Why Are Smart City Projects So Difficult?

Richard Budel

CTO, Government & Public Sector, Huawei Enterprise BG Western Europe

The history of Smart Cities goes back at least a decade; two or three decades if you look at projects like Amsterdam’s 1994 launch of the virtual digital city — DDS, or the De Digitale Stad — and even further back in time if you include the evidence-based, data-centric activities that led to the 1974 report “The State of the City: A Cluster Analysis of Los Angeles”.

And yet, in 2020, the question still remains: why aren’t our cities smarter?

There are a panoply of reasons, and certainly every city that has started its journey towards ‘smartness’ will have a unique set of characteristics. But here we’ll look at three of the most common challenges experienced by Smart City projects: lack of purpose, IT leadership, and finances. We will briefly look at these three areas from a West European perspective with the understanding that there are regional variations both within Europe and across the rest of the world.

First, we see an absence of purpose: when we talk about any kind of project or change initiative, we always say that one of the first conditions for success has to be a clear idea as to why we are changing, and what we hope to accomplish. In other words, there has to be an intent. And this is the first challenge we see in Western European cities — they have no need to change. Poverty? Nope, poverty is not an issue in Western Europe the way it is in other parts of the world. Public safety? No matter what the newspaper headlines might say, most European cities are extremely safe. Public finance? How many European cities have declared bankruptcy, the way Detroit or San Bernardino or Harrisburg did in the United States? Even environmental concerns, which surely everyone should be thinking about by now, don’t impact quality of life in European cities to the extent that they do in Mexico City (water supply, air quality), Beijing (air quality, traffic), or Manila (air pollution, water pollution, flooding).

Quite simply, European cities have the luxury of being lazy and inefficient, and powerful external drivers of change simply haven’t materialized. Yet .

“Historically most smart services have targeted the wealthier residents of the city, and further marginalize the most vulnerable citizens”

Second, we have the issue of IT leadership. Not that there isn’t enough of it, but rather that it’s coming from the wrong places. What we frequently see in cities is that, while there is an overwhelming desire to announce their ‘smartness,’ they don’t really want to invest their own money in the smart service projects. Instead these cities allow IT companies to take the lead role in deploying smart services, and the companies can have the licenses to operate and make their profits as long as they pay the deployment costs themselves. And many companies, funded by the billions of euros that feed the IT and start-up economies, are happy to fill the breach. But the result of this approach is that the cities get cut out of the value chain, and the IT companies take over the relationship with citizens, keeping the financial benefits of services delivery. And because this is a profit-driven model, we see that historically most smart services have targeted the wealthier residents of the city, and further marginalize the most vulnerable — crucially, the poorer segments — of the city.

Third, and finally, we have the financial challenge. West European cities tend to fund their projects using a few different vehicles:

We have the vendor-funded option we described above, with its peculiar problems and outcomes.

“3P, PPP, or Problem-Problem-Problem”

Also common is the Public-Private Partnership (PPP) — or Problem-Problem-Problem! — funding model that has evolved from usage in major infrastructure projects for transportation, for example the construction of new highways. In principle, this can be a very successful means of financing Smart City projects, but the governance of this model is often beyond the capability of all but the largest and most mature cities, and the complexity of the model introduces multiple points of weakness.

Theoretically attractive, then, but practically quite challenging.

“Financial pain is very, very good for focusing a project”

Alternatively, the investment model is where cities borrow money from public or private investors with the intention to repay the loan using the accumulated benefits of the smart service. A very successful example is seen in the case of Smart StreetPoles, where the cost-savings generated by the roll-out of energy-efficient LED luminaires, plus the revenue-generating possibilities of selling 5G, Wi-Fi, or advertising space, allow for a financial Return on Investment (ROI) that’s very useful in paying back the original loan. The problem is that not all smart services generate such an immediate and positive ROI. And on top of that, financial pain is very, very good for focusing a project. Conversely, when you have a lot of ‘free’ money from investors, we often see that cities lose focus of the end-result. They extend the scope or try to do too much, so that when the time comes to start the repayment plan, they simply have not achieved the financial benefits they expected, and repayments now have to come out of taxpayer funds and at the expense of other services.

Smart City projects are complicated. They are often positioned as IT projects, and most governments don’t do IT projects well. Commonly, they lose focus and direction. But they are important — too important to be unsuccessful. In future posts, we’ll talk about successful Smart Cities, what they have in common, and how we can make success repeatable and predictable.

We’ll also explore what IT companies should, and should not be doing in order to achieve Smart City success.