How a Business Matchmaker Application Helps SMBs Impacted by Natural Disasters Gain New Credit

Transcript of a discussion on how data-driven supplier ecosystems enable new kinds of matchmaker finance relationships that work rapidly and at low risk for small- to medium-sized businesses in need.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: SAP Ariba.

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you’re listening to BriefingsDirect. Our next digital business innovation panel discussion explores how a matchmaker application assists small businesses impacted by natural disasters in the United States.

Gardner

By leveraging the data and trust inherent in established business networks, Apparent Financing by SAP creates digital handshakes between lenders and businesses in urgent need of working capital financing.

The solution’s participants -- all in the SAP Ariba Network -- are putting the innovative model to good use by initially assisting businesses impacted directly or via supply chain disruptions from natural disasters such as forest fires and hurricanes.

To learn how data-driven supplier ecosystems enable new kinds of matchmaker finance relationships that work rapidly and at low risk, we are joined by our panel, Vishal Shah, Co-Founder and General Manager of Apparent Financing by SAP. Welcome, Vishal.

Vishal Shah: Thank you, Dana.

Gardner: We are here too with Alan Cohen, Senior Vice President and General Manager of Payments and Financing at SAP Ariba. Welcome, Alan.

Alan Cohen: Thank you. Great to be here.

Gardner: And we lastly welcome Winslow Garnier, President of Garnier Group Technology Solutions, LLC in San Diego, California.

Winslow Garnier: Thank you, Dana. I appreciate it.

Gardner: Vishal, what’s unique about this point in time that allows organizations like Apparent Financing to play matchmaker between lenders and businesses?

Small-business finance savoir faire 

Shah: The historical problem that limited small businesses from accessing financial services with ease was lack of trust and transparency. It’s also popularly known as the information asymmetry problem.

Shah

At this point in time there are three emerging trends and forces that are transforming the small business finance industry.

The first one is the digitalization of small businesses, such as from digital bookkeeping systems that are becoming more affordable and accessible -- even to the smallest of businesses globally.

The second force is the financial industry innovation. The financial crisis of 2008 actually unlocked new opportunities and created a developed industry called FinTech. This industry’s strong focus on delivering the frictionless customer experience is the key enabler.

And the third force is technological innovation. This includes cloud computing, mobility, and application programming interfaces (APIs). They combine to make it economically feasible to gain access to financial information about small businesses that is stored in today’s digital bookkeeping systems and e-commerce platforms. It's the confluence of these three forces that solve that information asymmetry problem, leading to both reduction of risk and cost to serve small businesses.

Gardner: Alan Cohen, why is this new business climate for small- to medium-sized businesses (SMBs) a perfect fit for something like the SAP Ariba Network? Tell us how your business model and business network are helping Apparent Financing with its task.

Cohen: Think about it in two ways. First, think differently about combining the physical and the financial supply chains. Historically, the Ariba Network has been focused on connecting buyers with their suppliers. Now we are taking the next step in this evolution to better connect the physical with the financial supply chain to provide choice and value to suppliers about access to capital.

Cohen

The second piece of it is in leveraging the data. There’s a ton of excitement in this world for artificial intelligence (AI) and machine learning (ML), and I am a big proponent of all of that. These are going to be awesome technologies that will help society and businesses as they evolve. It’s super important to keep in mind that the strength of the Ariba Network is not just its size -- $2.1 trillion in annual spend, 3.4 million buyers and suppliers -- it’s in the data. The intelligence drawn from this transactional data will enable lenders to make risk-adjusted lending decisions.

And that real data value goes beyond just traditional lending. It also helps lenders assess risk differently. This will help transform how lending is done to small and medium-sized businesses as time evolves.

Gardner: Some of these trends have been in the works for 20 or 30 years but are now coming together in a way that can help real people benefit in real situations. Winslow, please tell us about Garnier Group Technology Solutions and how you have been able to benefit from this new confluence of financing, data, and business platforms.

Rapid recovery resources

Garnier: Garnier Group Technology Solutions provides intrusion detection, installation services, security cameras, and Wi-Fi installation primarily for corporations and municipalities. We are a supplier and an installer with consistent requirements for working capital to keep our business functioning correctly.

Garnier

A major challenge showed up for us in late 2017 when the Southern California fires took place. We had already ordered product for several installation sites. Because of the fires, those sites actually burned down. The time needed to recover from already having spent the capital, plus the fact that the business was no longer coming our way, created a real need for us.

We previously looked at working capital lines and other resources. The challenge, though, is that it is fairly complex. Our company is really good at what we do, but we are not good at finding financing and taking the time to interview multiple banks, multiple lenders. The process to just find the right type of lender to work with us -- that in itself could take four to six months.

In this case, we did not have the time or the manpower to do the due diligence necessary to make that all happen for us. Also, on a day-to-day basis, in dealing with large corporations, we can hope to get paid in 30 days, but in reality that doesn't happen. But we still need to pay our suppliers to maintain our credit terms and get delivery when required by making sure they get paid on the terms that we have agreed to.

We were fortunate to then be introduced to Vishal [Shah at Apparent Financing]. From that point on, he turned into a one-stop shop for us. He took what we had and worked with it, under the SAP guidance. That helped us to have confidence that we were working with a credible source, and that they would deliver on what we agreed to.

Gardner: We see that SMBs can be easily disrupted, they are vulnerable, and they have lag times between when they can get paid and when they have to pay their own suppliers. And they make up a huge part of the overall economy.

Vishal, this seems like a big market opportunity and addressable market. Yet traditional finance organizations mostly ignore this segment. Why is that? Why has bringing finance options to companies like Garnier Group been problematic in the past?

Bank shies, Network tries

Shah: Going back to early 2008 when the global financial crisis started, there was a lot of supply in the market and small businesses did not have to struggle as much to get access to capital.

Since then, banks have been faced with increasing regulatory burdens, as well as the fact that the cost to serve SMBs became much larger. Therefore the mainstream banks have shied away from lending to and serving this market. That has been one of the big factors.

The second is that banks have not truly embraced the power of technology. They haven’t focused on delivering customer-centric propositions. Most of the banks today are very product-centric organizations, and very siloed in their approach to serving customers.

The fundamental problems were, one, the structure of the banks and the way they were incentivized to serve this market. And secondly, the turn of events that happened post the financial crisis, which effectively resulted in the traditional lenders just backing out from this market, significantly reducing the supply side of the equation.

Banks have not truly embraced the power of technology. They haven't focused on delivering customer-centric propositions. Most banks today are very product-centric and siloed.

Gardner: Alan, it’s a great opportunity to show how this model can work by coming to the rescue of SMB organizations impacted by natural disasters. But it seems to me that this is a bellwether for a future wave of business services because of the transparency, data-driven intelligence, security, and mission-critical nature of SAP and SAP Ariba’s networks.

Do you see this as I do, as an opening inning in a longer game? Should we be thinking newly about how business networks and data-driven intelligence fosters entirely new markets and new business models?

SMB access to financing evolves

Cohen: Absolutely. I see this as the early stages of an evolution. There are a few reasons. One is ease. Winslow talked about it. It can be very hard for small businesses to access different banks or lenders to get financing. They need an easier way to do it. We have seen transformation in consumer banking, but that transformation has not followed through into business banking. So I think one opportunity is in bringing ease to the process transformation.

Another piece is trust. What I mean by that is the data from SAP and SAP Ariba is high-quality data that lenders can trust. And being able to trust that information is a big part of this process.

Finally, like with any network, being able to connect businesses with lenders has to evolve -- just as Ariba has connected buyers with suppliers to transact. This is a natural evolution of the SAP Ariba Network.

I am very excited. And while we are still early in a longer journey, this process will fundamentally change how business banking is done.

Gardner: Winslow, you had an hour of need. Certainly by circumstances that were beyond your control. You heard from Vishal. What happened next? How were they able to match you up with financing, and what was the outcome?

Garnier: The really unique thing here is that we were able to submit a single application to allow us to have offers by more than one lender. We decided on and agreed that it made sense select Fundation as the lender of choice.  All the lenders were competitive, but Fundation had a couple of features that were specific to our business and worked better for us.

I have to tell you, at first I was skeptical that we would get this done soon enough. At the same time, we had confidence -- having worked through the SAP Ariba Network previously. Once we submitted the application, we stopped looking for other resources because we felt that this would work for us. Fortunately, it did end up that way.

Within 30 days we were talking with lenders. We received a term sheet to understand what would be available for us. That gave us time internally to make decisions on what would work best. We closed on the transaction and it's been a good working relationship between us and Fundation ever since.

Gardner: Is this going to be more than a one-shot deal, a new business operating model for you all? Are you going to be able to take a revolving line of credit and thereby have a more secure approach to business? This may even allow you to increase the risk you are willing to take to find new clients. So is this a one-shot, band aid -- or is this something that’s changed your business model?

Not just reparations, relationships 

Garnier: Oh, absolutely. Having a revolving line of credit has become a staple for us because it’s a way to maximize our cash flow within our business. We can add additional clients now and take on new jobs that we may have still taken on, but we would have had to push them out later in time.

We are able to deliver our services faster at this point in time. And so it is the absolute right solution for what we needed and what we will continue to use over time.

Having a revolving line of credit has become a staple for us because it's a way to maximize our cash flow within our business. We can add additional clients and take on new jobs.

Gardner: Vishal, it's clear that organizations like Garnier Group are benefiting from this new model. It's clear that SAP and SAP Ariba have the platform, the data, and the integrity and trust to deliver on it.

But another big component here is to make sure that the financing organizations are comfortable, eager, and are gaining the right information to make their lending decisions. Tell us about that side of the equation. How do organizations like Fundation and others view this, and how do you keep them eager to find new credit opportunities?

Shah: If you think of Fundation, they are not a typical bank. They are willing to look at any e-commerce platform and any technology service providers as new distribution channels through which they can access new markets and a new customer base.

Beyond that, they are using these channels as a way to market their own products and solutions. They have much bigger reasons to look at these ecosystems that we have developed over the years.

In my view, traditional banks and lending institutions look at businesses like Garnier Group using what I call the rearview mirror. What I mean by that is lenders mostly base their lending decisions or credit decisions by obtaining information from credit bureaus, which they believe is an indicator of past performance. And that good indicator of their past performance is also taken as an indicator of good future performance, which, yes, does work in some cases -- but not in all.

By working with us, lenders like Fundation can not only look at traditional data sources like credit bureaus, they are able to also assess the financial health and the risk of lending to a business through alternative data sources like the one Alan mentioned, which is the SAP Ariba supply chain data. This provides them an increased degree of confidence before they make prudent lending decisions.

The data in itself doesn't create the value. When processed in an appropriate manner -- and when we learn from the insights the data provides – then our lending partner gains a precise view of both the historical business performance and a realistic view of the future position and future cash flow positions of a small business. That is an incredibly powerful proposition for our lending partners to comfortably and confidently lend to businesses such as Garnier Group.

Gardner: This appears to be a win, win, win. So far, everybody seems to be benefiting. Yet this could not have happened until the innovation of the model was recognized, and then executed on.

So how did this come about, Alan? How did such payments and financing innovation get started? SAP.iO Venture Studio got involved with Apparent Financing. How did SAP, SAP Ariba, and Apparent Financing come together to allow this sort of innovation to take place -- and not just remain in theory?

Data serves to simplify commerce 

Cohen: Like anything, it begins with the marketplace and looking at a problem. At the end of the day, financing is very inefficient and expensive for both suppliers and lenders.

From a supplier perspective, we saw this as an overly complex process. And it’s not always the most competitive because people don’t have the time. From a lender perspective, originating loans and mitigating risk are very important. Yet this process hasn’t gone through a transformation.

We looked at it all and said, “Gosh, how can we better leverage the Ariba Network and the data involved in it to help solve this problem?”

SAP.iO is a venture part of SAP that incubates new businesses. About a year-and-a-half ago, we began bringing this to market to challenge how things had been done and to open up new opportunities. It’s a very innovative approach to challenge the status quo, to get businesses and lenders to think and look at this differently and seize opportunities.

And if you think about what the SAP Ariba Network is, we run commerce. And we want the lenders to fund commerce. We are simply helping to bring these two together, leveraging some incredible data insights along with the security and trust of the SAP and SAP Ariba brands.

Gardner: Of course, it’s important to have the underlying infrastructure in place to provide such data availability, trust, integrity, and support of the mission-critical nature. But in more and more cases nowadays, the user experience and simplicity elements are terribly important.

Winslow, when it came to how you interacted with the process, did you find it simple? Did you find it direct? How important was that for you as an SMB to be able to take advantage of this?

Garnier: We found it very straightforward. It didn’t require us going outside of the data we have internally. We didn’t have to bring in our outside accounting firm or a legal firm to begin the process. We were able to interface by e-mail and simple phone calls. It was so simple. I’m still surprised that, based on our previous experiences, we were able to get this to happen as quickly as it did.

Gardner: Vishal, how do you account for the ability to make this simple and direct for both sides of the equation? Is there something about the investments SAP has made over the years in technology and the importance of the user experience?

How do you attribute getting from what could be a very complex process to something that’s boiled down to its essential simplicity?

Transparent transactions build trust 

Shah: A lot of people misunderstand the user experience and co-relate that to developing a very nice front end, creating an online experience, and making it seamless and easy to use. I think that is only a part of the truth, and part of the story.

What goes on behind that nice-looking user interface is really eliminating what I call the friction points in a customer’s journey. And a lot of those friction points are actually introduced because of manual processes behind those nice-looking screens.

What goes on behind that nice-looking user interface is really eliminating what I call the friction points in a customer's journey. A lot of those friction points are actually introduced because of manual processes behind the nice-looking screens.

Secondly, there are a lot of exceptions -- business exceptions -- when you’re trying to facilitate a complex transaction like a financial credit transaction.

You must overcome these challenges. You must ensure that customers and borrowers have a seamless customer experience. We provide a transparent process, accessible to them so they know every single point in time: Where they are with their credit process, are they approved, are they disapproved, are they waiting on certain decisions, or are they negotiating the deal with the partner?

That is one element, we bring in an increased level of transparency and openness to the process. Traditionally these services have been opaque. Historically, businesses submit applications to banks and literally wait for weeks to get a decision. They don’t know what’s going on inside the four walls of the bank for those many weeks.

The second thing we did is to help our partners understand the exceptions that they traditionally encounter in their credit decision process. As a result, they can reduce those manual exceptions or completely eliminate them with the help of technology.

Again, the insights we generated from the data that we already had about the businesses helped us overcome those challenges and overcome the friction points in the entire interaction on both sides.

Gardner: Alan Cohen, where do you go next with this particular program around financing? Is this a bellwether for other types of business services that depend on the platform, the data integrity, and the simplicity of the process?

Win-win lending scenarios 

Cohen: Simplicity is, I think, first and foremost. Vishal and Winslow talked about it. Just as you can get a consumer loan online, it should be just as simple for a business to get access to capital online. Make that a pleasurable process, not a complex process that takes a long time. Simplicity cannot be underrated to help drive this change.

When it comes to the data, we’ve only scratched the surface of what can be done. We talked about risk-adjusted lending decisions based on transactional information. What we’ll see more of is price elasticity, around both risk and demand, come into play as banks help to better manage their portfolio -- not with theoretical information but through practical information. They’ll have better insights to manage their portfolios.

Let’s not lose sight of what we’re trying to accomplish: Broaden the capital availability to the community of businesses. There are so many different types of lending scenarios that could happen. You’ll see more of those scenarios become available to businesses over time in a much more efficient, cost-effective, and economic manner.

It’s not just a shifting of cost. It will be an elimination of cost -- where both parties win in this process.

Gardner: Winslow, for other SMBs that face credit issues or didn’t pursue revolving credit because of the complexity, what advice can you offer? What recommendations might you have for organizations to rethink their financing now that there are processes like what Apparent Financing provides?

Garnier: If I take a step back, we made the classic mistake that we should have put in place a bank line of credit prior to this event happening for us. The challenge was the time needed for the vetting process. We would rather pursue new clients than spend our time having to work with the different lenders.

Financing really is something that I think most small businesses should pursue, but I highly recommend they pursue it under something like what Apparent Financing has arranged. That’s because of the simplicity, the one-stop portal to find what you are looking for, the efficiency of the process, and the quality of the lenders.

All the folks that we ended up speaking to were very capable, and they wanted to do business with us, which was really outstanding. It was very different from the pushback and the, “We’ll let you know within the next 30 to 60 days or so.” That is very challenging.

We have not only added new clients since we put in the revolving credit, but our DUNS score has improved, and our credit-rating has continued to improve. It’s low risk for an SMB to look at a platform like Apparent Financing to see if this could be useful to them. I highly recommend it. It’s been nothing but a positive experience for us.

Gardner: I’m afraid we’ll have to leave it there. You have been listening to a sponsored BriefingsDirect digital business innovation podcast on how new financing applications are assisting small businesses impacted by natural disasters.

We have heard how leveraging the data and trust inherent in an established business network like SAP Ariba has allowed Apparent Financing by SAP to create a digital handshake between lenders and businesses in ways that just weren’t available before.

So please join me now in thanking our guests, Vishal Shah, Co-founder and General Manager of Apparent Financing by SAP. Thank you, Vishal.

Shah: Thank you, Dana. My pleasure.

Gardner: We have been joined by Alan Cohen, Senior Vice President and General Manager of Payments and Financing at SAP Ariba. Thank you so much, Alan.

Cohen: My pleasure.

Gardner: And thanks as well to Winslow Garnier, President of Garnier Group Technology Solutions LLC in San Diego.

Garnier: Dana, thank you.

Gardner: And a big thanks to our audience for joining this SAP Ariba-sponsored thought leadership discussion. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host and moderator. Thanks again for listening, and do come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: SAP Ariba.

Transcript of a discussion on how data-driven supplier ecosystems enable new kinds of matchmaker finance relationships that work rapidly and at low risk for small- to medium-sized businesses in need. Copyright Interarbor Solutions, LLC, 2005-2018. All rights reserved.

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The Open Group Panel Explores Ways to Help Smart Cities Initiatives Overcome Public Sector Obstacles

Transcript of a discussion on how The Open Group is ambitiously seeking to improve the impact of smart cities initiatives by easing the complexity and unique challenges inherent in public-sector digital transformation projects.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: The Open Group.

Dana Gardner: Hello, and welcome to a special BriefingsDirect thought leadership panel discussion on how The Open Group is spearheading ways to make smart cities initiatives more effective.

Gardner

Many of the latest technologies -- such as Internet of Things (IoT) platforms, big data analytics, and cloud computing -- are making data-driven and efficiency-focused digital transformation more powerful.

But exploiting these advances to improve municipal services for cities and urban government agencies face unique obstacles. Challenges range from a lack of common data sharing frameworks, to immature governance over multi-agency projects, to the need to find investment funding amid tight public sector budgets.

The good news is that architectural framework methods, extended enterprise knowledge sharing, and common specifying and purchasing approaches have solved many similar issues in other domains.

We will now explore how The Open Group is ambitiously seeking to improve the impact of smart cities initiatives by implementing what works organizationally among the most complex projects.

I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host and moderator as we now examine the future of smart cities programs. With that, please join me in welcoming our panel, Dr. Chris Harding, Chief Executive Officer at Lacibus. Welcome, Dr. Harding.

Dr. Chris Harding: Thank you, Dana. It’s a pleasure to be on the podcast, and I am looking forward to a great discussion.

Gardner: We’re also here with Dr. Pallab Saha, Chief Architect at The Open Group. Welcome.

Dr. Pallab Saha: Thank you, Dana. It’s great to be on this panel. I look forward to a very involved discussion.

Gardner: Don Brancato, Chief Strategy Architect at Boeing, joins us. Welcome, Don.

Don Brancato: Thanks very much, Dana. I appreciate joining the discussion.

Gardner: We are here, too, with Don Sunderland, Deputy Commissioner, Data Management and Integration, New York City Department of IT and Telecommunications. Welcome, Don.

Don Sunderland: Thank you. I am very much looking forward to the conversation.

Gardner: Filling out our panel is Dr. Anders Lisdorf, Enterprise Architect for Data Services for the City of New York. Welcome, Dr. Lisdorf.

Dr. Anders Lisdorf: Thank you for having me.

Gardner: Chris, why are urban and regional government projects different from other complex digital transformation initiatives?

Harding

Harding: Municipal projects have both differences and similarities compared with corporate enterprise projects. The most fundamental difference is in the motivation. If you are in a commercial enterprise, your bottom line motivation is money, to make a profit and a return on investment for the shareholders. If you are in a municipality, your chief driving force should be the good of the citizens -- and money is just a means to achieving that end.

This is bound to affect the ways one approaches problems and solves problems. A lot of the underlying issues are the same as corporate enterprises face.

Bottom-up blueprint approach

Brancato: Within big companies we expect that the chief executive officer (CEO) leads from the top of a hierarchy that looks like a triangle. This CEO can do a cause-and-effect analysis by looking at instrumentation, global markets, drivers, and so on to affect strategy. And what an organization will do is then top-down.

In a city, often it’s the voters, the masses of people, who empower the leaders. And the triangle goes upside down. The flat part of the triangle is now on the top. This is where the voters are. And so it’s not simply making the city a mirror of our big corporations. We have to deliver value differently.

There are three levels to that. One is instrumentation, so installing sensors and delivering data. Second is data crunching, the ability to turn the data into meaningful information. And lastly, urban informatics that tie back to the voters, who then keep the leaders in power. We have to observe these in order to understand the smart city.

Saha

Saha: Two things make smart city projects more complex. First, typically large countries have multilevel governments. One at the federal level, another at a provincial or state level, and then city-level government, too.

This creates complexity because cities have to align to the state they belong to, and also to the national level. Digital transformation initiatives and architecture-led initiatives need to help.

Secondly, in many countries around the world, cities are typically headed by mayors who have merely ceremonial positions. They have very little authority in how the city runs, because the city may belong to a state and the state might have a chief minister or a premier, for example. And at the national level, you could have a president or a prime minster. This overall governance hierarchy needs to be factored when smart city projects are undertaken.

These two factors bring in complexity and differentiation in how smart city projects are planned and implemented.

Sunderland: I agree with everything that’s been said so far. In the particular case of New York City -- and with a lot of cities in the US -- cities are fairly autonomous. They aren’t bound to the states. They have an opportunity to go in the direction they set.

The problem is, of course, the idea of long-term planning in a political context. Corporations can choose to create multiyear plans and depend on the scale of the products they procure. But within cities, there is a forced changeover of management every few years. Sometimes it’s difficult to implement a meaningful long-term approach. So, they have to be more reactive.

Create demand to drive demand

Driving greater continuity can nonetheless come by creating ongoing demand around the services that smart cities produce. Under [former New York City mayor] Michael Bloomberg, for example, when he launched 311 and nyc.gov, he had a basic philosophy which was, you should implement change that can’t be undone.

If you do something like offer people the ability to reduce 10,000 [city access] phone numbers to three digits, that’s going to be hard to reverse. And the same thing is true if you offer a simple URL, where citizens can go to begin the process of facilitating whatever city services they need.

In like-fashion, you have to come up with a killer app with which you habituate the residents. They then drive demand for further services on the basis of it. But trying to plan delivery of services in the abstract -- without somehow having demand developed by the user base -- is pretty difficult.

By definition, cities and governments have a captive audience. They don’t have to pander to learn their demands. But whereas the private sector goes out of business if they don’t respond to the demands of their client base, that’s not the case in the public sector.

The public sector has to focus on providing products and tools that generate demand, and keep it growing in order to create the political impetus to deliver yet more demand.

Gardner: Anders, it sounds like there is a chicken and an egg here. You want a killer app that draws attention and makes more people call for services. But you have to put in the infrastructure and data frameworks to create that killer app. How does one overcome that chicken-and-egg relationship between required technical resources and highly visible applications?

Lisdorf

Lisdorf: The biggest challenge, especially when working in governments, is you don’t have one place to go. You have several different agencies with different agendas and separate preferences for how they like their data and how they like to share it.

This is a challenge for any Enterprise Architecture (EA) because you can’t work from the top-down, you can’t specify your architecture roadmap. You have to pick the ways that it’s convenient to do a project that fit into your larger picture, and so on.

It’s very different working in an enterprise and putting all these data structures in place than in a city government, especially in New York City.

Gardner: Dr. Harding, how can we move past that chicken and egg tension? What needs to change for increasing the capability for technology to be used to its potential early in smart cities initiatives?

Framework for a common foundation 

Harding: As Anders brought up, there are lots of different parts of city government responsible for implementing IT systems. They are acting independently and autonomously -- and I suspect that this is actually a problem that cities share with corporate enterprises.

Very large corporate enterprises may have central functions, but often that is small in comparison with the large divisions that it has to coordinate with. Those divisions often act with autonomy. In both cases, the challenge is that you have a set of independent governance domains -- and they need to share data. What’s needed is some kind of framework to allow data sharing to happen.

This framework has to be at two levels. It has to be at a policy level -- and that is going to vary from city to city or from enterprise to enterprise. It also has to be at a technical level. There should be a supporting technical framework that helps the enterprises, or the cities, achieve data sharing between their independent governance domains.

Gardner: Dr. Saha, do you agree that a common data framework approach is a necessary step to improve things?

Saha: Yes, definitely. Having common data standards across different agencies and having a framework to support that interoperability between agencies is a first step. But as Dr. Anders mentioned, it’s not easy to get agencies to collaborate with one another or share data. This is not a technical problem. Obviously, as Chris was saying, we need policy-level integration both vertically and horizontally across different agencies.

Some cities set up urban labs as a proof of concept. You can make assessment on how the demand and supply are aligned.

One way I have seen that work in cities is they set up urban labs. If the city architect thinks they are important for citizens, those services are launched as a proof of concept (POC) in these urban labs. You can then make an assessment on whether the demand and supply are aligned.

Obviously, it is a chicken-and-egg problem. We need to go beyond frameworks and policies to get to where citizens can try out certain services. When I use the word “services” I am looking at integrated services across different agencies or service providers.

The fundamental principle here for the citizens of the city is that there is no wrong door, he or she can approach any department or any agency of the city and get a service. The citizen, in my view, is approaching the city as a singular authority -- not a specific agency or department of the city.

Gardner: Don Brancato, if citizens in their private lives can, at an e-commerce cloud, order almost anything and have it show up in two days, there might be higher expectations for better city services.

Is that a way for us to get to improvement in smart cities, that people start calling for city and municipal services to be on par with what they can do in the private sector?

Public- and private-sector parity

Brancato: You are exactly right, Dana. That’s what’s driven the do it yourself (DIY) movement. If you use a cell phone at home, for example, you expect that you should be able to integrate that same cell phone in a secure way at work. And so that transitivity is expected. If I can go to Amazon and get a service, why can’t I go to my office or to the city and get a service?

Brancato

This forms some of the tactical reasons for better using frameworks, to be able to deliver such value. A citizen is going to exercise their displeasure by their vote, or by moving to some other place, and is then no longer working or living there.

Traceability is also important. If I use some service, it’s then traceable to some city strategy, it’s traceable to some data that goes with it. So the traceability model, in its abstract form, is the idea that if I collect data it should trace back to some service. And it allows me to build a body of metrics that show continuously how services are getting better. Because data, after all, is the enablement of the city, and it proves that by demonstrating metrics that show that value.

So, in your e-commerce catalog idea, absolutely, citizens should be able to exercise the catalog. There should be data that shows its value, repeatability, and the reuse of that service for all the participants in the city.

Gardner: Don Sunderland, if citizens perceive a gap between what they can do in the private sector and public -- and if we know a common data framework is important -- why don’t we just legislate a common data framework? Why don’t we just put in place common approaches to IT?

Sunderland: There have been some fairly successful legislative actions vis-à-vis making data available and more common. The Open Data Law, which New York City passed back in 2012, is an excellent example. However, the ability to pass a law does not guarantee the ability to solve the problems to actually execute it.

Sunderland

In the case of the service levels you get on Amazon, that implies a uniformity not only of standards but oftentimes of [hyperscale] platform. And that just doesn’t exist [in the public sector]. In New York City, you have 100 different entities, 50 to 60 of them are agencies providing services. They have built vast legacy IT systems that don’t interoperate. It would take a massive investment to make them interoperate. You still have to have a strategy going forward.

The idea of adopting standards and frameworks is one approach. The idea is you will then grow from there. The idea of creating a law that tries to implement uniformity -- like an Amazon or Facebook can -- would be doomed to failure, because nobody could actually afford to implement it.

Since you can’t do top-down solutions -- even if you pass a law -- the other way is via bottom-up opportunities. Build standards and governance opportunistically around specific centers of interest that arise. You can identify city agencies that begin to understand that they need each other’s data to get their jobs done effectively in this new age. They can then build interconnectivity, governance, and standards from the bottom-up -- as opposed to the top-down.

Gardner: Dr. Harding, when other organizations are siloed, when we can’t force everyone into a common framework or platform, loosely coupled interoperability has come to the rescue. Usually that’s a standardized methodological approach to interoperability. So where are we in terms of gaining increased interoperability in any fashion? And is that part of what The Open Group hopes to accomplish?

Not something you can legislate

Harding: It’s certainly part of what The Open Group hopes to accomplish. But Don was absolutely right. It’s not something that you can legislate. Top-down standards have not been very successful, whereas encouraging organic growth and building on opportunities have been successful.

The prime example is the Internet that we all love. It grew organically at a time when governments around the world were trying to legislate for a different technical solution; the Open Systems Interconnection (OSI) model for those that remember it. And that is a fairly common experience. They attempted to say, “Well, we know what the standard has to be. We will legislate, and everyone will do it this way.”

That often falls on its face. But to pick up on something that is demonstrably working and say, “Okay, well, let’s all do it like that,” can become a huge success, as indeed the Internet obviously has. And I hope that we can build on that in the sphere of data management.

It’s interesting that Tim Berners-Lee, who is the inventor of the World Wide Web, is now turning his attention to Solid, a personal online datastore, which may represent a solution or standardization in the data area that we need if we are going to have frameworks to help governments and cities organize.

A prime example is the Internet. It grew organically when governments were trying to legislate a solution. That often falls on its face. Better to pick up on something that is working in practice.

Gardner: Dr. Lisdorf, do you agree that the organic approach is the way to go, a thousand roof gardens, and then let the best fruit win the day?

Lisdorf: I think that is the only way to go because, as I said earlier, any top-down sort of way of controlling data initiatives in the city are bound to fail.

Gardner: Let’s look at the cost issues that impact smart cities initiatives. In the private sector, you can rely on an operating expenditure budget (OPEX) and also gain capital expenditures (CAPEX). But what is it about the funding process for governments and smart cities initiatives that can be an added challenge?

How to pay for IT?

Brancato: To echo what Dr. Harding suggested, cost and legacy will drive a funnel to our digital world and force us -- and the vendors -- into a world of interoperability and a common data approach.

Cost and legacy are what compete with transformation within the cities that we work with. What improves that is more interoperability and adoption of data standards. But Don Sunderland has some interesting thoughts on this.

Sunderland: One of the great educations you receive when you work in the public sector, after having worked in the private sector, is that the terms CAPEX and OPEX have quite different meanings in the public sector.

Governments, especially local governments, raise money through the sale of bonds. And within the local government context, CAPEX implies anything that can be funded through the sale of bonds. Usually there is specific legislation around what you are allowed to do with that bond. This is one of those places where we interact strongly with the state, which stipulates specific requirements around what that kind of money can be used for. Traditionally it was for things like building bridges, schools, and fixing highways. Technology infrastructure had been reflected in that, too.

What’s happened is that the CAPEX model has become less usable as we’ve moved to the cloud approach because capital expenditures disappear when you buy services, instead of licenses, on the data center servers that you procure and own.

This creates tension between the new cloud architectures, where most modern data architectures are moving to, and the traditional data center, server-centric licenses, which are more easily funded as capital expenditures.

The rules around CAPEX in the public sector have to evolve to embrace data as an easily identifiable asset [regardless of where it resides]. You can’t say it has no value when there are whole business models being built around the valuation of the data that’s being collected.

There is great hope for us being able to evolve. But for the time being, there is tension between creating the newer beneficial architectures and figuring out how to pay for them. And that comes down to paying for [cloud-based operating models] with bonds, which is politically volatile. What you pay for through operating expenses comes out of the taxes to the people, and that tax is extremely hard to come by and contentious.

So traditionally it’s been a lot easier to build new IT infrastructure and create new projects using capital assets rather than via ongoing expenses directly through taxes.

Gardner: If you can outsource the infrastructure and find a way to pay for it, why won’t municipalities just simply go with the cloud entirely?

Cities in the cloud, but services grounded

Credit: Wikimedia Commons

Saha: Across the world, many governments -- not just local governments but even state and central governments -- are moving to the cloud. But one thing we have to keep in mind is that at the city level, it is not necessary that all the services be provided by an agency of the city.

It could be a public/private partnership model where the city agency collaborates with a private party who provides part of the service or process. And therefore, the private party is funded, or allowed to raise money, in terms of only what part of service it provides.

Many cities are addressing the problem of funding by taking the ecosystem approach because many cities have realized it is not essential that all services be provided by a government entity. This is one way that cities are trying to address the constraint of limited funding.

Gardner: Dr. Lisdorf, in a city like New York, is a public cloud model a silver bullet, or is the devil in the details? Or is there a hybrid or private cloud model that should be considered?

Lisdorf: I don’t think it’s a silver bullet. It’s certainly convenient, but since this is new technology there are lot of things we need to clear up. This is a transition, and there are a lot of issues surrounding that.

One is the funding. The city still runs in a certain way, where you buy the IT infrastructure yourself. If it is to change, they must reprioritize the budgets to allow new types of funding for different initiatives. But you also have issues like the culture because it’s different working in a cloud environment. The way of thinking has to change. There is a cultural inertia in how you design and implement IT solutions that does not work in the cloud.

There is still the perception that the cloud is considered something dangerous or not safe. Another view is that the cloud is a lot safer in terms of having resilient solutions and the data is safe.

This is all a big thing to turn around. It’s not a simple silver bullet. For the foreseeable future, we will look at hybrid architectures, for sure. We will offload some use cases to the cloud, and we will gradually build on those successes to move more into the cloud.

Gardner: We’ve talked about the public sector digital transformation challenges, but let’s now look at what The Open Group brings to the table.

Dr. Saha, what can The Open Group do? Is it similar to past initiatives around TOGAF as an architectural framework? Or looking at DoDAF, in the defense sector, when they had similar problems, are there solutions there to learn from?

Smart city success strategies

Saha: At The Open Group, as part of the architecture forum, we recently set up a Government Enterprise Architecture Work Group. This working group may develop a reference architecture for smart cities. That would be essential to establish a standardization journey around smart cities.

One of the reasons smart city projects don’t succeed is because they are typically taken on as an IT initiative, which they are not. We all know that digital technology is an important element of smart cities, but it is also about bringing in policy-level intervention. It means having a framework, bringing cultural change, and enabling a change management across the whole ecosystem.

At The Open Group work group level, we would like to develop a reference architecture. At a more practical level, we would like to support that reference architecture with implementation use cases. We all agree that we are not going to look at a top-down approach; no city will have the resources or even the political will to do a top-down approach.

Given that we are looking at a bottom-up, or a middle-out, approach we need to identify use cases that are more relevant and successful for smart cities within the Government Enterprise Architecture Work Group. But this thinking will also evolve as the work group develops a reference architecture under a framework.

Gardner: Dr. Harding, how will work extend from other activities of The Open Group to smart cities initiatives?

Collective, crystal-clear standards

Harding: For many years, I was a staff member, but I left The Open Group staff at the end of last year. In terms of how The Open Group can contribute, it’s an excellent body for developing and understanding complex situations. It has participants from many vendors, as well as IT users, and from the academic side, too.

Such a mix of participants, backgrounds, and experience creates a great place to develop an understanding of what is needed and what is possible. As that understanding develops, it becomes possible to define standards. Personally, I see standardization as kind of a crystallization process in which something solid and structured appears from a liquid with no structure. I think that the key role The Open Group plays in this process is as a catalyst, and I think we can do that in this area, too.

Gardner: Don Brancato, same question; where do you see The Open Group initiatives benefitting a positive evolution for smart cities?

Brancato: Tactically, we have a data exchange model, the Open Data Element Framework that continues to grow within a number of IoT and industrial IoT patterns.  That all ties together with an open platform, and into Enterprise Architecture in general, and specifically with models like DODAF, MODAF, and TOGAF.

Data catalogs provide proof of the activities of human systems, machines, and sensors to the fulfillment of their capabilities and are traceable up to the strategy.

We have a really nice collection of patterns that recognize that the data is the mechanism that ties it together. I would have a look at the open platform and the work they are doing to tie-in the service catalog, which is a collection of activities that human systems or machines need in order to fulfill their roles and capabilities.

The notion of data catalogs, which are the children of these service catalogs, provides the proof of the activities of human systems, machines, and sensors to the fulfillment of their capabilities and then are traceable up to the strategy.

I think we have a nice collection of standards and a global collection of folks who are delivering on that idea today.

Gardner: What would you like to see as a consumer, on the receiving end, if you will, of organizations like The Open Group when it comes to improving your ability to deliver smart city initiatives?

Use-case consumer value

Sunderland: I like the idea of reference architectures attached to use cases because -- for better or worse -- when folks engage around these issues -- even in large entities like New York City -- they are going to be engaging for specific needs.

Reference architectures are really great because they give you an intuitive view of how things fit. But the real meat is the use case, which is applied against the reference architecture. I like the idea of developing workgroups around a handful of reference architectures that address specific use cases. That then allows a catalog of use cases for those who facilitate solutions against those reference architectures. They can look for cases similar to ones that they are attempting to resolve. It’s a good, consumer-friendly way to provide value for the work you are doing.

Gardner: I’m sure there will be a lot more information available along those lines at www.opengroup.org.

When you improve frameworks, interoperability, and standardization of data frameworks, what success factors emerge that help propel the efforts forward? Let’s identify attractive drivers of future smart city initiatives. Let’s start with Dr. Lisdorf. What do you see as a potential use case, application, or service that could be a catalyst to drive even more smart cities activities?

Lisdorf: Right now, smart cities initiatives are out of control. They are usually done on an ad-hoc basis. One important way to get standardization enforced -- or at least considered for new implementations – is to integrate the effort as a necessary step in the established procurement and security governance processes.

Whenever new smart cities initiatives are implemented, you would run them through governance tied to the funding and the security clearance of a solution. That’s the only way we can gain some sort of control.

This approach would also push standardization toward vendors because today they don’t care about standards; they all have their own. If we included in our procurement and our security requirements that they need to comply with certain standards, they would have to build according to those standards. That would increase the overall interoperability of smart cities technologies. I think that is the only way we can begin to gain control.

Gardner: Dr. Harding, what do you see driving further improvement in smart cities undertakings?

Prioritize policy and people

Credit: Wikimedia Commons

Harding: The focus should be on the policy around data sharing. As I mentioned, I see two layers of a framework: A policy layer and a technical layer. The understanding of the policy layer has to come first because the technical layer supports it.

The development of policy around data sharing -- or specifically on personal data sharing because this is a hot topic. Everyone is concerned with what happens to their personal data. It’s something that cities are particularly concerned with because they hold a lot of data about their citizens.

Gardner: Dr. Saha, same question to you.

Saha: I look at it in two ways. One is for cities to adopt smart city approaches. Identify very-high-demand use cases that pertain to environmental mobility, or the economy, or health -- or whatever the priority is for that city.

Identifying such high-demand use cases is important because the impact is directly seen by the people, which is very important because the benefits of having a smarter city are something that need to be visible to the people using those services, number one.

The other part, that we have not spoken about, is we are assuming that the city already exists, and we are retrofitting it to become a smart city. There are places where countries are building entirely new cities. And these brand-new cities are perfect examples of where these technologies can be tried out. They don’t yet have the complexities of existing cities.

It becomes a very good lab, if you will, a real-life lab. It’s not a controlled lab, it’s a real-life lab where the services can be rolled out as the new city is built and developed. These are the two things I think will improve the adoption of smart city technology across the globe.

Gardner: Don Brancato, any ideas on catalysts to gain standardization and improved smart city approaches?

City smarts and safety first

Brancato: I like Dr. Harding’s idea on focusing on personal data. That’s a good way to take a group of people and build a tactical pattern, and then grow and reuse that.

In terms of the broader city, I’ve seen a number of cities successfully introduce programs that use the notion of a safe city as a subset of other smart city initiatives. This plays out well with the public. There’s a lot of reuse involved. It enables the city to reuse a lot of their capabilities and demonstrate they can deliver value to average citizens.

In order to keep cities involved and energetic, we should not lose track of the fact that people move to cities because of all of the cultural things they can be involved with. That comes from education, safety, and the commoditization of price and value benefits. Being able to deliver safety is critical. And I suggest the idea of traceability of personal data patterns has a connection to a safe city.

Traceability in the Enterprise Architecture world should be a standard artifact for assuring that the programs we have trace to citizen value and to business value. Such traceability and a model link those initiatives and strategies through to the service -- all the way down to the data, so that eventually data can be tied back to the roles.

For example, if I am an individual, data can be assigned to me. If I am in some role within the city, data can be assigned to me. The beauty of that is we automate the role of the human. It is even compounded to the notion that the capabilities are done in the city by humans, systems, machines, and sensors that are getting increasingly smarter. So all of the data can be traceable to these sensors.

Gardner: Don Sunderland, what have you seen that works, and what should we doing more of?

Mobile-app appeal

Sunderland: I am still fixated on the idea of creating direct demand. We can’t generate it. It’s there on many levels, but a kind of guerrilla tactic would be to tap into that demand to create location-aware applications, mobile apps, that are freely available to citizens.

The apps can use existing data rather than trying to go out and solve all the data sharing problems for a municipality. Instead, create a value-added app that feeds people location-aware information about where they are -- whether it comes from within the city or without. They can then become habituated to the idea that they can avail themselves of information and services directly, from their pocket, when they need to. You then begin adding layers of additional information as it becomes available. But creating the demand is what’s key.

When 311 was created in New York, it became apparent that it was a brand. The idea of getting all those services by just dialing those three digits was not going to go away. Everybody wanted to add their services to 311. This kind of guerrilla approach to a location-aware app made available to the citizens is a way to drive more demand for even more people.

When 311 was created in New York, it became apparent that it was a brand. The idea of getting all of those services just by dialing those three digits is not going away.

Gardner: I’m afraid we’ll have to leave it there. We’ve covered a lot of ground in discussing how The Open Group is spearheading ways to make smart cities initiatives more effective. We have learned how government transformation endeavors face unique challenges, but that such things as common data and standardized methods and frameworks help support more efficiency -- and ultimately far better city services.

For more information on this and other topics and events, please check out The Open Group website at www.opengroup.org.

Please join me in thanking our panel: Dr. Chris Harding, Chief Executive Officer at Lacibus; Dr. Pallab Saha, Chief Architect of The Open Group; Don Brancato, Chief Strategy Architect at Boeing; Don Sunderland, Deputy Commissioner Data Management and Integration, New York City Department of IT and Telecommunications, and Dr. Anders Lisdorf, Enterprise Architect for Data Services for the City of New York. Thanks to you all.

And a big thank you as well to The Open Group for sponsoring this discussion. Lastly, thank you to our audience for joining. I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host and moderator. Thanks again for listening, and do come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: The Open Group.

Transcript of a discussion on how The Open Group is ambitiously seeking to improve the impact of smart cities initiatives by easing the complexity and unique challenges inherent in public-sector digital transformation projects. Copyright Interarbor Solutions, LLC, 2005-2018. All rights reserved.

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