The Smart Way To Build Smart Cities

Much promotion of smart cities assumes that municipalities will take a proactive, top-down, technology-first approach to urban progress. Thus far, these initiatives look for some forward-thinking city official (or immensely deep-pocketed private investor) to write a big purchase order for a lot of hardware and software, in the same way an industrial company like Procter & Gamble buys a multimillion dollar SAP install.

But most cities don’t work like corporations. They tend to be both siloed (so departments don’t work on solutions together, let alone work in conjunction with pilot project sponsors) and strapped for cash (so there is no budget for experimentation). This constraint means that city leaders often can’t take the lead in fully vetting, designing, and overseeing new technologies and business models. The result: Innovative and aggressive vendors have room to step into the breach and implement concepts and ideas on their own, with results that often favor elites (or descend into ineffectiveness) over good public policy.

I believe public-private partnerships can lead to smarter cities. But a truly smart smart city investment requires looking at three dimensions: characteristics of cities, capital requirements for various initiatives, and the decision-making process. I suggest decision makers in these initiatives follow an analytical sequence of situation, solution, and sovereignty.


First, cities are not alike and it’s naïve to approach either decision making or smart city technology (or investing) without this consideration. As McKinsey & Co. authors pointed out in a recent article on The Future(s) of Mobility, mayors, investors, and companies need to examine at least four combinations of wealth, growth, and density:


  1. Dense cities in developed economies. Tokyo is an example of a very densely built out city in a mature economy.
  2. Dense cities in emerging economies. Mexico City has a significant urban core but is still managing the characteristics of a demographically young nation.
  3. Low-density cities in developed economies. Houston is a sprawling low-density city in a developed economy.
  4. Low-density cities in emerging economies. Lagos, Bangalore, and Jakarta are low-density cities covering expansive horizontal areas with informal settlements in nations still working on substantial transit, governance, finance, and social service institutions.

In my research these configurations have very different installed hard infrastructure (roads, water, buildings) and very different installed soft infrastructure (bureaucracy, land rights, tax rolls). The kind of “smartness” that changes the life of a resident of Japan is a lot different from what constitutes a life-changing tool in Nigeria. What is the situation in which decision makers finds themselves?


Second, technology projects are quite different not only in the ambition of their programming, but also in terms of capital required, who pays for what, and who benefits. “Wi-Fi everywhere” is a lot cheaper to install than a state-of-the-art storm water management and flood resilience program. These are solutions—the how and the why. Considerations of “how expensive” and “why this is good for citizens” vary immensely and can’t just be lumped into some pool of tech dreams of the smart city industry.


Third, and most overlooked, is the question of sovereignty. In any given location, who decides what gets done? Which decisions will be made by innovators from the private sector, by visionaries in civic entrepreneurship, on apps, by public acclaim, or “other”?

Some technologies seem to percolate up on their own—most notably shared-economy ideas like Airbnb and Uber. No government planned these, but it’s hard to argue that Uber is not part of transportation infrastructure in many cities. Other technologies need central investment and control—for example, congestion pricing and traffic signal coordination seen in London or Singapore. That kind of integrated solution is hard for an upstart firm to accomplish on its own.

How to pay for it?

To succeed in any of these situations, looking at most types of solutions, and before even considering sovereignty, it’s useful to revisit what financial parties look for in a traditional concrete and steel infrastructure investment. It’s the same for smart city infrastructure.

The classic concerns of centuries still apply today: payment, predictability, and permissions. What’s the source of repayment of our loan or investment in that tool? How predictable, dependable, or at risk, is that cash flow from the application or gadget? Whose permission does the sponsor need (think environmental permits, land rights) before starting? And the inverse: whose permissions, if withdrawn, can cut off the cash flow stream (think tariffs, taxes, prohibitions)?

The future is starting

Proposed “ground up” projects fill the news: Sidewalk Labs, the smart-city subsidiary of Alphabet Inc., has announced plans to create a high-tech neighborhood in Toronto, Quayside, that promises to combine “the best in urban design with the latest in digital technology,” including buildings that react to weather. Bill Gates has invested $80 million toward the development of Belmont, a smart city in Arizona; plans call for autonomous vehicles and a sophisticated data hub. But many of these projects seem more like showrooms than replicable models; more like vanity projects than universal urban progress—digital stardust and stupid cities, suggests Bruce Sterling writing in The Atlantic. At the same time, vendors of all manner of devices and services—drone deliveries to autonomous vehicles, demand management of electricity, ubiquitous public Wi-Fi stations—are going ahead with their own programs.

To effectively work together to improve society and, crucially, attract outside money to do so, both categories of effort need to follow a thoughtful situation-solution-sovereignty roadmap. Coupled with investments based on understanding of payment, predictability, and permissions, this will illuminate the path to attracting capital—a lot of capital—to smart city infrastructure investments all over the world.

Harvard Business School Working Knowledge offers an accessible look at the latest research and ideas from the faculty of Harvard Business School.


By: John Macomber


is loading the page...