Module 3 Option 1-Capital One Financial Story PDF

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Running head: THE CAPITAL ONE FINANCIAL STORY Module 3_Option 1 – The Capital One Financial Story Ali Masood MGT351 – Organizational Innovation and Change Colorado State University – Global Campus Instructor: Dr Michael Knight October 2, 2018

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The Capital One Financial Story In today’s fast changing, competitive global marketplace, organizations must design or redesign themselves to adapt quickly, move faster and embrace new systems and processes (Kotter & Schlesinger, 2008). In the case of Capital One, company made a bold decision to initiate a large-scale transformation using “built-to-change” model, deploying new information systems, adapting new measurement and reward systems, making HR structural changes and implementing other future-proof functions and processes. Though the company's achievements that resulted from this massive “built-to-change” project are certainly laudable, it would also be valuable, from an organizational change management perspective, to learn the risks company faced in terms of their culture, people, purpose and performance. Risks of Built-to-Change Model Capital One implemented an “enterprise-wide change capability” to move from a builtto-survive to a built-to-change future. The company sought to make change management central to its business model, allowing it to “execute changes, both large and small, faster and more efficiently” (Worley and Lawler, 2009). With 40,000 employees and over $20 billion in revenue, this comprehensive strategy seemed aggressive, risky, costly, non-employee-friendly approach to transformation. Worley and Lawler (2009) estimated “the success rate for a large-scale organization change at about 25–30 percent,” and that “successfully implementing several of them in a short time period is virtually impossible.” (p. 245). With the odds of success being so low, the “built-to-change” strategy clearly holds major disadvantages in its adoption and implementation. First, it is a proven fact that when the change is initiated there is always going to be resistance and roadblocks from people. Change carries uncertainty, interferes with autonomy,

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creates more work and tends to threaten people’s jobs and emotional health. A survey conducted by the American Psychological Association determined that “55 percent of people who said they experienced organizational change at work reported feeling chronic stress, compared with 22 percent by people who didn't have organizational upheaval” (Brooks, 2017). With such a massive “system wide” transformation, “built-to-change” model puts organizations at risk of low morale, loss of talent, confusion amongst the ranks and toxic culture, which can leave the company in shambles. Next, built-to-change requires “versatilist” managers, who must possess knowledge and skills to “shorten change cycle times because they did not need to ask for help and have the ability to carry-out changes themselves” (Worley and Lawler, 2009). A large organization would need masses of “versatilist” managers who are equally educated, disciplined and expert communicators who are able to make critical business decisions with minimal direction and support from upper management. This clearly carries major risks, especially in an industry that is highly regulated, where a single wrong decision can cost the company its reputation and future. Additionally, the model requires not only change in human capital but also business processes and systems. Company would be required to adopt a new performance and reward system which can not only be costly but could drive wrong behaviors, lack of employee engagement and increased legal risk. According to Aufrecht (1997), “poorly constructed rating scales and incentives can be a source of confusion, subjectivity, ambiguity and conflict” all of which undermine the process of change (p. 48). Built-to-change model integrates capabilities and soft skills of associates and managers as part of their performance management and reward systems. These measures are hard to scale, adding layers of subjectivity and complexity, which

THE CAPITAL ONE FINANCIAL STORY may lead to “gaming the systems” issues, favoritism and ambiguity in expectations and employee ratings. Employee Benefits of Built-to-Change Successful rollout and implementation of “built-to-change” model can lead to several benefits for people in the organization. To start with, “such large-scale change requires employers to provide learning opportunities, which help employees gain knowledge and skills that help them adapt to changes” (Worley & Lawler, 2009). These capabilities deliver huge boost to employees’ careers, opening up more opportunities for growth and advancements. The change unifies structures, policies and systems, leading to improved efficiency, cooperation, collaboration and communication across the enterprise. Employees understand their purpose and feel a sense of pride knowing that they are making positive contributions to their team and the organization. As noted by Ulrich and Smallwood (2004), “such improvements can have positive effect on the performance of employees by increasing the employee morale, confidence, retention rate and overall productivity at workplace” (p. 122). Employee Disadvantages of Built-to-Change As stated earlier, people do not like changes especially ones at such grand scale. If employees struggle to adapt well, or quickly enough, to the new change model, their confidence in themselves may erode. If the change threatens employees' jobs, their power or their status, it can negatively affect employee morale, pride in their work, and less than desirable performance. Again, in the 2017 study, American Psychological Association uncovered that “35 percent of the employees [out of 55% negatively impacted by the change] felt physical symptoms from their stress at work” (Brooks, 2017). These reasons may range from perceived injustices or unfairness

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to lack of timely communication by the management and/or fear to adapt constantly in a continuously changing environment. Application in Other Industries In 2010, Worley and Lawler conducted a study to explore whether industry characteristics influenced an organization's agility characteristics, “such as whether organizations in certain industries were more agile than others; and whether consistently high performing firms had more agile features than inconsistent performers” (Worley and Lawler, 2010). Based on their multiindustry survey sample, the study found convincing evidence that consistently above average performance was linked with agile organization structures. Firms whose “ROAs were above average at least 80% of the time over a 29-year period” had much higher focus on the future and capability to execute changes quickly and routinely (Worley and Lawler, 2010). It is evident majority, if not all, organizations agree on the importance of change, yet “estimated 70 percent of them fail in change initiatives” (Kotter, 1996). Researchers and experts have differing views on reasons for failure; however, most agree that “the capacity of an organization, and people within it” is the key to driving successful change. If an organization wants to build change capability, it must do more than just train people. Company must focus on structure and intent, help people build core skills and competencies, and establish infrastructure and governance that revolve around this specific methodology of change management. Conclusion In summary, capital one made a noteworthy achievement by rebuilding an organization that thrives on change. Company used built-to-change methodology to redesign structure, processes, systems and develop core competencies in its people to support a large-scale shift in strategy and identity. However, not all organizations are capable of such major transforming in

THE CAPITAL ONE FINANCIAL STORY such short period of time. Most fail to recognize risks, formulate robust strategies, invest in human capital and architect change management to turn their intent into capability to focus on the future. One of the biggest reasons for failure is getting employees on board with the changes. Naturally people do not like change because of the uncertainties; therefore, it is critical that organizations plan carefully and gain “buy-in” from the influencers within the company.

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Aufrecht, S. E. (1997). Grading as performance evaluation. Journal of Public Administration Education, 43–57. Brooks, C. (2017). Change in the workplace stresses your employees out most. Retrieved October 3, 2018, from https://www.businessnewsdaily.com/8744-changes-at-workstress.html Kotter, J. (1996). Leading change. Boston, Mass.: Harvard Business School Press. Kotter, J. P., & Schlesinger, L. A. (2008). Choosing strategies for change. Harvard Business Review, 57. Ulrich, D., & Smallwood, N. (2004). Capitalizing on capabilities. Harvard Business Review, 119–128. Worley, C. G., & Lawler, E. E. (2009). Building a change capability at Capital One Financial. Organizational Dynamics, 38(4), 245. Worley, C. G., & Lawler, E. E. (2010). Agility and organization design: A diagnostic framework. Organizational Dynamics, 39(2), 194–204....