In 2013, a new law school opened in Indiana. In 2010, according to Nissen (2015),[i] law school enrollment peaked and has been steadily dropping since. The new law school closed its doors at the end of the school year in 2017 at a loss of $20 million (Leininger, 2016).[ii] A thorough analysis of the trends in law school enrollment numbers could have prevented this law school disaster.
Strategic thinking provides businesses with the tools to alleviate such problems. One of the best tools that seems to be seldom used is an external analysis. As the name suggests, an external analysis is what is going on outside of the organization. It requires knowing what the current trends are that would help or hinder the organization and the organization’s industry.
Sony presents us with a great example. Do you remember when Sony was the leader in personal entertainment technology? They brought out the Walkman radios, tape players, and CD players. Other companies copied Sony. Then music went digital, and Sony did not make the change quickly enough. Apple stepped in, and Sony has been playing catch-up ever since.
The external analysis should produce some opportunities and threats that the organization needs to be aware of. Threats are conditions in the environment external to the company that may impact it negatively in the future. Opportunities are conditions in the external environment that if taken advantage of provide the company with a means of growth. Students in my classes as well as business leaders, in general, seem to struggle with what a real opportunity is. Opportunities frequently get confused with possible strategies.
The law school episode at the beginning of this article represents a good example of poor analysis. An opportunity for the new school would have been an increase in demand for legal education. The demand did not exist; instead, the opposite was true. What the leaders of the institution no doubt believed was that they “had an opportunity to expand into legal education.” That is a strategy. If the demand was there, then the strategy would be to expand into legal education. Without the increase in demand, as we saw, the strategy failed.
Recognizing real opportunities requires getting outside of the organization. It requires listening to those closest to the customers (such as sales and customer service employees). It may require attending industry seminars and understanding the competition. It requires time spent analyzing the news and media. It may require hearing things that upper management does not want to hear.
Great companies see the change in the external environment and react accordingly.
[i] Nissen, M. (2015, March). US students are fleeing law schools and pouring into engineering. Retrieved October 31, 2016, from http://qz.com/358929/law-school-enrollment-decline/
[ii] Leininger, K. (2016, October 31). Indiana Tech Law School to close next June; losses at $20 million. Retrieved on October, 31, 2016 from http://www.news-sentinel.com/news/local/Indiana-Tech-Law-School-to-close-next-June–faculty-attorney