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Smart Cities: Cities reach the inflection point

Cities get pressured to ‘do new (things) with less (budget)’. To overcome this dilemma, city officials start partnering with high-tech companies to make service delivery and operating models smarter through the use of digital technologies, such as the Internet of Things (IoT), big data and analytics, mobile, cloud computing and more recently artificial intelligence and virtual reality.

Being part of the global Future Cities team at SAP SE, we help cities to use these innovative technologies to re-shape their values to their citizens and local businesses – and by doing so, get them ready to become true smart cities.

Some cities, such as Amsterdam, Barcelona, Boston, Copenaghen, Dubai, Helsinki, Hong Kong, London, Melbourne, New York, Paris, San Francisco, Seoul, Singapore, Tokyo, Toronto, Vancouver, Vienna and Zurich, are leading the way today, according to global rankings[1]. Other cities are being built from scratch with digital technologies embedded in their urban infrastructure[2]. However, so far only very few cities have been able to revolutionize the way they deliver services, hence improve livability, economic competitiveness, security and safety, and environmental sustainability for their residents and visitors. For example, according to analyses carried out by IDC in 2016 and 2017, over 50% of cities, in both Europe and the US, are at the early stages of their smart cities roadmap[3].

But why have cities not been able to disrupt in their key service domains yet?

Shrinking government budgets and limited skills due to looming retirement of many civil servants, siloed approach to tackling problems at the departmental level, with a focus on technology, and immaturity of business models have been major barriers to achieving the intended benefits. Many, both technology providers on the supply side and cities, local utilities and transit authorities on the demand side have associated the term “smart city” with the smart devices used by citizens, tourists, governmental workforces, and pursued fragmented outcomes within the strict organizational boundaries.

Nowadays the market has reached an inflection point. An increasing share of city leaders, business leaders, academics and politicians around the world understand that a smart city is NOT just a siloed technology driven project led by a single municipal government jurisdiction. A smart city shall connect and embrace its entire ecosystem across the city or metropolitan region, to drive transformation. The transformation of a smart city uses technologies and data – way beyond the smart devices - to trigger process and business model innovation to deliver value to its constituents.

City leaders experience increasing pressure to cope with a multitude of wicked problems. They need to do things differently, or in other words, like we say in the introduction, they really need to push the envelope in terms of disruptive innovation “to do new with less”, because:

  • urban population continues to increase

  • traffic congestion harms the economy and the health of the urban

  • energy and water supply become more expensive and difficult to sustain

  • extreme weather events put entire cities at risk and

  • the fourth industrial revolution, or industry 4.0, takes economic competition to attract businesses and talents to a whole new level

At the same time, technology has matured so that a platform based approach can provide the architectural scalability and agility to connect the core business processes, such as finance, workforce management, procurement, capital asset planning and operations, with innovative capabilities, like machine learning for improved revenue collection, blockchain for identity management, omni-channel citizen engagement, internet of things for smart infrastructure, and autonomous, connected, and electric mobility for multi-modal transportation.

Smart Cities can drive better outcomes through technology-enabled innovation

Technology is now a key enabler and trigger to transform service delivery across city domains, such as governance, transportation, people, economy, environment& resource (see figure 2).

Cities all over the world and start-ups in their local ecosystem are coming up with new use cases for smart lighting, multi-modal transportation, public safety and citizen experience all the time. Getting tailored solutions is not an issue for them. The real challenge to transform the services across the city domains is to go beyond the point-to-point technology centric solutions, in order to leverage technology to really drive the value in three key areas:

  • Ecosystem innovation - Cities cannot achieve the intended benefits alone. They must partner with local utilities, transit authorities, local businesses and community organizations. They are facing complex problems that require an encompassing approach to bring knowledge and solutions from multiple stakeholders to the table. Think of how the City of Antibes in the South of France leveraged the power of the collaborative partnerships with Veolia their water utility, SAP Labs leveraging SAP Leonardo digital innovation system, Sigfox IoT edge connectivity solutions to securely controls its water management system and now it’s extending the concept to more effectively monitor local video cameras to keep the public safe[4].

  • Process innovation – Incremental efficiency increases are not sufficient any more. Digital is transforming process flows. In interactions with citizens for instance, city governments, local utilities and transit authorities cannot rely any longer on a call center, a static website and a couple of apps. They need an omni-channel platform to enable personalized, convenient and consistent citizen experiences. Cities must overcome a siloed view of government-to-citizen interactions. They must build a 360° view of citizen needs, integrate front to back end processes to increase responsiveness and happiness.

  • Business model innovation – Shortage of funding is spurring creativity to increase service personalization and efficiency. Revenue sharing models, and data monetization through microtransactions are being tested by various jurisdictions to find new sources of financial and operational sustainability. A city in Eastern Europe in is piloting a new freemium service, whereby atelecommunication provider supplies free Wifi access to the people in the city. In exchange, the city allows the Telco provider to re-use anonymized data collected from the Wifi accesses to sell insights about the flow of the people in certain parts of the city to local retailers and tourist attractions that want to launch tailored promotions.


The current pace of technology innovation makes it almost impossible to predict what will happen 10 or 20 years from now – what business models will emerge, how the city ecosystem will develop, how operating models will be overhauled. So we think it is important that cities set the business capability and technology architecture foundation as the platform to start their journey anywhere so they can get everywhere. Cities can take different components of the reference architecture as their starting point, also because they have to take into account many legacy systems and processes that they have implemented over the years. Some of them start from an an intelligent suite of integrated applications that supports front to back end process integration. Or they can start by laying the foundation of a next-generation data management and cloud platform. They can start from a toolbox of intelligent applications, technologies and industry-led innovation services, to bring intelligence to citizens and government employees to experience their daily life through the city in a more efficient and immersive context. They can deploy better data orchestration, access to a growing number of intelligent use cases, and stronger integration capabilitiesthat can deliver insights for evidence-based policy, service management and operational decisions. No matter where they start from, the important thing is that their technology architecture roadmap embraces an end-to-end intelligent digital transformation strategy as a trigger to re-shape value creation. To take the right decisions from planning to executions, city operations leaders must engage with the smart cities ecosystem and with policymakers that set the framework for smart cities to flourish. They must think of how to leverage innovation to improve outcomes for constituents and be open to the things / scenarios we are not thinking of today, but that will determine the fate of cities in terms of livability, economic competitiveness and sustainability in the future through ecosystem innovation, process innovation and business model innovation.


Massimiliano Claps, Global Vice President, SAP Future Cities

Simone Maienfisch, Global Director, SAP Future Cities





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