We’re working on our business plan at The Cranfield Trust, and this year alone we have started 67 strategic and business planning projects, thanks to our volunteer consultants. One of our trustees, Richard, blogged about why it’s important to have a strategy.
So why are so many organisations still without a plan? In the past week I’ve spoken to two Chief Executives of charities – one new organisation which has been operating for less than a year, and is trying to work out how to become sustainable, and one which is in trouble, having lost a contract which provided 90% of its income, after 20 years of providing a vital service. Neither had plans in place – could they have helped?
Thinking back to business school lectures, I remembered some of the tools we learned. Most people are familiar with and use SWOT analysis for their organisation at some time (Strengths, Weaknesses, Opportunities, Threats), but perhaps it’s time to use a more commercial approach – Porter’s five forces. These relate to ‘markets’, a term that non profits don’t use often and don’t feel comfortable with in our experience, although all of us are operating in a market, and understanding it is vital to adapt and sustain our services. We’re in markets for funding, for staff, volunteers, and often for service users too – particularly with new developments like personalisation enabling and encouraging people to choose between alternative support providers.
Professor Michael Porter is based at Harvard’s Institute for Strategy and Competitiveness – doesn’t sound an obvious place for charities to get inspiration.
He came up with the Five Forces in 1979, and they are:
• Threat of new entrants
The voluntary sector has a substantial number of new entrants every year. Barriers to entry are low – it’s not difficult to set up a charity or other non profit, and there are many gaps in public services which people wish to fill. It can be very difficult to scale up, and the charity sector is populated by a very large number of very small organisations, fragmenting the ‘market’ and increasing competition for funding. New market entrants can also be from other sectors, competing for contracts to provide ‘your’ services locally or regionally.
• Threat of substitute products or services
Porter points out that close competitor products or services can actually benefit your own – an example might be the ice bucket challenge, which started out to raise funds for MND, but was adopted to a lesser extent by people fundraising for other charities too. Real substitutes – perhaps online support rather than face to face help for service users – might have cost advantages which make them attractive to commissioners or funders, threatening your service model.
• Bargaining power of customers
‘Customers’ is a difficult word for charities – our customers are our service users, but they’re not usually the people who fund our services. We adapt our activities to meet service users’ needs, but we can also ‘follow the money’, which doesn’t always help us set our own agenda or strategy. For charities, funder ‘customers’ often have considerable power, and this market factor is something we need to acknowledge and consider carefully in setting our organisation plans.
• Bargaining power of suppliers
Finding and keeping the right staff, trustees and volunteers can be difficult – and many organisations have high turnover of staff, especially those in demanding caring and frontline roles. Attracting key ‘suppliers’ like staff members is critical to success, so having a strategy which covers employment, or human resources, is vital.
• Intensity of competition
Many charities don’t want to think of themselves as competing with others. In truth we all are, and it’s important to acknowledge this and think carefully about what makes your organisation and its services distinctive, and different from competitors. Many charities will have a ‘competitive advantage’, but it’s hard to compete in many different service areas, and it might be time to look at your range of activities and think about where you – and only you – can add particular value. Looking at others in similar and related service areas can lead to some good opportunities for collaboration, leaving you free to lead in areas where you have unique strengths.
Having just spoken to a new market entrant and an organisation forced out by competition, I’m really conscious that charities need to take a commercial approach to their market. The tough climate hasn’t stopped new charities registering and coming into our already crowded sector, and customers, whether they’re service users or funders, certainly have power. Substitute products and services are also becoming more of a feature, and competition is now a word used much more frequently by charities.
It’s a time when most charity Chief Executives don’t have much head space for thinking about their wider market but it’s a time when most of us can’t afford to ignore it. If you’re thinking about your future, use all the tools you can get your hands on to help you plan ahead – and try working through the Five Forces model for your organisation, it could give you a new ‘market-oriented’ perspective.
The Cranfield Trust provides free business skills to help charities, contact us if you’d like to talk about strategic and business planning – or other business support.