Partnering to Build Smart Cities
Open Data/IT Jürgen Laartz and Stefan Lülf
Partnering to build smart cities
Better communications between local government leaders and technology vendors can encourage the development of connected, resource-efficient urban areas.
A study by the McKinsey Global Institute traffic load across its transportation systems. suggests that the world’s 600 fastest- The same city may use so-called intelligent growing cities will account for 60 percent of meters to better match electricity supply with global economic growth between 2010 demand or to detect water shortages. In and 2025.1 To achieve and sustain this level either case, officials can use the information of growth—and to acknowledge recent collected to adjust schedules, equipment, Jürgen Laartz is a director in urbanization and climate-change trends— and other variables accordingly, thereby opti- McKinsey’s Berlin municipalities in both emerging markets mizing potentially scarce resources. office, and and developed nations must pay closer Municipalities in Europe and elsewhere Stefan Lülf is attention to the way they manage resources already have smart-city initiatives under a consultant in and infrastructure. way, piloting new technologies in certain city the Munich office. Many are pinning their hopes on smart-city districts. The leaders of 22@Barcelona, 1 For more, projects. Broadly, the term “smart city” for instance, are seeking to convert an older see Urban world: refers to the use of innovative technologies in industrial area in Spain into a modern, Mapping the complex urban environments to manage attractive city district offering energy-efficient economic power resources and infrastructure in a sustainable residential and office buildings and public of cities, McKinsey Global Institute, way and create opportunities for growth. green spaces as well as a knowledge-sharing March 2011, on A city may use intermodal route-planning environment that will lure innovative mckinsey.com. software, for instance, to help balance the companies and workers.
44 Government Designed for New Times Several technology firms have already established departments dedicated to researching and marketing products aimed at addressing cities’ traditional and smart-city infrastructure needs. But the market for such solutions is still quite immature, and the reality is that the technologies that are being implemented in full-scale rebuilding projects may not be suitable for projects in which only incremental improvements to existing infrastructures are required. Our analysis of 50 smart-city projects in Europe reveals that nearly all were launched as pilots with tailor-made solutions rather than as scalable initiatives. For the most part, © Stephan Zabel via Getty I ma g e s neither city officials nor technology vendors have been willing (or able) to risk investing in large-scale demonstrations—which is who will ultimately use, and in most cases Power electricity why the financing for smart-city projects still pay for, the solution. measurement. comes mainly from subsidies provided by governments and research institutions Technology vendors and cities: rather than local budgets. When smart- a complicated relationship city initiatives are launched, there is huge We wanted to understand how cities and variation in the way private- and public- technology vendors could collaborate more sector representatives collaborate, as well as effectively on smart-city projects and in how projects are managed within cities. grow the market for these solutions. So we Our findings reflect the need for city partnered with the industry network officials and technology vendors to come to Innovation Roundtable to conduct a series a shared understanding about the require- of workshops and discussions with city ments and restrictions associated with leaders and industry vendors from about 30 municipal development. The European Union European cities, mainly in Germany. has taken a step in that direction with its Those conversations revealed a significant, creation of the European Innovation Partner- but not insurmountable, gap between ship for Smart Cities and Communities, each side’s expectations and the realities of a program designed to encourage investment smart-city projects (see sidebar “About in large-scale implementation projects the research”). from a consortium of EU cities and industry players. But besides pursuing funding What cities expect from from national and supranational budgets, one technology providers of the most critical tasks for cities and Collaboration among cities and industry industry vendors is to spend more time players in the infrastructure sector started long systematically listening to and learning from before the phrase “smart city” appeared, one another, while still incorporating input but the implementation of different kinds of from citizens and others in the local business complex (and thus riskier) technologies environment. After all, these are the people requires vendors to adapt even more to
Government Designed for New Times 45 Open Data/IT
their audiences. The city officials we inter- work, city leaders say, because the products viewed saw a lot of potential for improvement and services created for megacities are in this customer interaction; they also had often inappropriate—by measures such as valuable feedback to share about the current functionality, complexity, and cost—for portfolio of products being offered. classic European cities with about a half million inhabitants. Customer interaction: More appropriately tailored to cities No integration of solutions. The city leaders From the cities’ perspective, many vendors we spoke with do not feel as though vendors focus too heavily on product presentations are offering outstanding expertise in integrat- and neglect to detail exactly how the proposed ing solutions, delivering operating models, technologies can be integrated with existing and incorporating technology into the city’s systems in complex municipal environments. local ecosystem—for instance, discussing Officials say they are often left wondering how to involve local partners, and at what whether the vendor truly understands the stages of the project. challenges the city is facing. Specifically, they cited the following issues: Proprietary solutions. Many cities are anxious • The vendor’s explanation of the technol- about becoming dependent on a single ogy is too complex. technology and provider in the course of • The vendor’s presentation never refer- implementing a smart-city solution. ences the decisions or specific challenges Industry standards for smart-city technolo- the city faces. The potential value of gies are still emerging, and no one wants the technology is therefore not transpar- to be locked in for the long term. ent enough. • The vendor often neglects to explain What technology vendors expect how the financing and operating models from cities are meant to work until much later on. Technology-firm managers shared with • The city’s core issues are not ade- us these three main opportunities for quately taken into consideration. This is improvement regarding their interactions especially true in cases where data with city officials. protection, dependency on providers, and the reliability of the technology are A clearer agenda. The managers perceive in question. that many cities are dealing with smart-city concepts one project at a time, without an Product portfolio: Suitable solutions overarching agenda. This is less than optimal for midsize cities from the vendor’s perspective, since more City representatives offered these three main important city projects could crop up and concerns about technology firms’ products undermine the city’s long-term investment of and services. scarce financial and political capital in a smart-city infrastructure. The vendor A focus on megacities. City officials believe therefore has less incentive to commit. that technology vendors target most of Complicating matters further, smart-city their attention on megacities and then try to technologies by their very nature veer sell the same project-based solutions to a from the status quo—which means they may mass market of smaller cities. This does not have a harder time getting added to the
46 Government Designed for New Times agenda in the first place. In their consider- ations of new technology investments, city stakeholders may favor bids that refer- ence solutions that have been used to About the that point. They may limit their support for riskier solutions. research
Less complicated stakeholder and project In 2012, together with the Innovation management. Vendors told us that city Roundtable (IRT), we started a series of officials fail to recognize how cumbersome the workshops and discussions with more than management of smart-city projects can 60 representatives from 30 European cities be for technology providers: these projects (mainly in Germany). The IRT is an informal typically involve many different stake- network of high-ranking research managers holders from within a city and from other from renowned German companies in levels of government. A traffic project various sectors. Based on the workshop in one major city required participation and results, a smart-city panel was formed; this input from no fewer than 13 different city group meets regularly to discuss cities’ and government agencies, for example. In innovative technology projects and different another city, responsibility for its various funding options, and to exchange ideas websites was split among several different associated with smart-city development. The people, and the webmaster controlled recommendations highlighted in this paper only half the sites. are an outgrowth of this initiative.
Citizens’ support. The introduction of new technologies always prompts some level of skepticism and pushback, so it is critical for those who will ultimately be affected ated with Stuttgart 21, and the project by (and pay for) the smart-city project to turned into a political lightning rod. It was a participate in discussions about its usage and key factor in the 2011 state elections. potential effects. The managers we inter- viewed noted there are limits to what they can Bringing cities and vendors together do to convince local citizens about a project’s So, city officials believe the industry does not potential benefits and outcomes. City understand them, and technology vendors administrators must therefore take the lead in think dealing with cities is too complicated. gaining support for the proposed project— For these perspectives to change—and for outlining the branding and quality-of-life smart-city development to grow and become benefits along with the financial advantages. a viable approach for economic growth— The decade-long German railway and both sides must come to the table. Here are urban-development project Stuttgart 21 some recommendations for bridging provides a lesson in how vital citizens’ the gap. participation is to success in major infrastruc- ture projects: citizens and advocacy groups Recommendations for technology firms that had not been involved at the beginning of Tailor your discussions with cities. Vendors the project spoke out against the mounting should fundamentally rework their approach expenses and environmental impact associ- to selling products, emphasizing how
Government Designed for New Times 47 Open Data/IT McKinsey Center for Government 2014 Smart cities Exhibit 1 of 2
Exhibit 1 Project presentations should be tailored to each city’s individual needs.
Topics that should be covered in a presentation to city leaders
Project Relevance Operating Technical Organizational Possible objectives to city model realization realization risks
Clearly articulate Show how the Explain the Give a simple Plan how partners Address cities’ the objectives product relates operating and brief will be involved on typical concerns of a smart-city to the city’s model for new overview of local level • Reliability solution agenda technology, the new emphasizing the technology Present a • Dependency Demonstrate city’s own role communication issues relevance to strategy for • Data protection concrete Detail the city’s winning over city-specific expected financial citizens to the new challenges commitment technology
solutions can be implemented and not the (Exhibit 2). Medium-size cities need smaller- nuts and bolts of the purchase process. They scale solutions. Technology firms will need should present fewer details about the to research and design standardized products technical aspects of the hardware or software that are pitched directly to this cohort— in play and answer more questions about products that incorporate lessons from larger how it will be used from day to day: What is smart-city projects but also factor in the the operating model? Who among the needs and opportunities that smaller cities local partners needs to be involved in its face. Pricing structures and financing rollout, and to what degree? Potential options may need to be configured differ- concerns about data protection and interoper- ently, for example, given the unique ability should be addressed during the first programs and infrastructures found in meeting with city officials (Exhibit 1). smaller cities.
Develop solutions for midsize cities. Compa- Ensure interoperability. Vendors need to take nies need to offer affordable solutions cities’ concerns about being dependent on for midsize cities as a complement to their a single provider seriously and address them existing solutions for megacities. After explicitly. One viable option would be all, conurbations with between 150,000 and to use “open” interfaces that allow for better 5,000,000 inhabitants in the European integration with existing systems and that Union account for 42 percent of GDP, whereas enable cities to switch to another provider (if megacities with more than 10,000,000 necessary) at the end of a contract. This inhabitants contribute just 12 percent would require the development and enforce-
48 Government Designed for New Times ment of industry standards, especially for Recommendations for cities data exchange (such as the Open Metering For smart-city projects to gain traction, System used with smart electricity meters). technology vendors told us, city repre- Although it may seem more appealing to lock sentatives need to be strong partners who in cities for the short run, using open make fast, sustainable decisions. Their interfaces will increase total market size (and responses point to the following three main potential business for vendors) in the long actions for municipalities embarking on run. The national and supranational agencies smart-city projects. that are subsidizing the adoption of smart- city technologies are increasingly including Formulate a clear political agenda. A project “interoperability” as a prerequisite in implementing new technologies poses their applications for funding—a development challenges that are different from, say, an McKinsey Centerthat for vendors Government are not yet prepared2014 for. And initiative to renovate roads. It requires more cities will be willing to implement clear political will and strong support from Smart cities smart-city solutions if they do not need to fear both local government and city administra- Exhibit 2 of 2 a long dependency. tion. Officials may want to rethink the current
Exhibit 2 Midsize cities account for more than 40% of GDP.
2010, %1 Number of GDP of EU cities by city population, Share of agglomerations/ share of total GDP population conurbations
100% = €12.3 trillion
Megacities 12 >10 million people 8 3 Large cities 9 5 million–10 million people 6 5
19 2 million–5 million people 17 27
42% Midsize cities 23 0.15 million–2 million people 23 196
Small cities and rural 37 47 regions
1 Figures may not sum to 100%, because of rounding.
Government Designed for New Times 49 Open Data/IT
specifications in their request-for-tender research institutions, and local citizens. The processes, for instance, to allow for the appli- management entity not only serves as a cation of innovative solutions. In Bottrop, central point of contact for all these constitu- Germany, for example, the city council and encies but also contributes much-needed city administration jointly approved a project-management expertise. model city agenda with the goal of greatly reducing carbon dioxide emissions (see Engage citizens and local businesses. sidebar “Innovation City Ruhr: Bottrop as City officials need to devise a compelling story a blueprint for a region”). Subsequent to engage the citizens and local businesses projects that contribute to this goal are now that are intended to benefit from an intelligent easier to get approved because there is infrastructure. For instance, one city was already a fundamental consensus; all parties looking for innovative uses for its redevelop- are committed to adopting innovative ment sites. Instead of acting unilaterally, approaches. The story was the same in however, and issuing directives, city officials another German city, which partnered with a assumed the role of coordinator and sought telecommunications provider on several input from a range of stakeholders. Over the projects designed to improve city operations course of many events and workshops, and citizens’ quality of life—adopting a it compiled and debated ideas submitted by smart-metering system, for instance, and an citizens, administrators, experts, associations, online program for registering children and local businesses. At the end of the for kindergarten. This partnership required process, it was able to produce a white paper a multiyear commitment between the listing potential new uses already endorsed by technology vendor and city councilors and large sections of the population, thereby administrators. Because this commitment making it more likely that the recommenda- was in place, a subsequent leadership change tions would be approved. did nothing to weaken the broad support for this smart-city agenda. Innovative technologies can help improve life Bundle responsibilities. As we noted previ- in cities, make economical use of resources, ously, smart-city projects require involvement and ensure stable economic growth. But there from numerous departments of the city are numerous obstacles to overcome to administration, local companies, and organi- ensure the successful realization of smart-city zations. Cities need to help vendors by concepts. Our interviews with leaders in mapping these partnerships, defining roles industry and local government, as well as our and responsibilities, and serving as a analysis of intelligent-infrastructure central point of access for negotiation and projects in Europe, paint a picture of a still information. For example, officials in immature market. Cities, technology Berlin created a dedicated management entity vendors, and public funding institutions alike that is responsible for coordinating activities need to work together to further develop associated with the development of the Urban this market. Indeed, only strong, systematic Tech Republic project in the area of the collaboration and learning among all the soon-to-close Tegel airport. The conversion players involved will truly turn this into the of this site will require high levels of co- century of smart cities. n ordination among local and federal authorities, multiple technology vendors, a handful of
50 Government Designed for New Times Quick Take
Innovation City Ruhr: Bottrop as a blueprint for a region
The Innovation City Ruhr In 2010, a group of com- project in Bottrop, panies from the Ruhrgebiet Germany, is a prominent launched a competition example of a joint effort to identify a city that could from industry players serve as a model for and a city administration to reducing the carbon develop a smart city. footprint in an industrial region. Its best prac- Bottrop is a city of around tices could then be passed 120,000 inhabitants on to other cities in the located in the western part region and, eventually, to of Germany. Given its other industrial cities population size, Bottrop around Europe. For the could be considered convening companies, the a small city or rural region. winning city would provide © WOtt o But it is part of the a real-world demon- Ruhrgebiet, a large con- stration of the value of the mission of more Town hall, glomerate of mostly smart-city solutions. than 120 projects across Ernst-Wilczok Square, midsize cities that are the city, all of which are Bottrop, Ruhr, North Rhine-Westphalia, home to more than Bottrop won this competi- coordinated by a manage- Germany. five million people. As such, tion by presenting ment company dedicated Bottrop has developed an a clear commitment to to just this task and paid for infrastructure, labor reducing the city’s by a local industry group. market, and other charac- carbon footprint from all This company offers a teristics similar to its political players; single interface into the city those of midsize cities. the mayor was part of administration for The Ruhrgebiet was the project-evaluation all vendors and handles the industrial heartland committee, for example. a number of complex of Germany for a very Additionally, more stakeholder-management long time but has suffered than 20,000 members of tasks, including com- from deindustrialization the Bottrop community municating with federal and over the past few decades. expressed their support in EU funding agencies. Several of the cities the application process. in this area are now look- ing for new ways to The overarching agenda— attract investments. to radically reduce Bottrop’s carbon dioxide emissions—informed
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