subsequent key issues, findings and solutions at American Express. Various journals, magazines and books were used for the research, as given in the reference section. Though, the primary data collection is out of the scope of this study, the lack of it, is one of the major limitations of the study.

American Express Company, a.k.a. Amex, was found in the year 1850. The company started with the initial line of business as a courier delivery organisation. Over the years, Amex had been adaptive the external business environment and hence, kept changing business lines according to the current market situations. Amex is a diversified global financial company with operations in Travel related services, Credit cards, financial advisory (Lanman, 2008).

Key issues found with Amex organizational structure were the current recessionary trend, its highly bureaucratic


A clear organisation structure is desired for the smooth functioning of any organisation. There are many ways to structure a business organisation as given below (Overholt, 2005) –

·        Flat or tall structure

·        Span of control

·        Chain of command

·        Hierarchy

·        Delegation

·        Empowerment

This case study dwells upon the importance of the organisation structure in effectively achieving the goals of an organisation. As the business environment has become mercurial in nature, the need of an effective organisation structure is being felt quite strongly. A lean organisation with flat structure makes the decision making faster and efficient as opposed to a bureaucratic organisation. This is the key issue discussed here through the case of Amex.

Classification of the Organisation structure

            There are different ways of classifying an organisation Structure. The major classifications are as given below (Schuler, 2009) –

·        By function or Functional Structure: The arrangement of organisation structure as per the business areas handled by each section or department is known as the designing the organisation structure as per the functional needs. For example, in American Express, the Travel related services, Risk management, financial division are differently aligned.

·        By Divisions or Divisional organizational structure: Divisional structures group together people who work on a similar product, work in the same geographical region, or serve the same customers.

o   By product or activity: In this case, the structure is designed as per the products made by the organisation.  For example, in American Express the Charge cards and credit card are separately aligned to a business unit.

o   By area: The alignment of the businesses on the geographical or regional lines is when the organizational structure as per the area of operations comes into focus. In this situation, different geographies are aligned in a structure. For example, American express has three distinct areas of operations viz.  JAPA (Consists of Japan & Asia Pacific), Americas (North America) and Europe & Middle East.

o   By customer: This type of organizational structure is typical to the organizations which are highly sensitive to customer needs. This is especially true for service oriented companies like American Express. Amex has different set of credit card options for different customer groups having different needs. For example, Amex Black card for premium customers while Green Charge card for average customer group.

·        By process: This type of organisation structure is seen in the manufacturing organizations where products have to go through stages as they are made. For example, in case of General Motors, the organisation structure would have materials department, sheet-metal department, Engine manufacturing, Gear Box manufacturing, Assembly line department, Quality Assurance etc.

·        Matrix Structure: In this type of organizational structure, permanent cross functional teams are formed to try to gain the advantages of both the functional and divisional approaches.

·        Network Structures: Network structures maintain a staff of core fulltime employees and use contracted services and strategic alliances to accomplish many business needs.

Following diagram highlights the first three levels of American Express Organisation Structure-

Diagram 1: American Express Organisation Structure (From:

As seen from above example, there are different ways of classifying organisation structure. In practice, organizations do not follow rigid “one structure” approach, rather a mix of different types of structures is found. As mentioned earlier, the situations where a mix of above organisation structures is found are also known as matrix structures. The matrix structure provides the advantage associated with other organisation structures like functional, area, process or product. The case of American express is of a Matrix structure which makes it possible for the organisation to effectively manage its size and scale of operation.

Diagram 2: Detailed Organisation structure view of Cards business for American Express (From:

Key determinant and influences on organisational structure

Why organisation has current organisation structure.  As mentioned earlier in this paper, Amex operates into 3 major lines of businesses – Consumer & Business cards, Travel related services and financial advisory. These businesses are operated from various regions across the globe and the markets are based across the globes as well. In this global perspective, it becomes important to rationalise the organisation structure so that the advantage of the functional, area based and product based organizational structure can be taken. In order to merge all these category of organisation Thus, in the diagram 1, the areas of operation are clearly delineated.

All the heads of the respective areas are reporting to the CEO. As seen in the organisation chart, the top level represents the functional structure as the business functions are segregated and have separate reporting lines. For example, Global businesses of Commercial cards, Consumer cards, business travels, Human resource, IT & Services and Financial areas are separated (Reicheld, 2001).

On the next level of organisation chart, one of the business areas is drilled further.   This area is of Consumer Cards led by Ed Gilligan. This is further layered by the Risk management, Merchant services etc functions. But, in the next layer, it is divided as per the geographical areas, giving a hint of divisional hierarchy. As seen above, Amex organizational structure is matrix, which is designed to take the benefit of both functional and divisional structures (Fortune, 2009).

Determinant for Current Organisational Structure. There are various determinants for the organisation to follow any particular organisation structure viz. Strategy, Size, Technology, Change, Environment and Culture. These all factors have a significant influence on the structure adopted by the organisation. In case of American Express, all of the above factors have played significant role in the way Amex is structured.

In terms of strategy, following are the important aspects of the various organizational structures discussed so far (Schuler, 2009) – Functional structures group together people using similar skills Divisional structures group together people by products, customers, or locations Matrix structures combine the functional and divisional structures Team structures use many permanent and temporary teams Network structures extensively use strategic alliances

There are various advantages associated with the functional structures. It provides Economies of scale resulting in efficient use of human resources. It is found that the functional experts are good at solving technical problems. Another advantage of functional structure is that training within functions promotes skill development. Finally, Career paths are available within each function. These advantages are leveraged in Amex when the functional structures are followed at the highest level in the organisation. The primary issue with the functional structure is the lack of communication and coordination across functional organizations resulting in the financial chimney’s problem as shown in the diagram below (Erlingsdóttir, 2005).

Diagram 3: Functional Chimney’s

In order to overcome the issue of functional chimneys at the middle management layer, divisional organisation structure is implemented at Amex. The advantages associated with the divisional organizational structure are –

Expertise focused on special products, customers, regionsBetter coordination across functions within divisionsBetter accountability for product or service deliveryEasier to grow or shrink in size as conditions changeOrganisational effectiveness

There are several tools to measure the organizational effectiveness. Often, competing value method and the Balance Score Card is used to quantify the effectiveness of any organisation. The competing values framework was proposed by Quinn and Rohrbaugh in the

Diagram 4: Balance ScoreCard template

year 1988. This framework relates to the two dimensions of organizational effectiveness. These dimensions are – Organisational focus on the internal and external well being and the organizational preference for structure in terms of control and flexibility.

The balance score card method, on the other hand, is a strategic performance measurement tool. It is designed to keep track of the major functional dimensions against the vision and strategy of the organisation. The four functional dimensions are Financial, Customer, Internal Business Processes and learning & Growth (Smith, 2007). Each of these dimensions has quantifiable measures which are evaluated on a regular basis and their values are entered in the template, as given in diagram

4. The balance scorecard is not expected to replace the traditional financial and operational measures in an organisation; rather, it is a summary of the major functions compared at the regular intervals (Kaplan, 2006). The primary advantage of the balance score card is that it strongly links to the organisation’s strategy and vision. This design of balance score card makes it easy for the management to keep an eye on the success of steps taken to achieve the organizational goals. Kaplan and Nortan, in their seminal paper of late 1990s, mention following four steps to be part of balance score card –

Converting the organizational vision into the goals which can be made operationalVision communication and its linkage to performance of individualsSetting up benchmarks and planning of businessAdjusting of the strategy as per the learning and feedback

Critical analysis of current problems

In his letter to the Shareholders in the 2009 Annual Report, Ken Chenault, CEO of American express, identified following issues with Amex and the organizations operating in the same sector (Annual report, 2009) –

Melting Economy with near freefall of the financial system accompanied with longest recession in the recent decadesHigh unemployment rate resulting in diminished household wealth while the Persistent unemployment poses significant risks Low consumer confidence hurt customers and, therefore, business of Amex A 14 percent drop in revenues for the preceding year, as individuals and companies cut back on spending and travel Higher credit losses as more card members had trouble paying their bills For the year, spending on American Express cards fell 9 percent to $620 billion on broad-based declines among consumers, small businesses and corporations.

Billed business was down 10 percent in the U.S. and 8 percent internationally The above issues converge to highlight the fundamental issue of global recession in the financial sector. As American Express is a payments company, these issues have their affect on its financial performance. The persistent low employment rate has resulted in the low consumer confidence in spending.

The companies have cut down on the expenses of travel and other related spending which resulted in the low spending on the business cards of American express. Overall, the picture was quite gray for all the businesses of Amex, whether it was consumer cards, Business cards or travel related services. Another related issue was the in-ability of the consumers to pay their bills on time. This issue resulted in greater credit losses for the organisation in the previous financial year.

While the focus had been consistently on increasing the consumer spend and billed business, the efforts were also required to decrease the cost through re-engineering activities. Though, appropriate caution needs to be exercised in identifying areas of re-engineering as this effort must not dig into the strong areas of operations. However, reducing costs through appropriate strategies is the need of the hour for American express.

The quality of credit decisions is another important area where, though Amex has fared better than competitors, would need greater focus. The significance of the credit decision quality is high as the quality of consumer’s results in better billing in business and lower credit losses to the organisation (American Express Investors relations, 2009).

One of the important aspects where American Express needs to focus its attention is to modify the organisation structure to align with the businesses in changing times. The speed of execution and the faster time to market with an organizational agility would give it the edge, necessary in today’s business environment. (Annual report, 2009).

Solutions for the provided problems

American Express has been in the business since 1850 and it is one of the most respected brands. In the current business scenario, when many companies have squandered the trust in their brand, Amex remains world’s most respected and trusted brand. Notwithstanding, the recent issues due to the global recession (Leamer, 2008), Amex still has a strong financial position with an equally strong service portfolio.

Following measures are suggested to counter the issues mentioned in the previous section:

Promote the American Express Charge Card as a product that’s right for the times because it’s paying in-full nature encourages responsible spending Launch new tools and resources to help card members effectively manage their money Re-focus on the lending portfolio, emphasizing premium co-brand cards that have superior economics and credit performance Enhanced the customer rewards programs, with new features such as everyday redemption options in Membership Rewards Underwrite new global commercial card accounts by providing more solutions to help companies track and control their spending. This would also mean going over to the regions which are not much impacted by recession like South Asia.

Think differently and apply innovation in different areas of operations as last year’s action in the prepaid card industry whereby eliminating all after-purchase fees, an industry first that delivers more value to our customers, actually shook the entire industry. Expand network of merchants who accept American Express cards and partners who issue them to enable wide acceptability and hence ease for the consumers.

Launch new advertising in the U.S. and selected international markets to promote the brand recognition and create awareness of the new products Critically examine the process of making decisions, build new capabilities, integrate new housing and commercial data into the models, and develop a broad set of programs to manage high-risk customers Apply the learning from experiences and improve the credit and fraud operations, expand customer care programs and create tailored solutions for many thousands of people.

For some, this would mean extending the time they could take to pay off their balance, waiving delinquency fees, reducing interest rates, or excusing portions of outstanding debt. These efforts would make a difference to the customers and save many valuable relationships for the company.

Efficient control of the expenses needs to be of more focus than ever. Cutting back, but not cutting too far into muscle, there is a need to reduce operating expenses from a year ago. Reengineering can play a large role in these efforts.

Critical examination of the business processes to eliminate inefficiencies and focus resources on activities that would drive value for customers and shareholders. One of the painful outcome of  the reengineering could be a reduction of jobs over the past year. As painful as those job cuts would be, they would increase the financial strength (Bloomberg, 2008).

Need to focus more on seizing opportunities rather than responding to crisis conditions around the business environment. These actions would reflect the improved position from a year ago, but they would also recognize that growth will not come easily in an environment shaped by a still weak economy.Recommendation

After the review of the issues facing the Amex and the proposed solutions for them, this section provides the recommendations in terms of the action plans which can be implemented as part of the management process. The following table lays out the action plan, which is also directed towards how these actions would result in the benefit for the organisation.

ActionHow it would benefit AmexA sense of urgency, moving to reduce our expense base, turn around credit performance, and provide greater value to our customers so they would continue to choose American Express first.

As the markets are still not where they were before the recession, it becomes important to focus on reducing the expense base along with the focus on increasing the billing and turnover. The reduction in expense base results in the increase in the margin and hence achievement of the organisation’s goals. The turn around in the credit performance would mean less credit and delinquency losses and hence a greater share of billing conversions.Need to keep a long-term view, believing that quick fixes alone wouldn’t suffice. Re-engineer, retool and reinvest with the aim of improving the Amex’s competitive position.

It is important to ensure that the actions being taken now are not quick fixes to tide over the current situation. These actions must be tied to the long term vision so that changes in the business environment do not significantly impact the strategy.

In essence, Amex needs to be prepared to act when conditions made sense for to shift from defense to offense.This is one of the significance approaches where the desired action does not necessarily be a reaction. Rather, it should be a well thought out pre-emptive measure designed to meet the challenges expected to be faced in the future. This strategy gives significant advantage to the organisation in handling the situation effectively. Re-validates emphasis on financial responsibility, premium value and superior service.

These 3 features of Amex strategy are cornerstone of its success. The approach followed by Amex in managing its finances with responsibility made it sail through the major part of the recession. The focus on the premium customers and exemplary service to the customers created the trust in the brand in the situation where most of the brands have been washed away. Thus, emphasis on these 3 strategies would definitely enhance Amex’s value whatever may be the business environment.

Develop products and value propositions that will enable Amex to compete successfully. Manage at-risk accounts, improve decision-making, and help card members who were going through temporary financial hardship.  These actions would not only result in improving the under-writing decisions as well as reducing the delinquency losses for the organisation. The help of the card members in these testing times sustains the excellent brand image.

Continue to leverage the key distinction between American Express and other card issuers – Amex business model relies less on lending. Most of our revenue comes from spending on cards rather than from interest income and credit fees. Going forward, focus energies on driving growth, driving efficiency, and delivering superior service.

This is one of the areas where Amex has an edge over its competitors. Amex has an established product called as charge card which is marketed as a tool to take control of card member’s finances. As the charge cards billing needs to be paid in full, it gives the full control to the card members.

Group global consumer, small business, merchant and network B under the senior leadership of single Vice Chairman This move will enable to increase alignment between these related organizations and sharpen focus on strongest growth opportunities, while maintaining appropriate firewalls between card-issuing and GNS businesses Creating an Enterprise Growth Group that will focus exclusively on generating new sources of fee revenue from existing assets and advancing efforts in emerging payments. This includes developing new opportunities for growth that transcend individual businesses and take advantage of technological trends (Gilmour, 2008). To generate new sources of income.

Created a new Global Services Group that  will power the day-to-day servicing of internal and external customersHeighten focus on customer service and ensure that business operations are managed as effectively and efficiently as possible. Organize support functions by process rather than business unit, which should  streamline costs, reduce duplication of work, better integrate skills and expertise, and improve the service provided to customers.


It is believed that for HR to have an impact on organizational effectiveness, HR must develop processes that directly support the execution of the business’s strategic priorities. This requires a measurement tool like Business Score Card, as discussed above. In the current business environment, only the organizations which have strong focus on the long-term vision with a short-term view of the situations around them would be successful. Balanced Scorecard makes it possible for any organisation to focus on its strategic goals and objectives along with the contribution of each step in achieving those objectives.

The alignment of the short-term and the long-term goals needs to be clearly understood and implemented with the help of tools like business scorecards to measure the effectiveness of the adopted measures (Creamera, 2008).

Finally, the strategies must have the underlying philosophy of pre-emptive actions rather than a reactive approach to any situation. This helps in better preparedness and sufficient time in hand to handle any situation.


Annual Report 2009 – American Express, Available at:

Accessed on: 31 May 2010

American Express Investor Relations, Available at:

Accessed on: 31 May 2010

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