Category Archives: Research

“How smart does a Smart City need to be to prosper?”

Digital Economy, Economic Development, Futures, Innovation, Innovation Systems, Knowledge Economy, Research, Smart Cities, Strategic Foresight, Strategy

Figure 1. Thee Horizons (as-is, disruption, will-be)

Synopsis

This article considers change in the context of a Smart City. An understanding of how change can be leveraged is developed through the use of the three horizons model. Upon this theoretical foundation an approach to building Smart Cities, based on the principles of the knowledge economy and an understanding of the digital economy, is introduced. The result of this discussion is fresh perspective on how the development of both local human capital and local digital capabilities can be achieved. A perspective on how we can turn our cities into “Future-proof Smart Cities”.

Connected city
Credits: Shutterstock

Your own city is a city of the future

Although it is stating the obvious, the cities in which we currently live and work will still be around for many decades yet. Things no doubt will be different in the time ahead, but our cities will still be with us. As we have witnessed changes that have affected cities over the last few decades, so we will witness more over the decades to come.

What changes have there been in recent times? Not only have we observed the internet and the services it delivers (social media, cloud computing, online businesses, etc) become increasingly ubiquitous, we can also attest to changing occupations and lifestyles of those who live in our communities. We have also been part of shifts in administration practices at our work places and seen changes in what people in our communities are concerned with.

Let us turn to the coming decades. Consider then the future and the changes that could be ushered in. What does the future behold? Will you see drones flying to and from shopping strips delivering pizza to houses? Could you imagine a time, say within couple of decades, where there are no service stations because all cars are electric? What about a scenario where community centres house community owned commercial-grade 3D printers that produce common household objects? Or perhaps a time in the not too distant future where “RegTech” comes of age and supplants employees providing governance and administrative services.

You see, it’s your idea of what the future holds that shapes your view of what lies ahead. Do you lean toward an optimistic outlook, or do you dread the worst? Is your image of the future based perhaps a utopian image where artificial general intelligence ushers in an unrivalled era of peace and prosperity, where some form of universal income assures that there are no losers? Or is your image of what lies ahead more dystopian. Where humanity is reduced to servility through the twin threads of imperious digital surveillance and the calamitous effects wrought by out of control climate dynamics.

How do those two images of the future, and all the variations between apply to your city? Could you see a golden age of prosperity and peace playing out in your midst. Or, on the other hand, are you willing to countenance the uncomfortable?

King Canute was not successful

“No man can stand in the same river twice” said Heraclitus, the 5th Century BC philosopher. In effect he was saying that change is the constant in life. This accords with what we have seen over the last few decades, and in a similar manner is a surety for the time ahead.

However, there are those who remonstrate in vain against inevitable change like King Canute. They are unwilling to embrace what could be called progress or advancement. They behave in a similar manner to this sovereign who, enthroned at the waters edge, commanded in vain a halt to the rising tide.

Importantly, in order to have a measured and appropriate response to what is happening around us it is necessary for us to understanding how change happens. And whether or not we should choose to resist, ignore or embrace the change that is underway. Our response should be grounded in theory and supported by reality.

Three Horizons v2

Figure 1. Thee Horizons (as-is, disruption, will-be)

The three horizons model, shown in Figure 1, is a good way to communicate how change happens. The first horizon, the red line, is how things currently are. For example, the way we do our shopping, how we do our banking, the type of tasks that our job requires of us.

The green line, the third horizon, describes how things will be. For example, in say a decade how we do our shopping, how we travel to work, and so on. The middle, or second horizon, is the messy middle. It’s where the different ways of doing things compete and where the third horizon can be seen as the winner of that battle. It’s the horizon of disruption. A place where entrepreneurs and innovators live.

To gain an appreciation of how this “three horizons model” works in practice we can use the VHS and Beta wars in the context of “domestic movie consumption” as an example. The first horizon was the movie theatre, it was where we went to consume movies. The third horizon is the home, which became the new place to watch movies. The middle horizon was the period of time where this battle played out, and where VHS became the dominant method to deliver home-based movie entertainment.

But one important characteristic of this graph is that the third horizon is nascent in the first. How things will-be in the time ahead can be seen today. The trees of tomorrow are small saplings today. And the power of this “three horizons model” is this: it is that we can look for the saplings today and then thoughtfully contemplate which of the saplings are likely to become trees tomorrow. Then, based on this understanding, we can respond appropriately. Whether we should resist, ignore or embrace the changes that we see underway.

The saplings that are growing

The digital economy is one such growing sapling that we should embrace. It almost goes without saying that the digital economy will be dominant in the time ahead. From a standing start some twenty years ago, various estimates put the current value of the digital economy at about $5 trillion. Considering that the global economy as a whole is worth more than $80 trillion, what we are witnessing is no doubt historically significant.

Referring to Figure 1, if we accept that the current period is the second horizon, we can understand that the digital economy is a disruptive force. We are in between how things were and how things will be. Exhibit A of this “we are in horizon 2” contention could be Facebook and other social media platforms disrupting journalism and advertising. Exhibit B could be Airbnb disrupting the accommodation sector and Uber could be the third exhibit. No doubt other exhibits come to mind.

Global Growth of internet traffic

Figure 2: Global growth of internet traffic by device type

And let us further examine this disruptive force, this revolution if you will, to see whether or not we need to resist, ignore or embrace it. Let us look at the factors that enable the digital economy, at the outcomes wrought by the digital economy and some measures of the significance of these developments.

Firstly, the components of this phenomena. These include, for example, ICT hardware software and services that are currently valued at over $3 trillion (the enablers of this revolution) and electronic games at over $100 Billion (its fruits). And where for some countries, up to 10% of their GDP relies upon the ICT sector (its importance). Not to overlook another recognisable and significant component: the growth of internet traffic (Figure 2).

And then we can turn to how the digital economy is changing the nature of business and society. Where the impact of this phenomena is witnessed in the speed at which companies of scale are built (Harley Davidson took 86 years to get to a billion dollar valuation, Twitter just 3 years), in the ease at which we can find answers to almost any question (40,000 questions are asked of Google every second), and in the explosion of data (90% of the world’s new data is only 2 years old).

Not forgetting the types of work that are being lost, and the ones that are gaining in significance. We’ve seen, for example, the reduction in some types of manufacturing jobs, in toll-road collectors, and at retail checkouts. But on the other hand there is a rising demand for data scientists, social media managers, robot engineers and cloud computing specialists. In a similar fashion those who are skilled in creativity, persuasion and collaboration are being especially sought after

The Smart City of the future

With all this evidence before us, we should not ignore the importance of what this new economy can bring. As we can see, the future prosperity of our cities will rest upon how well we grasp the opportunities afforded by the digital economy.

In reflecting upon the nexus of the digital economy and the Smart City we intuitively know that there are synergies between the two. For if a Smart City can be described as one where there is “increased citizen engagement, hard infrastructure, social capital and digital technologies to make cities more livable, resilient and better able to respond to challenges1” there are two implications. First, if our aim is to just attract investment in digital economy businesses and even nurture a digital centric innovation community, then we are not realising the full power of these synergies. And secondly, if our aim is to only develop a digital nervous system for our cities and leverage its resources and power to improve the quality and performance of service provision, our vision of our city being Smart City would fall short.

Industry GVA

Figure 3: Economic importance of industry sectors

Through the research I am undertaking for my PhD I am finding that we are perhaps overlooking the potential we have in our communities to make our cities Smart Cities. And that potential is our own people.

Consider what is happening in the job market. There are types of jobs that are disappearing and types of jobs that are becoming more prevalent. One MIT economist looked at the demand for different types of tasks and he found that only tasks that have been experiencing consistently increasing demand are those that can be categorised as “non-routine cognitive” tasks. In other words jobs that are reliant upon people skills and/or thinking skills are more than likely to be an increasing percentage of all the jobs that are available.

This is the local potential that we are overlooking. Are we tapping into and releasing the full range of people skills and thinking skills that exist in the households of our suburbs? Are we leveraging these skills to build “social capital and develop digital technologies”?

One way to leverage this latent potential is through applying the principles of the knowledge economy. What I am finding is that as we understand the components of the knowledge economy we can setup structures to reap the benefits.

Now, there are three parts to the knowledge economy2 (Figure 4): the production of knowledge, the distribution of knowledge and the application of knowledge. The production of knowledge is all about basic and applied research, about the development of patents, of the creation of new knowledge. The distribution of knowledge occurs in networking events, in the classroom, in mentoring sessions and in the publication and consumption of knowledge. Finally, the application of knowledge. This comes through innovation, through using (new) knowledge to create new goods and services.

Knowledge economy

Figure 4: The Knowledge economy and its components

And its those cities, those local government areas, those regional locales that leverage knowledge and technology that continue to be prosperous this is partially reflected in the growth of business services [Figure 3], which are to a greater or lesser extent knowledge intensive services).

And it’s the development of an active local knowledge economy through the involvement of local people in the production, distribution and application of knowledge that will cause your local city to be a smarter city.

One of my findings is this: those locales whose local economy has an emphasis on industry sectors that are technology and/or knowledge intensive do best over the long term. One of the supporting facts is this: for every local high skilled job created in high tech manufacturing (the tradable sector) there are another 4.9 local jobs created in the non-tradable sector3.

The Smart City of the future will be one that has fully leveraged the potential of the knowledge economy. Where the potential that is realised is through the ongoing building of its social capital and the ongoing development of its digital technologies.

For we see examples of this around the world. Consistently ranked in the top 3 of Smart Cities4,5,6, London is also a city that has one of the highest concentrations of quality universities7 and high concentration of businesses in clusters8. The ranking and knowledge economy characteristics are similar for other cities: New York, Singapore, and so on (yes there are other elements that are measured, but our focus here is on the dynamics of the knowledge economy and how this relates to the digital economy and the ongoing development of Smart Cities).

Summary

Change is with us always. In every sector of the economy and in every aspect of society newness, updates, inventions, progress is how things are. And each of these sectors and each of these aspects could be in any of the three horizons. They may be in the midst of the second horizon’s disruption, or the relatively stable first or third horizon.

As we have seen, there are certain characteristics to ensure our cities remain or become prosperous, and in the process become Smart Cities. The best way is to create jobs in the knowledge and technology intensive sectors. Specifically, to grow them locally through a dynamic local knowledge economy. Where new knowledge is created, where there are channels to distribute knowledge, and where there is support for the application of knowledge.

And its through this leveraging of the local knowledge economy that “social capital is built and digital technologies are developed”? The result a Smart City. A Smart city that continues to be smart, continues to prosper, and stays dynamic as the future unfolds.

 

This article first appeared in the journal of “Economic Development Australia” (October 2019)

For more of what I have to offer, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, review my IT Strategy blog, subscribe to my YouTube channel, or buy my ‘Jobs. Future. You.’ workbook.

Profile

Paul Tero is currently a PhD candidate through Swinburne University. His research is focused at the nexus of place-based economic development strategies, the knowledge economy, strategic foresight and peri-urban locales (aka “The Industries of the Future”).

He holds Masters degrees in Business Administration (Technology Management), International Business, and Strategic Foresight. Aside from the EDA he is a member of the Australian Computer Society, the Association of Professional Futurists, and the Professional Speakers Association. In recent times he has held executive roles in local business groups and is well experienced in the education and information technology sectors domestically and internationally.

Paul can be contacted through his LinkedIn profile (https://www.linkedin.com/in/paultero)

References

  1. UK Department for Business Innovation and Skills. Refer to the UK research organisation: “Centre For Cities” (https://www.centreforcities.org)
  2. The Knowledge Economy tripartite. Refer to: “Accessing and expanding the science and technology base” (David & Foray for the OECD, 1996)
  3. Tradable to non-tradable jobs. Refer to: “Is there trickle down from tech? Poverty, employment and the high-tech multiplier in US Cities” (Lee and Rodriguez-Pose, 2016)
  4. Smart City Rankings. “These Are The Smartest Cities In The World For 2019”. Available from: https://www.forbes.com/sites/iese/2019/05/21/these-are-the-smartest-cities-in-the-world-for-2019/#f19688614290
  5. Smart City Ranking. “Celebrating the leading Smart City Governments in the world”. Available from: https://www.smartcitygovt.com/
  6. Smart City Rankings: “IESE Cities in Motion” Available from: https://media.iese.edu/research/pdfs/ST-0471-E.pdf
  7. Best university cities. “The best university cities of 2018”. Available from: https://www.timeshighereducation.com/student/best-universities/best-university-cities
  8. Clustering (density) of business. Refer to: “World Development Report: Reshaping Economic Geography” (World Bank, 2009)

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Dissertation – Primary Conclusion

Research

IT Investment Impact Implication Model

This graphically triangular model consists of three components. One describes the maturity of the business, the second concerns the alignment of IT systems to business strategy, the third the homogeneity of the IT systems. The impact is derived from the “pressure” inside this triangle. That is, the smaller the sides, the smaller the volume, the greater the pressure.

IT Investment Implicator Model

Fig 1. “4x I Model”
(source: author)
With reference to the first conclusion made, “that the optimal impact of IT investment occurs at the confluence of three factors. The alignment of IT systems with the business’s strategy, the homogeneity of systems across the organization, and the maturity of the business”, are the three related components. The ‘alignment of IT systems with the business’s strategy’ has to do with the degree of separation between the IT strategy and the host business’s strategy. One example of this is where the IT department is constantly second guessing the needs of the business. It is where there is no real communication between the executive and the IT department, or where there is no understanding within the executive of what benefits IT can bring to the business. Thus, the smaller this spread, the greater the positive impact upon business’s long-term expected value. The second component, ‘the homogeneity of systems across the organization’, concerns the spread of system types to achieve the same functions. For example, does one section of the business use a different brand of computer operating systems to another? Therefore, the greater the level of homogeneity, the greater the positive impact upon the business’s long-term expected value. The third component, ‘the maturity of the business’, is a reflection on both the pervasiveness, and consistency of application, of internal administrative processes. The model posits that the greater the maturity of the firm implies a reduction in organizational risk, thus a positive impact upon business’s long-term expected value.

For more, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, or review my IT-centric blog.

Dissertation – Introduction

Research, Strategy

Information technology (IT) is a crucial aspect of the modern corporation, even more so for organizations that have international operations. Whilst there is much discussion and research into the many factors of business, including the many complex aspects of international operations, there are authors who do recognise IT as one of these factors.

Academic enquiry regarding the nature and impact IT investment upon organizations has been underway since the introduction of computers into the business environment. An early example is typified by Nobel Laureate economist Robert Solow’s (Peslak, 2005, p27) work into the productivity paradox regarding computing and business productivity. Other research into the business value of IT includes Tallon et al’s (2001, p4) use of management practices and proxies for realised values, Dehning and Richardson’s (2001, p2) focus on market-based measurements to quantify returns, and the non-financial benefit realisation based model used Lin (2002, p3) and Kodthuguli (2004, p23). The shortfall, however, was that each of these studies were of a single dimension (for example, Dehning and Richardson’s study concerned accounting), none were across the many factors that influence international business IT.

From another perspective, there has been research into the complexity of business IT investment. For example: Stewart (2002, p12:4), whose diversified investment appraisal techniques included possibility theory, information economics, an organizational change model, and Kaplan’s Balanced Scorecard, and Kauffman and Weill (1989, p15), who proposed an evaluative framework comprising a synthesis of economics and behavioural science. However, none combined international factors into their study. Nonetheless, international factors were covered, albeit at a strategic level, by Keen (1992, p578), whose work led to the understanding that, from an global perspective, IT strategy is dominated by ambiguities, and Alavi and Young (1992, p495) who studied various global IT architecture dimensions against the locus of IT management and the form of international business.

This lack, from an international business perspective, of research into the many variables that give rise to the complexity of IT investment relates to the motivation for this thesis. Based on 18 years of personal experience within the domestic and international IT industry, supported by industry certifications, and having earnt a Masters of Business Administration in Technology Management together with the current  study to gain a Masters Degree in International Business, the author understands that there are several factors that comprise this IT investment complexity within an international context. These factors, whilst all related to the firm’s financial performance, are: the type of IT Investment (is it for an aspect operational efficiency [ie, an email system, an accounting package, etc] or value creation?), international operations (a joint venture or a subsidairy?), international location (is it situated in a high context culture like China, or a low context culture like the USA?), and industry sector (is it say in mining, or in pharmaceuaticals?).

The aim of this research, therefore, is to investigate whether or not there are any linkages between these factors. The approach the author has used to uncover these linkages is to gather new and prior observations and then to draw related conclusions. This is called an inductive approach (Saunders et al, 2007, p488). In the case of this research effort, this method is based on collecting primary information in the form of interviews with international businesses, and studying prior research and drawing conclusions without forming initial hypotheses. Further, the author has classified the relevant prior research into several conceptual structures: organizational impact studies, the productivity paradox, measurement models and frameworks, IT Economics, International Business and IT, Strategic Global IT , cross-culture models, worldwide organisational structures and market entry strategies. And so conclusions are based on this categorised collected primary data and the applicable theoretical models, such as “Porter’s competitive advantage” model (Porter, 1979, p6), Kaufman and Weill’s (1989, p15) “a synthesis of economics and behavioural science” and Hofstede’s (Hodgett et al, 2006, p101) “five dimensions of culture”.

This inductive approach and attendant conclusions is within a standard dissertation framework. That is, chapters devoted to the literature review, research methodology, topic discussion and appendices comprise the structure of this paper. The <em>literature review</em> sources were doctoral and masters-level theses, journals and books that were focused on a single aspect of IT investment, and published collections of articles. It is in this section that I introduce classifications of the theoretical constructs. Within the <em>gathered facts</em> chapter I discuss the inductive research methodology and the reasons I decided to gather primary data together with completed research. It is here that I present the interview data and company information. In the <em>discussion</em> chapter the author brings together the observed reality and theoretical constructs. The <em>conclusions</em> chapter gathers together the implications and inferences into three conclusions relating to the research activity itself and eight conclusions as a result of the research activity. The primary outcome of this paper is to postulate an “IT Investment Impact Implication” model (the “4x I” model) that broadly relates each of the analysed factors that influence international business. Finally, the appendices list the research questions, and detail not only the “4x I” model but also related financial measurements and aspects of cultural dimensions.

For more, visit Dellium Advisory, follow on Twitter, connect using LinkedIn, or review my IT-centric blog.