As news of American Express' plans to "reengineer" its card business reached the public last week, the New York-based company's 71,000 employees received a six-page letter from their top executives.
Harvey Golub, chairman and chief executive of American Express Co., and Kenneth I. Chenault, president of Travel Related Services in the United States, laid out straightforwardly why American Express must eliminate up to 6,000 jobs.
Their letter stated:
"We concluded that TRS' [Travel Related Services'] product-oriented processes, as well as its marketing and operational structure, have three important deficiencies:They cost us significantly more than those of our most efficient competitors; we are too slow to change and adapt, particularly in introducing new products; and we are not flexible enough to meet the needs of specific, more targeted customer segments."
The letter pointed out that American Express' competitors are "not standing still" and that "some of them are introducing new products and services faster and at margins that are superior to ours."
American Express has been upfront about its new strategy, which includes a stronger commitment to credit cards and a streamlining of its entire organization.
Several operating center closings and consolidations will enable the staff reductions.
Over the next two years, three facilities in Phoenix primarily supporting charge card products will be closed, and the card operation functions of facilities in Jacksonville and Miami Lakes, Fla., will be consolidated and moved to facilities in Fort Lauderdale, Fla.; Greensboro, N.C.; and Phoenix.
In addition, American Express said, some of the work done by the three latter centers would be outsourced to other companies.
All together, American Express plans to consolidate its card business into four regional centers, from seven. Most card issuers run one or two operating centers.
Analysts view these moves positively.
"American Express has been much stronger over the last year or so, particularly in the area of charge volume and new corporate accounts," said Guy Moszkowski, an analyst at Sanford C. Bernstein & Co.
Moreover, earnings are in an upward trend. American Express' Travel Related Services division, which includes the card business, reported earnings of $263 million for the second quarter this year, a 13% increase from the same period of 1993.
The facility closings and consolidations are "an opportunity for American Express to make a change while they are not under pressure to do so," said Mr. Moszkowski.
Anne M. Moore, president of Synergistics Research Corp., Atlanta, commented: "American Express is pruning down to its core businesses, the ones that make the most money."
American Express' stated plans are vague, however, about how much of the company's card business will be outsourced.
The company farms out some functions -- like late collections, the manufacturing of its cards, and its global assistance program, which helps travelers out of difficult situations -- to service providers, but most of the card business is handled inhouse.
American Express will not disclose which functions are candidates for outsourcing, but a spokeswoman said, "The possibility of ousourcing is one small element of a very broad plan."
Mr. Moszkowski speculated that outsourcing could play a big role in American Express' efforts to cut costs and deliver services more efficiently.
Michele Turkel, cofounder of Spectrum International Corp., a credit card consulting firm in Scarsdale, N.Y., who also worked for American Express in the marketing division for 15 years, said, "It is so out of character for American Express to outsource.
It seems that it has lost so much market share that the company has no alternative than to cut costs and do things that have been out of the question before."
Top executives at American Express agree with Ms. Turkel.
"We are doing things now that were sacred cows for a long time," said Frank Skillern, president of American Express' U.S. consumer card group.
Mr. Skillern pointed out that American Express has been outsourcing more functions recently, but "there are some things we would not outsource, like data that has proprietary information about our customers or the credit function [the credit-granting decision]."
In August, American Express said it plans to issue a series of about 15 credit cards under the Optima brand. The first of the new Optima products, called True Grace, was launched in September.
The financial services giant is also set to expand its flagship charge card business, which includes platinum, gold, and green cards. American Express has quietly been developing a series of new charge cards, the first of which will be introduced at the end of November, followed by a group of pilots next year, said Mr. Skillern.
American Express is counting on the savings generated from the reorganization to fuel these new products.
Key functions like card acquisition, risk management, new product development, and customer relationship management are handled separately for each of the major card products and services, with very little overlap between the facilities.
Mr. Golub's and Mr. Chenault's letter stated: "The redesign of these processes will result in significant changes in the way we market and sell our products, as well as in the way we serve our customers.
It will enable us to introduce new products and to do so faster."
Speedy product launchings are a fairly new concept at American Express.
"We are very slow to market," said Mr. Skillern, "and that is part of our heritage because, for so many years, we only had one product."
Mr. Golub and Mr. Chenault projected that, by the end of next year, American Express will have closed the gap between its "current cost structure and where we need to be."