Over the next 20 years, cities around the world will invest roughly $41 trillion to upgrade their infrastructure to benefit from the Internet of Things (IoT), according to the Smart America Challenge forecast. However, money doesn’t grow on trees and not all smart city projects have the same RoI–so cities need to make sure they invest wisely.
John Macomber, senior lecturer of business administration at Harvard Business School, emphasizes that public-private partnerships can lead to smarter cities in his new paper “Smart Cities are Complicated and Costly: Here’s How to Build Them.” However, local governments should evaluate their smart city investments based on three dimensions–specific characteristics of the city, capital requirements, and the decision-making process. Here’s a primer on Macomber’s musing to whet your appetite to read the paper.
Location, Location, Location
Macomber highlights a seemingly obvious, but often overlooked fact–all cities are unique. When it comes to smart city technology, it’s easy to jump on the bandwagon and deploy technologies being used by other cities. But, Macomber stressed that each city is grappling with unique circumstances–from geography to demography–and that drives different urban solutions.
He recommends that city officials and private-sector leaders should look to the state of each city’s infrastructure, both hard infrastructure–roads, water systems, and buildings–and soft infrastructure–taxes and regulations–to determine what solutions make sense. As Macomber points, the kind of “smartness” that improves livability for a resident in New York City may be quite different from what fits in Burlington, Vermont.
Money, Money, Money
Starting a smart city project can be intimidating. Most smart city solutions have significant upfront costs before realizing cost savings or quality-of-life gains. Macomber suggested cities “revisit what financial parties look for in a traditional concrete and steel infrastructure investment.” He focuses on the three Ps–payment, predictability, and permissions. Cities and smart city innovators need to ask themselves Macomber’s four questions:
- How will we repay our loan or investment?
- How dependable or at risk is cash flow from the app or gadget?
- Whose permission do we need–environmental permits, land rights–before starting?
- Whose permissions, if withdrawn, can cut off the cash flow stream–tariffs, taxes, prohibitions?
Smart city projects have a wide array of stakeholders from citizens to philanthropists to government leaders and private-sector companies. With that in mind, Macomber explains that city leaders must understand that smart city solutions come from a variety of sources.
He notes that some technologies will percolate up on their own–Airbnb and Uber spring to mind. No government was involved in the creation of Uber, but it’s now part of the transportation infrastructure in many cities. Other technologies require central investment and control, such as smart street lights or smart law enforcement technology. Macomber observes that integrated solutions are hard for private-sector companies to accomplish on their own.
With $41 trillion on the line, and huge pent-up demand for infrastructure modernization in our urban areas, we need to measure twice and cut once. We can’t afford to make stupid decisions about smart cities…