Innovation Management

& Business Challenges

for Smart Cities
BUSINESS CHALLENGES OF SMART CITIES

Barbara Buljat Raymond, PhD

INTRODUCTION

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 Warm up
Let’s talk about the your city.
How did it develop over time?

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Seoul, South Korea Dubai, United Arab Emirates 4
Some statistics
• The world sees the biggest wave of urban growth in history
• By 2050, 70 percent of the world’s population will live in cities, up from
54 percent in 2020, according to a report by the Institute for Economics
& Peace (2022)
• This increase is being driven by both population growth and a continued
shift towards urbanization, particularly to so called ‘megacities’ -
metropolises that have a population of 10+ million.
• There are currently 33 mega-cities - compared to just 10 mega-cities in
1990

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aging population and declining birth rate

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 PUSH FACTORS
Violence, lack of security
Ecological degradation
Lack of sufficiently
productive land
Poor health care
Limited educational and
economic opportunities

PULL FACTORS
Increase in the standard
of living
Employment
opportunities
More educational
institutions
Richer social life 9
CHALLENGES ASSOCIATED
WITH (SMART) CITIES

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 1. SOCIO-ECONOMIC
Despite benefits of urbanization, there are possible
negative social and economic consequences (Meijer and
Rodríguez Bolívar, 2016).

Can you think of an example?

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Socioeconomic consequences: overcrowding, unemployment, crime
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 2. ENVIRONMENTAL

Environmental consequences: waste disposal problem,

poor air and water quality, insufficient water availability,
high energy consumption.

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 3. FINANCIAL
Obviously, there is a need for “smarter” governance,
keeping in mind that smart services are financially viable
and sustainable over the long term.

However, big infrastructure projects demand high upfront

costs, significant technological risks and a long-term
payback horizon, which makes it difficult to attract
investment (Rivada et al. 2016).
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 4. TEMPORAL
Cities have to reduce costs, and at the same time invest
(or find investors) in smart city solutions (Siemens and Arup
2017).

European Commission aims to fund programmes for

developing and testing business models for smart services
that are scalable and replicable across cities (European
Commission 2017).
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 5. OPERATIONAL
City councils are no longer the only actors providing
public services – there are other organizations, private
companies, or charities providing services.

In this context, city councils must know: who should operate

the service? Who can access that service? Who will profit
from it? Who will regulate it?

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We can address these challenges
with smart city business model.

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CITY BUSINESS MODEL

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Reminder: a definition of a smart city
• Meijer and Rodríguez Bolívar (2016) have found in their literature review that most
conceptualizations of the smart city include combinations of three elements: smart people, smart
technology and smart collaboration. They conclude that the ‘smartness’ of a city is the extent to
which a city can attract and mobilize human capital and enable collaboration through the use of
ICT (Meijer and Rodríguez Bolívar 2016).
• ISO defines a smart and sustainable city as “a city that increases the pace at which it provides
social, economic and environmental sustainability outcomes and responds to challenges such as
climate change, rapid population growth, and political and economic instability by fundamentally
improving how it engages society, applies collaborative leadership methods, works across
disciplines and city systems, and uses data information and modern technologies to deliver
better services and quality of life to those in the city (residents, businesses, visitors), now and for
the foreseeable future, without unfair disadvantage of others or degradation of the natural
environment”

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What do you think?
Is there a difference between a
firm and a city business model?

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 Firm business model

PRIVATE FIRM PROVIDES PRODUCTS

FIRM AND CREATES VALUES FOR CUSTOMERS
CUSTOMERS

CUSTOMERS GIVE
MONEY AND GENERATE
PROFIT FOR A FIRM

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 Smart city business model
SMART CITY
CITY PROVIDES
GOVERNMENT SMART SERVICES AND CREATES CITIZENS
SOCIO-ECONOMIC AND
ENVIRONMENTAL VALUE FOR CITIZENS
(DELIVERS PUBLIC VALUE)

IN RETURN, THE CITY

ENSURES FUTURE WITHOUT
SACRIFICING PUBLIC VALUE

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 Question
What are possible pitfalls of applying a firm business
model logic in government/public service?

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Possible pitfalls of applying a firm business
model logic in government/public service

1. PROFIT-DRIVEN MINDSET: This mentality can emphasize efficiency and

savings, and thus, lead to the privatization of urban services (Hollands
2015)

2. SOCIAL POLARIZATION AND INEQUALITY: unequal treatment of

citizens as customers, where those who can pay more are served better

3. NEGLECTING LOCAL COMMUNITY: Hollands (2015), for example,

critiques the growing competition for cities to attract talent, business
and tourism at the cost of displacing local communities.

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So, what is a smart city business model?
• ‘Smart city business model’ is a model used by city
governments to organize its services to create and deliver
value for its citizens in a way that is economically viable,
socially inclusive and environmentally sustainable (Timeus et
al., 2020).
• The main justification for city-centred business models: smart
services should be financially viable and sustainable over the
long term.

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 Therefore, the smart city business
model...

X ✓
is not a managerialist tool is born from an understanding
borrowed from the private that public organizations face a
sector and directly applied unique challenge: governing
to the public sector, aiming the transformation of cities to
at making profit meet future challenges without
sacrificing public value

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So, to conclude...
What is the biggest difference between a
firm and a city business model?

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City business model: Conclusion
• The ‘city business model’ logic must emphasize that
value is not necessarily cost-centred but also
environmental and social in order to avoid the pitfalls
of privatization and preserve the public value.
• However, it is difficult to operate and provide smart
city services, unless operating profits are secured (Kim
and Yang, 2021).

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SMART CITY SERVICES

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 Question
Can you name an example of some smart city services?
What problems do they address?

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Some examples of smart city services
• ‘smart services’ - ICT-enabled public services
that improve mobility, optimize resource
consumption and facilitate collaboration
(Timeus et al., 2020)
• Examples:
• Apps that help citizens choose the shortest
way to reach their destination
• Apps that distribute traffic during rush hour
• Apps that guide users to available parking
spots;
• Systems that improve buildings’ energy
efficiency with sensors (Meyer 2013);

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 Question
Let’s talk about examples of a smart city service
from your city that either (1) already exists, or (2) you
think should be implemented.

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But, who will “do the job”?
• City councils are no longer the only actors providing public services
(Anttiroiko, Valkama, and Bailey 2014; Osborne 2010).
• Even within local government, there are several organizations,
departments and even different hierarchical levels of government
simultaneously making decisions about what goes on in a city.
• Outside local government, other actors who provide services include
charities or private companies, who may operate some services, such as
transport (Crosby, Hart, and Torfing 2017; Sullivan, Williams, and Jeffares
2012).

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Private vs. public service providers?
PROS AND CONS:

Private finance models:

• Are effective from a financial and technological perspective
• improve flexibility, efficiency, customer responsiveness, and innovation

But:
• prioritizes large-business goals over social goals
• creates possible conflicting interests between the corporate management and the political
corps

(Grossi and Pianezzi 2017; Hollands 2015; Grossi and Reichard 2008).

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CITY MODEL CANVAS (CMC)

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The Business Model Canvas (BMC)
• The Business Model Canvas (BMC) – the most commonly used
framework in the business literature for analyzing firms’
business models.
• Created by Osterwalder and Pigneur (2010),
• BMC = a visual chart used for representing a firm’s logic and its
way of organizing its operations for creating, delivering, and
capturing value.

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The Business Model Canvas (BMC) (Osterwalder and Pigneur, 2010).
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The City Model
Canvas (CMC)
(Timeus et al.,
2020)

BMC
(economic
evaluation )

socio-
environmental
dimension
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Elements of the CMC (Timeus et al., 2020)

PART 1: The mission and value

1. Mission statement - a short declaration of the overall aim that the city wants to
reach through its smart service
2. The value proposition – central statement that states what benefits are
created and which problems will be solved by the organization through smart
services (usually encompasses improved quality of life in an urban environment
that is economically prosperous, environmentally responsible and socially
inclusive)

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Elements of the CMC (Timeus et al., 2020)

PART 2: Delivering value to the public

3. Beneficiaries - who will benefit from smart services?

4. Buy in & support – whose support (buy-in) must be obtained for a project’s
successful implementation?
5. Deployment – how will the services be delivered/accessed?

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Elements of the CMC (Timeus et al., 2020)

PART 3: Creating the value

6. Key partnerships – who are the stakeholders?

7. Key activities – which steps and actions the city council must execute to
ensure the model’s effectiveness?
8. Key infrastructure and resources & key regulatory framework – financial
and physical assets the city needs to implement its projects (e.g. a 5G
network), but also political and strategic resources (e.g. regulatory
frameworks)

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Elements of the CMC (Timeus et al., 2020)

PART 4: Triple bottom line (adapted from Joyce and Paquin (2016))

9. & 10. Budget cost structure / Revenue streams - shows the economic
viability of the actions. It compares expected costs and revenues and forces the
city council to consider how it will finance services
11. & 12. Environmental costs / Environmental benefits – assesses the
environmental balance of the planned interventions
13. & 14. Social risks / Social benefits – assesses social sustainability, compares
social benefits and social impacts (the negative costs that the project can have on
residents and communities, such as excluding particular groups from services or
increasing living costs in some areas)

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 Work-in-pairs
Read the article “Creating business models for smart cities:
a practical framework” (Timeus et al., 2020) and discuss in
pairs through the lenses of City Model Canvas (CMS) how
the city of Bristol delivers its smart services to its citizens
(page 734).

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 Debate
time!
Let’s practice critical
thinking & persuasion
skills. We will split in 2
groups and debate
about some smart city
issues.

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 Task description:
Randomly split class participants in 2 teams: one supporting a
proposition (affirmative) and one opposing it (negative).

Rules:
• Organize and choose a role
(opening speaker, rebuttal
speaker, concluding speaker,
researcher, organizer, debate
moderator, leader, and speech
composer)
• You can use materials on Moodle
and Internet to prepare
• Respect others’ opinions and
speak only when allowed to
Timing:
• Preparation (30 min)
• Pro position (affirmative team: 5
minutes)
• Rebuttal (negative team: 3 minutes)
• Con position (negative team: 5
minutes)
• Rebuttal (affirmative team: 3 minutes)
• Teams question each other (1
minutes/team, both teams)
• Closing statements (3
minutes/team, both teams)

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 The propositions:

1. In general, all smart city initiatives have a positive return of

investment.

2. Smart city services bring benefits to all citizens.

3. Smart city business model can be replicated from one city to

another.

4. It is better to let private companies provide smart city

services (e.g. transportation).

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 Proposition #1

In general, all smart city initiatives

have a positive return of investment.

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 Proposition #2

Smart city services bring

benefits to all citizens.

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 Proposition #3

Smart city business model can be

replicated from one city to another.

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 Proposition #4

It is better to let private companies

provide smart city services
(e.g. transportation).

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 To sum up...

What did we learn from this debate?

In your opinion, which team was better?

Did you change your mind about a specific proposition

after the debate, and what changed your mind?

Let’s raise or hands for or against the propositions.

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 For the end...
Apply the City Model Canvas (CMS) to a smart project
initiative from your country.

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Sources
• https://ourworldindata.org/urbanization
• Institute for Economics & Peace. Ecological Threat Report 2022: Analysing Ecological Threats,
Resilience & Peace, Sydney, October 2022. Available from: http://visionofhumanity.org/resources
(accessed July 2023)
• https://www.statista.com/chart/29152/the-worlds-next-
megacities/#:~:text=There%20are%20currently%2033%20megacities,the%20most%20populous%
20of%20these.
• https://www.un.org/development/desa/en/news/social/urbanization-expanding-opportunities-but-
deeper-
divides.html#:~:text=But%20when%20poorly%20planned%2C%20urbanization,economic%2C%2
0spatial%20and%20social%20dimensions.

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