Tuesday, October 6, 2020

The Five Competitive Forces That Shape Strategy: Applying The Five Competitive Forces Framework To Nonprofit Organizations



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TODAY’S BLOG: 10/06/20


To start today's blog, what do you think about competition? 

Some believe it is a force for good. Some believe it is a force for conflict. We believe it is a force for good. Share your answer to this question in the comment section below. 

In the world of commerce especially, we see competition as a positive force because it serves to drive prices down and requires that businesses innovate their products and services to keep the consumer engaged. 

There are various models of how to devise a business strategy to address the forces of competition. In today's blog, we will discuss Michael E. Porter's framework of how to devise a business strategy and will apply his model to nonprofit organizations, our specialty.

Do nonprofits need to develop a business strategy?

Yes. Why? Because donors and grantors have a seemingly unlimited number of nonprofit organizations to choose from, including those offering your specific product or service. Whether your nonprofit is selected as an organization that they want to donate to has to do with understanding what sets you apart from others and using a framework like Mr. Porter has developed can help you strategize how to meet financial goals in the short run and long run to stay relevant to donors and grantors and meet their expectations.

Who is Michael E. Porter and what is his business strategy model?

An introduction. Michael E. Porter is a University Professor at Harvard, based at Harvard Business School in Boston. His model is respected in the business field and used by countless managers and leaders across industries. 

His model is called: The Five Competitive Forces That Shape Industry Competition. In the article that highlights the value of this model (a book was also written to explain the framework in more detail), Mr. Porter says, "[This framework] drives competition and profitability, not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated". Mr. Porter postulates that any industry, for-profit or nonprofit, is driven and affected by this particular set of forces of competition:

We will briefly discuss each force:

The threat of new entrants. Although the list of revoked organizations increases with every new release posted on IRS.org, still many new entrants who have positioned themselves to meet compliance standards are added to the pool of organizations that donors and grantors can choose from and place their funds in a new organizations' care.

The bargaining power of buyers. Donors and grantors have bargaining power as to how much and how often they will donate or fund your organization and its programs. They have the power to determine the amount, frequency, and nature of their contribution which has a direct impact on nonprofits being able to meet financial and fiscal management goals.

The rivalry among existing competitors. The grant application processes alone can give any outside observer a clear picture of the competitive environment that nonprofits organizations operate under. The competition seems to be even more intense when grantors offer more 'high-dollar' funding.

The bargaining power of suppliers. Nonprofits vendors and information suppliers have the advantage of having bargaining power to adjust their prices as they see fit within their own industry-set of forces. This impacts nonprofit bottom lines and their availability of cash flow in subsequential periods when the prices of their service suppliers and products they use in operations rise.

The threat of substitute products or services. This is the force of the five competitive forces framework that we want to save for last because it is here that nonprofits may not realize that their bottom lines are affected the most. Nonprofits are designed to offer their products and services at low cost or free, however, they are still in competition with for-profit organizations that may offer the same product and services at a higher cost. And, yet, they can be the preferred choice over nonprofit options due to many factors including more convenience, preference, and accessibility. Recognition and awareness of this level can bring about a dramatic change in nonprofit marketing and operation policy that encourages more differentiation and unique-value offerings in order to stand apart from competitors.

In conclusion:

We hope this overview of Mr. Porters' five competitive forces is helpful to you and your nonprofit organization. These are the basics of his model, however, to be used effectively more study and implementation are required. 

If you are one of our 'casual' readers, please free free to share this content with your favorite nonprofit. We believe it will be of great use to them and can open up the conversation for nonprofit executives, board members, and supporters to how they can implement a basic strategy that can help their nonprofit in the short term and long term maintain and stay competitive in any political or changing world environment.

We are here for you.

We bring insightful and impactful information to the nonprofit arena and we especially aim to create content that is helpful to our main client: health and wellness nonprofits. We hope we have met this goal in today's blog. 

Please share your comments about today's content in the comments section below.

To our health and wellness nonprofits, click here to learn more about the products and services we offer and the strategic methods we employ for: Your NFP Ship. Your NFP Compass. Your NFP Path w/Lenore, Inc.

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