Capital One's Key Environmental Forces - Case Study Example

Capital One Table of Contents Identify and Describe the Key Environmental Forces that have Immediate Strategic Implications for Capital One 3 Identify and Describe the Capabilities and Weaknesses within Capital One that have Immediate Strategic Implications 5 Define Capital Ones Business-Level and Corporate-Level Strategies and Evaluate Each for their Potential for Continued Success 6 7 Evaluate the Strategic Fit of Capital Ones Recent Acquisitions 8 Describe the Key Strategic Issues Raised by the Companys Acquisition Strategy 10 Assess Capital Ones International Position 11 References 13 Identify and Describe the Key Environmental Forces that have Immediate Strategic Implications for Capital One Capital One, established in the year 1995, has it’s headquarter at McLean, Virginia. Capital One, the renowned brand in America, provides diversified financial services to small business, consumers and commercial clients. In other words, it can be implied that it is a bank holding company. The key environmental forces identified are evaluated in terms of opportunities and threats. The industry is volatile with declining consumer confidence, governmental interventions and unemployment. Hence for the Capital One, pursuing the business related to auto- finance is likely to face a lot of hazards. It would be an appropriate action for the company in view of its current strategic position to concentrate on the credit card business. This will enable them to control their debt liabilities and handle charge-off rates properly. This will prove advantageous to the company as they can bend themselves to adjust with the economic state prevalent in the country. Opportunities The company is typically considering the loans as the most vital aspect by introducing new loan schemes. The company should start investing in the securities market. Diversification of the international portfolio is also on the cards to have full benefit of the environmental strategies. The company can enhance their growth and expansion by reinvesting in its core business sector for increasing their profitability and effectiveness. Threats There has been a steep decline in the employment rate with global market suffering under the tyranny of global recession leading to increase in consumer debt. Global recession has a negative impact upon the credit card segment with most of the markets having already reached the point of saturation. Intense competition in consumer lending industry is having direct impact upon the interest margins. One of the greatest threats for the company is the restrictions imposed upon telemarketing. The government’s “do not call” list curbs the marketing aspect of the company for expansion and growth (OP Papers, 2010). Identify and Describe the Capabilities and Weaknesses within Capital One that have Immediate Strategic Implications The internal environmental analysis of Capital One explores the capabilities and the weaknesses. The strength of the company resides on the fact that it has diversified its business with great potential and success. The whole activity is divided into different segments which promote an individual attention to be paid to each segment and the involvement of less amount of risk leading towards a more integrative approach. The company values its employee as an important asset of the company. The skills of the employee are enhanced by providing them necessary training, applying performance management and talent management practices. The survival of the company in this highly competitive scenario can be contributed to its capital strength, ample liquidity and commitment towards the market and dealers. The company possesses a very strong rating as it ranks among the top 10 banks in the United States. Capital One university also makes a special provision for e- learning along with the traditional training enabling the employee and the associates to learn at workplace enjoying the access to variety of topics while updating the knowledge about the latest products and services at the same time. In the wake of global recession there is a weak loan demand. Capital One’s decision regarding the acquisitions and lending contributes to its weakness. The deteriorating loan condition hampers the growth of Capital One’s operation. Define Capital Ones Business-Level and Corporate-Level Strategies and Evaluate Each for their Potential for Continued Success Corporate Level Strategy Achieving product differentiation through empowered employees and giving them the best infrastructure Leveraging the flexibility in credit cards and customizing everything Constantly revitalizing innovative leadership Business Level Strategy Capital One has compiled an innovative marketing approach based on customer profitability analysis to achieve the status of leader in credit card issuance. The company is currently making heavy investment in the infrastructure and the personnel with an effort to constantly improve its expertise through test and learn, thereby giving it a competitive advantage. Generalization of information based strategy to other industries also forms part of its strategy. . Capital One is diversifying its business on multiple levels, from the management of massive growth to effective product development strategy. But the most interesting twist in the story is the role of the corporate real estate in cultivating corporate culture and helping the management to achieve the corporate and business level objectives. Capital One is the world’s largest Hi-tech as it accumulates the buddle of talents to bring in their creativity and experts in developing the product to meet the needs of the customers. Their distinct quality lies in unleashing the potential of the traditional industries, first in credit cards and now with retail business. The company is rapidly evolving with each step of innovation. The marketing strategies are developed intelligently and tested on the small market segment which gives them the necessary feed back before resorting to large scale marketing (Arend, 2001). Evaluate the Strategic Fit of Capital Ones Recent Acquisitions Acquisition of Chevy Chase The success of acquisition depends upon the strategic fit which can be discussed as follows: Overcapacity: Both the companies competing in the same product or service or the market should try to ease their operational efficiency. Geographic Roll-Up: The companies seek for geographic expansion with local operating unit. Product or Market Extension: Strong brand image is the key to success. R&D: Purely for the purpose of accessing the technological development. Industry Convergence: Desire to occupy a position in new industry. Chevy Chase is the third largest bank in Maryland with 153 branches. It is the most attractive banking franchise but its entry in the non-traditional mortgages crashed. Capital One has decided to take a net credit charge of $1.75 billion to make up for the loan losses in Chevy Chase’s portfolio. The Acquisition is considered as strategic fit because: Chevy Chase is already shattered and in hours of storm no other BHC could provide better depot than Capital One. Capital One is known for its strong rating with equally strong capital strength that can efficiently handle the operational activities of the various branches of Chevy Chase. Such a deal would help in recovery of loans and losses of Chevy Chase. Such an acquisition will enhance the deposit base of the Capital One. Also, it would provide the scope for expansion in the middle Atlantic banking market. Chevy Chase’s deposit rank is only behind Bank of America and PNC Financial Services Group. The combined deposit portfolio of the staggering $110.5 billion is expected to render this institution, the eight largest bank in the nation (Terjesen, n. d). Describe the Key Strategic Issues Raised by the Companys Acquisition Strategy Some of the strategic reasons for acquisition are: To expand the geographic horizon Achieve the market leadership Compliment the skills between the two companies in terms of management and operation Product or service diversification Accessing the customers Since Capital one is in the grip of global recession which is affecting its debt structure, the company has decided to reinforce diversification in its portfolio. In an effort to develop and manage the business portfolio successfully, the company has recently taken an acquisition of Chevy Chase the third most popular and largest bank in Maryland. The pros and cons of such acquisition and mergers should be strategically fit for both the companies to emerge as the universal entity. Capital One already faces a strategic issue in relation to Greenhouse Bank Acquisition which was basically a mortgage bank. Most of the mortgage bank faced a severe depression in the subprime crisis. Though the same reason also led to the downfall of Chevy Chase Bank but it has a very strong customer base with astounding deposit thereby making the acquisition worthwhile for the Capital One. This will give a strong deposit base to the company and an opportunity to expand their credit cards business in the mid Atlanta region. It aims to become the leading credit cards by maintaining lower charge – off rates and higher return on credit card loans (Shay, 2008). Assess Capital Ones International Position Capital One is the largest issuers of Visa and Master Cards in United States. It has banking branches dispersed in the New York, New Jersey, Louisiana, and Texas. With the acquisition of Chevy Chase Bank, it has expanded it horizon towards Washington, D.C. It appears within the order of rank 10 as listed by Fortune 500 publication. Its chief competitors are Bank of America, MasterCard, Visa and Discover. It is the most esteemed company of the United States which provides diversified financial products and services. Its diversified activities encompass commercial lending and deposits. The principal focus areas of the company are Local Banking and National Lending. Local Banking includes Consumer Banking and Commercial Banking such as accepting deposits and lending through its banking branches. The National Lending consists of U.S card segment focused on the domestic consumer card and debit card, the auto financing segment encompass the financing activities for automobile and other vehicles and the Global Financial Service consists of lending activities primarily to the small business and advancing of loans (installment, housing, healthcare and so on). It operates in the developed countries like UK, US and Canada. To achieve a sufficient diversification the company has added equity loans and mortgage, automobile financing and various other consumer lending products in its portfolio. It continuously stresses on the importance of bringing about radical change in the innovation to stay ahead in the competition. Information based strategy is the latest innovation in this field which seeks to integrate the efforts of all the departments and efficient infrastructure expansion (LinkedIn Corporation, 2010). References Aspan. M, (2010). Capital Ones shares fall 3.2 pct after earnings, Investors worry about lack of loan growth at company. Retrieved Online on May 21, 2010 from http://www.reuters.com/article/idUKN2311376820100723 Big Nerds, (No Date). Capital One, papers. Retrieved Online on May 21, 2010 from http://www.bignerds.com/papers/16857/Capitalone/ INSEAD, (2010). M&As and Corporate Strategy, Executive Education. Retrieved Online on May 21, 2010 from http://executive.education.insead.edu/home/ LinkedIn Corporation, (2010). Capital One, Home. Retrieved Online on May 21, 2010 from http://www.linkedin.com/companies/capital-one OPPapers, (2010). Capital One, Home Page. Retrieved Online on May 21, 2010 from http://www.oppapers.com/essays/Capitol-One/296065?topic PR-inside, (2010). Capital One Financial Corporation - SWOT Analysis, market research. Retrieved Online on May 21, 2010 from http://www.pr-inside.com/capital-one-financial-corporation-r1918659.htm Shay, K., (2008). Capital One pulls Chevy Chase Bank into the fold, Gazette. Retrieved Online on May 21, 2010 from http://webcache.googleusercontent.com/search?q=cache:WVfkKcBA-q8J:www.gazette.net/stories/12052008/polinew194115_32474.shtml+the+strategic+fit+of+Capital+One%27s+recent+acquisitions&cd=10&hl=en&ct=clnk&gl=uk Terjesen, S., (No Date). Mergers and Acquisitions: Patterns, Motives, and Strategic Fit. . Retrieved Online on May 21, 2010 from http://www.qfinance.com/mergers-and-acquisitions-best-practice/mergers-and-acquisitions-patterns-motives-and-strategic-fit?page=3 Read More