Smart Cities and business networks: Services challenged


“The challenges of a Smart City are interconnected. To address one, the city must be aware of the others, and how they relate to each other”

The “Europe 2020” Strategy pursues to overcome the crisis and the position shift of Europe, promoting three lines of prior investment: smart, sustainability and inclusive growth.

The underlying purpose is to promote an economy with a high rate of employment that favors social and territorial cohesion, a more efficient economy in terms of eco-friendly and competitive use of resources and, last but not least,an economy based on knowledge and innovation, improving the quality of education, strengthening research, and promoting innovation and the transfer of knowledge throughout the EU. Very recently, Mr Barroso (2012) has stated that Europe needs to invest in new technologies and innovation, as the EU is on the eve of a new technological era, where new and cleaner technologies will change production patterns as well as the global value-added chain. He is convinced that the EU cannot afford to miss the opportunities brought by these changes.

The Europe2020 strategy develops the dissemination of intelligent networks using ICT, suggesting to exploit network advantages at the transnational scale and to increase the competitive gains of firms, especially in the manufacturing industry and SMEs, providing assistance to consumers to evaluate the efficiency of production.

ICT allows Smart Cities to use city data to enhance citizens’ daily lives. City managers around the world confront shrinking budgets, but new and emerging digital tools can help make city services both more visible and more effective. These innovative technologies allow cities to save money, minimize waste, improve transport management and measure domestic water use (MIT Sloan Management Review and Capgemini Consulting, 2013). Innovations in ICT, together with new organizational practices, started its development along the 1990s and make it possible today to organize around what can be done with information. These changes are not the result of information technologies per se, but of the combination of their features with organizational arrangements and practices that support their use (Sacristán Díaz et al. 2003, 2004, 2005)

In this article I will try to illustrate that business networks, network relationships and cooperation, favored by the adoption of ICT as in the Smart Cities environment, are an essential determinant factor for growth and competitiveness, particularly as it concerns to the strategic role that manufacturing and supply chain networks play within such business networks.


Business Networks, Operations Management, and Supply Chain Networks flourish in Smart Cities

It is well known that the driving force behind business networks is the focus on core competencies. A company should concentrate on value-adding activities, which are part of its core competencies, underlying its competitive advantage and acquiring other competencies from the business network. Investing in sustainability, as promoted by the Europe 2020 strategy, means a fundamental change of industrial paradigm: from pure cost orientation to a sustainable production process which not only reduces CO2 emissions but also adds more ecological features to the final products. Varying combinations of digital technologies like Social Media, Mobile Data and Devices, Analytics, Embedded Devices and Sensors, and Cloud-based computing provide significant opportunities for business model innovation and new forms of wealth creation. In the course of this process, service and operations management can play a central role by creating and implementing new technologies for future products and transformation processes (Kretschmann, 2012).

Technology and organizational form and function have been of interest to organization scientists for over 60 years. ICT has supplanted many of the coordination and control roles of hierarchy, creating the opportunities for new forms of organizing that focus on process instead of function. It is no longer possible to design or modify organizations without recognizing that ICT is part of the organization. Business networks and network relationships may have a positive effect on the course of operations - service and/or manufacturing, and logistic processes inside the firm, which together contribute to an increase in effectiveness, increasing bargaining power against other entities, as well as to cost minimization and risk reduction. The execution costs of individual operations, which other network participants can carry out cheaper (and better), are also critical. It should also be mentioned that all of these benefits are interlinked and, for example, resources acquired thanks to network relationships could both facilitate an increase in innovation as well as allow the company to take advantage of market opportunities (Ratajczak-Mrozek, 2013).

Business networks may be a source of many potential benefits for a company, which in turn may contribute to its growth and competitiveness. In this article we consider manufacturing networks (such as suppliers collaborating to provide goods to a large manufacturer), supply chain networks (collaboration to buy and /or to sell things together), service networks (collaboration to offer a common service) and social networks (informal relationships). Network relationships may be established and maintained with different groups of entities (such as customers, suppliers, influential entities and competitors), and at different levels, i.e., the local, the national, and when the relations are extended beyond the local, country framework, the networks become global ones. Networks facilitate joint activities and enable the acquisition of resources that are at the partners’ disposal and also give the ability to obtain resources unavailable thus far to any of the parties. One such important resource is knowledge, since its unique integration is the factor which can differentiate a company. Learning processes are amplified in particular by network relationships. Empirical data confirms that large innovative projects are developed, managed and commercialized within business networks rather than by single enterprises. The importance of informal relationships in acquiring resources should be also stressed. Informal contacts may include simple personal contacts between company representatives as well as the farther-reaching form of cooperation of experts. Informal relationships also lead to a more effective transfer of information and know-how, since strong social relationships provide access to trustworthy information, whereas more accurate information improves decisions and limits risk. Due to the exchange of resources and knowledge within a business network, it is possible to increase the innovativeness of the company and its products. Vertical relationships (with suppliers and customers) and horizontal relationships (with research institutes, competitors or complementary companies), as well as social networks, influence a company’s level of innovation. In turn, innovation is crucial for a company’s growth and competitiveness, even more so under global competition conditions.

The supply chain can be defined as a network of connected and interdependent organizations which act on the basis of joint cooperation, jointly control, manage and improve the resource and goods flow from suppliers to the final consumer. The great importance attributed to cooperation with entities within the supply chain is connected with positive results, which are more quickly and more directly noticed, and which may be connected with cooperation within the supply chain. The development of close relationships with customers is a key area of companies’ operations, especially within business to business (B2B) markets. Close cooperation with customers offers a wide range of benefits to companies. It enables the reduction of service costs and facilitates the development of customer loyalty. Additionally, it enables the development of a product offer tailored to the individual needs of customers, due to including them in the product development processes. In turn, close cooperation with suppliers can lead to a significant reduction in costs thanks to the implementation of appropriate logistic solutions, just-in-time delivery or joint product improvements, etc. Attention should be also drawn to the huge importance of utilized materials on end-product quality.

For high-tech companies, due to short life cycles, niche products (services), limited demand on domestic markets and usually a long development processes, concentration on business networks and especially cooperation within the supply chain may bring satisfying results; this may be secured by cooperation and business networks.


Service and manufacturing companies operating in Smart Cities

Smart Cities are basically based on core systems (Dirks, 2009) which are a key element to their operation and to their development; each of them had their own challenges and threats to sustainability, but all of these challenges are interrelated and need to be dealt with in a holistic way. Challenges are interconnected and to address one of them, cities need to have an awareness of the other ones and how they relate to the other issues that cities want to address. Dirks (2009) suggests that there are six key systems: people, business, transport, communication, water, and energy systems. Each of them faces individual challenges wherein diverse networks play different roles.

Companies -either public or private ones- attending the “people system” operate in the human and social networks. Several service operations are in charge of providing public safety, like fire brigades, police departments, disaster recovery specialists, health, education and the whole concept of quality of life.

Administrative offices and service and manufacturing companies offer service operations related to regulation and policy environment, planning regulations, openness towards foreign trade and investment, labor & product market legislation, as well as anything related to the business system of the city. The prosperity of cities is highly dependent on their economy and their ability to attract and retain business. Therefore, firms working in this system have a key role to play in assessing other entities devoted to serve other systems.

The third system considers the transport systems for goods, services and people. Companies in this system have to provide citizens with those services and products related to a city's road networks, its public transport networks, its sea and airports. These companies face two key challenges in most cities: congestion, and pollution, which in turn create a great cost implication.

The fourth is the communication system, which features the movement of data and information among companies, administration, and citizens. Firms operating in the telecommunications infrastructure of a city, like telephony, broadband, and /or wireless networks, have to prove their ability to access and communicate information, which is a fundamental element in the modern economy in a smart city.

The fifth system is devoted to the two basic utilities of the city, i.e, water and energy. Water is an essential utility of the city, and its proper management includes the whole water cycle from water supply all the way to sanitation. Water related firms are influenced by issues like the lack of water and the distance from which the water in some cases has to be pumped to the cities, as well as the issue of flooding, and many large cities are port cities. Sanitation and the quality of the water that is supplied to the city is other outstanding issue - and there is a huge avenue of water management improvement ahead of us!

And then there´s the sixth system, energy, in which good functioning is essential for power generation and transmission. Furthermore, organizations in this industry have to deal with the waste disposal aspect of energy as well. It’s a challenging system: firms will edge the source situation in terms of they have a resource shortage for energy and they also have the pollution issue. There is the issue of depletion and there are also issues associated with many of the non-renewable energy sources, whether it's the nuclear energy or CO2 emissions, etc.

The cities of today have a great opportunity before them: the use of smart, sustainable and inclusive technology to transform their core systems and maximize the use of finite resources. Technologies that allow us to measure, monitor, manage and optimize our use of finite resources, to create new insights and help decision making for the city.


Concluding remarks

This article allows us to broaden the scope of OM by avoiding the narrow view of firms/supply chains as isolated entities dissociated from the urban environment. Although some researchers in OM have introduced the contextual conditions in the analysis (e.g. OM practice contingency research – see Sousa and Voss, 2008), the focus is still on assessing how the context affects the effectiveness of the practices. Since the environment can affect not only the practices’ effectiveness, but also their planning/implementation, an examination of the interfaces between the urban environment and OM topics is critical.

Through the exploration of the interfaces Smart Cities/OM-SCM, Mendonza, Montes and Alvarez (2013) try to uncover “two-way” research opportunities: On one side, the likely impacts of “smart city” dimensions on traditional OM (i.e. “what are the implications of “smart city” policies on the traditional OM practices?”). By example, a possible research theme would be to investigate how city incentives to “green buildings” affect strategic decisions on the operation of plant facilities. On the other side, one may see traditional OM tools being applied to solve “smart cities” problems (i.e. “which OM techniques can be used to implement a “smart city” strategy?”). Another research theme could be, for instance, how the combined use of real-time information and resource planning methods allow public emergency services (e.g. fire and police departments) to respond quickly to threats. These authors show a strong confidence that there is a vast opportunity of academic research lines derived from the analysis of the interfaces between “smart cities”, S&OM, and SCM.

Summarizing previous epigraphs, the outstanding benefits derived from building relationships within business networks and cooperation in smart cities sceneries are:

  • New business opportunities,
  • Cost reduction,
  • Access to resources and capabilities, including knowledge,
  • Increasing the innovativeness of the company and its products,
  • Reducing operational risk,
  • Increasing bargaining power against other entities,
  • Benefits of specialization,
  • Economies of scale and increased market range (at the local and international level).

From the point of view of Service and Operations managers, business networks facilitated by the intersection of ICT and organizational features may allow firms to visualize entire work processes, improved real-time/flexible product and service innovation, reinforced virtual and mass collaboration, and simulation/synthetic reality.

I share Dirks (2009) conviction that smarter systems can help a city improve its sustainability and achieve its main goals - the financial, economic, environmental and social ones. The bad news is that large parts of the worldwide population still don't have access to the internet or to ICT, and that portion includes city populations in many cases, and there are still big differences between cities regarding the broadband penetration, broadband pricing and affordability and broadband bandwidth.


María José Álvarez Gil

Catedrática de Organización de Empresas Universidad Carlos III de Madrid.

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