“Cities compete with each other in order to be attractive to talented people, to attract initiatives with the capacity for wealth creation and to offer opportunities"
"A Smart City is one that uses technology to improve the efficiency of public services, and provides its citizens with resources to improve their quality of life"
There are many cities around the world that are opting to be converted into Smart Cities. The concept is ambiguous and provides multiple definitions, but which have the use of technology to improve the sustainability and efficiency of public services as a common element.
This supposes a paradigm shift in the model as well as consumption and mobility habits in order to facilitate a more sustainable and human city. Requirements for economic efficiency, innovative governance and the management of public services have been added to this position, with the aim of reducing costs via integrated action on a macro-municipal scale.
However, the fall in tax revenues caused by the recession has led to a drastic reduction in municipal budgets which, combined with higher financing costs, make it difficult to undertake transformational projects in cities. This reduction in budgets is forcing cities to look for new ways to transform themselves and deliver their services more efficiently.
The European Union, aware of this environment of widespread constraint on government budgets, is opting for programmes and financial tools that allow cities to undertake urban transformation projects. This is being done while contributing to the sustainability of urban environments, improving the efficiency of urban services, reducing the cities’ carbon footprints and stimulating the creation of an innovative environment, favourable to the development of technology companies. Thanks to these programmes, over 200 Smart City projects have been funded through various EU initiatives providing €1,900 million in grants between 2007 and 2013.
Spain and Smart Cities
Local Spanish governments, pressured by falling tax revenues and a society increasingly concerned with the efficiency and sustainability of public resource management, are promoting Smart Cities projects and initiatives.
Because these projects are highly innovative and do not have any previously tested results, there are not many business cases that ensure their viability, not many established indicators that allow a comparison between the evolution of different projects, and no alignment between the projects’ objectives and the city's real needs in most of these initiatives.
The sources of financing for these projects are diverse. The European Union, which is the main source, has provided 40% of the funds and 33% has been obtained through public-private partnerships between the councils and various companies. The cities have contributed 15% of their resources and finally 12% of the investment has been provided by private companies in pilot projects to test particular technological concepts.
The council as the city’s management axis
A city’s performance areas are defined by its municipal services. These cover areas as diverse as public safety, its relations with the public, social services, the environment, mobility, promoting tourism or urban infrastructure. These services are managed primarily in two ways: directly, as with the police and the fire brigade, administrative or social services, while there are other services which are run by private companies under municipal supervisión, such as: cleaning, the management of waste or green areas. Consequently, the transformation of services is highly complex at heart and it is the council who should lead the Smart City transformation project.
How to tackle a Smart City transformation project
The city is a complex ecosystem that encompasses different entities. We can define an urban area as an economic and social centre, which offers a set of infrastructures and services to improve its citizens’ quality of life.
In this context, cities compete with each other in order to be attractive to talented people, to attract initiatives with the capacity for wealth creation and to offer opportunities. This wealth creation is achieved through a creative, dynamic and innovative environment where new ideas flow and where people of diverse backgrounds converge and interact with each other. A Smart City is one that uses technology to improve the efficiency of public services, and provides its citizens with the resources to improve their quality of life. But a Smart City project needs to be tackled in a global way, and with consensus, taking into account the needs of the main actors who interact within it:
The public, who demand better and more efficient services that help increase their quality of life, employment opportunities, and transparency in public administration.
Institutions and local companies, composed of SMEs and research centres operating in the city that are looking for a dynamic and innovative environment and the availability of talent.
Technology Companies that must ensure the viability of the proposed technological solutions for the transformation of urban services.
Companies providing urban services which, given that Smart City projects involve large changes in the traditional delivery of services, a prior agreement must be sought on both the new service delivery model and the new indicators measuring it, to ensure the viability of the proposed solutions and to ensure the profitability of the services provided.
And finally, the council itself, which must act as a leader in these kinds of projects, mediate in the involvement of the ecosystem’s different actors, and ensure that the results are aligned with the city’s goals.
Once the strategic lines of the city are defined, what are their goals, the roadmap to be established, the necessary steps to follow, the actors involved, the legal framework, the technology to be introduced and the funding sources to develop the project? A holistic methodology is used and which is structured via six fundamental dimensions:
- Strategy: Comprises the results of analysing different municipal services, in addition to defining the reorganisation and preparation of the business case.
- Operation: Consists of evaluating the impact on the value chain and defining new service delivery processes.
- Governance Model: Relates to the definition of indicators which measure the municipal authorities’ performance in order to promote transparency and information sharing between the different municipal services.
- Technology: Refers to the management of the large volumes of information generated in real time, as well as the integration of Smart City technology platforms (M2M, BigData, mobile apps etc.) with the current systems.
- Finance: An analysis of the budgetary situation, public funding initiatives or public-private partnerships will be carried out, as well as search for financial partners to become involved in this type of project and obtaining tax deductions for R&D investment.
- Legal: Last but not least, is the undertaking of a study into the current contractual situation. From this, the new Smart model with its implications reflected in the public service tenders which provide controls based on service quality indicators, will be specified.
Despite the lack of results for current projects, Smart Cities are increasingly becoming a priority for the European Union. Within the Horizon 2020 programme, a ten-year strategy for the EU’s Smart, sustainable and integrated growth, funds amounting to €16,000 million will be allocated. This is eight times more than the Seventh Framework Programme, the programme prior to Horizon 2020, received.
This increase in funding is going to be linked to an increase in the requirements of projects to be financed. As an example, defined indicators to measure the project’s impact are going to be required or a strategic project plan to be drafted which is aligned with the main features of the city’s programme and objectives.
Ultimately, Smart City projects are an opportunity to improve cities and the quality of life of their inhabitants. A consensus has to be reached between all the parties involved and it must be aligned with the city’s strategy. Additionally, and thanks to the financial instruments made available by the European Union, this is an industry with a high growth potential in the coming years.
By Manuel Machado Alonso
Director Emerging Strategic Technologies Consultancy Deloitte