expert isight Illustratio by oscar giméez OPPORTUNITIES FOR URBAN DEVELOPMENT Smart Cities, Sustaiable Progress By Jua M. Barriouevo, Pascual Berroe ad Joa E. Ricart I the wake of the devastatig floods ad mudslides that hit Rio de Jaeiro i April 2010, the city resolved to develop a $14 millio itelliget operatios ceter equipped with the latest techology i disaster maagemet ad respose. It ca cotrol the city s traffic flow ad public trasit systems, ad hadle power outages. Its alert system icludes mobile, e-mail ad istat messagig services, to provide residets ad emergecy services with real-time status reports. Rio de Jaeiro is oe of a growig umber of metropolises usig ew techology ad itelliget resources to streamlie their everyday operatios ad improve the quality of life for their citizes. These so-called smart cities offer huge opportuities for busiesses to parter with public authorities, who are eager to tap the private sector s expertise i systems desig ad strategic maagemet. At IESE s Ceter for Globalizatio ad Strategy, we have bee studyig various urba developmet models aroud the world. This article highlights some of our early fidigs ad the key implicatios for public ad private sectors alike regardig the future developmet of smart cities. What Is a Smart City? Beig a smart city meas usig all available techology ad resources i a itelliget ad coordiated maer to develop urba ceters that are at oce itegrated, habitable ad sustaiable. Drawig o the urba developmet model of the IESE Cities i Motio project, we have 50 third QUARTER 2012 issue 14 ieseisight
Smart Cities, Sustaiable Progress idetified five types of capital that cotribute toward a city s itelligece: ecoomic (GDP, sector stregth, iteratioal trasactios, foreig ivestmet); huma (talet, iovatio, creativity, educatio); social (traditios, habits, religios, families); evirometal (eergy policies, waste ad water maagemet, ladscape); istitutioal (civic egagemet, admiistrative authority, electios). These are the lifeblood of the moder urba system, ad ca be urtured through strategies targetig iovatio, social cohesio, sustaiability ad coectivity. See Exhibit 1. Failure to adapt to the ew urba reality could be disastrous for cities facig uprecedeted demographic, ecoomic, social ad evirometal pressures. The Uited Natios has predicted that the world s urba populatio will grow by 75 percet by 2050. This mass migratio to the cities will icrease the umber of desely populated areas, further complicatig urba mobility ad puttig eve greater strai o public services. The McKisey Global Istitute cocurs, poitig out that, with up to 65 percet of global GDP growth soo to be cocetrated i the world s 600 largest cities, associated problems such as icome iequality, mass uemploymet, illiteracy, social coflict ad ghettos will be exacerbated. Such rapid urbaizatio also has a evirometal impact. While cities occupy a mere 2 percet of the plaet, they already accout for 60 percet to 80 percet of eergy cosumptio, ad 75 percet of carbo dioxide emissios. Icreased traffic, pollutio, waste ad eergy costs will o doubt cotiue to preset a growig threat to huma health ad sustaiability. Sustaiable Ecosystems Agaist such a backdrop, the major challege for urba authorities is to build cities that ca fuctio as habitable ad sustaiable ecosystems. The cities that are able to pull this off will almost certaily lead the way i attractig ivestmet, talet, tourism ad employmet opportuities. The smart city cocept covers a broad cross-sectio of strategies ad measures desiged to ehace the quality of urba life, the provisio ad maagemet of public services, ad log-term sustaiability. After all, a city s vitality ad reputatio deped o a whole host of factors, icludig commuicatios techology, disaster ad waste maagemet, access to clea drikig water, gree areas, public trasportatio, health, educatio ad public safety. The key, therefore, to developig smart cities is to itegrate all of these compoets i oe holistic visio, thereby boostig maagemet efficiecies a area i which the private sector has much to cotribute. For ewly built busiess hubs like Sogdo i South Korea, desigig such a tightly itegrated system is relatively easy, as there are virtually o limits beyod the usual fiacial restraits to what urba plaers ca dream up. Coversely, the trasformatio of covetioal cities presets far greater challeges. Most smart projects that have emerged i recet years focus primarily o iformatio ad commuicatios techology (ICT) ad sustaiability, which is uderstadable, give the scope ad scale of the busiess opportuities o offer. Accordig to the cosultig firm IDC, the icome geerated by ICT used i smart city projects may hit $57 billio by 2014. Nevertheless, we must ot forget that ICT is oly a meas to a ed which is ultimately to measurably improve people s quality of life. EXECUTIVE SUMMARY With urbaizatio o the rise globally, failure to adapt to the ew urba reality could be disastrous for cities facig uprecedeted demographic, ecoomic, social ad evirometal challeges. Developmet models are eeded to trasform such challeges ito opportuities. The authors outlie the strategic plaig methodologies eeded to create smart cities sustaiable, iovative, coected ad socially cohesive places that ehace the quality of urba life. Ad whe it comes to trasformig cities, the private sector has plety to cotribute. Progress By Plaig With the global urba space expected to grow expoetially i the comig decades, cities will eed to streamlie their strategic ad sceario-plaig processes. Oly the will they be able to thik up ew ways to iovate, ad idetify opportuities ad priorities for future developmet. This meas developig a flexible, participatory process with a defied goal: to desig a sustaiable actio pla that gives uiqueess ad visibility to the metropolis. ieseisight issue 14 third QUARTER 2012 51
Six Ways Smart Marketig Cities, Sustaiable Ca Chage Progress the World The Path to Prosperity A GOOD MODEL FOR URBAN DEVELOPMENT SHOULD PROVIDE THESE ESSENTIAL CONDITIONS. Diversity Commuity Spirit Health & Safety Democratic Values Appropriate Desity SOCIAL COHESION Creative Activities But just as two compaies will have differet recipes for success, each city must forge its ow developmet model that tackles, i a systematic way, the uique set of challeges ad opportuities that it faces all of which presupposes a veritable sea chage i the way city authorities operate. Amazigly, may cities still employ urba plaig methods that fail to moitor whether goals are actually beig met or ot. Ideed, most cities do t do strategic plaig at all. Istead, they ted to deal with issues as ad whe they arise, rather tha adoptig a itegrated, holistic approach. They remai fixated o takig a idustrial approach to urba plaig, rooted i a bygoe reality. Furthermore, they costatly ru up agaist brick walls erected by govermet bodies, which are more iterested i protectig their ow power bases. Large cities must take a loger view, make greater use of iovatio to improve the efficiecy ad sustaiability of their services, improve commuicatios ad egage exhibit 1 local residets i their projects. To do that, cities eed to develop smart goverace systems that take all these factors ito accout. Oly by doig so will they become Compact Growth Private Sector Eergy Efficiecy SUSTAINABILITY CONDITIONS FOR CITY PROSPERITY INNOVATION Talet Public Spaces CONNECTIVITY Techology Efficiet Mobility Pedestria Friedly Commuicatios Iteratioal Coectios sustaiable places, with log-term strategic projects developed i partership with the private sector ad local citizes. Whe drawig up a log-term strategy, the city must take ito accout the full spectrum of its costituet elemets. We propose a threestep process, begiig by diagosig the situatio, the developig a strategic pla ad fially takig actio. See Exhibit 2. Aalyze the Key Areas ICT has opeed up whole ew dimesios to urba developmet. However, as we already metioed, there is more to smart cities tha just ICT. City authorities must try to take ito accout all the various factors that create value ad brig success to the city, both at the local ad iteratioal level. This diagosis should be based o a thorough aalysis of the followig factors, icludig but ot limited to techology. ECONOMICS. This ecompasses all the factors that cotribute toward a city s ecoomic developmet, icludig local developmet frameworks, trasitio plas, busiess strategies, formatio of idustrial clusters, ad the presece of iovatio ad etrepreeurship. I the strategic pla draw up for the ecoomic developmet of the South Korea idustrial ceter of Suwo, the ew ecoomy was give promiece. By extedig fiace to SMEs specializig i IT, biotechology ad aotechology, the city s authorities created a ecoomic ladscape i which two out of every three compaies ow operate i high tech. A similar approach has eabled Eidhove to establish itself as the Netherlads techological capital. The city decided to stake its future o R&D ad iovatio. Sice the, leadig compaies from a broad rage of sectors automotive, desig, food ad utritio, techology ad medicie have flocked there. This boost to the local ecoomy has yielded a steady stream of ew projects. Coutless similar examples demostrate that urba developmet i the 21st cetury ca stimulate recovery ad revitalizatio, thaks largely to the parterships formed betwee the public ad private sectors. HUMAN RESOURCES. The mai objective of ay 52 third QUARTER 2012 issue 14 ieseisight
Smart Cities, Sustaiable Progress ABOUT THE AUTHORS Jua M. Barriouevo is director of strategy at Mobile World Capital ad VP of the IESE Cities i Motio Strategies platform. He has more tha 15 years experiece i the ICT idustry, as well as a backgroud i etrepreeurship, both as a busiess agel ad as a creator of veture capital etworks. Pascual Berroe is a assistat professor of Strategic Maagemet at IESE ad vice presidet of the Iberoamerica Academy of Maagemet. Holder of a Ph.D. i busiess admiistratio ad quatitative methods from Carlos III Uiversity i Madrid, he has extesive experiece i America ad Europea firms. His research focuses city is to ehace its huma capital. As such, it must attract ad retai talet, as well as raise local educatio stadards, ad promote creativity ad research. Take the example of Vacouver. Followig the Uiversity of British Columbia s decisio to promote biotech research, the city has become a hotbed of highly specialized biotech compaies, attractig a steady iflux of qualified labor from overseas. To retai that talet, may of the compaies i the sector have established flexible work policies, ad they offer attractive perks ad icetives to high-value staff. I a similar vei, Suwo has stregtheed its competitiveess by ivestig more tha 350 millio euros i improvig educatioal ifrastructure ad specialized courses. ENVIRONMENT. With icreasigly scarce resources ad ogoig evirometal degradatio, cities ca o loger afford to igore the issue of evirometal sustaiability. I fact, by tacklig pollutio, maagig water efficietly, ad supportig gree buildigs ad alterative eergy, cities ca become cleaer, more pleasat places to live, while at the same time drastically reducig their eergy bills. o corporate goverace, executive compesatio, family busiess, sustaiable iovatio ad corporate social resposibility. Joa E. Ricart is director of the Strategic Maagemet Departmet ad holder of the Carl Schroeder Chair of Strategic Maagemet at IESE. Besides servig as the vice presidet of the Iberoamerica Academy of Maagemet, he was the foudig presidet of the Europea Academy of Maagemet ad also presided over the Strategic Maagemet Society. His areas of iterest iclude the desig ad ecoomics of orgaizatios, corporate goverace ad sustaiable developmet. Yokohama, Japa, is a case i poit. Its commitmet to reewable eergy ad coservatio has made it a pioeer i the field, helpig to reduce carbo dioxide emissios ad depedece o fossil fuels. The authorities i Mocto, Caada, have uveiled a sweepig gree city project, which, amog other thigs, aims to ecourage greater use of public trasport ad bicycles, ad more recyclig. It has istalled LED traffic lights throughout the city, ad provides electric cars for city services. I additio, it has imposed tighter cotrols o irrigatio water ad lauched tree-platig campaigs. I Europe, the Spaish city of Málaga has lauched a ambitious effort to become a eco-efficiet city, aimig to reduce carbo dioxide emissios by more tha 6,000 tos per year, ad shiftig toward reewables. SOCIAL COHESION. Improvig a city s social eviromet requires extesive research ad actio i areas such as immigratio, commuity developmet, elder care, health care ad public safety. Oe iterestig case is the health-care scheme lauched by Copehage city authorities, which gives doctors istat access to patiet records, thereby reducig the percetage of medical errors ad raisig the levels of user satisfactio. I the Uited States, Chicago has implemeted a ambitious public-safety pla. A system of widespread video surveillace ad licese-plate recogitio techology has led to substatial improvemets, icludig i emergecy respose times across the city. URBAN PLANNING. To make their spaces more livable, may cities are lauchig local master plas focused o the desig of gree areas ad public spaces. They usually iclude a firm commitmet to smart growth. Most importatly, ew urba plaig methods should focus o creatig compact, well-coected cities, with easily accessible public services. Although this is more easily doe whe smart cities are built from scratch, there are may iitiatives to revitalize eglected areas of existig cities, as i the case of 22@Barceloa. Backed by a public ivestmet of 180 millio euros, this project i Spai s secod city is amog the most ambitious urba trasformatio projects to be lauched i Europe. A former idustrial area has bee regeerated through the costructio of 4,000 ew ieseisight issue 14 third QUARTER 2012 53
Six Ways Smart Marketig Cities, Sustaiable Ca Chage Progress the World DIAGNOSE THE SITUATION (2-5 moths) Step By Step THE PROCESS OF BUILDING A SMART CITY CAN TAKE A DECADE OR MORE. Aalyze the Key Areas Assess the Levers of Chage Use Idicators exhibit 2 Sigapore s experiece reveals a essetial truth about smart cities: Bureaucracy must be miimized, ad most procedures ca be coducted electroically. Aother otable project is Chage by Us NYC, a platform promoted by New York City to ecourage eighbors to share ideas ad the create work teams to put those ideas ito actio. Participats are provided with tools ad resources to access public services ad cotact the relevat associatios for implemetig their plas. DEVELOP A STRATEGIC PLAN (5-12 moths) TAKE ACTION (2-10 years) Bechmark Agaist Other Cities Idetify Promisig Opportuities Desig the City Model Defie Strategic Actios Create Coordiatig Body Develop Operatioal Plas Implemet Actio Plas homes, alog with parks ad facilities. Sice the year 2000, the zoe has attracted 4,500 compaies, may i tech-related idustries. To date, the scheme has helped create more tha 56,000 ew jobs. GOVERNANCE & CIVIC PARTICIPATION. Citizes are the mai focal poit for respodig to the challeges facig cities. As such, cosideratio should be give to levels of participatio, the ability of authorities to egage busiess leaders ad local residets, ad the implemetatio of electroic govermet, or e-govermet, plas. Oe of the pioeers i this area is Sigapore. Sice the 80s, Sigapore has supported umerous iitiatives to facilitate commuicatio ad collaboratio amog govermet, civic ad busiess istitutios. Today, the city s e-govermet offerigs are amog the most advaced i the world. Its citizes ow have access to more tha 1,600 olie services via mobile devices. PUBLIC MANAGEMENT. May cities are tryig to improve the efficiecy of local govermet istitutios, focusig i particular o the desig of ew orgaizatioal ad maagemet models. This area presets major opportuities for the private sector, whose experiece of optimizig efficiecies is ivaluable. Take the example of Eglad s secod city, Birmigham, whose city coucil has etrusted the maagemet ad maiteace of local roads, sidewalks, bridges, lightig ad gree areas to a cosortium of private compaies. This represets good busiess ot oly for compaies but also for the city, which stads to save several millio pouds each year. TECHNOLOGY. While cities do ot live o techology aloe, ICT is a essetial driver of a commuity s ecoomic ad social developmet. As such, cities aroud the globe should be ad may are seekig to haress the beefits of the latest geeratio of ICT. Take the Chiese metropolis of Chegdu, which is i the process of adoptig fiber optics ad other techology to cotrol traffic, police, firefighters ad ambulaces from a large operatios ceter. I additio, Iteret access will soo be available from ay poit i the city. South Korea s Sogdo will likewise soo have itegrated all its iformatio systems for buildigs, hospitals, trasport ad busiesses. I South Africa, Johaesburg is teamig up with a techology compay to build a broadbad etwork that will provide high-speed services to busiesses ad local residets by the first quarter of 2013. This is ot to say that ICT is the exclusive domai of major metropolises. Cosider the case of the satellite tow of Sat Cugat del Vallès, located just outside Barceloa, which has fitted oe of its streets with a etwork of sesors that eables the coucil to maage a 54 third QUARTER 2012 issue 14 ieseisight
Smart Cities, Sustaiable Progress Makig it easier for people to access public services will be amog the major urba challeges of the future especially give the comig explosio i urba populatios. whole rage of services remotely, icludig traffic, parkig, waste maagemet, trash receptacles, evirometal cotrol, lightig ad Wi-Fi. MOBILITY & TRANSPORTATION. Makig it easier for people to get aroud tow ad access public services will be amog the major urba challeges of the future especially give the comig explosio i urba populatios. Fortuately, may cities are already o the frot foot. Curitiba, Brazil, for example, has itroduced a itelliget, itegrated trasportatio system to improve mobility, for which a fleet of 2,160 buses has already bee assiged. The city s mai hubs are served by high-capacity, high-speed, high-frequecy buses, complemeted by other lies operatig betwee eighborhoods, alog loop routes ad other covetioal lies. The city has also built 120 kilometers of bike laes. O the other side of the globe, Sigapore authorities are workig o a pilot project to determie the most effective ad useful techology for facilitatig urba mobility. The city has already istalled a system of traffic sesors that allows authorities to predict traffic jams up to oe hour i advace. INTERNATIONAL PRESENCE. Give the itesity ad scope of competitio betwee iteratioal metropolises, big cities lookig to prosper must first achieve a promiet place o the world map. Buildig iteratioal presece meas attractig tourism ad foreig ivestmet, which, i tur, requires bold iitiatives to boost the city s overseas represetatio ad global positioig. Take the example of Barceloa, which has developed a Strategic Tourism Pla with a series of activities util 2015. The ultimate goal of the pla is to icrease the city s attractiveess ad to positio it iteratioally, particularly amog high-quality tourism segmets. To achieve that, the city coucil is workig alogside the Barceloa Chamber of Commerce to orgaize public-awareess campaigs, exhibitios ad forums. I may ways, Barceloa is followig the example already set by Vacouver, whose logheld strategic commitmet to sustaiable tourism has established the city as a iteratioal role model. For the past two decades, the local govermet has bee workig closely with compaies to improve sustaiability ad support eergy coservatio programs, through associatios like the Oceas Blue Foudatio, BC Hydro ad Ethos. Diagose the Situatio Through the aalysis of these key areas, the city begis to uderstad its curret situatio, ad to see how mature it is i relatio to iovatio, social cohesio, sustaiability ad coectivity. But that is oly part of the equatio: Before executig actio plas ad achievig the goals defied, the city also eeds to diagose its competitive situatio ad strategic positio alog several other frots. ASSESS THE LEVERS OF CHANGE. City authorities eed to review the mai levers that will drive the city s progress. These are: strategic ad sceario plaig; collaboratio ad commuicatio; public-private parterships; fudig strategies; capacity maagemet; ad techological ifrastructure. See Exhibit 3. As part of this process, authorities will have to decide how plas are to be draw up ad implemeted, makig sure that differet scearios are beig cosidered. They will have to idetify ways of improvig commuicatio with local citizes, as well as how to get local actors o board. They must devise strategies for drawig i private-sector support ad ivolvemet, ad spell out how such parterships will beefit the city. Above all, they eed to develop ways of deliverig greater value to citizes, which, amog other thigs, may ivolve idetifyig which techology is eeded to improve the city s ifrastructure. BENCHMARK AGAINST OTHER CITIES. The ext step is to develop a set of idicators to idetify your city s stregths ad weakesses, ieseisight issue 14 third QUARTER 2012 55
Six Ways Smart Marketig Cities, Sustaiable Ca Chage Progress the World Seekig Opportuities ANALYZING THE KEY AREAS OF A CITY AND THE LEVERS OF CHANGE WILL HELP IDENTIFY OPPORTUNITIES FOR URBAN DEVELOPMENT. EXHIBIT 3 KEY AREAS Ecoomics Huma Resources Eviromet Social Cohesio Urba Plaig Goverace & Civic Participatio Public Maagemet Techology Mobility & Trasport Iteratioal Presece improvemet opportuity that must be assiged a priority level. LEVERS OF CHANGE Strategic & Sceario Plaig Collaboratio & Commuicatio Techological Ifrastructure Capacity Maagemet Fudig Strategies Public-Private Parterships ad compare them with iteratioal best practices. Appropriate idicators eed to be established for each of the previously metioed key areas. This should ivolve the active participatio of key stakeholders. Ecoomic idicators, for example, may iclude GDP, exports ad foreig ivestmet per capita. I this way, cities ca begi to chart their progress ad idetify ways of further ehacig their positio. Each key area should have a idicator, a iteratioal bechmark ad a particular Ready, Set, Go Armed with this iformatio, the city is the i a positio to desig how it will grow ad progress i the future through a umber of catalytic ad diversified projects. DESIGN THE CITY MODEL. It is worth rememberig that each city is uique, with its ow particular sets of eeds ad opportuities. So, while other cities smart iitiatives may provide some useful lessos, each city must desig its ow pla that reflects its ow reality, establishig priorities that are clear but at the same time allow eough flexibility to adapt to chagig circumstaces. Local experts are the oes who should be resposible for desigig the key strategic measures. Whe egagig with stakeholders, city authorities must be sure to ivolve local residets, particularly those who will be most affected by ay plas. The cosultatio process must be as thorough ad ope as possible. This requires seekig out ad geuiely listeig to local stakeholders ideas ad opiios, o matter how upopular they may be. DEFINE STRATEGIC ACTIONS & DEVELOP OPERA- TIONAL PLANS. Although smart-city plaig should always have a log-term visio, shortterm projects will also play their part. As with ay corporate goverace, muicipal authorities must kow how to strike the 56 third QUARTER 2012 issue 14 ieseisight
Smart Cities, Sustaiable Progress Private compaies are ideal for leadig ad developig projects, i collaboratio with uiversities ad other public istitutios, thaks to their project maagemet ad techical kow-how. right balace ad meet the eeds of differet stakeholders. I additio, they must diversify their urba policies as much as possible. No city or ay busiess should put all its eggs i oe basket, especially i today s hyper-competitive world. The process of defiig catalytic projects that is, projects that rapidly speed up the developmet process should iclude a timetable with specific goals, tools, resources ad resposibilities coverig the primary objectives, as well as givig a detailed descriptio of the tasks ivolved. I this phase, a supervisory body should also be established for coordiatig, moitorig ad adaptig the various plas. IMPLEMENT ACTION PLANS. Fially, all the plaig eeds to be put ito actio. This could take aywhere betwee two ad 10 years, depedig o how ambitious the smart-city project is. Durig this phase, flexibility is paramout: Plaers must be ready to adapt strategies, ad eve fial objectives, to reflect shiftig, o-the-groud realities. A Fully Networked Ecosystem It caot be overstated that every cotributio matters i this process, which is why stakeholders must be ivited to participate at every step of the way. A etworked ecosystem should develop amog all stakeholders, icludig civic orgaizatios, public bodies, govermet istitutios, top uiversities, busiess experts ad research ceters. Workig with this etworked ecosystem has certai advatages: It makes it possible to idetify the eeds of the city ad its residets, set commo goals, establish regular commuicatio betwee differet actors, icrease learig opportuities, improve trasparecy ad implemet more flexible public policies. As a OECD report has stated, this esures that local policies are focused o those who matter: local citizes. Private compaies are ideal for leadig ad developig projects i collaboratio with uiversities ad other public istitutios, thaks to their project maagemet ad techical kow-how. These public-private parterships ca result i sigificat savigs to the public purse. But the beefits go both ways: The private sector ca gai greater govermet cooperatio, a better uderstadig of local eeds, raised iteratioal visibility ad, cosequetly, access to ew busiess opportuities ad talet. The huma factor remais crucial to urba developmet. Without a participatory, itelliget ad proactive society, ay strategy is doomed to failure, regardless of how wellitetioed it may be. Beyod techological ad ecoomic developmet, it is the citizes who hold the key to turig smart cities ito wise cities. That is the goal that every large city should be pursuig: for its ihabitats ad leaders alike to led their talet i support of its progress, i the broadest sese of the term. to kow more This article is based o early research by IESE Cities i Motio Strategies, a iitiative of IESE s Ceter for Globalizatio ad Strategy. This platform coects experts ad private compaies with city admiistratios all aroud the world, with the goal of stimulatig iovative thikig ad ecouragig the private sector to play a major role i developig smarter govermets ad better opportuities for citizes. Fid out more at www.iese.edu/globalceter ieseisight issue 14 third QUARTER 2012 57