Suppose you work to improve the sustainability performance and digital interconnection of a city. In that case, you may have experienced the complexity of value creation within the ecosystem, where individual actors need to cooperate and work together in shared service models to reach sustainability targets.
So far, individual actors have not been assigned ownership of the ecosystem outcomes and operations; therefore, we’ll look into relevant smart and circular initiatives driven by leading organizations and what is required to create a joint effort under a city-wide holistic approach.
The three driving forces of change
Under the current linear economy model, you’ll be sure to think that the rising population in cities will put additional pressure on scarce natural resources and climate change. The following question comes to mind:
How can we decouple resource consumption from economic growth in cities?
Fortunately, part of the solution is the combined force of three emerging trends that is enabling a shift towards smarter and more circular cities using less natural resources, optimizing their assets, and producing less waste:
- Increased consumer demand for sustainable products and services
- Smart and circular business models
- Disruptive technologies and increased digital capabilities in city ecosystems[VN1]
A Circular Economy survey led by ING shows that 83% of consumers think that they can make a positive environmental impact through their consumer choices. But still, if you are a business, you may ask yourself, why is this relevant to me? As a business, you need to consider that most of these circular consumers are starting to demand more durable products, are considering second-hand markets for cheaper options, and are shifting from owning products to accessing and sharing products.
In addition, the Covid-19 pandemic is accelerating the transition from linear to circular and smarter business models.
For instance, here is an example of these trends realizing from the construction industry: there is an increasing demand for circular buildings driven by users, promoters, and investors, who can increase the value of flexible, modular, and multi-purpose facilities. They are facing the following challenges:
- How can you transform underused offices in apartments to create and capture value in the new normal?
- How can you design a building to reuse components and materials? Design for easy disassembly and design for recycling?
- What novel business models are shaping the future mobility and workplace?
New business models are looking at modular construction and start with design. You also need to engage the entire supply chain and share value among all stakeholders.
New workspace subscription-based service bundles combining flexible locations, mobility, and digital solutions will create joint-value propositions for employees and employers, building owners, mobility players, digital providers, and other third parties.
The sprawl of vehicle leasing contracts and sharing platforms is creating novel business models known as “Mobility-as-a-service,” leading to reduced costs for users, less congestion, prolonged lifetime, and increased value of transportation assets through the implementation of circular principles. Similar business models based on sharing platforms are emerging around energy, waste and other resource flows within the city.
How are digital and data enabling and accelerating these business models?
The introduction of sensors and geo-spatial localization in building assets, transportation, human, and resource flows in cities enables optimized maintenance through a real-time diagnostic of assets condition, leading to prolonged lifetime and reduced demand of raw materials.
New advancements in Artificial Intelligence and Big Data allow for enhanced predictive maintenance of assets and forecast optimal human and resource flow patterns, reducing energy consumption and waste generation. Furthermore, the emergence of sharing platforms, the Internet of Things, and blockchain increases connectivity between assets and citizens to improve asset utilization. Also, digital twins and BIM are allowing to map out the city assets and keep track of the lifecycle performance.
How front-runners and leading industries are paving the way?
A growing group of disruptive and leading companies is shaping that future as we speak.
In the building sector, more than 30 partners are collaborating in the Circle House, the first circular housing project in Denmark. The Circle House integrates design principles for disassembly and material ID to keep track of material and elements. New business models aim to offer customer service, share value among the partnership and supply chain, and keep asset values as high as possible in circulation with an objective of 90% of material reuse.
In less than a decade, Balfour Beatty went from a declining financial position to become the UK construction sector leader by embracing digital, circular principles and customer-centricity, among other critical actions for successful change. The company is building the first School of Innovation in the UK, also the first building designed and constructed in Scotland using circular and eco-design principles.
Other front-runner companies such as Technopolis in Finland and Betahaus in Germany shape the Future of Work by shifting from office centricity towards holistic service bundles. Providing workplace-as-a-service solutions, these organizations have built a digital platform network, enabling users to choose the best work location. These companies create and share value with other industries within the network. They partner up with IT and telecom providers to facilitate remote and flexible work access, collaborate with office suppliers utilizing circular business models (remanufacture, reuse, and take-back), and link flexible mobility options to increase the asset turnover.
In the mobility sector, Tampereen Raitiotie is launching this year in Tampere (Finland) the best tram service in the world. Key to this outstanding service is the data strategy and digital roadmap aimed to create digital services that increase value for passengers, tram drivers, and traffic control. In the same sector, Skoda Transtech is modernizing and digitizing their tram field service and maintenance capabilities by developing digital twins of their assets in an ecosystem operating model to engage suppliers and third parties in digital and predictive maintenance. This digital platform and introduction of circular principles, such as component reuse and refurbishment, will lead to extended lifetime, increased asset utilization, and reduced waste generation.
In the food supply chain, leading circularity brokers, Olio and ResQ Club are using digital platforms to transfer discarded food to potential consumers or value exploiters. Winnow is using Artificial Intelligence to monitor food waste in the hospitality industry. Proof of this success is the recent achievement by Ikea after implementing Winnow technology in the UK and Ireland reducing 50% of food waste. Ikea is now rolling out the technology in their restaurant kitchens worldwide.
Smart & Clean uses a data model as a tool to estimate the volume flows of packaging plastic across the operational ecosystem and guide decision making to achieve a “closed plastic circle” goal for the Helsinki region and Lahti. This tool’s use informs changes in the plastic circulation, reaching up to 80% reutilization of packaging plastics.
What steps do you need to take to become smarter and more circular?
As you can see from previous examples of leading companies in smart and circular cities, the combination of innovation, digital, data, and circular economy is becoming a competitive advantage difficult to achieve with traditional business models.
The question now is how you can achieve a competitive advantage by adopting circular and smarter strategies? The first step is to think about how you can incorporate circularity in your business. The key element is to design an ecosystem around the value proposition since collaboration with the whole supply chain and key stakeholders is crucial in most circular business models. [VN2] The success of the circular housing project by Circle House and the closed plastic circle by Smart & Clean is based on a sound ecosystem strategy.
Once you have decided to uptake the strategic dimension of circularity, you can start your circular transformation journey, converting the initial interest and awareness into an action plan. The key to delivering a successful project is to begin small-scale experiments and scale up the successful initiatives across the ecosystem. That is particularly relevant for a city-wide rollout of a new product or service to minimize risks associated with resources and investment. Simultaneously, you need to measure the impact against defined objectives and repeat the cycle after adjusting the action plan. Winnow and Ikea are using this approach to roll out AI-based technology in the UK and worldwide.
Circularity and digital technology go hand in hand. Therefore you need to think about the digital enablers and technologies that create value for your circular strategy. This will very much depend on your value proposition and how you plan to connect assets and people, among other things.
For example, a smart community of building owners exchanging energy may explore blockchain as a decentralized energy exchange framework and smart contracts. An HVAC service provider with an output-based business model (pay per watt) could assess whether AI enables a better prediction of energy production and consumption and optimized service and predictive maintenance processes. In mobility, sharing platforms and the network effect play a critical role when rolling out mobility-as-a-service solutions to reduce congestion and improve traffic patterns at a city-wide scale.
After integrating the most potential digital enablers and technologies for your smart and circular business model, you’ll probably find yourself with more data than you can handle. The good news is that you can create value and profits from this data by creating a data-driven strategy and data monetization. Use it to adjust and improve your strategy and explore different data monetization options. Tampereen Raitiotie is a successful example of how digital services and a sound data-driven strategy can lead to innovative exploitation of untapped value.
Now that you are well equipped to embark on the smart and circular journey, there is an essential fact that you should know. Most of the organizations active in smart cities initiatives are still stuck in silos, not open to sharing information, lacking a scale-up or replication plan, and following a limited top-down approach. This is not necessarily bad news. It’s merely a barrier to overcome and could become a competitive advantage for those front-runners embracing smart and circular solutions.
Therefore, there is a need for a more cohesive and holistic approach to tie up these silo initiatives and for a more connected and broader city strategy.
Several leading organizations are paving the way towards smarter and circular cities. Driven by new consumer trends, these individual actors create disruptive business models enabled by novel digital and data capabilities to reach a critical mass for enhanced sustainability.
Nonetheless, there is a need for a new type of actor within the city administration and key stakeholders that can act as orchestrator or facilitator of the ecosystem to ensure value is created and shared by ecosystem players in a mutually beneficial way.
In our next article, we will be telling you why you should consider embracing the orchestrator role as part of a digital ecosystem, the importance of building an infrastructure to provide consumers with more sustainable options, and how to organize a network around a smart and circular strategy!
 “Learning from consumers: How shifting demands are shaping companies’ circular economy transition. A circular economy survey” ING, 2020.
 “Circular construction: Most opportunities for demolishers and wholesalers” ING, 2017
 “Cooperative energy management of a community of smart-buildings: A Blockchain approach: Van Cutsem et al. Electrical Power and Energy Systems 117 (2020)
 Role of PMC to change the fate of Failing smart Cities