Public Agency External Analysis Using a Modified “Five Forces” Framework

ABSTRACT

Strategy matters in the public sector as well as in the private sector. Michael Porter's “five competitive forces” (5 Forces) framework (Porter 1979; 1980; 2008) is widely used by private-sector firms to analyze the external environment and specific external forces. Can public agency managers use some version of 5 Forces analysis to effectively analyze the external environments of their programs? What modifications are required for public agency use? The case is made that a version of the 5 Forces framework can be useful when appropriately modified for public agency programs. The public agency version of the 5 Forces framework that is presented specifically considers public agency goals from three perspectives: descriptive, instrumental, and normative. The descriptive focus on autonomy is laid out. Another modification to the standard framework explicitly introduces political influence as an external force. Thus, the modified framework considers and integrates both political and economic external forces. Several significant modifications to Porter's other forces are also proposed and discussed. A number of strategic implications of public program 5 Forces analysis are discussed. The modified 5 Forces framework is illustrated both in terms of autonomy (descriptive level) and social efficiency (normative perspective).

ACKNOWLEDGEMENTS

This article is humbly dedicated to the memory of Philip Selznick (1913–2010): the man, the scholar, the mentor. The author wishes to thank the editor and two anonymous referees for very helpful comments. The author would especially like to thank David Weimer for many helpful comments. The responsibility for the content of this article remains, of course, the sole responsibility of the author.

Notes

For a recent innovative effort to transfer private sector internal analysis to the public sector, see Klein et al. (2010, Table 1).

Although the standard framework is reasonably comprehensive for many analyses, two additional competitive forces have been proposed: complementors (Brandenburger and Nalebuff 1997) and government as policymaker (Vining, Shapiro, and Borges 2005). Complementors certainly could be a relevant “sixth force” in a given public program analysis.

Porter sometimes alternatively uses the term “buyers.”

For another summary of the value of the 5 Forces framework, see Grundy (2006, 214–215). In this article, Grundy also summarizes what he considers to be the limitations of the framework. In his comparison of 5 Forces to SWOT, Grant (2008, 279) further notes: “the SWOT framework has been superseded by an approach to analyzing strategic decisions that still dichotomizes relevant considerations into internal factors and external factors, but does so with an approach grounded in the theory of profit.” This quote indirectly makes the point that SWOT is actually more ambitious than 5 Forces' analysis because it purports to analyze internal factors as well as external factors (for a criticism of this aspect of SWOT, see Valentin [2001]). For critical reviews of SWOT, see Panagiotou (2003) and Pickton and Wright (1998). In sum, the major weakness of SWOT from an environmental theory perspective is that the components of SWOT that purport to be concerned with the external environment (that is, Opportunities, Threats) provides no explicit theoretical framework for categorizing impacts into either “opportunities” or “threats.” Furthermore, the argument could be made that only “threats” really relates to external analysis, while “opportunities” actually concerns potential responses to these threats: in other words, it relates to strategic alternatives. It is, of course, perfectly sensible to consider strategic alternatives, but it is confusing to do so as a component of external analysis.

Another form of environmental analysis—PEST (political, economic, social, technological) or PESTLE (which adds legal and environmental factors as well)—is a complement to, rather than a substitute for, 5 Forces analysis. It considers longer-term (macro-environmental) trends that over time will influence and alter the more immediate environmental factors considered here. However, more immediate aspects of these factors are also partially analyzed through the 5 Forces. Technological factors, for example, typically enter a 5 Forces analysis through consideration of substitutes (see below). Additionally, as discussed in detail below, in the public agency 5 Forces framework political influence now enter the framework directly as a force.

Bryson (2004) recommend a somewhat modified version of SWOT for public agencies where “threats” are reconceptualized as “challenges,” thus SWOC.

One common method of defining the scope of a business is based on the commonality of production technology (essentially economies of scope): If products or services share significant activities on their value chain, they are part of the same business, otherwise not. Another approach emphasizes common competitors: if a set of products or service face common competitors, they are in the same business (see Boardman, Shapiro, and Vining 2004).

Similarly, in private sector analysis, the 5 Forces framework is only applicable to a particular business (competitive-level analysis). Analysis of the portfolio of businesses (corporate-level analysis) must be conducted using different analytic tools.

More formally, firms are concerned with maximizing the net present value of their profits. In other words, this objective function does not imply a focus only on (myopic) short-term profitability.

This conclusion is based on both database (BSC and PAIS) and Web (Google) searches. Wheelen and Hunger (2007) add an additional box to the standard 5 Forces, labeled “Other Stakeholders,” but treat such stakeholders as a force that is a threat to profitability. However, it is possible that there are unpublished strategic analyses that treat the stakeholder dimension more fundamentally from a multi-goal perspective.

Boston, Bradstock, and Eng (2010, 1) summarizes the distinction between the descriptive (empirical) and normative perspectives for public policy as follows: “At the empirical level, there are issues of what governments do in practice and how this varies over time and between jurisdictions. At the normative level, key issues include what governments ought to do and ought not to do, and what principles should guide decision making.”

I am grateful to the journal's editor for making this point. The responsibility for its use, of course, is solely mine.

It is important to emphasize the use of the phrase policy goals. Kelman (2007, 227) discusses constraints on public agencies extensively, including ethical and legal constraints. Ignoring or subverting the latter is, well, unethical and usually illegal.

Therefore, this observation is not a claim that agency managers are actually budget maximizers; on this, see Bowling, Cho, and Wright (2004) and Dolan (2002). Also, to emphasize this again, it does not necessarily mean that public managers cannot seek to achieve substantive normative goals.

The direction of causality between performance and autonomy is unclear, however, as Moynihan and Pandey (2006, 127) also argue that superior performance can lead to enhanced autonomy: “Elected officials are likely to provide autonomy to a public organization that they trust, has a strong track record [emphasis added] and is unlikely to use that autonomy in a way that causes political embarrassment.” They do not directly test the direction of causality. The authors only argue that their results show that “[a]ll other things equal, agencies are more likely to be successful in undertaking reforms if they enjoy the support of elected officials … The benefits of political support include autonomy and resources, factors also likely to enable agencies to manage change successfully …” (Moynihan and Pandey 2006, 131).

Because these change of status studies are essentially time-series studies, they are more convincing on the direction of causality (autonomy to performance) than are the multivariate cross-sectional studies discussed earlier. They are also more convincing than the case study evidence that is reviewed next. Case studies are only suggestive on the causal relationship between autonomy and performance, as they cannot convincingly eliminate the possibility that autonomy is endogenous.

Consequentialists “assess the goodness or otherwise of a policy solely on the basis of its consequences” (Boston, Bradstock, and Chen 2010, 4).

Some critics might claim that a focus on program autonomy and constraints imposed by external forces necessarily implies that public managers must be “self-interested” in some public choice sense (a referee certainly was concerned that that was the case). There are many different public choice objective functions, including “discretionary resources maximization” (Niskanen 1975; Migue and Belanger 1974) and “budget-shaping” (Dunleavy 1991). The contention is that autonomy is compatible with many (if not all) normative versions of public value and public sector goals. Therefore, it rejects the argument that a focus on autonomy is in practice equivalent to the goal of managerial self-interest. It is not even clear that many budget-shaping versions of public choice are antithetical to most versions of public value maximization: if so, the interests of “bureaucrats” and the public can be aligned in many circumstances.

However, Wise concludes that the composite “bureaucratic posture” she proposes has both positive and negative impacts in terms of the public interest and bureau performance. It is, therefore, hard to interpret this posture in terms of a goal of public value.

Several critics have also argued that it is more applicable to presidential systems than to Westminster-style parliamentary systems (Gains and Stoker 2009; Rhodes and Wanna 2007).

There is surprisingly little systematic empirical literature on managers and public value. For one study that discusses differing conceptions of public value in the context of urban parking, see Kerley (2007).

Several variants of industry analysis also combine the threat of entry and substitutes (e.g., Slater and Olsen 2002).

For semantic convenience, all these different service recipients are lumped together as “consumers.”

Downs (1967, 46) labels them as either “sufferers” or as “regulatees.” Alford (2002), following Moore (1994), labels these kinds of consumers as “obligates.”

Some governments and agencies have made efforts to foster stronger direct links by establishing citizen (consumer) charters, focus groups, panels, and the like (Bovens 2005; Duggett 1998).

In the political science literature it is more common to describe monopoly as an absence of redundancy (Laundau 1969; Ting 2003).

Here we focus on “functional” competition. Downs (1967) and Nicholson-Crotty (2005) emphasizes that public agencies also compete over new policy design or “allocational” competition.

Indeed, the U.K. government has officially approved competition and contestability at the local level (Department of Environment, Transport and the Regions 1998).

White (2008) provides a recent case study of the problems this can create when the agency is expected at the same time to provide independent and objective analysis.

In the United States, these are labeled “Executive Agencies,” so it is important to distinguish them from agencies within the Executive Office of the President.

There is no direct empirical evidence that most programs are “average” (i.e., that there is a normal distribution of programs) although one suspects that is the case. Average, therefore, only means an average between the four quadrant archetypes.

A firm with a small market share in a competitive industry is in a similar “few degrees of freedom” position. It is unable to alter any of the external forces; at best, it will only be able to earn a “normal return.”

However, the analysis is complex, because the empirical evidence suggests that a small number of competitors, or non-price competition, may not be efficiency-enhancing (Carroll 1990; Krause and Douglas 2006).

Additional information

Notes on contributors

Aidan R. Vining

Aidan R. Vining ([email protected]) is the Centre for North American Business Studies (CNABS) Professor of Business and Government Relations in the Segal Graduate School of Business, Simon Fraser University, in Vancouver. His current public policy research and publications focuses primarily on privatization, corporatization, contracting-out, public-private partnerships and cost-benefit analysis. His research in business administration focuses on high-tech clusters and the role of internal organizational markets. His most recent book is entitled Investing in the Disadvantaged, published by Georgetown University Press in 2010 (edited with D. Weimer). It applies cost-benefit analysis to a range of social programs.