Excerpt from pp.59-61
Intrapreneuring, by Gifford Pinchot III (NY: Harper & Row, 1985)
INTRAPRENEURING A NATIONAL SERVICE: MASTER CHARGE
Michael's (Phillips) biggest intrapreneurial venture was one that challenged his political skills perhaps more than his creativity. Back when he was just starting out at the Bank of California, Michael dropped in to visit his counterpart at Wells Fargo. Much to his surprise, he found the marketing people from Crocker and the United California Bank also there. "Whatever you guys are doing, I want to be in on it," he said with a smile. They were reviewing a proposal from Melvin B. Salveson, a college professor from Los Angeles.
Salveson's proposal was simple: The banks they represented could join to offer a charge card to compete with Bank Americard, then only seven years old. He suggested that the three banks subscribe to a new company he was forming to issue the cards and to process the transactions for the banks. When Michael saw the proposal he exploded. Knowing the bank credit business from his experience at Bank of America, he explained what he thought was wrong with Salveson's plan, including such fundamentals as the omission of service charges, which were the major source of revenue. The other marketing managers were somewhat taken aback by Michael's outburst. "The reason we're not interested in Salveson's proposal isn't that we think he has planned his company badly," they said, "but that we just don't think there is any money in the credit card business."
Every industry has its basic prejudices, and banking's was the belief that all forms of personal credit are unprofitable. Fortunately, Michael knew otherwise. He pointed out that his former employer's Bank Americard had netted a $13 million profit in its sixth year. This fact astounded the other marketers and convinced them of the value of starting their own credit card consortium. In planning subsequent meetings, Michael decided against inviting anyone from his own bank because he didn't think he could convince his superiors to support the idea. The four marketers met a week later with two senior vice presidents and an executive vice president from the larger California banks (excluding Bank of America) and three lawyers.
Michael outlined how to proceed, explaining how the credit card would work, where the income would come from, and how profitable they expected it to be. He had researched what they needed to do to form a company to issue and process the transactions, and the lawyers agreed that, at first glance, the idea was viable.
At the group's request, Michael laid out the next step, hiring a consulting firm to do a detailed design of the system. One of the executives proposed a firm in New Jersey; Michael agreed, and suggested they request a proposal right away. It was a pattern of behavior Michael would follow throughout the building of a Master Charge team. He would defer to others in everything that wasn't essential to the success of the venture. If someone liked a specific consultant, it was fine if they hired that consultant. It wasn't important to Michael to appear to be in charge; it was important only that the project succeed.
Yet when the proposal from the consultants arrived, it was clear that the firm's knowledge of credit cards, retail merchants, and marketing bank services was limited. Frustrated and angry, Michael reached a private compromise with the firm, while at the same time not causing any rifts in his team. If the consultants limited their efforts to operations research and to designing the machinery and systems for processing the charges, Michael would design the market research and market strategy, allowing them to execute and take credit for it. Everyone's interests were served and the "Interbank" card project, as it was called then, was under way.
Thus finding a way to influence the proceedings indirectly, Michael encouraged executive vice president Bob Dewey, then his boss, to represent the Bank of California in future discussions. Dewey welcomed this opportunity to join with his counterparts from the larger banks. Meanwhile, Michael, keeping a low profile, worked with the research company and the advertising agency on the substantive issues. Within three months of the marketers' first meeting, they had decided on the name "Master Charge" and on the card's design. Two months later, all of the card and slip processing was in place. And just nine months after the first meeting, the organization that was to become Western States Bancard Corporation was incorporated; it had two hundred members and was ready to begin sending out cards to members. Other banks soon flocked to join.