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Digital Innovation Ecosystems

Cities tend to attract talent, enable creativity and encourage disruptive thinking, developing themselves through an innovation model approach, and a combination of physical and digital elements.

Traditionally companies and industrial parks have been concentrated in suburbs of the city, but start-ups and digital nomads are now bringing innovation and ideas to the city centres. As population numbers increase in urban areas, cities compete for investment, skilled workers (talent) and cultural prominence, and this is turning urban regions into innovation hubs, leveraging data. Studies of venture capital (VC) investment in the United States illustrate this trend: innovation moving from suburbs to downtown cities1 , creating what the World Bank defines as “the collection of stakeholders, assets, and their interactions in city environments resulting in technology (in particular ICT)-based innovation and entrepreneurship”.2

You may find some cities with an innovation or technology department and individuals working in a silo, trying to innovate from there. This is not what we mean. Cities will adopt a multidimensional approach to innovation, the so-called quintuple innovation helix framework (of interactions between university, industry, government, public and environment)3 , and city governments will act as platforms enabling the right connections, policies, places and infrastructure to make the ecosystem flourish, solving the town’s most prominent challenges, bringing change to the city, to industries and the world.

Cities will be Living Labs for digital transformation and centres of experimentation, using data to develop pilots that can be scaled up. For example Barcelona has been described as: “a grand laboratory for its creative talent, its resident communities and its knowledge centres”.4 By putting talent attraction at the centre of its strategy, a city develops with the goal of being the most attractive host (of people, companies and research centres), in order to facilitate ecosystem development. The City Hall has to develop the right skills, data collection and usage, and modernise its governance model to foster collaboration and encourage open innovation. Increasing the level of adoption of digital innovations in high priority economic sectors generates a positive impact on local competitiveness, by opening up new sources of employment and economic growth, deriving from the creation of new businesses and types of employment.5 Similarly it supports the uptake of disruptive and promising digital technologies. In New York City, the technology sector has increased at a faster rate than other sectors, becoming a new source of direct and indirect employment. Similarly, Bangkok has been adding over 3,000 direct jobs a year to its ICT industry.6

Remote working has lengthened the list of cities that can adopt this strategic position. In line with the ‘rise of the rest’ theory put forward by Richard Florida in 2019,7 the shift from enterprise attraction to talent attraction makes it possible for smaller cities to thrive in a post-pandemic world, using data as a source of competitiveness in the digital innovation environment. It is a time also for small remote hubs.

“Data alone doesn't do anything, but if cities can create environments that people want to live and work in, and if they have a data infrastructure that can be used by entrepreneurs in ways better than competing cities, they will probably come out on top.”

-Kent Larson, Director of CityScience at MIT Media Lab

At the end of the day, this model will only flourish when accompanied by a co-creation approach. Cities will benefit greatly: not only economically – by maintaining and generating growth – but also by empowering individuals to become problem solvers, ready to find the best solutions for common challenges, and driving change in the public sector.

Overall increase in revenue and employment opportunities – local economic growth and competitiveness: The positive correlation between growth in the ICT industry and job creation has been observed in cities. For example, Medellin generates over EUR 82 million a year from Business Process Outsourcing (BPO) and has attracted several multinationals to establish BPO centres in the city.8 Porto is another example of economic value created through an innovative ecosystem approach.

Lower cost of innovation and higher levels of success: New technology has lowered the cost of innovation. With a city providing a platform for innovation, everyone can benefit from proximity and intensive interaction, making it easier and cheaper to create value. For example, technologies such as 5G, cloud and social networks have made it easier to innovate, with fewer resources.

Community value and better services through innovation: Creative brains combined with advances in technology are the recipe for innovation. Being home to all that in the city results in better public digital services and a better place to live. Moreover, co-creation can reduce the costs of service provision, by as much as 60 per cent in some cases.9 For example, ‘the Studio’ in Dublin engaged employees and other stakeholders to innovate methods for improving the efficiency of working.10 In one instance a public employee who led a team of labourers maintaining clear gutters and sewers developed a new design for the city’s drains: this new design required less time to clean and so enabled workers to improve their efficiency. The city has patented the innovation. This example highlights the multiple levels of value creation - from efficiency at work to commercial patenting.

Impact beyond municipal boundaries and acceleration of innovation and progress in emerging cities: By serving as living labs and experimentation centres, cities not only create value at a local level but can also rapidly scale it up to a regional, national or even global level. A thirst for doing things differently in order to keep up, as Marcus Elkatsha from MIT Media Lab has pointed out, enables emerging cities, especially from the Global South, to benefit from new technologies and innovative approaches to urban development, for example blockchain for property titles and records.

Capacity to attract talent and expertise and open talent networks: Either by attracting companies and focusing on the ease of doing business, or by offering a better quality of life, cities can attract the best talent and create the right environment to prosper.

Foster agile processes and avoid a risk-aversion culture: Agility is another aspect of urban innovation ecosystems. A parameter for judging a city’s innovation level is its ability to bring people together to capitalise on new talent and technology, using small cross-functional teams to prioritise projects and deliver quickly. Creating agile teams is a catalyst for success in this model. For example, the city of San José uses scrum practices in its Office of Civic Innovation & Digital Strategy to prioritise the work that the office needs to do. The scrum technique makes it easier to increase accountability, remain aligned while working autonomously, and use iteration to foster continuous improvement.

Add the required skill sets and gain an awareness of the opportunities that new technologies offer: Adding tech talent to cope with the technological changes is a top priority for city governments.

Ensure data mastery and interoperability standards: To extract maximum value from the ecosystem, cities must manage data properly and create standards for interoperability, enabling easy and seamless data exchange between stakeholders, partners and even between cities and nations.

Embrace a new way of management and leadership: Digital innovation hubs require a different governance model that entails: considering the ecosystem as a community; looking for new and innovative ways of procurement (such as collaborative processes to co-create city services); creating an open environment where the private sector has an important role; and developing public-private partnerships as dynamic coalitions for testing and learning.11

Espoo, Finland

Espoo is among the European forerunners in innovation and sustainable smart city development. Home to the leading innovation and technology hub in the Nordic countries, strong research institutes, SMEs and global company headquarters alike, Espoo is an innovation ecosystem in Finland. It hosts an active start-up hub and some of the most valuable Finnish companies, and also Aalto University and VTT Technical Research Centre of Finland – two important players in the innovation scene.

Espoo is also home to the highest density of international talent and the highest education level of all Finnish cities with 52 per cent12 of residents over 24 years old holding a university degree. A truly diverse city, it welcomes more than 150 nationalities and 680 international companies. As of 2020, 50,000 of its residents were foreign-language speakers13 and this figure is expected to grow to about 30 per cent of the population by 2035. This is one of the reasons why Espoo became the first city in Finland to use English as one of its service languages.14

In 2018, Espoo received the accolade of Intelligent Community of the Year15 from the Intelligent Community Forum (ICF). “The point is not to be the most sustainable city or to be the most intelligent city, the point is to be the most sustainable or most intelligent community”, said the Mayor.

The development of a digital economy in Espoo has increased the city’s wealth generation capacity. This in turn has led to the creation of improved public services for the city residents. In 2020 Espoo was awarded the title of Finnish Capital of Innovation16 and was in the top six in the European Capital of Innovation (iCapital)17 Awards of the European Commission.

As the second largest and fastest-growing city in Finland with close to 300,000 inhabitants, Espoo is also far from traditional. Characterised by the lack of a single centre, Espoo has a network city structure with five urban centres, all equipped with great access to services and nature close by.

Espoo’s services are built on a mixture of experimentation and co-creation, through a ’City-as-a-Service’ approach 18 . The city incentivises all stakeholders in municipal services − companies, knowledge institutions, associations and residents − to provide feedback in order to refine existing public services and promote the creation of new ones together. This drive has been branded with the slogan “Make with Espoo”19 , where the city seeks to position itself as a place where development is driven first and foremost by the client’s best interest: its residents.20 As the Mayor has stated, “Our first value is customer and resident orientation. We need to have a good collaboration with our residents, our companies, our universities and our research centres. Collaboration is key to having this kind of innovation ecosystem or start-up ecosystem.”

New York, USA

In July 2010, Mayor Bloomberg and Katherine Oliver (Commissioner of The Major’s Office) launched NYC Digital, an agency to look after development of a digital strategy throughout the city. Simultaneously, the mayor initiated efforts to encourage tech start-ups to open offices in the city, by offering tax cuts.

The city initiated a programme of actions that included: endorsing co-working and collaborative spaces aligned with mentor and incubator networks; nurturing entrepreneurs to attract venture capital into start-ups; inviting engineering institutes to support educational programmes in the city and enhancing skill sets through training; and running competitions to engage the community in (based on city problems). These actions were carried out in collaboration with citizens and private sector businesses.

New York also involved under-developed neighbourhoods by training and providing new employment opportunities generated by the network. Amongst the first individuals to complete this programme, 20 graduates (about 70% of the total number) gained full-time employment, 15% became entrepreneurs, and the others joined formal education programmes.

Thus, the city has been able to develop one of the largest tech-innovation ecosystems, even with limited tech talent, which is a constraint that many cities face.21, 22

Porto, Portugal

In 2016, the city of Porto set out to position itself as a city of innovation and creativity. It established what is now known as the Porto Innovation Hub, an innovation aggregator where the city functions as a living laboratory, bringing together businesses, entrepreneurs, citizens and the Municipality of Porto to foster problem solving, improving the city, and creating differentiating businesses. 23

Collaborating with the University of Porto (which has consistently ranked at the top of Portuguese universities),24 in projects like ’Stepping out Innovation’25 , the city has promoted knowledge sharing between its institutions. Another feature of the project is ‘In-House Innovation’. Cooperating with citizens and stakeholders, the city seeks to redesign its services in a way that responds to the needs of citizens, whilst also becoming more cost efficient and accessible. 26

In 2020, thanks to the Porto Innovation Hub, Porto won the Smart City Innovator Award27 at the Annual Investment Meeting Conference in Dubai in the Future Cities category. When asked which were the most decisive aspects that led to achieving this accolade, Rui Moreira, Mayor of the City of Porto, answered that among several success factors some that should be highlighted were the people of Porto and its academic institutions, the city’s infrastructure and the uncommonly high safety levels to be found in the cities of Portugal. The city felt that it needed to develop its ecosystem before it moved somewhere else.

Although Porto is well known as a tourism destination, city leaders have sought to re-establish Porto not only as a service city, but also as an industry leader, aiming to stop the brain drain of local talent and strengthen its economy. Faced with companies requesting engineers to emigrate, the Mayor asked “If we have the talent, if we have the academia, if we have the people, why can’t we attract that sort of activity to come to Porto?”. The city has implemented a strategy of attracting companies to invest in the city, reinforcing its already good health system, schools - both private and public -, the qualified labour, and inviting these companies to come and invest in there.

In 2018 Porto won the World Excellence Award for Best Startup-Friendly City of Europe28 for being a burgeoning tech start-up scene and one of the few municipalities in Europe that had a start-up programme to encourage and stimulate entrepreneurship. The Porto Digital Association, a partnership between the city of Porto, the University of Porto, and the Metro of Porto has also borne fruit. Porto has been chosen as a mentor city in the European Commission’s ’100 Intelligent Cities Challenge’. 29 This decision came from the recognition of the city’s digitalisation efforts and their potential for scalability. The city was also showcased in 2020, earning the number one spot in Monocle’s Small Cities Index 30 for its green ambitions, its friendly business environment, inclusiveness and accessibility.

This has been a successful strategy for the second largest city in Portugal, with outcomes in the business sector including “a rate of job creation twice greater than the previous years, local start-ups and scale-ups achieving a growth rate of 26 per cent and established companies a growth rate of 7.7 per cent between 2016 and 2018.” 31

“Data alone doesn't do anything, but if cities can create environments that people want to live and work in, and if they have a data infrastructure that can be used by entrepreneurs in ways better than competing cities, they will probably come out on top.”

-Kent Larson, Director of CityScience at MIT Media Lab


End Notes :

  1. World Bank Blogs: Fostering cities as technology innovation ecosystems: a big opportunity for developing countries. (2014)
  2. World Bank: Boosting Tech Innovation Ecosystems in Cities: A Framework for Growth and Sustainability of Urban Tech Innovation Ecosystems. (2015)
  3. Wikipedia: Quadruple and quintuple innovation helix framework. (2021)
  4. Barcelona Digital City: Digital Innovation. (2021)
  5. World Bank: Boosting Tech innovation ecosystems in cities. (2015)
  6. Ibid.
  7. Bloomberg CityLab: Maps reveal where the creative class is growing. (2019)
  8. World Bank: Boosting Tech Innovation Ecosystems in Cities. (2015)
  9. Leading Cities, World Class Cities Partnership: Co-Creating Cities; Defining co-creation as a means of citizen engagement. (2014)
  10. The Studio, Dublin City Council: About. (2013)
  11. BCG: Transforming the Urban Innovation Ecosystem. (2019)
  12. Eurocities: Espoo; Finland.
  13. Hello Espoo: Why should you live, study and work in Espoo?
  14. Hello Espoo: English as a Language of Service in the City of Espoo. (2021)
  15. Smart Cities World: Espoo named most intelligent community. (2018)
  16. City of Espoo: Espoo is once again the Finnish Capital of Innovation – among the top six in the European Capital of Innovation Awards. (2020)
  17. European Innovation Council, European Commission: The European Capital of Innovation Awards. (2020)
  18. 17 Sustainable Development Goals: Espoo - Building a sustainable future. (2021)
  19. Business Espoo: Co-creation, “Make with Espoo”. (2021)
  20. City of Espoo: Innovative Espoo. (2021)
  21. World Bank: New York City; Transforming a city into a tech innovation leader. (2016)
  22. World Bank: Boosting tech innovation ecosystems in cities. (2015)
  23. Porto Innovation Hub. (2021)
  24. Universidade do Porto: U.Porto volta a liderar universidades portuguesas no QS World Ranking. (2020)
  25. Porto Innovation Hub: Stepping Out Visits. (2020)
  26. Porto Innovation Hub: In-House Innovation. (2020)
  27. Municipal Department of Communication and Promotion, Porto City Council: Porto innovation ecosystem is awarded the “Smart City Innovator” prize in Dubai. (2020)
  28. Municipal Department of Communication and Promotion, Porto City Council: Porto wins the World Excellence Award for Best Startup-Friendly City of Europe. (2020)
  29. Municipal Department of Communication and Promotion, Porto City Council: The Intelligent Cities Challenge (ICC) journey will have Porto as a mentor city. (2020)
  30. Monocle: Bright lights, small city; The Forecast 2021 Magazine. (2020)
  31. Municipal Department of Communication and Promotion, Porto City Council: Employment and economic turnover at startups in Porto was higher in recent years and higher in the AMP. (2020)

You may access the links to these sources, where available, on page 148 of the Urban Future with a Purpose study.

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