Why is competitive advantage in the nonprofit sector so important? Assessing and optimizing competitive advantage is an essential discipline for any organization that is committed to becoming exceptional at what it is designed to do. This is no less true for nonprofit organizations than it is for for-profit companies. In a recent post on the Stanford Social Innovation Review’s blog, Defining Your Competitive Advantage, Mollie West and Andy Posner stated this truth unequivocally:
It’s unfortunate that social change organizations tend not to think about competitive advantage as it relates to social impact and growth; far too many nonprofit organizations view competition as something reserved for the for-profit world. Many think their competitive advantage is simply a rephrasing of their mission statement (i.e. our advantage is that we serve those in need). But the fact is that all organizations are competing for something—whether it’s market share, or more attention from clients or donors.
SSIR Review Blog-January 23, 2013
I agree wholeheartedly with the authors. This is where the rubber hits the road. Competitive advantage is the real test of how much impact a nonprofit is having and whether it is truly achieving its mission. Let’s look more closely at what creates competitive advantage.
The Four Conditions for Creating Competitive Advantage
Competitive advantage is a measurable state in which a business develops, sells and delivers products or services to create the following four conditions.
- Market potential: How big is your market, as determined by your value propositions? Are you the provider of choice for your buyers (e.g., donors) and end-users (e.g., clients)? Are you the partner-of-choice, attracting other entities that see value in working with you? Are you the employer-of-choice, attracting high-caliber people who want to work for you?
- Scalability: How fast can you grow? Can you meet the demand for your products and services, and if not, where is your constraint? Is it in your ability to continually refine your value proposition to grow your market? Or is it in your ability to sell to your target audience? Or are you limited in your capacity to deliver your service offering (e.g., because you have too few trained staff)?
- Sustainability: How well are you able to mitigate risks? Can you anticipate and plan for uncertainties, such as changes in market demand, government regulations or funding sources?
- Return: What is the value of your offering to investors (e.g., funders) and benefactors (e.g., clients)? In a nonprofit context, measuring return is not the same as with for-profits, as the outputs are different: profit (financial returns) in a for-profit, vs. measures of how well you are accomplishing your mission in a nonprofit. See What is Nonprofit ROI? and Good to Great and the Social Sectors: A Monograph to Accompany Good To Great, by Jim Collins.
Learning how to carry out a competitive advantage analysis for each of your organization’s businesses is essential. West and Posner ended their blog post with the following statement about their experience with their nonprofit organization (Capital Good Fund):
Thinking competitively has transformed our organization. We are smarter about what products and services we do and do not offer; we are clearer about how we tell the story of our work; and our clients are more satisfied with what they get from us. We bet this approach can transform your organization too.