Gain and responsibility: five business models for sustainable cities

(Photo by Mark Vauxhall of public Peugeot Ions on Rue des Ponchettes, Nice, France)

It’s strange how you can find inspiration in the most surprising places; and the first time I came across the philosophy of sustainability at the heart of big business was certainly unexpected.

Five years ago I was creating a business model in a UK city for a car-sharing scheme using social media (which at the time was a new technology); the scheme was being put together by a collaboration of technology entrepreneurs, University researchers and local employers who wanted to offer the scheme to their employees as a benefit in kind. What we lacked was a business partner with expertise in offering transport services to consumers.

A colleague suggested we speak to an international car rental company for whom they’d recently run an innovation workshop. Initially, we were sceptical: why would a car rental company encourage people to share cars – in other words, to need to hire less of them?

Nevertheless, we called the global Vice President of Sales of the company concerned. This person was responsible for the sales performance of a company in an extremely competitive, commoditised market, so we were expecting the social and environmental philosophy behind our proposal to be given little consideration compared to its revenue-earning potential.

Instead, I remember feeling as if I was being blown away down the telephone line by  his enthusiasm for sustainable business. The reason he had spent his career making a car rental company as successful as possible was his belief that it was the most viable business model for sustainable transport of its time: hire cars are much more effective than public transport for some journeys; and because they are heavily used throughout their lives, the environmental cost of manufacturing and decommissioning them is much less per mile travelled than for privately owned vehicles.

The proposition that technology offers to the sustainability debate – whether in Smarter Cities, intelligent transport or supply-chain optimisation – is to enable business models that create better social and environmental outcomes. In some cases, those outcomes are the objectives of a business; but more often they are the side effects of business operations whose objectives are to create financial returns. So in order to justify investments in technologies or practises that promote sustainability, we need to do just what the car rental company’s Vice President had done early in his career: think creatively about how to balance social and environmental outcomes with the financial imperatives of our existing economic systems.

We’ll need to find that balance in order to develop realistic business models for Smarter Cities. It will not always be an easy balance to find; and finding it will sometimes be a controversial process. But five approaches can already be seen that show how it can be achieved in different ways.

1. Cross-city Collaborations

Many initiatives that contribute to city-wide outcomes require either co-ordinated action across city systems; or an investment in one system to achieve an outcome that is not a simple financial return within that system. For example, the ultimate objective of many changes to transportation systems is to improve economic growth and productivity, or to reduce environmental impact.

Such initiatives are often shaped and carried out by a group of collaborating stakeholders in a city – perhaps including the City Council, nearby Universities, local businesses and community groups, and private sector partners.

To attract the various forms of investment that are required to support a programme of “Smart” initiatives, these partnerships need to be decision-making entities, not discussion groups. Investors will look for a history of collective action to achieve clear, shared objectives; and for a mature approach to the mutual management of risk in delivering projects.

Such partnerships take time to form, and it is notable that in last year’s Technology Strategy Board Future Cities Demonstrator competition, most of the shortlisted entries had been prepared by collaborations in cities such as Glasgow and Peterborough that had existed for some time before the competition began. Other examples include the Dublinked information-sharing partnership in Dublin, Ireland, and the Sustainable Dubuque partnership in Dubuque, Iowa. I wrote about these examples and discussed how they form and operate successfully, in “Smart ideas for everyday cities” last December.

2. Scaling-up Social Enterprise

Social enterprise is a broad category of private businesses which in some way commit themselves to social and/or environmental objectives against which they audit themselves alongside their financial performance – a practise known as triple bottom-line accounting.

Given the similarities between triple-bottom-line accounting and the objectives of “Smarter” initiatives, it’s not surprising that social enterprises are carrying out a great deal of “Smart City” activity. They often use innovative, technology-enabled business models that combine elements of sectors such as food, energy and transport. A good example is “Casserole Club“, which uses social media as the basis of a peer-to-peer model which connects people who are unable to cook for themselves with people who are willing to cook for, and visit, others.

(Photo by Mermaid of the People’s Supermarket in Lamb’s Conduit Street, London, a social enterprise that aims to promote social cohesion by supporting local, independent food producers)

Social enterprises have a powerful potential to contribute to Smarter City objectives. They tend to create employment opportunities where they are most needed, for example – 39% of all social enterprises are working in the most deprived communities in the UK, in comparison to 13% of SMEs. And they are a significant contribution to the overall economy – in the UK,  a recent government report found that the sector employs more than 2 million people, is estimated to have total annual incomes of £163 billion and to contribute £55 billion Gross Value Added – about 14% of the national total. Social enterprise is 13% of Sweden’s GDP and 21% of Finland’s GDP; and 4 in 10 residents of the USA– the world’s flagship private enterprise economy – are members of a co-operative of some sort. Worldwide, social enterprises employ over 100 million people with a turnover of £1.1 trillion. That’s big business.

Many social enterprises are entirely independent ventures. There is great potential for cities to recognise the alignment between their philosophy and Smarter City objectives; and to support their role in achieving them. When the resources and assets of large, formal organisations are made available to local, social innovation, the results can be tremendously powerful.

In Resilience, Andrew Zolli gives the example of the Kilimo Salama scheme in Kenya which provides affordable insurance for subsistence farmers by using remote weather monitoring to trigger payouts via mobile phones, rather than undertaking expensive site visits to assess claims. This is a good example of large-scale infrastructures operated by formal institutions – mobile payments systems and remote weather monitoring technology – that have been adapated to the needs of a community which previously didn’t benefit from them – the farmers – by a creative, socially-minded organisation.

Awareness is growing of the importance of this sector; the alignment of its values with the objectives of Smarter Cities (as described by Knight Foundation Vice President Carol Coletta recently); and of the great potential of information economy technologies, especially social media, to empower it (see this article by ex-IBM Vice President Irving Wladawsky-Berger). It will be a major part of the economy and society of the sustainable cities of the future.

3. Creativity in finance

We don’t consider banks, insurers and other financial institutions enough in the world of Smarter Cities. Public sector and research grants will not finance the wholescale transformation of our cities; we will have to look to the broader financial markets for that support.

New forms of financial service are emerging from the online, collaborative economy such as crowdfunding and peer-to-peer lending. In the UK, the Trillion Fund, for example, offer a range of investment schemes in renewable energy to the retail investment market; and a variety of local and electronic currencies are emerging.

(Photo of a smart parking meter in San Francisco by Jun Seita)

More traditional financial institutions are also exploring the new products that they can create to support this market; and we are sure to need the depth of resources they can make available. Smarter city services create assets and offer services which people and businesses pay to use. With the appropriate banking, insurance and investment skills, those assets and services and the incomes they generate can be packaged as investable financial products. Citibank, IBM and Streetline partnered last year to offer a financing scheme for “Smart Parking” solutions, for example.

Citigroup were also amongst those who supported the recent “Innovation and the City” report by the Centre for an Urban Future and the Robert F. Wagner Graduate School of Public Service which recommended 15 policies for consideration by the next Mayor of New York, many of which are financial innovations intended to support Smarter City outcomes.

In recent years, the banking industry has not always been associated with social outcomes. But some financial institutions are very clearly social organisations – such as the credit unions to which 87 million US citizens belong; and many banks have social elements in their original charters – as Hancock Bank demonstrated when responding to Hurricane Katrina in 2005. They have the means, method and opportunity to contribute enormously to the development of Smarter, sustainable cities and we should encourage them to do so.

4. Making traditional business sustainable

A very many of our lives depend for our basic needs – not to mention our entertainment and leisure – on global supply chains operated on astounding scales by private sector businesses. Staples such as food, cosmetics and cleaning products consume a vast proportion of the world’s fresh water and agricultural capacity; and a surprisingly small number of organisations are responsible for a surprisingly large proportion of that consumption as they produce the products and services that many of us use.

The social and environmental impact of those supply chains is immense, and, of course, highly controversial. A notable recent development, though, is the number of statements made by the leaders of companies involved in them asserting the importance of evolving their businesses to adopt more sustainable practises. The CEOs of  Unilever and Tesco have made statements of intent along these lines recently, and IBM and Hilton Hotels have described the progress they have already made.

Any analysis of the motivations for such statements and the outlook for their impact also enters areas of great controversy, of course. But need there be any fundamental contradiction between profitable enterprise and sustainability?

Richard Powers’ 1998 novel “Gain” tells the story of “incorporation”, the creation of companies as entities with a legal and financial existence separate from that of the people who start, manage and work for them. It contrasts the story of three Irish brothers arriving in 19th Century New York who make a living manufacturing soap, and the subsequent growth of their business into a vast 20th Century multinational corporation; with that of a woman dying from a cancer likely to have been caused by exposure to the waste products of the industrial operations of that corporation. Its complex, nuanced story explores both the facility of private enterprise to create wealth for anybody; and its potential for ambivalence towards the fair distribution of that wealth, and towards its impact.

(An example from Indonesia of the deforestation that can be the result of palm oil production. Photo by the Rainforest Action Network)

Gain’s narrative makes clear that the model of private enterprise does not lead inevitably to any specific outcome. The success, sustainability and equitability of any enterprise, social or private, are ultimately the result of the actions and decisions of those involved in it – whether they run it; work for it; supply it or buy from it.

All of us can assert influence on the sustainability of business, through our buying decisions as consumers and by campaigning. Jared Diamond explored in depth how we can do so effectively in his book “Collapse“. But the role of the investment markets is also crucial.

In one sense, the markets are already playing a role: in a recent report, 53% of fund managers collectively responsible for $14 trillion of assets indicated that they had divested stocks, or chosen not to invest in stocks, due to concerns over the impact of climate change on the businesses concerned.

However, that is a negative, not a positive action. It is driven by the impact of climate change on business, not by the impact of business on climate change. To grossly generalise, whilst the CEOs of Tesco and Unilever, for example, are following Jared Diamond’s argument that sustainability is simply good, long-term business sense; by and large investors are largely ambivalent to this argument. They choose which companies to invest in based first and foremost on the prospect of their short-term financial returns.

So whatever motivations influence the CEOs of companies that manage the vast supply chains that play such a major role on our planet to adopt sustainability as a business objective, it is not to win short-term investment. It may be to appeal to consumer opinion; or it may be to attract investors who take a longer-view.

One thing is certain, though. Our world as a whole, and the cities in which life is concentrated, will not become socially and environmentally equitable and sustainable unless private businesses adopt sustainable strategies. So it is in all of our interests to encourage them to do so, whilst putting in place the governance to ensure that those strategies are carried out effectively.

5. Encouraging entrepreneurs everywhere

Smarter city services are innovations that change the relationships between the creation of social and financial value and the consumption of resources: they involve new ways of doing things; and they often depend on consumers choosing to buy different products or use different services than those that they are accustomed to.

Investing in a new product or service on the basis that consumers will change their behaviour in order to buy or use it is a risky business. Too risky, in many cases, for traditional institutions.

In the developed world, public sector finances are under extreme pressure. Economic growth is slow, so tax returns are stagnant. Populations are, on the whole, growing older, and requiring increased levels of healthcare. So public sector has little ability to make risky investments.

But the private sector is also under pressure. The same slow economic growth, coupled with competition from rapidly growing countries in emerging markets, means that money is short and the future is uncertain. Risky investments are unlikely here, too.

(The QR code that enabled Will Grant of Droplet to buy me a coffee at Innovation Birmingham using Droplet’s local smartphone payment solution, an example of a Smarter City service created by an entrepreneurial company.)

But some investors are seeking new investment opportunities, even risky ones – especially as the rate of return offered by many traditional forms of investment is so poor. One consequence is that many Smarter Cities services are delivered by entrepreneurial companies backed by venture capital. Examples include “Droplet“, a smartphone payment system operating in Birmingham and London; and Shutl, who provide a marketplace for home delivery services through a community of independent couriers in London.

However, many cities face a challenge in exploiting the ability of entrepreneurial businesses to deliver Smarter services.

Such businesses may be inherently risky; but those that succeed still do so by minimising risk wherever possible. One way to minimise the risk involved in any new business is to operate that business as closely as possible to its largest possible market. So entrepreneurial businesses that offer services to city ecosystems (as opposed to national or international customers) tend to start in and provide services to capital cities.

If cities that are not capitals wish to encourage this sort of entrepreneurial business, they will need to make themselves attractive in some other way: by offering tailored programmes of support (as IBM and Sunderland Software City are doing); by making available unique assets created by geography, culture or existing business clusters (such as the cluster of wireless technology companies in Cambridge); or by exploiting the strength of local teaching and research (as Birmingham are doing through institutions such as Birmingham Ormiston Academy and the Aston Engineering Academy; or as “Science Vale” has long done in Oxfordshire).

Entrepreneurial businesses can and will make a huge contribution to Smarter Cities; and those that succeed will eventually scale their businesses to cities across the world. But in order to benefit from their creativity early, cities that are not capitals will need to take action to attract and support them.

Evolution and revolution

As I remarked in my last article on this blog, “business as usual” will not deliver Smarter, sustainable cities. We would not be so collectively concerned with this subject otherwise. But while we will need new approaches, sometimes revolutionary ones; we are not entering wholly uncharted territory.

We will need new cross-city collaborations; but the idea of such collaborations is not new. The collaboration that submitted Peterborough’s short-listed proposal for the Technology Strategy Board’s Future Cities Demonstrator has its origins in the Greater Peterborough Partnership which was formed in 1994, for example.

Social enterprises and sustainable business models are hardly new, either – co-operative businesses have existing for centuries, and IBM, Sony and Cadbury are just three examples of private businesses started 50 to 100 years ago by Quakers with a strong sense of civic and community duty.

So whilst change is required, we are not entering the unknown. Our challenge is rather to realise that there is no single approach that can be adopted in all circumstances. All of the approaches I’ve described in this article – and doubtless others too – will be needed. But not all of them will be popular all of the time.

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Smart ideas for everyday cities

(Artist’s impression of the new Birmingham City University campus, currently under construction alongside Millennium Point and the new Eastside City Park. Image by Birmingham City University.)

The outcomes that matter to cities and to the people who live and work in them, such as wellbeing, job creation, economic growth, and social mobility, are complex, compound results of the behaviour of a combination of city systems such as education, public safety, transport and the economy.

Because those systems are operated by separate organisations – if they are even “operated” as systems at all – many “Smarter City” discussions are concerned with “breaking down silos” in order to integrate them.

As Fast Company’s 2010 survey of the “Top 20 Smartest Cities on the Planet“, illustrates, many of the earliest and highest profile examples of cities pursuing “Smart” agendas were governed by hierarchical, integrated systems of authority which helped them to address this challenge – often because they were new or expanding cities in rapidly growing economies.

Elsewhere, governance is more complex. Particularly in the UK, services such as utilities and transport are operated by private sector providers contracted to deliver performance and financial measures that cannot easily be changed. It is hard enough to agree common objectives across a city; it can be even harder to agree how to make investments to achieve them by transforming city systems that are subcontracted in this way.

But that is what cities must somehow do. And in recent weeks I have valued some open and frank discussions between city leaders, financiers and developers, policy makers, academics, architects, planners – and even some technologists – that have revealed some simple ideas that are common to those cities that have demonstrated how it can be done.

Start new partnerships

Most initiatives that contribute to city-wide outcomes require either co-ordinated action across city systems; or an investment in one system to achieve an outcome that is not a simple financial return within that system. For example, the ultimate objective of many changes to transportation systems is to improve economic growth and productivity, or to reduce environmental impact.

(The members of Birmingham’s Smart City Commission)

A programme of initiatives with these characteristics therefore involves the resources and interests of great many organisations within a city; and may lead to the creation of entirely new organisations. Special purpose vehicles such as  the “Eco-Island” Community Interest Company on the Isle of Wight and the Birmingham District Energy Company are two such examples.

New partnerships between these organisations are needed to agree city-wide objectives, and to co-ordinate their activities and investments to achieve them. Depending on local challenges,  opportunities, and relationships those partnerships might include:

  • Local Authorities and other public sector agencies co-operating to operate shared services;
  • Central government bodies involved in negotiations of policy, responsibility and financing such as “City Deals“;
  • Leaders from cities’ business, entrepreneurial and SME communities;
  • Local Universities who may have domain expertise in city systems; and who provide skills into the local economy;
  • Neighbourhood, faith and community associations;
  • Representatives of the third sector – charities, voluntary associations, social enterprises and co-operatives;
  • Industry sector and cultural organisations;
  • Service and technology providers who form partnerships with cities; for example, Amey have a 25-year PFI partnership with Birmingham; IBM operate joint research programmes with cities such as Dublin and Moscow; and Cisco have partnerships with cities such as Songdo in South Korea;
  • Financiers, for example local venture capitalists such as MidVen in the West Midlands, or banks and financial services companies with a strong local presence;
  • … and there are many other possibilities.

To attract the various forms of investment that are required to support a programme of “Smart” initiatives, these partnerships need to be decision-making entities, such as Manchester’s “New Economy” Commission, not discussion groups. They need to take investment decisions together in the interest of their shared objectives; and they need a mature understanding and agreement of how risk is shared and managed across those investments.

Such partnerships do not start by adopting the approach of any single member; they start with a genuine discussion to build understanding and consensus.

For example, public and private sector organisations both tend to assume that the other is better placed to accept risk. Private sector organisations make profits and invest them in new products and markets, so surely they can take on risk? Public sector organisations are funded to predictable levels through taxation, so surely they can take on risk?

In reality, the private sector has lost jobs, faced falling profits, and seen many businesses fail in recent years. Meanwhile, public sector is burdened with unprecedented budget cuts and in many cases significant deficits that are threatening their ability to deliver frontline services. Both are therefore risk averse.

A working partnership will only form if such issues are discussed openly so that an equitable consensus is achieved.

(A video describing the partnership between IBM and Dubuque, Iowa, which aims to develop a model for sustainable communities of less than 200,000 people)

Size matters; but not absolutely

Manchester’s New Economy Commission have taken a particular approach that is commensurate to the size of the Greater Manchester area and economy, coordinated by the Association of Greater Manchester Authorities (AGMA). But their approach is not the only one.

Elsewhere, Southampton City Council are creating a “Virtual Local Authority”, together with other authorities around the country, as a vehicle to approach the bond market for a £100 million investment. They believe such a vehicle can create an investment opportunity of similar size to Birmingham’s “Energy Savers” scheme.

“Size” in these terms can mean geographic area; population; economic value or market potential. It is interpreted differently by international investment funds; or by local interests such as property and business owners. And it is balanced against complexity: one reason that some more modestly sized cities such as Sunderland and Peterborough have made so much early progress is their relative political and economic simplicity.

Vision, Transparency and Consistency

Whatever specific form a local partnership takes, it needs to demonstrate certain behaviours and characteristics in order that its initiatives and proposals are attractive to investors. They are straightforward in themselves;  but take time to establish amongst a new group of stakeholders:

  • A clear, agreed and consistent set of goals;
  • A mutual understanding of risk; how it is shared; and how it is managed;
  • An ability to express investment opportunities, including the risks associated with them, to potential investors;
  • A track record of taking transparent, consistent decisions to coordinate projects and investments against their objectives.

This is the model that in many cases will deliver Smarter City projects and programmes in everyday cities: a model of several organisations coordinating multiple investments, rather than individual organisations managing their own budgets.

(Philippe Petit’s remarkable tightrope walk between the towers of the World Trade Centre in 1974 at a height of 417 metres. Image from Carolina Pastrana)

Match risks to the right investors

There are many sources of funding for Smart City initiatives; each has different requirements and capabilities, and is attracted by specific risks and rewards. And with traditional markets such as property stagnant in developed economies, new opportunities for investment are being sought.

However, with a high degree of uncertainty in the prospects for future economic growth, it is harder than ever to assess the likely returns from investment opportunities. And when those opportunities are presented as new forms of partnership, special purpose vehicles or social enterprises, or by public sector authorities adopting revenue-generating models to compensate for dramatic cuts in their traditional funding, that assessment becomes even harder.

There is no simple answer to this challenge; but once again progress to resolving it will begin with conversations that build understanding. Ultimately, investors will be attracted to proposals with well defined and managed risks from organisations exhibiting good governance; and that can demonstrate a track record of making clear decisions to achieve their goals.

Of course, some Smart City projects are highly innovative, and may be too risky for investors accustomed to supporting infrastructure projects such as transportation and property development.  This is particularly the case for schemes that require a change in consumer behaviour – for example, switching from private car ownership to the use of “car clubs” or car-sharing schemes.

These sorts of project may be more suited to technology or service providers who might invest in pilot schemes in order to develop or prove new offerings which, if successful, can generate follow-on sales elsewhere. The “First of a Kind” programme in IBM’s Research division is one example or a formal programme that is operated for this purpose.

Similarly, Venture Capital will make investments in new businesses with higher risk profiles – demanding, of course, a commensurately higher level of return. And government backed innovation funds such as the European Union FP7 programme or the UK’s Technology Strategy Board are also available.

All of these organisations, of course, are looking to invest in projects which are initially small scale; but that will eventual develop into a widespread market opportunity. They will therefore be drawn to projects that take place in a stable, supported context from which that opportunity can be developed – in other words, the same level of partnership working, governance, transparency and consistency.

(A successful urban intervention: the “Container City” incubation hub for social enterprises operated by Sustainable Enterprise Strategies (SES) in Sunderland. SES support hundreds of new businesses and social enterprises in Sunderland every year, with a combined turnover of around £25m, and employing thousands of people from the city’s most challenged communities. 82% of the people they help to start a business or a social enterprise were previously unemployed, and after 2 years nearly three quarters are still in business.)

Exploit success to build momentum

Most cities need to stimulate economic growth, and to revitalise economically and socially deprived neighbourhoods.

It may be more effective to achieve those goals through a series of related steps, than through a single initiative, however:

1. Invest to reinforce growth that is already taking place – it may be more straightforward in the first place to use mechanisms such as tax increment financing or private investment to accelerate growth that is already taking place; such as last week’s announcement by David Cameron of additional government and corporate investment in London’s “Tech City” cluster.

2. Retain the financial benefits resulting from growth – Manchester’s New Economy Commission is able to retain the benefits of the growth the stimulate in the form of increased tax returns, in order to reinvest in subsequent initiatives. Their early successes built confidence amongst investors in the viability of their ongoing programme.

3. Recycle funds to stimulate new growth – having built an initial level of confidence, returns from early projects can be reinvested in areas with more significant challenges; where new infrastructures such as broadband connectivity or support services are required to attract new business activity.

Everywhere is different

Whilst the ideas I’ve described in this article do seem to be emerging as common characteristics of successful Smarter City programmes; we are still at a relatively early stage.

In particular, not enough examples exist for us to reliably separate generally viable elements of these approaches from those aspects that are strongly tied to specific local contexts.

Every city of course is different; and in this context has different access to transport systems, and to national and international supply chains and markets; has different demographics and social character; and different economic capacity. Even within a country, the governance of cities and regions varies – in the UK, for example, the relationships between Central, County, District, City and Borough Councils are subtly different everywhere. So each city still needs to find its own path.

But the first step is simple. There is nothing stopping cities from having the conversations that will get them started. And those that have done so are proving that it works.

I’d like to thank the delegates and attendees at many workshops and meetings I’ve attended in recent weeks; the discussions I’ve been lucky enough to participate in as a result have contributed significantly to the views expressed in this article. They include:

No-one is going to pay cities to become Smarter

(The Bristol Pound, a local currency intended to encourage and reinforce local trading synergies.)

It’s been a busy week for cities in the UK; and we should draw important insights from its events.

On Monday, the Technology Strategy Board (TSB); Department of Business, Innovation and Skills; and the British Standards Institution were the sponsors of a meeting in London to establish a UK “Future Cities Network”. One of their objectives was to build a consensus from the UK to contribute to the City Protocol initiative launched at the Smart City Expo in Barcelona this month.

Wednesday and Thursday saw the society of IT managers in local government (SOCITM) hold its annual conference in Birmingham. This community includes the technology leaders of the UK’s city authorities; many of them are driving the transformation to shared public services in their regions; and exploring the opportunities this transformation provides to improve service quality and outcomes, as well as reducing costs.

Finally, it’s been a week of mixed news for Future Cities: the Technology Strategy Board shortlisted 4 UK cities as the finalists in their competition to host a £25 million “Future Cities Demonstrator” project.

This is clearly fantastic news for the cities concerned – London, Glasgow, Peterborough and Bristol – and they should be congratulated for their achievement. But it also means that 22 other cities who submitted proposals to the TSB have learned over the past two days that they will not benefit from this investment.

Whilst the TSB’s competition – and their progress in setting up the related “Future Cities Catapult Centre” – have been great catalysts to encourage cities in the UK to shape their thinking about the future, the decisions this week throw the real challenge they face into sharp focus:

No-one is going to pay cities to become Smarter.

The TSB investment of £25 million is astonishingly generous; but it will nevertheless be only a small contribution to the city that receives it; and the role of innovation stimulus organisations such as the TSB and the European Union’s FP7 programme is only to fund the first, exploratory initiatives; not to support their widespread adoption by cities everywhere.

The UK government’s “City Deals” are a great innovation that will give cities more autonomy over taxation and spending. But in reality they will not provide significant sums of new money; especially when compared to the scale of the financial challenge city authorities face. As the Local Government Association commented in their report “Funding outlook for councils from 2010/11 to 2019/20“:

“… councils will not be able to deliver the existing service offer by the end of this decade. Fundamental change is needed to one or both of … the way local services are funded and organised [or the] statutory and citizen expectations of what councils will provide.”

(A station on London’s Underground railway under construction in 1861, from the Science and Society Picture Library)

Some of these changes will be achieved through public sector transformation. The London Borough of Newham, for example, were recognised at the SOCITM Awards Dinner this week for their achievements in reducing costs and improving service quality through implementation of a successful transformation to online channels for many services.

This is a remarkable achievement for an authority serving one of London’s least affluent boroughs, demanding careful and innovative thinking about the provision of digital services to communities and citizens who may not have access to broadband connectivity or traditional computers. Newham have concentrated on the delivery of services through mobile telephones – which are much more widely owned than PCs and laptops – and  in contexts where a friend or family member assists the ultimate service user.

But local authority transformations of this sort won’t create intelligent transport solutions; or trigger a transformation to renewable energy sources; or improve the resilience of food supply to city populations.

In the UK, many of those services are supported by physical infrastructures that were first constructed in the Victorian era, more than a century ago. Through pride and vision – and the determination to out-do each other – the industrialists, engineers and philanthropists who created those infrastructures dramatically over-engineered them. We are now using them to support many times the population that existed when they were designed and built.

As competition for resources such as food, energy and water intensifies, driven by both a growing global population and by rapid improvements in living standards in emerging economies, these infrastructures will increasingly struggle to support us at the cost, and with the level of resilience, that we have become accustomed to. And whilst they are now often owned and operated by private sector organisations, or by public-private partnerships, the private sector is in no better position to address the challenges faced by cities than the public sector.

In the recent recession and the current slow recovery from it, many companies have failed, lost business, and reduced their workforce. And as the Guardian reported this week, whilst many business leaders take sustainability seriously and attempt to build it into their business models, the financial markets do not recognise those objectives in share prices; and do not offer investment vehicles that support them.

So if government and the financial markets can’t or won’t pay cities to become smarter, how are we going to re-engineer city infrastructures to be more intelligent and sustainable?

In my view, the key is to look at four ways in which money is already spent; and to harness that spending power to achieve the outcomes that cities need.

1. Encourage Venture Capital Investment

(Photo of the “Container City” incubation hub for social enterprises operated by Sustainable Enterprise Strategies in Sunderland)

The current economic climate has not stopped investors and venture capitalists from investing in exciting new businesses. Some of the businesses they are investing in are using technology to offer innovative services in cities. For example, Shutl and Carbon Voyage both use recently emerged technologies to match capacity and demand across networks of transport suppliers.

The systems that these businesses operate have the potential to catalyse local economic trading opportunities – and in so doing, safeguard or create jobs; to lower the carbon footprint of travel and distribution within cities; and to offer new and valuable services to city residents, workers and visitors.

Several cities, including Dublin and Sunderland, are engaged in an ongoing conversation with their local community of technology, business and social entrepreneurs to encourage and support them in developing new, sustainable business models of this sort that promote the social, environmental and economic objectives of the city.

These investments are not on the scale of the tens or hundreds of millions of pounds that would be required to completely overhaul city infrastructures; but they are complemented by the revenues the businesses earn. In this way, consumer, retail and business spending can be harnessed to contribute to the evolution of Smarter Cities.

2. Build Markets, not Infrastructure

Transport is an example of a city system that is not usually considered a marketplace; that’s one of the reasons why the entrepreneurial businesses that I mentioned in the previous section, which effectively create new markets for transport capacity, are so innovative.

But some city systems  already operate as marketplaces; such as energy in the UK, where consumers are free to switch between providers relatively easily. The fact that city infrastructures are already market-like to a degree is combining with trends in engineering to create exciting new developments.

As both international and national policies to encourage sustainable energy generation and use take effect; and as some fossil fuels become scarcer or more expensive, new power generation capacity is increasingly based on renewable energy sources such as wind, hydro-electric, tidal, geo-thermal and biological sources.

A challenge associated with some of those energy sources is that their generating capacity is small compared to their cost and physical impact. Wind farms, for example, take up vastly more space than gas- and coal-powered energy generation facilities, and produce only a fraction of their output.

(Photo by Greg Marshall of the rocks known as “The Needles” just off the coast of the Isle of Wight; illustrating the potential for the island to exploit wave and tidal energy sources)

However, for other power sources, a reduction in scale could be an advantage. The European Bioenergy Research Institute (EBRI) at Aston University in Birmingham, for example, exploit technologies that can recover energy from sewage and food waste. Those technologies can already be implemented on a small-enough scale that the city of Birmingham is setting up a local power distribution company to exploit a bio-energy power generation plant that EBRI will operate at Aston University. And the New Optimists, a community of scientists and industry leaders in Birmingham are considering on Birmingham’s behalf the possibility that such generation technology could eventually operate in city neighbourhoods and communities, or even within individual residences.

For all of these reasons, there is considerable interest at present in the formation of new, localised marketplaces in power generation and consumption. Ecoisland, a community initiative on the Isle of Wight, is perhaps at the forefront of this movement. Their objective is to make the Isle of Wight self-sufficient in energy; because their approach to meeting that objective is to form a new market, they are winning considerable investment from the financial markets due to the profit-making potential of that market.

3. Procure Infrastructure Smartly

City Authorities and property developers spend substantial sums of money on city infrastructures and related services. But the requirements and scoring systems of those procurements are often very traditional, and create no incentive for the providers of infrastructure services to offer innovative solutions.

Some flagship projects – such as Stockholm’s congestion-charging scheme and the smart metering programme in Dubuque, for example – have shown the tremendous potential of “Smarter” solutions. But their effectiveness is to some degree specific to their local context; relatively high levels of taxation are acceptable in Scandinavian society, for example, in return for high quality public service outcomes. Such levels of taxation are not so acceptable elsewhere.

There is tremendous scope for more creative and innovative approaches to procurement of city services to encourage service providers to offer “Smarter” solutions; Birmingham Science City’s Jackie Homan describred some of those possibilities very eloquently recently. The more urgently city authorities adopt those approaches, the sooner they are likely to benefit from the innovation that their infrastructure partners have the potential to provide.

(The Olympic flame at Vancouver’s Winter Olympics photographed by Evan Leeson)

4. Work With Ethical Investors

Finally, notwithstanding the challenges described in the Guardian article that I linked to above, some financial institutions do offer support for “Smart” and sustainable initiatives.

Vancouver’s “Change Everything” online community, for example, was an early pioneer in exploiting the power of social media to support social and environmental initiatives; it was created by Vancouver’s Credit Union, Vancity, a financial institution with social objectives.

Similarly, Sustainable Enterprise Strategies, who provide crucial support and incubation services to businesses and social enterprises in the most challenged communities in Sunderland, are supported by the UK’s Co-Operative Bank; and IBM and Citi-Group have collaborated to create a financing solution for city’s to invest in Streetline’s “Smart Parking” solution, which has reduced both traffic congestion and environmental pollution in cities such as San Francisco.

These are just some of the ways in which financial institutions have already been engaged to support Smarter Cities initiatives. They can surely be persuaded to do so more extensively by proposals that may have social or environmental objectives, but that are also well-formed from a financial perspective.

“The future is already here – it’s just not evenly distributed”

All of the initiatives that I’ve described in this article are are already under way. As the science fiction author William Gibson memorably said – in what is now the last century – “the future is already here; it’s just not evenly distributed”.

We should not wait for new, large-scale sources of Smarter City funding to appear before we start to transform our cities – we cannot afford to; and it’s simply not going to happen. What we must do is look at the progress that is already being made by cities, entrepreneurs and communities across the world, and follow their example.

Open urbanism: why the information economy will lead to sustainable cities

(Delegates browsing the exhibition space in Fira Barcelona at the World Bank’s Urban Research and Knowledge Symposium “Rethinking Cities”)

On Monday this week I attended the World Bank’s “Rethinking Cities” Symposium in Barcelona.  I was asked to give presentations to the Symposium on the contributions technology could make to two challenges: improving social and physical mobility in cities; and the encouragement of change to more sustainable behaviours by including “externalities” (such as social and environmental costs) in the prices of goods and services.

(In her speech ahead of the Rio +20 Summit, Christine Lagarde, Managing Director of the International Monetary Fund, said that one of the challenges for achieving a sustainable, equitably distributed return to growth following the recent economic challenges was that these externalities are not currently included in prices).

These two topics are clearly linked. The lack of access that some city communities have to economic and personal opportunity is in part a social consequence of the way that systems such as education, transport and  planning operate.

As human beings, however altruistic we are capable of being, each day we take tens or hundreds of decisions which, in the moment, are consciously or subconsciously based on selfish motivations. We drive cars to work because it’s quicker and more pleasant than using public transport; or because it’s quicker, easier and safer than cycling, for example. The accumulation of all of these decisions by all of us defines the behaviour of the cities we inhabit.

In principle we might all be better off – proximity allowing – if we cycled or walked to our places of work, or to school with our children. It would be safer because there would be less traffic; both the exercise and the reduction in pollution would improve our health; and we would probably talk to our neighbours more in the process. One of the reasons we don’t currently choose cycling or walking for these journeys is that we are too busy working to afford the time involved in doing so. Crudely speaking, we are in competition with each other to earn enough money to survive comfortably and to afford the lifestyles we aspire to.

(The Copenhagen Wheel bike photographed by Sujil Shah. The wheel stores energy under braking and uses it to power an electric motor when required and shares information with a smartphone app.)

Game Theory” – the mathematical analysis of human decision-making in groups – has something interesting to say on this subject. To oversimplify a complex and subtle field, Game Theory predicts that if we suspect each other of behaving selfishly, then we will behave selfishly too; but that when we observe others behaving in the common interest, then we are likely to behave in the same way.

So if we all knew that all of us were going to spend a little less time at work in order to walk with our children to school and then cycle to work, then we could do so, safe in the knowledge that individually we wouldn’t lose out, couldn’t we?

Obviously, that’s a ridiculous suggestion.

Except … in his plenary talk at the World Bank Symposium, Harvard Professor of Economics Edward Glaeser – author of “Triumph of the City” – at one point commented that part of the shift towards a more sustainable global economy might be for those of us who live in developed economies to forgo some monetary wealth in favour of living in more attractive cities.

So just maybe the suggestion wasn’t completely crazy, after all.

In Monday’s discussions at the Symposium we explored how sustainable choices could be made available in a way that appeals to the motivations of individuals and communities. We examined several ways to create positive and negative incentives through pricing; but also examples of simply “removing the barriers” to making such choices.

For example, if information was made available on demand to make it easier to plan a complete door-to-door journey using sustainable forms of transport such as cycling, buses, trains and shared car journeys, would people make less individual journeys in private cars?

Services are already emerging to provide this information, such as Moovel (a commercial offering) and Open Trip Planner (a free service using crowdsourced data). They are just two examples of the ways in which the availability of information is making our cities more open and transparent. At the moment, both services are too new for us to make an assessment of their impact; but it will be fascinating to observe their progress.

(The Portland, Oregon implementation of Open Trip Planner)

The lesson of Game Theory is that this transparency – which I think of as “Open Urbanism” in this context – is what is required to enable and encourage all of us to make the sustainable choices that in their collective impact could make a real difference to the way that cities work.

I’d like to explore four aspects of Open Urbanism a little further to support that idea: Open Thinking; Open Data; Open Systems and Open Markets.

Open Thinking

The simplest expression of Open Urbanism is through engagement and education. In the afternoon plenary debate at the Rethinking Cities symposium, the inspirational Jaime Lerner spoke of a city recycling programme that has been operating successfully for many years; and that involves citizens taking the time to separate recyclable waste in return for no direct individual benefit whatsoever. So how were they persuaded to spend their time in this way?

It simply began by teaching children why sorting and recycling waste was important, and how to do it. Those children taught and persuaded their parents to adopt the behaviour; and in time they taught their own children. In this way, recycling became a cultural habit. Jaime later referred to the general concept of “urban acupuncture” – finding a handful of people who have the ability to change, and understanding what it takes to encourage them to change – a bit like planting a tiny needle in exactly the right place in the city.

Open Data

The information available about cities, businesses, current events and every other aspect of life is increasing dramatically; through the Open Data movement; through crowdsourced information; through the spread of news and opinion via social media; and through the myriad new communication forms that are appearing and spreading every day. The availability of this information, and the awareness that it creates amongst us all of how our cities and our world behave, creates a powerful force for change.

For example, a UK schoolgirl recently provoked a national debate concerning the standard of school meals simply by blogging about the meals that were offered to her each day at school, and in particular commenting on their health implications.  And my colleagues in IBM along with our partners Royal Haskoning and Green Ventures have helped the city of Peterborough to understand, combine, visualise and draw insight from information concerning the environment, the economy, transport and social challenges in order to better inform planning and decision making.

Open Systems

The next stage is to develop models from this data that can simulate and predict how the many systems within cities interact; and the outcomes that result from those interactions. IBM’s recent “Smarter Cities Challenge” in my home city of Birmingham studied detailed maps of the systems in the city and their inputs and outputs, and helped Birmingham City Council understand how to developed those maps into a tool to predict the outcomes of proposed policy changes. In the city of Portland, Oregon – as shown in the video below – a similar interactive tool has already been produced.

(A video describing the “systems dynamics” project carried out by IBM in Portland, Oregon to model the interactions between city systems)

As data is made available from city systems in realtime, these models can be used not just to explore potential changes in policy; but to predict the dynamic behaviour of cities and create intelligent, pro-active – and even pre-emptive – responses. We can collect and access data now from an astonishing variety of sources: there are 30 billion RFID tags embedded into our world, across entire ecosystems of activity; we have 1 billion mobile phones with cameras able to capture and share images and events; and everything from  domestic appliances to vehicles to buildings is increasingly able to monitor its location, condition and performance and communicate that information to the outside world.

These sources can tell us which parking spaces are occupied, and which are free, for example. Streetline are using this information in San Francisco to create a market for parking spaces that reduces traffic congestion in the city. In South Bend, Indiana, an analytic system helps to predict and prevent wastewater overflows by more intelligently managing the city’s water infrastructure based on realtime information from sensors monitoring it. The city estimates that they have avoided the need to invest in hundreds of millions of dollars of upgrades to the physical capacity of the infrastructure as a result.

If such information is made openly available to innovators in city economies and communites, surprising new systems can be created. At a recent “hackathon” in Birmingham, an “app” was created that connects catering services with excess food to food distribution charities who can use it.

(The QR code that enabled Will Grant of Droplet to buy me a coffee at Birmingham Science Park Aston using Droplet’s local smartphone payment solution; and the receipt that documents the transaction)

That same information can create an appeal to our sense of community and place. The city of Dubuque in Iowa provides citizens and businesses with smart meters that measure and analyse their water use. They can detect when domestic appliances are used on inefficient settings, or when there is a leak in the water supply.

pilot project in Dubuque found that people were twice as likely to act on this information when they were not only provided with insight into their own water usage; but also provided with a  score that ranked their water conversation performance compared to that of their neighbours.

Open Markets

To return to the initial subject of this article, interesting new technology-enabled systems such as local currencies are emerging that could embed information from open city systems into the pricing systems of new markets within cities – and thereby quantify the cost of “externalities” in those markets. For instance, the Brixton and Bristol Pounds are local currencies intended to reinforce local economic synergies; and in Birmingham Droplet are now making their first payments through their local SmartPhone Payment system which similarly operates between local merchants.

We are on the cusp of incredibly exciting possibilities. Local currencies and trading systems could enable marketplaces in locally-generated power; or in localised manufacturing using technologies such as 3D printing. They could exploit distribution systems such as the one that Amazon make available to their marketplace traders; and underground waste and recycling systems that take waste and recyclables direct from the home to the appropriate recycling and disposal centres.

I can only image the city systems that might result if these capabilities and sources of information were made openly available to innovators within city communities. They could create solutions that are Smarter than we can imagine. Personally I’m convinced that this “Open Urbanism” is an essential part of the journey towards the sustainable city of the future.

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