Capital One Environmental Forces

This case study provides a brief overview on Capital One’s ability to sustain growth with its current strategy and existing market conditions. Capital One was founded in 1988 by Richard Fairbanks and Nigel Morris. Capital One Financial Corporation specializes in credit cards, home loans, auto loans, banking and savings products. In examining this case, the following questions will be addressed:
1. Identify and describe the key environmental forces that have immediate strategic implications for Capital one.
When a company’s leadership plans for the future, it must take into account key environmental forces/factors. The ability to compete will be affected by how well management has learned to identify those factors and being able to
estimate the extent of each of the factor’s impact on their corporate strategy. Of the five environmental factors identified by Pearce and Robinson (2002), the following will have an immediate impact with Capital One’s corporate strategy:
Competitors: Every business has external peers (competition) that perform similar functions within their market. These peers are rivals producers of goods and/or services. Competition is good from a market perspective as it gives consumers choices and provides businesses opportunities to create a niche. Currently, Capital One’s main competitors are American Express, Bank of America and Discover Card. Capital One should learn and understand each of their competitors’ weaknesses and use it within their corporate strategy.
Customers: Customers are an essential part of any business and without the customer there would be no need for the business.
Therefore, a business must be able to leverage their marketing and product line(s) to satisfy consumer demand. Capital One has learned to change with their customers and have targeted products to each type of customer (super-prime, prime and sub-prime). Capital One has differentiated themselves by creating products that have been perceived as unique and attractive. For example, consumers are familiar with their slogan - What’s in your wallet? – and the perception of not having a Capital One card in your wallet has helped Capital One to be the leader in the
industry.
2. Identify and describe the capabilities and weaknesses within Capital One that have immediate strategic implications.
Capabilities (strengths) that have immediate implications to the corporate strategy include:
Information-Based Strategy (IBS): Capital One has positioned themselves to deliver the right product to the right customer. In order to be able to do this, they have to be able to understand the customer’s creditworthiness (the customer’s likelihood of making payments) and their responsiveness (the customer’s decision to choose the offer presented). Capital Ones’ IBS involves collecting data on individual prospects and using that data to model creditworthiness and responsiveness. Using a combination of public information (obtained from the credit bureaus) and private data, Capital One has created models to predict customer behavior. As a result, Capital One has been able to market products and respond to creditworthy and credit-hungry customers.
Market & Analysis (M&A): The M&A department at Capital One are responsible for marketing and credit risk which involve which offers to send to which customers. In general, the strategy of M&A has been to utilize the Information Based Strategy (IBS) to drive growth in areas where an opportunity was seen.
Weaknesses that have immediate implications to the corporate strategy include:
Credit Card Revenue: Historically, credit card companies (issuers) relied on net interest income and fees for revenue. Over the past several years, credit card issuers have sought fee-based income such as late and over-the-limit fees and the sale of products such as credit insurance. However, a new federal credit-card law could eliminate the revenue earned in fees and interest charges paid by consumers. The Credit Card Accountability Responsibility and Disclosure Act of 2009, forces issuers to tell customers how long it would take to pay off the balance if they only make the minimum monthly payment, allows customers to exceed their credit limit if they agree ahead of time to pay a penalty and unless a cardholder misses payments for more than 60 days, interest-rate increases will affect only new purchases, not existing balances.
3. Define Capital One’s business-level and corporate-level strategies and evaluate each for their potential for continued success. Business and corporate level strategies used by Capital One include:
Corporate-Level Cooperative Strategy – this helps to diversify the company’s portfolio and in terms of products offered and/or markets served. In using this strategy, Capital One offers the following products:
Amerifee – financing for elective orthodontia, vision and cosmetic surgeries. Amerifee also provide Orthodontic and Dental Fee plans which is the largest payment plan provider in the industry.
Capital One Healthcare Finance – provides financing for the treatment of infertility.
Capital One Auto Finance – auto loan origination cross the credit spectrum. Allows owners to refinance existing auto loans as well as apply for new loans online.

Organizational structure is critical when looking at corporate-level strategies. In doing so, Capital One has created an organization-wide change capability which gives them the ability to perform change more efficiently. Change management is a core competency at Capital One which supports their business strategy. They have created ‘elements’ of a built to change organization.
• Strong future focus – dedicated a large percentage of analysts’ time to think about future trends and their implications on a line of business;
• Flexible organization design – few tiers of jobs, pay for results and competencies related to change, reorganizes frequently; and
• Robust strategy and momentary advantages – a test and learn strategy which generates opportunities for new revenue streams.
4. Evaluate the strategic fit of Capital One’s recent acquisitions.
A recent acquisition of Capital One was the purchase of Chevy Chase Bank. Chevy Chase Bank was both strategically and financially attractive. The proximity to Capital One headquarters and management reduced integration risks and provided the following perks for Capital One:
• An additional $11.6 billion in deposits
• Acquired market leadership positions in New York, New Orleans and Washington, DC
The acquisition of Chevy Chase Bank was a smart decision for Capital One, as they look to recover from losses from its credit card and subprime businesses given this current economic climate.
5. Describe the key strategic issues raised by the company’s acquisition strategy.
Although acquisitions may be beneficial, there are downsides that must be considered. Each company is unique and the acquiring organization must learn the must learn their strengths, weaknesses and operations. This, however, is not always that case. Companies tend to overpay for the transfer of data, improperly finance or don 't properly gauge the managerial or human resource capabilities of the target company.
In order for an acquisition to work, the acquiring company must have a good understanding of how the target company has operated and how it operates currently. Instead of taking over and changing everything, the strategies of the acquiring company should be integrated slowly for a smooth transition. More importantly, acquisitions structured by Capital One have provided them with access to bank deposits that could be used to reduce its reliance on the capital markets for
funding.
6. Assess Capital One’s international position.

References

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2009). Strategic management: Competitiveness and globalization, concepts and cases: 2009 custom edition (8th ed.). Mason, OH: South-Western Cengage Learning.