International Public Management Journal Public Agency ... · 24/08/2015 · cing analysts, Porter’s 5 Forces framework is the most commonly used analytic framework for external,

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Public Agency External Analysis Using aModified “Five Forces” FrameworkAidan R. Vining aa SIMON FRASER UNIVERSITYPublished online: 04 Mar 2011.

To cite this article: Aidan R. Vining (2011) Public Agency External Analysis Using a Modified“Five Forces” Framework, International Public Management Journal, 14:1, 63-105, DOI:10.1080/10967494.2011.547819

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PUBLIC AGENCY EXTERNAL ANALYSIS USING AMODIFIED ‘‘FIVE FORCES’’ FRAMEWORK

AIDAN R. VININGSIMON FRASER UNIVERSITY

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 environmentand specific external forces. Can public agency managers use some version of 5 Forcesanalysis to effectively analyze the external environments of their programs? What mod-ifications are required for public agency use? The case is made that a version of the 5Forces framework can be useful when appropriately modified for public agency pro-grams. The public agency version of the 5 Forces framework that is presented specifi-cally considers public agency goals from three perspectives: descriptive, instrumental,and normative. The descriptive focus on autonomy is laid out. Another modificationto the standard framework explicitly introduces political influence as an external force.Thus, the modified framework considers and integrates both political and economicexternal forces. Several significant modifications to Porter’s other forces are also pro-posed and discussed. A number of strategic implications of public program 5 Forcesanalysis are discussed. The modified 5 Forces framework is illustrated both in termsof autonomy (descriptive level) and social efficiency (normative perspective).

INTRODUCTION

The evidence suggests ‘‘strategy matters not only in the private sector but also inthe public sector’’ (Meier et al. 2006, 360; see also Wechsler and Backoff 1986;Andrews, Boyne, and Walker 2006; Choi 2008; Poister, Pitts, and Edwards 2010;Kelman and Myers, 2011). The rationale for the adoption of a strategic orientationby public managers is that ‘‘in the public sector, the clarity of a financial bottom linedoes not exist but it is equally essential that everyone in the organization has a clearunderstanding of strategy, and their role in achieving it’’ (Irwin 2002, 637). Choi(2008) has recently provided a comprehensive rationale for public agency strategy(see also Johnson and Scholes 2000; Joyce 2000; Kelman et al. 2003; Kendrick2003; Moore 2000; Stewart 2004).

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International Public Management Journal, 14(1), pages 63–105 Copyright # 2011 Taylor & Francis Group, LLCDOI: 10.1080/10967494.2011.547819 ISSN: 1096-7494 print /1559-3169 online

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Systematic consideration of both the external economic and political environmentis a key component of strategic analysis frameworks because most public agencymanagers face complex external environments: ‘‘The program environments forU.S. [public] managers are not only institutionally complex but demanding in termsof the kinds of links that must be developed and maintained regularly’’ (Hall andO’Toole 2000, 680). Furthermore, Boyne (2006) argues that a strategic ‘‘lack offit’’ with the external environment is an important reason for strategic failures inpublic organizations and that diagnosing the nature of the lack of fit is a necessaryprecursor to the development of successful turnaround strategies (see also Andrews,Boyne, and Enticott 2006). Kendrick (2003, 493) summarizes this perspective asfollows: ‘‘One point of agreement in organizational and planning research is thatorganizational adaptation is the result of managing uncertainty and the environmentto achieve a wide range of political and operational objectives.’’ A necessary precur-sor to managing the external environment is to understand it in some theoreticallycoherent manner.

This article presents a framework for analyzing the most important forces in apublic organization’s external environment. The framework builds on MichaelPorter’s ‘‘five competitive forces’’ framework (Porter 1979; 1980; 2008) but modifiesthe framework for public agency use. The public agency version of the five forces (5Forces) framework specifically considers public program and agency goals fromdescriptive, instrumental, and normative perspectives. The framework explicitlyrecognizes and incorporates the differences between public sector and private sectorgoals. Another modification to the standard private-sector Porter frameworkexplicitly introduces political influence as an external force and considers some ofthe major factors that determine its extent. Several significant modifications toPorter’s other forces are also proposed and discussed. The resulting public agency5 Forces framework is then laid out. Finally, some of the strategic implications ofusing the 5 Forces framework for public agency programs are considered. These stra-tegic implications are considered from two distinct perspectives. First, and primarily,the framework is used to illustrate how public managers can more fully understandthe nature and extent of their autonomy from external forces. Second, it is used toillustrate how, if they choose to do so, public managers can use autonomy as aspringboard in the pursuit of specific normative goals. This is illustrated assumingthat managers adopt a social efficiency perspective on goals.

THE USE AND MODIFICATION OF THE 5 FORCES FRAMEWORK

One approach to more systematic public agency analysis is to use, with appropri-ate modification, strategic concepts already in use by private sector managers. Anumber of ‘‘new public management’’ scholars have called on public managementto be more ‘‘business-like’’ (Ferlie et al. 1996; Hays and Kearney 1997; Osborneand Gaebler 1992). More generally, others have argued that public managementresearch and practice should both draw more extensively on generic managementand organization theory knowledge (Ellwood 2008, 179; Hitt 2005; Kelman 2007;

64 International Public Management Journal Vol. 14, No. 1, 2011

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Kendrick 2003; Pfeffer 2006; Williams and Lewis 2008) and at the same time strive tobe more relevant to the practical needs of public agency managers (Brewer 2005;Kelman et al. 2003; Wright, Manigault, and Black 2004).

The proposition that business strategy tools are useful for public sector managers,however, raises a number of contentious issues. While it may be plausibly arguedthat some concepts and tools originally developed for the private sector are directlytransferable to public agencies, most are only likely to be useful if appropriatelymodified (Bryson, Ackermann, and Eden 2007; Moore 2000).1 The balanced score-card, for example, although originally developed for private sector analysis, hasundergone significant adaptation in making it useful for public sector agencies(Chesley and Wenger 1999; Kaplan and Norton 2001; Woods and Grubnic 2008).

Judged by both its prominence in business strategy textbooks and its use by practi-cing analysts, Porter’s 5 Forces framework is the most commonly used analyticframework for external, or industry, analysis (see, for example, Baye 2006; Besankoet al. 2003; Grant 2007; Thompson, Strickland, and Gamble 2005; Wheelen andHunger 2007).2 One benefit of 5 Forces analysis is that the forces are quite genericand, thus, broadly applicable across industries and sectors. The most importantbenefit, though, is that 5 Forces analysis applies fundamental economic conceptsto the role of external forces in the environment. In its standard version, the relevantfive forces are: (1) the intensity of rivalry among existing competitors, (2) the bar-gaining power of suppliers, (3) the bargaining power of customers,3 (4) the threatof entrants, and (5) the threat of substitute products and services (Porter 1979).Porter (2008, 80) has summarized these forces in the well known 5 Forces diagram.Porter (2008, 86) recently summarized the theoretical foundation of the 5 Forcesframework as follows: ‘‘Industry structure, as manifested in the strength of the fivecompetitive forces, determines the industry’s long-run profit potential because itdetermines how the economic value created by the industry is divided—how muchis retained by companies in the industry versus bargained away by customers andsuppliers, limited by substitutes, or constrained by potential new entrants.’’ Putanother way, the ‘‘analysis is essentially a structural map of the underlying econom-ics of an industry: a map of the degree to which competitors, entrants, substitutes,and vertical bargaining power exert pressure on the margins of a firm in a particularindustry’’ (Cockburn, Henderson, and Stern 2000, 1126).

A leading strategy scholar has recently summarized the superiority of the 5 Forcesapproach in comparison to SWOT (strengths, weaknesses, opportunities, threats) ana-lysis and other environmental analysis tools used by private-sector analysts, as follows:

. . . the key innovation of Porter’s approach to teaching strategy=policywas in replacing frameworks that served primarily to categorize the dif-ferent factors influencing the strategic decision, by a framework foundedon theory. Thus, the value of the five forces of competition framework isnot simply that it provides a system for categorizing the different environ-mental influences that impact competition and profitability, but also hasthe legitimacy and validity that extends from its basis in industrial organi-zation economics. (Grant 2008, 279)4

PUBLIC AGENCY EXTERNAL ANALYSIS 65

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In spite of its weaknesses, public agencies appear to use SWOT more than otherexternal analysis tools (Flynn and Talbot 1996, Figure 3; Hodgkinson et al. 2005,Table 8).5 Mark Moore (1995, 105–192) has developed a framework developedexpressly for public sector analysis of the external environment using the conceptof the ‘‘authorizing environment.’’ Moore proposes that the authorizing environ-ment is the legitimization and support component of a ‘‘strategic triangle’’ thatdetermines an agency’s strategic fit with its environment. The authorizing environ-ment explicitly incorporates politics and political influence (he includes clients, otherinterest groups, and the media) into a public agency external analysis. Political influ-ence is central to understanding the external environment of public agencies and pro-grams. However, Moore does not provide a great deal of detail on how an analysis ofthe authorizing environment should actually be used by public managers, althoughhe does stress it should be used proactively. Additionally, Moore’s exclusive focus onpolitical factors in the authorizing environment deemphasizes economic (i.e.,nonpolitical) factors, which may in some circumstances be as, or more, importantthan political forces in determining autonomy and strategic freedom. This mayexplain why, in a generally sympathetic review of Moore’s concept of public value,Alford and O’Flynn (2009, 174) conclude that ‘‘despite its centrality, the strategic tri-angle barely rates a mention by either the critics or more enthusiastic supporters ofMoore’s work.’’ Currently, therefore, there is no framework that integrates bothpolitical and economic forces into a comprehensive analysis.

Could public agencies use some form of 5 Forces analysis more effectively toperform external environment analysis? What factors in the standard 5 Forcesframework require modification? If so, what should the modifications be? The claimhere is that Porter’s 5 Forces can be useful for public agencies when appropriatelymodified (Miller 1989). One fundamental modification is to recognize and incorpor-ate the reality that the goals of public agencies differ from those of private-sectorfirms (Moore 2000; Rainey and Chun 2005). As a consequence of these goal differ-ences, some scholars have argued that the transfer of strategic concepts is not useful:private-sector firms and public-sector agencies are ‘‘fundamentally alike in all unim-portant respects’’ (Sayre 1958, 102). Boyne (2002, 118), however, after reviewing theempirical evidence calls for a more nuanced approach, argues that ‘‘the evidence insupport of sharp differences between public and private management is limited.’’Following this line of reasoning, this article contends that goal differences must beacknowledged and explicitly incorporated into any useful public sector 5 Forcesapplication, but these differences do not eliminate the usefulness of a systematicexternal analysis of economic and political forces that draws extensively on the basic5 Forces concept.

The argument here is that a public agency 5 Forces analysis can help publicmanagers understand the external environments of any one, or all, of their programsand strategize accordingly. Such an understanding requires individualized externalanalysis for at least three reasons. First, strategic freedom is variably constrainedby external factors: ‘‘Different forces take on prominence . . . in shaping competitionin each industry’’ (Porter 1979, 138). Second, as competitive landscapes evolve andinnovation occurs, the balance of importance of various forces and their intensity, or


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strength, can change over time (sometimes quite rapidly). Third, over time, the inten-sity or strength of the various forces may be partially shaped by the strategies of theorganization—in other words, the forces are to some extent endogenous (Porter1979, 143), although the degree of endogeneity is highly variable.

It is important to recognize that public-sector external environment analysis has tobe conducted at the level of an individual program rather than at the level of theagency as a whole (Downs 1967, 43; Hall and O’Toole 2000; Nicholson-Crotty2005, 243).6 The scope of a firm’s activities (and equivalently, a public agency’s) isoften broader than a single ‘‘line of business.’’ Therefore, a given agency may haveenvironments that differ markedly across its programs—for example, an agency maybe a monopolist with limited potential competition (that is, low contestability) andface suppliers with low bargaining power in one program environment, but encoun-ter intense competitive pressure from not-for-profit agencies, and face concentratedpowerful suppliers and threatening substitute technologies in another programenvironment.7

WHAT IS THE PUBLIC PROGRAM ANALOGY TO ‘‘MARGIN’’?

The most fundamental factor potentially militating against the direct applicationof Porter’s standard 5 Forces framework to public agencies relates to the differencesbetween the goals of public and private sector organizations. Both the descriptiveand normative assumption in the standard 5 Forces framework is that firms in aggre-gate (the industry participants) seek to maximize profits.8 This potentially places anyspecific firm being analyzed in a ‘‘battle for the rents’’ versus rivals or competitors aswell as those actors representing the other four forces. Parenthetically, however, it isnoteworthy that many management and strategy scholars have contested Porter’ssingular focus on firm and industry profitability—both descriptively and norma-tively. Many proponents of stakeholder theory, for example, have argued for abroader normative perspective that does not focus totally on profit maximization(Jones and Wicks 1999, 211). That debate is not directly relevant to a public-sectorexternal framework, especially as there appear to be no private sector examples ofthe use of broader stakeholder-type objective functions in 5 Forces analysis.9

The more relevant issue here is the applicability of any maximizing objective func-tion when appraising the external environment of public agencies. What is the appro-priate goal for public agencies? In other words, what is equivalent to industry profitmargin? This is a difficult and controversial question. In the approximately parallelprivate sector context, Donaldson and Preston (1995) consider stakeholder theoryand propose that the question of corporate goals and ends can be addressed fromthree perspectives: a descriptive perspective, an instrumental perspective, or a nor-mative perspective. The descriptive (or empirical) perspective is straightforward:‘‘Firms=managers actually behave in certain ways’’ (Jones and Wicks 1999, 207).The instrumental perspective is a framework for ‘‘examining the connections, ifany, between . . . practice . . . and the achievement of various corporate performancegoals’’ (Donaldson and Preston 1995, 67). Their meaning and use of normative


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conforms to the standard usage in public policy and management discourse.10 Thesethree perspectives—descriptive, instrumental and normative—can be useful forthinking about public agency goals for different analytic purposes.

The Descriptive Perspective: The Importance of Being Autonomous

Although it is not emphasized in the business strategy literature, the standard 5Forces framework can be interpreted in terms of an absence of external constraintson an organization, or group of organizations.11 External forces constrain publicagency autonomy in the public sector in the same way that external forces constrainenterprise ‘‘margin’’ or profit in the private sector. Specifically, the degree of compe-titiveness (and profitability) is of interest to business executives because a key to aneffective strategy is ‘‘a defendable position against the five competitive forces’’(Porter 1980, 29). In the public sector autonomy, similarly, provides a ‘‘defendableposition’’ (Pfeffer and Salancik 1978) vis-a-vis external forces.

The relevant descriptive perspective is simply that most public managers do seekto minimize external constraints on their managerial policy actions, at least onobservable margins (Wilson 1989).12 To put this in maximizing terms, they valueautonomy as a goal in and of itself. One important reason is simply that some degreeof autonomy is a prerequisite to the pursuit and implementation of purposive beha-vior (Selznick 1957; 1966). In other words, some level of autonomy is required forany strategy that embodies substantive (normative) goals determined by managers.Additionally, many agencies have quite broad legislative, or quasi-legislative, man-dates that only minimally direct and constrain managers at the program level (Lowi1967; McCubbins, Noll, and Weingast 1987). Managers of these programs, there-fore, have a considerable degree of formal policy freedom. In these cases, externalforces are a key determinant of these managers’ actual policy degrees of freedom.Managers who are constrained by external forces have reduced policy or fiscal free-dom. With a systematic understanding of these forces, however, public managersmay be able to loosen these constraints and increase their autonomy and thus theirability to engage in new program policies. In sum, at a purely descriptive level,understanding the degree of autonomy from the external environment is interestingto public managers in its own right.

What kind of autonomy do managers’ value? Essentially, scholars have focused oneither policy autonomy and=or fiscal autonomy. As Wilson (1989, 195) notes, ‘‘Most[federal agencies] must struggle for both autonomy and resources.’’ Many scholarshave emphasized the value of policy autonomy or of the closely related concept ofpolicy ‘‘authority’’ to public managers (e.g., Bertelli 2006; Carpenter 2001;Moynihan and Pandey 2006; Pollitt and Talbot 2004).

An extensive literature suggests that agency and program managers also valuefiscal autonomy in its own right. Indeed, public agencies take threats to fiscal auto-nomy in the form of budgetary cutbacks very seriously (Berry and Wechsler 1995).Niskanen (1991) and others have characterized this fiscal resource concern in goalterms as an attempt to maximize the agency’s discretionary budget.13 Similarly,Wildavsky (1974, 72) has described agencies as seeking ‘‘capture avoidance’’ in


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budgetary matters. Most forcefully, Lynn (1991, 62) posits that ‘‘the most robustconclusion concerning what bureaucrats want, based on evidence from cases, is thatthey want control of discretionary resources.’’ Given the importance of both policyautonomy and fiscal autonomy in prescribing the strategic degrees of freedom avail-able to managers, the combination of both is called the degree of strategic autonomy.

The descriptive perspective, then, focuses on the extent to which an agency deliver-ing a program is independent of external forces when supplying its services, both interms of shaping program strategy and in making the major resource allocations thatare necessary to implement the current strategy or alternatives to it. The externalforces described below are normally the most common in determining auto-nomy—in other words, they are ‘‘generic’’ forces that can vary greatly in importance,or even relevance, in particular analyses. In total, the relevant forces determine theextent of autonomy. At the limit, for example, an agency that faces minimal compe-tition and contestability, little threat of competitive entry or effective substitute ser-vices, little external political influence or control, and minimal bargaining power ofsuppliers and ‘‘customers’’ (both consumers and sponsors), is fully autonomous.

The Instrumental Perspective: Does Autonomy Improve Performance?

The instrumental perspective provides a focus for asking an important ‘‘if=then’’question: if public managers do seek, or achieve, autonomy, does it result in better orworse performance? While it may or may not be considered a ‘‘performance’’ out-come, Lewis (2003, 158) has shown that, at least at the U.S. federal level, the extentof certain kinds of autonomy (‘‘insulation’’) improves the chances that an agency willsurvive over time: ‘‘Though new administrations come and assert control, thoughelectoral turnover brings new policy priorities and new risks for agencies, and thoughtimes of crisis promote bureaucratic reshuffling, insulated agencies are moredurable.’’

The non-case study empirical evidence on the performance effects of autonomy isnot that extensive. But, based on a review of the extant empirical evidence,Moynihan and Pandey (2006, 122) conclude: ‘‘There is some evidence that cleargoals and bureaucratic autonomy are clear predictors of public sector performance.’’Also based on a review of the evidence, Rainey and Steinbauer (1999, 16) argue thatthe evidence suggests ‘‘[g]overnment agencies will be more effective when they havehigher levels of autonomy, but not extremely high levels of autonomy.’’ There areonly a small number of empirical studies that examine the impact of autonomy online bureaucracies. Wolf (1993) analyzed 44 federal agency cases in terms of theimpact of autonomy (among other variables) on performance. In aggregate, hefound that higher levels of political autonomy had a positive effect on performance(see also Wolf 1997). Moynihan and Pandey (2006) examined a large sample of infor-mation systems managers in state-level primary health and human services agenciesand concluded that a higher level of ‘‘managerial authority’’ is associated with betterperformance.14 Recently, Langbein (2009) used survey data from U.S. governmentemployees to examine the relationship between employee perceptions of discretionand productivity. Although her results show a complex, contingent relationship


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between these variables, her overall conclusion is: ‘‘there appears to be a tradeoffbetween accountability (to the executive) and productivity: executive political con-trols reduce both discretion (presumably raising accountability) and productivity’’(Langbein 2009, 106).

Changes in the level of autonomy that result from a formal change in structure—for example, moving an agency from a department to a corporate-style entity—arealso germane to the relationship between autonomy and performance. Bilodeau,Laurin and Vining (2007) studied 11 corporatizations at the federal level in Canadaand in the province of Quebec and found that the change to a corporate form didimprove performance, at least in the three years following the change. This findingis consistent with (albeit broad) empirical evidence from OECD countries (Brewer2004), from China (Aivazian, Ge, and Qiu 2005), from Japan (Yamamoto 2006),and from Belgium (Verhoest 2005).15

The case study evidence has a longer history and is more extensive. Based on thestudy of particular agencies, a number of scholars have argued that significant auto-nomy, especially in terms of insulation of agencies and programs from political influ-ence, which is the primary concern of political scientists, has resulted in betterperformance, although the definitions and measurement of performance has beenquite variable (Barzelay and Campbell 2003; Borins 1998; Carpenter 2001; Katyal2006; Stephenson 2008).

In sum, it is fair to say that there is some evidence that autonomy improves per-formance and not much evidence that it worsens performance. Some public manage-ment scholars and practitioners with a consequentialist normative perspective willprobably consider this conclusion to be important in determining their normativestance on autonomy from political influence (Hardin 1988).16 Others, of course, willnot. The legitimacy of agency autonomy is one of the oldest, if not the oldest, debatein ‘‘classic’’ public administration theory. In the United States, it dates back to theAmerican Revolution. (For a historical review of this issue that focuses primarilyon Anglo-American jurisdictions, see Campbell 2007). It is important to note thatmost public management scholarship has focused almost exclusively in terms of polit-ical influence of one kind or another. Most of this literature has simply not addressedor been concerned with the potential normative implications of autonomy in terms ofseveral of the other external forces considered here—such as suppliers or competitors.

The Normative Perspective and Autonomy: Multiple Paths to Nirvana

What is the relationship between autonomy, an analysis of external forces and anormative theory of public agency goals? The initial claim is a minimalist one: man-agers who value autonomy for strategic reasons are not precluded from adoptingmost normative perspectives on agency goals. In other words, the achievement ofsome degree of autonomy allows managers to pursue public value as they themselveschoose to define it.17 However, an additional claim is that an explicitly normativeperspective on goals is not required to perform a useful external forces analysis. Sim-ply understanding the state of external forces is useful to managers in and of itself.An agency may not wish to conduct an external analysis using an explicit normative


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perspective simply because any explicit normative perspective tends to be contro-versial. In the latter part of the article, though, an explicitly normative applicationof the 5 Forces framework based on social efficiency is illustrated.

If managers wish to analyze external forces from an explicit normative perspective,how would they actually go about doing it? The first problem is that while there iswide consensus that agencies should act purposively to ‘‘do good,’’ there is little con-sensus on its operational meaning (Bryer 2007; Chun and Rainey 2005; Pandey andWright 2006; Steinberg 1986). A number of alternative normative objective func-tions, or goals, can be postulated for public agencies (Alford and O’Flynn 2009).These alternatives include the maximization of ‘‘public value’’ (Moore 1995), themaximization of social efficiency or social welfare (Vining and Weimer 2006a), themaximization of stakeholder support (Williams and Lewis 2008), some mix of theabove or some more complex (and idiosyncratic) mix of social efficiency, equity,and process goals (Weimer and Vining 2011, 348–363; Wise 200418).

Mark Moore’s conception of public value has probably been the most influentialway of thinking about public agency goals, especially in the U.K. and Australia(e.g., see Alford and O’Flynn 2009; Colebatch 2010; Llewellyn and Tappin 2003;Smith, Anderson, and Teicher 2004). Yet, as Moore (1994) himself points out, themeaning of public value is open to a number of quite distinct interpretations. Becauseof this ambiguity, some critics have questioned the usefulness of the public value con-cept (Alford and O’Flynn 2009; Gains and Stoker 2009; Rhodes and Wanna 2007;2009).19 Moore (1994) has outlined four distinct conceptions of public value that over-lap with the objective functions discussed earlier: (1) public value as the achievement ofpolitical mandates; (2) public value as the achievement of professional standards; (3)public value as revealed through the application of analytic techniques, such asrevenue-cost analysis, cost-effectiveness analysis, or cost-benefit analysis (essentiallya social efficiency perspective); and (4) public value as stakeholder and customer sat-isfaction. All of Moore’s four alternative objective functions can be justified. Theproblem is that in actually performing an external analysis these goals can often resultin different value judgments about outcomes. Thus, agency managers adopting a dif-ferent conception of public value would vary in how they would normatively interpretvarious outcomes in terms of external forces. Maximizing social efficiency, forexample, is unlikely to simultaneously maximize stakeholder satisfaction. These differ-ing normative valuations would, in turn, suggest different strategic responses.

A long tradition in welfare economics argues that maximizing social efficiency isthe most appropriate normative objective function for public sector entities (Viningand Weimer 1992; 2006a; 2006b). One advantage of adopting such a social welfaregoal is that it provides a potentially measurable metric—net social benefits—thatis closely parallel to the profit margin metric used in the standard Porterian 5 Forcesanalysis (Grant 2008, 280). This does not preclude other goals, such as equity, fromconsideration as constraints. It is beyond the scope of this analysis to describe com-prehensively the strategic consequences of each specific normative objective functionin a public agency 5 Forces analysis. However, it is clear that agency managerswould vary in their attitude to, and desire for, strategic autonomy depending on theirnormative objective function. For example, a highway transportation agency that


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adopts a social-efficiency perspective would view a current assessment of ‘‘high bar-gaining power of consumers’’ (holding constant the specific meaning of this bargain-ing power, which we discuss in detail below) as a quite negative external force. This isbecause the agency adopting a social welfare-maximizing objective function wouldwish to price its services at their social marginal cost. To achieve such pricing wouldimply that the agency seek tolls in the presence of congestion. In almost all insti-tutional contexts, in spite of the aggregate efficiency gains, commuters strongly pre-fer ‘‘free’’ consumption. Agency program managers committed to social efficiencymight attempt to reduce consumer bargaining leverage that opposes tolls by, forexample, proposing that their agency be reconstituted as an appointed independentcommission with fixed-term directors. In contrast, if agency managers are primarilyfocused on satisfying stakeholders, they will be less likely to view this high consumerpower as a strongly constraining force.20 They might well seek to satisfy consumerstakeholders by arguing for ‘‘shadow’’ tolls financed out of general revenues, eventhough this would be less efficient.

HOW APPLICABLE IS THE STANDARD 5 FORCES FRAMEWORKTO PUBLIC AGENCY PROGRAMS?

To reiterate, public agencies, like private sector firms, face numerous environmen-tal (external) forces that affect their ability to act autonomously and, as result, inaccordance with any internally generated normative goals. How can managers struc-ture an analysis to best understand these forces? A number of scholars have sug-gested that Porter’s standard 5 Forces framework is applicable largely ‘‘as is’’ topublic sector external analysis. For example, Oster (1995, 29–63) largely reiteratesthe standard Porter forces, although she partitions Porter’s customers into ‘‘users’’and ‘‘funders.’’ Similarly, Andersen, Belardo, and Dawes (1994, 349) basically adoptthe standard framework, only replacing rivals with collaborators. Is this sufficientmodification? It may be for some circumstances, but survey evidence (from theU.K.) suggests that, compared to several other business strategy tools, such as thevalue chain, and the balanced scorecard, use of the standard 5 Forces frameworkby public agencies is relatively infrequent (Hodgkinson et al. 2005, Table 8; see alsoGunn and Williams 2007). This may well be because, as earlier sections of this articlehave argued, the framework needs considerable modification to be truly useful ingovernment. In order to clarify the proposed modifications, Figure 1 first sum-marizes the public agency program 5 Forces framework in a ‘‘stripped down’’ form.

The rest of this section considers which aspects of the standard 5 Forcesframework work reasonably well for public agencies, which aspects require relativelyminor modification, and which require significant modification.

Aspects of the Standard 5 Forces Framework That Work Reasonably Well

Which aspects of the standard 5 Forces framework ‘‘work well’’ and do notrequire significant modification? ‘‘Work well’’ is placed in quotation marks because


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the focus is on strategic autonomy from a descriptive perspective and this use of‘‘works well’’ requires some suspension of interest in the normative goals of publicagencies. Several forces of the standard 5 Forces framework are directly applicableto public programs. The force of supplier bargaining power (see Figure 1) is directlytransferable to government programs. Supplier bargaining power is importantbecause: ‘‘[p]owerful suppliers capture more of the value for themselves by charginghigher prices, limiting quality or services, or shifting costs to industry participants’’(Porter 2008, 82). The concept of ‘‘bargaining power’’ in the public agency contextencompasses straightforward economic bargaining power in some circumstances:most public agencies, like firms, purchase many factor inputs, including labor, land,and equipment, from supplier markets. The competitiveness of these markets and thestrength of the bargaining power of participants can vary widely (Cox 2001a; 2001b;Crook and Combs 2007).

It is worth noting there is some tentative evidence that at least some publicagencies bargain relatively poorly with suppliers over input prices (Hartley, White,and Chaundy 1997). Consequently, it is likely public agencies could benefit fromconsidering strategies to reduce supplier bargaining power (Kauf 1999; Grace et al.2007). In contrast, agency managers sometimes inadvertently increase the strength ofsuppliers’ bargaining power over time by preferring the convenience and reducedtransaction costs that flow from single source procurement (Zervos 2008). Clearly,when the bargaining power of suppliers is weak, the autonomy of program managers

Figure 1. Basic Public Agency Program 5 Forces Framework.


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is higher than it would be otherwise. This is especially the case for a program’s finan-cial autonomy—agency managers will normally be able to retain higher levels ofdiscretionary resources if they can secure lower input prices.

How would supplier bargaining power be viewed from the various normative per-spectives discussed above? Almost all agencies would regard the presence of weakbargaining power of suppliers as strategically desirable. From a social-efficiency per-spective, for example, it is valuable to minimize input costs to reduce inefficiency,thereby increasing net social benefits (Frantz 1992; Vining and Weimer 2005;2006a). However, if program managers adopt a stakeholder perspective, it is quitepossible that they would not view strong supplier bargaining power negativelybecause they are treated as important stakeholders. An agency could still decideto ‘‘reward’’ suppliers with higher than necessary prices when suppliers have weakbargaining power, but in such circumstances the agency has greater freedom to alterthe level of reward if its strategy changes.

The threat of substitutes force is also relevant to most public agencies: ‘‘A substi-tute performs the same or a similar function as an industry’s product by a differentfunction . . . [and] limit an industry’s profit potential by placing a ceiling on prices’’(Porter 2008, 84). Technological change, especially, can sometimes erode or elimin-ate the viability of a public program as effectively as new technology can erode thecompetitiveness of a firm’s business in the private sector (Henderson and Clark1990). Radical substitute technologies, for example, potentially allow consumersto ‘‘self-service.’’ These forms of radical technological change are typically the mostserious threat to autonomy because they can completely eliminate consumers’ needfor the program (Christensen 1997; 2006). Threats to program viability, almost bydefinition, erode program strategic autonomy. In order to survive, the agency mustfind new services or changed roles. There is a linkage to normative analysis here: it isalso unlikely to be the case that a program that essentially ‘‘withers’’ is delivering anysignificant net social benefits.

Substitutes can be a more severe threat to programs than the threat of (conven-tional) new entrants (whether public or private), because in government there arefrequently formal legal or institutional barriers to new entrants. However, thereare rarely effective strategic responses to radical service substitutes because theirthreat is unrecognized until it is too late. For example, the rise of the Internethas seriously eroded the viability and autonomy of the U.S. Post Office, eventhough the organization has retained much of its formal monopoly. In many cases,legal barriers to entry to a service arena may exist for for-profit firms, or nonpro-fits. However, not all public agencies have a mandated monopoly; if they do not,the threat of entry is a force relevant to public agencies: ‘‘new entrants to an indus-try bring new capacity and a desire to gain market share that puts pressure onprices, costs, and the rate of investment necessary to compete’’ (Porter 2008,80). Entry, and even the threat of entry (a form of contestability) can seriouslyerode strategic autonomy and, especially for a program that relies on consumerpayments, fiscal autonomy. Because the threat of substitutes and new entrantsusually constitutes a single threat continuum, they can normally be treated as asingle force.21


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Aspects of the Standard 5 Forces Framework That Require SomeModification

The concept of customer bargaining power is relevant to public sector programstrategic analysis, but requires some modification. Porter summarizes the rationalefor analysis of this force as follows: ‘‘Powerful customers—the flip side of powerfulsuppliers—can capture more value by forcing down prices, demanding better qualityor more service (thereby driving up costs), and generally playing industry parti-cipants off against one another, all at the expense of industry profitability’’ (Porter2008, 83). This force requires modification when used for public agency analysisbecause the meaning of ‘‘customer’’ is generally more complex in the public sector(Alford 2002). Two important factors are primarily responsible for the added com-plexity: a frequent division between those consuming the service (consumers) andthose funding the service (sponsors), as well as a high degree of variability inconsumer payment regimes (Wagenheim and Reurink 1991).

First, in private sector industries, although different customer segments vary intheir bargaining power, consumers mostly make the purchasing decision, althoughin an increasing number of sophisticated private sector markets consumers employagents or brokers to do so (Oster 1995). The separation of consumers and purchasersis common, although not universal, in public programs. In the most extreme form ofbifurcation, consumers, whether labeled as clients, patients, ‘‘the public,’’ or (say)prisoners, do not participate directly in the purchase decision.22 For semantic con-venience, all these different service recipients are lumped together as ‘‘consumers.’’

Under full bifurcation, the sponsoring agency (or agencies) makes the purchasedecision (Boardman and Vining 2000). Given this, from a strategic perspective, spon-sors are the most important customer category. Even though consumers do not makethe purchase decision, they may still be able to exercise some bargaining power vis-a-vis the provider agency. The effective bargaining power of non-purchasing consu-mers is partly dependent on both their motivation to interact with agency managersand the nature and extent of their resources, cohesion, and organizational skills. Formany programs, consumers who receive the service may not ‘‘value’’ it on all thesame dimensions as sponsors and, therefore, will not have the motivation even toattempt to exercise bargaining power for many, or all, dimensions of service quality.For example, DUI drivers required to participate in a detoxification program maynot value the rehabilitative quality of their treatment, although they are likely tovalue the cleanliness of the treatment facility.23 In contrast, sponsors are likely tovalue rehabilitation highly, but may be prepared to sacrifice high levels of cleanlinessgiven that this is costly to provide. In practice, the overlap between consumers andsponsors on valuation varies widely on a program-by-program basis (Boardman andVining 2000) and requires individualized analysis. The sponsor is the organizationthat has the formal responsibility to provide some, or all, of the public agency fiscalresources. In many cases, these formal budget sponsors are central budget-dispensing agencies, such as OMB or its equivalent. In other cases, the sponsoringorganization can be another line agency in a superior hierarchical position (Lewis2003). Sponsoring agencies are inevitably in some form of exchange relationship with


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the agency and are, therefore, best thought of as customers. However, the nature ofthe exchange relationship can vary widely. Budget and fiscal control agencies, asanalyzed below, are often primarily concerned with controlling agency expendituresand are less interested in their missions or policies. Line-agency sponsors, on theother hand, are often very interested in influencing or controlling program policies.To the extent a sponsor agency is concerned with the agency’s mission, their con-cerns may mirror those of consumers (either because they think this is the right thingto do or because of consumer bargaining power) or represent an independentagenda. For the agency, the analysis is strategically more complex if there are mul-tiple sponsor agencies with differing demands. As a result, bargaining outcomes areless determinative. The presence of multiple sponsors can either weaken orstrengthen agencies’ bargaining power. On the one hand, each sponsor can moreplausibly claim to not value the program’s output. Because of this crediblefree-riding threat, sponsor demand is effectively more elastic. Of course, this threatis most credible when sponsor demand is already relatively elastic. On the otherhand, when sponsor demand is relatively inelastic, the presence of multiple sponsorscan strengthen an agency’s bargaining power because sponsors can be played offagainst each other (Boardman and Vining 2000). This is not meant to suggest thatthe sponsor agency (or agencies) is necessarily an important external force in anygiven context. Overtly political influences or forces, such as a specific congressionalcommittee (which is distinguished below as a separate force), are often more impor-tant. However, a systematic and comprehensive analysis should consider the role ofall potentially important forces.

From a strategic perspective, it is critical for public managers to understand theextent to which consumers and sponsors overlap in their valuation criteria. Obvi-ously, a high degree of overlap makes it easier and less costly for program managersto meet the demands and needs of both kinds of customers.

Second, across programs public sector consumers vary widely in the degree towhich they pay for services. As a result, consumers may either provide none, some,most, or all, of an agency’s revenue. In the public sector, full-cost reimbursement isuncommon, except for the services of state-owned enterprises (SOEs) and corpora-tized entities (see below). In addition, as just discussed, even where consumers dopay a significant percentage of service costs, they often do so through, or with theadvice of, professional agents (as in the private sector). It usually makes sense alsoto treat these agents as a distinct customer segment because agents typically havestronger bargaining power than do (individual) consumers. This often flows fromthe fact that professional agents have more experience and greater knowledge ofother government agencies or nonprofits that could supply the equivalent serviceor provide a viable substitute. Strengthened bargaining power can also flow fromthe fact that many agents are aggregators who purchase services in bulk for multipleconsumers or because the agents are organized into a single cartel-like professionalorganization.

If consumers contribute a high percentage of an agency’s budget and the agencyhas competitors, then consumers will have some bargaining power. In this case, con-sumers can be treated as customers as in the standard 5 Forces framework. However,


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even in the situations where consumers pay nothing or very little, they may be able tomanufacture some bargaining power. Non-paying consumers, or those facing a mon-opoly agency, may find it more effective to try to exercise bargaining powerindirectly. First, as described above, consumers may try to strengthen bargainingpower by lobbying sponsor agencies. Alternatively, or additionally, they may cir-cumvent both the agency delivering the program and the sponsor agency, and lobbypolitical institutions (as shown in Figure 1 by the indirect—dashed—‘‘force line’’from consumers to political institutions).

While it might seem more likely that consumers would primarily try directly toinfluence the agency and its sponsors, rather than political institutions, this is oftennot the case.24 Consumers usually know when sponsors value different service attri-butes, in other words, when there is little valuation overlap between customers andsponsors. For example, a sponsoring fiscal control agency may primarily value thedelivery of a threshold level of service quality at a low per-consumer cost, whileconsumers value high-quality service (Boardman and Vining 2000). Politicallyastute consumers (or agents that represent them) know when their service qualitypreferences do not match those of sponsors and that they can exercise greater bar-gaining leverage by pressuring political institutions rather than by trying to influ-ence budgetary and financial sponsors or the agency itself. Generally, anindividual consumer has weak incentives to invest effort in interacting with agen-cies, except with respect to some aspects of the quality of the service he or shereceives. This weakens the bargaining power of individual consumers in aggregate,even though they are numerous. But this public-good problem is sometimes lessdebilitating in political markets. In political markets, influence effort usuallyinvolves less individual disutility: it is usually more fun to harangue vote-seekingpoliticians than to complain to stonewalling bureaucrats. This is especially so ifconsumers for a particular service can coalesce enough to form something akinto an interest group.

Aspects of the Standard 5 Forces Framework That RequireSignificant Modification

Over and above the inapplicability of profitability, the standard Porter 5 Forcesare not particularly well tailored to public agencies in two respects. First, and mostimportantly, the standard framework does not deal with the reality that public agen-cies are subject to various levels—‘‘threats’’––of political influence and, at theextreme, control. As Moore (1995) has emphasized, the extent of political influencemust be explicitly incorporated into any framework that realistically analyzes thepublic agency’s external environment and the behavior of public managers. Thedegree, nature, and importance of political influence, though, vary considerablyacross agencies, programs or issues. Additionally, managers often have some powerto influence their influencers. This is also variable: ‘‘the people who become the focusof political management vary greatly, depending on managers’ specific purposes atparticular times’’ (Moore 1995, 118). Political interest can be driven by a host ofpolitical factors, including, at the macro level, the political business cycle (Nordhaus


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1975; Rogoff 1990; Rose 2006) and, at the micro level, constituency-based porkbarrel politics. As this reality suggests a major change to the standard 5 Forcesframework, its implications are considered in a separate section below.

Second, Porter’s central force––the intensity of rivalry (or extent of competition)––does not directly reflect much public agency and public sector reality, in that many,although by no means all, public agencies have either a de jure or de facto monopoly.This, of course, is by no means unknown in the private sector—many electrical, gasand water utilities, for example, are monopolies.25 In many circumstances, anagency’s program monopoly status is relatively secure. First, an agency monopoly,such as national defense, may be based on significant economies of scale. At thelimit, in the presence of certain cost and demand conditions, average cost declinescontinuously, resulting in natural monopoly conditions (Weimer and Vining 2011,97–103). Many public programs also deliver pure public (or collective) goods, wherethe public cannot effectively be excluded from consumption (Weimer and Vining2011, 72–91). These public goods services may also exhibit natural monopoly costand demand conditions. Second, the agency may provide a service even though thereis no market demand (although, of course, there may be significant need). In sum,while in the standard 5 Forces the intensity of rivalry is often the major externalforce influencing the organization, there is frequently little obvious variability on thisdimension for many programs in the public sector. Many programs, however, do nothave effective monopolies.

First, many public-sector agencies, especially at the local level, provide servicesthat do not exhibit significant economies of scale and are not public goods. Inother words, they deliver private goods that are both non-rivalrous in consumptionand excludable. As a result, structural cost factors do not foreclose competitionfrom not-for-profit or for-profit competitors. Warner and Hefetz (2008) foundthat, as of 2002, 24% of city services were delivered by ‘‘mixed contracting’’ wherea public agency to some extent competed against contracted service. In the U.K.many ‘‘public’’ services are subject to compulsory competitive tendering (Flynnand Talbot 1996). Some sectors, such as nursing home provision, exhibit fairlyintense competition among public sector agencies, for-profit firms, and not-for-profits (Amirkhanyan, Kim, and Lambright 2008). One reason that many publicagencies, especially corporatized entities, face increased competition is that theyare increasingly being required to charge for their services. In some cases, agenciesmay be required to cover their costs (Bilodeau, Laurin, and Vining 2006). If agencyprices are forced to approximate the marginal costs of delivery, then they may besubject to competition or to the threat of entry by private-sector competitors ornonprofits (Liu and Weinberg 2009). Increased competition is also certainly apossibility in the presence of technological change that reduces minimum efficientscale and erodes any power resulting from natural monopoly. Intensified compe-tition can also result from broader socioeconomic change: public schools faceincreasing competition from private schools because of changing preferences,wealth increases, and a variety of other factors. In all of these cases, public agen-cies face direct competition.26 While it is not clear that competition alwaysimproves the performance of public agencies (Carroll 1990; Krause and Douglas


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2006; Nicholson-Crotty 2005), it does reduce their strategic autonomy. Competi-tors provide alternative sources of supply for both sponsors and consumers; thisincreases the bargaining power of both vis-a-vis the agency. Furthermore, compe-tition usually provides political institutions with greater information about anagency’s behavior and performance. This usually gives these institutions greaterinfluence.

Second, even in the absence of direct competitors, many agencies face the possi-bility that another agency could provide one, some, or all of their services, albeitat some incremental cost—supplying contestability or ‘‘latent’’ redundancy (Baumol,Panzar, and Willig 1982; Vining and Weimer 1990; Ting 2003). A number of system-atic factors, including the technical and informational complexity of the agency’smission, influence the extent of contestability (Epstein and O’Halloran 1999).Replacement by an alternate agency is usually not a serious threat for national agen-cies (but see Carroll 1989). Many subnational governmental agencies, however, facea credible threat of replacement. Contestability is most often a serious strategic con-cern for agencies that cover a small geographic footprint and that abut contiguousjurisdictions that deliver essentially the same services (Grace et al. 2007).27 In thesecircumstances, consumers can relocate; mobility therefore functions as a form ofcompetition, or at least contestability (Tiebout 1956; Banzhaf and Walsh 2008). Thisis particularly pertinent if an agency has industrial consumers that are highly price(tax) sensitive.

In sum, the concept of rivalry is conceptually relevant even in a monopoly situ-ation because the degree of contestability is often more important in determiningthe degree of autonomy than is direct competition. The conceptually important alter-native competitive states are: (1) monopoly with little contestability; (2) monopoly,but with significant contestability; (3) competition from other government agenciesor not-for-profits; and (4) competition that includes for-profit firms. An agency witha monopoly and low contestability has the most important building block of highpolicy autonomy. However, it does not necessarily follow that fiscal autonomy willalso be high. If the agency only faces one sponsor that formally supplies all of itsfinancial resources (in other words, there are no paying consumers), then it faces abilateral monopoly situation and the distribution of the (autonomy) gains are hardto determine theoretically (Niskanen 1975). It depends on the bargaining power ofsponsors and the effectiveness of political influence. At one extreme, a powerfulsponsoring agency may be able to eliminate the agency’s policy autonomy throughits control of the agency’s budget.

While beyond the scope of this article, it is important to note that it is useful forpublic managers to delve further into the nature of existing or potential rivalrybeyond that contained in the 5 Forces analysis—to identify the nature of ‘‘competi-tive advantage’’ (Card and Card 2007; Carmeli and Schaubroeck 2005; Matthewsand Shulman 2005). This can be linked directly to (a resource-based) internal analy-sis (Bryson, Ackermann, and Eden 2007; Klein et al. 2010) whether based on analysisof the agency’s value chain (Porter 1985) or on broadly related adaptations designedspecifically for public agencies (Moore 1995, 193–238; Heintzman and Marson 2005;Williams and Lewis 2008).


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A NEW FORCE: THE EXTENT OF POLITICAL INFLUENCE

The addition of political influence as a distinct (and original to the public sector)force requires some elucidation. A vast literature considers both executive (e.g.,Eisner and Meier 1990; Nathan 1983; Stehr 1997; Wood and Waterman 1991) andlegislative (e.g., Aberbach 1990; Huber and Shipan 2002; Weingast and Moran1983) influence on, or control of, agencies. The literature considers, as well, effortsto insulate agencies from this influence and control (e.g., Reenock and Gerber2008; Wood and Bohte 2004). Most agency managers are keenly aware, at least ina general way, of the level and (multiple) sources of influence (Furlong 1998). Forpractical strategic analysis, the focus here is on two factors that are important indetermining the aggregate force of political influence in many circumstances: thestructure of institutional ownership and the permeability of these formal structuresin practice. Figure 2 summarizes these two factors.

As discussed earlier, there is a considerable literature that considers the relation-ships between the degree of overt and covert political influence and agency behaviorand performance. Here, though, the focus is primarily on simply assessing the levelof influence. Of course, most agencies are aware of which political institutions have,or seek, political influence over them. The point of the following section is simply toprovide some analytic structure so that program managers can consider strategiesthat mitigate or channel the influence.

One major factor that usually drives the extensiveness of political influence is theinstitutional structure of government ‘‘ownership’’ of the agency: ‘‘Some structuralarrangements allow more control by political actors than others do’’ (Lewis 2003, 3).Indeed, the manifest purpose of much institutional design of the formal ownershipof agencies is either to facilitate, dampen, or shape political influence (Lewis 2003;Bertelli 2006; Bourdeaux 2007). There are many ways of potentially categorizingthese institutional design possibilities on a political influence continuum from highto low. However, for the purpose of understanding the political influence force, theseinstitutional ownership forms are divided into four broad categories: (1) presidential(governor) or prime ministerial agencies; (2) traditional bureaus, departments, orministries; (3) government corporations or variously labeled ‘‘corporatized’’ entities(Bilodeau, Laurin, and Vining 2007; Chrisingen and Armajani 2005); and(4) state-owned (SOE) or mixed enterprises (private corporations in which govern-ment has some shareholding position) (Boardman and Vining 1991).

At one end of the institutional ownership continuum are agencies that are overtlysubject to direct political control. In the United States, for example, agencies withinthe Executive Office of the President, such as the Office of Global Communicationsor the Office of Administration, are under the immediate and direct control of theWhite House (Lewis 2003).28 In parliamentary systems, these are agencies directlycontrolled by the prime minister, for example in Australia, the Department of PrimeMinister and Cabinet. Traditional bureaus or departments are positioned next on thecontinuum.29 In presidential systems, the heads of these agencies are not electedpoliticians, but political appointees. In parliamentary systems, the heads of theseagencies are usually ministers and often sit in the cabinet.


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Next on the continuum can be found a vast array of governmental ‘‘corporatized,’’‘‘autonomous,’’ ‘‘semi-autonomous,’’ or ‘‘independent’’ agencies. The labels of theseagencies vary widely across countries, as do the institutional features that isolatethem from external control (Christensen and Laegreid 2006). In the U.K., forexample, these agencies are usually lumped under the catchall ‘‘non-departmentalpublic bodies’’ (NDPB) label. In a number of countries, this kind of institutionalownership structure has become more prevalent, putatively in an attempt to dampenor eliminate political influence and control (Bilodeau, Laurin, and Vining 2007). Inthe United States, this institutional category encompasses a vast array of publicagencies that are variously labeled as independent agencies, boards, commissionsor even committees. They continue to proliferate. One recent example at the U.S.federal level is the Public Company Accounting Oversight Board (PCAOB), createdby Title I of the Sarbanes-Oxley Act of 2002. Even though it is a governmental

Figure 2. Determinants of Level of Political Influence.


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agency, the enabling legislation explicitly states that employees are not employees ofthe federal government and that they may be paid compensation equivalent to priv-ate sector self-regulatory bodies (Boster 2007). All public companies are subject to amandatory ‘‘Accounting Support Fee,’’ which is payable directly to PCAOB andwhich essentially covers all its expenditures (Boster 2007).

At the opposite end of the continuum from executive-office agencies are SOEs,usually with some share ownership structure (Laurin, Boardman and Vining2004). SOEs typically have a formal ‘‘arm’s-length’’ relationship with government,but the public sector owns all or some percentage of the outstanding shares. Withinthis quite broad category, it is usually relevant at least to differentiate ownershipstructure by the level of share ownership (Boardman and Vining 1991). The explicitpurpose of the private-sector form is to make the ‘‘firm’’ primarily responsive tomarket forces, but also somewhat responsive to political ones. Almost overnight,mixed enterprises have become more important as an institutional ownership formas governments around the world acquired ownership stakes in banks and financialinstitutions in the wake of the 2008 financial crisis. This continuum cannot capturethe full complexity of institutional reality: there are more ambiguous entities, such asFannie Mae and Freddie Mac, which had private shareholders, but implicit (nowexplicit!) government mandates and guarantees.

A specific ownership structure may represent an effort by (political) institutionaldesigners to insulate an agency from subsequent political influence or control. Some-times this tells most of the story. However, the institutional structure is not the onlyfactor determining agency insulation from political control. In practice, structuralinsulation may be more or less permeable. Politicians, at various jurisdictional levelshave a wide range of indirect institutional mechanisms and informal influencemechanisms that can permeate, circumvent, or simply overpower formal ownershipisolating mechanisms (Thatcher 2002; Kelleher and Webb Yackee 2006). Woods andBaranowski (2007, 1220) describe some of the more indirect methods that state gov-ernors in the U.S. increasingly utilize to strengthen their influence over state bureau-cracies, including, for example, the use of economic analysis mandates (Cooper andWest 1988; Hahn 2000). At the most informal level, there is evidence, for example,that U.S. state-level politicians have gained considerable leverage over federalagencies even though they have no formal authority over these agencies (Hedge,Scicchitano, and Metz 1991; Scholz, Twombly, and Headrick 1991; Wood 1992).In an analysis, therefore, it is useful to consider the degree to which isolating insti-tutional structures are circumvented (for illustrative examples, see Kunioka andWoller 1999). Thus, in order to assess accurately the level of political influenceand control, agency managers must normally consider both the formal institutionalownership structure and the permeability of isolating mechanisms. The bottom linequestion for the purpose of assessing agency autonomy is: How pervasive andintense is the political influence that the agency faces?

It is worth noting one additional factor that can affect the net level of politicalinfluence on a program or agency: namely, the number and diversity of politicalentities that are attempting to influence the program. If there are multiple sourcesof attempted influence that are approximately equal in weight, they may effectively


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offset each other (Chun and Rainey 2005; Miller 2005; Pandey and Wright, 2006;Waterman, Rouse, and Wright 2004).

THE COMPLETE PUBLIC AGENCY 5 FORCES FRAMEWORK

Figure 1 summarized the basic public agency program 5 Forces framework. Formanagers’ analytic purposes, Figure 3 presents the expanded version of the frameworkthat summarizes (potential) generic determinants for each of the forces. It is importantto emphasize that, as in the standard 5 Forces framework, the determinants will varyin importance in each analysis. In some analyses, specific determinants may be unim-portant. In many cases, the determinants are the same, or highly similar, to those in thestandard framework. Others determinants draw more upon analogous theory andevidence from the not-for-profit sector or are specific to a public-agency version ofthe 5 Forces. Public goods provision, for example, as a determinant of rivalry andthe threat of entry potential falls in this latter category (e.g., Fischer, Wilsker, andYoung 2007; Weimer and Vining 2011), as do some of the determinants of sponsorbargaining power (e.g., Bryson 2004; Carroll and Stater, 2009; Frumkin and Keating2002; Hendrick 2002). For a specific agency program, other determinants of the vari-ous forces not identified in Figure 3 may be more relevant.

To reiterate, the major modification to the standard 5 Forces is that political influ-ence is added as a separate force. Both to retain symmetry with five forces and, asexplained earlier, because it is theoretically reasonable, the threat of entry and the

Figure 3. Expanded Public Agency Program 5 Forces Framework.


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threat of substitutes are treated as a single force. As already discussed, newtechnologies (substitutes) often represent simply more radical threats to incumbentsthan do ‘‘classic’’ entrants. Indeed, in technologically dynamic markets, it is analyti-cally difficult (and ultimately pointless) to attempt to distinguish between the twoforces. Although at any given moment in time the threat to a public agency program‘‘market’’ from either private sector entrants or substitutes may be minimal, thethreat can materialize rapidly if there is an innovation in production or distributiontechnology that either significantly reduces, or increases, the importance of econom-ies of scale or scope. Public library systems, for example, have experienced such athreat, beginning in the 1990s with the rapid diffusion of the Internet, theWorldwide Web, digitization, and electronic publishing (Bertot 2009; Dalbello2005; D’Elia et al. 2002).

Note that determinants of rivalry and the determinants of entry threat are fre-quently essentially ‘‘mirror images’’ of each other and therefore in many cases canbe analyzed as a determinant of either, or both, forces. Significant economies of scale(at the limit, natural monopoly conditions), for example, will both dampen rivalryand reduce the threat of entry.

Finally, Figure 3 lists some of the determinants of consumers’ ability to exerciseindirect bargaining power over the agency through political influence—again shownas the indirect dashed force that flows from customers to political influence. In somesectors of the economy public agencies may face both private sector and not-for-profit competitors. The childcare and secondary education sectors are two importantexamples that exhibit considerable competition in many circumstances. However, interms of the impact of rivalry upon managers’ strategic behavior (holding constantfor the moment the meaning of rivalry in terms of goals), the real issue for manypublic agencies is the degree of contestability rather than the presence of directlycompeting entities.

USING THE PUBLIC AGENCY 5 FORCES FRAMEWORK

Assessing a Program’s Strategic Autonomy

The purpose in this section is explicitly to link the assessment of a public agency’sprogram forces to an assessment of strategic autonomy. As already discussed, theforces that determine policy autonomy can be somewhat different from those thatdetermine fiscal autonomy. Additionally, the pressure of some of the forces is morelikely to be constant, while others are more intermittent. Not surprisingly, intermit-tent impacts are more likely to ‘‘fall off’’ the agency’s strategic monitoring radar, sothat, if and when they do emerge, they tend to be more strategically surprising anddisruptive. The level of political influence and the nature and intensity of rivalry nor-mally constrain program policy autonomy on an ongoing basis, while the threat ofsubstitutes or entrants usually only constrains policy autonomy intermittently. Thestrength of finance-agency sponsor bargaining power, the strength of supplierbargaining power, and the level of political influence all tend to constrain fiscal auto-nomy on an ongoing basis, while changes in the intensity of rivalry (whether in the


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form of competition or contestability) and the threat of substitutes or entrants tendto exert a more intermittent impact.

After agency and program managers assess these forces individually, it is useful toconduct an aggregate assessment of their impact on the program, in terms of theiroverall impact on strategic autonomy. Figure 4 summarizes a typology for makingan aggregate assessment of programmatic autonomy. For analytic tractability, theextent of both policy and fiscal autonomy for a program are dichotomized into‘‘low’’ or ‘‘high.’’ This results in four potential alternative situations in terms ofoverall strategic autonomy: autonomous programs (with both high policy and fiscalautonomy), gold-handcuff programs (high fiscal autonomy, but low policy auto-nomy), poor-but-free programs (high policy autonomy, but low fiscal autonomy),and slave programs (with neither policy or fiscal autonomy). Of course, the outcomesin each of these quadrants represent simplified archetypes: thus, they are meant toillustrate common tendencies rather than any specific programmatic reality.

Figure 4. A Typology of Program Autonomy.


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To emphasize this, the central circle represents ‘‘average’’ programs in terms ofautonomy.30 Figure 4 also summarizes some typical strategic implications and con-sequences of each quadrant location.

Autonomous programs are most often found within agencies that fall towards theright end of the formal institutional ownership continuum shown in Figure 2;whether corporatized entities, independent agencies, or autonomous agencies. Othertrademarks of programs located in this quadrant are a legislated monopoly, broad orvague legislative mandates, highly specialized technical expertise or capabilities(Potoski 1999), and various forms of self-financing. A legislated monopoly elimi-nates the need to respond to actual or potential competitors. Highly specializedexpertise results in asymmetric information, which blunts effective political influ-ence. Broad mandates provide formal room for policy innovation, while self-financing fosters fiscal autonomy.

There are many versions of self-financing. One financing model that providesfiscal autonomy is some form of endowment. The Canadian federal governmenthas established a number of governmental organizations, such as the CanadianFoundation for Innovation and the Institute for Research on Public Policy, withlarge initial endowments (Abelson 2007; Aucoin 2006) that effectively provide self-financing (although unless the endowment is large enough for the organization tosurvive off income, there is a ‘‘sunset’’ element built into it). The U.S. FederalReserve System (the ‘‘Fed’’) is in this enviable position of self-financing via its hold-ings of income-bearing securities. The Organ Procurement and TransplantationNetwork is largely self-funded through fees on transplant listings (Weimer 2010).In the U.S., various forms of ‘‘user fees’’ are an increasingly common method offunding regulatory agencies. In fact, these fees are more like taxes, as legislationrequires regulated parties to pay them. ‘‘The Fed, FDIC, OCC, OTS, and NCUA,for example, generate income through their regulatory activities. . . . [E]fforts to influ-ence staffing or regulatory priorities are limited by the internal generation of thebudget’’ (Khademian 2009, 8). Similarly, PCAOB’s mandatory accounting ‘‘supportfee’’ as well as its highly technical mandate, buttress both its fiscal and policy auto-nomy. Following the financial meltdown, there were concerted efforts to give theU.S. Securities and Exchange Commission such fee-collecting authority, but thisprovision was never enacted into law.

Agency managers with programs in the fully autonomous quadrant are often inthe enviable strategic position of having the power strategically to alter or negateat least some of the external forces that they face: the arrows in Figure 1 flow in bothdirections (Roberts 2009). For example, agency managers can often further weakenexisting suppliers’ bargaining power by actively encouraging the creation of new sup-pliers (Globerman and Vining 1996) or by organizing cooperative procurement withother agencies (Kauf 1999). The primary ongoing strategic task is to monitor theexternal forces carefully to ensure they remain in their current benign equilibrium.Agency managers can also consider many alternative versions of programmaticgrowth or expansion: whether in terms of targeting new consumer segments, newsponsors, geographic expansion of the program footprint or the development ofnew service within the program envelope. The Coast Guard, for example, was able


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to use its strategic autonomy successfully to expand into new program areas(Horwitz 2008; Kennedy, Perrottet, and Thomas 2003; Roberts 2009). Corread’Almeida and Klingner (2008) argue that the Federal Emergency ManagementAgency was able to use its strategic autonomy to effect innovative policies for a per-iod under the leadership of James Witt (1993–2001), but then subsequently lost thisautonomy and much of its effectiveness (see also Wise 2006).

Ironically, autonomous programs that experience strategic failures are often givenmore, rather than fewer, resources. Security or emergency programs can ‘‘suffer’’ thisfate (Roberts 2006; 2009). These programs tend to have high financial autonomybecause they face either no direct rivals (the monopoly case) or at most only one.Additionally, because of the highly specialized assets and capabilities they possess,they generally face limited contestability (Globerman and Vining 1996). These pro-grams also tend to have high policy autonomy (at least relating to most externalforces)—the need for secrecy, the complexity of performance measurement, andthe presence of significant isolating mechanisms all buffer them from most sourcesof political influence. However, responsible public managers in these agencies shouldrecognize the predictable consequences of this programmatic autonomy: hubris, atendency to groupthink, the dominance of ‘‘yes-men,’’ and endemic X-inefficiency(Frantz 1992; Garicano and Posner 2005; Prendergast 1993; Roberts 2006).

In contrast to autonomous programs, programs with both low fiscal and policyautonomy can be characterized as slave programs. One example is the Federal Elec-tion Commission (FEC) (Smith and Hoersting 2002): ‘‘The FEC is an ineffectualagency, structured by Congress to be slow and ineffective, composed of commis-sioners whose appointments are tightly controlled by members of Congress and thepolitical parties they regulate, and hobbled by a lack of real enforcement powersand a chronic lack of funds’’ (Walsh and Eilperin 2002). In the worst-case scen-ario—where an agency provides a single-program—the agency has little autonomy:its strategy is, essentially, exogenously determined.31 However, few agencies are inthis extreme position. Most agencies deliver multiple programs and, thus, have atleast some minimal scope to reshape their portfolio. Even if the agency mandate doesnot allow it to exit from a slave program, or managers do not want to exit because ofthe public value delivered, they may still wish to retrench and redeploy resources toprograms within more autonomous environments. This retrenchment might includea strategy to reduce expenditures by moving from higher quality (differentiated)services to the delivery of more standardized (cost-focused) services (Porter 1985,17–18). This is only likely to be effective to the extent that budgetary supervision isincrementally oriented, thus allowing the creation of discretionary resources.

The other two quadrants represent more ambiguous, albeit more usual, externalenvironments. Poor-but-free programs are typically found within public agenciesproviding programs and services to ‘‘unloved’’ consumers. Such consumers includethe homeless, the mentally ill, the incarcerated, the addicted, and the illegal. Spon-sors and politicians dislike expenditures on these programs as they garner few kudosor votes, while attracting much criticism. Poor-but-free programs are usually onstrict budgetary diets. But unless there are (unusual) policy windows that drawattention to the programs (usually negatively), managers have considerable policy


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autonomy. Many regulatory agencies, particularly those with an inspectorate role,may also fall into this quadrant. For example, even after the Food and Drug Admin-istration was allowed to charge pharmaceutical companies for expediting drugapprovals (which clearly improved its fiscal autonomy somewhat), many commenta-tors still felt it was underfunded given its policy mandate (Committee on the Assess-ment of the U.S. Drug Safety System 2007; Psaty and Burke 2006).

The generic strategic agenda for managers of poor-but-free programs is to try andincrease fiscal autonomy, while retaining the current degree of policy autonomy.This is a delicate task: most importantly, the agency must consider functional stra-tegies that lower costs among the various components of the program value chain(Card and Card 2007; Porter 1985). This could involve contracting-out (Globermanand Vining 1996; Vining and Weimer 2005) or investment in cost-lowering new tech-nology. Additionally, managers should normally seek to increase fiscal autonomythrough aggressive bargaining over price with suppliers (down) and consumers(up), and if possible with sponsors over revenues. The latter effectively amounts toseeking higher prices. Historically, most public agencies have been poor at such bar-gaining, probably because public agency managers get few direct rewards from thisunpleasant activity—they do not get to retain any of the fiscal residual. Provided theagency can retain the freed-up resources (not necessarily an easy thing to do), it canincrease fiscal autonomy.

Gold-handcuff programs are somewhat unusual in that a high degree of fiscal auto-nomy normally enhances the policy autonomy of a program. But fiscal autonomy isvaluable in its own right because it empowers policy innovation even in the absenceof formal policy freedom. Fiscal autonomy allows managers to cross-subsidize thedevelopment of new experimental services or to provide services to higher-cost con-sumer segments (Geddes 2008). At the very least, fiscal autonomy enhances budget-ary certainty, allowing managers to implement more stable policy (Caiden andWildavsky 1974; Jones and McCaffery 1989; Tarschys 2002).

However, it is still possible for an agency to have a high degree of program fiscalautonomy without having significant policy autonomy. Policy autonomy may be for-mally constrained because the agency or program legislative mandate is unusuallydetailed and specific (Bawn 1995; McCubbins, Noll, and Weingast 1987; 1989) ormore informally because powerful external forces are prepared to either ‘‘bribe’’or ‘‘blackmail’’ the agency by offering, withholding, or withdrawal of financialresources as the quid pro quo for policy and mission acquiescence. This quadrantoften features controversial programs in such areas as family planning and medicalresearch. These programs often receive adequate resources for their existing mission,as they have powerful sponsors or customers who can exert political pressure. Butthese programs also attract high external political interest and monitoring fromopponents, so that managers have few degrees of freedom to be innovative. Alterna-tively, gold-handcuff programs are mandated and imposed on agencies by particularpowerful politicians that have been able to write detailed ‘‘how to’’ mandates intothe law. On a number of occasions, for example, the U.S. Congress has been gener-ous with funds for some specific weapons programs (such as the V-22 Osprey), eventhough the Defense Department has not particularly wanted them (Norton 2004).


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Agency managers of gold-handcuff programs can perhaps expand existing serviceswithin the current program envelope and engage in strategies at the more tactical endof the spectrum, but they are unable radically to reengineer their policies or altertheir mission. Again, in these circumstances there is a temptation for agency man-agers facing such an environment to succumb to cynicism and to engage in generat-ing high salaries, perquisites, gold plating, and even corruption—in other words, tofall prey to particularly pernicious forms of X-inefficiency.

It is important to stress that it is agency and program managers who need to assessboth the extent and nature of their autonomy. Therefore, the assignment of pro-grams or agencies to particular quadrants described above is necessarily tentativeand illustrative. Most programs are average programs in that they face a variablemix of external forces, so the devil is in the external force details.

Moving Beyond a Descriptive Focus: Normative Perspectives

The descriptive approach initially focusing on autonomy is not antithetical to anorm-based focus. Rather, analysis of autonomy is an essential precursor to mean-ingful normative analysis: without some degree of strategic autonomy there are fewdegrees of freedom for norm-based action. However, this normative analysis is morecomplex because the strategic implications depend on the particular normative orien-tation the agency adopts. Some of the strategic consequences of particular normativeobjective functions have been discussed earlier. Here, some of the implications areillustrated more systematically. The example discussed here assumes that agencymanagers are conducting the analysis from a social efficiency goal perspective. Basedon a 5 Forces analysis, column three in Figure 5 illustrates some of the ways thatmanagers of a program that is autonomous might strategize from a social efficiencyperspective. Obviously, in this case, managers have a high degree of strategicfreedom.

Column 3 provides some illustrative examples for each of the five forces. First,consider rivalry. How should an agency with a social efficiency perspective respondstrategically if it assesses rivalry as ‘‘low’’? Ideally, the agency should assess theextent of the ‘‘naturalness’’ of its monopoly position (Weimer and Vining 2011),assess whether the service involved is in fact a public good, and=or whether agencyprovision solves a market failure problem (Weimer and Vining 2011). In sum, itshould assess the overall potential for efficiency-enhancing competition. Ifmanagers observe that market failure is disappearing (perhaps because of changingtechnology that reduces minimum efficient scale), then they should encourage entryof other providers (for example, by lobbying for the removal of legal barriers toentry) or perhaps even subsidize technology that encourages the growth of privatesubstitutes.32

Second, consider an assessment of ‘‘weak’’ supplier power. If the 5 Forces analysissuggests that supplier bargaining power is weak (or incrementally becoming lower)—for example, because an input market is globalizing and low price suppliers fromforeign sources are becoming viable—agency managers should consider engagingin more intensive bargaining over input prices to lower its own costs of production.


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Third, consider assessments of ‘‘weak’’ consumer and sponsor power. From asocial efficiency perspective, the agency managers would normally want to set theprice (P) for each of its services equal to its marginal social cost (MSC) of production

Figure 5. Agency Strategic Response When in the ‘‘High Autonomy’’ Program Quadrant,from the Social Efficiency Goal Perspective.


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(Weare and Friedman 1998). This would mean that the agency would seek to capi-talize on its autonomy to raise the price of the service where analysis shows its cur-rent prices are below marginal social cost (for example, this might well be the casewhere the service is currently offered at zero price). However, it should lower theprice where its price was above marginal social cost, even if it had been using theadditional revenue to subsidize other worthwhile services. The agency would alsocommunicate with sponsors to explain, and build support for, its pricing perspective.

Fourth, consider an assessment of ‘‘low’’ threat of substitutes or entrants. To someextent, this analysis is the mirror image of an analysis of the efficiency consequencesof increased competition (rivalry): if there is little market failure and no competition,entry should be encouraged.

Fifth, and finally, consider an assessment of a ‘‘low’’ level of political influence.From a normative efficiency perspective, this force is more complex because thelegitimacy of political influence is often ambiguous (consequently, the term ‘‘level’’rather than ‘‘threat’’ is used throughout). However, an efficiency-oriented agencyshould want to isolate a program from political institutions that opposed efficientpricing or that sought to push program managers to deliver services to in a particularconstituency, even though the potential consumers would not be those generating thelargest consumer surplus (that is, the political influence was attempting to engage in‘‘pork-barreling’’). But agency managers might want to encourage political influencethat was congruent with its social efficiency perspective on pricing (even if thosepolitical supporters are more interested in the revenues than the efficiency that flowfrom non-zero prices).

The social efficiency perspective is enlightening partly because it illustrates why it willusually be difficult for agency managers to adopt a program efficiency goal perspectivein the absence of autonomy. In many circumstances, forces in the external environmentwould attempt to blunt or circumvent the achievement of this goal. Almost certainly, a‘‘slave’’ agency would find it impossible to even move in this direction.

CONCLUSION

External analysis is a central component of firm-specific private-sector strategicanalysis (Boardman, Shapiro, and Vining 2004). Similarly, it can be a useful compo-nent of any practical public program strategic analysis. This article lays out how thestandard 5 Forces framework can be modified for public program use. The modified5 Forces framework introduces a new force that is central to understanding the exter-nal environments of public agencies—the role of political institutions and influence. Italso considers public agency goals from both a descriptive and normative perspective.The modified version of the framework is useful for public agency managers because,like the standard framework, it is fundamentally grounded in microeconomic (indus-trial economics) theory. The framework can be used just to consider the role of exter-nal forces from a descriptive focus on autonomy. But, it is important to emphasize thatassessing autonomy does not logically imply that agency managers should seek tomaximize autonomy. Indeed, the assessment of autonomy does not curtail managersfrom pursuing any particular normative goal or from strategizing accordingly.


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On its own, a 5 Forces external analysis does not constitute a comprehensive stra-tegic analysis, even though it can suggest some broad strategic directions and elim-inate others. Ideally, 5 Forces analysis should be used in conjunction with othercomponents of strategic analysis—such as internal analysis—that are also suitablyadapted for public agencies. It is important to reiterate one caution: this form ofexternal assessment is primarily useful for program strategy at the program level.

Unlike private-sector management scholars, many public management scholarsare uncomfortable developing or encouraging overtly strategic tools for public sectormanagers. Moore (1995, 162), for example, appears to be quite ambivalent, evenconflicted, on this question as it relates to political forces. He cautions that ‘‘whilethe techniques of entrepreneurial advocacy offer good advice about how to analyzeand diagnose political settings, the tactics recommended lack the spirit one wouldlike to see in policy-making in a democracy.’’ In the end, however, he clearly advo-cates that public managers should analyze and, where possible, strategically moldtheir environment. The public agency 5 Forces framework similarly recognizes thatpublic managers inevitably need to consider strategic alternatives and assess theirability purposively to implement them. The modified public agency 5 forces frame-work differs fromMoore in that it gives equal attention to the political and economicforces in the environment.

Why should public management scholars be explicit on public management strat-egy? If public management scholars do not assist them in developing strategic tools,then private sector management scholars will walk ‘‘where angels fear to tread.’’They have already done so to some degree. In parallel, many public managers havevoted with their pedagogic feet and taken an MBA rather than a MPA or MPP. Inmost cases, unfortunately, the analytic tools they will learn in a strategy managementcourse will not be modified appropriately for a public-agency context. Public-sectorscholars who are uncomfortable with unmodified private-sector frameworks andstrategic tools are encouraged to present practical frameworks that public managerscan use. Efforts that integrate strategic analysis with consideration of overtly norma-tive goals, such as public value, should be especially encouraged.

ACKNOWLEDGEMENTS

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

NOTES

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

2. Although the standard framework is reasonably comprehensive for many analyses,two additional competitive forces have been proposed: complementors (Brandenburger and


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Nalebuff 1997) and government as policymaker (Vining, Shapiro, and Borges 2005). Comple-mentors certainly could be a relevant ‘‘sixth force’’ in a given public program analysis.

3. Porter sometimes alternatively uses the term ‘‘buyers.’’4. 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 ofthe 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 decisionsthat still dichotomizes relevant considerations into internal factors and external factors, butdoes so with an approach grounded in the theory of profit.’’ This quote indirectly makesthe point that SWOT is actually more ambitious than 5 Forces’ analysis because it purportsto 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 andWright (1998). In sum, the major weakness of SWOT from an environmental theory perspec-tive is that the components of SWOT that purport to be concerned with the external environ-ment (that is, Opportunities, Threats) provides no explicit theoretical framework forcategorizing impacts into either ‘‘opportunities’’ or ‘‘threats.’’ Furthermore, the argumentcould 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 strategicalternatives. It is, of course, perfectly sensible to consider strategic alternatives, but it is con-fusing to do so as a component of external analysis.

Another form of environmental analysis—PEST (political, economic, social, technologi-cal) 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 con-sidered here. However, more immediate aspects of these factors are also partially analyzedthrough the 5 Forces. Technological factors, for example, typically enter a 5 Forces analysisthrough consideration of substitutes (see below). Additionally, as discussed in detail below,in the public agency 5 Forces framework political influence now enter the framework directlyas a force.

5. Bryson (2004) recommend a somewhat modified version of SWOT for public agencieswhere ‘‘threats’’ are reconceptualized as ‘‘challenges,’’ thus SWOC.

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

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

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

9. 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 stakeholderdimension more fundamentally from a multi-goal perspective.

10. Boston, Bradstock, and Eng (2010, 1) summarizes the distinction between the descrip-tive (empirical) and normative perspectives for public policy as follows: ‘‘At the empirical


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level, there are issues of what governments do in practice and how this varies over time andbetween jurisdictions. At the normative level, key issues include what governments ought todo and ought not to do, and what principles should guide decision making.’’

11. I am grateful to the journal’s editor for making this point. The responsibility for itsuse, of course, is solely mine.

12. 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.

13. Therefore, this observation is not a claim that agency managers are actually budgetmaximizers; on this, see Bowling, Cho, and Wright (2004) and Dolan (2002). Also, to empha-size this again, it does not necessarily mean that public managers cannot seek to achievesubstantive normative goals.

14. The direction of causality between performance and autonomy is unclear, however, asMoynihan and Pandey (2006, 127) also argue that superior performance can lead to enhancedautonomy: ‘‘Elected officials are likely to provide autonomy to a public organization that theytrust, has a strong track record [emphasis added] and is unlikely to use that autonomy in a waythat causes political embarrassment.’’ They do not directly test the direction of causality. Theauthors only argue that their results show that ‘‘[a]ll other things equal, agencies are morelikely to be successful in undertaking reforms if they enjoy the support of elected offi-cials . . .The benefits of political support include autonomy and resources, factors also likelyto enable agencies to manage change successfully . . .’’ (Moynihan and Pandey 2006, 131).

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

16. Consequentialists ‘‘assess the goodness or otherwise of a policy solely on the basis ofits consequences’’ (Boston, Bradstock, and Chen 2010, 4).

17. Some critics might claim that a focus on program autonomy and constraints imposed byexternal forces necessarily implies that public managers must be ‘‘self-interested’’ in some publicchoice sense (a referee certainly was concerned that that was the case). There are many differentpublic choice objective functions, including ‘‘discretionary resources maximization’’ (Niskanen1975;Migue and Belanger 1974) and ‘‘budget-shaping’’ (Dunleavy 1991). The contention is thatautonomy is compatible with many (if not all) normative versions of public value and publicsector goals. Therefore, it rejects the argument that a focus on autonomy is in practice equiva-lent to the goal of managerial self-interest. It is not even clear that many budget-shapingversions 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.

18. However, Wise concludes that the composite ‘‘bureaucratic posture’’ she proposes hasboth positive and negative impacts in terms of the public interest and bureau performance. Itis, therefore, hard to interpret this posture in terms of a goal of public value.

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

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

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


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22. For semantic convenience, all these different service recipients are lumped together as‘‘consumers.’’

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

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

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

26. 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.

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

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

29. In the United States, these are labeled ‘‘Executive Agencies,’’ so it is important todistinguish them from agencies within the Executive Office of the President.

30. There is no direct empirical evidence that most programs are ‘‘average’’ (i.e., that thereis a normal distribution of programs) although one suspects that is the case. Average, there-fore, only means an average between the four quadrant archetypes.

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

32. However, the analysis is complex, because the empirical evidence suggests that a smallnumber of competitors, or non-price competition, may not be efficiency-enhancing (Carroll1990; Krause and Douglas 2006).

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ABOUT THE AUTHOR

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


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