Building a Change Capability at Capital One Financial
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Organizational Dynamics, Vol. 38, No. 4, pp. 245–251, 2009 ISSN 0090-2616/$ – see frontmatter
ß 2009 Elsevier Inc. All rights reserved. doi:10.1016/j.orgdyn.2009.02.004
www.elsevier.com/locate/orgdyn
Building a Change Capability at
Capital One Financial
CHRISTOPHER G. WORLEY EDWARD E. LAWLER III
I n an era when environments are changing faster
and faster, the rhetoric on organizational effective-
ness is clear: successful organizations must be more
to transfer their credit card balances to a Signet credit
card at lower interest rates. The enormous success of
this campaign and the promise of the information-
agile and adaptable. Redesigning work processes, inte- based approach encouraged Fairbank to lead Capital
grating acquired businesses, implementing large-scale One’s spin off from Signet.
information technology (IT) systems, and entering In mid-2008, the organization’s return on invest-
foreign markets are a few of the challenging changes ment was over 1368% since its founding, it employed
companies are implementing. Any one of them can more than 31,000 people, and had revenues over $15
prove very difficult to accomplish—most estimates put billion.
the success rate for a large-scale organization change Capital One’s organizational approach puts change
at about 25–30 percent. Successfully implementing at the core of its identity. Research suggests that
several of them in a short time period is virtually ‘‘built-to-change’’ organizations have a strong focus
impossible. on the future, use a robust strategy to generate a series
Capital One, the very successful financial services of momentary competitive advantages, and leverage
company, has built an organization that loves to flexible organization features (Table 1). They also build
change. It does not ‘‘manage change’’ as if it were in the capability to implement and orchestrate major
some unwanted intruder; it does not view change changes.
management as an afterthought to improve the
chances of getting some key resistors to ‘‘buy into’’ a Strong Future Focus
new initiative. Change is integrated into the way Capi-
tal One formulates strategy, structures itself, and mea- Capital One is obsessed with the future. Each busi-
sures and rewards performance. ness line has its own analysts – as high as 20 percent of
Capital One created an enterprise-wide change FTEs in some cases – who are skilled at exploring
capability to give it the ability to orchestrate a variety future trends. Instead of focusing solely on a current
of changes. Matt Schuyler, the chief human resources large customer or a set of existing strengths and
officer, said: ‘‘We purposefully set out to create an weaknesses, Capital One’s businesses focus on what
organization change capability that would allow us to might happen in the future and the skills and knowl-
execute changes, both large and small, faster and more edge that will be needed to be successful. Fairbank has
efficiently while minimizing the effect on our associ- said, ‘‘80 percent of strategy is figuring out where the
ates. We wanted to make change management a core world is going, and 20 percent is figuring out what you
competency at Capital One, one that enables and are going to do in response. If you can figure out where
supports our business strategy.’’ the world is going, what you need to do usually
becomes obvious.’’
CAPITAL ONE FINANCIAL AS According to Mike McDermott, former director of
A BUILT-TO-CHANGE ORGANIZATION organization effectiveness, ‘‘Strategic thinking goes
pretty deep on two levels. On one level, the strategic
Capital One’s founder and chief executive officer (CEO), planning organization runs a variety of scenarios that
Rich Fairbank, was the first to see and believe in the look several years out. On another level, the executive
power of marrying information technology and rigor- committee meets regularly to discuss and debate a set
ous analytic programs to uncover market opportu- of annual ‘imperatives’ or bold challenges. The
nities. When he joined Signet Bank, he got a chance imperatives are just that. . .they are things that must
to pilot his information-based approach. In 1993, Sig- be done if we are to achieve our long-term vision. The
net tested the assumption that people were dissatis- imperatives are also a good tool because they can
fied with carrying high interest credit card debt. Signet morph and change over time—they reinforce the
offered a targeted group of customers the opportunity importance of change management.’’ Some of the
245TABLE 1 ELEMENTS OF A BUILT TO CHANGE ORGANIZATION.
BUILT TO CHANGE FEATURE DEFINITION CAPITAL ONE DIMENSIONS
Strong future focus Spend more time thinking about the future—give Dedicate a large percentage of analysts’ time to
possible future scenarios more weight in current thinking about future trends and their
strategic decision-making implications on a line of business
Robust strategy and A recurring metaphor that explains a ‘‘Test and learn’’ strategy generates opportunities
momentary advantages series of advantages over time for new revenue streams
Flexible organization design Create empowered organizations, Few tiers of jobs, pay for results and
flat structures, flexible competencies related to changing,
performance management systems reorganize frequently
Orchestration capability The ability to change routinely Building a change capability project
more important corporate imperatives to come out with a hiring process that selects for people who like
over the last several years include diversification and change. As part of the rigorous interviewing process,
customer experience, and several relate to human candidates are asked about their leadership of and
capital management. learning from change. The interviewers also focus on
identifying people who have a passion for excellence
Robust Strategies and Momentary and collaborate well with others.
Advantages Complimenting the hiring process is an organiza-
tion structure that is decentralized and fluid. Capital
The information-based approach Fairbank created One managers like to say, ‘‘what gets resourced, gets
thrives on data, experiments, and analysis. One man- done,’’ and so the organization has traditionally
ager joked, ‘‘We count everything here. There’s probably relied on a few tiers of responsibility instead of
a spreadsheet somewhere describing the ratio of tables multiple layers of management. This has pushed
to chairs in the cafeteria.’’ It results in a robust ‘‘test and decision-making down into the organization and
learn’’ strategy, and it works like this. Terabytes of allowed people to take on a variety of tasks without
consumer data are analyzed statistically to generate having to worry about job descriptions and pay
potential risk profiles. For example, someone who grades.
responds to an invitation is a lesser credit risk than For example, associates can have three or four
someone who calls up on the phone and asks for credit. bosses in a year. Suzanne Newton, an HR (human
Combined with guesses about how the environment is resources) client consultant, described her first year
changing, a profile or hypothesis can be tested with an experiences, ‘‘All the change does take some getting
offer – interest rate, payment options, perquisites, or used to; you really learn to develop your own ability
rewards – for credit services. Over the course of a year, to change. As an intern, I facilitated organization
Capital One’s managers can conduct over 50,000 of change projects and worked on the Building Change
these ‘‘tests.’’ Capability project. Shortly after I became fulltime, I
When an identified risk profile and its associated was asked to join the cultural integration team to
offer get a response rate greater than some threshold support our bank acquisition. It was tough to have to
amount, a potential momentary competitive advan- refocus on a narrower set of tasks and to figure out
tage exists. The offer is broadened based on this infor- how a new boss preferred working. When Katrina hit,
mation; as new accounts are generated, managers a whole new, but temporary team, was assembled
must rearrange the human capital, resources, systems, with new leadership to help in disaster relief. It was
and structures necessary to monetize the advantage. dizzying at first, but it really helped me to under-
However, because consumer profiles, competitor stand that every shift, every change was made to
behaviors, and other market forces change, any current align resources to the highest priority work. . .there’s
advantage is fleeting and new ones must be identified always a line of sight.’’
to grow revenues. Constant change, or moving from An adaptable performance management system
one competitive advantage to the next, is at the core of completes Capital One’s flexible design. It keeps man-
Capital One’s strategy and identity. agers and associates focused on current performance
as well as change. Carol Anderson leads the perfor-
Flexible Organization mance management process and notes, ‘‘One overlay
to the whole performance management strategy is
An agile organization is necessary to adapt quickly that the actual philosophy and core infrastructure of
to new competitive advantages. Capital One’s the program has not changed. We’ve always had a
approach to creating a flexible organization begins system that included 360-degree feedback and well-
246 ORGANIZATIONAL DYNAMICSgrounded compensation models. And importantly, broadened its product lines to include auto, home,
there’s always been an equal emphasis on rewarding and healthcare financing. The success of the diversifi-
current results as well as developing and demonstrat- cation imperative led to explorations of entry into
ing competencies we think are important for the traditional consumer banking—eventually leading to
future.’’ This ongoing balance of rewarding results the acquisition of Hibernia Bank in 2005, and North
and the development of competencies allows Capital Fork Bank in 2006.
One to adjust the criteria for current performance, but
also encourage associates and managers to learn new Designing a Change Management
skills for future success. Architecture
However, Capital One’s agile design was not com-
plete. What is not apparent in the above description is However, aggressive growth and diversification by
the way Capital One was able to transition from one Capital One often left associates feeling overwhelmed
advantage to another. That is, while the test-and-learn by the rapidly changing product/service offerings. Fre-
strategy identified the advantages, and the flexible quent updates in the knowledge base required of
organization features allowed reconfiguration of the associates, reorganizations that tested an associate’s
resources and systems to support the advantages, the ability to remain flexible, and changes in work pro-
strategy and design could not, by themselves, orches- cesses added to the stress. The organization needed
trate the transitions from one advantage to another. tools, methods, and processes to help make change
The missing built-to-change ingredient – what Capital more comfortable and even routine.
One’s organization effectiveness group saw and cre- Initial attempts to be more change-ready fol-
ated – was an enterprise-wide change capability that lowed the conventional wisdom of the day. In
gave the organization the ability to reconfigure itself early 2001, McDermott asked the University of
over and over again. Southern California’s (USC) Center for Effective
Organizations to deliver a leadership development
DEVELOPING THE CHANGE CAPABILITY AT course in change management and organization
CAPITAL ONE design to 20 high potential human resource general-
ists. Using principles from the courses, participants
Events between 2000 and 2002 led to a general aware- conducted eight action–learning projects to demon-
ness and acceptance within Capital One that change strate the value of a disciplined approach to change.
was going to be a constant companion. In July 2000, for The visible and dramatic success of these change
example, regulators imposed a memorandum of projects created the support needed to continue the
understanding requesting that Capital One increase effort.
its reserve requirements and tighten up internal con- After the training, McDermott considered how to
trol systems. The test-and-learn strategy was a novel deploy this new resource. Neither of the two most
business model, and regulators who understood (and common architectures – creating a center of excel-
probably preferred) more conservative approaches to lence that managers could draw on, or assigning the
financial management judged the strategy too risky. resources to business units – felt quite right.
Although the strategy was centrally concerned with McDermott, and an informal group of HR associ-
determining risk, it was the informal decision-making ates and line managers convened to debate the
process, symbolized by impromptu meetings between approaches, worried that neither of these architec-
Fairbank and co-founder Nigel Morris, that made reg- tures guaranteed an enterprise-wide capability. First,
ulators uncomfortable. The unexpected regulator if the resources were deployed to the line, there was a
announcement sent a temporary shock through the strong likelihood that they would ‘‘go native’’ and a
market, and Capital One’s stock dropped 40 percent in variety of customized change processes would
one day. develop. Any accumulated knowledge and skills were
Within days, the organization increased reserves, unlikely to scale up to an organization-wide capabil-
tightened controls, and created a more formal execu- ity. Moreover, leveraging the assets across the cor-
tive committee to review data and decisions. Although poration would still require the creation of a
the stock price rebounded quickly, the increased cost corporate program management office. Second, the
of borrowing resulting from its damaged reputation center of excellence approach meant that change
pointed to an important strategic weakness—Capital resources would be out of sight (and probably out
One was too dependent on a narrow range of institu- of mind as well). Instead of building change into
tional investors. Its increasing size and related growth managers’ thinking about strategy and organization,
goals strongly suggested that the organization the organization would increase line managers’
broaden its source of funds. dependency on the HR function. They would be
Shortly thereafter, Capital One announced its diver- rewarding managers for ‘‘calling for help’’ and react-
sification imperative and, between 2001 and 2003, ing to the need for change.
247A new view. An alternative change capability the best practice claim. ‘‘In what other organizations
approach emerged from brainstorming meetings and has this model been applied successfully?’’ (Answer:
debates within McDermott’s team: an ‘‘embedded none) ‘‘What studies have been done or articles have
architecture,’’ where line managers possessed suffi- been written documenting its effectiveness?’’
cient knowledge and skills to lead most organizational (Answer: none)
change. This approach deviated from both the Two events pushed the group toward consensus.
deployed resource and center of excellence The first was the identification of a change methodol-
approaches. Instead of generalist or specialist, it ogy that no one in the organization was using. In her
needed ‘‘versatilist’’ managers who excelled at a par- Internet searches, Teresa Spinicci, a member of the
ticular blend of skills. Versatilist managers could group, discovered the change management model
shorten change cycle times because they did not need developed by Prosci’s Change Management Learning
to ask for help—they already possessed the informa- Center. The ADKAR model suggested that successful
tion and skills needed to carry out most changes on individual and organization change followed a process
their own. of (1) creating awareness, (2) having the desire, (3)
Tasking managers with change management possessing the knowledge, (4) having the ability, and
responsibilities raised important questions about the (5) being reinforced for change. The methodology was
role of a manager. In fast-changing environments, the simple, easy to understand, had a case database to
ability to understand customers, markets, people, and support claims of ‘‘best practice,’’ and supported the
technologies was not enough. Managers needed to be principles from the USC training. This event helped to
able to combine their business expertise with knowl- overcome the win/lose dynamics of picking one per-
edge about change—so that as new momentary advan- son’s favorite model over another.
tages appeared, the organization could shift quickly. The second event was more a function of serendip-
The embedded change architecture approach ity than conscious planning. Steve Arneson, a human
requires a simple, standardized change methodology. resources senior vice president (VP), was leading the
As with a single, shared information system architec- Achieving Competitive Economics (ACE) process to
ture, there is a great deal of efficiency in shared mod- understand the requirements of being a world-class
els, language, and mindsets. For any large-scale change financial services organization. He went to the group’s
that requires the cooperation of, say, the credit card Web site to find the HR-related change initiatives
business, IT services, regulatory compliance, and HR, expected to come out of the ACE process. What he
all parties need to be familiar and comfortable with the found was lots of tools but no help. The site, reflecting
same change model. If every business unit has a dif- the state of the group’s progress, was full of change
ferent change management model and tools, coordi- management models and tools with no taxonomy to
nating large-scale change efforts is bound to be sort them out. Arneson saw clearly the need for a
expensive and time consuming. single, organization-wide change model, and he
encouraged the grassroots group to identify it.
Selecting a model. The grassroots group created an
internal Web site to display and compare the different Implementing the BCC
change models and tools in use. The first surprise was
that Capital One was using over 17 different change During the 2005 planning cycle, the Building a
models, including General Electric Co.’s (GE) change Change Capability (BCC) project was formally
acceleration process, Kotter’s 8-step change model, endorsed as an HR imperative. This legitimacy pro-
Lewin’s change process, and a variety of action vided the project with the management attention and
research models. In addition, there were more than resources required for implementation.
160 different change navigation tools, including
numerous variations of stakeholder mapping pro- Spread the word. A key feature of the implementation
cesses, change readiness surveys, project planning process was two change courses offered through Capi-
guides, and vision development protocols. tal One’s corporate university. The two-day certifica-
As the grassroots group had feared, the absence of a tion course – attended by both managers and staff –
coordinated change strategy had resulted in a broad went deep into the change methodology. A key feature
range of change perspectives. Each practitioner of the course was the opportunity to apply and use the
defended his/her model and tools as ‘‘best practice.’’ model on real-life change projects brought by class
During one video conference call to discuss the mod- participants. This helped to teach the concepts, gave
els, the group struggled with the criteria for an accep- the participants practice with the model, and actually
table model. An internal consultant presented a ‘‘best drove change in the organization.
practice’’ change model to the group, noting that it had The second course was a one-day program speci-
worked for several years within the Capital One orga- fically designed for line managers. It provided an over-
nization. The group began to ask questions to support view of the methodology. It also linked change
248 ORGANIZATIONAL DYNAMICSmanagement behaviors, such as ‘‘describes and Adjust and align the systems. The BCC project worked
explains change clearly and constructively,’’ in the with Carol Anderson’s performance management team
organization’s competency models to the organiza- to measure and reward competencies related to
tion’s values of ‘‘communication.’’ This helped man- change management. At the time that the BCC was
agers see the connection between the BCC project and gaining critical mass, Anderson’s team was working to
the performance management system. By leveraging revise the rating process as well as updating the com-
the existing resources and capabilities of Capital One’s petencies. Local champions, in the form of senior VPs
corporate university, it was possible to quickly build who represented their line of business, were made a
common change-related skills and knowledge. part of the performance management design team. The
A major makeover of the grassroots group’s original design team increased the number of change-related
Web site also helped spread the word about change in behaviors in the competencies and highlighted them
the organization. The new change management portal in the training on the change methodology as
featured best practice case studies and research find- described above. This sent a clear message about the
ings; assessment tools to diagnose organizational fea- importance of these behaviors for the future. The
tures, resistance, or training needs; and templates to champions were able to reinforce the importance of
help managers develop change and communication the new behaviors in the implementation of the per-
plans. It also contained a variety of Capital One gen- formance management process and provided impor-
erated PowerPoint presentations that provided an tant synergies for the BCC implementation.
overview of the ADKAR methodology, why it was Today, Capital One managers believe that meeting
important, and how to use it. aggressive but achievable goals – which accounts for
50 percent of their appraisal score – requires them to
Transfer knowledge and skill. The BCC project set the lead change and build new operational capabilities.
goal of eliminating all full-time equivalents (FTEs) in Reflecting this, one manager remarked, ‘‘If I lead
the HR organization committed exclusively to change change in the group but leave my people behind,
management. This confirmed that the BCC effort was I’m not doing my job and my bonus is at risk.’’ The
clearly focused on distributing the capability through- other 50 percent of the appraisal score is based on the
out the organization, and not on providing change extent to which associates and managers are demon-
management resources to projects. Exemplifying the strating the values and competencies of the corpora-
managerial attitude that the embedded architecture tion. The performance management system’s
was hoping for, Judy Pahren, an operations vice pre- consistent balancing of current results and compe-
sident in the card business and one of the first man- tency demonstration is critical. It reinforces the belief
agers to go through the training said, ‘‘People know I that results cannot be achieved without change.
know this stuff, and I’m always getting calls from other
line managers to think through a change issue. I con- FROM CAPABILITY TO ADVANTAGE
sider it part of my job.’’
The BCC project targeted several visible, large-scale In building an enterprise-wide change capability, Capi-
change demonstration projects and created an internal tal One used specific change projects to create an
‘‘buzz’’ for the methodology. It supported the change integrated, embedded capability that complements
initiatives coming out of the ACE, a large-scale systems Capital One’s organization design and strategy. Capital
conversion project, an HR reengineering effort, and a One’s change capability marries a business leader’s
workplace redesign process called the Future of Work. intimate knowledge of technology, markets, and cus-
In general, they targeted projects where a ‘‘don’t teach tomers with the processes of change. The specifics of
it, use it’’ approach could be applied. the business and the resources that leverage a momen-
For example, the Future of Work project involved tary competitive advantage are what drive the cap-
shifting the physical workplace from ‘‘cube farms’’ to ability. When the process of change is integrated with
‘‘neighborhoods’’ and to virtual work approaches. the content of the business, it creates an organization
Members of McDermott’s team deliberately guided that delivers both current performance and future
managers through the change methodology to imple- results. It creates an organization that loves to change.
ment flexible work schedules, telecommuting, and When we look back at the development of a change
virtual meetings using mobile personal productivity capability at Capital One, three important lessons
technologies, such as laptops, personal digital assis- emerge about how to turn a change capability into a
tants (PDAs), and instant messaging. Leading the competitive advantage.
process through hands-on application embedded
the change management capability in the manager’s Change-related Human Capital
skill set and set the norm that successful change
depended on a manager’s active support and spon- If an organization wants to develop a change cap-
sorship. ability, it must signal that commitment by increasing
249the level of change-related skills and knowledge in the carried forward into subsequent change efforts
organization. It needs to measure and reward skill through postings on the change management portal,
acquisition and provide learning opportunities. learning events among managers and change consul-
tants, and perhaps most important, conversations
Creating a Change Architecture among the managers who worked with each other
to solve change problems.
Capabilities are supported by organization design
elements – structures, policies, and systems – that CONCLUSION
provide an architecture within which to operate. Capi-
tal One’s embedded model (‘‘versatilist’’ managers and Like a muscle that gets better with exercise, Capital
common change framework) allowed change agents, One’s change capability got more sophisticated as it
change leaders, and change participants to share a was applied to more and more issues. Organizations
common language and learn similar skills. It increased that are good at change, not surprisingly, engage in lots
communication efficiency, the speed of change, and of change. At Capital One, the implementation and
organizational integration. The embedded architec- success of its change capability has left it with the
ture was directly related to implementation success feeling that ‘‘we can take on more change because with
and the ease with which the organization built its this new muscle, it doesn’t seem like we are changing
change-related human capital. all that much. It feels like we are changing less because
we are capable of handling more change than most
Experience Builds Social Capital organizations.’’
Organizations must carefully think through the
Organizational capabilities, and especially change calculus of investing in a change capability versus
capabilities, do not come fully developed and ready to buying the capability when it is needed for episodic
go, nor do they exist in a vacuum. Organizations must change. For some organizations, the investment may
have experience with behaviors to build up the deep not be worth it. But in fast-changing industries, the
and often tacit knowledge that underlies a capability. If shift in economic logic – from execution and stability
the organization has no conscious experience with to changeability – may provide the impetus, as it did
change, then it cannot have a change capability. for Capital One, to see an internal change capability as
Early on in the change capability effort, there was a the ‘‘missing ingredient’’ in organizational effective-
focus on small but visible change projects. Using the ness.
‘‘don’t teach it, use it’’ approach, and in the classic
tradition of organization development efforts, the
early efforts transferred knowledge and skill to the
line managers and built capacity for change. In addi-
tion, the lessons learned from the change efforts were
250 ORGANIZATIONAL DYNAMICSSELECTED BIBLIOGRAPHY
For more information about our thinking about agile, (San Francisco: Jossey-Bass, 2008) speaks directly to
flexible organizations, please see E. Lawler and C. Wor- the issue of managing people and building a flexible
ley, Built to Change (San Francisco: Jossey-Bass, 2006). workforce. Mary Jo Hatch has done great work on
Other books that have addressed this issue include S. integrating organizational culture with brand, image,
Haeckel, Adaptive Enterprise (Boston: Harvard Business and reputation to describe organizational identity (M.
School Press, 1999) and H. Volberda, Building the Flexible Hatch and M. Schultz, ‘‘The Dynamics of Organizational
Firm (New York: Oxford University Press, 1999). Identity,’’ Human Relations 2002, 55, 989–1018). Finally,
For those looking for a general overview on the field we were very interested in how Tom Friedman in The
of change, the leading textbook in the field of organi- World is Flat (New York: Farrar, Straus and Giroux, 2006)
zation development is T. Cummings and C. Worley, picked up on the idea of a versatilist in the second half of
Organization Development and Change, 9th ed. (Mason, his book on globalization.
OH: Cengage, 2008). The work of Andy Pettigrew is also worth noting
Built-to-change organizations are based on a vari- here. The results of his large-scale research program on
ety of organization design principles. Jay Galbraith’s innovation and complimentarity among organiza-
Designing Organizations (San Francisco: Jossey-Bass, tional systems provides empirical support for the
2002) is one of the most popular overviews of the field. hypothesis that organizations that move to more flex-
In addition, other articles and books contribute ible forms enjoy important performance advantages:
more specialized knowledge about certain features A. Pettigrew and E. Fenton, The Innovative Organization
in organizations. For example, Ed. Lawler’s Talent (Newbury Park, CA: Sage Publications, 2000).
Chris Worley (Ph.D., University of Southern California) is a research scientist at USC’s
Center for Effective Organizations and an associate professor of management at
Pepperdine University. Worley is coauthor of Built to Change, Integrated Strategic Change,
and Organization Development and Change, the leading textbook on organization
development. He lives in San Juan Capistrano with his wife and three children
(Center for Effective Organizations, Marshall School of Business, University of Southern
California, 3415 South Figueroa Street, DCC 200, Los Angeles, CA 90089-0871, United
States. Tel.: +1 213 740 9814, e-mail: cworley@marshall.usc.edu).
Edward E. Lawler III is director of the Center for Effective Organizations at the University
of Southern California. He is the author of over 350 articles and 43 books. His most recent
books include Built to Change (2006) and Talent: Making People Your Competitive Advantage
(2008). For more information, visit http://www.edwardlawler.com (Center for
Effective Organizations, Marshall School of Business, University of Southern California,
3415 South Figueroa Street, DCC 200, Los Angeles, CA 90089-0871, United States.
Tel.: +1 213 740 9814, e-mail: elawler@marshall.usc.edu).
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