In-Depth

Euro Change: American Express Coins its Euro Strategy

• 12/01/1998

Arguably, there is no substitute for hands-on experience. An enterprise that has already worked through most of the issues other firms are just now facing represents a valuable source of knowledge. At the risk of departing slightly from our "where is the Euro going" focus, this month’s column takes a look at the gearing up one large financial organization did to be ready to resource a project the size and complexity of the Euro on top of its Year 2000 efforts.

We recently visited with Robin N. Barrett, Senior Vice President of Technologies for American Express International. Barrett logs an impressive number of air miles between the Brighton, UK, Sydney, Australia, and Miami, Florida development centers of American Express. We asked Barrett if he would share how American Express has reacted from a resourcing perspective to the seemingly bad timing of two simultaneous and large-scale resource-consuming projects.

"The Euro was becoming the focus of most European businesses during the course of last year," he said. "I believe we kept pace with that, but remember that this represented resource demand on top of the Year 2000 requirements. We started our Year 2000 work on it back in 1995. We believed it would likely be a huge industry issue and that indeed has been the case. The advantage that starting early gave us was the ability to think about how we needed to structure our resources. At that point in time, the Euro was not yet an issue we needed to be concerned with."

Even with an early start, gathering and directing sufficient resources would be very important, based on the immense breadth and depth of Y2K suspect code on various systems. For Year 2000, the strategy used by American Express International was to leverage as many of the development channels as possible. For example, for the legacy applications component in host-based systems, they initiated an aggressive project utilizing an offshore code development center based in India. The offshore relationship instantly added hundreds of person-years of capacity to the development effort.

According to Barrett, outsourcing is most successful when the work involves large projects with equally large "build" components in them. The analysis, design, and integration testing phases of projects are better assigned to in-house resources who know the business and, with smaller projects, any attempt to package the build phase to an outsourcer fails to deliver any economies of scale. The other outsourcing axiom is to keep the effort relatively simple. "The most successful outsourcing projects are those that stick with tested technology. You are really looking to buy commodity services. We felt, the off-shore approach fell very neatly into this paradigm."

For their regular investment work, American Express relied mostly on internal technical staff and contractors. But the firm still faced staffing challenges due, in part, to a continuing shortage of qualified technical people particularly in the international job market, and also because the international business is major growth area for American Express. Barrett was faced with three resource challenges: supporting Year 2000 efforts, resourcing the upcoming Euro work and a technology investment that was growing at 25 percent per annum.

To keep technical staff from being swamped, a number of projects were directed towards possible turnkey solutions. Barrett explains, "Whenever general investment or new product work needed to be done and was seen as not being part of building or maintaining a competitive advantage, we would consider seeking out viable turnkey applications relying on local software suppliers. We have increased our sub-contracting from 5 percent to 17 percent of investment during the last year."

The Year 2000 Lucrative Threat

As Year 2000 draws closer, nearly every firm runs the risk of losing a number of its experienced technical people to the contract environment. Contracting, like a siren to sailors, is glowingly attractive based on the rapidly rising rates (increasingly desperate) firms are willing to pay to contract out Year 2000 and Euro code conversion tasks. Turnover is expensive. According to Barrett, recruitment, interviews, competency tests, hiring and lost time while the new person takes on a learning curve, costs companies in the neighborhood of $30,000 to $40,000 per person. American Express saw the need to put in place a retention strategy to retain staff in light of increasingly impressive contracting salary offers.

"Some time back, we established a high-level goal or ‘principle’ for our employees. It describes our aspiration as follows: We want American Express to be the best place to work," Barrett explains. "In our goal to be a ‘merit-based’ company, we continually focus on several practical elements. These include good and frequent communication with employees, attention to our environment, leadership competencies, clearly worded objectives and equally clear appraisals of progress in meeting those objectives."

To complement the already established equitable workplace, an additional effort was made to ensure that IT staff members felt valued and were rewarded fairly for their efforts on behalf of American Express. To ensure that compensation remain competitive, market-based salary surveys take place at intervals throughout the year, followed by adjustments to individual employees’ salaries where appropriate. This practice still leaves room for any merit salary increases or other compensation flexibility that American Express wishes to retain.

Perhaps surprisingly, the firm rejected the idea of broadly applied "loyalty based" bonuses. A bonus predicated, for example, on staying past the year 2000 was rejected because, as a "meritocracy," bonuses should be rewarded based solely on job performance. Merit is a critical value at American Express.

While he would not provide competitive (and therefore proprietary) information about actual IT turnover rates, Barrett, when pressed, allowed that it ran "multiple" percentage points below both industry wide and overall American Express figures.

"We speak openly in round table and ‘town halls’ (employee meetings) about the temptation to go contracting. In the short-term it can be a very attractive opportunity," Barrett relates. "We make an effort to help employees see what will happen when the demands of Y2K and Euro conversions are met and a resulting glut of specialized contractors develops. We don’t want to scare our employees. But out of loyalty to them, because they are our employees, we try to present an objective picture of what we expect will happen."

It's Only the Cost of Doing Euro Business

In contrast to the experience of a number of companies (where the accounting division is initially asked to look into what it will take to accommodate a Euro conversion), the Euro was recognized early at American Express as a technology issue. It became the mission of IT to partner with the business units to evaluate what would be required to integrate the Euro into current business and accounting systems.

Initially, it was not an effort the business units would easily be motivated to support. The affected business units saw the Euro as a "tax" on the business. A lot of work was facing these units without the prospect of any additional revenue. In fact, because the firm is in the foreign exchange business, the prospect of losing revenue was a real possibility. The Euro conversion was clearly the antithesis of any good business project; lots of work and less than positive benefits when it was complete. Barrett and his technology planners faced an uphill battle to bring the proper amount of focus on the issue.

"We worked very closely with the very senior leadership in the European business units and the finance organization. Together, we began as a group of ‘champions’ of the Euro. Our mission was to bring focus and clarity to the challenges we saw ahead."

A joint team, numbering approximately 120 people, was established. The team linked all the affected business units and the respective technology support people dedicated to supporting those units.

"With Year 2000 efforts, technology people can operate with relative autonomy. The Euro required significant business focus in order to ensure that we met the standards for compliance. While it was difficult at first, all senior leadership was most helpful in ensuring that the project took shape promptly and moved forward appropriately."

However, the senior leadership also needed to leverage the value of the Euro project beyond simply being the cost of doing business. To be seen as a success, it needed to deliver a competitive edge to American Express.

"The emergence of a single European currency gives us the opportunity to re-engineer our business and technology infrastructure and potentially take a large expense component out of it. We are already a global multi-currency organization. Being familiar with Euro along with just about any currency in the world provides us with a potential competitive edge over the individual national banks and credit card issuers in each of the Euro nations," Barrett said.

Conclusion

The Euro conversion is today nearing completion at American Express and will be in production in advance of the January 1, 1999, deadline. The company is already introducing new Euro-related products that will compete in the payment services market place.

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