Question

American Express's Relationship Care strategy has at a general level given the company's customer service agents more control and purpose in their jobs. However, that overarching strategy is supported by a number of specific rewards and policies. From an extrinsic perspective, the company has instituted a pay for performances system that ties incentives to customer satisfaction surveys. In particular, the company tracks the degree to which customers would recommend the company to their friends. Agents get their survey results 5-7 days after a given call and can check how their results compare to those of their peers. Rewards are doled out every two weeks, giving agents the ability to connect their behavior to the bonuses they receive. Although agents start out at a salary of $30,000 these rewards can add up to 35 percent of their base. Such aggressive incentives have increased compensation costs for American Express, but those increases have been offset by lower turnover levels. The incentives are paying off according to other metrics as well. Survey studies show that 82 percent of American Express customers are aware of their card services, above the 70 percent industry average. Most importantly, the strategies have been credited with an 8-10 percent boost in member spending.

Some compensation experts worry that these sorts of pay for performance programs can have a downside. Traditionally, having a lot of data on employees was synonymous with objectifying them, notes one experts. Fortunately, American Express has supplemented its extrinsic rewards with some intrinsic ones. Symbolically, the company changed agents titles from customer care representative to customer care professional. The company also provided agents with business cards for the first time, echoing that professional labeling. Agents were also given more flexible scheduling, which is unusual in call center jobs. These sorts of steps are meant to signal that customer service agents are not part of some back office cost center, but rather a unit that is critical to firm success.

Of course, such rewards cannot be effective if agents lack the competence and confidence to attain them. To supply high levels of both, American Express shifted its recruiting efforts to focus on individuals with hospitality backgrounds, not merely call center experience. The company also shifted its training resources from technical skills to interpersonal skills. In addition, if agents struggle, the company steps in to help. Such agents are given access to additional training, as well as coaching from supervisors and experts in their area. They're then given incremental goals to try to improve bit by bit over time. Thomas Parker, vice president of human resources, notes that such steps can save may struggling agents. our success rate is well over 50 to 60 percent, Parker said. The end result of these strategies is care agents who have the ability and the motivation to handle the unexpected when it arises. Wendy Fondrin, in the Phoenix service center, is one such agent. She spoke with a card holder who had lost her card at the same time her mother passed away. The lady was in hysteria, Fondrin notes. She needed to make funeral arrangements immediately. Fondrin arraged to have a card delivered that same day, with American Express picking up the $500 charge. The loyalty and that refer friend is worth that money, Fondrin summarizes.

Questions:

1. Consider these strategies in the context of the theories reviewed in chapter 9 and 10 (needs theory, expectancy theory, goal setting theory, equity theory, agency theory). Which theories seem to be most present in these strategies? Which seem to be least present, and what could the company do to rectify such omissions?

Answer 1

The most obvious theory that is present in the strategy that American Express follows is "Goal Setting Theory". The company goal here is to retain a loyal customer base, market through word-of-mouth and increase the spend using their cards by making the customers aware about the card benefits and policies. These are all achieved through the Goals and Objectives set for the employees through performance incentives. The employees strive to improve their own performance and thereby bonuses which in turn improves the company's performance. Since there is performance linked incentive here, even Agency theory gets a prominent mention

The least present theory is Equity theory as none of the strategy reflects on the amount of effort put up by an individual. All the incentives are purely performance oriented and doesnt take into account how much effort is put in by an agent. Performance of an employee depends on the skill, intelligence level, motivation and many other factors and hence judging an employee just based on their performance is not fair. To rectify this, company has to take heed of the amount of hardwork and employee is putting and reward him accordingly. If he is too weak an employee, then you already have a training system in place to improve him.