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How Capital One Became A Leading Digital Bank

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Rob Alexander has been been the CIO of Capital one for roughly half of his 18 years with the company. He had a non-traditional path to the role. He studied physics as an undergraduate at Harvard, spent time in the Air Force, received an MBA from Harvard Business School, and spent roughly five and a half years as a consultant at Bain & Company. He joined Capital One in 1998, and would assume responsibility for a number of Capital One's lending businesses, including the U.S. consumer credit card and installment loan businesses. 

This breadth of experiences have been an advantage to Alexander in his role as CIO. He recognizes the need for IT to be a source of speed for the enterprise. As such, he has introduced agile methods and DevOps to the IT function. He personifies the value enterprises get at the intersection of disciplines, and he has had a hand in evolving the workplace of the future across Capital One's offices, fostering innovative thinking and co-creation. He is one of the architects of IT's ascent to become a digital leader in financial services. We covered all of the above and more in a recent conversation, the highlights of which are below.

(To listen to an unabridged audio version of this interview, please visit this link. To read future articles like this one, please click the "Follow" link above, and follow me on Twitter.)

Peter High: Next year you will celebrate your 10th anniversary as CIO. Given the pace of change in technology, and the need for departments to constantly re-invent themselves, how have you managed this change across the past decade?

Rob Alexander: Great question. I will say it has been an amazing journey, both over the full 18 years that I have been with Capital One – many of those years working in our lines of business – and then taking on the CIO role in mid-2007. Considering how much our company has changed, how much our technology organization has changed, and how much the world of technology outside has changed, it has been quite a ride. I never feel like one year to the next I'm getting stale, or that my job is the same because it is not.

When I took on the CIO role in 2007, we were on the cusp of a real change in what is going on in the world of banking, our strategy as a company, and what we needed to do in our technology organization. In those early years of my tenure, we worked on acquisitions and integrating banks that we had purchased. We rationalized infrastructure across these acquired entities, and pulled off some big projects. We developed competencies as an organization around great delivery of big, complex projects. Our acquisition of ING Direct positioned us as a leading digital bank in 2011. Around 2010, we concluded that we did not have the right model for the future. It was this recognition that digital banking was going to be important for the future, and it requires a different technology organization, a different delivery pattern, a different way of doing business to succeed.

We realized that our traditional waterfall approach was not going to serve us well in the future. Two things came to mind. One is that we needed an agile way of working, and the other is that we needed to have more on site engineering talent that was part of our associate base to deliver the work. A model of an organization that relied on a lot of outsourced functions, whether it was software development, or running our technology operations, was not going to be the right model for the future.

We started on two fronts. One has let us go out and aggressively build the talented organization with in-house software engineering capabilities that were going to need for the future, and the other is let us move to a more agile way of delivery. We adopted scrum at the end of 2011. We piloted agile, and at the same time tried to hire the teams that we needed to be in those agile scrums. We focused the pilots on digital capabilities, and we soon expanded beyond that. We could extend that across a technology organization. We found was that agile is broadly applicable as a way of working across technology, and it is not just in some kinds of narrowly confined spaces. Agile is, in many respects, a universal way of working with constant iteration, checking your progress against what the market demands or what your customers demand, and continually iterating on the product until you get to something that is powerful and winning in the market.

The two big themes were, one, we as an organization needed to be great at delivering software, and we needed to be great at delivering data solutions that support how we make decisions for customers, how we interact with them, and how we make decisions internally. We have always had a deep heritage around data analytics, but we needed to evolve it with where technology was going, but we were not always great at building software, and that was the thing that we needed to build as a capability.

High: How difficult was it to build the software engineering team?

Alexander: The challenge is that the talented software engineers want to work where they see other great software engineers. You have a little bit of a chicken and egg problem, how do you build an initial critical mass that can draw and attract other people, and then you also should offer a way of working that is appealing to the software engineers. They want to be productive, and they want to work with modern technologies, and they do not want to work on legacy applications platforms, or slow bureaucratic ways of working, which are often the case that you might find in large banking or other large institutions. We took on those two challenges, which is how do we build a team, a critical mass of great software engineers that will attract others, and change our technology operating model in a way that allows us to evolve like the best technology companies. And again, all of this is grounded in our strategy, which is the recognition that the winners in banking are going to be companies that ultimately look like great technology companies because that is where the industry of banking is going.

In addition to rapidly growing our software engineering staff, we recognize that to be productive, we need to think about how we deliver infrastructure, so we made the choice to move to the public cloud. Amazon Web Services is our predominant cloud partner. All our new software we build in the public cloud, and we are migrating applications out of our data centers to the public cloud as well. Our view is that we do not want to be in the business of building infrastructure. There are companies out there that are doing a great job of that, and have invested a lot, and have tremendous scale. We would rather focus on building great applications for our customers.

We have an open source first philosophy for how we build our software. We try to build on an open source foundation, and we are active in the open source community. We launch our own open source projects, as well as consume open source. We think it is a two-way street, and so it is important for us to be involved both in consuming but also making sure we are contributing to those efforts. It infects your culture, as open source becomes a way which we work internally as well, where some teams may build software that other teams consume, and they contribute back, and create a more collaborative way of building software internally. Open source has transformed the world of data analytics. This started with Hadoop, but there has been a whole ecosystem of projects that have emerged that have changed the way companies can do data analytics. We are riding that wave of technology innovation, which is both about how do we handle vastly larger quantities of data, and do it in ways that we could not do historically, whether it is more data history, or more data variables. We can handle much larger quantities of data today with the technology that is available, but we are also able to move to data in real time.

This is an important element of how the world of banking is and will change. More banking services are getting integrated into people's lives. It is in your mobile phone, you can talk to it on Alexa. The ability to handle data in real time, the ability to make decisions on that data in real time, which means complex processing from executing models in real time all the way up to machine learning capabilities in real time; those are capabilities and competencies that are going to be essential for where banking is going.

High: Related to this is DevOps. I know that the organization has made a commitment to DevOps, you have ramped up more teams leveraging the various methods associated with it. Please talk a bit about that journey, the rationale for doing it, the value achieved, and how you measure the effectiveness of it. How do you know that it is working well or not?

Alexander: The move to DevOps, which came on the heels of our agile transformation, has been the next phase past agile. It is about how we become a much more productive, high performing organization. We think that the move to DevOps is about automation of how we build software, from being able to develop software and push it, all the way to deployment in an automated way with all the testing and security and other things you need to do all along the way. That whole automated delivery pipeline is an important part of it. It is also about a culture of developers owning code in production. That is an important shift, and where the whole term DevOps come from: bringing development and operations together.

There are powerful benefits to teams owning their code of production. First, they can quickly resolve the issues that come up because we are no longer in the mode of just handing off code to an operations team. We are moving these operations upstream and integrating them into development teams. It also changes the mindset of developers about the importance of quality, of code delivery, and what it means to develop code for running at scale with high reliability in an environment geared toward resiliency.

There are productivity benefits and quality benefits, and there are employee satisfaction benefits from working in an environment that is operating with a high degree of efficiency. We are in that journey, and it is important that as the leadership team in technology, that we are communicating to our whole organization that this is what excellence in software delivery looks like. Some are far along and are close to that destination, while others are earlier in that journey, and are working towards their roadmap of how to get there. We think this is a powerful way of working, we think it's good for our business customers, who will get a lot out of it and are engaged in how we work on this, and we think that it is an important part of becoming a high performing organization. This is further evidence of our modeling ourselves off how the best technology companies operate because that is how we need to be performing if we're going to win in banking.

High: You have rethought the work spaces in your various offices to enhance collaboration. Can you talk a bit about IT's role in that transformation, but also, more importantly, the insights that the changes are based upon? What have you come to realize are some of the key insights in terms of how people work best together?

Alexander: This goes back to the launch of our agile journey, which started in technology but is a partnership with our business. Agile speaks to some elements of human nature of how people like to work. People like to collaborate, they like to move quickly, to make decisions quickly, and they like to produce stuff and get stuff done and to see progress and the fruits of their labor, and to see them out there with customers and getting feedback. So, there is something powerful about agile that just speaks to human nature in general. We picked that up quickly. The teams that were engaged in our agile pilots early on were energized by this way of working. They liked being together with their team, instead of setting up a meeting or sending emails to get decisions made. Instead, they were sitting around the table and asking each other what is the best way to solve this problem, or what is this requirement and how do I implement it. It did point our way to a new way of working at Capital One.

Then it stated to scale it up, and we recognized that this way of working requires a few things. One is that we wanted more co-location of our associates. Having a highly-outsourced development organization is not consistent with the way that we want it to operate. We felt like we needed to have co-location, and collaboration was critical. By the way, you can work in agile across locations, but it is at its peak optimization when you have physical co-location. You cannot always have that, so we appreciate that we need multiple ways of working. That is not just for the technology, but that is also for the business team that's involved. So, for every one of our agile scrum teams, we have a product owner who is a member of one of our lines of business product management team, and they are part of that agile scrum. That is a critical relationship, because that product owner holds the vision for what it is we are trying to build, where we are trying to go with this in the market, and therefore what the backlog of capabilities and features are that we are trying to build to get that product to market. That engaged product owner role is critical, it is an essential element to the success of that agile scrum team, which is in numbers, mostly technology, but a critical role that is played by the line of business owners.

As we build out our physical campus, we have tried to create work spaces that enable that collaboration at the agile scrum team level, but also, we operate what is called the scaled agile framework. That is a framework for how to operate agile across teams in a more integrated way for larger builds and larger products. That implies that we need to be able to be effective in collaborating at both the individual team level, but also across multiple teams. We built our workspaces with those attributes in mind. We have technology teams co-located with the business teams so that we can achieve that tight collaboration that we need, and it has worked well. When we create spaces, it is generally open, but we create spaces where those teams can get together and do their agile ceremonies effectively. Then we also can work across locations.

High: A theme that runs through the entire conversation so far is this whole notion of the digital transformation that the organization is undertaking. becoming a leader in digital banking, in digital finance, and in its various forms as it translates into this environment. During your tenure as CIO, how has the concept of digital evolved?

Alexander: In the early days for us, and for every bank, that you had an internet online banking application, and that was pretty much the purview of the technology team to build that and develop that. I would say early in my tenure in the CIO role, it became apparent that building great digital capabilities, and early on it was about online, but soon became about mobile, and now it is more pervasive than mobile. Now it is things like wearables, things like Alexa, and those kinds of agents. It is broad and pervasive now. I would say early in my tenure it became clear that this was going to be important to our business strategy. our organization is dynamic around working backwards from where the world is going and where the market is going. It starts with our CEO and founder, Richard Fairbank, who has great passion for understanding how the world is evolving and technology is a central element of that. He is personally engaged in our technology journey. We work backwards from how the market is evolving and determine what it is going to take to win. Too few organizations confront that. It is so easy to build this year's strategy as last year's strategy plus 10%, as opposed to saying that we need to know how the world is changing and where the market is going, and planning accordingly.

It is not hard to see that technology is playing such a critical role in this business. Our products are just ephemeral products. It is principally software and data. Yes, we have branches, and yes, we have pieces of plastic that you put in your wallet today, though some people just carry them on their phone as digital versions of that. Our products though are intangible products, and so at the core of our business is the important role that technology plays, and it is about software, and it is about data and analytics, and it is about how you bring all of that together to create a great experience for customers. The recognition that this is where the world is going, and that strategic realization is what has been driving what we have been doing for many years now. I would say that it starts with our CEO, but our whole executive team is aligned around this view that we need to be technology leaders and digital leaders in our industry to win.

Capital One is a leading credit card issuer, and we are in numerous segments of consumer banking. We are also in commercial banking, and we were the leading digital bank even prior to acquiring ING Direct, but also the acquisition of ING Direct, which gave us scale as the leading digital bank. We have a mix of products and a mix of customers that are more slanted toward digital than other large financial institutions. We are one of a short list of institutions that have a national footprint, so that we can build a national brand on the back of a credit card, on the back of our digital bank, as well as other businesses. We have a great positioning strategically on multiple dimensions

High: There is so much disruption and a lot of venture capital that is going into FinTech. How do you partner with a lot of FinTech companies, in addition to competing with them in many ways as a digital bank? How do you think about on the one hand emulating some of what is magical about a startup environment while also leveraging the advantages of a business with your history, skills, and scale?

Alexander: Let me start by saying that FinTech is an interesting term in and of itself. It is often used to describe startups that are based in technology but focused on financial services. It is a recognition that the world of financial services and technology are blending in a powerful way. It shows up in the competitive landscape for us that is not just the small startups that we are concerned about. We also need to be attentive to what the large Internet superpowers are doing. Everybody is thinking about this and coming at it from different directions, and FinTech can broadly mean how all these things are coming together and changing the competitive landscape for banking. We stay engaged with the world of startups, and we have a team, based in San Francisco that is totally focused on understanding what is going on in the world of startups. We built a software application that we use internally to track our engagement with startup companies, as well as venture capital firms. So, we have several relationships with various venture capital firms both on the East Coast and West Coast, which are engaged in FinTech, but also on other enterprise applications that are relevant for us. We stay engaged, and a lot of the time we bring in startups for pilots, and there are many examples pilots that have turned into things that we now use. There are also many times where we have made an acquisitions. We have acquired into our technology organization some companies for their talent, or for elements of their technology.

We also extended that acquisition approach to things like design. We think that design competency is essential to how we build our products. We acquired a company called Adaptive Path, which was a leading design firm based on the West Coast. We brought them in and turned them inward to Capital One. We have continued to invest in design as it is a competency. That engagement is important for us, and we learn a lot from these startup companies in terms of how they operate and how they think about building technology, and we go to school on that.

It is also how we measure productivity and nimbleness. You are right that [start-ups] benefit from starting with a clean slate, with modern technology. That said, we are only a twenty-two year-old company, so we do not come from a long heritage of banking, but we have acquired banks that have a legacy infrastructure, so we are working through modernization of legacy platforms. But there are a lot of things that we build starting with a clean slate in terms of building entirely on modern technologies in the cloud and interfaces back to legacy platforms in ways that we can do efficiently. We think there is real power in being able to operate at the scale that we can operate, while learning from the FinTech companies. Every now and then, we will acquire, but we stay close to those developments and what they mean competitively, but also what we can benefit from.

High: I wonder if you could take a moment to talk about some of the innovative things your team and the company more generally speaking are working on for your customers.

Alexander: Let me mention a couple flagship products for us that we are excited about. One is our Wallet app, which is designed to be a companion app for cards that our customers spend on. It provides a lot of capabilities to track and manage spending, to track and redeem rewards, notifications and interesting insights from customers who are using our products. We built Android Pay into the wallet so customers can use that to pay.

We launched some capabilities that we call Second Look. In real time, we are keeping an eye on unusual patterns that might happen in a transaction. Some are obvious indicators of fraud, and we have models that look for fraud, and we will alert you if we think we see fraud. As an example, if you went to a restaurant and left an unusually large tip, we will notify you, and ask if that is legitimate. Or we might see you went to a gas station and got a double swipe on your card. We think that being able give customers this additional information to look out for them in their spending patterns is a great service. It is the ability to do that in real-time that is the essential element of that.

We are also proud of our flagship mobile banking app. For all Capital One products, we now have a mobile banking app that integrates all of those into one well-designed application, modern application. These are all applications that we have built entirely in-house as native applications for all the major mobile platforms.

We are excited about our launch on Alexa, which allows one to service your Capital One products through a voice interface. We are the only bank to do this. You can service your credit card accounts, mortgage, auto loan. These are all products that we continue to regularly iterate on, so whether it is our wallet or our mobile banking or our Alexa work, these are our products that are continuously under development and we roll out new capabilities. So for Alexa, we rolled out the ability to natural language queries such as, “How much did I spend last month at Starbucks." To figure this out on your own would be laborious, but through this natural language interface, we can give you answers to questions which might be tricky to calculate.

We are also excited about our Credit Wise application, which helps consumers track and monitor their credit. We are rolling out some new features in that coming up. It helps our customers get more insight into their credit score and what things drive it and how things they may change about their behavior might impact their credit score. We think that is great financial literacy for all our customers to have. Those are some of the things that we're working on right now that we're quite excited about.

High: You have a non-traditional path to the CIO role. You were in the Air Force. You were management consultants Bain & Company. You have an MBA from Harvard Business School. You don't have a traditional technology background academically. As you mentioned, you've been with the company for 18 years, so roughly half of your time here has been outside of it as well. I wonder the advantages you see of having had the varied experiences prior to taking this role.

Alexander: It is a disparate background, but they have all contributed to my ability to do my job today. So, in the Air Force we were building missile systems. I did a lot around command and control and developing software requirements and developing systems, and it offered insights into how best to manage a big project at scale.

Business school was a great learning experience, and it broadened my mind about how to think like a business person. It is truly a general manager education at Harvard Business School, and you get it through the case method, which is all about real world experiences and working through those and taking them out with your colleagues. That is a powerful way to learn about business. That helped me develop skills in thinking like a general manager. My time at Bain was almost a continuation of the experience at HBS. I worked in many different industries, probably more financial services than anything else. I tackled some of the most difficult problems that companies dealt with, and I typically engaged with senior players in those organizations as a strategy consultant. Being engaged with some impressive companies and impressive leaders in those organizations. Bain is a great organization as well in terms of the culture and the caliber of people, and I learned a lot about the importance of great talent.

Then I joined Capital One. The reason I have stayed here is because of the power of our mission, the culture and the people in this organization, and the fact that this continued to be successful and growing organization. All those things have contributed to it. I had Marketing responsibilities in our Card business among others. There came a point in our card business where we recognized that we needed a much more modern infrastructure than the one we were operating on. We had mostly homegrown systesm that were becoming antiquated. We needed a more modern flexible infrastructure that would support the pace of innovation and growth. I volunteered to lead that project because I wanted to overhaul our infrastructure in our Card business, which was at the time our dominant business for Capital One. It was a big program and a risky program for us, but we felt it was important to have someone lead it from one of our business units. It was a different way of working for us. That was a multi-year effort that changed out virtually every aspect of our card infrastructure. That went well, and it got me engaged in the world of technology more directly, more hands on.

I have always had that affinity, but this was my first opportunity to lead a big technology initiative at this company. Then coming out of that I did some work around building some new enterprise-wide technology capabilities. Then our previous CIO, Gregor Baylor, left in 2007, and that is when I was asked to become CIO. At that point, I knew enough to be dangerous. I had been involved in a lot of technology initiatives at Capital One, beyond that bigger project, and had a deep appreciation for business, so I had a good skillset to step in. Looking back, I did not fully appreciate just how much I had to learn. That learning continues today because the world of technology today looks nothing like it in 2007. I have developed a deep appreciation for how much there is to learn and the leverage we can get in harnessing technology for business. This business is rich with opportunities to use technology to reinvent and disrupt our company, as well as to improve the lives of customers.

Peter High is President of Metis Strategy, a business and IT advisory firm. His latest book is Implementing World Class IT Strategy. He is also the author of World Class IT: Why Businesses Succeed When IT Triumphs. Peter moderates the Forum on World Class IT podcast series. He speaks at conferences around the world. Follow him on Twitter @PeterAHigh.