Captial One

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Category: Business and Industry

Date Submitted: 09/23/2011 10:20 AM

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Capital one case

This case occurred in 1997, after Capital one had already become a huge success in the credit card market. Upon their success they began a plan to extend Capital one’s capabilities into other markets. Mike Rowen and his team had finished a four month investigation into the auto financing industry and they needed to decide whether auto financing was the right opportunity for leveraging capital one’s information based strategic capabilities.

Capital one started its credit card business in the late 1980s and became a huge success in the 90s. To the CEO of Capital one –Richard D Fairbank, their company was not just a financial service company but also an information based marketing company. Capital one’s information-based strategy included collecting data on individual customers and using the data to model creditworthiness and responsiveness. A database was created of customer’s information thereby transforming the entire company into a scientific testing laboratory. This strategic strength could be utilized in other information based industries. From a long term prospective, Capital one‘s growth need product diversification support as well.

Mike Rowen and his team started their investigation in the auto finance industry. Summit Acceptance Corporation was one of the companies on their list. By 1997, it had 162 employees and a loan portfolio of $200 million. And it had implemented a model driven underwriting process based on a credit scoring model. But there also had concerns about Summit too. In late 1997, Summit took a write off due to higher than forecast loan losses.

Based on the information we have been provided, I believe Summit is a great opportunity for capital one. Summit is a medium sized company so it should be easier for Capital One to run things in its own way and to keep control over its branding and quality in a sense; It’s easier to control and costs should be low. Second, from exhibit 9 summit‘s organizational structure it is clear...