Does location matter in business? Is physical proximity an obsolete concept in today's technologically advance world? Through emails, phone calls or Skype, we can instantly contact people who live on the other side of the world. Through the internet we have access to almost unlimited information and we can easily share information and resources with our colleagues through email. If I need to get the advice of a colleague who is on the other side of the world, all I need to do is pick up the phone at an appropriate time.
Yet physical location matters hugely. Organisational clusters, the phenomenon whereby firms from the same industry gather together in close proximity, is a perfect example of this. Michael Porter, who is Professor at the Harvard Business School's Institute for Strategy and Competitiveness and has been studying organisational clusters for some decades writes
"location should no longer be a source of competitive advantage. Open global markets, rapid transportation, and high speed communications should allow any company to source anything from any place at any time. But in practice, location remains central to competition." (Porter, 1998)
A good example of this is the Silicon Valley, to where, in the 1990s, huge numbers of tech companies began moving. This geographic concentration of similar businesses increases productivity with which they can compete. There are a number of reasons for this, such as access to labour and suppliers. However, one of the most important reasons is the directness in relationships that geographical proximity brings. Despite all the many advantages that technology has brought, we need physical encounters.
This is because much of the most valuable information is obtained not electronically but from face-to-face meetings. Informal learning, acquisition of know-how, and building trust require the face-to-face contacts that occur through social, professional or trade, and business situations.
When we meet someone face to face, communication is enhanced, as facial expression, tone of voice, dress and the actual words used all add to what is communicated. Without this, opportunities can be missed. Furthermore, we base conscious and unconscious judgements about traits such as likeability, trustworthiness and competence on people's faces. In fact, one study has found that physicians spent more time looking at diagnostic scans when they were accompanied with the photograph of the patient. It is suggested that this picture is a reminder that there is a real person behind the scans, which leads to greater ethical commitment (Turner & Hadas-Halpern, 2008).
If organisations are located close to one another, the number of meetings is also increased. Workers can much more easily speak to those who work around them or pop their head into their colleague's office next door than call someone on the phone. It is also often in casual meetings, over coffee, or by the water-cooler, where important information is shared. In areas with organisational clusters, workers often end up living in the same neighbourhoods, where they are much more likely to meet each other outside of work, for example in pubs and bars. This deepens the relationship, builds trust and will increase the amount of information sharing there is.
Being together in the same place, at the same time also reinforces belonging in groups and communicates worth and importance. People who work away from rest of their team can quickly and easily feel isolated.
Physical encounters lead to greater connectedness. High levels of directness lead to good quality communication. This is why location is still a source of competitive advantage, even though in theory, in an era of global competition, rapid transport and high speed telecommunications, it shouldn't be. It explains why different organisations in the same industry cluster together and the large amounts of money spent by companies in getting their staff together for their annual conference. It should encourage us all to make time for face to face meetings and think about how we can encourage directness in our organisations and communities.
M. Porter, 'Clusters and the New Economics of Competition', Harvard Business Review, Nov-Dec 1998, p77.
Turner and Hadas-Halpern 'The Effects of Including a Patient's Photograph to the Radiographic Examination', Radiological Society of North America 2008 Scientific Assembly and Annual Meeting, February 18 - February 20, 2008.