URBACT III SmartImpact Action Planning Network. Innovation Ecosystems for Smart Cities A thematic Report

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1 URBACT III SmartImpact Action Planning Network Innovation Ecosystems for Smart Cities A thematic Report Alanus von Radecki V January 2018

2 Table of contents Executive Summary... 3 What are local Innovation Ecosystems?... 4 Actor Networks:... 5 Data Networks:... 6 How can city leaders and public authorities create successful local innovation ecosystems?... 8 Scaling-up and mainstreaming: Sources

3 Executive Summary The SmartImpact network, (funded by URBACT III) aims to develop innovation-management tools for municipalities, aimed at supporting them to finance, build, manage and operate a smart city, with a focus on governance structures, processes, business model innovation and integrated action planning. One key question in the process of becoming a smart city is how to create a thriving innovation ecosystem a local network of innovators, citizens, researchers and innovation driven companies that builds on close ties with the city and supports a sustainable growth model based on innovation and digital assets. The SmartImpact transnational meeting in Porto in June 2017 focused on the question how cities can develop and support successful local Innovation Ecosystems. The partner cities shared, discussed and compared various different approaches. In addition, Porto a leader in successfully delivering on the challenge of innovation ecosystems demonstrated successful projects like Desafios Porto and connected the SmartImpact community to the local innovators. This report summarizes the results of the SmartImpact meeting in Porto. It introduces the concept of local innovation ecosystems and brings forward the arguments for thinking of a smart city development as a reciprocal innovation process that needs to build on and strengthen local innovators at the same time. After highlighting challenges, barriers and concepts for working with innovation ecosystems, the report brings together three case studies from the SmartImpact partner cities: The Small Business Innovation Research Initiative from Dublin The Zagreb Start-up Factory The Quadruple Helix approach from Eindhoven This report directs itself at city officials and policy makers who are aiming to improve their innovation strategy and seek for good examples and methods to activate the power of their local innovation ecosystem. 3

4 What are local Innovation Ecosystems? As our societies and industries change in light of digitalization, innovation more and more becomes an underlying principle of local development. The shift towards digitalization leaves no one untouched: no industry, no citizen no public sector organization. All of us are taking part in an overarching and rapidly evolving transformation towards a knowledge- and service based economy. As knowledge becomes more important, innovation becomes a key prerequisite to propel the transformation towards healthy, sustainable and liveable societies. Cities and societies that are able to innovate will be successful in delivering better services, increasing efficiency and inducing sustainable growth. Innovation, however, is nothing that can be ordered on demand like burgers or bicycles. Innovation is the process of generating, applying, testing, improving and up-scaling new ideas, concepts or products. Innovation happens and we cannot plan it! Yet, when innovation happens, we can make sure it is embedded in the best available environment that allows for rapid prototyping and testing, provides instant feedback (on success or need for change) and nourishes great ideas so they become strong new offers to the market, triggering demand and interest. Think of innovation as in nature. Based on mutation and selection nature constantly innovates and creates an uncountable number of new forms, functions and species. This happens all the time around us. By default. Yet, it depends upon the ecosystem in which the innovation is embedded whether a new species will be successful and reproduce or whether it will dwindle and disappear again. If all of us are constant innovators (citizens, companies, public sector employees, researchers, start-ups etc.), cities are the ecosystems in which new concepts, ideas, products and services need to prove successful. The better we manage to design these ecosystems, the more successful we will be in generating powerful, long-lasting and sustainable enterprises and solutions for our cities. Local innovation ecosystems are therefore the nr. 1 strategic asset for a long-term transformation of an urban economy, carrying the potential of driving innovation and system change. When taking a wider perspective on the global digital transformation, local innovation ecosystems become a core component in solving local challenges and in developing a future-proof urban economy and society. We need to consider, however, a few factors that are different in the way we innovate and thrive from the way nature innovates and thrives. 1. Innovation is a social process To come-up with new ideas we may not need anyone around us. But to realize, test and improve it we need budgets, technologies, equipment, customers, service providers and many other stakeholders that we need to convince or collaborate with. This is the reason why innovation never happens without an inspiring and motivated network of actors. 2. Success of innovation depends mostly on non-physical factors 4

5 Of course: connectivity and infrastructure is important for digital start-ups. But in order to thrive, innovators need access to many other non-physical assets like seed funding, skills, data, early customers, promotion and marketing. Cities can do a lot to create the right ecosystem for innovations to flourish. Figure 1 shows how a set of organizational and physical enablers need to come together as network assets in order to allow for an ecosystem of local innovators to be successful Figure 1: Enablers of a local ecosystem Two assets stand out when taking a closer look at the assets that need to come together to support local Innovation ecosystems: actor networks and data. Actor Networks: Companies and entrepreneurs are the core actors of IE as they place themselves where demand for and supply of innovation takes place. Public institutions, research and human capital (well-educated citizens) play a large role in the process by setting conditions for the innovation, facilitating the spread of new knowledge on the one hand and creating skills and labor capital on the other. These four (companies, public institutions, research and citizens) need to be connected by networks and connections which ensure the flow of new ideas and stimulating innovation processes within the markets through the help of wider conditions such as regulation, infrastructure, planning, leadership, efficient housing, openness etc. 5

6 Data Networks: Aside from the physical, economic and networking assets described above, the digital space of cities is a fundamental component to enable innovation and growth. The digital space of the city can be seen as the hyperspace complementing the physical city and its innovation ecosystem. The system of the urban digital space is composed of four elements as presented in Figure 4: Figure 2: Four components of the digital space of the smart cities Broadband Networks; wired and wireless infrastructure; access devices & sensors enabling communication; data Collection and exchange Web technologies enabling data storage, processing and visualization Digital applications in many domains of the city (egovernment, utilities management, sustainable development e-services and digital use cases. Applications that come with viable business models and are offered on a regular basis as services Why are Local IE important for Smart Cities? The traditional pathway to innovation is either academic (driven by Science and Universities) or customer-oriented (driven by profit and businesses). The public sector especially cities and municipalities do not play a role in this process. Becoming a smart city implies to put innovation at the heart of urban development. Smart cities become a key driver of innovation: both, for the improvement of own operations and services and for a strong and future-oriented economic development. Successful smart cities have learned how to do things differently and how to deploy new digital technologies to deliver better city services, spend public money more efficiently and grow the city in a sustainable way. While cities in the past used to support corporate innovations for the sake of economic growth, smart cities support innovation across all sectors (public, corporate, research & citizens) in order to link economic growth of innovation-driven local companies to a sustainable development of the city. In this process the municipality takes-on several different roles. It becomes an initiator, moderator, customer 6

7 and regulator of innovation. However, it depends on a community of innovators to bring ideas and new solutions to the market and into the operation of the city. Figure XX shows in a simple graph how a wellmanaged local innovation ecosystem is able to contribute to higher liveability and a more sustainable city (black arrows) and how a biased focus on corporate-driven innovation can jeopardize liveability and sustainability through external costs like pollution, unbalanced real-estate markets or congestion. Figure 3: The link between innovation ecosystems and Smart Cities It is recommended that collaborations in an innovation ecosystem are either formalized in an open and flexible way (e.g. through open network meetings, advisory groups etc.) or not formalized at all. Some kind of framework and commitment is beneficial since it supports creating a sense of ownership and responsibility for the common undertakings. Moreover, under a collaboration framework, partners focus on certain high priority issues which ae of relevance to many of them. Having a soft frame i.e. formalization will help to avoid establishment of chaotic and uncontrolled structures. A strong formalization, however, bares the risk of losing openness and flexibility and by this, spurring conflicts in the ecosystem. Open partnerships give possibility for free in- and outflow of new parties alongside the changing priorities and new issues on the agenda, which has to be sustained and ensured. (Edelstam, 2016) 7

8 How can city leaders and public authorities create successful local innovation ecosystems? Innovation ecosystems do not develop equally in all cities. Some experience faster, higher growth than others with a higher number of start-ups, investments, employment, and economic growth. Many researches have tried to find a pattern and distil the factors that cause different growth rates. Despite these efforts, we cannot make a clear cause-and-effect explanation on the growth of Innovation Ecosystems. Some evidence hints at the density of people and companies to play a vital role in establishing thriving IEs. Nonetheless, there are clear activities that city leaders can take in order to initiate, strengthen or foster local innovation ecosystems. The following list is a collection of activities based on the contribution of SmartImpact member cities and on best practices communicated in various research documents and reports: Use the potential of your citizens! The collaboration of core actors of an innovation ecosystem (public and private entities as well as research organizations) has been widely discussed under the concept of the Triple Helix. When focussing on Smart City Initiatives it is important to widen this scope and engage citizens or (where they are already involved) evolve their role to become co-creators of the services and goods they receive. The Quadrupel Helix is the engagement model for a local innovation ecosystem! Communicate clear benefits A good example for achieving this can be observed in Smart Aarhus in Denmark (Snow, Håkonsson, & Obel, 2016). The results of the smart city co-creation approach of Aarhus show that the communication of clear and obvious benefits to the each actor is a key factor for incentivizing their contribution. The benefits of local innovations for citizens, entrepreneurs, researchers and various other stakeholders need to be lined out very clear and in an easily understandable way. Through this a shared vision of a smart and prosperous city can become very tangible for each participant leading to strong engagement in the process. Thus, IE should be built on an inclusive approach they guarantee creation of the right outlook among different involved actors and provide extra incentives to those who want to participate. IE should be flexible and open with regards to circulation of the members, making sure the right people are invited and linger. (Snow, Håkonsson, & Obel, 2016) Set up an innovation team within the city administration. This team should not be limited to only delivering solutions applied within governmental activities, but rather outside and independently from the governmental domain, through the LIE as a whole. Through this, public administrations can play an important role to support innovation ecosystem grow and develop by incentivizing and supporting to test, validate, implement and scale innovations. Reinsure the public authorities Furthermore, when creating IE for Smart Cities, an important focus need be put on making sure that it does not constitute a threat to existing municipal power structures. A clear focus on an 8

9 innovation-driven development of project ideas and initiatives helps public authorities recognize the value of IE and support it (e.g. Smart Aarhus understanding cultural and political context). (Snow, Håkonsson, & Obel, 2016). Support the flow of open city data (which can be aggregated and processed via ICT-based platforms) to other stakeholder groups with the purpose of improving their interaction within LIE to connect and create innovative solutions. Define how to use the available internet infrastructure, applications, sensors, embedded systems etc. based on common platforms to achieve socially and economically desirable outcomes when responding to the demands in different domains (healthcare, education, energy efficiency etc.) Prototype, test and demonstrate: cities are still rather slow and strongly formalized in their planning processes. Moreover, cities have a tendency to lock in their routine suppliers and existing technologies as they consider it safer and avert the risk. This of course does not favour creating innovative solutions and especially disincentives SMEs who are not so much competitive to big established suppliers already being in contact with the public administrations. Cities should consider to be more open and find shortcut options for this lengthy process of extremely competitive products and services. Risk reduction of public authorities (which is one of the root cause of the above-mentioned problem) can be obtained in several ways: deep knowledge about the innovative solution to be tested as well as sharing the risk on testing and financing could be a good strategy for joint responsibility. Including the option of testing and demonstration from the beginning of the process will allow such testing to happen faster, more cost-efficient, with quicker iterative cycles. Moreover, it is vital that future customers/users of this innovation are engaged in the process for the better reality check. Create spaces where stakeholders can meet and prototype in a co-creation atmosphere. In the best-case scenario, cities should open up and use the entire city as a potential testbed area. Be inclusive of various groups of stakeholders (public sector, business sector, universities, citizens, civil society organizations) and facilitate between and within them, enabling the development of different working cultures as well as promoting bonding to common vision and collaborative goals. In this process, it is vital to have an overview, which actors constitute the power centres of the system and make them cooperate. (Edelstam, 2016) It is important to note hereby that facilitating the collaborative activities of groups is essentially different from coordinating or orchestrating them-terms which build upon the leadership role carried out by managers in hierarchical organizations. This difference is important inasmuch behind such terms one might see the true vision certain stakeholders might have or the particular roles they would want to play in the process of building IEs. (Snow, Håkonsson, & Obel, 2016), Understand the weaknesses and strengths of different separate sectorial systems as well as their interaction with each other. (Edelstam, 2016), Maximize opportunities to engage with each other: networking assets such as community building events, skill training, collaboration spaces (accelerators, incubators), and networking of mentors are central to sustain a social network of the ecosystem. You can achieve this by 9

10 strategically maximizing the collisions of people with different ideas, perspectives and values resulting in increased opportunities for even more creativity and innovation. (Mulas, Minges & Applebaum, 2016) Harmonize the different governance logic of the various stakeholders in your local innovation ecosystem. Build wider understanding of roles, different driving interests and values by complementing each other with the resources, seeing the bigger perspective in the system. (Edelstam, 2016) Complement the operational projects (with a clear start and date, tangible delivery plans and outcomes), with systemic projects (open-ended processes, which have exploratory character) with the aim of innovating and strengthening the system, increasing its capacity by building the structural capital; Strengthening and building up the system is possible through continuous learning from and between the projects and stakeholders. (Edelstam, 2016) Invest time and resources for having an overview of the international dimension when coping with LIEs. Gaining an international perspective should be seen as an upward investment for attaining international relevance, visibility, experience, higher-level engagement, resource input and overall value creation. In the best case-scenario, LIEs should try to have dedicated resources for international linkages. (Edelstam, 2016), Complement the short-term transaction logic of stakeholders with a long-term investment logic: The short-term direct benefits are easier to track and easier to understand. They might consist in a) saved costs or increased quality of life and satisfaction of citizens for public sector; b) new products, better business models and increased profitability for industry representatives; c) funding and research publications for academia. A long-term investment logic emphasizes the wider value of the local innovation ecosystem for all stakeholders and asks for long-term commitment and investments of time and resources for a more diffuse goal of local prosperity, innovation and sustainability. Actors might not see clear tangible outcome nor the concrete period for their individual profit, however is a shared understanding of value creation through mutual efforts vital for a long-term success of the ecosystem. Such processes involve exploratory and dialogue processes and call for investing more time and resources. Both transactional and investment logic play a crucial role in developing and governing local innovation ecosystems and are integral part of the ground setting process. (Edelstam, 2016), Link innovative initiatives to already existing successful projects, that is beneficial in many ways one can get visibility and attention from an audience of a popular event/programme etc. Moreover resource efficiency could be achieved through co-sharing funds/sources allocated to other events. (Edelstam, 2016), When setting up the governing team for LIE, it is important to keep the balance between various organizations that no one is in the position of full control and dominance, but can influence while 10

11 actively participating. It is of high importance that the team includes system operators from different domains such as energy, ICT, transport etc. Although it is noteworthy that due to the complexity and wickedness of contemporary city problems, the number of involved stakeholders will always be big. To keep the governance of LEIs manageable, it is important to differentiate between a core permanent team and flexible participants. When thinking who to include in such a governing team, it is vital to have as much trans-organizational and transcultural skills and experiences included as possible. This will make it easier not to stay localized and create structures from learning looking at international cases, needs and markets. The report on Local Innovation Ecosystems for Smart Cities presents the following illustration (see Figure 5) as the preferred setup of LEI governance team 1 (Edelstam, 2016): Figure 4: Setup of the LIE Governance Team, Edelstam, 2016 Scaling-up and mainstreaming: Local innovation ecosystems are successful when ideas generated in the system become manifest as products, services or solutions in the city. Municipalities usually help trigger this process through pilot projects and exclusive funding (e.g. through EU innovation funding). There is, however, often a gap between these demonstration projects and a mainstreamed implementation of the innovative solutions or a larger uptake of the ideas through a wider demand side in the city. The current models and 1 Edelstam Mikael, 2016, report on Local Innovation Ecosystems for Smart Cities, BUSINESS MODELS, FINANCING AND PROCUREMENT, financed by Region Skane 11

12 procurement procedures are not supportive tools to drive the uptake of innovation in a way that would affect the market. Thus, once first pilots have been launched, effort has to be focused on integrating the initiatives into the normal operational work and getting out of the umbrella of external co-funded projects, which are often limited to single cases and short time periods. This has further implications on the wider organization of the smart city development. Issues like organization development, data management, innovation procurement and municipal service contracts need to be tackled and included into a wider strategy for scaling up smart solutions and mainstreaming the innovation ecosystem into the operation of the smart city. Scaling is the biggest challenge of the contemporary cities, which try to establish LIE within their smart city objectives. Cities should set as their core mission to spread the innovations. Municipalities often fail to develop a business case of spreading their solutions as their objectives stay focused on delivering value for local citizens who want to solve particular local issue. Thus, multinational companies, which are present on many markets and have a commercial interest, are the main source of learning, adapting and spreading such innovative solutions leaving the scaling effort on the market side of the system. This reveals a general problem of local innovation ecosystems: The development and piloting of solutions happens with an intention to creating a public good But the scaling of these innovations is limited to the mere market side for the lack of wider city networks on procurement of innovation. On the long run local innovation ecosystems will need to be backed by bold socio-economic policies on national and EU level (think for example about unconditional basic incomes) and policies that hold-up competition and a level-playing field in order to provide for an incentive to innovate and improve. 12

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19 Sources Snow, C. C., Håkonsson, D. D., & Obel, B. (2016). A Smart City is a Collaborative Community: Lessons from Smart Aarhus. California Management Review, 59(1), Mulas, V., Minges, M., & Applebaum, H. (2016). Boosting Tech Innovation: Ecosystems in Cities: A Framework for Growth and Sustainability of Urban Tech Innovation Ecosystems. innovations, 11(1-2), Katz, Bruce, and Julie Wagner The Rise of Innovation Districts: A New Geography of Innovation in America. Metropolitan Policy Program. Brookings Institution. Mercan, B., & Goktas, D. (2011). Components of innovation ecosystems: A cross-country study. International Research Journal of Finance and Economics, 76, Crowley, L., (2011) Streets Ahead: What Makes a City Innovative? The Work Foundation. Edelstam, M., (2016), Local Innovation Ecosystems for Smart Cities, Report, Market Place of the European Innovation Partnership on Smart Cities and Communities, Region Skane, 1-61 Schaffers, H., Komninos, N., Pallot, M., Aguas, M., Almirall, E., Bakici, T.,... & Hielkema, H. (2012). Smart cities as innovation ecosystems sustained by the future internet, White Paper on Smart Cities as Innovation Ecosystems,