Three ways companies can adapt to the challenge presented by smart cities
The following is an excerpt from the McKinsey Global Institute report, Smart cities: Digital solutions for a more livable future.
Smart cities open up new business opportunities — and not only for technology firms. They will also reshape value chains and force companies to adapt.
To set strategies, company leaders need to address key questions: How does the evolution of smart cities affect my current offerings? What kind of value shifts and opportunities will this create across my industry? And what type of approaches and capabilities does it take to succeed in these markets?
1. Adapt current offerings to meet smart city needs
Companies in multiple industries are already beginning to alter their existing product and service lines to suit changing urban markets. These include drugstore chains that are becoming telemedicine providers and real estate developers that are integrating automation systems, sensors, and mobility options into their properties.
Autonomous vehicles are not yet fixtures on the road, but carmakers are already adding features such as real-time road navigation and smart parking to the current generation of vehicles. Commercial trucks, too, will need to be able to connect to systems such as load pooling and urban consolidation centers. Although it is posting explosive growth in cities worldwide, e-hailing has relatively limited penetration with certain audiences — and new vehicle concepts could help e-hailing break through with them.
2. Prepare for value shifts and unexpected competitors
Land values are likely to shift as cities become smart, affecting real estate in multiple ways. Some formerly congested, polluted, or crime-ridden areas could become more livable, while new transit options could raise values in suburbs and exurbs. Older properties that lack smart features may not hold their value in the same way they once did, and developers have to weigh the costs of retrofitting them. Data can change the way properties are utilized as
well as the way they are valued, and effective use of geospatial data will become a source of competitive advantage.
As cities get smarter, mobility has become a much more crowded playing field, with companies from different industries competing for a market with rapidly shifting value. Customer-facing mobility platforms such as Didi and Uber are big bets on the future, and now traditional automakers and even public transit operators are entering this space by offering multimodal platforms or their own ride-sharing services.
Several major manufacturers are launching their own on-demand services using custom-designed fleets of minibuses. How automakers will respond when autonomous transportation services eventually break through remains to be seen. They may make and sell the required fleets, operate them as a service for other companies and cities, or successfully position their own mobility platforms.
Smart applications can play a role in shifting healthcare systems from treating illness to preventing it. Many healthcare applications aim to prevent diseases before they occur, engage patients in maintaining their own wellness, and reduce the likelihood of complications and hospitalizations. This trend could bring a huge upside for payors.
Smart applications such as integrated patient flow management systems can improve the utilization of hospitals and specialized equipment without compromising on availability for patients. Convenient telemedicine options can absorb many patients with minor or routine complaints, taking pressure off traditional healthcare facilities. New technologies in healthcare also bring in new entrants from the tech sector.
3. Adapt your approach and capabilities
Early smart city offerings were sometimes criticized as “throwing” off-the-shelf technology systems at cities. Today officials are savvier and not easily impressed with cookie-cutter approaches. Companies will need a detailed understanding of each city’s context, including its problems, decision-making process, and regulatory landscape. Most sales organizations are not yet equipped with these types of capabilities. They may need to add urbanists,
sociologists, and other specialists to broaden their thinking.
Companies also need to make the right contacts in each city. Even firms that have worked with municipal purchasing departments in the past must engage at a higher level with mayors, city planners, and other decision makers. It will take time to win their trust by proposing mutually beneficial partnerships and engaging thoughtfully about their city’s needs. Working with cash-strapped cities often calls for thinking outside the box about how to monetize the solutions they need. Tech companies active in the smart cities space are also increasingly offering financing to cities.
Smart cities have many vocal constituencies and stakeholders. The broader public, whether direct customers or not, can be affected by a company’s offerings. City residents and the officials who represent them often have a great deal to say about smart solutions that shape their environment. Companies have to consider not only how their offerings perform but how they affect the public sphere in order to win and maintain a mandate to operate.
