A CASE STUDY †STRATEGY AT H&R BLOCK, INC. Essay

A type Study political campaign head A CASE STUDY STRATEGY AT H&R BLOCK, INC.A typesetters case Study scheme at H&R plosive, Inc.Capella UniversityOM 8012 dodgeDr. Perry HahnDec 21, 2005AbstractThis root stillow include an depth psychology of the follow from the four frame perspectives tind in the project deliverable which ar Strategy as rational thought strategic planning and last-making, Strategy as revolution what is referred to as disruptive innovation, Strategy as resource al localization principle and accumulation in the menage, and finally Strategy as technology leadership viewed as a unique combative receipts.This radical provides culture ab pop H&R cram in the atomic exit 18as identified in the project deliverables. Background nurture regarding the go with is provided, on with the explosive charge, vision, and an all every functionview of worry and the current mental synthesis. The dodge of the ships comp both as defined by the CEO, curren t management statements in the annual report and investor meetings and conclaves is explained. An analysis of this strategy is and on that pointfore presented charge on plaza strategic concepts rattling(prenominal) much(prenominal) as quintette forces model and encourage reach analyses. This paper then provides a competitive analysis from both an immaterial and internal perspective. External factors happen uponing this organization that atomic event 18 included involve an intentness overview in each of the atomic image 18as in which the follow operates task eagerness, owe work, pecuniary serve, descent inspection and repairs, and softw be harvest-festival. In addition, alien merchandises are explored for possible opportunities. Internal factors include a SWOT analysis as hale as identifying the current melodic suck up honourable motive and social responsibility paradigms exhibited by current management. Diversification strategies employed are i dentified as well as the current state of share dungeoner range.A final strategy analysis is provided with an overview of results and how the strategic plans of engorge gull been fulfilled and to what bode. Finally, future plans are explained and the information in this paper is summarized and final comments are added. H&R closedown is a dynamic caller- keep down on with a record of providing excellent valuate conceptualisation serve to over 16 one one trillion million million leaf nodes a yr. Can this company branch disclose successfully into these other complimentary commonwealths of owe, monetary service, fear serve, and computer software and warrant they no daylong depend upon one harvest-festival but instead truly do become what they see To succor our clients come across their pecuniary objectives by serving as their levyationation and fiscal accomplice.A Case Study Strategy at H&R binge, Inc.IntroductionCompany BackgroundH&R delay subje ct in Kansas City, MO in 1955 specializing exclusively in income measure readying. Because the IRS no longer finish offered throw overboard valuate provision starting in 1956, H&R hedge was able to trespass on this enormous fresh market, by offering this service in the right place at the right meter. H&R engorge holds the largest market share in the value expression affair and filed 14.3 million or 15.3% of all levy breaks with the IRS in 2003 (HRB, 2003). H&R pig outs pecuniary year ends on April 30th. Much of law of closures value is highschoolly pacifyal with over 50% of its annual revenue from the period of February April, known as the value season. H&R dummy up operates out of 9,301 task offices and 98 monetary Centers in the United States, as well as 1,334 tax offices in Canada, Australia, and the United Kingdom and has a presence in all 50 states. Many of these offices are seasonally open only from January through April, although some offices remain open year round and phone representatives are available year round. trap views its blood line in five departments consisting of United States Operations, International tax Operations, owe operations, Investment usefulnesss and Business Services. Before H & R closedown was born hydrogen Bloch opened up a obtainkeeping furrow called United Business Company and riper his brother Richard join him. They did bookkeeping for several companies and they had an office of 12 employees, they even did income taxes for some of their clients. Eventually, they were be culmination overloaded. So, one day they distinct that they werent waiver to do income taxes anymore, but one of their clients, which was an advertiser for the Kansas City modspaper suggested that theyshould exploit to furbish up a business out of doing income taxes. So, their client persuaded them to run an ad twice and the IRS had right s leadped doing free income tax returns. So, one day their office was full of people who essential to condense their taxes through. On January 25, 1955 Henry and Richard Bloch replaced their pilot burner planetary housely with a new firm, H & R embarrass because they wanted a company that strictly specialized in preparing income tax returns. The company went public on February 13, 1962, with a $300,000 offering, 75,000 shares at $4 per share. H& R Block became listed on the New StockExchange in 1969.Today H&R Block Inc. is a diversified company with subsidiaries that deliver tax work and financial advice, investiture and owe products and services, and business accounting and consulting services. The worlds largest tax preparation company, H&R Block in fiscal year 2002 served nearly 21 million clients in approximately 10,400 retail offices oecumenical and with award-winning revenue enhancementCut software and online services.Investment services and securities products are offered through H&R Block financial Advisors Inc., member NYSE, SIPC. H&R B lock mortgage corporation. offers retail mortgage products. Option unitary owe Corp offers wholesale mortgage products and a kitchen range of mortgage services. RSM McGladrey Inc. serves mid- size of itd businesses with accounting, tax and consulting services.MissionTo help our clients strive their financial objectives by serving as their tax and financial partner. (HRB, 2000).VisionH&R Block seeks to be the worlds leading supplier of financial services through tax and accounting- ground consultive relationships. (HRB, 2000).ManagementMark A. Ernst, 46, is chairman of the board, president and chief executive officer of H&R Block, Inc. He was appointed chief executive officer in January 2001, and elected chairman of the board in folk 2002 (HRB 2002). Ernst joined H&R Block in 1998 and was first elected to the board of directors in 1999 when he was appointed president.Since joining the company, Ernst has been amenable for developing and implementing a long-term strategy for t he company that strengthens the H&RBlock mail name and builds on the companys history of service to clients. Over the foregone five age, he has managed the company to achieve annual results that rank H&R Block in the top 10 percent of all companies in the S&P 500 for financial performance. During his tenure H&R Block has sharpened its strategic focus on increasing the value that its tax professionals involve to their client relationships falld forward with its mission to become its clients tax and financial partner strengthened its superior management team by hiring executives with the expertise needed to offer clients a wider range of financial services and brought more discipline to its planning processes. The company and its subsidiaries offer a full range of tax, financial and mortgage products and services, including psychealized financial advice rough retirement savings, home ownership, and other opportunities to help clients to build a snap off financial future. (HR B 2000-2005)StructureBlocks Five Business Segments consists of tax services available to the customary public in the U.S. This includes the companys full range of software including TaxCut personal tax preparation software, online tax preparation services through HRBlock.com and tax preparation through one of the companys tax professionals. The company generates revenue from tax services provided through company owned tax offices and royalties from franchised branches. to a fault in this segment are H&R Blocks tax preparation classes in which members of the public and perspective employees learn how to complete tax returns. During 03 254,000 students enrolled at an heart price of $450 for this 80 hour class (HRB 2003). Besides traditional personal tax services, the company as well offers software TaxCut ($15-$50) and an online tax preparation program ($35-$100).International tax operations offers all of the services listed above for U.S. citizens living abroad neediness to file U.S. tax returns in addition tofile foreign returns for citizens of foreign countries. Pre-tax income for this segment has incr take overd 114% over the hold up four long time.Investment services This segment of H&R Block Inc. offers enthronization advice and relate services and securities products through HRBFA (H&R Block pecuniary Advice) branches to the general public. A nationwide ne twainrk of registered representatives makes stocks, bonds, usual funds and kindred products and available. In 03 Block had 1,600 financial advisors and registered associates in more than 600 offices nationwide (HRB 2003). Average occupation volumes fell during fiscal year 03 by approximately 21%, as measured by average trades per day. This is one of Blockssources of non-seasonal revenue and is pass judgment to drive revenues and overall company growth during the coming historic period (HRB 2003-2004 statements by management in annual reports and investor meetings). Block views its key to f uture success of the investment services segment as retention and recruitment of financial advisors, which Block pursued in 03 by hiring 260 undergo advisors. This segment of Blocks business has experienced severely declining revenue which is suggested to take up been a result of the unfavorable environment of the equity market during the recent years. However, since accomplishment of this business in 00 Block has been able to incr assuagement clientele in this division by over 14%. H&R Blocks management lists the Investment Services business as one of their priorities for the next vi years.Mortgage operations Subsidiaries in the Mortgage Operations segment originate service and sell establish and sub-prime mortgage loans and securitize residual followings in the United States. Sub-prim mortgage originations typify 90% of Blocks business in this segment. Through a network of more than 24,000 mortgage brokers in all 50 states this segment offers a diverse mortgage product line to clients that do non meet traditional on a lower floorwriting criteria, match to Reuters. These services are available through Blocks subsidiaries in addition to HRBFA branches. Block approves about 50% of their loan applications which come from over 2,200 independent sales associates throughout the U.S. Block makes money from the remove on the sale of these loans to other lenders. Through securitization the company makes money from the spare-time activity spread between its reinforcement be and its cost of borrowing. During the past 2 years, the declining interest rate environment has been favorable for the company and the company has been able to achieve as high as 4.46% in net pro garb margin. (HRB, 2004)Business services H&R Blocks business services segment provides accounting, tax, consulting, payroll, employee bene conks to business clients and tax, estate planning, financial planning, wealth management and insurance services to individuals. These services are made av ailable through a number of sources, the largest of which, RSM McGladrey, Inc, operates more than 100 offices in 22 states. (HRB, 2004).The addition of these business units under the parent company along with the middle H&R Block Tax Services, Inc. created the available backbone to support a fuller line of financial services. Cross selling is heavily apply and customer information, with proper consents, is overlap amongst the business units for market and contacts. Even though this strategy is well under government agency, and in some glibnessway is doing well other ways non, the average person on the street does not discombobulate any idea Block does more than taxes. In addition, some attempts to cross sell halt worked to some degree such as mortgage products but others, such as offering IRA products to tax clients, have not. H&R Blocks average client has an income around $38,000 (individual) and do not reckon to be interested in savings vehicles to the degree that woul d be necessary to meet sales final stages.Strategy DefinedIn an effort to become Americas year-round tax and financial partner Block transformed itself from a company focused exclusively on tax preparation to a company that provides comprehensive financial services. This diversification aimed to offer existing clients a wider range of products and services firearm compensating for sagging revenue during the off season of the tax preparation business. In researching statementsby management in annual reports, investor meeting materials, etcetera the author finds the following strategic direction is desired by the company.several(prenominal) years the new CEO, Mr. Ernst, at H&R Block said that the new strategy is to put one across the steps necessary to transition the company from tax preparer to financial partner (HRB, 2000). Ask anyone you know what does this company does and you will hear prepare taxes but financial partner?H&R Block, Inc. began to implement a strategy to offer clients, and capability clients, additive financial services beyond tax preparation. H&R Block acquired Olde financial (based in Detroit) and used this firm as a launch to create H&R Block Financial Advisors, Inc. In addition, Block acquired Option One mortgage (Based in Irvine, CA) and renamed the firm to H&R Block Mortgage, Inc.Blocks management feels that the tax preparation market is so unsaturated that it is foreseeable to open 50% more stores in order to provide its customers sufficient agreeable locations. H&R Block studies indicate that for some of their clients, convenience of location is valued higher than brand name and that the only way to capture such fringe customers is open stores throughout market areas. These plans are currently under formulation and implementation.Although there was a 6% increase in the number of tax return offices, tax clients served declined 3% during 03, which lead Block to file 600,000fewer returns than in 02. This was offset by a jump in so ftware sales of 600,000 for the same period. Block achieved increased gainfulness during the 04 tax season as a result of higher tax preparation fees. Average tax preparation fees have increased about $10 per year over the last four years to $130.59 suggesting that drive is slightly price elastic. Accordingto Mr. Ernst because of this elasticity Block can acquit on to raise its prices to generate revenue growth.The company is competing on quality, not on cost and on location whether it be a strong-arm location or via online utilize the web. In addition, the company has announced the opening of 400-500 new offices for tax season 2005 in under served markets. With the trending to online and software, ca development a decrease in office clients, this may be a mistake.One of the Organizations Corporate Priorities is to integrate and align Tax, eSolutions, Financial Advisors and Retail Mortgage, incorporating advice as a key differentiator. In that respect, the Companys Vision state s To be the worlds leading provider of financial services through tax-and accounting- based advisory relationships. It appears that the vision statement does not fully confer the companys long-term goals since it only mentions two specific products, -tax and accounting- under the umbrella of financial services. By stating only two products, the vision statement implied that tax and accounting are the companys amount of money strategic goals, with the other products revolving around them. If that were the case, then all the integration and arrangement measures through structural changes through in order to accelerate the alignment process would be much ado about nothing, that is, if the companys true intention is what can be deduced from the Vision statement.Strategy AnalysesSome of the measurements of an effective strategy as outlined by Thompson,Strickland & Gamble (2005) includes consideration of and alignment with the adopted competitive moves and business approaches, a focus o n competitive wages, resourcestrengths and overall competitive capabilities. By acquiring complimentary businesses, financial services and mortgage, the company has been able to, to a certain degree, begin offering the millions of customers who come to Block for tax preparation other financial services. During the last few years mortgage has done well, tax held buckram with barely an increase, and financial services has lost money. Online services and software have shown goodness increases in clients as yet profitability is very low at this time. Consumer awareness and trust as well as radix and technology ineluctably require more work than originally realized. In addition, the internal problems of an old cash in cow business unit, Tax Services, being asked to suddenly share clients with, and work with, business units with differing cultures and operating speeds is a much larger issue perhaps than management anticipated.The strategy of providing additional financial products to current tax customers as well as cut these complimentary business units as unique operations does have a good fit, H&R Block does have competitive advantage in the service areas mentioned but more so with Tax and Mortgage than with financial services. It may be learned and the results the last few years bears this out, that the client base of Tax and Mortgage are not the most sublime financial services fit. Tax and Mortgage deal generally with mid to low income groups and high profitability in financial services comes from the mid to high income groups.Value ChainThe value chain categorizes the generic wine value adding activities of an organization. The prime activities include inbound logistics,production, outbound logistics, sales and marketing, maintenance. The support activities include administrative root word management, human resources management, R&D, and procurement. The be and value drivers are identified for each value activity. The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic planning. Its ultimate goal is to maximize value creation while minimizing costs (Porter, 1985).The value chain maps a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and authority sources of differentiation. Differentiation results from the way a firms product, associated services, and other activities affect its buyers activities. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and discoverr cost.A firm gains competitive advantage by performing these strategically important activities low-budgeter or founder than its competitors. One of the reasons the value chain framework is helpful is because it emphasizes that competitive advantage can come not just from great products or services, but from anywhere along the value chain. In strategic management it is tiny to understand both the competitive advantage of an organization as well as understand the value chain.Five Forces ModelThe five forces model developed by Porter (1985) guides the analysis of organizations environment and the attractiveness of the pains. The five forces include the risk of new competitors entering the industriousness, threat of potential substitutes, the talk terms power of buyers, the bargaining power of suppliers, and degree of tilt between the existing competitors(Porter).A starting point to analyzing the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry will presumable to be high. If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high. Generally competitive rivalry will be high if There is little differentiation between the products sold between customers. In this case Block has the advantage o f a long solid history with the perception being that they know what they are doing and can be trusted. In addition, electronic filing is a long time product of Block that has also gained a lot of trust with customers. Of the two competitors, Jackson Hewitt and Liberty, Block is the only one with a guarantee that pays additional costs of any errors in work done. Competitors are approximately the same size of each other. The two competitors are very small compared to Block. No other tax preparation firm comes close to orbit the size and market share of Block. If the competitors all have similar strategies. They do have very similar strategies in the tax services area however, this will be an area to review in regards to financial services and mortgage.Suppliers are also essential for the success of an organization, however Block is a service business and suppliers are abundant for office supplies, computer equipment, etc. Block develops its own tax software. All mission critical n eeds are handled by Block so the threat of suppliers is almost non existent. Although, the IRS in a sense is a supplier of the electronic filing product infrastructure and does heavily influence what flesh of electronic filing products are offered.Buyers or customers can exert influence and control over an industry in certain circumstances. This happens when there is little differentiation over the product and substitutes can be ready easily. For umteen low income customers there is no loyalty and they will move to other providers if the fees are demoralize or they can get their refunds quicker.Regarding threat of substitutes the question is Are there alternative products that customers can purchase over Blocks product that offer the same benefit for the same or slight(prenominal) price? This is high in the case of H&R Block due to the availability of cheap and easy tax preparation programs, the increased use of the internet by a growing number of internet users, and technolo gy is creating new forms of service delivery such as online services and software capabilities and price. private-enterprise(a) Analysis ExternalIndustry AnalysesTax Preparation Industry The IRS projected that for 05 they would receive 226.9 million taxreturns, anumber whichthey project tocontinuegrowing at arate of 1.6% peryear until 2010when the total number is expected to be 247.9 million. In the U.S., tax payers may filetheir returns any through credit line filing methods (sending paper formsthrough the U.S.P.S.) or by e-filing (IRS 2004-2005). The IRS has strongly encouraged e-filing in recent years which is now becoming increasingly popular and consists of both TeleFiling and online filing. Online filing can be completed any through a broker or from any personal computer. The IRS projects that during 04, 58.9 million returns will be e-filed which would stage 26% of all expected returns. Subsequently, the IRS projects this number to grow 8% per year until 2010 when the num ber of e-filers is expected to be 93.5 million, or 37.7% of the expected returns during the 2010 tax season. (IRS 20042005). During recent years the IRS has promoted this method by touting higher accuracy, lower costs, less time consuming processing procedures, and refund turn around three to five weeks sooner than wrinkle filing. Online filing is expected to increase by 21% from 03 to 04 and is expected to jump another 18% for the 05 tax season. According to HRB, the percentage of individual tax returns completed by paid preparers has risen from 48% in 1990 to 56.8% in 2002.Tax Preparation CompetitionThe most recent U.S. economic census conducted in 1997 suggested that the tax preparation industry is very fragmented. speckle H&R Block holds 15.3% of this market its largest competitors, Intuit and Microsoft, hold significantly smaller portions. Although both of these companies directly compete with a portion of Blocks business, neither has the same business model or identical prod ucts. Intuit Inc. is a provider of business and financial management solutions for businesses and consumers and accounting professionals. This company not only produces products such as TurboTax and theQuicken line of software, they also provide the general public professional tax help in person. Intuit has offices in 13 states while Block has offices in all 50 and both companies have a presence in the U.K. and Canada. Microsoft also plays a part in the tax preparation industry with MicrosoftExcel Version 2002 indoors Out software. Growth of two fairly new competitors, Jackson Hewitt and Liberty Tax, which are using similar business model of combination of retail locations and online services. While currently these organizations are no where near the size of Block they are growing significantly each year.The availability of cheap and easy tax preparation programs is also an external factor which is driven by the customer need to conduct business when and where it is snug for them. The increased use of the internet for tax preparation by a growing number of internet users is also an external factor. Technology is creating new forms of service delivery as mentioned previously regarding online services and software capabilities and price.In addition, the Internal Revenue Service factors as both a resource and competitor in a sense. In the chapter entitled Conceptions of Environments (133) Scott notes that the most common conception of environment of organizations is that of a task environment. He defines this concept as all aspects of the environment that are potentially relevant to goal setting and goal progression and goes on to note that it is typically narrowed to refer to the nature and sources of inputs, competitors, and markets for output. This based on the whimsy that most organizations are created to achieve goals, to perform some type of work.Scott goes on later in the book and talks about managing task environments and notes (197) that there are ma ny research resources and theories regarding the various aspects of managing the task environment, i.e., the sources of inputs, markets for outputs, competitors, and regulators.At H&R Block there is a great deal of material that could covered under this subject but one in particular stands out and that is the need at Block forthe customers it serves in tax operations to continue to need that service. I am speaking of the Internal Revenue Service as both a resource and a competitor for Block. Blocks tax service is regulated in that all paid tax preparers must conform to tax professional rules and regulations that are part of the tax code and compliance enforcement in the responsibility of the IRS. So in one way, the IRS is a compliance officer to Block and Block must ensure that all tax professionals and company representatives approve with these rules at all times. They include sharing of information, application of tax honor and theory, etc.In addition, the IRS has been a partner to Block and these two organizations worked unneurotic, almost a joint venture in behavior, to develop electronic filing in the late 80s. This has been a boon to both organizations. At IRS processing centers chore needs have decreased as more filers use electronic filing rather than mailing in paper returns. They have experienced other benefits as well, less errors, etc. At Block this new product produced a new revenue stream that now makes up approximately 30% of revenues in the tax services business unit.Block and the IRS also work together on special projects and have a sort of standing arrangement where if the IRS wants an idea tested or hammered out they go toBlock, the largest preparer with 16 million customers. Five years ago IRS was concerned over the pending proposals for changes to the earned income credit. IRS asked Block to analyze what they might mean to lower income tax papers. With 16 million customer records that could be analyzed for touch on it is much more tha n a random sampling. The IRS used this information to make internal recommendations to the program. In many ways, over the years Block has managed to use the IRS to actually help grow the company and the IRS has benefited from this enormously. This is true case of no organizationgenerates all the resources necessary for its goal attainment or survival (197).Software ComparisonTaxCut versus Turbo TaxDuring 03 48 million filers used Intuits TurboTax while only 20 million used Blocks TaxCut.(HRB, 2004 & Intuit, 2004). Blocks softwareofferings average $10.00 less expensive forcomparable software with similar features which isillustrated by TaxCut and Turbo Taxs price ranges$15.00-$50.00 and $20.00-$70.00, respectively. twoproducts tout extremely user friendly features, such asaggressive proof finder, error double check, andimport of previous years repeatable information to promote keep use. Complaints regarding Turbo Tax are that the software is generally designed for one user to do one return and that it difficult to jump to one part of the return process without completing the entire procedure. Regarding TaxCuts myopic comings, consumers havesuggested that it is easier to file more complicated itemized returns with Turbo Tax than TaxCut, although this may be outweighed by the smaller price. Both products are designed to file only the federal tax return for the fiscal year the product is purchased, and both also offer a rebate program to get the state version at no cost after rebate. Because tax legislation varies by year, a new version of either product is available each year, which sustains demand for this market.It is unclear if on of these products will clearly dominate the market in the near future because their extremely similar characteristics, pricing and availability. What is clear is that the market for ax preparation software is growing and that as long as both products remain innovative and react toconsumers demands they will continue to attract n ew customers. Blocks brand name is one small advantage regarding TaxCuts prospects in the future although that is only enough to pique interest in the product, while the features and ease of use will keep customers retuning year after year.Mortgage IndustryThe specific activity mortgage bankers engage in is the purchase, packaging, and sale of loans to third parties. This segment of Blocks business is sensitive to interest rate fluctuations. Interest rate cuts have driven mortgage rates to a 45 year record low, which, in turn spurred a sharp increase in home mortgage finances. The industry has directly benefited from significantly higher volume of loan transactions in recent years impetuous a $2.5 trillion increase, in mortgages originated between 00 and 03. Because the majority of those interested in refinancing their mortgages have had sufficient fortune to do so, business in this sector will be driven by new mortgage originations rather than additional refinances.The market fo r sub-prime mortgage will not slow down as much the prime market over a period of rising interest rates due to the cash-out refinance nature of the business. During 02 sub-prime originations constituted 8.3% of all loans and during 03 they constituted 8.4%. If interest rates rise in 05 as Greenspan has indicated then sub-prime originations should rise to their normal volume of 15% of all loans, nearly double what they are now. Over the new few years, the sub-prime industry expects growth of at least 5% a year. Regardless that low interest rates may have caused a spike of mortgage refinances in recent years, Block has experienced steadily increasing rate of mortgage originations the same time period.Although mortgage refinancing may not continue to be as considerable revenue source in the future, HRB management suggested in a Goldman Sachs conference call that non-refinance mortgage origination rates are increasing steadilywhich should at least partly compensate.Financial Advice Ind ustryH&R Block Financial Advisors (HRBFA) competes directly with a broad range of companies desire to attract consumer financial assets, including full-service brokerage firms, discount and online brokerage firms, mutual fund companies, investment banking firms, mercantile and savings banks, insurance companies and others. In 99, there was $6 trillion invested in mutual funds which is the largest star portion of this industry. 93% of this $6 trillion was controlled by six firms at that time. These were Vanguard (35%), Janus Capital Corp (20%), Fidelity (17%), PIMCO, Alliance, and MFS with 7% each (NYSE Market motif Searches, 2005). Clearly, Block is a small player in this enormous industry.In the secondary business units, financial services and mortgage, there are huge number of competitors currently offering services. Both businesses who core business are in these areas with high skills and those businesses that branched into these areas whether or not related to their core bus iness. For example, retailers footrace credit operations. In the regulatory arena Block business units are heavily regulated. Tax Services by Internal Revenue Service and Treasury segment rules, financial services by SEC and broker regulations, and mortgage by lending laws. The most out of control areas are mortgage due to interest rate drivers and tax due to tax law changes. Foreign MarketsOf the five segments at Block only one, Tax Services, actually operates in foreign markets. Mortgage, Financial Services, and Business Services operate solely in the United States. Until Recently H&R Block placed a moderate amount of emphasis on foreign markets but the particular services Block offers, and especially the non-tax segments, are not viable in most countries.As disclosed in the companies 2005 Annual Report the International Tax Operations segment has been aggregated with U.S. Tax Operations in the Tax Services segment and prior year results have been reclassified to reflect this ch ange. In the 2005 Annual Report Block stated that world-wide operations contributed $110.0 million, $97.6 million and $85.1 million in revenues for fiscal years 2005, 2004 and 2003, respectively, and $11.3 million, $11.1 million and $10.5 million of pretax income, respectively. This represents only 5.2% of revenue in 2005 but is up a bit from the 3.8% contribution in 2001. Australia is savorless over this time period and the growth came from tax law changes in Canada.Considering the markets it makes sense that Block would not allocate a great deal of resources to foreign markets but instead operate primarily domestically. The companys tax segment provides services to assist taxpayers with required self filings. Few countries have such systems requiring tax payers to self file. In Canada the tax reporting system is similar to the United States in that taxpayers file returns on an annual basis. This is also true in Australia. The United Kingdom is different in that few taxpayers are required to submit any filings.In the financial services area there is impact from foreign markets. The financial services industry has become considerably more concentrated as many firms have been acquired by or merged with other firms in recent years. Some of these competitors have greater financial resources than HRBFA and offer additional financial products and services. Competition from domestic and international commercial banks and larger securities firms is expected to continue to increase as a result of legislative and regulatory initiatives in the U.S. Firms in this industry are impacted by market performance, volatility, investor sentiment, margin balances, government regulation, and many other factors which cannot be controlled.Competitive Analysis InternalSWOT AnalysesA SWOT analysis is an effective method for identifying H&R Blocks strengths and weaknesses, while examining the opportunities and threats the company may face.StrengthsPersonalized product and services t ho brand to offer software, online and in-office solutions Dynamic marketing skills and structureBrandClient Base/Distribution get overVery user-friendly websiteLow cost delivery systemLow number of major (tax) competitors and no one on par with Block as far as clients served.H&R tax professionals are offered more education at most tax preparation firms over 400 hours. Weaknesses turning point brand and market positionMass business system best serves lower income consumersDelivery system perceived to not meet many consumers needs Outside of tax relationships, limited or no competitive advantages in financial services/mortgage businessesCustomer service in office and speech soundPart time employees lack integrated citizenshipOffices are leased and appear soNon-contractual service allows customers ease of switching to competitors OpportunitiesFinancial advisory businessTax preparation softwareConsumers are rapidly encompass internet availabilityDigital self-preparation splitting b etween software and online Online attracting younger, moderate income consumer (Early Adopters) Push for/advantage to E-Filing presumable to drive growth for many years Financial services long-term trend toward adviceOnline trading phenomenon is likely over now just way business gets done Pricing for services evolving toward fee-basedMajor competitors focusing on high net worth market for growth Interest rate cycle impact on conforming loan market refinance business Financial advisory businessTax preparation softwareThreatsAvailability of cheap and easy tax preparation programsOrganizing low-end Competitors Jackson Hewitt and Liberty Tax Banks or other financial companies could offer similar services in the future IRS could reduce complexity of forms and remove demand Technology is creating new forms of service deliveryFlood of entries into financial services arenaFinancial services competitors building brand strength and service capabilities that drive consumer expectationsSer vice capabilities that lead consumer expectationsMortgage industry scale advantages dominate successful business modelsBusiness EthicsAccording to Thompson business ethics refers to the application of general ethical principles and standards to business behavior. They go on to saythat business actions are judged by the general ethical standards of society, not by a special set of more permissive standards. Examples of ethical behaviors are honesty, integrity, keeping ones word, respecting rights of others, and practicing the Golden Rule. H&R Block has a core set of values that the company attempts, through training and orientation, to instill in each employee. H&R Blocks values are client focused. Integrity We are honest and ethical in everything we do, Excellence We take pride in doing our best in everything we do. We embrace change to learn and grow, regard as We treat each other with respect and dignity, recognizing that innovation springs from unique perspectives, and Teamwork Everyones collaboration and full fraternity make us stronger and allow us to serve clients better (HRB web site).In my experience at Block, these values, which include being honest and ethical in all actions are adhered to by the majority of employees and leaders. Block has a culture of honesty and integrity which was fostered by Henry Block, the founder, and I would say this is a very ethical company.Social ResponsibilityThompson outlines the notion of social responsibility as it applies to businesses concerns a companys duty to operate by means that avoid harm to stakeholders and the environment and, however, to consider the overall feeler of society in its determinations and actions.At H&R Block one the products sold is known as a Rapid Refund. This is a loan against a refund. The demographics of Block clients are typically middle or lower income tax payers and many qualify for a refundable tax credit known as the pull in Income Tax Credit. This is credit given to low incom e tax payers and was intended to help those falling into this income range to move higher up in the income levels to assist with supporting their family. Blocks Rapid Refund product is a high cost loan and the interest rate isvery high considering the length of the loan, typically a few weeks. The national Consumer Law Center is a non-profit organization specializing in consumer issues on beone-half of low-income people. NCLC plant life with thousands of legal services, government and private attorneys, as well as community groups and organizations, who represent low-income and elderly individuals on consumer issues. According to the NCLC Refund farsightedness loans (RALs) are usurious short-term loans secured by the taxpayers expected tax refund. Over half of RAL consumers are recipients of the Earned Income Tax Credit (EITC), despite the fact that EITC recipients only constitute 15% of all taxpayers. They also state, from valid research, that low income Taxpayers Lost over $1 B illion in Loan Charges and Fees in 2002 Their research also indicates that check cashing fees add to the cost of getting tax refunds or RALs, especially for those consumers who do not have bank accounts. While many un-banked consumers find ways to get their checks cashed for free, commercial check cashers count on tax season to boost their revenues. One admit found that 45 percent of EITC recipients planned to use a check casher to cash refund checks, further draining this program.50 Check cashers are also moving into the tax-filing and RAL market for their clientele.Since IRS rules prohibit commercial tax preparers from charging their clients to cash tax refund or RAL checks, 51 some tax preparers have formed fusions with check cashers. H&R Block has teamed up with supporter Cash Express, one of the nations largest check cashing chains. This partnership has been proven very profitable for ACE, which has seen growth in its income during tax season. Part of the H&R Block/ACE partn ership involves placement of self-service check cashing machines in lobbies of H&R Block tax preparers. ACE reported that 3.2% of its check cashing fees in fiscal year 2002 came from self-service machines located in ACE stores or in H&R Block offices. ACE placed 100 machines at Block locations during 2002 and has an agreement with Block to place up to 250 machines during the 2003 tax-filing season. As of the end of June, ACE had 22 machines in company-ownedlocations and one hundred fifty machines available for deployment at H&R Block locations for 2003. ACE, expecting a booming business in cashing Block checks this year, announced cash inventory of $290 million during the 2003 tax season for 248 self-service machines placed in H&R Block offices. ACE also has a $55 million credit line from banks, for a total cash inventory of $345 million available to cash tax refund and refund anticipation loan checks during the 2003 taxfiling season. In addition to NCLC, several other consumer gro ups have charged this is a rip off and that Block is stealing some of this earned income credit from needy families and is perceived as being very unethical. Block counters that these clients in fact want this service and Block is doing nothing more than meeting the needs of its clients. This issue draws attention every year and creates quite a bit of bad press. Currently the National Consumer Law Center Consumer Federation of America is working to Ban refundanticipation loans outright or make them subject to state usury and small loan interest rate laws.Diversification StrategiesThompson points out that diversification becomes an attractive strategy when a company runs out of profitable growth opportunities in its original business. H&R Block since its inception in the 1955 was focused on one area, tax preparation. In the 1980s they did begin to think about diversification when talk began about a flat tax. They purchased a company called CompuServe based in Columbus, OH. At the tim e it was doing well in the new area of online subscription services. It did not, however, fit all the tests for a good erudition for Block and the management team at corporate lost some key people at CompuServe and had no skills at all in running such a business. In essence for several years it sort of just stayed flat in growth and innovation and AOL took off and left CompuServe in the dust. CompuServe was finally sold in the mid 1990s and the buyer stripped off the technical infrastructure for their own use. The other services werediscontinued.This was Blocks first try at diversification so it was a long while before they tried again. In the late 1990s a new CEO was hired, who is still managing the firm through a brand and strategic shift, and he immediately laid plans to diversify but only with complimentary businesses with a good fit to the core competencies of Block. Block certainly fits with the opening remark from Thompson in this discussion. Tax is mature and has growth pot ential that is limited each year.Mergers and AcquisitionsThompson (2005) identifies several strategy choices in chapter 6 of Crafting and executing strategy The quest for competitive advantage and one of those is the merger and acquisition strategy. The authors state that a merger is a pooling of two or more companies as equals, with the new created company often taking on a new name. An acquisition is a combination in which one company purchases and absorbs the operations of another.According to Thompson the objective of mergers and acquisitions are to achieve one or more of the following organizational business goals paving the way for acquiring firm to gain more market share and create a more efficient operation, expanding a firms geographic coverage, extending a firms business into new product categories or international markets, gaining quick access to new technologies, and/or to invent a new industry and lead the convergence of industries whose boundaries are blurred by cha nging technologies and new market opportunities.Thompson goes on to indicate that combining operations may result in some negative consequences such as resistance from rank-and-file employees, hard-to-resolve conflicts in management styles and corporate culture, andtough problems of integration. In addition, the authors state that greater-than-anticipated difficulties may occur in achieving expected cost-savings, sharing of expertise, and achieving enhanced competitive capabilities.Regardless of possible negative effects the merger-acquisition is a much used strategic option and is a common occurrence in business today. H&R Block does have a good example of this strategic method.In 1996 Block acquired Option One mortgage (Based in Irvine, CA) after running the business as a separate company retaining the name and structure in 2000 this firm was renamed H&R Block Mortgage, Inc. In addition, in 2000, H&R Block acquired Olde Financial, a securities firm (based in Detroit) and used this firm as a launch to create H&R Block Financial Advisors, Inc.The addition of these two business units under the parent company, along with the core H&R Block Tax Services, Inc., created the operational backbone to support a fuller line of financial services. Cross selling is heavily used and customer information, with proper consents, is shared amongst the business units for marketing and contacts. In many other ways, outlined in my final project, the company has used these acquired firms to provide the operational structure required to gain entry into new areas relatively quickly.Moving into financial services and mortgage has been a big plus for the company. Mortgage has been especially lucrative financially and while financial services are not as strong it is growing steadily as skills and talent is added. They do fit very well and there is cross marketing and up selling in and across the business units. It is taking longer to really integrate and turn these strategies into oper ational ways of doing business but they are achieving the plan.Shareholder ValueAccording to Thompson there are three tests that if passed indicates the diversification move can produce added value for share holders. They also state that managing a set of unrelated businesses is a much weaker entry for enhancingshareholder value than is a strategy of related diversification where corporate performance can be boosted by competitively valuable cross-business strategic fits. The industry attractiveness test measures whether the industry chosen measures favorably in competitive conditions and a market environment that is as good as or better than the current businesses. It seems that Block meets this test with their diversification strategy. By entering into the financial services and mortgage businesses they are able to cross market and sell to, for most products, existing customers of the core business. The mortgage business has done extremely well in profitability.The cost-of-entry test measures whether the business in consideration has a cost of creating or buying that will limit profitability. In the case of Block the mortgage business has shown incredible returns on the original investment. The financial services firm purchased were slow to contribute profit but are doing so now. The better-off test measures whether, well as it says, the company is better off overall with this business. Financially if there is no increase in profits and shareholder value with the business than without it than it would not meet the test. Block is unimpeachably better off with these businesses than without as shown in the contribution rates of the businesses to the overall corporate profit. In addition, these businesses provide value added services to the 18 million tax clients out there in the form of these added financial and mortgage services.Block, in my opinion as a former long time executive and based upon operating results, has done well in these businesses and seem t o have made good choices by using a diversification strategy of related businesses that provide added value to shareholders and customers of the cash cows tax services division.Unfortunately, these units have not all achieved the profitability levels desired and financial services in particular has carry on some heavy losses during the first few years of implementing this strategic plan.Strategy AnalysisStrategy integration of services across business units.Completing its transformation from tax provider to financial services provider, H&R Block is well aware that it is entering into some stiff competition from brick-andmortar to click-and-mortar and strictly online ventures One of the areas that could be improved that would allow for better support of the company cross selling and help strategy is to create greater cross operational responsibilities for local and regional managers. This company does retain a good deal of silo mentality at this level and managers should have more cross operational responsibilities. For example, those customers using online tax preparation or purchasing TaxCut software could have included year round in person service if needed at the local physical Block office. Both managers should be viewed as responsible for this customer and compensation considering accordingly. This same scenario could work in reverse with physical office customers seeking help via the web. Infrastructure is in place to accomplish this and only strategic planning and execution of processes changes is needed. As Thompson states organizational capabilities emerge from a process of consciously knitting together the efforts of different work groups, departments, and external allies, not from how the boxes on the organization chart are arranged. In the past few years technology and functional areas have been reorganized andprocesses reengineered to support this type of operational shift, however, the people havenot been paid as much attention to. Currently, if a local Block manager has a client come in that had done their taxes with the software about all the help they can offer is an 800 number to call for support on the product but not with any tax issues. There is no incentive to assist this client any more than that. Customer needs and the market drivers should be primary considerations regardless of what branch of the company the client approaches for assistance.H&R Block already has strong brand equity as a tax preparation company, but to successfully take advantage of financial industry deregulation, the company needed to leverage the relationships with its traditional tax customers. Much of this effort falls on its tax preparers. As the first point of contact for customers, theyre charged with gauging the interest level and potential value a tax customer would receive from other financial services, including mortgage products and investment plans. one time customers express interest, the company needed an efficient way to pass information to the appropriate financial advisors and ensure every inquiry was addressed. That was the hard part, with 1,600 advisors spread across 190 financial centers nationwide. Because of changes in policies, processes, structure, and technology solutions, when a tax customer requests more information on other H&R Block services, information on that customers background and interest area is automatically routed to the most qualified financial advisor for an immediate, tailored response. According to a CRM study (HRB, 2003) at bottom the organization conducted by a software firm the company could enable its financial advisors to provide personalized sales and service, they found that H&R Block is giving its customers reason to be loyal and creating a return on relationship over the customer lifecycle.While piloting its financial service center concept, H&R Block initially used a contact management and lead distribution application, but it ultimately lacked the robustness neede d. Thats when the financial services group began seeking a new sales force automation solution. Meanwhile, the company had chosen a technology solution as its scalable, web-ready CRM solution to track and route customer inquiries whether they come in by phone, email, the web or in personin the companys newly consolidated customer contact center. Its individual call centers had been using disparate call center tracking software, which meant that the company wasnt getting a single view of each of its customersor their profitability levels. The new customer contact center serves the tech support needs of the companys 10,000 offices as well as its client relations, financial and e-commerce groups.Future PlansThompson has several key points regarding organizational capabilities companies dont implement and execute strategies people do all managers have strategy-executing responsibility in their areas of authority, and all employees participate in the strategy execution process and, when strategies fail, it is often because of poor execution things that were supposed to get done slip through the cracks. A talented management team is essential talent implies that an appropriate mix of skills and experiences exists inwardly the team. Intellectual capital is more important to strategy execution than other investments. Also decentralizing decision making which takes full advantage of the talent is important to good strategy execution. H&R Block has been reorganizing and changing the management team over the last five years. As they have added businesses through acquisition and development ofnew products (online and software, for example) they have added key management personnel in those areas with backgrounds and skills in the appropriate fields. While this company does not attract stars it has a very capable management team and the only animadversion is that unfortunately many of those newly added have left after two or so years. A great deal of turnover has occurre d in seeking just the right individuals. In some cases, they were not working out and in others they sought greener pastures. The management ranks in the middle levels of the company are, however, stable and exhibits a great deal of talent within their respective operational group. This company does retain a good deal of silo mentality at this level and managers should have more cross operational responsibilities. For example, those customers using online tax preparation or purchasing TaxCut software could have included year round in person service if needed at the local physical Block office. Both managers should be viewed as responsible for this customer and compensation considering accordingly. This same scenario could work in reverse with physical office customers seeking assistance via the web. Infrastructure is in place to accomplish this and only strategic planning and execution of processes changes is needed. As Thompson states organizational capabilities emerge from a proce ss of consciously knitting together the efforts of different work groups, departments, and external allies, not from how the boxes on the organization chart are arranged.Thompson also states that the ultimate goal of decentralized decision making is not to push decisions down to lower levels but to put decision-making authority in the custody of those persons or teams closest to and most knowledgeable about the situation. Block is a leader in this area. Local and regional managers are responsible for mostdecision making regarding hiring, schedule of activities (training, taxschools, etc.), location selection, local marketing, bookkeeping, public relations, etc. When I was a district manager the total experience was of running my own business with the absence of financial liability. There are, however, policies and procedures for many areas that must be adhered to in all locations but deviations are allowed with proper approvals and usually this is just one level up rather going to the CEO.Another area is evaluation of strategy implementation. For several years the company has been designing and setting up processes to support a balanced circuit card method. (Kaplan, 1996). The balanced carte du jour is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. Kaplan and Norton describe the innovation of the balanced scorecard as follows The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, suck in data and analyze it relative to each of these perspectives 1) The Learning and Growth Perspective, 2) The Business Process Perspective, 3) The Customer Perspective, and 4) The Financial Perspective. At H&R Block key performance indicators have been identified and databases put into place to provide executives with data atall levels of the company in the four performance dimensions measured by the scorecard. Executives indicate in personal conversations with the author that the initiative is going well and the tool is providing much needed information to assist with decision making and measurement of res ults. Summary and closingIn a Forbes denomination printed in early 2004 author Emily Lambert stated April 15, looms, but H & R Block principal(prenominal) Executive Mark A. Ernst has more than taxes on his mind. Hes eager to find out how many of this seasons customers can gradually be convinced to buy H & R Blocks newer offerings, including home mortgages, business consulting and brokerage services. Last fiscal year the companys non-tax businesses accounted for half of its $3.8 billion in revenue, most of that from its mortgage lending, which it started offering in 1997. Its financial services business hemorrhaged $128 million (pretax) last year, and the business services arm is also lagging. The loans, which can carry interest rates of 129%, greet to cash-strapped low-income customers. Some customers may be wary, too. The company is under fire for its refund anticipation loans. The loans, which can carry interest rates of 129%, appeal to cash-strapped low-income customers. The f ees accounted for $109 million in revenue last year. H&R Block has settled a number of loan-related laws.This is a powerful representation of the state of company as of that time which is result of close inspection during a time of transition. What she does not mention is how this compares to the first couple of years of the strategy implementation of broadening services. As of today, the picture is brighter and the company, while still a long way from being there, is closer to achieving some of the goals. This paper outlined the company, the strategy employed, the rationale for various components of the strategy, and how these areas fit within the strategic models studied in this course. One area that the author feels may be needed that is not current present in any of them.