Porter's Five Forces: Relevance and Applications of Nonprofit Strategy

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Concepts Applicable to the Nonprofit Setting and to Our Understanding of Strategic Nonprofit Leadership and Management In the opening paragraph, Porter makes an important reference to the importance of not only a company’s position, but the position of the industry as well. He states, “A healthy industry structure should be as much a competitive concern to strategists as their company’s own position. Understanding industry structure is also essential to effective strategic positioning” (p. 80). I believe this is very relevant to the nonprofit sector especially because I believe the nonprofit industry is more connected and interdependent than for-profit companies. Strategic nonprofit leadership and management should definitely look to the positioning of the nonprofit sector in addition to individual nonprofits.

When explaining the barriers to entry, Porter includes restrictive government policy and states, “Government policy can hinder or aid new entry directly, as well as amplify (or nullify) the other entry barriers. Government directly limits or even forecloses entry into industries…Of course, government policies may also make entry easier” (p.82). I believe this barrier to entry that Porter highlights in reference to companies is very true in the nonprofit sector. Government is the one that grants nonprofits the ability to enter the industry and monitors their activities yearly to ensure that they comply with policy. In addition to this, a large percentage of nonprofit organizations rely on government grants and funding that requires even more government policies for nonprofit organizations to comply with. At the same time, government policies are the ones that allow nonprofit organizations to function without worry of a large number of taxes, thereby enabling them to focus on their mission. I believe that strategic nonprofit leadership and management entails an understanding of government policies and the negative and positive implications that they have in a nonprofit organization’s operations. Another important statement Porter makes in relation to this is, “the strategist must be mindful of the creative ways newcomers might find to circumvent apparent barriers” (p.82). Although this serves a as a minimal but final comment for Porter, I believe this is very important for nonprofit organizations because nonprofit organizations are good at doing more with less and new entrants to the industry might be able to sidestep governmental barriers and position themselves ahead of other nonprofits.

In speaking about barriers to entry Porter also states, “the challenge is to find ways to surmount the entry barriers without nullifying, through heavy investment, the profitability of participating in the industry” (p.82). Porter’s comment is in reference to the expected retaliation when new companies are entering the industry. This comment made me reflect on the reality of this idea in the nonprofit sector. For nonprofit organizations entering the industry with a significant amount of their startup money either being from a grant (most likely, with significant or immediate expected outcomes attached to it) or a major donor, this scenario is very true. New nonprofit organizations must be able to use a large portion of their startup capital without spending an amount that jeopardizes their sustainability. In light of this idea, strategic nonprofit leadership and management involves a careful calculation of the use of capital from significant sources when starting new nonprofits. In the nonprofit sector it is even more risky given the fact that for-profit companies have more freedom in using their capital to enter and exit industries.

Porter continues his article by highlighting the power suppliers hold over companies. His second suggestion made to determine if a supplier group is powerful is, “the supplier group does not depend heavily on the industry for its revenues. Suppliers serving many industries will not hesitate to...
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