When Lou Gerstner become president of the Travel Related Services (TRS) arm at American Express in 1979, the unit was facing one of its biggest challenges in AmEx’s 130-year history. Hundreds of banks offering or planning to introduce credit cards through Visa and MasterCard that would compete with the American Express card. And more than two dozen financial service firms were coming into the traveler’s checks business. In a mature market-place, this increase in competition usually reduces margins and prohibits growth.

But that was not how Gerstner saw the business. Before joining AmEx, he had spent five years as a consultant to TRS, analyzing the money losing travel division and the increasingly competitive card operation. Gestner and his team asked fundamental questions about eh economics, market, and competition and developed a deep understanding of the business. In the process, he began to craft a vision of TRS that looked nothing like a 130-year-old company in a mature industry.

Gestner thought TRS has the potential to become a dynamic and growing enterprise, despite the onslaught of Visa and MasterCard competition from thousands of banks. The key was to focus on the global marketplace and specifically, on the relatively affluent customer American Express had been traditionally serving with top-of-the-line products. By further segmenting this market, aggressively developing a broad range of new products and services, and investing to increase productivity and to lower costs, TRS could provide the best service possible to customers who had enough discretionary income to buy many more services from TRS than they had in the past.

Within a week of his appointment, Gerstner brought together the people running the card organization and questioned all the principles by which they conducted their business. In particular, he challenged two widely shared beliefs – that the division should have only one product, the green card, and that this product was limited in potential for growth and innovation.

Gestner also moved quickly to develop a more entrepreneurial culture, to hire and train people who would thrive in it, and to clearly communicate to them the overall direction. He and other top managers rewarded intelligent risk taking. To make entrepreneurship easier, they discouraged unnecessary bureaucracy. They also upgraded hiring standards and created the TRS Graduate Management Program, which offered high-potential young people special training, and enriched set of experiences, and an unusual degree of exposure to people in top management. To encourage risk taking among all TRS employees, Gestner also established something called the Great Performers program to recognize and reward truly exceptional customer service, a central tenet in the organization’s vision.

These incentives led quickly to new market, products, and services. TRS expanded its overseas presence dramatically. By 1988, AmEx cards were issued in 29 currencies (as opposed to only 11 a decade earlier). The unit also focused aggressively on two market segments that had historically received little attention: college students and women. In 1981, TRS combined its card and travel-service capabilities to offer corporate clients a unified system to monitor and control travel expenses. And by 1988, AmEx had grown to become the fifth largest direct-mail merchant in the US.

As a results of these innovations, TRS’s net income increased a phenomenal 500% between 1978 and 1987-a compounded annual rate of about 18%. The business outperformed many so-called high-tech/high-growth companies. With a 1988 return on equity of 28%, it also outperformed most low-growth but high-profit business.

(From: "What Leaders Really Do", John Kotter)
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