Six Sigma, Sustainability & Innovation at American Express

Introduction: American Express Overview

The organization in question is American Express (NYSE: AXP), a major credit card and financial services firm. The majority of the company's business involves issuing consumer credit cards used to purchase a wide variety of goods and services. According to the company's latest annual report, it is also engaged in network services, merchant acquisition and processing, fee services, travel-related services, expense management products, and stored value/prepaid products. The company operates globally, but the bulk of its revenues come from developed markets, and in particular North America. American Express had revenues of $32.8 billion in 2015, down from 2014 levels, and net income of $5.163 billion, also down from prior years. The company's ROE and ROA both declined in 2015 relative to the two prior years (2015 Annual Report).

Six Sigma Analysis and Recommendation

Six Sigma is a management technique primarily used to improve processes — in either manufacturing or services — in order to reduce the error rate, with the long-term objective of reducing that rate to near zero. As described, the "fundamental objective of Six Sigma is the implementation of a measurement-based strategy that focuses on process improvement and variation reduction through the application of Six Sigma improvement projects" (iSixSigma.com, 2016). Initially, Six Sigma projects are fairly large in scope, because there are major issues that can be identified within an organization's processes. Over time, Six Sigma projects become more incremental in nature, finding minor ways to improve existing processes until the objective of near-zero error rates is achieved.

American Express has a few core competencies that distinguish it. One is marketing, because of the importance of ensuring that American Express cards are accepted in as many locations as possible. Six Sigma can be applied to marketing — direct marketers in particular have found Six Sigma techniques helpful because of the nature of the feedback they receive and how it allows them to easily quantify return rates. Amex conducts direct marketing, and therefore can apply Six Sigma techniques to this aspect of its business. The key is that Six Sigma can only be used where outcomes are measurable, which is why direct marketing is more suitable than other forms of marketing (Six Sigma Online, 2016). Finding new customers is an important part of the company's business.

The organization is also adept at assessing credit quality. This is a core competency for any lender, essential to ensuring adequate return and limiting bad debt. Assessing credit quality is inherently quantitative in nature and lends itself well to Six Sigma techniques. If American Express can implement Six Sigma in both its direct marketing program and its credit quality assessments, it will be able to acquire more new customers, lower the cost of acquiring each customer, and ensure that new customers carry higher credit quality. Lowering customer acquisition costs while also reducing bad debt charges would improve the company's bottom line.