The Hitachi Group Value Creation Story

Capital Utilization and Value Creation
Human capitalIntellectual capital

Manufacturing
capitalContribution to
Value Creation

Working as a team, a diverse andglobal workforce contributes toglobal growth of the Social Innovation
Business.

Creating new innovations byfusing ecosystems that stimulate
open innovation with cutting-edge
technologies.

In addition to the manufacturing
capabilities gained so far, manufacturing
capital contributes to improved
customer productivity and operational
efficiency by making full use ofadvanced technologies such as IoT, bigdata, and AI.

Targets

Creating a Workplace That Supports theActive Participation of a Diverse Workforce

Building New Technologies and Business
Models through Collaborative Creation

A Global Leader in Production
Efficiency and Quality(1) Attract, retain, and develop diverse talent
to lead business growth(1) Accelerating innovation<Manufacturing>(For fiscal 2021, inprinciple)• Strengthening the front-line and digital talents• Developing mindset and skills to become globalleaders• Promoting diversity: Targeting 10% for both female
and non-Japanese in executive and corporate
officer positions, and 800 female managers by fiscal2020 (Hitachi, Ltd.)(2) Transforming organizational culture
and employee mindset to encourage
proactivity and individual growth• Building Hitachi culture globally• Fostering a culture of career ownership(3) Reform organization and transform
employment policies to adapt toenvironmental changes; take action onorganizational reshuffling• Strengthening collaborative creation on a global basis• Creating new values through open initiatives suchas "Kyōsō-no-Mori" and corporate venturing• Creating innovations by strengthening solution
inventions(2) Creating the world’s No. 1 technologies

Improving the efficiency of global manufacturing
operations 30% through enhancement of the ECM*1 andSCM*2 systems.
*1 Engineering chain management*2 Supply chain management<Quality Assurance>• Focusing investment in the five key sectors andLumada• Further strengthening the framework for quality
assurance• Creating intellectual properties that support theworld’s No. 1 technologies• Strengthening global quality assurance operations(3) Promoting R&D and intellectual property
activities to resolve social issues• Explore new business opportunities and disruptive
technologies through open innovation• Promoting digitization of product certificates• Strengthening quality assurance in services, software,and security• Training quality assurance personnel• Drive activities to achieve “IP for Society,” an IP
strategy for the new era

P.38 Accelerate Innovation• Ensuring safety, health, and compliance• Shifting to job and role-based human resourcesmanagement

Major Initiatives
in Fiscal 2018

• Improved visibility of human resources-related
information by introducing “HR Management Integrated
Platform”
https://www.hitachi.com/New/cnews/
month/2017/11/171128.html• Started Hitachi Academy in April 2019 to foster humanresources that drives digital transformation• Promoted diversity among executives (diversifying thedecision-making level)• Held events such as the Global Women’s Summit tomotivate female workers
http://www.hitachi.com/New/cnews/
month/2018/10/181003.html• Globalizing our management training programs• Established Safety Management Division in April 2019

Fiscal 2018
Results• Investment in R&D: ¥323.1 billion<Manufacturing>• Promoted collaborative creation activities withcustomers and open co-evolution activities (openforums, Ideathons, Hackathons, etc.)

Lead time reduction for Large Industrial products byenhancing SCM• Expanded the field for open innovation globally• Build our global patent portfolio• Implement appropriate IP strategies according tobusiness domains - competitive strategy (productbusiness) and collaborative strategy (digital solutionbusinesses)• Promoted industry and academia collaboration (Hitachi
Cambridge Lab., Hitachi Kobe Lab.,Hitachi The
University of Tokyo Lab., Hitachi Kyoto University Lab.,
Hitachi Hokkaido University Lab.)• Participating in the setting on international standardsand rules.

• Trained IE*3 engineers• Trained Skilled workers
Placed three participants in the 45th WorldSkills
Competition, with one silver medal, one bronze medal,
and one medallion for excellence.
*3 Industrial Engineering<Quality Assurance>• Revised the framework for quality assurance• Strengthened quality assurance in embedded software• Strengthened global quality assurance• Training quality assurance personnel• Number of female managers (Hitachi, Ltd.): 635• Lumada customer cases: more than 650<Manufacturing>• Ratio for female executive and corporate officers (Hitachi,Ltd.) : 5.0%• Patent application ratio outside Japan: 58%• Lead Time Reduction 20% for Large Industrial products
at Japan sites (vs. FY2016)• Ratio for non-Japanese executive and corporate officers(Hitachi, Ltd.): 8.8%
• Number of participants in global management training
programs: 3,844• Average educational investment per employee:¥127,800
Number of fatal accidents: 0 *1
Global occurrence rate: 4.20% *1, *2*1 Calendar year 2018
*2 Occurrence rate is the rate of workplace accidents per 1,000
directly contracted employees resulting in fatality or worktime loss of one day or more.

• Recognized as the Clarivate Analytics Top 100 Global
Innovators Award for eight consecutive years• Awarded the National Commendation for Invention"Japan Patent Attorneys Association President's Prize"by the Japan Institute of Invention and Innovation for theHitachi X-ray fluoroscopy system.
* Hitachi in fiscal 2019 was awarded the National Commendation
for Invention "Imperial Invention Prize" for the design of theClass 800 high-speed train for the UK.

• Lead Time Reduction 20% for Large Industrial products
at China sites (vs. FY2016)• Started the qualification program of IE engineers<Quality Assurance>• Strengthened governance by revising framework for
quality assurance• Enhanced system development methods within theHitachi Group by strengthening the software quality
assurance system• Developed Quality Assurance Standards within theHitachi Group• Implemented quality and reliability training

24

Hitachi Integrated Report 2019

Social capital

Natural capital

Financial capital

Building strong relationships with stakeholders,
including tie-ups between industry, academia
and government, as well as collaborative
creation with customers, maximizes business
opportunities on a global scale and reduces risk.

Guided by our Environmental Vision, we strive
to create value while also contributing to theresolution of environmental issues to realize alow-carbon society, a resource efficient society
and a harmonized society with nature.

Hitachi can realize growth, centered on theSocial Innovation Business, through flexibility
in its operations thanks to a solid financialbase and appropriate financial strategies.

Earning the Trust of Stakeholders

Achieve the targets set forth in theEnvironmental Action Plan for 2021 looking
toward the Hitachi Environmental Innovation
2050 long-term environmental targets.

Building the Financial Base Necessary toAchieve Value Creation(1) Enhance feedback to management based on
dialog with stakeholders (government, investors,shareholders, customers, employees, localcommunities)(2) Strengthen human rights due diligence (HRDD) andCSR, green procurement• Promote HRDD
• Strengthen supplier compliance(3) Promote social contribution activities• Training, including STEM (see p. 9) training for those in theyounger global generation likely to be the future leaders(4) Proactive engagement and disclosure of information(1) Reduce CO2 emissions from the use of our products
and services, expand Hitachi’s decarbonization
business• Reduction rate of CO2 emissions compared to FY 2010:
more than 20%(2) Reduce CO emissions of factories and offices byintroducing renewable energy and high-efficiency
equipment
2(1) Enhanced profitability and generation of cash
• Promotion of business restructuring(2) Improving capital efficiency• Restructuring or selling off unprofitable assets• Acquiring highly profitable assets• Promoting financial strategies with an eye toward capitalcosts• Reduction rate of CO2 emissions per unit compared toFY2010: 9%(3) Enhance efficiency in the use of water• Reduction rate in water use per unit compared to FY 2010: 9%(4) Enhance efficiency in the use of resources, reduceand recycle waste materials• Reduction rate in waste and valuables generation per unit
compared to FY 2010: 12%<Customer Competition Events>• Held the Hitachi Social Innovation Forum, an event creating
opportunities for collaborative creation with customers thatincludes lectures and exhibitions on the results of social innovation
businesses around the world as well as future prospects• Held the Hitachi IR Day, which included business briefings forshareholders, investors, and analysts• Held town hall meetings for executives and employees to interact
and exchange views

Implemented environmental activities aimed at achieving a lowcarbon society, a resource efficient society, and a harmonized society
with nature outlined in our Environmental Vision and the Hitachi
Environmental Innovation 2050

Fiscal 2018 Targets• Reduced CO2 emissions from the use of our products and services,
expanded Hitachi’s decarbonization business• Operating cash flow margin: above 9%• ROA: above 5%• D/E ratio: under 0.5 times• CCC (Cash Conversion Cycle): 70.0 days

• Reduced CO2 emissions of factories and offices by introducing
renewable energy and high-efficiency equipment• Promoted HRDD

• Clarified climate-related risks and opportunities based on the TCFD
recommendations• Conducted audits during visits to suppliers• Enhanced efficiency in the use of water in factories and offices• Hosted 6 participants in the Hitachi-DST Scholarship Program forSouth African Engineers• Enhanced efficiency in the use of resources, reduced and recycled
waste materials in factories and offices• Hitachi Social Innovation Forum 2018 TOKYO, etc.

• Improve environmental performance of products and services
Reduction rate in CO2 emissions compared to FY 2010: 34%

Total Hitachi, Ltd. stockholders’ equity: ¥3.262.6 billion• Reduce energy use of factories and offices
Reduction rate in energy use per unit compared to FY 2005: 14%• ROA: 3.3% (6.2%)

https://hsiftokyo.hitachi/en/• Institutional investor and analyst meetings: 550• Executive town hall meetings: 20• Human rights for employees at each BU and group company
division were assessed and prioritized, with consideration given tothe formulation of medium-term action plans• Conducted CSR audits at 24 suppliers (130 suppliers in the fiscal
2012–2018 period)• Spending on social contribution activities: ¥1,888 million• Reduced waste generation
Reduction rate in waste and valuables generation per unit
compared to FY 2005: 16%• Enhance efficiency of water usage
Reduction rate in water use per unit compared to FY 2005: 34 %Total Hitachi, Ltd. stockholders’ equity ratio: 33.9% (35.9%)• D/E ratio: 0.23x (0.21x)
Free cash flow: ¥447.1 billion• Operating cash flow margin: 6.4%
• CCC: 69.3 days
• ROIC: 8.5% (10.1%)* Figures in parentheses exclude the effects from the Horizon Project
consolidation

25