The Porter Five-forces Industry Analysis Framework For Religious Nonprofits: A conceptual analysis

Goold (1997) has argued that the Porter (1980) five-forces framework for industry analysis is not applicable to nonprofits. In light of recent essays (e.g. Miller, 2002) as well as literature from the world of religious nonprofit organizations and organization theory, the Porter framework is analyzed through a review of representative literature. The religious nonprofit arena was chosen for this conceptual analysis based on an assumed key difference between religious nonprofits and for-profit firms: the stronger influence that mission has in strategy formulation compared with the influence of the external environment. Implications for further research are suggested. Porter Five-forces Framework 2 The Porter Five-forces Industry Analysis Framework For Religious Nonprofits: A conceptual analysis By Michael E. Cafferky Assistant Professor of Business & Management Southern Adventist University Collegedale, TN INTRODUCTION Acceptance of the Porter (1980) five-forces analytic framework is prevalent in the world of for-profit organizations. The framework‟s value is rooted in the forces of industry competition bathed in the traditional dynamics of economics. It is the structural frame of competitive forces that collectively determines the profitability and hence the attractiveness of an industry. In terms of this framework the key to strategy is defending against the five forces. Porter says, "An effective competitive strategy takes offensive or defensive action in order to create a defendable position against the five competitive forces." With reservation on the applicability of private sector concepts to nonprofit organizations, Goold (1997) has evaluated its relevance and potential usefulness of the framework in the nonprofit arena. He concludes that the “meaning and relevance of the concept is therefore dubious. . . the industry attractiveness concept seems not to transfer well into the notfor-profit environment.” In possible support to Goold‟s view is that of Stone, Bigelow and Crittenden (1999) who argue that nonprofit goals and outcomes have a “noneconomic and nonmarket quality.” From their review of the empirical research in nonprofit strategy between Porter Five-forces Framework 3 1979 and 1999 they conclude that “some assumptions underlying formal planning do not match characteristics of many nonprofits and their environments.” In apparent implicit opposition to Goold‟s view is that of Miller (2002). Miller blends sociology of religion with economic theories of competition when studying church organizations. He views rivalry among religious organizations as sometimes intense. Using the resource-based view of the organization, religious organizations are seen as competing for scarce resources. One of the weaknesses of the research in sociology and economics of religion has been that this research does not “acknowledge the industry analytical frameworks and theories of competitive interaction from strategic management and industrial organization economics.” The purpose of this paper is to review the five-forces framework analyzing its relevance for one sub-sector of the nonprofit domain – religious nonprofits. Porter‟s framework is built upon an assumption that the external environment is a significant influence in strategy development. However, the external environment for the religious nonprofit organization may be wholly different in structure and characteristics than the environment of for-profit firms. The religious nonprofit arena was chosen for this conceptual analysis based on an assumed key difference between religious nonprofits and for-profit firms: the stronger influence that mission has in strategy formulation compared with the influence of the external environment (See Figure 1.1). The author believes that in terms of mission dominance and environment dominance religious nonprofits are at the opposite extreme compared with for-profit firms. Both for-profits and nonprofits have missions and perceptions of their environment that influence strategy. Comparatively, strategy in nonprofits tends to be more mission-dominant (Unterman and Davis, 1984; Drucker, 1992) and, by implication, comparatively less environment-dominant while the Porter Five-forces Framework 4 strategy of for-profit firms tends to be more environment-dominant (cf. Aguilar, 1967; Andrews, 1971; Ansoff, 1985; Schendel and Hofer, 1979; Bourgeois, 1985).