Testing the water – “pain points” on the way from learning model to business model

When I went to events on “Smart Citiy” in 2011 there was a lot of talk about the challenges that derive from growing population, rapid urbanisation and scarcity of resources. Speakers often took the meta perspective and described a quite scary scenario without having a solution for energy- and mobility concepts by hand, which were mainly in focus . Cause not – these were the early days.
To put it in a picture: It is like a little duck seeing this huge pond for the very first time!

In the meantime, I think, the box to “convince audience for necessity” is ticked. There are a lot of insights on pain points of cities that need to be addressed for a sustainable urban future. Having said that – there is an obvious desire of cities as well as industry to transfer cities into “smart cities”.
In 2012 – and so far also 2013 – we seem to be in the next phase. To stay with the image mentioned previously: The little duck managed to get its poise back and is encouraged to “test the water” – especially as there are some strange noises from behind that might require some action forward. The meta-level talk is over – more and more stakeholders present their technical solutions implemented in cities in order to lable them “smart”.
However, when will the brave one finally be “ready for a swim”? How many more pilots are needed, before we transfer from learning model to business model?

Having had a couple of interviews with cities and technology providers to find out why it seems to be so difficult to create a sustainable business case, I’d like to share some insights…..

Taking the city’s perspective
• Industry doesn’t understand the mechanisms of a city
• The multi nationals that engage in smart city projects are focussed on mega cities
• Technology providers try to strip down “solutions” designed for big projects and squeeze any town size in it.
• Especially ICT providers come with a solution and expect the problem to fit instead of the other way round
• Cities see a change of paradigm in their role from normative instance to an enabeling project partner. Municipality can initiate projects, bring together various stakeholders and help develop solutions by “adjusting” the framework
• Cities realize that the traditional segmented set up does hardly allow innovative projects, slows down execution, scatters synergies and makes it difficult to collaborate with other stakeholders
• Cities rather focus on the well-being of citizens and taxpayers than revenue.
• Timing for projects is longterm – 15-20 years

Taking the industry’s perspective
• Industry sees the organisational set up of municipalities as a fragmented given. Working in big projects often implies to deal with various independent offices involved
• Scale of economy seems most interesting with projects in mega cities. Even if the project is economically not viable the reputation and learnings gained are worth the investment.
• It seems easier to scale-down than -up. Especially IT-platforms that consist of various modules, interfaces and allow various standards should be easier to strip down for “smaller” requirement.
• Industry is used to cities as being the awarding authority or direct customer that sets the regulatory framework and defines a spec-sheet hardly allowing any alternatives or solution development in a collaborative way.
• Industry realizes that the traditional segmented set up makes holistic solution approached difficult.
• Industry focuses rather on revenue than social responsibility
• Timing for projects is immediate – Return on investment should happen within 2-3 years
• Sales strategy focussed on product sales and “immediate” revenue
• KPI based on procurement
• The technology providers core competence is to innovate technology and provide products and services. This can be influenced, measured and sold. SC however is not about technology and products only, but about people and collaboration. These are blurry aspects, difficult to control.
• Co-creation doesn’t fit with traditional procurement processes that have been established, brought to perfection and worked successfully over time.

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“Less regulation helps to speed up innovation” – quote from Smart City Event Amsterdam

Currently I am at the Smart City Event Amsterdam. From the presentations so far it seems as if cities are undergoing a change form being the central directive, requesting supply for a segment demand, to being one of many stakeholders who jointly look to solve city pain points. This can happen by push- (city) as well as pull- (industry / citizens) initiatives. So the “top down” and one directional way of city projects seems to transfer into a networked solution approach, that also encourages “bottom up” initiatives and impacts business logic from business “in” cities to business “with” cities.

Regulations often hinder innovative solutions and new business models
One statement of a city representative captures that quite nicely: “If you want to break the law, work with the city”.
City behaviour changes from a tactical to an entrepreneurical behaviour. Means, so far cities identified a painpoint, e.g. build a tunnel, install security cameras, improve lighting. Within the legal framework set up amongst governmental bodies on municipal, supra- and national level specifications for technology providers are written and tendered. There now seems to be tendency that city understands its role as a facilitator for solutions created by industry in a collaborative way. So instead of set technical specifications the painpoint and goal is announced and industry is invited to come up with ideas to solve it. The role of the city therefore changes to a facilitator of solution- and collaboration platforms.
It seems to be a win-win situation that allows various ways to achieve the goal and therefore provides multiple choices for the city. Even more there is the opportunity to drive change of regulations. It might be, that regulations have been set up by people who didn’t know better or circumstances changed over the time and regulations didn’t evolve adequately.

So concluding form the first day:
1) The self-concept of cities changes
2) The role of cities transfers from a one directional supply request to a facilitator of solutions, enabled by facilitating collaboration of various industry players.
3) Focus from EU, cities and industry shifts from getting pilot projects to find mechanisms and standards to scale up solutions.
4) Legislation “opens” to amend regulations to enable new business models
5) Barriers in collaboration amongst stakeholders are on organisation, finance, legal. Demand is that governments take leadership to facilitate collaboration and investment.