Core Business Strategy and Capital One Bank

Big business is a common approach to profitability in a globalizing world. Companies buy up small companies in hopes of riding themselves of troublesome competitors, reducing expenses due to economy of scale and open additional avenues to new opportunities. There comes a time when companies have become a little too diversified and a little too big for their own britches. This causes profit margins to decline. Focusing on your core business has major competitive advantages.

The Case of Capital One:

Take the case of Capital One Financial Corporation which acquired GreenPoint Mortgage business as part of a larger deal to take over NorthFork Bank. Financial services are still profitable and banks are buying each other out in a mad frenzy to reach dominant status. Many banks have been engaging in the mortgage industry for decades and have mortgage components associated with them.

The mortgage business is currently unprofitable. People are defaulting, many Americans are overextended, and the housing market is slow. Capital One is closing its GreenPoint Mortgage subsidiary which will cost a total of $860 million to complete and damage the company financially for the rest of this year and possible next year as well.

Focused Strategy:

Why would an organization do this? The problem is that losing management focus and diverging to far from your core strategy causes confusion has set in. By focusing on what your business is really about you can increase efficiency, narrow the choice of daily management decisions and reduce corporate waste.

Companies have worked under the assumption that continual growth is always good. They have developed this growth through acquisitions, offering more products and being everything to everyone. The problem is that sales are beginning to slip and companies must scramble to maintain profits. Focused companies are much more likely to succeed in the long run.

"I believe that you have to understand the economics of a business before you have a strategy, and you have to understand your strategy before you have a structure. If you get these in the wrong order, you will probably fail," Michael Dell.

In the Case of Capital One they understand the economics of business (mortgages are risky and unprofitable), understand your strategy (banking services) and develop your structure (banking companies only). Since Case of Capital is willing to follow the correct order they are better able to succeed in the long run. They want a simpler and leaner operation that earns profits.

Too Many Projects and Not Enough Resources:

Imagine yourself trying to get many things done. You want to be a business leader, you want to get your MBA, you want to be the great father, you want to build your own car and you want to exercise 2 hours a day. At some point you are going to figure out that there are not enough hours in the day and not enough resources to be the best at everything. Success and sanity will require you to focus on your core goal (s) so that you can make them a reality. Are companies really that different?

"Without an appropriate vision, a transformation effort can easily dissolve into a list of confusing, incompatible and time-consuming projects that go in the wrong direction or nowhere at all," Bob Guccione.