Speeches

Samuel J. Palmisano
IBM Chairman, President and Chief Executive Officer
Final Remarks, as prepared

SmarterCities Event
Berlin, Germany
June 23, 2009

Keynote Address
Building a Smarter Planet: City by City

When we think about what it will take to make our cities smarter, I think it is clear that the issues we need to tackle reach far beyond any city's walls... or its suburbs—issues such as energy, transportation and water... the flow of commerce and of knowledge... of money and electrons. These and many other issues that come together in our cities are not truly local... or regional... or even national. They are global.

Of course, people have talked about "world cities" for many years. But it has only been fairly recently that we have come to truly appreciate what that means.

I would argue that the first decade of the 21st century has been a series of wake-up calls, with a single subject: the reality of global integration.

In business, global integration has changed the corporate model and the nature of work itself.

But we now see that the movement of information, work and capital across nations—as profound as those are—constitute just one aspect of global integration.

In the last few years, our eyes have been opened to global climate change, and to the environmental and geopolitical issues surrounding energy. We have been made aware of the vulnerabilities of global supply chains for food and medicine. We entered the new century with the shock to our sense of security delivered by the attacks on 9/11. And, of course, we are now in the midst of a global financial crisis.

These collective realizations have reminded us that we are all now connected—economically, technically and socially.

But we're also learning that being connected is not enough.

Yes, the world continues to get "flatter." And yes, it is getting smaller and more interconnected. But something is happening that holds even greater potential. In a word, our planet is becoming smarter.

This isn't just a metaphor. New intelligence is being infused into the way the world literally works—the systems and processes that enable physical goods to be developed, manufactured, bought and sold... services to be delivered... everything from people and money to oil, water and electrons to move... and billions of people to work and live.

First, our world is becoming instrumented:

The transistor, invented 60 years ago, is the basic building block of the digital age. Today, there are nearly a billion transistors per human, each one costing one ten-millionth of a cent. There are 4 billion mobile phone subscribers, and 30 billion Radio Frequency Identification tags produced globally.

Because of their increasing sophistication and low cost, these chips, sensors and devices give us, for the first time ever, real-time instrumentation of a wide range of the world's systems—natural and man-made... business and societal.

Second, our world is becoming interconnected:

Very soon there will be 2 billion people on the Internet. But that's just the beginning. In an instrumented world, systems and objects can now "speak" to one another, too.

Think about the prospect of a trillion connected and instrumented things—cars, appliances, cameras, roadways, pipelines... even pharmaceuticals and livestock.

And then think about the amount of information produced by the interaction of all those things. It will be unprecedented.

Third, all things are becoming intelligent:

New computing models can handle the proliferation of end-user devices, sensors and actuators and connect them with powerful back-end systems.

Combined with advanced analytics, such supercomputers—and new computing models like "clouds"—can turn mountains of data into intelligence.

And that intelligence can be translated into action, making our systems, processes and infrastructures more efficient, more productive and responsive—in a word, smarter.

As I mentioned, IBM is creating multiple new Analytics Solution Centers—the first of them here in Berlin... focused on bringing this new level of value to clients.

Another way to describe these shifts is to say that the digital and physical infrastructures of the world are converging.

Computational power is being put into things we wouldn't recognize as computers. Indeed, almost anything—any person, any object, any process or any service, for any organization, large or small—can become digitally aware and networked.

Thanks to these technology shifts, our world is getting smarter.

You can see this in how companies and institutions are rethinking their systems and applying technology in new ways.

The island-nation of Malta is building the world's first national smart grid, which will also monitor the country's water systems. IBM is working on 50 smart grid projects in places like Italy, Netherlands, Denmark, California and Texas, and seven of the top ten meter management projects globally. Buildings are becoming smarter—and greener. GIB-Services in Switzerland is using excess heat from its datacenter to heat a local public swimming pool. A mining company in Canada is using its excess datacenter heat to warm its warehouses during the cold Canadian winters. IBM's own green datacenter in Boulder, Colorado, has replaced energy-greedy air-conditioning with cooling from the air outside, which can be used for up to 75% of the year, contributing up to 50% in annual energy savings. Smart traffic systems are being built in cities from Stockholm to London to Brisbane to Singapore—with many more being planned. In the global race for competitiveness, our schools are becoming smarter. In China, the Ministry of Education is expanding access and improving knowledge-sharing through its open-source, "Blue Sky" e-learning platform, which has been used by more than 780,000 Chinese students and teachers since July 2006. And here in Germany, the state of Brandenburg is harnessing Web-based tools that help teachers and other education experts across a widely dispersed region connect systematically for the first time. We can even tackle perennial problems like public safety. New York City's Real Time Crime Center system queries millions of pieces of information to uncover previously unknown data relationships—leading to a 27% drop in crime since 2001. New York is now ranked as the safest large city in the United States.

This list goes on—a smart bay in Ireland, smarter oil exploration in Norway, smarter social security in Belgium. And the opportunity for such solutions is growing fast. All around the world, economic stimulus is being injected by governments... much of it aimed at smart grids, healthcare data integration, water management and smarter transportation.

All of this comes together in the city. Consider some of the key systems that are essential to the functioning of a city today:

Consider transportation. A number of estimates suggest that congestion costs—in developed and in developing cities—are between 1% and 3% of GDP. In emerging market cities, car ownership rates are currently a fraction of the 75-90% percent of OECD countries. As car ownership grows from less than 1 in 10 people to one in three or higher in emerging markets, even greater strain will be placed on the transport infrastructure. There are similar issues for energy, utilities and water—Cities generate the vast bulk of CO2 emissions, and they account for 60% of all water allocated for domestic human use. As urbanization levels increase, city leaders must simultaneously supply citizens' and businesses' immediate demands for water and energy, and promote the sustainable use and governance of these resources within the city and across surrounding regions. Cities also face significant healthcare challenges, ranging from infant mortality to the HIV/AIDS pandemic. With growing populations, the fiscal sustainability of cities' health systems will be pushed to the limit. In America, the costs of healthcare are not only rising dramatically—approaching 20% of GDP—but are also very unevenly distributed, with some cities achieving significantly lower costs than others for similar levels of care. In education, we need to integrate the collection of cottage industries that make up today's education "systems"—and I put that in quotes. There are more than 15,000 local school districts in the United States delivering K-12 programs, with separate operating systems, measurements and management processes, wasting precious resources. Developed countries, on average, spend nearly 4% of their GDP on education, and costs are rising—up 42% between 1995 and 2004, according to an OECD study. And the situation is similar no matter where you look. In China, there are nearly 500,000 primary and middle schools, each managing its own infrastructure. When it comes to public safety, eight of the world's top 10 safest cities in 2008 were here in Europe—so we all have something to learn from you. Keeping citizens safe is crucial to cities' quality of life—and to the global opportunities for work, investment and talent. Which is why smarter public safety isn't just a responsibility of the state, it's also a priority for business, communities and civil society at large. Finally, smarter government services are crucial for both citizens and businesses. Cities depend on their business systems for their prosperity. For instance, inefficient administrative systems can cost as much as 6.8% of GDP in some economies. And a 25% reduction in administrative costs—e.g., cutting the time spent in filling out forms—could yield savings of up to 1.5% of GDP.

In just a moment my colleague Ginni Rometty will tell you about some of the work we have done with forward-thinking cities around the world to make these systems smarter. And tomorrow we will explore these further with experts from those sectors.

But first, I think it's important to step back and look at the city as a whole. In other words... look at it from the point of view of the mayor—the leader who is responsible for the integration of all these systems. Beyond that, it's the mayor who is held accountable for the city's brand image and reputation... and the relationships among its many different communities and across all its important constituencies.

I have sympathy for this position—because it's very much like my own. A corporation, like a city, is a system of systems. And the CEO is responsible not just for making those systems work together efficiently and effectively, but for the consequences of that integration:

the innovation it generates the growth it produces the people it employs the values it embodies the progress it achieves.

The key is leadership. If we are really going to drive meaningful change, we need to get smarter about how we work together.

Three things are crucial, I believe.

First, we will have to be far more collaborative. This is not just the familiar "public and private sector" formula. It's multi-directional, multi-stakeholder, truly global.

Think about it—none of the systems I've mentioned is the responsibility of any one entity or decision maker. They all involve business, government, communities... all of civil society.

This will require new ways of leading. Our traditional idea of a leader is someone with superhuman vision and will... someone who sees the future and charges ahead—either compelling or inspiring others to follow.

But given the complex reality of a global system of systems, this model no longer seems appropriate.

Much more, we will have to lead by listening—by attending to what these complex systems are telling us. We need to influence, not dictate. A reality as dynamic and complex as this must be approached with humility, and with an intent to serve, rather than to dominate.

Frankly, I believe that business has a lot to learn from government and NGOs when it comes to this kind of sophisticated, mature, multi-stakeholder collaboration. It's an art, not a science. Indeed, some call it "the art of the possible."

It's also known as politics—but in the best, original sense of the word. It's about being politic... about opening your mind... about developing management systems architected for inclusion, access and transparency.

Second, we need standards. Of course, the importance of standards is widely understood—not just technology standards, but new, global rules of the road for trade policy, intellectual property and more.

Of course, from a systems standpoint, when we talk about the importance of standards, we are talking about interfaces. In systems, interfaces matter, compatibility matters. Just because you throw things together doesn't make a system. To build a true system, you need much more than hand-offs.

We need standardized interfaces between the transport system and the energy system... between the education system and the healthcare system... and among water, traffic, commerce, public safety and government services, for example.

To be sure, there are limits to the standardization possible in any system—technical, social or natural. And that's especially true when it comes to systems where the key components are human beings. But if we're going to have effective global systems, rather than global system breakdowns, we will need a greater level of interface standardization than we have had heretofore.

Finally, we also need to ensure that our regulations, policies and institutions encourage greater openness and innovation, not hinder it.

This is important. We have a choice to make now. I believe it would be a grave error to retreat into our shells, or adopt protectionist policies. That would be to race toward the past, not toward an interconnected, intelligent future.

And, as I think is clear by now, it would be a fundamental error in systems thinking. Its result would be to increase our vulnerability to global system crises (both man-made and natural), rather than to reduce it.

The urbanization of Planet Earth is one of those developments—arguably, the central one—that is big enough to "see from space." And all those bright city lights, shining back at the stars, signal more than the simple movement of electrons.

It's in our cities, I believe, that we can see the most promising opportunity for shaping how the world works and how we live.

That opportunity is urgently before us in this moment. The importance of this moment, I believe, is that the key precondition for real change now exists: People want it.

But this moment will not last forever. And in hindsight, when the circumstances that cry out for change are gone, when things have returned to "normal"—don't we always wish we had been bolder, more ambitious, gone faster, gone further?

That's why a period of discontinuity is, for those with courage and vision, a period of opportunity.

Over the next couple of years, there will be winners, and there will be losers. And though it may not be easy to see now, I believe we will see new leaders emerge who win not by surviving the storm, but by changing the game.

This is not a matter of political ideology. Indeed, building a smarter planet is refreshingly non-ideological. Of course, debates will continue to rage on issues inherent in all the systems by which our world and our cities work.

Should healthcare be delivered by private firms, by the state or by some combination? Should environmental considerations be pursued by market-based approaches, or mandates? Is water a public good, like air, or a commodity, like food? What should we do about the geopolitics of energy? What is the balance between public safety and security, on the one hand, and personal liberty and privacy, on the other?

There are serious and worthy perspectives on all sides of such controversies. But no matter which viewpoint one shares, or which ultimately prevails, the system that results will need to be smarter—more transparent, more efficient, more accessible, more equitable, more resilient.

The world will continue to become smaller, flatter... and smarter. We are moving into the age of the globally integrated and intelligent economy, society and planet. The question is, what will we do with that?

The future now beckoning us is one of enormous promise. And I believe it is one that we can build—if we open our minds and let ourselves think about all that a smarter planet... a planet of smarter cities... could be.

Thank you very much.