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Are you interested in how to reduce complexity of the smart city business models?
Our summary today works with the article titled Smart city and simplicity? Modular business models for smart cities from 2020 by Sari Peratalo, Petri Ahokangas, and Saara Pekkarinen, published on the EU’s Futurium platform. This is a great preparation to our next interviewee in episode 147, Damian Hewitt, where we talk a lot about the smart city as simplicity. Since we are investigating the future of cities, I thought it would be interesting to see what business models can do to reduce complexity of smart cities. This article presents the modular business model as a required approach to smart city development and implementation.
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Welcome to today’s What is The Future For Cities podcast and its Research episode; my name is Fanni, and today I will introduce a research paper by summarising it. The episode really is just a short summary of the original paper, and, in case it is interesting enough, I would encourage everyone to check out the whole paper. Stay tuned until because I will give you the 3 most important things and some questions which would be interesting to discuss.
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Digitalisation has brought about new opportunities for cities to become smarter giving rise to the idea that business model thinking could be given a role in city development. Many cities have digital services for their inhabitants and with the introduction of each service, they have been forced to think about the services’ business model. Unfortunately, many business models seem complex and fragmented, making it hard for the users to understand them. So it has become challenging for city representatives to see the full benefits that digitalisation and smart city development could bring to their cities. Plus, the financial crises are also influencing cities. Thus, there is a need for simpler and modular business model approach to be applied in the city governance to reach the economic and political goals of the city.
Current smart city development is one of the biggest challenges that our society is facing. There are numerous business models combined with smart energy, smart health and smart traffic for example. Despite the constantly increasing number of smart city research, there is no widely accepted conceptualisation of the smart city. One of the best-known smart city concepts is with six dimensions: governance, economy, mobility, environment, living, and people in cities. The authors wanted to take a closer look at the business model, related opportunities, values and advantages in the smart city context, especially from the modularity perspective.
The business model can be defined as the content, structure and governance transactions made inside an organisation, supporting the organisation’s value creation, delivery and capture. In cities, a particular business model describes the architecture or design for value creation, delivery, and capture mechanisms it employs. For a smart city, the business model can act as a tool and provide a holistic view on modularity and its consequences along the value creation system. In the city context, the business model approach and its anchoring concepts provide new perspective to strategic thinking. It supports planning and implementation of change. The three anchoring concepts include opportunity, value and advantage and they are also related to each other. Therefore, the business model can be seen as a source of value creation and capture. In addition, scalability, replicability and sustainability are important outcomes of the business model.
Cities have numerous heterogeneous solutions related to one smart city dimension, let it be governance, economy, mobility, environment, living and people, and none of these solutions are interacting or communicating with the other similar solutions or stakeholders in another department. Cities also lack horizontal interaction and communication between the city administration. Smart city development can help the current challenges, like increasing urbanisation, technological development and environmental challenges. Smart city can bind together government, technology and society, requiring a new way of thinking and governance cities.
Modularity is building a complex product or process from smaller subsystems that can be designed independently yet function together as a whole. Modularity is a very general set of principles for managing complexity. In practice, it means the reduction of independencies between modules to a minimum, and at the same time increasing the interdependence within modules. Modularity can increase efficiency and simplify management, so it is a new paradigm how to design processes and organisations and business model modularity enhances the strategic flexibility.
The new modular business model approach proposed here is the simplicity approach to create a sharing economy based on open business models. The simplicity approach is based on the three anchoring concept – opportunity, value and advantage, and these are combined with the six smart city dimensions – governance, economy, mobility, environment, living, and people. The different opportunities, values and advantages of the different smart city dimensions are linked together and complement and strengthen each other. Additionally, the governance dimension should scale opportunities, sustain values and replicate advantages across all dimensions of the smart city. Through the modular approach, a city can get a unified understanding of its different opportunities, values and advantages when it comes to its services. The smarter the city is, the simpler it should be to govern.
Smart city initiatives are important but hard to implement. City governance is at its simplest moderating between different issues and deciding what to do, and influencing the way of how our society is organised and steered. Nowadays, urban governance is often seen as underperforming to deliver value or too expensive for the citizens. Thus, it is time to improve it. Effective governance must recognise and handle traditional modes of economic activity but also new modes of sharing economy. These new modes create new public value when they enable others to participate in opportunity recognition, value co-creation, and gaining competitive advantage. The modular business model approach in smart cities brings together the different knowledge pieces and skills via lowering the boundaries of urban silos. Modularity can provide a new way to approach and understand smart city business models and their implications.
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What was the most interesting part for you? What questions did arise for you? Do you have any follow up question? Let me know on Twitter at WTF4Cities or on the wtf4cities.com website where the transcripts and show notes are available! Additionally, I will highly appreciate if you consider subscribing to the podcast or on the website. I hope this was an interesting paper for you as well, and thanks for tuning in!
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Finally, as the most important things, I would like to highlight 3 aspects:
- Urban governance is the moderating and influencing factor in how our society works but it is often seen as underperforming for the citizens – thus it needs improvement which can be smart city with modular approach.
- Modularity is building complex products and systems from smaller subsystems that can be designed independently yet function together as a whole.
- The modular business model approach in smart cities brings together the different knowledge pieces and skills via lowering the boundaries of urban silos.
Additionally, it would be great to talk about the following questions:
- What do you think of your urban governance? What are the potential improvement opportunities?
- What are the values in your city being provided and delivered?
- What are the advantages of your city? Why do you choose your city over the others?
- What kind of modularity do you see could be beneficial for your city?
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