Operations Management



Executive Summary

H&R Block (or “the company”) through its subsidiaries provides provide tax, banking and business and consulting services. The company operates in the US, Canada and Australia. This tax industry is increasingly threatened by the Software Publishing industry. Tax preparation software, such as Intuit's TurboTax, has gained popularity because it makes electronic filing more accessible. In response, many tax preparation firms now provide basic services for free. H&R Block (“the company”) is primarily a provider of tax services. In addition the company also offers business services and other financial products to support its tax business. However, continued decline in tax payer base has a negative impact on H&R Block's revenues.

Operations Management

Background

H&R Block (or “the company”) through its subsidiaries provides provide tax, banking and business and consulting services. The company operates in the US, Canada and Australia. By the end of FY2010, H&R Block operated 11,506 offices in the US of which 7,191 were company owned and the rest were operated by the franchisees. Furthermore, the company operated 1,269 offices in Canada and 374 offices in Australia. The company primarily operates through three business segments: tax services, business services, and corporate (Alon 2000, 82-86).

Industry Outlook

In the five years to 2011, the Tax Preparation Services industry's revenue has grown by 1.8% annually to $8.9 billion. Though the industry experienced relatively strong growth between 2006 and 2008, revenue declined in 2009 and 2010. As economic conditions crumbled, rising unemployment and falling disposable income led more consumers to prepare their own tax returns. Luckily for industry operators, a return to economic growth is expected to boost revenue by 0.8% in 2011.

This industry is increasingly threatened by the Software Publishing industry. Tax preparation software, such as Intuit's TurboTax, has gained popularity because it makes electronic filing more accessible. In response, many tax preparation firms now provide basic services for free. In doing so, they attract customers who subsequently sign up for fee-based services, such as state income tax preparation filing. Operators also cross-sell tax-related financial products, including refund anticipation loans (RALs). Third-party lending institutions offer RALs and generate revenue through participation fees and by attracting consumers.

The industry is highly seasonal, with demand peaking from January to April. While many small operators work only during these months, large firms typically operate at a loss during the off-season. In 2011, industry gross profit is estimated to represent 18.0% of industry revenue, down from 25.0% in 2007. Declining profit has largely been the result of price reductions, free services and high unemployment.

About 60.0% of US taxpayers continue to pay professionals to prepare their taxes. The high demand and personalized nature of the services cause the industry to be highly fragmented; some 85.1% of industry firms are non-employers (Weimer & Vining 2005, 20 - 50). The relative ease with which a person can become a paid tax preparer has caused the number of industry enterprises to increase by 1.4% annually in the five years to 2011 to 106,928.

In the five years to 2016, industry revenue is forecast to ...