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American Express Case Study   Term Paper ID:27345 Click to get this paper

Essay Subject: Analyzes the successful management changes instituted at American Express in the 1980s by CEO Lou Gerstner.... More...

8 Pages / 1800 Words 1 sources, 3 Citations, APA Format $32.00 Return to List of Papers

Paper Abstract: Analyzes the successful management changes instituted at American Express in the 1980s by CEO Lou Gerstner. Paper Introduction: American Express Case Study Description Much of the success of American Express during the mid1980s was attributed to the entrepreneurial management philosophy of Lou Gerstner, chairman of American Express TRS. He himself indicated that it was not his original intent to come in to American Express and institute corporate entrepreneurship. Nonetheless, his background and management style seemed to challenge the people who were already there and developed into something that was considered entrepreneurial, or intrapreneurial. American Express Company was an appropriate venue for this kind of management. During the late 1970s, as an organization, it set aggressive goals for itself. Rather than accept static growth, or attempt a defensive posture in the face of growing competition, Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. The result was to be a balanced operation inwhich each group was valued for its contribution to the whole, andhopefully learned to value the other group. References Kao, J. He sought to inculcate acounterculture - not to replace the traditional corporate culture, but tocoexist with it, operating in tension with the more traditional culture.The intent was to ensure the maintenance of stability, order,predictability, and control, while adding the potential for individualinitiative and diversity. Eventually, his career will end after a series offailures, or lack of success, in any event, and that is also likely to bethe case with his group. During the late 197 s, as an organization, it set aggressivegoals for itself. There are things that can be built in, however,focusing on environment and organizational context, as well as people. Creating a corporate culture that institutionalizes theseis really not possible. He himself indicated that it was not hisoriginal intent to come in to American Express and institute corporateentrepreneurship. The organization rewards success, but it alsopunishes failure. Thereare structures that can encourage it, but there is also the weight of thelarger organization, of the low-risk institution that seeks to maintainitself, which tends to flatten out creative structure and process. According to the people who are quoted here, hesucceeded in creating a culture in which performance was rewarded and whichencouraged entrepreneurial and creative behavior. The financial services industry was quite volatile and competingcard services were also being aggressively marketed. Rather than accept static growth, or attempt a defensiveposture in the face of growing competition, American Express TRS decided toemphasize growth in earnings and high ROE, while at the same time notdamaging the larger organization. It is possibleto identify creative people and Gerstner needs to focus on this, perhapseven creating a search process that is specifically designed to identifythis kind of person. In looking at the case of American Express, it seems as though themost fruitful approach for that organization, and one that could becontinued, was to hire bright, creative people and let them find theirniche in the slack that Gerstner had created in the organization. Nonetheless, his background and management style seemedto challenge the people who were already there and developed into somethingthat was considered entrepreneurial, or intrapreneurial. American Express Company was an appropriate venue for this kind ofmanagement. It is important torecognize that he himself indicated that the new culture has only beenfully operating for about two years, although it was in process for thefour years preceding that. By the mid-198 s, however, there was thenew challenge of maintaining this rate of growth, and the entrepreneurialspirit. Ultimately, this leads to stagnation, andto limits on flexibility and creativity. During the early and mid-198 s, TRS wasable to achieve, and surpass, its financial goals, primarily by emphasizingits entrepreneurial spirit and constantly generating new products,services, and marketing efforts. In particular, Beth,Terri, and Jerry indicated that they were encouraged to come up with ideas,allowed to pursue those ideas with little constraint, and rewarded forsuccess by being given even more leeway. Entrepreneurship, creativity, and organization.Englewood Cliffs, NJ: Prentice Hall. Kao (1989) indicated that the entrepreneurial spirit could be carriedin the established organization depending upon leadership and structure.He talked about a number of different models for maintaining a smaller feelwithin the larger organization, as in creating self-contained work groupsor divisions. This is the task that the American ExpressCompany faced and that Lou Gerstner sought to address in his balancing ofthe traditional and entrepreneurial cultures. As Kao(1989) noted, that slack seems to be essential, providing people with someroom to create without too many rules or structures constricting theircreative activity. That seems to be quite a creative group,and the people within it are encouraged to come up with wild, new ideas andthen make those ideas concrete. If the insight is indeed the"best" way to proceed, then the organization has no incentive to look forother ways, or encourage new ideas. There are more layers ofmanagement between him and entry level staff. American Express clearly utilized that, as in creating thework group led by Jerry Welsh. Culture. By definition, they would not be asgood. The problem is how best to ensure that those slackareas continue to exist within the company? Welsh recognized, however, that the group, and his career, are bothlikely to be temporary. This creates some open space, in itself.Action Plan The questions that need to be addressed are the ones Gerstner himselfhad: "How do you keep the change agents? Welsh was able to do this and so were the two youngerwomen. It might indeed be a very good wayto do things, but it could also become a slow, tedious approach to problem-solving that would not always serve well. How do you protect that kind ofcleansing, productive wind blowing through the corridors?" And, as he alsonoted, this does not come out of structure, but out of relationships, so itcannot be built in. Gerstner noted that he can already recognize that it is becoming moredifficult for him to stay in touch with people. They need to focus on creating environments inwhich creative people are tolerated and rewarded. He was surprised by thedepth of resistance within the organization structure and indicated that ittook longer than he had anticipated to make the changes he thoughtnecessary. He also focused oncreating a culture that emphasized performance and rewarded performanceabove all other things. A second recommendation would focus on maintaining the slack thatGerstner encourage, but that seems to have existed in American Expressbefore his tenure. He did several things to create a new organizational culture. This is a very short-term result and itremains to be seen how long it can be maintained.Recommendations The basic problem for Gerstner is ensuring that the entrepreneurialspirit will remain a fundamental part of the organization, even after he isgone, and after Jerry Welsh is gone. Welsh noted that it Gerstner wantedto be able to continue to bring in people like Welsh, and figure out whothose might be, but that this is very difficult. Consequently, there is a focus on stability and maintenance. Problemsoccur when these insights are institutionalized; institutionalization maycarry out certain tasks and ensure that the organization is maintained, butit is not likely to encourage creativity. Hismanagement style initially conflicted with how things had always been doneat American Express and he had to ease off a little bit. (1989). The first recommendation, then, would be to encourage the hiringprocess that seems to identify young, creative people and provide them withthe support through the Graduate Management Program that helps them todevelop. Communication isdiminishing. While Gerstner noted that he cannot locate more Jerry Welshesin a systematic way, this might be his most important task. Instead of seeking an either-or position, in which either the traditional corporate values or theentrepreneurial values were selected, Gerstner attempted to create anorganization which allowed for both-and, the maintenance of a largecorporation and the existence of creativity centers throughout thatorganization. This is the way that we havealways done things around here." The impulse to maintain the initial insight or vision is a positiveone, but not possible. At least at the time the case waswritten, American Express seemed to have many entrepreneurial elementsbuilt in to its structure as an established organization.Analysis As Kao (1989) noted, the problem for an established organization is tobuild enough flexibility into the organization to allow for creativity andthe entrepreneurial spirit. In addition, the openspaces, or slack areas should remain open. At the same time, the Graduate Management Programshould be emphasized and also be designed to identify special people tobecome part of Gerstner's entrepreneurial team. Thus, even creative processes and structures canwork against flexibility and creativity if they are institutionalized. For example, both Williams andHorowitz indicated that they were able to begin projects relativelyquickly, without much research and without running ideas by many differentlayers of management. He emphasized moving managers acrossunits in order to build more of a sense of unity. Gerstner's philosophy, however, was that American Express was going tohave growth and that it was going to pursue growth aggressively. It would become a corporate process and new people would besocialized to that way of doing things. People. If, for example, one were to institutionalize theuse of brainstorming sessions at the beginning of every project, followedby work teams splitting up to develop multiple solutions to the problem,one would run the risk that would be the only way that problems would beapproached. They were simply approved and told to work on thosenew ideas, to just do it. When certain insights, processes, or structures areadopted as the best, or most necessary, then the process ofinstitutionalization has begun. Communication, according to eachof them, was surprisingly open in the company and they had access to alllevels of workers and management. One of the problems he faced, and that the entrepreneur faces, is theproblem of carrying forth the vision or the initial insight. The continued use of work, or project groups, seems fruitful for this,as well as Gerstner's tendency to create positions for people that fitthem, while leaving positions open within the company if there is no oneappropriate for them. Nonetheless, it seemslike one of the more fruitful approaches. American Express Case StudyDescription Much of the success of American Express during the mid-198 s wasattributed to the entrepreneurial management philosophy of Lou Gerstner,chairman of American Express TRS. Nonetheless, hisbasic management style was focused on creativity and informal problem-solving and he was interested in changing the organization so that it couldrespond to new needs more rapidly and effectively. There is an ongoing need for Gerstner, and others likeWelsh, Horowitz, and Williams to market, promulgate, and reinforce theentrepreneurial culture. Creativity is transitory, by its nature. What are the possibilities for ensuring the continuance of a corporateculture that encourages risk-taking, creativity, flexibility, and rapid,ongoing growth? The entrepreneurial spirit is opposed toinstitutionalization. Hehimself emphasized three basic things, including rebuilding the strategyand direction of the businesses. If, however, brainstorming had beeninstitutionalized as the best and preferred way of doing things, this wouldnot have been possible. Instead, what it encourages isthe kind of statement that Gerstner and others wanted to eliminate, thestatement that "This is the way we do things. Although he continues to insert himself in the creativeprocess at an early point in the process, institution-building tends tomake this more and more difficult as time passes. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.