This chapter introduces the concept of strategic management and its benefits for tax administrations. It also explains how successful strategic management provides the framework for a tax administration to operate more efficiently by being proactive and innovative, being less resistant to change, and having the capability to identify and address risks more effectively.
What Is Strategic Management?
Strategic management is a cyclical, end-to-end process of managing an organization, in this case a tax administration, to achieve planned outcomes. It has three key components:
Setting objectives based on an analysis of the external environment and the internal organization
Developing and implementing strategies to meet these objectives
Implementing performance measures to do the following:
Evaluate past results
Guide necessary adjustment of strategies to improve future results
The strategic management cycle is set out in Figure 1.1.
Governments typically establish long-term objectives to support their national plan, with each portfolio/department developing plans to support broader government goals. These plans generally contain explicit social and economic goals, and collecting revenue by the tax administration is critical to funding the delivery of those goals. While governments rely on several sources of funding, the majority is usually collected through the country’s tax system. For this reason, a tax administration’s strategy is one part of a broader government strategy. The tax administration’s medium-term strategic goals and objectives must be aligned with the overarching government strategy and timelines.
Figure 1.2 illustrates the hierarchical nature of strategic plans from the government level to the tax administration level. Each tier of this plan hierarchy is discussed in more detail in Chapter 2.
While some developing countries may have fewer planning tiers than shown in Figure 1.2, at a minimum they should contain the tax administration strategic plan supported by annual and local operational plans.
The development of a strategic plan is the beginning, not the end, of the process. The strategy must inform day-to-day operations. There is no benefit to be derived from a strategy if it does not drive the administration’s operations and contribute to government revenue objectives. Strategic management involves overseeing the development and implementation of all plans outlined in the strategic management cycle.
Finally, it is important to note that managing and facilitating the strategic planning cycle demands significant attention and care. Administrations should allocate staff to undertake this critical role on a full-time basis.
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Strategic management helps a tax administration to build a strong foundation for its future by providing clear objectives and a road map to reach them. |
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Strategic management helps a tax administration to build a strong foundation for its future by providing clear objectives and a road map to reach them. |
Benefits of Strategic Management
Crisis situations are an unavoidable component of administering a nation’s tax system. Unfortunately, many tax administrations do not take a strategic management approach and find that they have to operate in a reactionary mode when such crises occur. This becomes a drain on resources and rarely produces optimal results. More commonly, management and staff are distracted from their primary roles, as daily tasks are put on hold to manage the crisis.
For tax administrations that have articulated a clear vision and strategy, a crisis can present an opportunity to accelerate developments that were already in planning stages. For example, the COVID-19 pandemic allowed some administrations to achieve a significant shift to the online mode for taxpayer interactions. They were able to enhance online service offerings to accommodate electronic fling and payment for all tax types, minimizing the need for face-to-face interaction at service counters. Beyond limiting in-person interactions, moving taxpayers to a digital platform also presented efficiency gains for these administrations, as staff were no longer needed to manually process transactions.
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Strategic management compels a tax administration to think ahead. This forward view includes predicting potential changes in the business environment and the impact of those changes on the tax administration. This strategic thinking allows management to plan deliberately and act proactively. |
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Strategic management compels a tax administration to think ahead. This forward view includes predicting potential changes in the business environment and the impact of those changes on the tax administration. This strategic thinking allows management to plan deliberately and act proactively. |
There is no “one-size-fits-all” approach to strategic management. Tax administrations operate in diverse environments, face different challenges, and have different visions of their future state. Nevertheless, the benefits for tax administrations using the strategic management discipline are similar. These benefits are set out in Box 1.1.
Benefits of Strategic Management
1. A sense of direction
Strategic management is instrumental in establishing clear and realistic organizational goals aligned with the vision and chartered mission of the organization. A strategic plan is a solid foundation from which the organization can grow, measure progress, and establish a framework for efficient decision-making.
2. A proactive approach
The process of strategic management allows organizations to anticipate future scenarios and prepare accordingly. Through strategic planning, organizations can foresee adverse situations and take necessary precautions to avoid them.
3. Increased operational efficiency
Strategic planning provides leaders with a road map to critically analyze and align the organization’s functional activities to achieve goals. With a clear plan in place, resources can be channeled and monitored more effectively.
4. Consensus on key issues and future direction
A good strategic plan offers guidance to management when tough decisions must be made. It provides an opportunity to develop consensus-based solutions to long-term issues and/or challenges that affect the organization.
5. Strengthened teamwork
By working together in planning their future, organizations experience an enhanced sense of teamwork. This not only increases commitment to objectives but also spurs innovation in the implementation of strategies.
6. Improved communication
Managers entrusted with strategic planning must inform the entire organization of objectives, strategic changes, plans, and corporate priorities. This dissemination of information helps identify resistance to change so necessary action can be taken with key stakeholders and staff.
7. A focused and transparent administration
Transparency plays a key role in the strategic planning process. Through transparent workflows, the administration can work on its strategy as a whole rather than as disjointed groups with conflicting interests. Transparency of the administration’s objectives is also important for the government, more broadly, stakeholders, and the private sector. For example, a published strategic plan could provide information to the community on how a tax administration will implement new tax laws or digitalize taxpayer services.
8. Commitment to results
The outcomes developed during the planning phase become benchmarks or metrics for judging organizational and staff performance. When the team is encouraged to participate in a significant task such as strategic planning, increased levels of trust, morale, and productivity are achieved.
9. Carefully planned and justified resources
Resources, people, and assets will be required to implement strategies. The strategic plan enables stakeholders to understand what resources are available or need to be acquired to achieve the objectives. This analysis of costs and resource needs places the tax administration in a better position to advocate for additional resources from government and/or development partners.
10. Sustainable revenue mobilization
Strategic planning shifts senior management’s focus from short-term issues such as daily revenue collections to applicable medium- and long-term methods, tasks, and actions required to achieve goals and objectives.
Successful administrations plan for the future. The strategic management discipline provides the framework to assist tax administration leaders in answering key questions that shape the future of their organization. A few of these questions are set out in Box 1.2.
Strategic Management Key Questions
What opportunities and threats could arise from technological developments?
What is happening in the global economy that could impact management of the administration or how it protects its tax base?
What are the current and future compliance risks, and how should they be managed?
What is the right balance between service and enforcement?
How can resources be tracked to determine whether they are allocated efficiently and achieving the tax administration objectives?
How much is spent on each tax administration activity, and what is the return on that investment for the administration and broader society?
How can the administration continue to generate revenue results with an ever-decreasing budget?
