Smart Cities and Digital Innovation: a guide to the future.

As the digital economy grows and matures, the “smart cities” movement is gaining momentum. For many people it represents the promise of high tech cities, with autonomous cars rolling the streets, drones delivering food, and connected devices everywhere helping city dwellers to perform a myriad of activities. 

However, this representation doesn’t convey the complexity of the field, where many issues (such as economy, social impact, environmental sustainability, and democratic participation) are intertwined. There is much more to Smart Cities. In his latest book “Smart Cities: Introducing Digital Innovation to Cities”, Oliver Gassmann, together with Jonas Böhm and Maximilian Palmié, delivers a comprehensive framework to navigate Smart Cities in all its complexity.

Smart cities is about solving one of the next big challenges of the 21st century

 If the 20th century was the century of nations, the 21st century will be the century of cities. There is a clear trend of population aggregation in medium-sized and big cities, with urban areas growing all over the world and competing for economic investment, a skilled workforce, and cultural prominence. Some cities leading this new trend, such as Shanghai, Singapore, Tokyo, London, Dubai, or New York, among many others, are already world business and technology hubs whose world significance (and GDP) sometimes surpasses that of many countries. 

However, this increasing importance of cities in the world’s economy doesn’t come without a price. Population growth, together with environmental challenges and economic downturns bring many challenges to cities all over the world, and not only for the largest ones. Gassman, Böhm, and Palmié have summarized the most important challenges: new urbanization trends that reshape cities and their surroundings, changes in lifestyles and preferences, demographic developments (like the increasing amount of elderly people in western countries), overloaded infrastructure, air quality, smog, noise, mobility, tourism, limited resources, and management of the commons. 

    These points confirm the huge challenge: how should cities adapt to the problems mentioned before? How can we create better cities, which are sustainable and comfortable for all their citizens? In many places around the world, city councils and private companies are trying to tackle the problem with several interconnected initiatives, whose purpose is to build the infrastructure and services that will allow the creation of the new cities of the 21st century. All these initiatives could be included within the broad term of Smart Cities.

What is a Smart City?

According to the authors: “A Smart City systematically applies digital technologies to reduce resource input, improve its people’s quality of life, and increase the competitiveness of the regional economy sustainably. It entails the use of intelligent solutions for infrastructure, energy, housing, mobility, services, and security based on integrated sensor technology, connectivity, data analytics, and independently value-added processes.”

This image shows how the digital shadow mirrors the city through a miriad of sensors working 24h/day.

This image shows how the digital shadow mirrors the city through a miriad of sensors working 24h/day.

The definition above is broad, as it tries to convey the wide range of global initiatives. However, there are some common points. The most important one is the so-called digital shadow. It is a prerequisite for any Smart City to create a raw input of data about the city, coming from an interconnected network of sensors, devices, and other digital services and products. 

Just imagine a city where thousands (or even hundreds of thousands) of sensors record information about air quality, temperature, traffic, energy consumption in buildings, smog, garbage production, or humidity. The data is continuously uploaded to the cloud, creating a digital image of the “behavior” of the city, available online at every moment. This digital shadow is possible because of the latest achievements in connectivity, especially the Internet of Things, a set of technologies that connectings “intelligent” objects through the Internet, adding another layer of data. 

The resulting corpus of data is the foundation for many other services and products, created by institutions and companies that might build second-layer solutions. For instance, apps could be created that allow citizens to improve their mobility with eco-friendly, connected, solutions or to help building owners to improve energy efficiency through data and algorithms that control heating and cooling in real time or perhaps a new service to connect government officials and citizens, improving their communication by digital means. Other options might be related to urban farming, telehealth, air quality, data management, or even toilets-as-a-service!

The range of potential solutions built over the digital shadow is vast, and continually growing. These solutions can be broken down into these six areas:

  1. Smart environment - minimizing the ecological footprint of a city.

  2. Smart living - improving the quality of life in the city.

  3. Smart economy - increasing the city’s competitiveness.

  4. Smart mobility - creating new and sustainable mobility options in the city.

  5. Smart government and governance - promoting the participation of citizens and increasing transparency in the public sector.

  6. Smart people - preserving and increasing the human capital of a city, helping people to develop their full potential, and fostering their participation in social life.

It is possible that a single initiative in a Smart City could be classified in several of these areas. For instance, an initiative like the Seestadt Aspern in Vienna (a newly constructed city district) is simultaneously working in the areas of energy rehabilitation of housing, sustainable mobility, and expansion of eco-friendly and renewable energy. 

Smart City initiatives are typically complex by nature, involving many stakeholders and mobilizing significant resources. They require a level of planning, coordination, and management that could be challenging for both public institutions and private companies. In fact, sometimes the initiatives fail or underperform, burning a lot of money in the process. 

The Smart City Management Model, or SCMM.

The Smart City Management Model, or SCMM.

The Smart City Management Model

If Smart Cities are so complex, a question might arise in the mind of urban developers: is there a guide for that? Yes, there is: the Smart City Management Model (or SCMM). It is based on research conducted at the University of St Gallen by the authors. The SCMM is displayed below.

The SCMM addresses the main dimensions of any Smart City project:

  • The services areas, in the center of the diagram, summarize the kind of initiatives undertaken in a Smart city project.

  • The transformation cycle process, depicted as a circle, shows the necessary steps needed to succeed when building a Smart City program: initiate transformation, determine location, develop concepts and synchronize partners, activate resources, realize projects and operation and instrumentation.

  • The fundamental elements, around the perimeter, encompass the two previous points: data governance, partner & city participation, financing, technology, business models, communication.

The SCMM is a complex framework (Smart Cities are complex, indeed). However, it’s worth reviewing the fundamental elements of it since they are the foundation stones of every successful project in the field. Let’s dive deeper into it by discussing each element in detail.

Data governance

A Smart City is about data, a lot of it. The digital shadow of a city is going to process a huge amount of information on a regular basis. Moreover, it has also to be available for partners, both public institutions and individuals, who will build over that raw data the services needed for the different areas involved. Hence the importance of data governance.

Proper data governance should regulate how data is collected, handled, and shared. That includes data privacy management, a critical issue that shouldn’t be dismissed, as well as data reliability. This point is of great importance since Smart Cities are digitizing data from basic services, such as energy, public transportation, water supply or telecommunications. Cities can’t afford poor data management with these services!

Partner and city participation

A common concern about Smart Cities is that companies are expanding their service portfolio without restriction, with a focus on profitability rather than citizens’ needs. This concern highlights the need for real citizen participation, as well as for stakeholder participation through the right channels. This point is of utmost importance for success. 


Financing a Smart city project is a tricky thing, given the complexity and extended duration of these kinds of projects. We are speaking of several-years-long projects, with multiple phases that should be properly funded. This is a big challenge for Smart Cities, which should secure longstanding funding sources.


Smart Cities are about innovation enabled by new technologies. Their implementation should address not only technical aspects, but also the needs of partners, citizens, and institutions. Hence the importance of properly planning the technologies deployed at every phase: are they scalable? How much energy will the technology need? Will it need to be updated soon? How much time will it take to deploy the basic infrastructure? 

Business models.

The digitization enabled by Smart Cities creates the foundation for new business model possibilities, creating new customer value. However, these new business models should deliver a long-term and sustainable value that is aligned with the overall goals defined for a Smart City. That’s why carefully picking the projects and new business models that should be implemented is important to achieve the promise envisioned.

One good example for project selection is Munich. In this case, there are already guidelines that indicate which initiatives should be implemented, as well as the locations. But, at the same time, there are also some superordinate goals that together with the guidelines create a hybrid strategy mixing global and local aspects. That strategy is also implemented within a broader city development process that guides the choices to be made. 

Following this philosophy, project concepts are developed in a centralized manner, focusing mainly on the application of mature technologies with a low risk. At the same time, Munich is working to involve citizens and other stakeholders as much as possible. That includes the creation and management of an Open Data Initiative that collects data from several providers all over the city and makes it available to the public. Several public and private services are offered on that platform. For instance, it is possible to file building permits online or check a digital city plan with integrated data points. There is even an app for Oktoberfest, the famous festival, that helps people navigate Munich and enhance their experience. It’s a good way to create the foundations for an innovation ecosystem that uses this data to develop new services and business models. 


Smart Cities are complex projects that involve public and private stakeholders, as well as citizens, both as associations and individuals. Because of that, communicating the goals, means, and activities performed is sometimes difficult, leading to many misunderstandings. To prevent this potential issue, communication should be a top priority for Smart City projects. Every step taken should be properly explained to all those involved, allowing for their participation, feedback, and amendment. 

Vienna is probably one of the best examples of excellent communication within a Smart City initiative. Vienna is encouraging citizens’ participation in the process through an app, “Sag’s Wien”, that allows any neighbour to communicate directly with officials. As a result, Vienna is using co-creation and open innovation to involve several stakeholders in the concept development of new projects, which are afterwards selected following clear criteria, fully transparent for all stakeholders involved. The whole process is coordinated by Smart City Vienna, the public department in charge of the initiative. The outcome for this clever communication strategy is a reduction in social friction, as well as a significant support for the selected projects.

A diversity of options within the same framework.

The SCMM is an abstraction that helps to understand the whole picture. However, every city is different in a variety of ways. To further explore this topic, it’s  a good idea to learn about the lighthouses projects, which are a number of European cities pioneering the implementation of smart city initiatives and lead by Lyon, Munich, and Vienna. All of them are included in the Smarter Together initiative, funded and sponsored by the EU.

Every single lighthouse project has taken a different approach to the same goal. They might be strong in some areas, like resource management or partnership communication, and weak in others, like the number of sub projects ran in parallel, complexity, or citizen involvement. Many differences could be explained because of different management choices, political cultures, business environments, or citizen participation. 

Which is the best approach? The answer is very simple: whatever works for a particular city. Although every case is unique, the SCMM framework is still useful since they all share the same basic elements conveyed in it. This makes the SCMM a good starting point for a Smart City project, as it clearly shows the steps and elements to take into account.

At the same time, at every phase through the SCMM there are tools to help make the right choices: workshops, scorecards, RACI matrix, smart city maturity models, stakeholders maps, point of view analysis, benchmarks, idea generation tools, business model canvas, and risk assessments are some of the tools available, All of them can be customized to address the very particular challenges faced during a Smart City transformation. 

For now, it is enough to say that many of the innovation tools already being used might also be useful for a Smart City project. And that’s a good thing, as new tools do not to be created, those regularly used can just be adapted.

Smart Cities and digital ecosystems.

In the end, what is being built with a Smart City? It’s quite simple: a digital ecosystem. A Smart City has the main elements of the digital economy, with the ubiquity of data and computing as the main infrastructure. A ubiquity that dramatically lowers the transaction cost, bringing the possibility to handle huge amounts of data; over that new business models could emerge, including really promising ones like AI or sustainable mobility. There is a lot of potential for creating and capturing value, following the creation of new ecosystems.

However, delivering the promise of Smart Cities is not easy. It requires time, expertise, and good practices.  Most importantly, if people aren’t involved in the Smart City process, it will not be successful Cities are made of citizens, and a Smart City is no exception: they are built by humans, for humans!

About the book: Smart Cities: Introducing Digital Innovation to Cities

The Smart Cities book is the result of the research undergone within the Smart City Research and New Business Model research group, part of the University of St. Gallen Institute of Technology Management. Therefore, it’s a book whose purpose is mostly theoretical: to develop a framework that could be useful to start, manage, and accomplish digital transformation projects in a city. However, this theoretical approach is supported by a lot of data, taken from real-world examples and the latest bibliography on the topic. The final result is a guide that will help public officials and private business people alike. You can buy the book on Amazon.