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When IT, marketing and operations collaborate, Capital One yields remarkable dividendsDefining What would happen if you put your head of operations, your marketing chief and an IT director in a conference room and shut the door? A painful staring contest perhaps? Despite best intentions and more than a decade of lip service about how IT should collaborate with its peers, most companies couldn't even get these three executives to sit down together, never mind create a marketing system that generates millions of dollars in profit. But at Capital One Financial Corp. in Falls Church, Va., cross-functional collaboration is not only the norm, it's part of a founding philosophy.

The Customer Service Marketing (CSM) system is an example of something "fundamental to the whole way we do business," says James Donehey, Capital One CIO and senior vice president. Capital One's founders, Richard Fairbank and Nigel Morris, believe that the credit card business should be driven by an "information-based strategy" in which customer data is the blood in the business's veins. Therefore, when they spun Capital One out of Signet Bank in 1995, they deemed it impossible to separate IT from the business without thinning the blood and inducing corporate anaemia, or worse. "Technology and business are one and the same," says Donehey.

The August 1995 collaborative meeting that gave birth to CSM could not have taken place if any one of the high-level executive trio representing marketing, operations and IT was missing. "It's the way we discuss all new business. You have to have all three of us there," says Jory Berson, vice president of marketing and analysis.

In this instance, the three-Berson, IT Director Eric Nelson and Senior Vice President of Domestic Card Operations Marjorie Connelly-came together to brainstorm new channels for cross-selling ancillary products to credit card customers, an alternative to costly and frequently aggravating telemarketing.

What emerged was a unique inbound telemarketing process that strives to match Capital One's customers with appropriate third-party products-long-distance telephone service, auto insurance, discount travel reservations and even furniture.

This happens through demographic profiles. Besides basic data about the customer, the profile also lists any history the bank may have about its relationship with the customer and his spending. When a cardholder calls the toll-free call centre number for service, CSM will determine if there's a match between the customer and a product. If there is, the system prompts the sales rep to offer the product to the customer at the conclusion of the call. For example, if the customer reports a lost or stolen card, the system might suggest that the representative sell the caller a credit card registration service.

The beauty of CSM is that the sales attempt is triggered by the cardholder, who is calling in and receiving help from the rep, making that customer more predisposed to listen to the sales pitch than if he'd been contacted during the dinner hour. "The customer-initiated call concept allows Capital One to really help customers and offer products and services at the same time. What a great concept in these days of 'teleharassing,'" notes Patricia M. Wallington, former CIO of Xerox Corp., who served as a judge for the Enterprise Value Awards.

In addition, a core team of sales-proficient reps uses CSM to test market new products, collecting and reporting data on customer reactions to offers. The information is analysed and used to fine-tune the product offerings and their matches to customer demographics before Capital One commits to the product full-scale. Currently a dozen programs are being offered by 2,200 representatives serving Capital One's 14.9 million credit card customer base.

Instant Buy-in

The first goal for the CSM team was to create the system fast and cheap. For speed, there was already one huge advantage: The major stakeholders were in the room. "When you work together like this, your ability to make things happen in a quick manner is unprecedented," says Nelson. "The energy is instantly there.

You're not having to go build buy-in in three separate organisations." More important, each stakeholder had discretion to put up the bucks. This is key, because the best collaborative intentions aren't worth a damn without corresponding authority over budgets. Typically the three functions share the costs, which are rolled up into a single column on a profit and loss statement, and the collaborators are rewarded (or not) for the overall value generated by the project.

These factors paid off: CSM was developed, tested and deployed in just four months. The initial investment was under $400,000. The outlay was low because the system uses the existing network backbone and customer service application interface.

Nelson's team added a button to the existing service rep interface, which lights up to alert reps to a cross-sell product opportunity for any given customer on the line. The rep clicks the button and, depending on the customer profile, a particular product page pops up, complete with feature and benefit lists and a suggested spiel.

Of course, having existing networks and interfaces doesn't guarantee a low-cost rollout. The key to Capital One's success was smart investment in application infrastructure. In creating an earlier customer service application, notes Connelly, "we invested heavily in an infrastructure that could be very flexible, with easy-to-modify screens and easy-to-add additional logic." Notice the term "we" from a non-IT executive; the CIO alone doesn't have to lobby about the importance of infrastructure and panhandle for the money to build it.

This is Capital One's infrastructure, not IT's. (See "Anatomy of the System".) The Real Risk In fact, the technology risks of CSM were minimal. What really worried the collaborators were the people issues. How would customer service reps, trained to answer questions and solve problems, take to the idea of selling? "It's a big deal going from answering a customer's question to trying to turn that conversation and attempt to sell them something," Berson notes.

Sure enough, there was resistance. "At first people didn't want to do it; they felt it was not part of their job," says Keith Collins, a customer service associate in the Richmond, Va., call centre. But the training and rewards that Capital One provided helped most representatives get over their heebie-jeebies toward selling, Collins says.

For starters, management made sure performance measurement didn't conflict with what they were asking reps to do. It would have been suicide to ask representatives to spend extra phone time selling to a customer and then flog them because their calls-per-hour productivity declined. Also, because of the general distaste for the idea of selling, Capital One introduced sales incentives slowly. "We didn't measure people on sales rates; we measured on attempts," says Carey Box, director of customer relations and the Tampa, Fla.-based manager of the company's service reps.

Even without sales incentives, the associates racked up several millions of dollars in profit during CSM's first two years of deployment. Last year, with more products, more representatives and better demographic matches, profits eclipsed the first two years combined; in comparison, over the same period, Capital One spent less than $1 million in maintenance and enhancement costs.

Overall, Capital One is reaping anywhere from 2 to 10 times its original CSM investment, depending on the product being sold. Looking to the future, it's not unreasonable, say Capital One executives, to think that this credit card company could evolve into a major player in such industries as travel and insurance through cobranding, with card issuance merely a means to acquire valuable customer profiles.

But what's to stop American Express Co. or The Chase Manhattan Corp. from copying this success? In part, it's a matter of focus, say Capital One execs.

"My peers sit back and say, 'I can do computer telephony integration and match inbound calls to a database, so I'm doing everything Capital One is doing,'" says Box. "Yes, they can send a call to a particular representative. But can they send the right customer and the right product to the right representative at a cost that adds value?" The answer is no, Box says, because the competitors are cocky about their ability to implement the technology and fail to see the importance of the business process encompassing it . And chances are, they're still waiting to see who wins the staring contest back in the conference room.

Executive Editor Richard Pastore can be reached at