June 21, 2012
If there is one theme that jumps out of my most recent client discussions, it is the need for business smarts in our approach to smart cities. Cities are faced with a barrage of vendor solutions pitched as the holy grail of X, where X is public safety or transportation or some other city department. I feel like the smart city discussion has reached of fevered pitch with conferences, congresses, expos and summits cropping up around the world. But what is real and now as opposed to truly aspirational and future?
- Smart computing is really about putting together the right pieces of technology, not about any particular smart technology. Yes, the ability to capture and aggregate data is important. But so is the ability to share information and collaborate. A new Forrester report on smart computing addresses the realization that “smart” is really about finding the right solution and leveraging the new technologies available to better connect both machines (and information) and the people who can use them. It’s less about smart technology and more about using technology to get smart, or really using technology intelligently. (I really wanted to say “smartly” but couldn’t do it).
- Cities often need to start by putting the foundation in place, rather than starting with the shiny new technology. Last week a group of analysts was asked how much of “smart city” activity was about smart technology, and the response was about 8.6%. Less than 10% of “smart city” investments are about sensors and analytics. Most of the investment is not in the cool new technologies but rather in laying the groundwork. For most cities, outside of the marquis or big brand name cities like New York, Singapore, London and Rio de Janeiro, getting smart is about improving communication networks, rationalizing back office appliciations, and consolidating the infrastructure they sit on. Cities recognize the value of “book smart” over “street smart.” Fortunately, several vendors I spoke with last week seem to get that, and are eager to help customers in their more back-to-the-basics approaches to getting smart.
- Business models matter as much, and perhaps even more, than the technology itself. The ideal business model is one that makes the project self-sustaining either through revenue generation or through cost reduction. Performance-contracting, as one example, embraces the latter. These business models are based on creating efficiencies in enterprise applications and IT infrastructure, or in better managing operational costs such as resource and asset management. Consolidating apps and rationalizing infrastructure reduce license costs. Better water, energy, or lighting management reduces utility bills. Better space optimization reduces real estate expenses. And, vendors enable these savings by taking on part of the risk through performance contracting. Schneider Electric clearly understands the value of performance contracting, and so do their city clients. Houston, Texas certainly does. After audits to establish resource consumption benchmarks, Schneider Electric performed retrofits on 26 city buildings in two phases. The retrofit will lead to annual savings of $2.5 million, guaranteed by Schneider for 15 years. In this way, outcome-based pricing models really enable smart city evolution. Savings justifies investment; but the risk is shared. The investment is only actually made if the savings is achieved. Eventually, those savings can be channeled to additional smart city initiatives.
In short, real smarts is about business smarts, not necessarily smart technology. It's about pragmatism. It’s about recognizing the value of the shiny new object, but being able to ignore it long enough to build a solid foundation on which to put it. It’s about using technology intelligently, rather than focusing on what’s new and cool. And, it’s about figuring out the business model to sustain the investment in the shiny new object – when the time is right to buy it.