Business WITH cities is crucial for sustainable business IN cities

At the end of the day all city pain points conclude in the keyword “budget”. On the one hand city authorities need to reduce cost: Smart solutions based on ICT can help municipal efficiency (e.g. eGovernment). Besides the savings cities need to secure income. Most leverage lies in tax income – however this source seems to be a fragile one.

Tax losses drive Revitalization of Industrial Parks
This week I had an interview with the Agency of Economic Development of a city in southern Germany (approx. 600.000 inhabitants). A huge problem seems to be the aging structure of industrial parks and the emigration of companies – of tax payers.
The history of industrial parks in Germany dates back to the 1970s – an “import” from the UK. The first generation consisted of approx. 80% storage / production – simple buildings, greenfield development, often located close to the motorway. Only in the mid 80s the share of office space increased and the “integrated location” – often as conversion of traditional industrial land – connected to town through improved infrastructure gained relevance.
These structures come to age now and need revitalization with state of the art technology and logistics in order to maintain attractive for industry.

Cities leave their enclosure for Industry to expand the value chain
Cities seem to be interested to analyze these areas for “smart city solutions” – technologically as well as with new business models. There are various examples where industry and city jointly develop concepts how to revitalize these areas. New forms of partnering, be initiatives or public-private partnerships (PPP) show that “City” leaves the traditional enclosure and opens towards industry. “Ingenieursmeile Mannheim”, “InnovationCity Ruhr”, “Neckarpark”, “Synergiepark Vaihingen” are only a few examples where industry takes an active role in a traditional municipal domain.
Industry, respectively product suppliers, expand their position in the value chain and try to get hands on analyses, consulting, planning on the one side of the chain as well as operation on the other side of the value chain.

With the early involvement of industry in core municipal domains the roles of city and industry change. The impact of technology providers on regulations and tender grows. It therefore seems crucial for industry to work WITH cities in order to secure its business IN cities in future.

Manzini on “Strategic Design Approach”


Literature Review:
E. Manzini, C. Vezzoli
A strategic design approach to develop sustainable product service systems: examples taken from the “environmentally friendly innovation” Italian prize
(Source: Paper, Journal of Cleaner Production 11 (2003); pg. 851-857; Milan / Italy)

Product service system (PSS) describes the idea of designing and selling “satisfaction” rather than products. Assuming, that the customer (business as well as end user) doesn’t necessarily demand the product itself, but what the products and services enables him to achieve. This is basis for new stakeholder relationships, production processes and business models. Manzini describes this business model innovation as ‘… shifting the business focus from designing (and selling) physical products only, to designing (and selling) a system of products and services which are jointly capable of fulfilling specific client demands, while re-orienting current unsustainable trends in production and consumption practices. … usually referred to as a Sustainable Eco-efficient PSS.’.

Besides the collaborative idea key is that innovation doesn’t happen on product or process side but in the way existing technologies are systemized. In the paper 4 examples are described that target a latent social demand. Given the fact that they all use a – so far unseen – combination of existing technologies and services implementation seems quite easily possible. Prerequisit is that stakeholders are flexible enough to depart from consolidated patterns and get away from business-as-usual. Instead of optimizing their own segment PSS follows an overall systemic resource optimization which is based on the convergence of stakeholders’ interests. This approach results in new forms of organization within stakeholders as well as redefines their role towards other companies and clients. PSS is based on new systems of values and consequently creates new market opportunities that enable new offerings which either add value to the product life cycle or are a final result for the customer.

The 4 examples given are:

A)    “The Diddi & Gori textile flooring service”
Diddi & Gori is in the segment of synthetic fibers production and sold textile flooring, mainly to retailers for exhibitions and trade fairs. Such products rely on oil refining which obviously have an environmental impact (e.g. resource consumption).
Their new idea is to offer services in addition to the product as a final result to the customer by offering the utility of the product rather than the product possession. The new offer includes the whole service from supply and installation to removal. This way the customer no longer buys the product but its utility – they don’t have to struggle with the disposal as Diddi & Gori remove the flooring and make fibre again. This has an impact on the design of the flooring in the first row. As Diddi & Gori  remain the owner of the product over its life cycle, they are interested to enhance material’s lifetime. So easy recycling that allows to create new flooring is their inherent economic interest which reduces resource consumption and waste.
The motivation for the customer is that the overall cost is cheaper than buying and disposing the product.

B)    “The Kübler services added to lubricant supply”
Kübler is a lubricant supplier for machines and components in various industries.
Their new idea is to offer services that provide value added to the product life cycle by analyzing the effectiveness of the aerosol treatment plants and of sewage treatment. In order to do so they set up a van as a movable chemical laboratory with which they analyse the performance of lubricants, the noises, vibrations and other undesired effects directly at the clients machines. Kübler suggests potential for efficiency as well as environmental protection and guarantees functionality and durability.
The motivation for the customer is to improve the lifetime of the clients’ machines and reduces their cost for monitoring and maintenance. The reduction of lubricants sold is compensated by the services offered and improved customer loyalty.

C)    “The Allegrini service added to detergent supply”
Allegrini produces detergents and cosmetics.
Their new idea is to offer services that provide value added to the product life cycle by offering home delivery as a new way of supply. They have a mobile van that periodically tours from household to household and refills the provided plastic flacons – even if not completely empty. This reduces cost for packaging which – bottom line – reduces the cost of the product over all and increases customer loyalty.
The motivation for the customer is time saving (no need to go to a shop) and reduction of waste (reuse of packaging) and landfill.

D)    “The AMG solar heat selling service”
AMG is a municipal enterprise providing gas and lighting to the city of Palermo / Italy.
Their new idea is to offer services in addition to the product as a final result to the customer. So instead of selling the gas they sell heat and hot water as a finished product as well as the maintenance of the equipment.
The motivation for the customer is to be environmentally friendly which – for a municipality – reacts to public opinion.

‘… they would have said “faster horses”…’

What is the reason behind a city’s sound claim to be “smart”? Henry Ford once said “If I had asked people what they want they would have said, faster horses.”. The proverb can be transferred to cities. Smart cities are not about the improvement of already existing offerings and maybe adapt them to more people, faster service, improved cost efficiency. It is about the satisfaction of needs that are often beyond peoples imagination. To take up Ford’s proverb again: Smart City is about “cars” not “faster horses”. Most people think in products and services they are familiar with – solutions offered in subsystems. Therefore “smart” solutions – like cars – are a system of subsystems. The underlining assumption is that the requirement is not a product or service, per se, but the resulting benefit the agglomeration of products and services enable the citizen to do. Assuming we have such a cute “smart” idea for the city, how is it put into action? Well, most of the times by tendering silo offerings and try to put the puzzle together. However business focus should be on innovating, creating and implementing “satisfaction”, selling a system of products and services that are jointly able to – referring to Ford’s proverb – “drive”. This requires a new way of innovation based on new interpretation of concept of offering. However the approach- and tender process is about “car parts”. But who puts them together? Who is the visionary? And who takes the risk, if the assembly doesn’t work?

Let’s take a look at the potential stakeholders: Governmental bodies – often face the conflictive share of responsibilities among supra-national, national and regional structures. In addition city authorities often struggle with their strictly separated old-fashioned internal structure and also fear that e.g. open data could be misused. Industry – companies are not used to collaborative work, yet. They are often afraid to give up competitive advantage when collaborating. Last but not least academia. Universities have a huge knowledge but no access to bring it in operation.

However complex problems need to be addressed in a collaborative way.