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The role of innovation in developing competitive cities

15 February 2016

By Hazem Galal, PwC Cities & Local Government Sector Global Leader and Egon de Haas, PwC Global Director Government & Public Services

 

Several megatrends such as accelerating urbanisation, technological change, demographic shifts, and climate change are reshaping our world. Cities are where these megatrends manifest themselves most clearly.

To respond to disruptive developments, cities around the world, their governments and organisations must rethink the way they deliver their products and services. Public bodies and organisations of the future, including cities and local government entities, will need to espouse characteristics and behaviours that are radically different from the models of the past. We have distinguished four interdependent–must-have characteristics–that leading public bodies, including cities, need to demonstrate in order to be effective in achieving outcomes and impact. These characteristic are agility, innovation, connectedness and transparency (see figure 1).

Cities are the engines for growth and the competition amongst urban regions to attract visitors, talent, businesses and investments has increased. Innovation The role of innovation in developing competitive cities lies at the heart of the local government agenda for developing a sustainable competitive city as cities are the place where innovation is initiated, accelerated and adopted to deal with the challenges we face.

 

Figure 1
Figure 1

 

Different types of innovation

Tomorrow’s leading cities need to be innovative and resourceful. However, innovation can have various definitions based on context.

Innovation is the act of introducing something new; more than just about technology, it is about solving problems with new ideas–big or small–that create significant benefits. Innovation enables growth, and can cause creative destruction.

We have identified three main types of innovation:

  • Incremental innovations are changes to an existing product or service. The changes to the technology or business model are primarily aimed at doing the same, but enhancing the process to produce the existing products or services in a more efficient manner. An example is E-government initiatives, whereby public services are delivered in a city online in a more efficient and effective manner.
  • Breakthrough innovations make many more changes to technology or business models. They are often game changers that have a higher competitive advantage as they cannot be replicated. These include the rise of the ‘Sharing City’ concept where cities like Amsterdam, Berlin and Seoul are adopting the new business models from the sharing economy.
  • Radical innovations create new paradigms and disruptive changes to the competitive environment for a product or service, often resulting in completely new products and services or new sectors. They are less frequent than incremental and breakthrough innovations but provide the highest competitive advantage. A prime example is the advent of cities around the world that are built from scratch, designed around shifting away from traditional ways of thinking. For example, Masdar City in Abu Dhabi is reimagining how we develop our cities and the corresponding infrastructure by embracing a mobility concept that is based on sustainable transport, rather than a traditional design based on vehicles.

The different types of innovation can occur at two levels: strategic and operational.

 

Strategic innovation

The future city needs to consider its role in local, regional and national innovation strategies, based on areas of competitive advantage. One approach, smart specialisation, involves formulating an economic agenda which builds on, and innovatively combines, existing strengths in new ways. This means identifying a city’s or a region’s competitive advantage or DNA and mobilising regional stakeholders and resources around an inspirational vision for the future.

There is also the rise of public entrepreneurs – individuals and organisations within the public sector that create new ventures and ultimately increase local, regional and national innovation absorption capacity. Their efforts are in turn championed by political entrepreneurs, who are key in channeling political will and vision to support innovative strategies. Many cities today are driving this type of innovation through so called ‘Development Boards’ which aim to pull together the power of the various stakeholders to deal with the strategic challenges the city is facing.

Both Singapore and Amsterdam have developed highly effective economic development boards, which strongly involve the private sector and multiple stakeholders with the city.

 

Operational innovation

Operationally, delivering on promises to the citizen entails having the right (new) service delivery models for the right results, with an eye on measurable outcomes and real impact. Especially today, this means reconfiguring existing models or developing new ones to do more with less and increase productivity.

Innovation enables governments and public sector organisations to deliver services faster, better and more cheaply, as well as address long-term challenges arising from social, economic, demographic, environmental and technological change. For instance, digital technology platforms (including open data, big data and analytics) are opening new opportunities to involve citizens in the design and delivery of smart city services, increasing opportunities to engage citizens in jointly producing innovative services and outcomes. Innovating operationally also includes encouraging an innovative organisational culture by developing an ‘incubating’ environment for ideas to grow and flourish. Ideas with potential can subsequently be accelerated for execution and implementation via a rapid prototyping and large-scale demonstrator approach that tests new concepts and ideas as a transformational project before scaling up for adoption at a wider level.

 

Innovation ecosystems

Whether the purpose is to restore economic growth (e.g. Detroit), diversify an economy (e.g. Moscow) or to find solutions for today’s societal challenges (e.g. Amsterdam) cities are developing innovation ecosystems. City government has to provide an environment that incentivises innovation. In some cases, it can even champion some evolving innovative sectors/industries until the private sector develops to the point where government involvement is no longer needed and it can step back, having created the conditions to unleash the creativity of entrepreneurs and start‑up companies.

Figure 2 illustrates an example of such an innovation ecosystem showing the main stakeholders and drivers, several of which can be government enabled, as well as example focus industries and the main stakeholders that need to collaborate to enable the ecosystem to deliver.

Prototyping is the main feature of an effective innovation ecosystem. It allows for the rapid testing of ideas in real life conditions. Most recently, several cities have embraced the concept of a “living lab”, where innovative services and products are tested by citizens who are willing to experiment and provide feedback to enhance the design. The result is user‑centric services that improve outcomes and impacts.

 

Figure 2
Figure 2

 

The innovation journey from importing to producing

During the past few years, several countries and cities have started to move up the maturity scale, transitioning from “importing” innovation to “producing” innovation and ultimately utilising innovation as a “strategic asset”. The city of Dubai is a good example of a city that has moved along this continuum, having started off as a city that was importing innovation, to become known for its creativity, its big vision to diversify its economy, and for producing its own innovation and turning creative ideas into action. Today, Dubai has further moved forward to produce many governmental and service innovations, with an ambition to become one of the world’s truly smart cities and to become a global innovation leader that utilises innovation as one of its strategic assets to create a comprehensive ecosystem that will foster further innovation, in line with the UAE’s wider vision.

 

Making innovation happen

As cities around the world look to embed innovation in the development of a sustainable competitive position, these are the key actions to consider to make it happen:

  1. Lead by example to show that city leaders are embracing innovation.
  2. Understand the DNA and the (sometimes) hidden dynamics of the city to generate innovative ideas.
  3. Co-develop a shared vision with stakeholders for the sustainable competitiveness and innovative power of the city.
  4. Enable distributed leadership to generate and execute on the city’s vision and innovative ideas.
  5. Define the innovation ecosystem that fits the city’s vision, strengthens the competitive advantages and utilises the power of all stakeholders.
  6. Make clear choices on what will and will not do, and agree on responsibilities.
  7. Continuously look for more agile ways to tackle the different urban challenges, like rapid prototyping.
  8. Develop the organisational and governance structure (e.g. an empowered Chief Innovation Officer) to foster and streamline innovation.
  9. Put in place the incentive systems that encourage city employees, the private sector, academic institutions, NGOs and citizens to put forward their innovations.
  10. Create networks to learn from other cities’ innovations.

 

 

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