Chapter Three


To start out "doing the right things," you need information--information about the world outside your institution and about its internal workings. Modern business institutions use the tools of market research to obtain and analyze this information.

The external analysis component of market research concentrates on gathering information about the outside world--about your institution's external marketplace. Using the compass metaphor again, consider what you would have to know to chart a course through a swamp. You have to know the depth of the water in the swamp, how many trees are in the way, if there are poisonous snakes, and where the quicksand is. The course you take through the swamp will depend a lot on the answers to these questions. In your role as an institutional leader, you must consider the world outside, with its constant social, economic, political, and technological changes. External analysis (also known in the literature as environmental analysis) means that you learn all you can about these changes so that you can chart the best course.

External analysis addresses the following questions.

  • What social, economic, political, environmental and technological factors in the external environment influence your ability to accomplish your mission and vision?
  • Which events or trends are having (or may have) an impact on your institution?
  • How will these external factors develop? What will the developments mean for your institution? How will developments affect your position in the marketplace, your stakeholders, your programs, your products and services, and your institutional capacities?

External analysis begins with identifying trends and potential developments that may affect your institution and its stakeholders. These may be obvious, given the nature of your institution. For instance, trends in the number of high school graduates are obviously of interest to colleges. Other relevant trends or developments may not be obvious. For example, federal legislation that requires welfare recipients to go to work may not on the surface appear relevant to education. But some agency will have to provide necessary training to enable welfare recipients to move to the workplace; a local college could provide this training.

To conduct external analysis, you:

  • Gather information on environmental trends. A trend is a data series of past, current, and future developments that can be estimated or measured over time. Trends exist in each sector of life (e.g., social, technological, economic, environmental or political environments). For example, the number of unwed mothers is a trend in the social sector. We can obtain past data (e.g., the number of unwed mothers aged 13-18 from 1970 to last year), estimated data for current year and projected data (e.g., to the year 2010).
  • Gather information about potential developments or events. An event is a discrete, confirmable occurrence that makes the future different from the past. The passage of a bill requiring voluntary service for all 18 years olds would be an event that would affect enrollments in colleges and universities.
  • Make assumptions about where these trends, developments, and events are heading and which will be most important for your institution
  • Explore the implications of different futures based upon these trends for your institution, developments, and events. These implications may be identified as threats and opportunities.

The time horizon for external analysis will generally be from five to ten years (or beyond) into the future.

In this chapter we will describe how to identify the information to be gathered, how to gather it, how to organize it, analyze it, and how to determine its implications.

Identifying, Gathering, and Organizing Information

External analysis involves tracking and describing pertinent social, technological, economic, environmental, and political (STEEP) trends and potential developments affecting the institution. The objective is to develop a comprehensive yet concise account of key trends and forecasts. This task may at first appear overwhelming due to the sheer volume of information about identified external environmental trends. However, the job becomes manageable if you clearly define its scope at the start and if you use certain "screens" to decide what information will be useful.

Most people who are interested in what is happening in the world around them are continually gathering information about their environment. When they read the newspaper, watch a television newscast or documentary, peruse magazine articles, attend meetings, or read government reports, they are generally learning about external environmental trends and developments. To use this information in strategic management, you have to gather it systematically. When looking for information, we have found it helpful to use the following five broad categories to describe the world around us:

  • Social. Data about people: demographics, values and lifestyles, attitudes, families, health, crime, education.
  • Technological. Data about scientific and technological developments.
  • Economic. Data about international, national, regional, and local economies, including data related to the labor force, income, and the infrastructure.
  • Environmental. Data related to energy, reusing and recycling, protecting biological bases, food protection, air and water quality.
  • Political. Data about government policies, legislation, regulation, political participation, litigation, and court decisions.

Conceptually, the external environment can be subdivided into three components: the market environment, the industry environment, and the macroenvironment. The market environment refers to stakeholders (e.g., students, faculty members, politicians, employers, professional associations of faculty and administrators, and the like within a specific geographical area--which, in the case of a major research university, could be the world). This environment is specific to a particular institution. Thus, although the market environments of a community college and a research university within 10 miles of each other may overlap, they also differ.

The industry environment comprises all enterprises associated with education. At this level, trends such as the number of colleges that require entering students to own computers or the percentage of faculty members using multimedia materials in their classes affect all institutions, although the impact of these factors varies depending upon the type of institution (i.e., research or comprehensive university, two- or four-year college, public school, or other educational providers like Microsoft and Disney).

The macroenvironment focuses on changes in the social, technological, economic, and political (STEP) sectors that could affect educational organizations directly or indirectly. These sectors are interrelated. Changes in one sector at any level (local, national, and global) may lead to changes in another. A growing economy stimulates technological research and development. The development of virtual reality affects corporate employee training on how to use equipment and affects R&D product design. Virtual reality tied with distance learning can create the classrooms of tomorrow where students from around the world participate as if they were sitting in the same room. Thus developments in the macroenvironment can affect developments in the market and industrial environments. This point underscores the necessity of scanning the macroenvironment as well as the market and industrial environments to pick up the early signals of change that may affect your institution.

Narrow Information

Once you decide on scanning categories, start gathering information. The problem is "info-glut." Fortunately, there are some guidelines to help you narrow down your search.

The best planning information applies to your own geographic market area (the market environment), is recent, is relevant, says something about the future, and presents both quantitative and qualitative data. As you look at the information you gather, determine if it:

Applies to your market area. Your information search should examine trends at all geographic levels--in your city, county, state, the country, and the world. Developments in any of these arenas can affect your institution. You may find that local and state level data are most valuable for your planning. This is not to say that global and national trends are not important. They are, but they must be interpreted so they become meaningful to your institution.

Is recent. Information becomes dated quickly because change is continuous. Try to find information that has been published in the last two years.

Is relevant. It is important to narrow down your information search to topics that are relevant for your institution. You will have, early on, some idea of the issues your institution must address. Your mission and visions statements will help to point you toward these issues. Your task is to gather information with these broad institutional concerns in mind. Look for information that impacts these concerns, but avoid data that are too detailed. For example, to understand local environmental trends that may affect your campus, you should not have to go through endless statistics on local weather and health. Some topics may not be important for your institution. This is a judgment you must make, and at times it is difficult, because you want to avoid being too narrow in your perspective of what matters. Sometimes administrators think that trends related to environmental issues such as pollution and natural resource depletion are not important to their campus; yet these are increasingly being recognized as critical issues for the health and welfare of a community (i.e., discovery of lead in drinking water or radon gas in buildings). You have to decide if the information you are going after is of sufficient value for your planning that it merits the amount of time you will invest in gathering, reviewing, and presenting it.

Says something about the future. Some of the information you collect will be forecasts of future events. For example, you can find projections on population size to the year 2020 and beyond. This information is important because it describes your future marketplace. However, if you use future projections, it is important to understand how these forecasts were developed. Different experts come up with different projections for the same trend. You must decide which projections or range of projections to use.

Is both qualitative and quantitative. Data gathered will fall into two general categories. The first category is quantitative or "hard" data, which are empirically based. The second category is qualitative or "soft" data, which are judgment- or opinion-based (even though, at times, they are presented numerically). Both are useful in external analysis, and for topics like attitudes and values, opinion-based data are generally the only information available. While you will consider quantitative topics like population size and distribution, employment levels, and business growth in your market area, you will use qualitative data to describe stakeholder satisfaction with educational services, perceptions, and educational needs. Generally, qualitative data are the result of surveys (e.g., Gallup, Roper, Harris); interviews with experts, newspaper editors and reporters, or opinion leaders.

Information Sources

If you work in a community college, local information will be more important to you than if you are in a research university. Municipal and county governments, colleges and universities, civic institutions, businesses, trade associations, United Ways, and human service institutions are all good data sources of information. State governments are sources of local data as they analyze and present federal census data for planning purposes. State demographers also compile statistics on local labor forces and businesses. These state-level reports are useful because they enable counties and municipalities to compare themselves with others in the state.

College and university business schools as well as departments of sociology and economics often conduct studies of their communities; public school administrators may find such data useful, as will college and university planning committees.

At the national level, the federal government, especially the Bureau of the Census, is an important information source. Small area statistics--down to the census tract and block levels--are available through census computer tapes. The U.S. Department of Commerce publishes a City and County Data Book that summarizes census data for states, counties, cities, and places in the U.S. This reference is available in public libraries.

If you are interested in specific national issues, you can refer to articles in the major national publications, such as the news magazines. You may want to refer to journal articles and professional institution publications for more in-depth treatment of such issues.

There are a number of electronic databases that contain up-to-date descriptions of articles (by title and, many times, by abstract) that are available on a subscription basis. ABI Inform, ERIC, PAIS, Dialogue and BRS, contain hundreds of databases specializing in all areas. Undoubtedly, your library already subscribes to these databases and database services. These resources are amenable to monitoring (i.e., to retrieving information about critical trends and potential events that you and the planning team have identified earlier in the scanning process).

Of course, the emerging premier source of information on almost any subject is the Internet. There are a number of listservs and Web sites on the Internet that contain discussions about potential events and emerging trends (See Appendix 1). There are also a multitude of issue-specific sites that report a wealth of data, some very local or very specialized--for example, around education issues. As information users grow in technological sophistication, they will more frequently rely on the World Wide Web as their first information source. 

It is not difficult to get some information on a topic. Your challenge is to get the right information--information that will provide useful insight into a trend and that will give you an idea about where the trend or development is heading. For example, should information not be available for your market area, move to the next higher level of data available and ask, "Will your market area follow or deviate from the trends in the higher level (and to what degree)?"

Although the constant struggle is to limit what you perceive as the right information, you must be careful not to reject something that is important because of your personal beliefs. It is better to do your sorting in the analysis rather than the gathering stage of information processing. Also, you can use the decision criteria described above to help you zero in on the right information.

A final consideration is that, for any source of information, you should try to recognize advocacy of any special interests or perspectives. Consider who did the analysis and what they would like the reader to believe. If a position is being advocated, search out information about the other point of view.

Reporting the Results of External Analysis

In assembling data about your external environment, the best way to proceed is to develop some type of written report. This may be anything from a few pages listing important trends and potential developments to a published external environmental trend report. The report should portray your analysis of critical trends that you must consider when planning for the future. It should be easily understood and to the point. Graphs, charts, and tables help present information. In addition, prepare an oral presentation using presentation software; both the written and oral reports help you present (and get feedback on) your work.

Using the Market Research Team

While it is possible for one person to gather and analyze information, this approach is not recommended. Common sense management is a process that involves people through communication and consensus building. Communication and consensus building start with conducting the external analysis. Therefore, if possible, use the market research team to help obtain and review information as well as to oversee development of the external analysis report. We advise that team members represent all functional areas of the institution.

This team should:

  • Propose good sources of information and provide information directly.
  • Review descriptions of external trends that are drafted by staff members and recommend whether to add, delete, revise, or obtain additional data.
  • Identify those trends and projections that stand out as major planning assumptions--that is, those trends that will have the greatest potential impact on the institution.
  • Make forecasts when projection data are not available from other sources.
  • Speculate on and document the implications these major assumptions may have for the institution.

Develop Planning Assumptions

After the team gathers and compiles external data, it selects and specifies the most institutionally significant trends and their probable future directions. For an in-depth scanning report, it is possible to compile a lengthy list of such planning assumptions. Therefore, the team selects a subset of "major "assumptions--trends and potential events that may affect the future of the institution.

One approach to the development of planning assumptions is to use a matrix such as that shown in Figure 3-1 shown below.

Trends, Events, Development in the Broad or Macroenvironment

Higher Education Microenvironment Social Technological Economic Environmental Political
  • Students
  • Faculty
  • Other Staff
  • Other HE Institutions
  • Systems
  • Technology
  • Facilities
  • Finances and Budget
  • Marketing
  • Public Relations
  • Government Relations

Figure 3-1. Planning Assumptions Matrix

Look at the major trends, events and developments you have identified and ask yourself what effect or implication they have on the elements of the institution's microenvironment. You can modify the sample microenvironmental elements shown in Figure 3-1 to include elements that may be more pertinent to your institution, such as geographical market area.

The picture that develops from your major planning assumptions represents a scenario of your most likely future. Institutional leaders sometimes change their planning assumptions in order to develop alternative scenarios. They consider what the implications for their institution would be if each alternative scenario develops. They plan based on the "most likely" scenario, but thinking about other possible futures gives them a head start in planning if another future begins to emerge.

Explore Implications

The implications section of external environmental analysis indicates what the trends and projections will mean for your institution. These implications, expressed as opportunities and threats, provide a basis for strategic direction setting, the next phase of the common sense management process.

There are several alternatives for organizing implications. You may organize them under broad operational categories, such as:

  • Implications for resource development
  • Implications for curriculum development
  • Implications for administration and management
  • Implications for faculty and students
  • Implications for each college (in a university)

Appendix 2 illustrates how Delaware County Community College used this approach in reporting their planning assumptions.

Alternatively, you may develop broader implications under such categories as social, economic, environmental, political, and technological.

Regardless of how assumptions are reported, the team should develop the implications of these assumptions for the institution. The committee process allows for imaginative and creative input from a number of individuals. We recommend two methods for reviewing major assumptions and for considering their implications. They are the impact network (also known as an implications wheel) described in Appendix 3 and the modified nominal group brainstorming technique described in Appendix 4.

Develop Scenarios

Another form of external analysis is scenario development. Scenarios are not often used, although this form of analysis is gaining increasing credibility in the corporate world. Scenarios are useful in helping us imagine alternative futures and for preparing for them through contingency planning. It has the distinct advantage of keeping our minds, as well as our plans, open to several possible futures contingent upon the flow of events.

In essence, scenarios are narratives of alternative futures. Rather than deal with trends separately, scenarios provide coherent, comprehensive, internally consistent descriptions of plausible futures built on the imagined interaction of key trends and potential events. Scenario writers deal with the interactions among social, economic, environmental, political, and technological forces as they trace the possible evolution of short-term developments.

Figure 3-2 illustrates how scenarios work. A number of scenarios (a, b, c, and d, in Figure 3-2) may focus on plausible futures. From these, you select a subset for planning purposes. At the same time, however, you should not discount less plausible futures, represented by "wildcard scenarios"; at least imagine these so that you can consider the widest possible range of futures in the strategic process.

Figure 3-2
Figure 3-2. Scenario construction

The steps in scenario development may be carried out by committee, with the support of the research office. (Appendix 5 provides a detailed description and illustration of this process.)

Institutional Vulnerability/Opportunity Audits

Another useful tool in external analysis are vulnerability/opportunity audits. This tool is based upon five assumptions: (1) organizations exist because they serve some need; (2) organizations rely on support from the environment in which they are expected to operate; (3) organizations are vulnerable to the changing external environment; (4) some of these vulnerabilities can also be opportunities; and (5) organizations are undergirded by the following: needs and wants served by the organization, resources and assets the organization relies upon, stability of costs relative to competition, the organization's target customer base, technologies, special abilities, corporate identity symbols, barriers to competition, social values important to continuance of the organization, sanctions, perceived integrity of the organization, and the availability of complementary products or services.

The organizational vulnerability/opportunity audit reviews these supports from the perspective of current strengths. The supports are turned into questions: What needs and wants does the organization meet? What resources does it rely on? What cost advantages are available? What special abilities does the organization have? What technologies underpin it?

The vulnerability/opportunity audit then examines the supports' vulnerability to removal, alteration, or substantial disruption. The key question embodied in this tool is: "What supportive elements, if suddenly taken away, might seriously impair or even destroy the organization?" Appendix 6 contains a description of the use of the vulnerability/opportunity audit in a professional organization.

The Product from External Analysis

The external analysis step of the strategic process not only identifies the external trends and potential events important for your institution. It also speculates on their implications for your institution, including whether each trend is a threat, an opportunity, or both. You end up with a description of trends, potential developments related to these trends, and derived planning assumptions with the greatest impact on the institution over the planning period. Also, you will have speculated on what these trends, developments, and assumptions will mean for your institution. A shared understanding will develop among stakeholders involved in the common sense management process about the most important future trends and their implications. This shared understanding enables stakeholders to identify the major issues challenging the institution and to begin to think about how to respond to these issues. Step three of the common sense management process, strategic direction, establishes a direction for this response.