CRM at Capital One

INS687
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Customer Relationship
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Management at Capital One
(UK)
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07/2014-5016
This case was prepared by Ulrike Wiehr, the Boston Consulting Group MBA Fellow, under the supervision of
Professor Werner J. Reinartz, at INSEAD. It is intended to be used as a basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.
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Ian: “Customer Relationship Management is another buzzword to me, but
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what does it actually mean? It just seems like a nice concept. We don’t talk about
it internally – we have many buzzwords, but not this one.”
Phil: “We’ve internalised it so much – that’s why we don’t talk about it.”
Ian: “You’re right, we don’t do Customer Relationship Management – we just
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get on and manage Customer Relationships!”
Conversation between Phil Marsland, Director of Marketing and Analysis, and Ian
Cornelius, Account Manager, Capital One, June 2002.
Introduction
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Capital One’s leaders, Richard Fairbank and Nigel Morris, had a vision of creating an
information-based company rather than a financial services company when they worked in the
consulting business in the late 1980s. Briefly, their idea was that the strategy for credit card
providers should deliver ‘the right product to the right customer at the right time, at the right
price’. While sounding obvious, their statement marked a revolution that would trigger huge
changes in the credit card business. The revolution did not happen overnight, however.
Fairbank and Morris needed to pitch their idea to numerous bankers during the 1980s, all of
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whom offered similar products to all their customers, charging a standard 19.8% interest and a
US$20 annual fee. There was no one-to-one marketing and no customisation of offers. The
prevailing story was very much ‘one size fits all’.
As consultants, Fairbank and Morris could see the potential for improving the credit card
business for both customers and shareholders alike through the application of their nascent
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strategy ideas – so they went out in search of a buyer for their concept. Having been turned
down by many of the era’s major credit card businesses in the US, they finally found a taker
in the form of Signet Bank, Virginia. Signet, however, did not merely buy the ideas as a
consulting study – they also brought in Fairbank and Morris to execute the plan from within.
In contrast to the prevailing attitude of the major players, Signet put a different understanding
at the heart of its strategy. According to Morris and Fairbank:
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“Credit cards are not banking, they are information. It’s all about collecting
information on millions of people that you’ve never met, and, on the basis of that
information, making a series of critical decisions about lending money to them
and hoping they pay you back.”
This journey began in late 1988, and was by no means an overnight success. The Information
Based Strategy (IBS) was the key to rebuilding Signet’s credit card operations but took a little
time to bear fruit. Signet began to build its operations around information technology and
sophisticated analytical techniques. It began to compile what was ultimately to become the
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world’s largest Oracle database, allowing the company to understand its customers and to
develop mass-customized products, which would ideally suit their needs and risk profile.
Copyright © INSEAD 1
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By early 1994, growth in Signet’s credit card division was consuming most, if not all, of the
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development and investment resources of the entire bank. Signet’s executive management
made the brave decision to float the credit card business separately, and hence Capital One
Financial Corporation was born in November 1994, with Richard Fairbank as Chairman and
Chief Executive Officer, and Nigel Morris as President and Chief Operating Officer.
By 2000, the vision of Fairbank and Morris to build and structure their business around
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information on their customers – ‘Customer Relationship Management’ (CRM) – had become
a fashionable management phrase. This was especially true in financial services where most
companies had bought into the concept. A survey by Ernst & Young revealed that 77% of
respondents had up to ten CRM initiatives under way, and more than half considered them
mission critical.1 And, although the study highlighted just how much CRM was now on the
radar screen, the question remained as to how much power and value was being created by
these initiatives.
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When reviewing their company in early 2001, Fairbank and Morris could not help wondering
about its success. While all their competitors were also embracing CRM, and most seemed to
pursue the concept with significant investments in software and re-organization, Capital
One’s customer base was developing at a compound annual growth rate of 40%. Also,
customer satisfaction was high: 94% of UK customers ranked Capital One as the credit card
company that ‘is as good as or better than others’.
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Capital One’s unique IBS principle was being successfully applied to both account acquisition
and management of existing accounts. Intelligent call routing is an example of the latter – it
segments incoming calls according to their propensity to buy certain products (and similar
criteria), routes the highest opportunity calls to the best sales associates, routes the routine
service calls to service specialists, and even attempts to resolve the call through a Voice
Response Unit (VRU), where appropriate.
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Similarly, by analysing customer behaviour, the view of risk can be refined, credit line
increases can be focused as a result and balance-building programmes can be targeted at the
low risk customers – thereby reducing the average loss rate of the portfolio. In the Retentions
department, Capital One uses customer-level profitability to determine the best set of offers,
and provide incentives to the retentions associate on the same basis.
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Capital One’s percentage of outstanding bad debt, a key performance measure in a risk-driven
business, was significantly lower than that of key competitors. This is especially significant,
given that Capital One, unlike most of its competitors, lends to customers across the credit
risk spectrum. Overall, investors have regarded the company as a strong performer (see
Appendix 1 for the history of the growth of Capital One’s customers, managed loans and
revenues). At year end, 2001, Capital One posted its 18th consecutive quarter of record
earnings and fulfilled a promise made seven years previously to grow annual earnings by
more than 20% and deliver a yearly return on equity of more than 20%. Reaching this goal
seven times in succession put Capital One in a league with only seven other publicly held US
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companies.
1 “Customer Relationship Management: Holy Grail or Red Herring?”, 22 Sept. 1999, Ernst & Young.
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It seemed as if Capital One could indeed be seen as creating industry best practice in
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developing valuable customer relationships and managing risk based on an intimate
understanding of the customer. But what exactly was it that made Capital One’s approach to
CRM so unique? Was the company’s success down to luck or was it based on a real
competitive advantage – and, if so, would this be a sustainable advantage, given competitors’
efforts on CRM?
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Industry Background
Credit Card Revenues
Credit card issuers normally have several main forms of income:
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• Interchange – a service commission from the merchants accepting the card.
• Interest charge paid by customers taking extended credit.
• Annual card fees.
• Other fees, such as late or over-limit fees.
Additionally, many credit card issuers offer products that are directly related to the card
(insurance against fraud, for example) as well as other financial or insurance products such as
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loans for cars or mortgages. Cross-selling of such products to existing customers offers
another valuable source of revenue.
The customer is required to pay a specific minimum proportion of their balance each month,
and, in addition, an interest rate on an outstanding balance. In fact, the Annual Percentage
Rate (APR) on the outstanding balance is the main source of profit for the card company. The
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more outstanding balances customers have, the greater the company’s revenues are, and the
higher the APR, the higher the interest charges incurred.
The interest revenue required is the net interest margin, that is, the difference between the
interest paid less the cost of funds. Other than funding costs, the main cost items will be
operating expenses (infrastructure, staff, IT etc.) and credit losses.
For the customer, credit cards may be both a payment device and a form of revolving credit.
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Those customers who regularly repay their entire balance are known as ‘transactors’, those
who pay less than the entire balance as, often after an interest free grace period, which may be
up to 54 days, are known as ‘revolvers’. For credit card providers, the revenue realized from
interest payments of revolvers is important. However, transactor customers can be profitable,
and card providers need to think about how to structure products to also appeal to these
customers. For these customers, the interchange revenue stream from merchants who accept
the card is important.
UK Credit Card Market

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In the UK, as in all major markets, VISA and MasterCard are the two main associations of
issuers where association members (such as Capital One) share a common brand name (i.e.,
VISA or MasterCard), but compete against each other in all other respects. Banks also
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compete to develop and manage ‘acceptance networks’, i.e., merchants who accept Visa and
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MasterCard products. While there is competition between the two associations, and among
banks as part of the associations, banks may belong to both associations simultaneously, as do
Capital One and many others.
In the 1970s and 1980s, the credit card market in the UK was dominated by two card brands:
Barclaycard, owned by Barclays Bank and affiliated to Visa; and Access, owned jointly by all
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the other UK high street banks, affiliated to MasterCard. Both ran strong advertising
campaigns, accounting for much of their success – particularly the ‘flexible friend’ campaign
for Access. In 1996, MasterCard bought out the Access brand and compelled UK members to
use the MasterCard brand itself, allowing it to compete more effectively with the Visa brand.
Major British banks dominated the market in the early 1990s, including Barclays, Lloyds, The
Midland, NatWest and The Royal Bank of Scotland. These banks would typically charge all
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customers interest rates of about 22% as well as an annual fee of £12. Products were barely
differentiated and customers had little real choice.
The market has been revolutionized since the mid-1990s, largely thanks to the influx of new
entrants from the US. Banks such as Capital One, Morgan Stanley Dean Witter and MBNA,
recognizing that the UK market was considerably less competitive than that in the United
States, targeted the UK credit market in an attempt to expand their own business. These banks
were followed by a wave of Internet focus banks including Egg, Cahoot and IF. As many of
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the new entrants offered lower interest rates, which allowed them to build up sizeable
customer bases, the credit card market is now highly competitive, and the market share of
major banks is eroding (see Appendix 2 for market shares).
Current Market Situation

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The traditional dominance of the MBBGs (Major British Banking Groups) continues with the
top high street banks accounting for almost two thirds of credit cards in issue. The merger
between Nat West and The Royal Bank of Scotland (who also manage the Tesco portfolio)
means that they would rank as the second largest provider behind Barclaycard, were their
market share to be combined.
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Table 1
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Market share of selected Major Credit Card Issuers, May 2002
Market Share - All (%) Market Share - New* (%)
High Street Banks:
Barclaycard 24 12
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Lloyds TSB 16 8
NatWest 11 5
HSBC 10 6
Royal Bank of Scotland 5 4
Selected other providers:
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MBNA 7 6
Capital One 7 14
Egg 4 6
Tesco 4 5
Goldfish 3 1
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* New – (All card holders new in the last 12 months)
Source: MORI Financial Services, June 2002.
A cornerstone of the more aggressive pricing that has been adopted by most new entrants to
the market and, indeed, many of the more established players, is the introductory offer.
Working on the basis that around three quarters of the sums owed on credit cards are
attracting interest, providers have begun to offer extremely low-cost balance transfer deals.
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The figures in Table 2 detail the standard APR charged by the major high street banks,
alongside those of some of the newer entrants to the market.
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Table 2
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Comparisons of Selected Credit Card Rates and Balance Transfer Offers, June 2002
Standard Rate (%) Balance Transfer Rate (%)
High Street Banks:
Abbey National* 14.9 1.9
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Bank of Scotland 17.9 0.0
Barclaycard 14.9 6.9
HSBC 18.9 4.9
Lloyds TSB 17.9 1.9
NatWest 17.7 5.9
Royal Bank of Scotland 16.9 2.9
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Standard Rate (%) Balance Transfer Rate (%)
Selected other providers:
American Express 19.5 4.9
Capital One 12.9 6.9

Egg 13.9 0.0
Goldfish 17.9 4.9
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MBNA 15.9 0.9
Tesco 14.9 1.5
* Cards issued by MBNA
Source: Money£acts.
It is clear that the days of the 22.9% standard rate are well and truly over. Although the low
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base rate has facilitated the reduction of APRs, the increased competition should ensure that
credit card APRs remain relatively low, even if the Bank of England increases base rates.
Consumers
Relatively buoyant consumer confidence and low interest rates have combined to create an
environment in which consumers are happy to take on extra debt.
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This is illustrated by the data in Table 3.
Table 3
Gross New Consumer Credit 1995 – 2001
Total Consumer of which credit cards % of total
Credit (£bn) (£bn)
1995 89.1 47.7 53.5
1999 147.2 84.0 57.0
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2001 175.3 104.5 59.6

% increase 1995-2001 +96.7 +119.1
Source: BoE/Mintel.
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Credit cards accounted for some 60% of all new unsecured advances in 2001, representing an
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increase of 6 percentage points on the 1995 figures.
Credit card expenditures follow a clear seasonal pattern with the largest peaks occurring in the
Christmas period. There are also smaller peaks in July and August when the summer sales
take place and consumers use their credit cards for their summer holidays. Cards are also the
currency of the Internet and mail order catalogues, and are gaining share from other
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borrowing vehicles.
While APR is clearly a key factor in customers’ preferences for specific cards, there are other
factors that influence their choice. These include, for example, the availability of a reward
point system, the acceptance rate at stores, the size of the credit line, the card design, or the
affiliation with a charitable organization.
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Market Size
The figures in Table 4 detail the number of payment cards in issue, categorized into credit,
debit and charge cards.
Table 4
Number of Payment cards in Issue, 1992 – 2001
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Credit Cards Debit Cards Charge Cards
Number of cards (m) Number of cards (m) Number of cards (m)
1992 28.28 22.60 2.35
1995 28.27 28.44 2.51
1999 41.42 46.08 3.45
2001 51.70 54.31 4.43
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% change 1992-2001 +96.8 +140.6 +88.1

Source: APACS/Mintel.
The figures highlight the comparative strength of both the credit and the debit card markets,
with the number of charge cards in issue trailing far behind. The growth in the number of
credit cards in issue is, in part, a result of the increasing competition in the market that has
seen providers vying with one another for custom, but also due to the changing attitudes of the
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British public towards credit. Gone are the days that saw consumers shying away from debt
and taking pride in their ability to manage their finances without having to borrow money. For
many, consumer credit is simply another financial tool to be taken advantage of, in the same
way as a current account or mortgage. Indeed, consumers are increasingly happy to play
credit card providers off against one another, switching from card to card in order to take
advantage of introductory deals.
Advertising and Promotion

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The increasing competition for customers is reflected in the steady rise in credit card
advertising expenditure – from £53 million in 1998 to £70 million in 2000. This rapid
increase is also due to the market entry of new competitors such as Goldfish and Egg who
launched with aggressive campaigns and who were more willing to spend larger amounts
promoting their products than the incumbents. However, in 2001, expenditure had fallen by
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25% to £52 million. This is largely due to a few big advertisers cutting back on their spending
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– namely American Express, MasterCard and Barclaycard. It should be noted here that
Capital One did not spend money on a brand launch campaign when it entered the UK, but
concentrated its marketing expenditure on building up a customer base.
Capital One Company Background
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Capital One had been founded in the US in the early 1990s, where it had experienced
phenomenal growth. Since its IPO in 1994 to 2000, the stock price of the company has
increased by 1,000% and the company has grown at an average annual rate of 40%, excluding
mergers and acquisitions. In December 2001, the company handled more than US$45 billion
in loans and 43.8 million customers worldwide, serviced by more than 20,000 employees (see
Appendix 3 for awards given to the company).
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Business Model
The business model of Capital One is founded on the simple, yet crucial, premise that each
customer requires a different product and service benefits from a credit card provider. Capital
One starts from the premise that customers, if offered what they want and need as opposed to
what banks want to offer them, will choose the provider that gives them choice and
individuality.
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Another way of looking at this is that each customer carries a specific and unique credit risk
and potential revenue profile, based mainly on their previous credit history (or lack thereof).
The better the company can understand and assess a customer’s specific risk, the better it can
manage it – and the better it understands the customer, the more it can tailor its products to his
or her needs. Therefore, as Capital One learns more about its customers on an individual
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basis, it learns more about the risk/return profile for that customer, and, crucially, can then
adjust its products to ensure that the needs of both Capital One and its customer are met.
Risk is a crucial factor in the credit card business. “We’re in a risk-driven business where one
bad debtor can easily wipe out the benefits from 20 average customers or 4-5 good ones –
thus, it’s vital to manage them carefully,” explains Ian Cornelius. “It is one of our competitive
advantages to understand and manage these different levels of risk.”
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Information-Based Strategy
The goal of Capital One is to use information to acquire the type of customers it can most
profitably serve. In order to understand these customers, the company uses information
technology to accumulate and manage large amounts of data on its customers. Alongside
publicly available data on credit risk, the company supplements this with data on customer
demographics and behaviour collected internally during the application process and account
management process, where every transaction is carefully registered. None of this could be
achieved without the entire company being completely aligned behind this operation.
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Capital One views the Information Based Strategy as follows. With the data accumulated, the
company runs a ‘scientific innovation process’, that is, an innovation based on testing and
learning: using the data, Capital One’s Marketing and Analysis teams develop ideas, design
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products and select target customers. Real products are then empirically tested with genuine
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customers: the number of tests run is impressive – 36,000 in 1999 and 45,000 in 2000.
The principle behind the testing and learning strategy is summarized in Figure 1.
Figure 1
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Account Acquisition Account Management
Tests Strategies
Executed Developed
Account
Strategies Accounts Tests
Performance
Developed Acquired Developed
Assessed
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Results Results
Analyzed Analyzed
Drives New Product Development
Capital One is careful to ensure that it carries out scientific tests to identify differences in
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potential customer behaviour. For example, mailings with different copy and/or letter design
are sent out to potential customers. Their response rates are monitored, as is their behaviour as
new customers, so that Capital One can understand the relative value of different offers. All
test results are then analysed and integrated into databases and can be referenced later to
initiate further ideas development and product design.
As the company continues to improve its portfolio of products and services, it now offers
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more than 6,000 products, most of which are credit cards with different terms. Key products
are:
• Credit cards with different conditions (APR, credit limit, fees) and designs.
• Products directly related to the credit card such as card protection plans and payment
protection insurance (ensuring that, in the event of job loss, long-term sickness etc.,
payments on the account will continue).
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• Other financial services such as travel insurance.
Customer Relationship Management Practices at Capital One

(UK)
Encouraged by its success in the US, Capital One decided to launch its first overseas
operations in the UK in 1996. At this point, it chose to outsource all of its back office
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processing to another organisation so that it could concentrate on getting the front end testing
process in place. Naturally, this made it more difficult to apply IBS in operations and
customer relationship areas – so Capital One decided to set up its own operations centre. This
was opened in Nottingham in July 1998, exactly two years after the business start-up. On day
one, 250 associates were employed. By 2001, this number had grown to over 2,000, and
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Capital One associates in Nottingham now deal with application processing, customer service,
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product design and marketing, card issuing, collections, business development and database
management. In 2002, the company reached profitability and is now one of the UK’s top six
credit card issuers.
Organization
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Internally, Capital One (UK) is structured into several main departments:
1. Marketing and Analysis (M&A), charged with overall product and market strategy,
including credit and risk management, monitoring market trends and competition, and
developing products including pricing.
2. Operations, responsible for all customer-facing processes (e.g., acquisition, cross-selling
and retention) including Capital One’s call-centre and other customer service functions.
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3. IT – developing and maintaining the systems infrastructure.
4. Human Resources.
According to Capital One’s managers, “all departments work in an integrated fashion and
there are no silos within the company” (see Appendix 4 for an organizational chart).
1. Marketing and Analysis (M&A)

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Capital One’s marketing and analysis function is responsible for acquiring, and then
managing, the relationship with all customers. The company has a very broad portfolio of
customers (known as a ‘full spectrum approach’) from customers with high credit
lines/prestige products, to customers who may be using their first credit card. The key
processes are Account acquisition – the activity of attracting customers to Capital One and
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Account management – profitably managing the customer relationship when an applicant

becomes a customer.
Account Acquisition and Management
Industry knowledge indicates that there is a very close relationship between a customer’s
credit line utilization and the percentage of loans that are not repaid – people who borrow
more tend to be a greater risk. Among the most fulfilling customers are those that borrow
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significantly against their line of credit, but eventually pay back their balances and thus carry
very low risk. Capital One is keen to identify these customers as they can prove to be very
profitable – but how can they be identified? Tests carried out revealed that these ‘low-risk
revolvers’ could be identified by offering them balance transfers from other credit card
companies to Capital One at a relatively low interest rate. Given the fact that these customers
have already created a balance which they are willing to pay back, the low APR will be
attractive to them, and they are more likely to accept the offer than high-risk customers who
do not plan to pay back. Many other tests have been conducted so as to further fine-tune the
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identification and solicitation of these customers – these include the channels used to address
customers, and the specifics of mailings or credit conditions offered.
A good example of a product aimed at these ‘low-risk revolvers’ is a card with an

introductory rate to attract new customers with balances already on another card. A low APR
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of 6.9%, for example, to attract these customers is an introductory rate that expires after
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several months. When the introductory rate expires, the company naturally witnesses
increasing attrition, as many of these price-sensitive customers then tend to try to reduce their
debt, or leave Capital One. “This is a dangerous development as it’s the best customers –
those that are low risk – that tend to leave to get better credit deals elsewhere,” explains an
account manager. “Consequently, we have active strategies to keep these customers, and their
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balances.”
Capital One also uses performance data to make proactive rate or credit limit offers to some
customers if it feels these are appropriate. At various times in the individual customer’s life
cycle, Capital One again analyses its information on customers to determine whether new
offers are a good idea. It is naturally very desirable to retain some customers, others perhaps
less so. This segmentation for retention is based on many parameters, including customers’
credit risk level, the amount of debt they have accrued elsewhere, whether they have
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previously transferred balances to Capital One, and their behaviour since becoming
customers.
Customers are clustered into groups, and Capital One’s strategy is to select low-risk customer
segments and to proactively make them a better offer. For example, some customers may be
offered a 10.9% long-term rate instead of their expected 16.9% rate when the introductory
rate expires. Even though the overall yield drops, this can help to grow the outstanding
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balances of low-risk customers. Not all Capital One offers are price-related – sometimes
customers are offered a gift to stay, or a service product such as free travel insurance.
This is a notoriously complex area to manage, however, as it is difficult to predict which

customers will leave, and which will stay. However, Capital One’s use of IBS in this area
allows it to learn more about customer behaviour and value, with each test carried out and the
results it provides.
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Low-risk revolvers do not generally pay an annual fee for their card, and some of them simply
cease to do their business with Capital One without notifying the company or closing their
account. Many such customers have significant value to the company, and so account
management activities seek to keep these customers from being ‘dormant’ and becoming
permanently inactive. In the same way that retention activities take place to help retain
customers when their introductory rate expires, similar account management activities are
offered to customers whose accounts may be at risk of dormancy.
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“If a customer’s account is dormant for a while, there is an increasing risk of

losing that customer,” explains Ian Cornelius. “That’s why we have a number of
activities in place to guard against this – by making a range of offers to reactivate
their account.”
As mentioned already, Capital One attracts customers from the full spectrum of credit risk.
The company’s other large customer segment contains those customers for whom the Capital
One card is very often their first credit card. These customers – including those who have had
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problems obtaining or handling credit in the past, those with limited or non-existent credit
records, and young investors – are usually not well served by product offers and services from
the main high street banks. As these customers’ credit risk is higher than those in other
segments, the initial APR offer is higher and credit lines are lower. A current example is an
offer of 19.9% APR with no annual fee. While this is clearly higher than other Capital One
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offers, it usually compares very favourably with alternative offers of credit, and represents
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good value to these customers.
Account Manager, Cavendish Elithorn, explains why the offer is an attractive one for this
segment: “Given their credit history, the Capital One card is still a better deal than other
sources of credit – store cards, where interest rates are 30%, brokers who charge 40-50%, or
door-to-door lenders with 100% rates.” Profit is made from these accounts in the same way as
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for other accounts – with an annual fee sometimes providing part of the income stream.
While the utilization of credit cards by this segment is high, outstanding sums are capped by
low credit limits. The potential volume of this segment is significant, which is why Capital
One has the potential to grow this customer base alongside the low risk segment. The key
challenges here are exactly the same as those at the opposite end of the market: to identify
which customers to whom to lend money, to assess the risk of existing customers, and manage
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attrition. To evaluate customers’ credit risk on application, Capital One rates them based on
credit scoring, with information taken from the application form and credit bureaux data.
As Capital One has only an initial estimate of the risk profile of new customers, the company
monitors how these customers use their card in order to get a better risk-assessment. For
example, information on whether customers exceed their credit limit or fail to make a
payment might give the company a good indication of their likelihood to default.
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Also, IBS testing is used to help further identify low- or high-risk customer behaviour. The
company might make offers of increased credit lines, or reduced APRs to learn more about
their customers, and all data gleaned from these tests are fed back into the analysis machine to
help Capital One identify how to better manage its customer base.
Using all the available data, the team groups customers in the higher risk segment into several
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sub-groups: Some groups tend to look like low-risk segments, while others exhibit high-risk
characteristics. For low-risk customers, Capital One’s strategy is to grow the low credit line
they received at the beginning. Furthermore, they may also receive increased benefits,
different card designs and other incentives to stay with Capital One. The key point is that
higher-risk customers need to be looked after and treated as well as any other customer
segment. Just because the Capital One offer was the best available when they joined does not
mean that it will always be so – consequently, Capital One works hard to retain these
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customers.
In managing customers who fall into very high-risk groups, there is little sense in Capital One
trying to either extend or terminate the relationship, as the customer is then unlikely to repay.
Instead, individual customer risk needs to be managed and mitigated, and Capital One has
found that working with such customers in the Payment Assistance function can be successful
in many cases. Payment Assistance tries to understand the reasons why specific customers
cannot (or will not) pay (e.g., because of a job loss or an emergency) and reacts to these
circumstances to provide the best solution for both Capital One and the customer.
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For example, when a customer cannot pay his bill because he is unemployed, Payment
Assistance may put him in touch with a recruiting agency. If the customer is ill, payments
may be temporarily suspended. In other circumstances, customers who are behind with their
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payments may be offered revised terms, enabling them to make smaller, regular payments.
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The overriding goal is to keep customers until they can pay and help them not to default.
“We believe we are better than most in working with customers to come to
satisfactory solutions,” explains Elithorn. “For example, other card issuers might
ask customers what they intend to do to get out of debt or give them few workable
options. We might say that for a specific customer, based on our data, the best
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solution would be to lower their interest rate. We are still a long way away from
individual solutions, but closer to it than most others in this field.”
2. Operations
The Operations department is as central to Capital One’s success as any other part of the
company. Because Capital One has a wide range of credit card products, its Operations
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function needs to be aligned to support the customer requirements of this wide variety of
products. Therefore, it should also be clear that the company needs to be very flexible in how
it handles customers, rather than taking an ‘assembly line’ approach to each interaction. This,
they believe, gives them a competitive advantage over other banks.
Operations is the department that handles front-end customer relations. There are over 1,000
people working in Capital One’s call-centre, which handles more than 10,000 calls per day on
an incoming basis. Customers also receive outbound calls, either sales opportunities, or
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courtesy calls. There are also other options for customers to maintain their relationship with
the company, such as Interactive Voice Response (IVR) systems and Internet Account
Servicing (IAS).
Most call-centre type operations are aligned managerially and operationally to achieve one
specific target – either low cost efficiency or, less commonly, high quality customer service.
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Capital One aims to score highly on both of these measurement standards as well as two
others – flexibility and associate satisfaction. These four criteria often compete with one
another, and Capital One uses a simple model known as the ‘Big Yellow Square’ (BYS)
where each corner is one of the four yardstick elements. Each quarter, the management team
rate themselves on these ‘corners’ to take a qualitative assessment of how ‘big’ and ‘square’
the BYS is at any time. This is a simple model which is easy to buy into emotionally, yet it
indicates that Capital One’s view on operating a call-centre differs from many other
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organisations with regard to issues such as associate satisfaction being treated with equal
importance as customer quality and cost.
Flexibility is, as indicated, another of the BYS corners. With Capital One’s ‘obsolete your
own products’ business model, this is not merely a pipe dream, but an essential facet of the
company’s operations. Because the company tests so many new products in the marketplace
on a regular basis, flexibility in the approach and attitudes of the Operations team is a key part
of the business’ success.
One element that differentiates Capital One’s operation from others is its IT infrastructure –
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used to route calls and provide associates with the necessary information to best handle
specific calls. In fact, Capital One’s systems store information on which numbers a particular
customer normally uses, and use this information to identify who is calling in and to route
their call to the most suitable associate. This is a sophisticated form of Computer Telephony
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Integration (CTI), which ensures efficient customer handling while also providing high
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quality service for the customer. See Section 3 - Information Technology (IT) for more
information on Capital One’s IT organization, and also Appendix 5 for a systems
infrastructure description.
When customers dial in, they choose between talking to an associate and using a voice
recognition system. The voice recognition unit (VRU) is used mainly for simple tasks such as
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current balance enquiries. About 7,500 calls are handled by the VRU system each day. The
associates in the call-centre handle the remainder of the enquiries, which are usually more
complex.
When a call-centre associate receives a call, he or she first verifies the identity of the customer
by checking some basic details from the system as well as elements of information known
only to the customer. On the screen, the associate has all the relevant information on the
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customer, including product details, transaction and payment history, and details of previous
contacts, whether by phone or correspondence, together with any sales attempts history. In
other words, an overview of all financial, marketing and solicitation interaction between
Capital One and the customer is available to the associate, enabling him or her to quickly
understand the state of the relationship.
Capital One’s systems are also updated directly by call-centre associates. “Everything we
know about a newly acquired customer is outdated,” believes Mitch Beres, Vice President of
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UK Operations. “That’s why the real understanding starts when they become a customer and
we continue collecting information about them.” Therefore, as soon as each call is completed,
associates enter information about the interaction in an encoded form into the system, which
will then be available for the next contact with the customer. In some ways, this ensures a
modern version of so-called ‘old fashioned personal service’.
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While Capital One has all the information necessary to calculate the profitability of an
individual customer, and to subsequently offer differential service levels based on customer
profitability, the company chooses not to do so. As Mitch Beres explains:
“We would not be comfortable matching up high-value customers with high-level

service – every customer has a choice of whether to use us or go elsewhere, and
our quality of service can be a reason for them to stay. We aim to offer high-
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quality service to all our customers, regardless of their potential profitability.”
Nevertheless, there can be some differentiation in the handling of calls, which relates back to
the Capital One IBS approach of constantly testing new ways of doing business. For example,
many products give customers freephone numbers to dial Capital One.
Another example of Capital One’s IBS approach to customer service is that it may sometimes
send gifts to selected customers to assess the impact on their future spending and incoming
call patterns. This is all part of the flexibility corner of the BYS.
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However, as Phil Marsland contemplates on the subject of differentiating customer service:

“It is a real question to me whether the lower risk customers should cross-subsidize those with
higher risk, or whether everyone should get the deal they deserve?” And, although Capital
One has chosen not to follow this line of thinking, Marsland’s comment indicates that Capital
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One’s management is constantly thinking about new ways of managing its business. It has no
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sacred cows and no areas that are off-limits to a review.
To deal with operational overloads, Operations maintains a level of flexibility in handling
calls, other operational tasks and people assignment. Many associates, even those who do not
normally work with Operations, are trained in one or more operational disciplines. Also, when
volumes exceed expectations in one area, managers may take the decision to ask associates to
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temporarily move jobs to cope with the peaks. Naturally, this action is more likely to be taken
when there is an unexpected surge in high-value customer contacts, such as applications for
new products. Again, the ability to take actions such as this reflects on the need for, and care
taken with, the flexibility corner of the BYS.
Operations is split into four main departments:
• 2.1 Operations Processing
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• 2.2 Customer Relations
• 2.3 Sales
• 2.4 Collections
2.1 Operations Processing
Operations Processing is the department that handles all of the ‘back office’ operations in the
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company. Examples of Operations processing tasks include:
• keying in credit card applications.

• manually reviewing applications which the system cannot decide by itself.
• scanning all incoming correspondence into a document management system.
• dealing with all correspondence to customers.
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• managing vendors such as card embossers and statement printers.

• handling payments from customers.
Despite not being in the front-line of customer service, Operations processing have just as
much impact on customer relationships as do other departments, and are managed
accordingly. The same principles of management (like BYS) are as important in Operations
processing as they are anywhere else in the company.
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2.2 Customer Relations
While the Sales team (see Section 2.3 Sales for analysis details) is the direct response unit and
more targeted towards selling, Customer Relations is the function that is primarily devoted to
providing service while also attempting some cross-selling when appropriate. It handles
customer complaint calls (e.g., when a payment has not been credited) or specific service
requirements.
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There are 400 Customer Service associates who receive about 8-10,000 calls per day. When
cross-selling, they also use the sales system, SALSA, to identify suitable products and to
avoid offering the same product to a customer twice. An executive response complaint (ERC)
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mechanism exists which is used to handle the most complex complaints – those that cannot be
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directly resolved by call-centre associates.
Metrics and Incentives
In both Customer Relations and Sales, incentives fall into two categories: firstly, the sale of
products is encouraged by allocating sales points per product sold to reflect product
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profitability; secondly, three parameters are regularly measured for all call-centre associates
as follows:
a. Average handling time.

b. Sales points per contact.
c. Quality measured by using a system that records 10 random calls per associate per month
to which managers listen and then give feedback.
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Associates receive weekly reviews of how they rank against overall departmental targets and
their own past performance. Quality controls are rigorous and, for the last two years, a call
listening programme has been in place for Capital One’s senior management. “This feedback
from senior management has served not only as an extra quality screen, but also as a visible
signal to our front-line associates that they are important,” explains a customer relations
manager.
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Some competition between call-centre teams and between individual associates is
encouraged: On the walls of the call-centre, colourful charts track the performance of
different teams in, for example, selling a new insurance product. Also, managers are
encouraged to be innovative with reward and recognition strategies. Awards are given to the
best performing teams or individuals, and their pictures are displayed on internal noticeboards
or appear in in-house publications.
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Managing the incentive system for front-end associates is complex because of competing
goals: for example, sales associates should provide good service but also manage their time
per call; they should be responsive to customer needs but also sell adequate products. This can
cause natural confusion about goals, and associates may not understand which takes priority.
Capital One is aware of this natural confusion, but maintains that its business model works
and thrives on complexity. It aims to hire and train people who can handle these trade-offs.
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2.3 Sales
The Sales department is divided into the following sections:
a. Inbound – where new customers call to activate their cards, or existing customers call in
response to a marketing offer, e.g., to transfer other balances to Capital One or buy travel
insurance.
b. Outbound – where customers are called by Capital One associates, e.g., when they have
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received a card but not taken out payment protection insurance, or when Capital One
targets them in a new marketing campaign.
c. Retention – where customers who want to close their accounts are retained.
d. New Business – where sales are made to new customers.
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Key differences between the various activities can be summarized as follows:
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Activity % of overall Reason for customer Cost elements
sales costs contact
Cross-Selling 35% Customer calls to check Call-centre
balance, transfer more
money, change address, etc.
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Outbound 21% Initiated by Capital One Call-centre
Inbound 35% Customer calls to activate Call-centre
card or in response to a Marketing campaign
marketing campaign
Retention 9% Customer calls to close an Call-centre
account Potential new price offer
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Within all units, teams of 12-14 associates plus a supervisor and a manager are formed. While
some specialization is encouraged, there is also cross-staffing and rotation to familiarize sales
people with other tasks and teams, and to allow for flexibility in meeting peak demand.
Offering new products to customers is one of the key tasks of the Sales department. Given the
variety of new products every month, computer-based training modules are developed to
familiarize sales personnel with the new offers they can make to customers. In terms of cross-
selling, Capital One models the likelihood of customers being open to buy certain products,
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and suggests different products for different customers or no product sale attempt at all,
depending on the model (see Appendix 6). Sales attempts are made on both inbound and
outbound calls.
Whenever existing customers call, the SALSA sales system (see Appendix 7 for screenshot)
suggests to associates whether or not to attempt a sell. To avoid flooding the customer with
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offers, SALSA prevents Capital One’s associates from offering the same product to the same
customer twice within a short period. Equally, even if SALSA suggests more than one good
product for a customer, associates are not encouraged to try and sell more than one product
during a single call. As one sales associate explains: “the target time for a call is challenging –
this means you really need your sales pitch honed and ready!”
The SALSA system enables targeting of cross-sell offers to specific customers likely to be
interested in particular products, minimizing the chances of wasting the time of both
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customers and Capital One associates. “We use mass customization not only for the first
product offer, but also for regular NPV calculations, and further offers once a customer is
acquired,” explains Sales Manager, Dorothy Scott. In terms of outbound calls, SALSA
prevents the same customer being called too frequently – again, to ensure that customers are
not flooded with offers.
Data accumulated on customers are also used by the system to suggest how to react to specific
customer requests. For example, if a customer calls for a credit line increase, all available past
information is used to determine whether to approve it. Similarly, when a customer asks for
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an emergency cash advance, data on past behaviour and risk assessment are used to decide
whether to grant the request.
Among the most frequent requests are those for a reduced interest rate. Again, Capital One’s
system uses data on the customer’s history and credit risk profile to initially determine how to
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respond to such a request. Depending on this analysis, the system then displays on the screen
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of the call-centre associate what offers might be made to the customer while also giving
higher incentive points for the agent to decrease the rate as little as possible.
2.4 Collections
Collections is the last major team within the Operations department, dealing not only with
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with customers who have fallen behind with payments, but also those whose accounts have
been affected by fraud. Collections is split into three main areas – Payment Assistance,
Recoveries, and Fraud.
In Payment Assistance, Capital One associates work with customers who are behind with
their payments to try and help them recover their account. The aim is to bring the customer
back up to a regular status where they can use their credit card freely again.
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Recoveries looks after customers whose debt has been charged off and whose account is no
longer open. The objective is to work with the customer to recover as much of the debt as
possible.
The Fraud team has a dual role to play. Firstly, it looks after those customers whose accounts
have been affected by fraudulent activity. In such cases, it is necessary to close down the old
account, write off any fraudulent charges, and transfer genuine transactions to the new
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account. Customers often need a high level of support when their account has been affected in
this way, and the Fraud team is trained to treat each case with sensitivity.
The other function of the Fraud team is to prevent fraud. It has a wide range of systems to
help, including real-time transaction monitors and account behaviour pattern systems. Often,
the fraud customer service team will call a customer and let him or her know that fraud may
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have taken place before the customer realizes it. Again, from a customer relationship
management perspective, this is a strong selling point for Capital One.
Co-operation between M&A and Operations
Given the large number of tests carried out and new products developed within Capital One
each year, there clearly has to be a great deal of co-operation among the major departments in
the company. For example, Operations needs to co-operate closely with M&A in the new
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product introduction process where M&A designs the new products, develops marketing
material and follows up on customers’ responses, while Operations collects regular feedback
from customers and makes improvement suggestions.
Information from Operations is used to improve the NPV models that serve as decision-
making aids and to make these models more sophisticated. M&A works closely with
Operations to assess how products are working – for example, by listening to online
application calls and identifying which application form questions are not understood as
intended.
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Much of the information on customers that is used to craft strategy is obtained from front-end
associates, who are, of course, closest to the customer. There is a partnership between
Operations and M&A to review the risk perspective of today as well as future strategies.
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Furthermore, numerous permanent or ad hoc cross-functional teams exist in such a credit
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policy team, composed of members from Operations and M&A, which define, for example,
the credit policies for new and existing products.
3. Information Technology (IT)
IT at Capital One sits at the head table and reports directly to the board in its own right – it is
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highly valued as the enabler of business strategy. The IT division has a broad function,
ranging from pure business issues and initial involvement in the decisions of where the
company should deploy its resources and finances, through applications and software
engineering, to the detailed technical issues of hardware, operating systems and networking.
After Operations, IT is Capital One’s second-largest division.
Unusually for a major player in the financial industry, Capital One has chosen to in-source the
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majority of its IT capability – relying on the speed, management acumen and expertise of its
in-house provision. IT implements much of the intellectual property of the business and has
proven that IT is anything but a commodity – indeed, it has become a core competence. The
IT department offers a full-service capability to the business (Operations and M&A), covering
the spectrum of products and processes through their genesis and complete life cycle.
IT houses the data, performs the guardianship of the information, is expert in the arena of data
warehousing, and ensures that the information can be readily accessed. Capital One retains all
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the data on its interaction with its customers and their behaviour indefinitely. This amounts to
a very large number of terabytes that must be housed for online or near-online access. IT also
provides the tools through which IBS is enabled – including the query tools, the batch
updates, and the summary and transactional data.
Information is therefore at the heart of the Capital One business strategy.

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Prospect Pool Management & Solicitation Production
At the front end of the Customer Acquisition cycle are the Solicitation and Pre-Solicitation
processes. Capital One is unique among the big financial institutions in managing and
implementing an in-house Prospect Pool and Solicitations Processing environment. Although
the tail end of the target-marketing and mail production process is outsourced to ensure up-to-
date data, the selection of the potential customer audience and the matching of products and
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creative to this audience are performed internally. The information that is painstakingly
gathered over the years provides Capital One with a unique perspective on tailoring its
products to individuals.
Response Data Management
Capital One has traditionally used direct mail campaigns to solicit new customers. The main
benefit of this approach is the ability to calculate the gross and net response rates to various
offers, depending on the product, creative and customer type. As a direct result of many
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cycles of customer response, Capital One can accurately predict and monitor the effectiveness
of its marketing.
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The results of this analysis are fed back into the Prospect Pool and Solicitation Management
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cycles to better focus future programmes in terms of acquisition targets and effectiveness per
pound sterling.
Account Management
Once customers have responded and are accepted, they are provided with accounts on the
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Account Management system. Again, all interaction with the customer is recorded – from
account detail changes, to transactions and payments – which forms a profile of that customer
and allow the company to provide them with the products and services they require.
The raw data is cycled to MIS solutions on a daily basis. It forms the basis of the IBS Account
management programmes through which Capital One can alter multiple components of each
product, change fees, develop reward programmes, and make special offers to customers.
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This information also cycles back through the Response and Prospect Pool MIS solutions to
provide more data about risk, credit-worthiness, and behaviour of the different categories of
customer.
Risk Management
Customers may fall into arrears with their repayments or may be subject to fraudulent
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activities. In either case, current and historical information is used to determine the best
course of action to take to protect the customer and Capital One. In the case of fraud, expert
real-time neural network solutions are deployed to trigger the alarm at the earliest possible
instant. Again, this cycle of data feeds into the overall IBS approach and the development of
profiles of customers and product offers.
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IT and Running the Business
Account Acquisition
Front-end customer acquisition processes rely upon a sophisticated set of credit models and
automated decision-making algorithms to process the high volume of applications from the
mail, Internet and telephone. Hard copy applications are scanned and retained on optical disk.
Links to credit bureaux and external fraud prevention agencies provide Capital One with up-
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to-date information on all applicants.
Account Servicing & Call-centre Technologies
The call-centre is supported by Automated Call Diallers, Power Diallers, Voice Response
Units and local systems integrated with these voice solutions. Many of the specialist systems
for customer contact – cross sales, balance transfers, retention and correspondence activities –
are specifically designed to support the IBS approach.
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IT Risk Operations – Collections, Fraud & Recoveries
Capital One supports the entire customer life cycle, including collections from accounts in
arrears, fraud defence and protection activities, and the recovery of previously charged off
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debt. Expert solutions are deployed for both the voice and data requirements of these
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specialist units that feed on, and are subsequently fed by, IBS-specific solutions.
Core Systems
In addition to the development and support of solutions to Operations and M&A, IT enables
and maintains solutions for the Finance and Human Resource areas.
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Internet
Capital One develops and maintains a system that allows customers to apply and get a real-
time decision along with the ability to manage accounts online. Working with the Internet
M&A team, they facilitate the business model and help achieve their business targets.
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Intranet
The role of the Intranet is manifold. It provides information and functionality that is
accessible, accurate, relevant, and timely, to all associates. Furthermore, it gives associates
control and choice over the information that they receive – for example, for solving business-
related problems. Finally, it eliminates the physical and location barriers associated with the
access and use of information.
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4. Human Resources
Associate Selection
The contribution to the Customer Relationship Management Strategy made by the Human
Resources function is critical. Finding and keeping top quality associates is key to Capital
One’s success, and the company works hard to manage both parts of this equation.
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1. Hiring/Training
Capital One considers its hiring process crucial and wants the selection process to be as
science-driven as the overall strategy. The company applies IBS to this part of its business as
much as it does in customer-facing issues, and, over time, has determined which results
ensure successful associates in various roles. In ‘behavioural interviews’, recruiters assess
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candidates’ competency by asking them to provide examples of situations where they

supported change, managed several tasks, or made difficult decisions – all of which represent
desired competencies.
“We do not hire for specific experience, but for competencies,” explains one of
the recruiters.” We try to find the best fit between a person and a role, and then
train them. For example, we have a systems testing manager who used to test race
engines before joining us – he had no direct experience, but certainly possessed
all the competencies we were looking for.”
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All associates are firstly hired and then evaluated on these same criteria which the company
believes helps to prevent the forming of cliques. A case study to test conceptual and analytical
skills is done in the recruiting interviews for most levels of vacancy. “That sometimes
provokes extreme reactions; we have had potential directors saying, ‘no, this is beneath me’,
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but we replied ‘if you really think so, then this is not the right place for you’. Getting in is
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tough.”
Capital One is always keen to recruit the brightest and best associates. Development is
encouraged and those performing well are quickly promoted: of the 14 front-line managers
who supervised 15 people each when the Nottingham site opened in 1998, two have been
promoted two levels (now supervising 150 people) and six more have gained one promotion.
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In all, more than 500 internal promotions and moves took place in Nottingham during the first
three years of operation, a testament to the quality of the associates recruited.
Specific training, including some cultural induction, is offered for new “hires”, while ongoing
training is becoming more developed over time. Managers at all levels are offered a range of
performance and skill enhancement classes that are carried out by either in-house trainers or
external organizations. There is also a learning centre with books, videos and simulations,
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which are grouped around the core competencies the company seeks to build. Therefore,
when certain competencies have been identified as areas for development in the evaluation
process, people are expected to use the centre as a means of improvement.
As the company grows older, internal promotions from associate to supervisor and from
supervisor to manager start gaining in importance, and associates are encouraged to
continuously prepare themselves for their next job with a personal Development Action Plan
(DAP). For those promoted, management training on development and coaching continues to
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be offered to ensure that people are successful in their new roles. Also, there is an educational
policy to support external training, regardless of position within the company – if, for
example, a front-line associate is accepted for an MBA programme, the company may help
fund it.
People development is also important. There is little point in spending time and money hiring
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the best associates, and then letting them down in terms of career development. Capital One
has a highly structured people management process which includes 360-degree appraisals
twice per year, personal DAPs and weekly one-to-one meetings (called 10/10 meetings, as
they allow each party 10 minutes to talk about their key issues) between each associate and
their manager. The Company won a Training Magazine award in 2001 in the US and was
featured as the ‘3rd Best Place to Work in the UK’ in 2001 by The Sunday Times newspaper.
2. Evaluation
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All associates are evaluated every six months, with half of the evaluation being based on
targeted achievements and the other half based on Capital One’s defined core competencies,
where factors such as work/life balance also count. As Dorothy Scott, Sales Manager, views
it: “Our philosophy here is: It’s not just what you do, but how you do it!” To ensure upward
feedback and peer feedback, there is a 360-degree feedback system that is very open – here,
even upward feedback to an associate’s manager can be freely offered.
Several categories are used to evaluate the competencies of call-centre associates and team
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supervisors, all of which are further broken down into descriptions of specific behaviour
assessed. Among the key elements are communication, support of others, integrative decision-
making, responsiveness to feedback and coaching, taking ownership, and job-specific
knowledge.
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Evaluation is taken very seriously, and if metrics turn negative, managers spend time
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attempting to understand what went wrong. Says Mitch Beres:
“We see ourselves as coaches, rather than controllers or discipliners, nurturing

talent and providing freedom. Even if our associates get it wrong, good coaching
should help them improve – and we avoid getting the atrophy that often exists in
other organizations.”
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3. Compensation
Incentives are an important part of the compensation package for all Capital One associates,
and front-line associates can achieve a bonus of up to 14%, based on their results and
competencies. More senior managers are awarded share options as well as cash bonuses. On
several occasions, since the company floated in 1994, options have been awarded to junior
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associates on a one-off basis to share the feeling of ownership throughout the company. Also,
a subsidized share purchase scheme allows all associates to purchase stock at a substantial
discount on the market price. Take up is currently running at about 20%, and ownership
behaviour is very visible. “People really watch the stock price – there is a refreshing clarity on
the fact that what we do affects the share price, and, since we have share options, it makes a
real difference to us”, reports an operations manager.
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Company Culture
Housing
As Capital One searched for suitable premises to house its operations centre in Nottingham,
its main goal was to bring most activities in-house and under one roof, as well as creating a
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springboard for new products and businesses and a centre for recruitment. Combining all
operations in one main location would also have the advantage that new employees could be
more easily integrated.
A place with the potential to meet these goals was found in a huge 1950’s building that
formerly contained the print works of Boots plc, one of the UK’s largest retailers. This now
derelict industrial-style building in Nottingham’s city centre matched not only Capital One’s
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accommodation needs but also its culture of openness. The goals set for the conversion were
that the new premises should attract and retain the best staff, provide flexibility and cost
effectiveness, and embody and promote the company culture. The architects met these goals
by keeping the two huge floor areas of 10,000m² and a smaller second floor of 2,800m².
Ceiling heights of more than seven metres and the absence of internal walls make for spacious
interiors, which are flooded with daylight through floor-to-ceiling windows. On the first floor,
most call-centre staff are located in two large column-free spaces, while other professional
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and call-centre staff are housed in the remaining space over three floors.
Call-centre and professional areas are not differentiated, allowing flexibility in use and
reinforcing the company’s open business culture. The open-plan spaces, in which most
associates work, are arranged in team configurations, while a few glass-fronted offices and
meeting rooms are separated from the main areas. When the building was opened in July
1998, 250 workplaces were available. This has rapidly expanded to the 2,000-plus workplaces
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currently used.
As the building is located in Nottingham’s city centre, there is little need for in-house staff
amenities. Nevertheless, a convenience shop with refreshments, ‘relaxation rooms’, training
rooms, a library and locker rooms with showers are included in the building. Also, a large
staff restaurant, with relaxed design elements, in the choice of décor and furniture, provides
the feel of a trendy restaurant or bar.
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Atmosphere
The atmosphere of the huge floors of the Capital One buildings in Nottingham does not fit the
stereotype of a credit card call-centre – it is busy yet relaxed, professional yet colourful. The
cubicles of associates are personally decorated with photographs and nametags, cuddly toys
sit on almost every computer, inflatable palm trees stand in the corridor and remote-control air
balloons fly through the room. On the computers, ‘Golden Nugget’ stickers signify each sale
of a priority product made by that associate.
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There are flipcharts showing how the different teams rank against one another, and the walls
are covered with posters of team and party photos. On the ‘Wall of Greatness’, associates who
have received special company awards are shown alongside great people from American
history like Henry Ford, Thomas Edison and Muhammad Ali. Posters boast that “Credit 2000
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reached amazing heights”, and cubicles feature bubbles containing the teams’ favourite sales
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pitches (for example, “Have you already taken out insurance for your new card?”).
As Scott Woolveridge, Operations Processing Manager, sees it:
“What you see reflected in our decoration is that we try to avoid being a
manufacturing shop. Our raw material is our people – so let them be themselves
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and have an environment to suit! If people are having fun, they do a better job –
that’s why we give them all these cuddly toys and stress balls. We want to make
people feel they belong to something. And they do.”
Focus on Employees
Developing this strong culture of employee involvement was a conscious decision and part of
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the business plan. “If you do not treat the people who deal with customers as well as you want
them to treat those customers then you are in trouble,” continues Woolveridge. “People on the
front-line need to be empowered – they are the company as far as customers are concerned.
We try to take care of individual needs, so it is a natural step for this to be translated into
customer treatment.”
Capital One believes it was elected as one of the UK’s top employers because it spends more
time considering the welfare of its associates, whom it views as a key resource. The call-
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centre is managed for value – to create value for customers and, at the same time, to create
value for employees.
“We over-manage in a positive sense – there is an intensity here in people

management that I have never seen before; it’s demonstrated in the energy
expended and the combination of formal and informal approaches,” believes
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Lindsay Robinson, Customer Service Manager.
Alignment of Objectives
In line with its focus on associates, Capital One aims to create a culture of involvement and
buy-in for all objectives.
“We spend a lot of time explaining our objectives and ensuring that they are
No
meaningful for everyone – where we are going and why – which is what creates a
sense of excitement, of ownership, of understanding why we are making certain
trade-offs,” explains Paul Hawker, Collections Manager.
At the last Operations strategy meeting, managers dressed up and took people on a voyage
through time: one of them acted as a Roman Emperor; another as a wartime Sergeant. There
was also a present-day quiz show, and a futuristic spacecraft captain. “While performing, I
asked myself: ‘Where else would you do this?’” smiles Hawker, “and I thought ‘well,
nowhere, I guess’. This could almost worry you!”
Do
Trips, simulations and training programmes are some of the other tools that Capital One uses
with its managers to ensure that objectives are aligned, and to create a common language and
methodology. Managers estimate that they spend about 10% of their time on creative
activities. They comment that it greatly helps them in decision-making, as they tend to
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“assume positive intent on the other side of any discussion and know that we are all trying to
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do the right thing.”
Continuous Improvement
Capital One has created a culture where continuous improvement is encouraged and
implemented, and this helps to attract employees with the necessary mindset that this implies.
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As David Farlow, Director of Operations Strategy, explains:
“I joined Capital One because I have this passion for performance improvement.
There are vast resources and a whole culture based around that here. In many
companies, performance improvement is a very political role – here, people
actively look for those improvements!”
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Improvement suggestions from front-line associates are highly encouraged. One example of
an improvement suggestion made by call-centre associates is the ‘APR indicator’. Call-centre
staff noticed that customers often wanted to discuss their APR, so IT and M&A built in a
quick access function that enabled them to view a customer’s effective yearly APR without
needing lengthy calculations. This is seen as a helpful tool in customer interaction.
Given the entrepreneurial mindset that the company looks for during the recruitment process
and its culture of integrated decision-making, there are high levels of motivation and co-
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operation for these initiatives. Those employees who contribute particularly valuable ideas are
given awards and highlighted on posters around the building.
There is also a high degree of co-operation among the various departments in the
improvement process. As one of the operations managers explains:
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“Our business is all about IBS, change and innovation – that is true for every
department involved, and it is very liberating that there is no ‘who’s in charge’
debate. There is an overall acceptance that we will change, and that we will
launch new products – some will succeed, others will fail. We don’t have conflicts
of issues as regarding ‘Marketing wanting to do this, but Operations not wanting
to.’”
Employee Satisfaction
No
Capital One is considered as one of the UK’s top employers, and employee satisfaction is
extremely high: 97% of staff regard the company as a friendly place; 96% report that people
are willing to give that bit extra to get the job done; and 66% (20% above the market average)
believe that they are getting a fair share of company profits.
The company conducts an associate survey twice a year, containing more than 100 questions
to “help the company remould itself for the future” as one manager puts it. The survey
completion rate is well over 90% and the data obtained are carefully analysed by managers.
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While some questions evaluate overall work satisfaction, others request more specific detail
such as quality of management communications and stress levels. Using regression analysis,
Capital One identifies the key drivers of employee satisfaction and derives action plans on
how to improve weaknesses and exploit the opportunities identified.
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In addition, managers attempt to identify those themes that signal potential problems within
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their teams, e.g., if associates feel they do not receive enough feedback or do not have enough
quality time with their managers. Managers review these issues and discuss them with
employees. “You have to try and understand what your group really means when they
complain – we first discuss it and then try to find practical solutions,” explains a manager.
While managers acknowledge that not everything is perfect, they emphasize: “When you are
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seen to identify weaknesses, people feel that they can offer their opinions, the company will
react and associates trust that problems will be sorted out.” In fact, more than 90% of
employees agree with the statement, “I believe something will happen”, regarding issues
identified for improvement.
Associate turnover is extremely low – the attrition rate at Capital One’s call-centre is around
two thirds of the average figure of 35% at a standard call-centre. In Capital One’s non-call-
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centre functions, turnover is even lower and there has been virtually no senior management
turnover.
Future Challenges
1. Building a Deeper Understanding of Customer Needs
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While acknowledging the success of their approach, Capital One’s Operations management is
concerned with taking their understanding of customers and their behaviour further. Today,
Capital One knows which product a given customer holds, which financial transactions they
have made and what interaction with the company has taken place. However, the company
still knows relatively little about the customer as an individual. Character details would enable
a deeper understanding of their behaviour and needs.
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“If we could identify why customers call, we could segment them according to
their needs – for example, if customer X calls mainly to check his balance, then he
could immediately hear the message ‘Mr.X, your balance is… if you have more
questions, please press one,’” envisages Mitch Beres.
Increasingly, the company realizes that profitability is not necessarily driven by product, but
by customer characteristics (e.g., whether they are in education or work, married or
No
unmarried, with or without children). Consequently, Capital One needs to ensure that it is able
to anticipate customer needs at an individual level in order to remain the financial services
provider of choice.
2. Managing Costs
In terms of cost structure (e.g., cost-per-customer account), Capital One’s costs are currently
higher than those of most of its competitors. The company views its heavy investment in IT
and people as justified, but also seeks to keep costs within limits.
Do
David Farlow, Director of Operations Strategy, comments:
t
“We don’t need to be more costly than our competitors. In fact, as IBS helps us to
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know our customers and their needs better, we should be well positioned to decide
where to spend our resources. However, we are not yet at the part of the curve
where increased spending on IBS does not add incremental value.”
There is agreement that associates are an expensive resource, and that they should be
allocated to the highest value activities while lower value activities might be treated as a
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commodity, be outsourced, or not serviced. It is debatable how much Voice Response Units
and the Internet can decrease operational costs.
3. Co-ordinating Channels
Capital One clearly sees a challenge in co-ordinating its customer interaction through all its
different channels, which are currently co-ordinated, yet not fully aligned.
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“As every contact with the customer is precious, our next step will be to integrate
our systems further so as to view customers through the same lens and align
customer communications fully,” explains Mark Sanders, Sales Manager.
Sanders also believes that the company has to work to avoid giving conflicting messages to
customers.
op
“There is a clear degradation of responses when customers receive too many
mailings, and we have to avoid an uncoordinated situation where Account
Management contacts a customer to raise their credit line and then Sales contacts
them to offer a new product.”
The fact that additional communication channels, such as websites and e-mail, now exist, and
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that others might be established in the future, creates challenges. As Sanders continues:
“Whenever we add a new channel, we witness an increase in demand also in the

older channels because of the need for explanation, when, for example, customers
telephone to make sure their Internet payment was processed okay.”
Furthermore, when information comes from new sources or when it is more frequently
published, enquiries increase. For example, there are more customer enquiries now that
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balances are produced continuously on the Internet than when the traditional paper version
was mailed once a month. Of course, this can be viewed either as a cost or an opportunity.
Do
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Appendix 1
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Growth of Capital One’s Customers, Revenues, and Managed Loans (worldwide
operations)
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Account Growth
Millions Customers
50 46.6
45
40 36.5
35
30
25.3
25
18.0
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20
15 12.7
9.1
10 6.7
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
1996 1997 1998 1999 2000 2001 2002

Annual
Growth 40% 37% 42% 42% 43% 30%
Rate
Managed Loan Growth

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Billions Managed Loans
$50
$45.3
$45
$40
$35 $31.6
$30
$25
$20.3
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$20 $17.4
$12.6 $14.0
$15
$10.1
$10
$5
$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
1996 1997 1998 1999 2000 2001

Annual 23% 11% 22% 16% 46% 54%
Growth Rate
No
Revenue Growth Has Been Consistent
Millions Revenue 2299.0

$2,000 1924.5
$1,500 1412.5
1048.4
$1,000
769.5
590
436.9
$500
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$0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
1996 1997 1998 1999 2000 2001 2002

Annual
Growth 63% 40% 33% 39% 29% 36%
Rate
t
Appendix 2
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Credit Card Brand shares in the UK
Credit Card Market Shares Over Time

30%
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Barclays
25%
NatWest
20% MBNA
15% Capital One
Goldfish
10%
Tesco
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5%
Egg
0%
'Jan 1999 'Jan 2000 'Jan 2001 'Jan 2002
Base: all credit card holders.

op
Credit Card Market Shares Over Time (only new cards)
16%
14% Barclays
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12% NatWest
10% MBNA
8% Capital One
6% Goldfish
4% Tesco
2% Egg
No
0%
'Jan 1999 'Jan 2000 'Jan 2001 'Jan 2002
Base: all credit card holders.

Do
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Appendix 3
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Selection of Awards & Accolades
2001 Capital One is named the 3rd ‘Best Place to Work in the UK’ by The Sunday
Times
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Capital One named in Forbes 400 list – Best Big Companies in America
2000 Capital One is named in the Information Week 500 for innovation in IT
Capital One receives CIO 100 award for Customer Excellence (the second
consecutive year of recognition from CIO)
1999 Business Week names Capital One Number 15 in its list of top 50 performers in
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the S&P 500
ComputerWorld ranks Capital One Number 13 in its list of the ‘100 Best Places to
Work in IT’
1998 Rich Fairbank is named Executive of the Year by Credit Card Management
magazine
Future Banker names Rich Fairbank and Nigel Morris “Future Bankers of the
Year”
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Capital One is named in the Information Week 500 for innovation with
information technology
1997 Forbes names Capital One one of the fastest-growing companies in its list of top
25 ‘Champs’
Beyond Computing presents Capital One with its Gold Award for successful
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integration of IT and business strategies
1996 Capital One wins the Gartner Group ‘Excellence in Technology’ Award
1995 Credit Card Management magazine names Capital One ‘Issuer of the Year’
No
Do
t
Appendix 4
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Organizational Structure of Capital One Europe
European
European Executive
Executive Team
Team
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European
European
HR
HR Finance
Finance Legal
Legal Growth
Growth
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Marketing
Marketing
Brand
Brand Operations
Operations IT
IT
and
and Analysis
Analysis
Risk management Customer Service Network support
Account acquisition Sales E-Commerce
Account management Collections New system dev’t
Retail Deposits Credit

op
Internet Ops Development
Product Services
The departments of Marketing & Analysis, Operations, IT, and Brand have strong lateral links
through multiple crossfunctinal processes.
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No
Do
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Appendix 5
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Systems Iinfrastructure
Different systems working together
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Service view
Screen of front end associates
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VECTUS BASS SALSA
Data from Account Solicitation

customer servicing and
applications data marketing
data
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MIS
Data warehouse
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Use of data
Online decision of
Customer data Segmentation
associate
No
• Static customer data Expected NPV Rank order of what to

(identity) (=expected response x offer/cross-sell
• Demographics product NPV) • which products
• Transaction data • for every customer • value per product
• Products sold • for all sales activities • products already
• Campaigns received • monthly re-calculated offered (=barred from
sale)
Decision captured and fed into data warehouse

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t
Appendix 6
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NPV-based Cross-Selling Process
1. Customer 4324 1223 7874 3335 calls in
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2. System checks whether any sale is permissable in this channel (e.g. have we tried a CSM
approach recently)
3. Product priority is sourced from the NPV table

CPP PPI Loan BT Shopping
4324 1223 7874 3333 10 30 40 21 1
4324 1223 7874 3334 43 22 9 45 24
4324 1223 7874 3335 12 59 8 43 3
4324 1223 7874 3336 0 1 5 12 33
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Its PPI, BT, CPP, Loan, Shopping
4. System checks whether approaches are allowable on these products. E.g. excludes
product if customer already holds it or where the product has been attempted recently
5. The list of products we are “happy to offer” is shown to the associate, with the primary
product at the top of the list.
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Appendix 7
Screenshot from Customer-Service Computer Screen (“Salsa” System)
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No
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INS687

Copyright © 2003 INSEAD

Ian: “You’re right, we don’t do Customer Relationship Management – we just

Credit card issuers normally have several main forms of income:

UK Credit Card Market

Current Market Situation

Selected other providers:

Capital One 12.9 6.9

This is illustrated by the data in Table 3.

2001 175.3 104.5 59.6

% change 1992-2001 +96.8 +140.6 +88.1

Advertising and Promotion

Capital One Company Background

Drives New Product Development

• Other financial services such as travel insurance.

Customer Relationship Management Practices at Capital One

1. Marketing and Analysis (M&A)

Account management – profitably managing the customer relationship when an applicant

Account Acquisition and Management

A good example of a product aimed at these ‘low-risk revolvers’ is a card with an

This is a notoriously complex area to manage, however, as it is difficult to predict which

“If a customer’s account is dormant for a while, there is an increasing risk of

“We would not be comfortable matching up high-value customers with high-level

quality service to all our customers, regardless of their potential profitability.”

However, as Phil Marsland contemplates on the subject of differentiating customer service:

Operations is split into four main departments:

• 2.1 Operations Processing

• keying in credit card applications.

• managing vendors such as card embossers and statement printers.

2.2 Customer Relations

Metrics and Incentives

a. Average handling time.

The Sales department is divided into the following sections:

Co-operation between M&A and Operations

3. Information Technology (IT)

Information is therefore at the heart of the Capital One business strategy.

Prospect Pool Management & Solicitation Production

Response Data Management

IT and Running the Business

to-date information on all applicants.

Account Servicing & Call-centre Technologies

IT Risk Operations – Collections, Fraud & Recoveries

candidates’ competency by asking them to provide examples of situations where they

“We see ourselves as coaches, rather than controllers or discipliners, nurturing

As Scott Woolveridge, Operations Processing Manager, sees it:

“We over-manage in a positive sense – there is an intensity here in people

Lindsay Robinson, Customer Service Manager.

David Farlow, Director of Operations Strategy, comments:

“Whenever we add a new channel, we witness an increase in demand also in the

1996 1997 1998 1999 2000 2001 2002

Managed Loan Growth

1996 1997 1998 1999 2000 2001

Revenue Growth Has Been Consistent

Millions Revenue 2299.0

1996 1997 1998 1999 2000 2001 2002

Credit Card Market Shares Over Time

15% Capital One

Base: all credit card holders.

Base: all credit card holders.

integration of IT and business strategies

Risk management Customer Service Network support

Account acquisition Sales E-Commerce

Account management Collections New system dev’t

Retail Deposits Credit