Michael
Bestul – Bus 754
American Express Corporation (AXI) was founded in
1850, with its primary functions as a diversified global travel and financial
services company. By 2000, the company
was composed of three segments: Travel Related Services, Financial Advisors,
and the American Express Bank.
As part of Travel Related Services
(TRS), one of its product areas, known as Corporate Services, specialized in
corporate charge cards, corporate purchasing cards, expense management
consulting, and corporate travel services.
Through Corporate Services, TRS had accumulated over 70% of the Fortune
500 as customers of its business travel and/or Corporate Card programs. Under this product area, a business unit
called Corporate Services Interactive (CSI) emphasized on developing new
ventures for TRS, leveraged by the Internet and other technologies.
Studies by AXI from as early as 1995
determined that the profitability of AXI’s traditional travel business would
decline due to airlines cutting commission rates, which was AXI’s primary
revenue source. Created by Corporate
Services Interactive along with business partner Microsoft, American Express
Corporation launched AXI Travel, its first Internet business, in November
1997. CSI was run by Senior Vice
President and General Manager Sonia Sharpe.
The CSI team, along with Microsoft, moved to offices outside of the
American Express corporate headquarters in efforts to build AXI travel as an
entrepreneurial start-up company with its own marketing, sales, product
development, and business development resources. Since software development was not one of
AXI’s core competencies, Microsoft filled a significant void in software
technology and speed to market.
Through preannouncing AXI Travel and
holding a client-trial program, AXI was able to keep corporate customers
interested while at the same time receive feedback to make sure AXI Travel
would meet client expectations. In November
1997, AXI Travel Version 1.0 was officially up and running. Future enhancements to the system were
launched in March 1998 and June 1998.
AXI Travel had proven to be successful, and by February 1998, 50,000 business
travelers in 225 corporations used AXI Travel, which accounted for $4.8 billion
in total travel volume. Costs of booking
a travel reservation declined by over 50%, and value was added to all parties
involved:
·
corporate travel managers were able to control travel expenses
·
business travelers’ expectations of comfort and convenience were met
·
loyalty programs and incentive programs were developed for both
business travelers and travel arrangers
·
AXI’s Travel Operations group was able to shift low-value-added
activities onto AXI Travel, allowing more time to spend on higher-value
activities for travel counselors.
While TRS primarily generated revenues from airline
commissions, AXI Travel changed the pricing model and revenue stream to
implementation and consulting fees, transaction fees, and maintenance
fees. Due to the success of AXI Travel,
American Express used this product to leverage new e-business offerings. AXI continued to form other nonexclusive
partnerships in order to launch other online businesses, such as AXI Expense
and AXI Purchasing Solutions. These new
online businesses encouraged greater use of the AXI Corporate Card because data
could be fed to these corporate databases and expense reports. Due to the demand of an online gateway into
the relationships with AXI for travel and purchasing managers, as well as
Corporate Card customers, AXI developed a portal called American
Express@Work. AXI also took a minority
stake and partnered with Get There, Inc. to form another online travel site
called Corporate Travel Online (CTO).
American Express found a significant demand for an
e-purchasing marketplace. Within this
business-to-business (B2B) marketplace, AXI would act as an infomediary where
buyers and suppliers could do business.
This new business venture, called MarketMile, would be a separate
start-up company, jointly owned by both American Express and B2B service
provider, Ventro.
American Express, clearly a traditional “brick and
mortar” business model company, had morphed with the “click and order” model to
form a commingled “click and mortar” approach.
Since delving into Internet-based services, AXI’s competition was no
longer clearly defined, and industry boundaries were no longer fixed and
stable. Yet AXI’s business opportunities appeared to be gigantic.
Problem: American Express, a traditional “brick and mortar” business model, has now joined the technology-based entrepreneurial realm, which is not its core competency.
In efforts to gain the majority of market share, American Express has taken a leadership approach in taking advantage of Internet technology. However, American Express had always been a global travel and financial services company, not a technology company. Taking on this new approach, AXI appears to be stepping out of its core competency and venturing into something entirely new. AXI is currently partnering nonexclusively with various technology firms to alleviate risks in the technology implementation process.
Problem: American Express’s competition is no longer clearly defined, and industry boundaries are no longer fixed and stable.
The Internet allows many businesses, large and small, traditional and entrepreneurial, to compete with each other. Businesses come and go every day, trying to offer new and unique products and services in order to attract a vast array of customers. Even companies that AXI partners with, like Get There, Inc., could also become AXI’s competitors. American Express is no longer in competition where boundaries are fixed and stable – they’re constantly changing.
Opportunity: With
the successful implementation of American Express’s AXI Travel, this
well-established AXI product can serve as the basis for launching an endless
amount of other AXI products – the opportunities are endless.
American Express has already capitalized on this opportunity somewhat – but not to its fullest. AXI has already launched its AXI Expense, AXI Purchasing Solutions, and American Express@Work. However, CSI’s Senior Vice President and General Manager Sonia Sharpe appears to be hesitant in that many of the new businesses that CSI had developed don’t fit into AXI’s traditional business model or within any business unit.
Recommendations
Problem: American
Express, a traditional “brick and mortar” business model, has now joined the
technology-based entrepreneurial realm, which is not its core competency
If American Express wants to continue to be a successful company, AXI must realize that it’s traditional “brick and mortar” business model must transform into a fully networked organization. Instead of being defined as acting like a big company or a small company, AXI must act like a big-small company. With an ever-changing business environment, AXI needs to operate with continuous innovation and precise execution, and therefore processes and systems must be designed from the beginning with change in mind. The high levels of control and integration methods in the traditional management model must unite with the fast-paced ‘learning by doing’ approach of entrepreneurial organizations. Technology can help management by providing access to real-time information, support analysis and interaction, and allow distant locations to make key decisions. Leadership must become a shared vision between all stakeholders of AXI. Senior executives must allow empowered teams to make decisions that aren’t identified as critical failure factors. By becoming a fully networked organization, AXI hasn’t shifted its core competency away from global travel and financial services – it simply has become more ready to meet the needs of its customers in an ever-changing environment.
Problem: American
Express’s competition is no longer clearly defined, and industry boundaries are
no longer fixed and stable.
Since AXI’s competition could also come from its partners, AXI must cease with nonexclusive partnerships and buy a technology company that already meets their online business needs and expectations. AXI has already partnered with many technology companies in the various online business ventures pursued. When partnering with another company, AXI also shares with that company pertinent information. This information can be taken by AXI’s partnering company, which could easily turn this information (combined with their already-honed technology expertise) into a competitive online site. AXI made a big mistake by partnering with Get There, Inc – AXI’s equity stake in their CTO product was minimal and created direct competition with AXI Travel, AXI’s primary online business travel product. Although AXI’s competition will never be clearly defined and industry boundaries will never again be fixed and stable, AXI can take the preventative measure of buying its own technology company to erase the risk of being potentially responsible for adding competition.
Opportunity: With
the successful implementation of American Express’s AXI Travel, this
well-established AXI product can serve as the basis for launching an endless
amount of other AXI products – the opportunities are endless.
AXI must not start to have
doubts about its Internet-established businesses just because it doesn’t fit
within AXI’s traditional business model.
AXI must realize that this new technology is the direction that business
is headed, and if it wants to succeed, AXI must continue innovating and
developing new online products and services.
AXI had great success with AXI Travel - since TRS has over 70% of the
Fortune 500 as customers of its business travel and/or Corporate Card programs,
AXI Travel has an excellent target market that have already been customers of
AXI. AXI Travel must take this success
and use it as a platform to continue to launch new business opportunities. AXI should move forward with its MarketMile B2B venture and incorporate it with the rest of
its products on AXI’s American Express@Work portal. With continued developments, combined with
AXI moving to a fully networked organization, AXI’s traditional business model
will eventually be replaced with a more decentralized, multiply-located and
specialized approach - all connected by a highly-networked infrastructure.