GIS used to be the secret weapon in business-site selection. Now everybody's using it, but smart companies are finding new ways to profit from the not-so-new technology.
Using a Geographic information system (GIS) can mean the difference between a business location that flourishes and one that fizzles. This story tells you The resources necessary for achieving GIS success How GIS enables new business opportunities Why good data is the key to GIS For seemingly arbitrary reasons, a well-known business can prosper in one location and quietly perish in another. But on closer examination those reasons boil down to the three fundamental principles of real estate: Location.
Location. Location. That's the oft-quoted motto of realtors everywhere, and perhaps the only thing that stops you from rolling your eyes at the hackneyed phrase is that it's so true. Site selection can be tricky, but companies looking to establish new business locations or consolidate existing ones have a helpful resource - besides a realtor - to draw upon. A geographic information system (GIS) consists of digital mapping software that displays demographic information and proprietary corporate data such as sales figures on area maps.
Examining information geographically reveals infrastructural factors (like highway access) alongside the demographic makeup of an area and provides a more cohesive picture of whether a prospective site fits a particular business.
If the saying that 80 per cent of a company's business comes from 20 per cent of its customers holds true, it's no wonder GIS is popular, since it can help get you get close to that 20 per cent. Adding to its attraction is that GIS has become increasingly user-friendly. GIS used to have an unsavory reputation. It was considered expensive and difficult to operate, and it demanded a large investment with only teasing promises of a return. In recent years, however, companies like Environmental Systems Research Institute Inc. (ESRI), MapInfo Corp., Oracle Corp. and most recently Microsoft Corp. have brought mapping from the back office of the IS professional to any user's desktop. The simplified front end allows its use beyond the boundaries of the mapping or engineering department, even in the executive suite.
Companies previously discouraged by GIS's technical difficulties are now being lured into the market. "You don't need to know all the back-office stuff anymore," says Jim Aylward, executive vice president at Cambridge, Mass.-based Harvard Design and Mapping Co. Inc. "You no longer have to go out and learn the GIS encyclopedia; you just need to bring in smart people to design a system that displays what you want." While most companies still need personnel trained in GIS technologies to maintain the system, the information can be accessed, understood and used by almost anyone.
The corporate user base of GIS is also changing. Historically, the largest industry users of GIS have been utilities and telecom companies, which employ it to track and maintain their complex networks and to model areas where future network bandwidth will be needed. But recently GIS's use in the government, transportation and retail industries has grown. And increasing numbers of companies are using the technology to develop marketing strategies, sales-force deployments and business-site selections.
Companies that view GIS as an easy fix for site-selection needs, however, should be cautious. It can be valuable in decision-making, but it's high-maintenance and requires significant, ongoing investments of time and capital. Regardless of the skill involved in implementation and upkeep, GIS will probably give a company some useful information, but the real competitive advantage goes to organisations intent on doing it right.
Mapping New Sites
Claritas Inc. in Arlington, Va., is one of the largest providers of demographic information to vendors of mapping software. Andrew Paul, executive vice president of Claritas, recalls the case of a chain of hearing-aid stores that opened in strip malls across Dallas. The company's executives couldn't understand why some branch locations got only a fraction of the traffic of others in the city. It turns out nobody had bothered to check the public transportation routes in the area surrounding the new stores. Elderly customers who made up the lion's share of the company's clientele were unable to get to some of the stores, and those sites were unsuccessful. GIS allows companies to map relationships like the connection between customer age and public transportation routes, which can easily be missed if not studied visually.
Sears Roebuck and Co. of Hoffman Estates, Ill., has used GIS for site selection since 1988 and has witnessed its evolution from a crude technical tool to an enterprisewide asset. Sears is in a unique position to take advantage of GIS, due to the wealth of information it has about its customers. Roughly one of every two U.S. households has a Sears credit card, and by tracking credit card purchases by store location, Sears has developed very strong data to fuel its GIS. The company uses the system to identify the geographic customer pool for each store, generate market share analyses and perform gap analyses on stores where area sales per capita suggest an opportunity for new stores.
Mapping New Opportunities
Rolling out several hundred new stores per year, Blockbuster Inc. of Dallas has put a great deal of work into its GIS, and that has created new opportunities for the company. Blockbuster had an unofficial policy of seeking locations only in larger towns where it felt the demographics could support a standard-sized store. Company strategists have realised, however, that Blockbuster can enter small-town markets with smaller stores and more targeted content. Blockbuster can tailor its video stock to the demographics of an area, as shown through its GIS, and open a store with 6,000 movie titles instead of 10,000. When a new store opens, business is drawn away from an existing store. Blockbuster also uses GIS to model that effect so it can keep one store from sinking another.
Mail Boxes Etc. (MBE), headquartered in San Diego, has been using GIS technology for about 10 years to establish locations for its mail centres. The company currently has about 3,000 centres nationwide and rolls out 1 new centre each day on average. However, as a franchise operation, MBE must find a franchisee to buy and run each store. GIS has become a marketing tool for the company, allowing it to show a prospective franchisee the demographic information that makes a new location promising.
Government agencies have also found GIS helpful in marketing their cities or towns. ACE Hardware Corp. planned to open a distribution store in the Saratoga, N.Y., area. Before it would commit, however, the company wanted to know how many people with the requisite skills to staff a distribution store lived within a 30-minute drive of the prospective location. ACE turned for help to the Saratoga Economic Development Corp. (SEDC), a local economic developer funded by the county and business members, but SEDC was stumped. It, in turn, approached the New York State Labor Department for information about area demographics. Both entities had bits of information but not enough to create the comprehensive picture ACE Hardware was looking for. Together they took the problem to Geographic Data Link LLC, a GIS consulting firm in Troy, N.Y. It helped the Labor Department build a GIS that it could use to field the kinds of questions ACE had asked as well as to attract other businesses to the area.
Since the system's implementation in 1996, the N.Y. Labor Department also realised that it can use the system for other projects. The department now uses GIS in programs such as Welfare to Work, where it gives welfare recipients information about public transportation routes and local child care providers to help facilitate their entry back into the workforce.
The merger of Chase Manhattan Bank with Chemical Bank in 1996 made GIS a necessity as opposed to an opportunity. The two banks had many branches and ATM locations servicing the same areas. Chase used GIS to review both companies' ATM sites and branches to identify those that could be closed. According to Lee Burton, industry manager for banking and insurance at ESRI, a vendor of GIS business solutions in Redlands, Calif., Chase has the use of GIS down to a science: The bank analyses the foot and road traffic within a one-block radius of its locations both day and night in order to position ATMs in the optimal place. Chase also uses the forecasting capabilities of GIS to determine which geographical areas are growing in business and residential population. Based on this information the bank provides services that garner more of what it calls the "wallet share." GIS can be used on a worldwide scale for business-site selection, but it can be used just as effectively to study a single building. Bally Gaming Systems in Las Vegas produces slot machines and casino floor monitoring systems and uses GIS on casino floors to display real-time and historic information about the revenue performance of each machine. A report is produced for each machine on demand, providing summary information on number of games played, revenue and number of jackpots. The system also tracks past layouts of the casino floor so that managers can compare what happens when they move machines around. This allows the management to maximise the profitability of each machine by placing it in the ideal place on the casino floor.
Ian Finnimore, Windows development manager with Bally Gaming, says, "GIS helps save money and make more money by getting poor performing machines off the floor." Finnimore points out that GIS has also helped in evaluating different marketing promotions. For example, Bally can analyse the traffic patterns of a promotion, such as slot machines surrounding a grand prize of a new car, to determine when the promotion has gotten stale. Like other companies, Bally Gaming uses frequent-player incentive cards to track its customers. The company offers benefits to customers who sign up for the cards, but the true beneficiary is Bally. The company also tracks who customers are, where they live, how they spend in the casino and which games they play. It plugs this information back into GIS so it can target customers more effectively in the future. GIS also shows data on groups or junkets, helping the casino measure the effectiveness of special offers.
Both Sears and Blockbuster use GIS as an important tool for getting executive approval on projects like store expansions. The finance group at Sears looks at GIS data to ensure that the numbers support a proposed expenditure and uses the data in reports it prepares for CEO Arthur Martinez. For example, it used GIS to gain approval for the purchase of seven defunct Broadway department stores near San Francisco, where Sears did not have a strong presence. GIS identified the locations showing demographic areas that best fit Sears' customer profile.
Mileage from Mapping
With so many companies using GIS for site selection, it would almost seem to nullify the competitive advantage. S.J. Camarata, director of corporate strategies for ESRI, recalls an encounter he had with a competitor of one of his large retail clients. When Camarata asked about the company's use of mapping technology, its representatives said they didn't need it. "We just look at where [your client] is going and put our store across the street." The competitive advantage of GIS has not disappeared, but with so many companies using it, the emphasis is now on using the technology to the best advantage. At Blockbuster, GIS was originally used only within the corporate real estate department. Field reps looking for new sites would send requests to the department for impact studies and reports. The real estate department wasn't aware of priorities in the deals going on in the field, which increased the chance of missing deadlines and causing the company to lose out on promising properties. It wasn't until Blockbuster put GIS into the hands of its real estate field reps that the system could be used to its full advantage. It became an enterprise resource for the company and not just a real estate tool.
Besides using GIS to confirm suitable sites for its stores, Blockbuster uses it to determine how a particular store should be stocked. By layering video rental figures over maps of area stores, analysts can see what kinds of movie rentals are popular in different areas and stock the stores accordingly. For example, a store close to a grade school might offer a larger selection of children's movies and video games with the expectation of high traffic from younger age groups.
Sears, too, makes decisions beyond site location with GIS. For example, linking ZIP codes to purchasers in an urban area with a high per centage of renters, Sears might open a store that has only a small lawn and garden department, knowing that there will be less demand for such products.
According to Greg Kerfoot, national director of store location, research and planning for Sears, one of the big challenges in using GIS is obtaining reliable data. Most companies base their data on the U.S. census and then layer their own predictions and models on top of it. Considering that the last census was taken in 1990 and that the pace of change can be brisk, the currency of data is often dubious. But age isn't the only problem. "The quality of database demographics is pretty unbelievable," confides Kerfoot. "I've [seen] databases that show stores in the middle of the Hudson River." The key, according to Kerfoot, is for companies to combine information that they purchase with their own customer data such as customer ZIP codes and point of sale information.
Kerfoot also cautions companies not to be seduced by slick GIS presentation packages and beautiful demo maps that seem to appear spontaneously. "There's a lot of preparation that goes into that level of spontaneity.... It's not one button, press and go. There is a learning curve." Though current GIS applications are much simpler than their predecessors, users agree that skill is still required for effective use of the system. "ROI depends not so much on the product but the expertise of the people using it," says Fred Busche, business intelligence specialist for IBM Global Business Intelligence Solutions in Somers, N.Y. Untrained users and poor understanding of the technology can lead to the "garbage in, gospel out" phenomenon, in which people place absolute confidence in the output of an application regardless of the data they put in. "You get all kinds of very convincing visual evidence," says David Sonnen, senior consultant with Framingham, Mass.-based IDC Research (a sister company of CIO Communications Inc.). "It's easy not to question the underlying assumptions when you have a nifty full-colour map that displays information in a very convincing manner." Executives who use GIS need to understand the information that fuels the system and the assumptions that have gone into gathering that data.
Cold War's Legacy
What to do with spy photos when theres no clear and present dangerDuring the cold war, the relationship of the United States with Russia was simple: They watched us, we watched them. It was a tense but uncomplicated time when everyone stood on one side of the line or the other. For those who hark back to those days with misty-eyed fondness, the Terraserver Web site might change your mind.
The Terraserver sells highly detailed snapshots taken by Russian spy satellites during the Cold War, which are now being used by American companies for site selection. Companies can overlay demographic data on the pictures to determine where an optimal site for their business might be. The Terraserver is the result of a collaboration between Aerial Images Inc. of Raleigh, N.C., Microsoft Corp., Digital Equipment Corp. (now Compaq Computer Corp.), Eastman Kodak Co. and Sovinformsputnik, the interbranch association of Russian Space Agencies in Moscow.
The SPIN-2 technology, which creates the pictures, is the highest resolution satellite imagery possible, with visibility of any object two meters or larger.
To give you an idea of the image clarity, at two-meter resolution it is possible to tell the difference between a pickup truck and a sedan photographed from the orbiting satellite.
Aerial Images first came up with the idea of utilising the Russian satellite images in 1988, and several years of tough negotiations followed. "It was one of the toughest sales jobs I ever had," recalls John T. Hoffman, president of Aerial Images. "Just imagine walking into a meeting with representatives from the army in Moscow, sitting across from them and saying, 'Let us declassify your technology.' It was a bit like a Tom Clancy book in the beginning," he says.
But by 1992 the climate was right for a deal. The Russians needed money, and the relationship between Vice President Al Gore and then Prime Minister Viktor Chernomyrdin had created an atmosphere that supported the deal. Once the Russians became convinced that releasing these images would not compromise their security, the partnership was formed in 1995.
Russian satellites still provide images for the Terraserver site (www.terraserver.com). They send the satellites up for a short-term mission twice a year. The satellites take the pictures and then return to earth. The Russian side of the program is now under civilian control, and the money earned from the images goes to Sovinformsputnik, where the income is greatly needed.
Staff Writer Daintry Duffy can be reached at email@example.com.