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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 worlds 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 growthand to acknowledge recent collected to adjust schedules, equipment,
Jrgen Laartz
is a director in
urbanization and climate-change trends and other variables accordingly, thereby opti-
McKinseys Berlin municipalities in both emerging markets mizing potentially scarce resources.
office, and and developed nations must pay closer Municipalities in Europe and elsewhere
Stefan Llf 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.
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 inappropriateby measures such as
valuable feedback to share about the current functionality, complexity, and costfor
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 citys
systems in complex municipal environments. local ecosystemfor 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 vendors explanation of the technol- about becoming dependent on a single
ogy is too complex. technology and provider in the course of
The vendors 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 citys 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 vendors perspective, since more
City representatives offered these three main important city projects could crop up and
concerns about technology firms products undermine the citys 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 quowhich means they may
mass market of smaller cities. This does not have a harder time getting added to the
Exhibit 1
Project presentations should be tailored to each
citys individual needs.
Topics that should be covered in a presentation to city leaders
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 citys model for new overview of local level
Reliability
solution agenda technology, the new
emphasizing the technology Present a Dependency
Demonstrate citys own role communication issues
relevance to strategy for
Data protection
concrete Detail the citys 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-
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
Small cities
and rural 37 47
regions