PORTERS FIVE FORCES MODEL

Porters (1979) Five Forces model for predicting industry profitability. The essence of Porters idea is
that the competitive intensity of a product-market is determined by five broad influences:
(1) industry rivalry
(2) threat of new entrants
(3) threat of substitution
(4) supplier power
(5) buyer power
As competitive intensity increases, industry profitability is presumed to decline. It is thus the South
County Outreachs task to find a position within its industry from which it can defend itself against
these forces or, alternatively, to shift the balance of power in its favor. (Ritchie and Weinberg, 2000)

Attempts have been made to apply the Five Forces model to the nonprofit sector (e.g. Tuckman 1998,
Boehm 1996), demonstrating how these forces can also influence competition among these
organizations. For instance:

- The high capital investment needed to establish a product testing lab has discouraged
potential entrants from competing with Consumers Union (publisher of Consumer Reports).
- Dependence on food from a small number of western governments and agricultural
cooperatives has made the international aid sector highly competitive.
- Availability of food pantries from religious organizations prevents other food providers from
obtaining their food beyond a certain level.

While these observations show that the Porter model can be applied to nonprofit competition,
they do not imply that it is the best way to understand it. Porters model does not (and was never
intended to) reflect a number of critical factors imposed by the non-profit environment. For
instance, the bargaining power of suppliers is less important for nonprofits than for businesses;
conversely, issues that are uniquely important in the nonprofit sector, like societal expectations,
have been excluded. In light of these concerns, coupled with the fact that nonprofits call upon
competitive strategy to achieve something other than profitability, seeking insights from existing
models should be seen as only a first step. Ultimately, what is needed is a new approach to
competitive strategy designed specifically for nonprofit organizations. (Ritchie and Weinberg, 2000)
Industry Rivalry The non-profit food and housing industry is highly competitive Orange County.
South County Outreach faces a lot of competition due to other food and housing agencies in the
area. Some competitors that provide both food and housing in Orange County are: Families
Forward, Pathways to Hope, OC Rescue Mission, and Friendship Shelter. However, all these
competitors have a strong incentive to cooperate with each other, this is for the greater good to
prevent hunger and homelessness.

Threat of New Entrants With donor loyalty or high fixed costs, the threat of new entrants can be
limited. However, if hunger and homelessness are on the rise, new organizations or programs may
enter the market. Established organizations like the religion sector can enter this industry without
the high fixed costs. The political atmosphere is encouraging for those wanting to enter the industry
with tax benefits and the charity social value.

Threat of Substitution The threat of substitution is low. While there are alternative food and
housing operations, their competitor has a common goal for the greater good. So in the case with
non-profits, the concept of threat is regarded differently and should be renamed for a more
positive meaning like Prospect of Substitutions.

Supplier Power South County Outreach relies on the businesses and volunteers for donations
whether it is food or cash. SCO is highly dependent on the generosity of volunteers to help their
cause.

Buyer Power The buyer power for South County Outreach is high. In the non-profit sector, a
buyer would be considered the donor. SCO will rely on donors and grants from the government to
buy the vision South County Outreach represents.