Digital Economy 2025: Citizen-Centric Cities

The next decade of city development

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Summary

Catalyst

Two overlapping technology-supported agendas are shaping local governments' strategies in cities.

The first is digital government, which also features in national policy, and has cities looking at ways of

making online delivery of public service not only possible, but preferable to citizens. The other is the

smart cities agenda; a vague buzzword used to frame a variety of different ambitions for cities,

supported by the urban Internet of Things.

Both agendas are in their early days, but the overlap between the two raises the prospect of a near

future where public services in cities can be built more around the needs of individuals, instead of old

bureaucratic distinctions. This report looks at why citizen-centric services are going to matter, and

what governments and businesses must take into account in order to make them work.

Ovum view

The digital economy will run on two currencies: money and data. Like money, data can be exchanged

for services, and like money, people want to keep their data safe, and are reluctant to hand too much

of it over. The digital economy must operate on this understanding or it will fail to operate at all.

For citizens, governments (local or otherwise), and businesses to trade data in such a way that makes

the delivery of citizen-centric services possible, exchanges need to be underpinned by the principle of

active consent. There must be easy-to-use platforms whereby citizens can control what they share

and with whom, and understand what they get in return.

Government must also consider carefully the incentives it can or could offer the private companies it

wants to work with. These companies already profit from the modest amounts of open data

government publishes. This is not a problem in itself, but in the long run, government must be careful

not to undermine the value of data as a tradeable asset belonging to the taxpayer. The response to

this consideration must be balanced with open data's role in making public services more transparent.

Key messages

Individuals will become the center of city services.

Fair data sharing rests on consent and incentives.

Institutional reform must come before technology.

Recommendations

Recommendations for governments

Governments must define the parameters for the sharing and exchange of data

in cities

These parameters must be clear to 2025, if not beyond. Private sector organizations can and do

present their ideas, but they will struggle to move forward until they know what regulatory environment

they will work in.

Cities must balance transparency with the value of data as a public asset

Freely published data can make government more accountable by identifying inefficiency,

incompetence, and potentially even corruption. However, open data published by government has

already proven profitable for private companies.

This is OK in the short-term, but there is a long-term risk that it will undermine the value of a public

asset that could otherwise be traded for public benefit. Government must address this risk without

diminishing transparency or caving in to vested interests inside and outside its own ranks.

Cities must finish what they started with digital government

Citizen-centric services cannot start until the process of breaking down no-longer-relevant silos inside

local government is "complete" or has progressed significantly. This will require strong leadership to

drive organizational change, to make the case for open data, and to define a strategy that is clear

without being too rigid.

Recommendations for vendors

Build effective privacy platforms based on the principle of "active consent"

Tech companies must develop customer-friendly methods for managing privacy. These platforms will

work best when they can serve multiple public and private services, meaning they must be built on

open standards for interoperability.

It almost goes without saying that security must be paramount. End-to-end encryption of transfers,

client-side encryption of personal data stores, two-step security, and ID assurance are all necessary

components.

Support digital government first and citizen-centric services later

Data-driven companies are already developing their own customer-centric services, but government

must still go through other IT transformations before it reaches that stage. The digital government

agenda and the smart cities agenda will create justifiable cases for integration of back-end IT. More

broadly, as long as tech skills remain in shortage, consultancy services will be vital to help cities

implement these transitions.

Individuals will become the center of city services

Readying for the challenges of tomorrow

According to the United Nations Department of Economic and Social Affairs, over 60% of the world's

population will live in cities by 2025, compared to around 54% in 2014 and 30% in 1950.

The International Energy Agency expects that by 2025, global energy consumption will be around 475

exajoules (EJ), up from a little over 400 in 2015. It expects around 75% of this demand to come from

urban areas, mostly in developing countries.

Figure 1: Cities 2014-15 and looking forward to 2025-30

Source: Ovum

The responsibility for tackling the world's most urgent problems will increasingly fall on cities, which

often lack political power and rely on states for governance and funding.

Moreover, while cities will be at the forefront of the digital economy, small towns and rural areas must

not be excluded. Just as new approaches to services can help cities cope with their ballooning

populations, so too can they help small towns deal with their shrinking, aging populations more

effectively (the same applies to large cities with the same problem, such as Seoul).

Technology has enabled radical change in cities' approach to addressing problems

The Internet of Things, cloud computing, big data, and high-speed Internet connectivity – especially

the wireless kind – are key technologies in supporting new ways of delivering services in cities. The

impetus to use technology to change the way services are delivered is less a sudden crisis than a

new phase in a reform process that has been running for around 20 years.

In the 1990s, public services in Europe had changed little since the New Public Management reforms

of the previous decade. Individual services were handled by departments with considerable autonomy

and relatively little overlap in responsibilities. The division of services, labor, citizen records, contact

channels, procurement, and finance followed fairly strict departmental divisions.

The services that citizens received were shaped and constrained according to bureaucratic structures,

rather than individuals' particular needs, much less any sense of what a rational person might

consider sensible or reasonable.

During the first decade of the 21st century, "e-government" became the new buzzword. Governments

became more interested in consolidating contact channels and delivering information, as well as some

basic services, online. However, the underlying departmentalization inherited from the pre-Internet

age persisted. The result was that many of the frustrations of dealing with traditional government

bureaucracies were merely replicated in online services, meaning take-up, benefits, and savings were

limited.

The expression in vogue now is "digital government." This may sound a lot like "e-government," but

the distinction is intended to denote the digitization of more than just the point of contact. "Digital

government" implies digitizing and standardizing processes to allow a wider range of services to be

provided online in a more consistent way. Consolidated government websites also become one-stop

platforms for service delivery rather than mere portals for signposting various departmental services,

as was with e-government.

Data will drive the next phase of public services

The next proposed phase of public services is "data-driven" or "citizen-centric" services. This involves

using the vast amounts of citizen data generated by digital government, as well as data from the

expanding Internet of Things, to build services around citizens and meet individual needs, rather than

merely executing the predefined functions of different departments.

This idea is relevant across tiers of government, but it is especially interesting in cities. There are two

reasons for this. The first is that local governments typically provide the majority of public services

anyway. The second is that the services local governments deliver are often tied to public spaces and

public infrastructure – think transport, roads, parks, waste collection, public safety, and health and

social care. This creates a much stronger role for the Internet of Things, which connects these spaces

and this infrastructure.

Cities can be thought of as shared public spaces in a way that most countries cannot (small and

densely populated city-states notwithstanding). Cities of citizen-centric services will build devices and

connectivity into these shared spaces to efficiently deliver services to the citizens, businesses,

visitors, public servants, and public institutions that share the city.

Figure 2: Citizen-centric city framework

Source: Ovum

Smart cities and citizen-centric services are not the same

There is a great deal of hype around smart cities in a wide variety of countries; rich and poor,

democratic and not. In most cases, the purpose of the hype is to frame domestic policy objectives.

In rich countries, the term "smart cities" frames the evolution of public services, supported by

technology. While the idea is often discussed in terms of "revolution," it is better thought of as

evolution. The technology and the data that underpin it are indeed radically new, but the new

approaches to public services they support build on the successes and learn from the mistakes of

older approaches. Citizen-centric services are one idea being talked about as part of this evolution.

In many developing countries, smart cities serve as a frame for governments' economic development

policies, often intended to manage and support rapid urbanization. These priorities differ from citizen-

centric services because they are primarily focused on meeting communal needs, rather than

adapting services to individuals.

Narendra Modi's government in India is the clearest example of a developing country's leaders using

the smart cities idea to frame and drive economic modernization. The often throwaway term

"developing country" should be taken very literally in India's case: the largest democracy on the planet

is experiencing very rapid economic growth and urbanization. Urbanization at that rate and scale can

be very chaotic and needs a lot of new public infrastructure, institutions, and policies to support it.

"Smart Cities" is the banner for the government's response to that need.

Citizen-centric services are most likely to be of interest where urbanization is slower and public

infrastructure and institutions serve communal needs adequately (more or less), but where public

services do not adapt well to the needs of individuals. In short: developed countries. That does not

mean that developed countries will build the first smart cities; only that their smart cities' projects will

be geared toward citizen-centric services, while developing countries focus on more urgent priorities.

Table 1: Ovum's outlook for citizen-centric cities

Geography Locale 2015-17 2018-21 2022-25

Developing countries

Large and major cities Cities focus investment into infrastructure lead programs

Pilots underway into data drive services, build on learnings from developed countries

Interest in the integration of data and citizen centric services increases rapidly in line with broader economic growth

Small cities and large towns

Interest in developing infrastructure

Some pilot projects, attempts to replicate successes of large cities

Rapid developed of services, use of data to drive services grows

Small towns and rural Collaboration with neighboring towns and cities for cloud services to reduce costs

Interested around using off the shelf tools and apps

Use of apps wide spread but limited use of data

Developed countries

Large and major cities Pilots underway in areas such as transport and garbage

Wide spread expansion of pilots into increasingly sensitive areas such as health and social care

Cities move beyond pilots with wide coordination of services, realizing benefits from data economy

Small cities and large towns

Smaller pilot projects, willingness to reuse tools developed by or for large cities

Pilots expand to broader range of services, increase in use of data to drive design of services.

Integration of services and data begins in earnest

Small towns and rural Collaborate with neighboring towns or local authority to connect cloud services with local services

Reuse of existing apps and tools that improve access to local services, communication with citizens and data collection

Reuse of existing apps and tools that improve access to local services, communication with citizens and data collection

Source: Ovum

Fair data sharing rests on consent and incentives

Citizen-centric services require new ways of handling data

Citizen-centric services are an idea within a much larger set of ideas about the data economy. These

rest on the notion that big data will become an extremely important economic resource for public

services, for consumer services, for business, and for scientific progress – in short, for the economy at

large.

This idea is a step beyond our current methods of handling data. Today, the term "open data"

generally describes government publishing information about itself and, to a limited extent, connected

public infrastructure. Some private companies publish a bit of open data too, and there are small

citizen-led IoT-driven initiatives, but these examples are very limited.

Alongside this, consumers already share vast amounts of data with digital service providers, often

without understanding the full extent of what they are sharing or what it is for. The limitations on this

are governed by preposterously long privacy agreements that are drawn up in compliance with

applicable law, as well as a tremendous amount of contingency planning by providers.

These agreements impose fixed constraints and permissions regarding the use and sharing of data.

Businesses can profit from the data and citizens can access nominally "free" services in exchange for

their data. But the fixed constraints limit the services businesses can provide without leaving

consumers any the wiser as to the extent to which their privacy is protected. Consumers click on

"accept" every time, but their consent is otherwise entirely passive: nobody reads privacy agreements,

because they are just too long and, often, incomprehensible.

A scenario for citizen-centric services is one where governments, businesses, and individuals

exchange data with one another in a way that they can understand and control, and in response to

myriad incentives, similar to the way money changes hands.

Citizen privacy demands platforms to support active consent

Data is becoming a lot like money: it can be exchanged for services, it can be stolen, it can be

misused, and it requires protection. For data-driven services to work, there needs to be a kind of

"digital banking" for personal, corporate, or government data.

The tech industry, in cooperation with lawmakers and regulators, must develop digital platforms that

support the notion of "active consent" to support citizen-centric services. Imagine these as resembling

the privacy controls in smartphone operating systems, in Facebook, or in the cookie control options

for any web browser. These platforms must show users who they are currently sharing their data with

and the services that sharing allows them to access. A simple set of toggle switches allow users to

release or withhold data and enable or disable particular services.

Active consent platforms would help to ensure companies and the state are able to offer a wide

variety of data-driven services to citizens at the same time as ensuring citizens understand and can

control the data they share. Privacy would be improved by encouraging users to take more

responsibility for what information they hand over, protecting privacy without the need for heavy-

handed regulation that could hobble services. Privacy agreements will still be entirely necessary, but

they could be simplified, as more contingencies could be dealt with through ad hoc active consent

instead of advance planning.

It seems almost too obvious to say that proper security standards are essential in such a platform. At

the most basic level, there must be end-to-end encryption between interlocutors, and client-side

encryption of personal data stores. Common standards are necessary to ensure interoperability. This

kind of highly secure, privacy-focused data sharing is not an entirely new concept, though it remains

more of a concept than a mainstream technology: for better or worse, the UK government's prototype

Verify program has a lot in common with the vision being described here.

Businesses already profit from free access to city data

Some citizen-centric services – such as smart parking – will be improved if private companies share

their data too. Persuading them to do this is another matter. Sometimes businesses publish data

because the law forces them to – publicly traded companies must release financial performance data,

for example. However, if a municipality wants local parking companies to release live data about

available spaces, or participate in an integrated smart parking platform, the law may be too heavy and

blunt an instrument to wield.

Short of forcing companies to participate, there must be incentives. Businesses already profit from live

feeds about public assets, which they use to improve their own services. Instead of operating as

publicly-funded freebies, these feeds could be exchanged for the business's data or services.

This means that city government data cannot simply be lumped together under the heading of

"transparency." Government must strike a balance between providing data that makes it transparent

and accountable to the public, while at the same time preventing corporate free-riding and rent-

seeking behavior on the back of data that has been collected using public funds. If it allows the latter,

it has nothing to exchange for the data and services it wants from the private sector, and opens itself

to accusations of providing "corporate welfare."

Governments and businesses alike must also have a means by which they can easily control who

they share their data with and understand what they get in return. They must be able to share this

understanding of trade-offs with, respectively, their citizens and shareholders.

Institutional reform must come before technology

Cities must finish what they started with digital government

Providing these kinds of highly personalized services is not merely a matter of building a snazzy

digital platform; there must be reform of public institutions first. The failure of e-government to deliver

the savings and benefits that policy-makers hoped for underlines the point that technology can be

used to implement policy, but it cannot be the policy.

Citizen-centric services are not about breaking down silos; they are about taking advantage of the

opportunities that arise once silos have already been broken down. To get to that stage, cities must

finish what they started with digital government. That is not to say they must mindlessly merge

departments. It means they should aim for a scenario where departments draw the data they need

from the same logical location (to the extent that the law permits) instead of maintaining their own,

potentially conflicting, versions of the same data. Merging workflows and integrating systems, as

appropriate, will improve efficiency in the short-to-medium run and support these new services in the

long run.

Cities also need to make much larger strides in open data before they can even hope to offer services

that are in any way "data driven." Besides anything else, open data – by definition – breaks down silos

within government. Unfortunately, this means some departmental managers perceive it as a threat to

their authority, and cook up obscure arguments against it. Vague notions of "privacy" are often used,

even though nobody ever suggested making citizens' personal data "open." The suggestion that the

data might be "misused" also features often, as though this were a matter of publishing embassy

cables rather than data about how efficiently the council collects waste.

Strong leadership and rational debate will be needed to make the argument for open data and

institutional reform within cities. A key component of this will be coming up with a coherent strategy

that will convince managers without binding them to a rigid and unchangeable plan.

Besides leadership, cities also need to confront the practical issue of hiring people with the technical

skills they need to deliver these services. Such workers remain scarce and expensive, and are easily

lured to the private sector by generous salaries. A careful balance of consulting, outsourcing and –

most importantly of all – in-house training is essential.

National governments must solve the identity puzzle

The other significant obstacle can only be knocked down by national governments. Many countries'

digital services remain hobbled by the problem of proving a person's identity online. Obviously, this

holds back citizen-centric services even more.

The security procedures we are used to – usernames, passwords, and other safeguards such as

single-use tokens – are not genuine proofs of identity; they are just reasonably good assurances that

the person logging in is the person who created the account. For sensitive services to be genuinely

"digital," citizens need to be able to prove who they are in the first instance.

Countries with national ID card schemes can do this quite easily, but many– notably anglophone

countries – reject such measures as authoritarian, and continue to work on alternatives.

Appendix

Further reading

Systems Integration in Smart Cities, IT0007-000900 (August 2016)

What Government Does with Things, IT0007-000892 (June 2016)

Smart City Vendors: The Rise of the Specialist, IT0007-000874 (March 2016)

Cities and the Open Data Economy, IT0007-000808 (April 2015)

Reforming City Government with Open Data, IT0007-000809 (April 2015)

Author

Chris Pennell, Practice Leader, Public Sector Technology

chris.pennell@ovum.com

Ovum Consulting

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