Don’t Miss Important Geographic Factors in Strategic Planning

Geographic information systems, or GIS, has become an important tool in business. But as much attention as the technologies and practices have gained, there is still a long way to go before companies fully integrate location into business strategy. A recent example shows why people with a [GIS degree] will increasingly have value to corporations.

A study by management consultancy McKinsey looks at an important topic in business today: emerging markets. You might think that with shareholder interests and competitive pressures on the line, those in upper management might focus on the deep analysis to make their efforts as successful as possible.

But that is not the case: “In a recent survey, we found that fewer than one in five executives makes location decisions at the city (rather than country) level.” But some details of the cities in emerging markets — an analysis that could be deftly performed with GIS systems — suggests differently. According to McKinsey, an urbanization wave moving east and south at “unprecedented speed” will create a consumer class of more than 4 billion people by 2025, quadruple the number in 1990. Nearly half these people will be in a group of 440 emerging market cities. This group of cities will represent “close to half of expected global GDP growth between 2010 and 2025.”

To hitch a ride on this wave, companies must pinpoint the best places to concentrate limited resources. For example, few western executives would be familiar with Foshan, China; Porto Alegre, Brazil; or Surat, India. What do the three cities share? “[M]ore than four million inhabitants, fast growth, and a vibrant base of consumers,” says McKinsey. All three will be more important to global growth than the more familiar Madrid, Milan, or Zurich. And yet, to many executives, a focus on specific cities is unimportant.

Because of the lack of understanding of the economic import of these areas, executives could easily misdirect resources, putting their money, time, and effort into their existing markets and missing the tremendous opportunities that are available. Furthermore, many companies are unlikely to recognize the importance of these areas in the near- to middle-term. As the study noted:

Few executives expected this approach to change over the next five years, and more than 60 percent regarded cities as “an irrelevant unit of strategic planning.”

Not only are the executives currently undertaking strategic planning by habit, but they are likely to continue doing so. Companies that will successfully leverage the opportunities are those that have integrated the understanding and use of location-based analysis that GIS affords. The employees who can help them do this will be in strong demand.

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