The purpose of this study was to examine the decision-making processes of a university that, faced with radical changes in the external environment, was forced to make extensive internal adaptations. A case study is presented of the way in which the administration of New York University perceived and dealt with the threat to its existence posed by competition from state universities which had gradually taken over many of its functions. The findings, based on information obtained from a sample survey of faculty and administration, analysis of documents, participant observation and intensive interviews, indicated that the normal, bureaucratic decision-making mechanisms break down when confronted by major external threats. Instead "political" processes take over, and major interest groups largely determine policies. In spite of bitter opposition by a portion of the faculty, the New York University administration was able to create a new image of the future toward which to orient a vastly different university. (AF)