Nonprofits and Porter's Five Forces

 

Porter’s Five Forces is a framework typically used to analyze competitive pressures in for-profit business. Porter’s Five Forces can also be valuable for nonprofits in understanding their strategic positioning. By applying Porter’s Five Forces, nonprofits can refine their strategies to secure resources, maximize impact, and ensure long-term sustainability.

Force 1 The Threat of New Entrants: More organizations may mean less available funding and donor contributions. To mitigate this, established nonprofits must build strong brand recognition, demonstrate impact, and cultivate long-term relationships with donors and stakeholders.

For example, Nonprofit A is currently the only organization offering financial literacy education in a low income neighborhood. A new nonprofit could emerge to address financial literacy in the same, or nearby, neighborhood. The likelihood will be lower if there are strong barriers to entry, such as a high cost to acquire educators sufficiently trained in financial literacy.

What is the likelihood a new nonprofit will emerge that offers the same services?

Force 2 The Power of Donors and Funders: Porter’s model discusses the bargaining power of suppliers. Donors and funders would be the analogous force for nonprofits. Large foundations, government agencies, and high-net-worth individuals that provide funding can exert influence over a nonprofit’s strategic direction by setting conditions for grants or demanding measurable results.

For example, Nonprofit A offers in-person classes on financial literacy. Nonprofit A management made the decision to operate in-person classes strategically, as their beneficiaries lack internet access. Donors and funders may require money be used to transition to online classes. Nonprofit A may not have access to other funding and would need to decide whether they can make this transition.

How much influence do your donors and funders have over your programming?

Force 3 The Power of Beneficiaries: Porter’s model discusses the power of customers. Beneficiaries would be the analogous force for nonprofits. Those the nonprofit serves can shape programs and services. Nonprofits must continually adapt to remain relevant to beneficiaries. This dynamic necessitates strong impact measurement and responsiveness to the needs of the community.

For example, Nonprofit A’s in-person financial literacy courses may lack relevance if the beneficiaries lack transportation to attend in-person. Nonprofit A might need to consider offering classes in multiple locations to ensure beneficiaries are able to walk to the location.

Do beneficiaries find your programming helpful and accessible?

Force 4 The Threat of Substitutes: In the context of Porter’s Five Forces, substitutes refer to alternative solutions or services that fulfill the same need or function as those offered by an organization.

For example, lifting people out of poverty could be attempted in many ways. Nonprofit A offers financial literacy classes, Nonprofit B provides job training, and Nonprofit C provides housing. Nonprofit A is not competing with Nonprofit B or C with respect to financial literacy education. However, Nonprofit B and C are potential substitutes for the outcome of reducing poverty that Nonprofit A hopes to achieve.

Think about your mission at a high level. What are the substitutes for you programming?

Force 5 Competitive Rivalry: Here we consider other nonprofits engaged in similar programming. Rivalry often exists between nonprofits for limited grants, donations, and volunteers. Sustainability of individual nonprofits requires analysis of the strengths and weaknesses of all the organizations in your field.

This does not mean nonprofits should strive to put each other out of business. It simply means nonprofits should consider whether they possess an advantage that would allow them to provide services better than others. If not, the nonprofit might consider working in a different area of need. Ideally, the nonprofit would work in an area where they possess strengths that allow them to efficiently provide services. This also emphasizes that nonprofits should develop unique value propositions or collaborate strategically.

For example, Nonprofit A and Nonprofit B provide online financial literacy classes. Funders will ask what sets Nonprofit A apart from Nonprofit B. Perhaps Nonprofit A has a unique value proposition of mentoring from local finance professionals. These connections are a strength of Nonprofit A. Nonprofit B would want to consider whether their own strengths offer something unique or whether to compete elsewhere. Nonprofit B could also decide to acquire new strengths, such as an internship program. Finally, Nonprofit B could approach Nonprofit A about a collaboration.

What sets your nonprofit apart from others offering similar services?

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