Turbocharging technology transformation in cities: City leaders globally are leveraging emerging tech to rethink urban functions

Many cities have focused on experimenting with this new wave of technology solutions to solve real-world problems. The Mayor’s Office of New Urban Mechanics (MONUM) in Boston was formed in 2010 to explore, experiment, and evaluate new approaches to solving civic and government challenges.² The team recently experimented with delivery robots in line with the city’s broader piloting of autonomous vehicle technology. The pilot aims to evaluate the efficacy of such sidewalk robots in reducing the carbon footprint, navigating these sidewalks safely during peak times, and improving the quality of life for residents by delivering food, medicine, and other services.³

The challenge is that while many technologies show great promise, most remain at the proof-of-concept level, creating a gap between the perceived and realized benefits of technology—the promise gap.

Many foundational technologies have matured over the past couple of decades and become ubiquitous and embedded in city operations and systems. Cities have scaled these technologies, generated massive value, and built innovations based on these foundational technologies. When asked to select the one technology that has been the most effective in making their city future-ready, many global city leaders surveyed selected the first wave of foundational digital technologies—data analytics (26%), cloud infrastructure (13%), cybersecurity technologies (11%), Internet of Things and sensors (9%), and automation (7%).

Only a small fraction of city leaders surveyed believe that most of the emerging technologies shown in figure 1 are the most effective in making their cities future-ready today. In other words, these technologies have yet to generate significant value and benefits for cities comparable to those of other foundational technologies (figure 2).

The promise gap is not necessarily a problem. It is reasonable to expect technologies to take time to reach maturity. But if the gap persists for long, high expectations can quickly turn to disillusionment. Therefore, city leaders should find new funding, new talent, new governance structures, and new ways to partner to quickly close the promise gap.

Evolving alternative funding models for technology investments

Funding shortages and budget deficits are perennial challenges for many cities. A quarter of city leaders surveyed cited funding as a key challenge for their cities. This issue is often even more pronounced for low-income and lower-middle-income cities, with nearly 40% of surveyed leaders calling that out as a challenge.

For budget-constrained cities, technology investments often do not compete well against priorities like public health, public safety, transportation, pollution, housing security, infrastructure, and economic development. Furthermore, even when funding is available, it is most likely to be used to support existing technology rather than acquire new tech. According to the US Government Accountability Office’s 2019 report on IT spending in federal agencies, nearly 80% of the IT budget is spent on maintaining and operating existing and legacy IT systems.⁴ Things are not too different at the local government level; the National League of Cities calls the postponement of modernization due to higher maintenance costs a “technical debt” on cities.⁵

Finding new sources of funding can speed technological modernization. Today, most of the cities surveyed heavily depend on traditional sources of tech funding, including taxes (86%), user fees such as tolls (77%), grants from federal government (71%) and state government (69%), and government borrowing (67%).

However, city leaders are proactively trying to diversify their technology funding. There is greater interest among respondents in exploring alternative funding mechanisms like public-private partnership (PPP) models, impact fees, philanthropic contributions, multilateral finance, and return on investment models that show incremental revenue or cost savings (figure 3).

The survey points toward a strong regional nuance in which alternative funding mechanisms are favored in different regions. Public-private partnership–based funding is strongly preferred in Asian, North American, and Latin American cities, while Sub-Saharan African cities lean more toward philanthropic and multilateral financing.

Tapping into philanthropies that target specific civic challenges is becoming an increasingly attractive option for some city leaders. The Bloomberg City Network provides a broad range of support to city leaders globally.⁶ The Bloomberg Mayor’s Challenge is a platform that provides investment support to creative ideas to solve pressing social and economic issues, which could be scaled to other cities. Amman, Jordan, winner of the 2021 Mayor’s Challenge, developed an interactive, open data platform for residents to deploy critical city services in real time.⁷

Building the talent capacity to drive digital and technology transformation

Although technology can drive significant change, people continue to be the most valuable asset for most governments. The survey results point toward a range of digital and technology talent-related challenges facing cities. The top ones include attracting and retaining digital talent (72%), reskilling and upskilling the workforce (69%), and insufficient digital and data skills (54%).

Although many cities are riddled with the digital and technology talent gap, only 19% of city leaders reported that they are at an advanced implementation stage in plugging the digital skills and talent gap in their cities.

The increasing use of AI technologies in government will require a corresponding increase in tech talent. However, this presents a particular challenge, as many companies are also vying for the same skilled labor pool. Bridging the gap through training programs can be a solution. While agencies will need AI specialists, adopting AI at scale will require improving the data literacy skills of the workers who will be responsible for purchasing AI tools and services or utilizing AI applications to deliver services to citizens.⁸

The survey clearly suggests that we are in the middle of a big AI moment in cities, reflected in the way city leaders are driving AI training, recruiting AI talent, and evolving AI-specific roles. In fact, 51% of city leaders surveyed have reported creating a senior AI leadership role in their cities, and this number is expected to go to 83% in the next three years (figure 4).

These findings are in line with another Deloitte survey of global government leaders. That survey found that 69% of respondents would prefer to hire new workers with the required skill sets. Given the shortage of AI talent, agencies should balance outside hiring with upskilling their existing workforce to use AI-powered tools and techniques.⁹

Apolitical, a global online learning platform and community for public officials globally, has set an ambitious goal to prepare one million public servants for the AI age.¹⁰ Its Government AI Campus pilot program has already delivered AI training to 13,000 public officials. The content for this program is curated by Stanford Online and funded by Google.org and the Rockefeller Foundation. Apolitical recently received a grant of US$5 million from Google.org to scale its Government AI Campus program. The funding will allow them to launch five new courses, provide training in 10 languages, develop country-specific content, and tap into regional and local experts.¹¹

Managing culture and change management

City leaders should increasingly focus on workforce experience, as technology transformation, especially at this scale, can be challenging and could generate a culture backlash. Government agencies should take a measured approach to skills training, with programs designed around learners, and make the transition smooth by involving managers and frontline workers in designing or rolling out new tools.¹²

However, even the best technology that is well-aligned to the mission can run into problems. Asking an overburdened workforce to use new technology can lead to resentment and workarounds that can undermine the intended function and efficacy of the technology. In fact, 29% of city leaders surveyed called out stakeholder buy-in and staff resistance to change as a challenge in deploying digital twin solutions. Culture and change management are the most prominent among respondents in low-income cities (100%) and large mega cities (56%).

The message is clear: Introducing new technology to enhance digital transformation should be met with a corresponding shift in organizational culture and its work processes.¹³

Enhancing technology governance processes

Developing technology governance frameworks and processes can be critical when deploying and scaling any new technology in a city. In the AI era, it becomes even more important to ensure the ethical use of new emerging technologies by enhancing data privacy and security, developing guidelines on handling personal data, and establishing a robust AI auditing process. The survey points to the growing focus on these important areas (figure 5).

A strong focus on technology governance also extends to other emerging technologies that may or may not have elements of AI. For instance, digital twins also use large volumes of data from different sources, so ensuring data privacy and security while using the technology becomes paramount. More than half of respondents in the survey say ensuring data privacy and security is a key challenge in using digital twin technology.

Furthermore, the growing use of smart and connected technologies is blurring the lines between the physical and cyber worlds. There is a growing convergence between information technology systems and operational technology systems. Technology governance should focus on developing cybersecurity guidelines and best practices when deploying such connected devices.

Nearly all city leaders surveyed (93%) reported either using or planning to use IoT and sensor technologies in their cities in the next three years. With each new connected device deployed in cities, the threat vectors keep increasing steadily. Attacks on operational technology systems in cities can cripple critical systems like water, energy, and traffic signages and signals creating havoc in our cities. In May 2023, hackers hit 22 Danish power companies to gain comprehensive access to Denmark’s decentralized power grid.¹⁴ The attack forced the companies to disconnect from the internet and go into an “island” mode to mitigate the spread of the impact.¹⁵

Tapping into partnerships to accelerate transformation

Partnerships and collaborations will play a key role in driving technology transformation. We earlier explored how cities are tapping into broad networks to diversify their technology funding and investments and upskill their workforces.

However, building policies and use cases around emerging technologies is another important area in which they would need partnerships with a wide array of stakeholders. Local governments can tap into the deeper expertise that technology firms, startups, and academia can bring to the table. According to the survey, startups and technology firms (81%), corporations and businesses (67%), and academic and research institutions (66%) are the three most prominent partnerships city leaders are prioritizing.

These partnerships are manifesting in various ways: More than half of city leaders surveyed (54%) are focused on building AI innovation ecosystems through partnerships, a number expected to grow to 76% in the next three years. Other areas where city leaders are seeking collaborations are in developing AI policies, tapping into external and nongovernmental data for advanced analysis, and driving resiliency projects (figure 6).

In November 2023, Cornell Tech and the New York City Economic Development Corporation (NYCEDC) launched Pilot: New York City to advance the city as a global hub for urban innovation. The program brings together more than 120 stakeholders including government agencies, technology firms, accelerators, incubators, academia, and financial institutions. One key goal is to ensure that promising pilots can transition into procurements and policy changes. The approach is expected to help city agencies test different technology solutions in the real world and help them to scale solutions city-wide.¹⁶

Mission-focus, behavior-driven transformation, and scaling roadmap—three areas city leaders should consider moving forward

Technology transformation can be a complex process. But there are three areas where city leaders may need to focus on.

• Focus on mission outcomes: It’s easy to be lured into the promise of a new emerging technology. Instead, city leaders should squarely focus on what part of the mission the technology helps them achieve. The more success can be measured through a mission lens, the more competitive tech projects can be in a tight budgeting process.
• Develop a behavior-first approach to transformation: Technology transformation does not happen in silos; when one area makes a change, other areas throughout the organization may also have to change to keep the whole system operating smoothly. But organizations can’t typically change without convincing their people to also change and adopt behaviors that support the larger organizational transformational efforts.¹⁷
• Build with scale in mind: City leaders should strive hard to avoid the death by pilots trap with new technologies. One key tenet of scaling successful innovations is pivoting toward data—and evidence-based decision-making. There should be intentionality in selecting the right pilot, establishing measures of success, developing a scaling road map, and growing a network of partners to scale solutions.¹⁸