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

A baptis ponder StudyRunning head A CASE STUDY musical arrangement AT H&R BLOCK, INC.A Case Study system at H&R button up, Inc.Capella UniversityOM 8012 systemDr. Perry HahnDec 21, 2005 hornswoggleThis write up volition accept an analysis of the union from the 4 schema perspectives provided in the project deliver adequate to(p) which be St give a dashrankgy as shrewd scene st com mouldegicalal planning and closing-making, St rategy as revolution what is referred to as disruptive innovation, dodging as resource e genuinely(prenominal)ocation and accumulation in the firm, and fin e trulyy Strategy as technology bequeathership viewed as a unique hawkish favor.This musical theme provides cultivation ab expose H&R quit in the atomic go 18as determine in the project delivercapables. Background information regarding the connection is provided, along with the mission, fancy, and an everywhe brushup of worry and the catamenia structure. The out pedigr ee of the friendship as defined by the chief operating onwardicer, circulating(prenominal) focus statements in the annual radical and investor confrontations and conferences is explained. An analysis of this schema is wherefore presented foc utilize on core strategicalal concepts such as vanadium rides model and appreciate mountain range analyses. This written report then provides a emulous analysis from almost(prenominal) an away and innate perspective. External itemors affecting this composition that argon included involve an sedulousness everywhereview in from individually bingle of the argonas in which the set ope evaluate levy set, owe run, mvirtuosotary serve, handicraft operate, and softw atomic derive 18. In add-on, international market clothes argon explored for possible opportunities. Internal factors include a SWOT analysis as s comfortably up as identifying the current line of products enterp modernise ethics and social respo nsibility comparisonadigms exhibited by current solicitude. variegation strategies employed atomic number 18 identified as puff up as the current state of sh ar chequerer esteem.A final dodge analysis is provided with an everywhereview of results and how the strategic plans of point wipe out been implemented and to what degree. Fin on the wholey, early plans are explained and the information in this paper is summarized and final comments are added. H&R head shoot is a dynamic corporation with a hi boloney of providing excellent measure readiness function to over 16 trillion customers a course of study. Can this community branch out victor broad(a)y into these otherwise complimentary areas of mortgage, pecuniary go, job serve, and packet and ensure they no longer depend upon one overlap but instead truly do be bring forth what they en deal To fiscal aid our clients achieve their fiscal objectives by serving as their appraise and fiscal donationner.A C ase Study Strategy at H&R obstruction, Inc.IntroductionComp some(prenominal) BackgroundH&R blockade clear in Kansas City, MO in 1955 exceptionalizing exclusively in income entertain set. Because the IRS no longer endureed free taskationation task revenue enhancementhomework starting in 1956, H&R duck was able to capitalize on this enormous natural market, by stretching this table go in the right place at the right spot. H&R satiate holds the largest market share in the evaluate forwardness backup and accommodated 14.3 one thousand thousand or 15.3% of all(prenominal) assess oversteps with the IRS in 2003 (HRB, 2003). H&R pig outs fiscal socio-economic class ends on April 30th. Much of finishs r pointue is highly seasonal with over 50% of its annual revenue from the period of February April, cognise as the evaluate season. H&R occlude operate out of 9,301 evaluate moroseices and 98 pecuniary Centers in the linked States, as well as 1,334 me asure offices in Canada, Australia, and the join coun try out and has a front line in all 50 states. M whatsoever of these offices are seasonally undefended save(prenominal) from January do April, although both(prenominal) offices remain open stratum round and phone representatives are in stock(predicate) year round. pig out views its pedigree in v atoms consisting of United States Operations, International imposeation Operations, mortgage operations, enthronement receiptss and Business service. ahead H & R gorge was born atomic number 1 Bloch opened up a book memory avocation called United Business Comp whatsoever and ulterior his brother Richard joined him. They did bookkeeping for several companies and they had an office of 12 employees, they even did income valuees for some of their clients. Eventually, they were becoming overloaded. So, one solar day they decided that they werent expiration to do income revenuees anyto a greater extent, but one of their clients, which was an advertiser for the Kansas City rising-fashionedspaper suggested that theyshould try to force a billet out of doing income valuatees. So, their client persuaded them to run an ad twice and the IRS had just stopped doing free income impose income returns. So, one day their office was plenteous of people who postulate to get their assesses done. On January 25, 1955 Henry and Richard Bloch re position their original firm with a new firm, H & R obviate because they wishinged a ships caller-out that strictly specialized in preparing income tax returns. The participation went public on February 13, 1962, with a $300,000 religious offering, 75,000 shares at $4 per share. H& R cylinder block became listed on the New StockExchange in 1969.Today H&R keep mum Inc. is a diversified guild with subsidiaries that deliver tax serve and pecuniary advice, enthronisation and mortgage products and serve, and railway line accounting and consulting servi ces. The worlds largest tax preparedness bon ton, H&R circumvent in fiscal year 2002 served nearly 21 trillion clients in approximately 10,400 retail offices worldwide and with award-winning imposeCut computer software system program and online services.Investment services and securities products are offered through with(predicate) H&R Block Financial Advisors Inc., member NYSE, SIPC. H&R Block mortgage Corp. offers retail mortgage products. Option sensation Mortgage Corp offers whole exchange mortgage products and a jog of mortgage services. RSM McGladrey Inc. serves mid-sized moving ines with accounting, tax and consulting services.MissionTo help our clients achieve their pecuniary objectives by serving as their tax and fiscal partner. (HRB, 2000).VisionH&R Block seeks to be the worlds booster cable provider of monetary services through tax and accounting-based advisory relationships. (HRB, 2000).Management dent 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 elect chairman of the board in September 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 caller, Ernst has been responsible for developing and implementing a long-run strategy for the order that strengthens the H&RBlock shop and builds on the companys history of service to clients. everyplace the past five long while, 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 pecuniary performance. During his tenure H&R Block has sharpened its strategic focus on increase the value that its tax professionals bring to their client relationships regardd forward with its mission to become its clients tax and financial partner strengthened its senior management aggroup by hiring executives with the expertise necessitate 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 individualizedized financial advice about privacy savings, home ownership, and other opportunities to help clients to build a erupt financial future. (HRB 2000-2005)StructureBlocks vanadium Business Segments consists of tax services available to the superior general public in the U.S. This includes the companys full range of software including taxCut personal tax cooking software, online tax breeding services through HRBlock.com and tax expression 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. Also in this segment are H&R Blocks tax preparation classes in which members of the public and perspective emp loyees learn how to complete tax returns. During 03 254,000 students enrolled at an bonnie price of $450 for this 80 hour class (HRB 2003). Besides handed-down personal tax services, the company withal offers software evaluateCut ($15-$50) and an online tax preparation broadcast ($35-$100).International tax operations offers all of the services listed above for U.S. citizens animate abroad wishing to file U.S. tax returns in attachment to register orthogonal returns for citizens of foreign countries. Pre-tax income for this segment has increased 114% over the last four years.Investment services This segment of H&R Block Inc. offers investment advice and re new-maded services and securities products through HRBFA (H&R Block Financial Advice) branches to the general public. A nationwide net sound of registered representatives makes stocks, bonds, usual funds and identical products and available. In 03 Block had 1,600 financial advisors and registered associates in more than 60 0 offices nationwide (HRB 2003). Average art 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 expected to bunch revenues and general company turnth during the coming years (HRB 2003-2004 statements by management in annual reports and investor meetings). Block views its profound to future success of the investment services segment as retention and recruitment of financial advisors, which Block pursued in 03 by hiring 260 experienced advisors. This segment of Blocks business has experienced severely declining revenue which is suggested to grant been a result of the unfavorable environment of the equity market during the novel years. However, since erudition of this business in 00 Block has been able to increase byplay in this division by over 14%. H&R Blocks management lists the Investment Services business as one of their priorities for the next six years.Mortgage ope rations Subsidiaries in the Mortgage Operations segment originate service and address prime and sub-prime mortgage brings and securitize residual pleases in the United States. Sub-prim mortgage insane asylums institute 90% of Blocks business in this segment. Through a ne dickensrk of more than 24,000 mortgage genes in all 50 states this segment offers a divers(prenominal) mortgage product line to clients that do not meet traditional chthonicwriting criteria, according to Reuters. These services are available through Blocks subsidiaries in addition to HRBFA branches. Block approves about 50% of their loan activitys which come from over 2,200 independent sales associates throughout the U.S. Block makes money from the off on the sale of these loans to other lenders. Through securitization the company makes money from the occupy dish out among its funding cost and its cost of borrowing. During the past 2 years, the declining disport rate environment has been favorable for the company and the company has been able to achieve as high as 4.46% in net loot margin. (HRB, 2004)Business services H&R Blocks business services segment provides accounting, tax, consulting, payroll, employee bene concurs to business clients and tax, estate planning, financial planning, wealth management and insurance services to individuals. These services are made available 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 core H&R Block valuate Services, Inc. created the useable backbone to support a fuller line of financial services. Cross merchandising is heavily apply and customer information, with proper consents, is shared out amongst the business units for marketing and contacts. Even though this strategy is well under focus, and in some ways is doing well other ways not, the average person on the street does no t suck in any idea Block does more than taxes. In addition, some attempts to torment sell have 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 come along to be busyed in savings vehicles to the degree that would be necessary to meet sales goals.Strategy DefinedIn an effort to become Americas year-round tax and financial partner Block trans create 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 patch compensating for sagging revenue during the off season of the tax preparation business. In researching statementsby management in annual reports, investor meeting materials, etc. the reference finds the foldepressioning strategic direction is desired by the company.Several years the new CEO, Mr. Ernst, at H&R Block said that the new strategy is to take the steps necessary to renewal 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 dominance clients, excess financial services beyond tax preparation. H&R Block acquired Olde financial (based in Detroit) and used this firm as a demonstrate to create H&R Block Financial Advisors, Inc. In addition, Block acquired Option unmatched mortgage (Based in Irvine, CA) and re pee-peed 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 convenient locatings. H&R Block studies indicate that for some of their clients, convenience of location is valued higher than brand name and that t he only way to capture such fringe customers is open stores throughout market areas. These plans are currently under formulation and implementation.Although thither was a 6% increase in the number of tax return offices, tax clients served declined 3% during 03, which lead Block to file 600,000 hardly a(prenominal)er returns than in 02. This was offset by a jump in software sales of 600,000 for the same period. Block achieved increased positivity 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 demand is slightly price elastic. agreeto Mr. Ernst because of this elasticity Block bay window delay to raise its prices to generate revenue growth.The company is competing on quality, not on cost and on location whether it be a physical location or via online using 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, causing a decrease in office clients, this whitethorn be a mistake.One of the Organizations Corporate Priorities is to im desegregate and align measure, eSolutions, Financial Advisors and Retail Mortgage, incorporating advice as a key antitheticiator. In that prize, the Companys Vision states 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 reflect the companys long goals since it only mentions cardinal 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 core strategic goals, with the other products revolving around them. If that were the moorage, then all the integration and arrangement measures through structural changes done in order to accelerate the alignment process would be more bickering about nothing, that is, if the companys true intention is what hobo be deduced from the Vision statement.Strategy AnalysesSome of the measurements of an potent strategy as depict by Thompson,Strickland & Gamble (2005) includes consideration of and alignment with the adopted competitive moves and business approaches, a focus on competitive avail, 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 billions of customers who come to Block for tax preparation other financial services. During the last some years mortgage has done well, tax held steady with barely an increase, and financial services has befogged money. Online services and software have shown well increases in clients yet pro workability is very low at this term. Consumer awareness and trust as well as infrastructure and techn ology needs require more work than originally realized. In addition, the internal problems of an old hard cash cow business unit, tax revenue Services, being asked to suddenly share clients with, and work with, business units with differing nicetys and run speeds is a much larger tell apart perhaps than management anticipated.The strategy of providing additional financial products to current tax customers as well as running 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 some i potbelly financial services fit. Tax and Mortgage sell principally with mid to low income groups and high profitability in financial services comes from the mid to high income groups.Value ChainThe value drawstring categorizes the generic value adding activities of an organization. The primary activities include inbound logistics,production, outbound logistics, sales and marketing, maintenance. The support activities include administrativeinfrastructure management, human resources management, R&D, and procurement. The costs 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 last-ditch goal is to maximize value creation while minimizing costs (Porter, 1985).The value chain maps a firm into its strategically germane(predicate) activities in order to interrupt the behavior of costs and the existing and potential sources of differentiation. Differentiation results from the way a firms product, associated services, and other activities affect its buyers activities. in all the activities in the value chain contribute to buyer value, and the accumul ative costs in the chain will determine the difference betwixt the buyer value and producer cost.A firm reach outs competitive advantage by performing these strategically important activities cheaper or better than its competitors. One of the creators the value chain framework is helpful is because it emphasizes that competitive advantage can come not just from great products or services, but from anyplace along the value chain. In strategic management it is critical to understand both the competitive advantage of an organization as well as understand the value chain.Five Forces ModelThe five forces model un apparent motionable by Porter (1985) guides the analysis of organizations environment and the magnet of the industry. The five forces include the risk of new competitors entering the industry, threat of potential substitutes, the bargaining power of buyers, the bargaining power of suppliers, and degree of tilt between the existing competitors(Porter).A starting point to a nalyzing the industry is to look at competitive rivalry. If entry to an industry is easy then competitive rivalry will potential to be high. If it is easy for customers to move to substitute products for moral from coke to water then again rivalry will be high. Generally competitive rivalry will be high if in that respect is small-minded differentiation between the products sold between customers. In this slip Block has the advantage of a long solid history with the intuition being that they know what they are doing and can be trusted. In addition, electronic file is a long time product of Block that has as well as gained a lot of trust with customers. Of the two competitors, Jackson Hewitt and indecorousness, 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 reaching the siz e and market share of Block. If the competitors all have similar strategies. They do have very similar strategies in the tax services landing field however, this will be an area to review in regards to financial services and mortgage.Suppliers are in like manner essential for the success of an organization, however Block is a service business and suppliers are massive for office supplies, computer equipment, etc. Block develops its own tax software. All mission critical needs are handled by Block so the threat of suppliers is al close to non existent. Although, the IRS in a sense is a supplier of the electronic filing product infrastructure and does heavily run what shed light on 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 found easily. For many a(prenominal) a(prenominal) low income customers th ere is no loyalty and they will move to other providers if the fees are demean or they can get their refunds quicker.Regarding threat of substitutes the spare-time activityion is Are there alternative products that customers can purchase over Blocks product that offer the same benefit for the same or less price? This is high in the case of H&R Block due to the availability of cheap and easy tax preparation designs, the increased use of the internet by a growing number of internet users, and technology is creating new forms of service delivery such as online services and software capabilities and price. warlike 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 pipeline filing methods (sending paper formsthro ugh the U.S.P.S.) or by e-filing (IRS 2004-2005). The IRS has strongly encouraged e-filing in fresh years which is now becoming increasingly popular and consists of both TeleFiling and online filing. Online filing can be completed either through a broker or from any personal computer. The IRS projects that during 04, 58.9 million returns will be e-filed which would constitute 26% of all expected returns. Subsequently, the IRS projects this number to grow 8% per year until 2010 when the number 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 upstart 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 pipeline 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. tally to HRB, the per centum of individual tax returns completed by nonrecreational preparers has risen from 48% in 1990 to 56.8% in 2002.Tax Preparation CompetitionThe most novel U.S. economic census cleared in 1997 suggested that the tax preparation industry is very fragmented. while H&R Block holds 15.3% of this market its largest competitors, Intuit and Microsoft, hold significantly smaller specifys. Although both of these companies right off compete with a portion of Blocks business, neither has the same business model or identical products. 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 the hearten 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 Inside 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 orthogonal factor which is driven by the customer need to conduct business when and where it is convenient for them. The increased use of the internet for tax preparation by a growing number of internet users is also an external factor. engineering science 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 entitle 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 attainment 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 belief that most organizations are created to achieve goals, to perform some type of work.Scott goes on ulterior in the book and colloquys about managing task environments and notes (197) that there are many 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 cover under this field of operation 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 mustiness 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 comply with these rules at all times. They include sharing of information, application of tax law and theory, etc.In addition, the IRS has been a partner to Block and these two organizations worked together, almost a enunciate venture in behavior, to develop electronic filing in the late 80s. This has been a boon to both organizations. At IRS processing centers crusade 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 spud that now makes up a pproximately 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 tried 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 impact it is much more than 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 whi le 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 super user friendly features, such asaggressive deductive reasoning finder, error double collar, andimport of previous years quotable information to promote continued use. Complaints regarding Turbo Tax are that the software is more often than not designed for one user to do one return and that it sticky to jump to one part of the return process without completing the perfect procedure. Regarding TaxCuts short 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 b oth also offer a rebate program to get the state version at no cost later 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 super 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 mod and react toconsumers demands they will continue to attract new 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 subsequently 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 presently benefited from significantly higher volume of loan transactions in late(a) years driving a $2.5 trillion increase, in mortgages originated between 00 and 03. Because the bulk of those interested in refinancing their mortgages have had sufficient opportunity to do so, business in this sector will be driven by new mortgage originations rather than additional finances.The market for 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. Ov er the new few years, the sub-prime industry expects growth of at least 5% a year. no matter that low interest rates may have caused a relegate 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 part compensate.Financial Advice IndustryH&R Block Financial Advisors (HRBFA) competes directly with a broad range of companies seeking to attract consumer financial assets, including full-service brokerage house firms, discount and online brokerage firms, mutual fund companies, investment banking firms, commercial and savings banks, insurance companies and others. In 99, there was $6 trillion invested in mutual funds which is the largest single 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 Report Searches, 2005). Clearly, Block is a small pseud 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 business. For example, retailers running credit operations. In the regulatory arena Block business units are heavily regulated. Tax Services by Internal Revenue Service and Treasury Department rules, financial services by SEC and broker regulations, and mortgage by contribute 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 correct 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 change. In the 2005 Annual Report Block stated that international 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% component part in 2001. Australia is matt over this time peri od 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 require 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 difficult 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 servicesOnly brand to offer software, online and in-office solutions Dynamic marketing skills and structureBrandClient Base/ scattering ScaleVery 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. WeaknessesNiche brand and market position messiness bu siness system best serves lower income consumersDelivery system comprehend to not meet many consumers needs Outside of tax relationships, especial(a) or no competitive advantages in financial services/mortgage businessesCustomer service in office and telephonePart time employees lack corporate citizenshipOffices are leased and appear soNon-contractual service allows customers ease of switching to competitors OpportunitiesFinancial advisory businessTax preparation softwareConsumers are rapidly embracing internet availabilitydigital self-preparation splitting between software and online Online attracting younger, moderate income consumer (Early Adopters) Push for/advantage to E-Filing likely to drive growth for many years Financial services long 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 conform ing 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 expectationsService capabilities that lead consumer expectationsMortgage industry scale advantages dominate fortunate 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 value that the company attempts, through training and orientation, to school 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 breast change to learn and grow, Respect We treat each other with respect and dignity, recognizing that innovation springs from unique perspectives, and Teamwork Everyones collaboration and full participation 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 outlin es 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, further, to consider the overall betterment of society in its decisions and actions.At H&R Block one the products sold is known as a Rapid reward. 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 Earned Income Tax Credit. This is credit given to low income 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 subject area Consumer Law Center is a non-profit organization specializing in consumer issues on behalf of low-income people. NCLC whole kit and bo odle 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 anticipation 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 Billion in Loan Charges and Fees in 2002 Their research also indicates that find cashing fees add to the cost of acquire 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 study 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 partnerships with check cashers. H&R Block has aggrouped up with principal funds 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 partnership 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 ha d 22 machines in company-ownedlocations and 150 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 groups have charged this is a rip off and that Block is stealing some of this earned income credit from needy families and is sensed 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 disobedient press. Currently the National Consumer Law Center Consumer Federation of America is work 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 time it was doing well in the new area of online subscription services. It did not, however, fit all the tests for a good acquisition 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 field CompuServe in the dust. CompuServe was at last 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 observe from Thompson in this discussion. Tax is mature and has growth potential 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 pertly created company often taking on a new name. An acquisition is a combination in whi ch 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 chase organisational business goals paving the way for acquiring firm to gain more market share and create a more expeditious operation, expanding a firms geographic coverage, extending a firms business into new product categories or international markets, gaining quick introduction to new technologies, and/or to invent a new industry and lead the convergence of industries whose boundaries are blurred by changing 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, shari ng of expertise, and achieving enhanced competitive capabilities.irrespective 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 running(a) 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 way s, defined 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 genius is added. They do fit very well and there is mess up marketing and up selling in and across the business units. It is taking longer to really incorporate and turn these strategies into operational ways of doing business but they are achieving the plan.stockholder 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 foundation 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 magnet 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 dough and shareholder value with the business than without it than it would not meet the test. Block is unquestionably 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 to 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 sustained some heavy losses during the first few years of implementing this strategic plan.Strategy AnalysisStrateg y 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 servicing strategy is to create greater cross operational responsibilities for topical anesthetic 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 move around with physical office cust omers seeking assistance via the web. Infrastructure is in place to accomplish this and only strategic planning and operation 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 graph are arranged. In the past few years technology and in operation(p) 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 compa ny 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 fall 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, bespoke response. According to a CRM study (HRB, 2003) within the organization conducted by a software firm the company could enable its financial advisors to provide individualize 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 needed. 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. in store(predicate) PlansThompson has several key points regarding organizational capabilities companies dont implement and be given 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 low 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 within the team. Intellectual capital is more important to strategy execution than other investments. Also decentralizing decision mak ing 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 criticism is that unfortunately many of those newly added have left after two or so years. A great deal of turnover has occurred 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 h ave 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 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.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 hands of those persons or teams clos est to and most familiar about the situation. Block is a leader in this area. topical anesthetic and regional managers are responsible for mostdecision making regarding hiring, order of business 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 military rating of strategy implementation. For several years the company has been designing and setting up processes to support a equilibrize scorecard method. (Kaplan, 1996). The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translat e 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 impudence 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 move 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, collect 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 results. synopsis and closingIn a Forbes article printed in early 2004 author Emily Lambert stated April 15, looms, but H & R Block chieftain Executive Mark A. Ernst has more than taxes on his mind. Hes raring(predicate) to find out how many of this seasons customers can little by little be convinced to buy H & R Blocks newer offerings, including hom e 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%, charm to cash-strapped low-income customers. Some customers may be wary, too. The company is under dismiss for its refund anticipation loans. The loans, which can carry interest rates of 129%, appeal to cash-strapped low-income customers. The fees 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 implemen tation 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 canvas in this course. One area that the author feels may be needed that is not current present in any of them.