Industry solutions
We provide safe and secure water environments to
70 million people per day worldwide through water,
sewage and seawater desalination technologies.

The Hitachi Group’s
Growth Strategy
History of Management Reforms andHitachi’s Mid-term Management Plans

30

Outline of the 2021 Mid-term Management Plan

32

Capital Allocation Strategy

34

Financial and Capital Strategy

36

Accelerate Innovation

38

Environmental Vision and the Decarbonization Business46

Strengthen Lumada

48

Story of Value Creation by Sector

54

The Hitachi Group’s Growth Strategy

History of Management Reforms and Hitachi’s Mid-term
2015 Mid-term Management Plan
2013-20152012 Mid-term Management Plan
2010-2012

Building a Foundation for Growth

The Swapping Out of Businesses

Rebuilding Management

RecoveryInitiatives and Results(1) Promoting the Social Innovation Business on a global basis bystrengthening front-line functions• Expanded service businesses using digital technologies(1) Creating a product-specific system with clear lines of responsibility and authority• Clarified responsibility and authority through introduction of an in-housecompany system• Strengthened digital capabilities through the acquisition of Pentaho• Consolidated businesses into six groups, focused on growth fields under an
integrated system of operations, and accelerated management(2) Reviewing non-core businesses• Thermal power business: Established joint-venture firm with Mitsubishi
Heavy Industries(2) Rebuilding or withdrawing from unprofitable businesses• Automotive systems business: Rebuilt through structural reform• Air conditioning business: Established joint-venture firm with Johnson
Controls• Flat-panel TV business: Ceased in-house production• HDD business: Sold off after rebuilding• Batteries business: Hitachi Maxell relisted, with Hitachi drawing down its
stake in the company(3) Strengthening cost competitiveness• Launched Hitachi Smart Transformation Project(3) Promoting the globalization of Hitachi• Shifted rail business headquarters to the UK• Expanded centralized purchasing and global procurement• Consolidated and optimized production base placement• Launched Global Performance Management to more effectively utilize global
human resources

Looking Back and the Challenges Ahead
Looking Back

Looking Back

After booking its largest losses ever in fiscal 2008, Hitachi during the period covered by the

Hitachi during the period covered by the 2015 Mid-term Management Plan substantially revised its business2012 Mid-term Management Plan advanced the rebuilding of its business. The rebuilding of theportfolio as if sought to build a foundation for growth. The Company acquired Pentaho, which develops andautomotive systems business, the withdrawal from the internal manufacturing of flat-panel TVmarkets big data analytics software, as part of its aim to strengthen and expand the global value chain in

business, and the transfer of the HDD business all served to improve profitability, allowing Hitachi

big data utilization, while also removing from consolidation its thermal power, air-conditioning, and batteries

to concentrate on the Social Innovation Business that so effectively leverages the Company’sbusinesses. In addition, Hitachi moved its rail business headquarters to the UK as part of its effort to promotestrengths. In fiscal 2012, Hitachi consolidated operations into six strong groups and worked to

the globalization of the Company, appointing Alistair Dormer, currently serving as executive vice president,

speed up management through an integration of operations.

as the global CEO of the Company’s rail business. In personnel evaluation systems, Hitachi introduced

Hitachi’s operating income ratio in fiscal 2012, the final year of the Mid-term Management Plan,“Global Performance Management” as a mechanism under which compensation directly reflects personal

fell short of the 5% target due to write-off associated with a sharp drop in material prices, as well as

performance assessments as well as the global common standards for job roles.

the booking of structural reform costs and reduced capacity utilization amid economic slowdown

In fiscal 2015, the last year in the mid-term plan, the target was not achieved due to a delayed response toin China and Europe. However, it improved to 4.7% thanks to cost structure reforms, Hitachi Smartchanging market conditions, including in the telecommunication and networks business, as well as losses

Transformation Project, in line with the Smart Transformation Project. In addition, after dropping to

due to insufficient management at a large overseas project. Another factor contributing to underperformance

11.2% in fiscal 2008, the stockholders’ equity ratio recovered to 21.2% in fiscal 2012, while the D/

was the greater-than-expected increase in structural reform costs due to an acceleration in structural reforms

E ratio narrowed to 0.75x over the same period, indicating a clear improvement in Hitachi’s financial

following a deterioration in the market environment for the infrastructure systems, power distribution, andposition as the company worked toward the establishment of a stable earnings base.

construction machinery businesses. However, operating income reached ¥600 billion, with the operating
income ratio at 6%, signaling stability in the profitability and an improved ability to generate cash.

Challenges Ahead

Challenges Ahead• Further improvements in business profitability• Accelerate management’s speed to more quickly respond to changes in the market environment• Strengthening the service businesses• Strengthen project management• Global business development and establishing a management base that makes that possible• Take action regarding unprofitable businesses

2012 Mid-term Management Plan*1

2015 Mid-term Management Plan*1

2010

2011

2012

2012 (target)

2013

2014

2015

9,315.8

9,665.8

9,041.0

10,000.0

9,563.7

9,774.9

10,034.3

43

43

41

—

45

47

48

Adjusted operating income (¥ billion)

444.5

412.2

422.0

—

538.2

641.3

634.8

—

Adjusted operating income ratio (%)

4.8

4.3

4.7

More than 5%

5.6

6.6

6.3

More than 7%

EBIT (¥ billion)

443.8

573.2

358.0

—

585.6

534.0

531.0

—

EBIT margin (%)

4.8

5.9

4.0

—

6.1

5.5

5.3

More than 7%

Net income (loss) attributable to Hitachi, Ltd. stockholders (¥ billion)

238.8

347.1

175.3

200.0 level

264.9

217.4

172.1

More than 350.0

Total Hitachi, Ltd. stockholders’ equity (%)

15.7

18.8

21.2

20

24.1

23.7

21.8

More than 30%*2

Revenues (¥ billion)
Overseas revenue ratio (%)

10,000.0
More than 50%

Return on assets (%)

3.3

4.4

2.5

—

3.5

2.9

2.4

—

Return on equity (%)

17.5

21.6

9.1

—

11.2

7.8

6.1

—

D/E ratio (Including non-controlling interests) (times)

1.03

0.86

0.75

Less than 0.8 times

0.73

0.83

0.87

—

Operating cash-flow margin (%)

9.0

4.6

6.5

—

4.6

4.6

8.1

—

*1 The above figures are prepared in accordance with U.S. GAAP through fiscal 2013 and with the International Financial Reporting Standards (IFRS) from fiscal 2014.
*2 Manufacturing and services, etc.

302015 (target)

Hitachi Integrated Report 2019

Management Plans
2018 Mid-term Management Plan

2016-2018
Achieving Growth in Social Innovation

Utilizing Digital Technologies(1) Transforming into a three-level structure, composed offront-line, platform, and product tiers(4) Conducting an ongoing review of company businesses• Logistics business: Partial sell-off of Hitachi Transport
System stock• Introduced business unit system(2) Strengthening of global front-line functions• Bolstered global front-line operations through acquisitions(Ansaldo STS, Sullair)(3) Launching Lumada to expand the digital solutions business• Financial services business: Partial sell-off of Hitachi
Capital stock• Power tools business: Sell-off of Hitachi Koki

• Launched Lumada• SPE business: Partial sell-off of Hitachi Kokusai Electricstock• Established Hitachi Vantara to deliver digital solutions• Automotive systems business: Sell-off of Clarion• Lumada business revenues grew to about ¥1 trillion

Looking Back
With the goal of strengthening front-line functions, including the number of sales,
system engineers, and consultants, and creating a system of collaborative
cooperation with our customers, Hitachi from fiscal 2016 moved from a productspecific company system to a three-level system, composed of front-line, platform,
and product tiers. With the three-level system, Hitachi bolstered the management
speed. Specifically, business units (BUs), which had been subdivided fromthe former in-house companies to develop and provide services closely to thecustomer, and group companies, including listed subsidiaries, were positioned toeach level. We also strengthened project management and worked to improve
profitability at individual businesses. With the aim of enhancing on a global basis
the front-line functions central to the Social Innovation Business, we acquired
100% stakes in Ansaldo STS, which supplies signal equipment and control
systems to 30 or more countries and regions, and Sullair, which manufactures,
sells, and services air compressors to about 4,000 customers, mainly in North
America. In December 2018, we signed an agreement for the acquisition of ABB’s
power grid business. The goal of each of these is the acquisition of a robust global
sales network and the expansion of the Social Innovation Business.
To add to this, we launched Lumada in May 2016. Lumada takes the essential

technologies for delivering advanced solutions, including AI, analytics, security,
robotics and control technologies distributed across the company and applies
them to a common platform, creating a system that comprehensively andorganically leverages the resources of the entire Hitachi Group to quickly andflexibly create new innovations. Thanks to a steady increase in customer
collaborations, Lumada business revenues are trending as planned and havealready exceeded ¥1 trillion. Moreover, in addition to reorganizing our businessportfolio, including selling off listed subsidiaries with little connection to thecore Social Innovation Business, we continued to reform our cost structure,
which contributed to the adjusted operating income ratio meeting our Midterm
Management Plan target and reaching a record level.

Challenges Ahead• Aggressive investment in key areas of focus• Improved capital efficiency• Accelerated innovation and active use of digital technologies with a focus on
Lumada2018 Mid-term Management Plan*1
2016

2017

2018

9,162.2

9,368.6

9,480.6

48

50

51

Adjusted operating income (¥ billion)

587.3

714.6

754.9

—

Adjusted operating income ratio (%)

6.4

7.6

8.0

More than 8%

EBIT (¥ billion)

475.1

644.2

513.9

—

EBIT margin (%)

5.2

6.9

5.4

More than 8%More than 400.0

Revenues (¥ billion)
Overseas revenue ratio (%)

2018 (target)
10,000.0
More than 55%

Net income (loss) attributable to Hitachi, Ltd. stockholders (¥ billion)

231.2

362.9

222.5

Total Hitachi, Ltd. stockholders’ equity (%)

30.7

32.4

33.9

—

Return on assets (%)

3.0

5.0

3.3

More than 5%

Return on equity (%)

8.1

11.6

6.8

—

D/E ratio (Including non-controlling interests) (times)

0.29

0.23

0.23

Less than 0.5 times

Operating cash-flow margin (%)

6.9

7.8

6.4

More than 9%31

The Hitachi Group’s Growth Strategy

Outline of the 2021 Mid-term Management Plan
In May 2019, Hitachi announced its new Mid-term Management Plan, covering the three years from April 2019.

Key Points in Hitachi’s New Mid-term Management Plan
We believe there are three factors that could accelerate growth.

Aiming to be a global leader in the Social Innovation Business, Hitachi

The first of these is aggressive investment, including in M&A. We areis focused on moving into a “growth mode” during the period covered

increasing investment 4x–5x from the previous Mid-term Managementby the 2021 Mid-term Management Plan.
Hitachi since its founding has contributed to improvements inPlan to ¥2.0–¥2.5 trillion. Second, to ensure implementation of thispeople’s quality of life by focusing on the social innovation business tokind of large-scale investment, we will, while maintaining financial

resolve issues confronting society.

discipline, utilize financial leverage, and improve management

During the period covered by the 2021 Mid-term Management Plan,awareness of capital costs by introducing ROIC as a management

Hitachi will continue to advance the Social Innovation Business,

indicator. Finally, we will expand our digital solutions offerings on aplacing an emphasis on improving social, environmental, andglobal scale, centered on Lumada, and accelerate innovation througheconomic value for its customers.

enhanced collaboration with our customers.

Goals

Improve the quality of people's lives, raise customers' corporate value and achieve a sustainable society

Social Value
Accelerate customer’s innovation withadvanced IT solutions
Provide stable, high-efficiency energy and its
management systems
Increase the efficiency of customer’s
production and processing systems, andprovide the supply of safe, secure city water,and sewage water systems

Environmental Value

Economic Value

Reduce CO2 emissions through the value
chain

Reallocate of economic value added to
stakeholders

Enhance efficiency in the use of water

Improve profits at customer companies

Enhance efficiency in the use ofresources

Enhance employee compensation
Share earnings with partners, others

Design smart cities to be more convenientand environmentally-friendly
Provide with safe, comfortable transportation
systems and services

Increasing the three values of social, environmental and economic by five-sector business and technology solutions

IT solutions

Energy solutions

Industry solutions

Mobility solutions

Smart Life solutions

Solutions

Solutions

Solutions

Solutions

Solutions

Accumulation of customer cases

Lumada platform (system for converting data into value)
OT

IT

Products

Source of value (competitive advantage)

Lumada-Based Model for Providing Solutions

32

Focused on Five BusinessDomains

Providing and Enhancing Solution Cores

Global Development of Solution Cores

Lumada provides solutions as a cyber-physical system

Hitachi is improving social, environmental, and economic

We have established five business sectors

connecting the digital to the real by leveraging Hitachi’s years

value for customers by creating and providing rapid

where we can simultaneously improve theof experience in OT, IT, and products. The accumulation ofsolutions through the combination of solution cores

three types of value: IT, Energy, Industry,

customer cases allows us to develop and build up solution

based on customer needs and issues as clarified throughSmart Life, and Mobility.

cores that can be used throughout the Company.

collaborative creation efforts.

Hitachi Integrated Report 2019

Aggressively Invest in
Key Areas of Focus
Targeting investment

Introduce ROIC
to Boost Capital
Efficiency

Expand Our
Decarbonization
BusinessStrengthen Lumada

Including for M&A, of

The 2021 Mid-term¥2.0–¥2.5 trillion over theManagement Plan

Hitachi is supporting

We are promoting

We will use collaborative

and accelerating open

the expansion of ournext three years. (vs. ¥0.5

creation with ourintroduces ROIC as ainnovation throughdecarbonization businesscustomers to expand

trillion over the three years

KPI as part of our effort

collaboration with start-in line with our long-term

the provision of digitalin the 2018 mid-term Plan)

to improve management

up firms, universities, andenvironmental targets

solutions, centered on

In addition to acquiring theawareness of capital

activities at “Kyōsō-no-

ABB power grid business,

efficiency.

Mori.”

we intend to invest in the

In order to enable

Based on our 2021

IT and Industry sectors.

largescale investment,

human resources

Hitachi will further

Hitachi will utilize financial

strategy, we areleverage to reduce thepromoting the hiring,weighted average cost of

training of diverse humancapital (WACC).

resources and the creation

strengthen to an
unprecedented degree
R&D and human

P.34

Lumada.

of diverse organizations.

resources development.

Capital Allocation
Strategy

Accelerate
Innovation

Financial andCapital Strategy

P.36

Accelerate Innovation

P.38

Environmental Vision and the
Decarbonization
P.46
BusinessStrengthen Lumada

P.48

Performance targets (consolidated)
FY2018 results
Revenues¥9,480.6 billion

FY2019 forecast¥9 trillion

Adjusted operating income (Adjusted operating income ratio)¥754.9 billion (8.0%)¥765.0 billion (8.5%)

EBIT (EBIT margin)¥513.9 billion (5.4%)¥750.0 billion (8.3%)*1

Operating cash flows (3-year cumulative)¥1,966.7 billion

FY2021 targets
CAGR more than 3%
More than 10%——

More than ¥2.5 trillion
More than 10%

ROIC

8.5%

10.3%

ROA

3.3%

—

Overseas revenue ratio

51%—

FY2018 results

FY2019 forecast

FY2021 targets¥2,121.6 billion¥2,060.0 billion¥2,600.0 billion—
More than 60%

Performance targets by sector
SectorItem
Revenues

IT

Energy *1 *3

Adjusted operating income(Adjusted operating income ratio)¥230.1 billion (10.8%)¥220.0 billion (10.7%)¥338.0 billion (13.0%)

ROIC

19.6%

15.9%

15.0%

Revenues¥456.6 billion¥384.9 billion

Adjusted operating income(Adjusted operating income ratio)¥35.9 billion (7.9%)¥24.9 billion (6.5%)

5.8%

ROIC

Industry *1 *3

7.5%¥843.6 billion

Adjusted operating income(Adjusted operating income ratio)¥58.2 billion (6.9%)¥58.4 billion (7.0%)¥91.0 billion (9.1%)

ROIC

9.0%

10.1%

10.8%

¥1,238.1 billion¥1,155.0 billion

Adjusted operating income(Adjusted operating income ratio)¥100.2 billion (8.1%)¥96.2 billion (8.3%)

ROIC

13.6%

11.6%

¥1,816.0 billion

Revenues

Smart-life *2

More than ¥170.0 billion(More than 10%)

Revenues

Revenues

Mobility *1

6.0%¥839.6 billion

More than ¥1,700.0 billion

Adjusted operating income(Adjusted operating income ratio)¥93.4 billion (5%)

ROIC

10.0%

*1 It includes the control system business reported on IT sector.

*2 It includes the healthcare business of Hitachi High Technologies.

¥1,723.2 billion¥119.0 billion (7%)
10.0%

¥1,000.0 billion¥1,270.0 billion¥124.8 billion (9.8%)
13.1%
More than ¥2,100.0 billion
More than ¥210.0 billion(More than 10%)More than 15%*3 Figures for FY2018 except one-time expenses.

33

The Hitachi Group’s Growth Strategy

Capital Allocation Strategy
2018 Mid-term Management Plan
Achievements and Issues 2018
Profitability Improves, Leading Toward Further
Growth in Corporate Value

Promoting ROIC Management with a Higher
Awareness of Capital Costs

Under the 2018 Mid-term Management Plan, Hitachi promoted

Under the 2021 Mid-term Management Plan, Hitachi Group will

structural reforms in unprofitable businesses, enhanced project

introduce Return on Invested Capital (ROIC) as a management

management and engaged in other efforts aimed at improving

indicator and promote the improvement of capital efficiency and the

profitability. The Company also disposed of assets with earnings not

growth of highly profitable businesses through our management. ROIC

expected to generate a return on equity or invested capital andis an indicator that evaluates returns generated by invested capital

implemented measures aimed at improving the Cash Conversion

calculated by dividing business profit after taxes by invested capital. To

Cycle (CCC). These efforts resulted in ROA, a financial indicator,

increase returns, ROIC needs to exceed the weighted average cost ofreaching 6.2% (excluding the temporary impact of a nuclear power

capital (WACC), which is the cost of raising invested capital.

station project in UK), which exceeded the 5.0% target set for fiscal

Going forward, aiming for ROIC above 10%, we will strive to increase

2018. In addition, the D/E ratio, a measure of financial discipline, wasthe difference between ROIC and WACC (ROIC spread) and increase

maintained at a level well below 0.5 times. However, we recognize

shareholder value by strengthening profitability and reducing WACC

that there are further challenges to maximize corporate value.

through the use of financial leverage. To achieve this, we will improve

Retained earnings increased, while the dividend payout ratio andadjusted operating income, while at the same time continuing tolabor’s share of income remained at the same level. To achieve

promote the disposition and sales of owning shares as well as real

further growth going forward, we must strategically allocate capital inestate and other idle assets aimed at improving business asset

investment areas.

efficiency with the aim of appropriately structural reforms of

To increase capital efficiency, we will further reduce assets notexpected to meet investment capital, promote utilization of external
capital markets using financial leverage, make an effort tounprofitable businesses and countermeasures to businesses withchallenges.

understand risks according to changes in the business environment

Proactive Investment in Growth Areasand attempt to strike a balance between efficiency and risk

While promoting management with an awareness of capital costs, wemanagement.

will make large-scale growth investments of approximately ¥2.0 toFurthermore, we will promote management that is more aware¥2.5 trillion over the next three years using financial leverage thatthan ever of capital costs, engage in a financial strategy aimed attargets an optimal capital structure. Of this amount, we have alreadyfurther reductions in capital costs and monitor stock risk and return

announced the investment of ¥1 trillion in the ABB power gridindicators represented by the β-value and manage them with thebusiness, and positioning IT and industry as priority investment areas,

goal of optimizing them.

we will attempt to expand our digital solutions business focused on

Corporate Governance Code revisions have been in effect since

Lumada, while at the same time targeting growth by strengthening

June 2018 and the way of dialogues with capital markets has

services and products required for the provision of solutions. In terms

changed, thus we recognize the necessity of innovation inof regional strategies, we will make the necessary investments

conventional management methods. In addition to our basic

focusing on the North American and Asia-Pacific regions, making

approach to earnings plans and capital policies, we will indicate

bigger investments than ever before in an attempt to strengthen R&D

targets related to profitability and capital efficiency and explain how

and human resource development.

much shareholder returns in excess of capital costs we will generateover the medium to long term in light of business portfolio
reorganization and the strategic allocation of management resources
based on precise ascertainment of capital cost.

34

Measures Under the 2021 Mid-termManagement Plan

Hitachi Integrated Report 2019

Improve profitability(Increased NOPAT + equity in earnings of affiliated companies)
ROIC increase drivers

Examples of major action items (to be further broken down and assigned to each division)
Expand orders, determine appropriate orders received
Optimize customer portfolio

Expand profitablerevenues

Expand overseas revenues
Expand Lumada revenues

Increase adjusted operating
income ratio

Reduce materials cost, outsourcing expenses
Improve production efficiency
Improve business efficiency

2021 Mid-termManagement Plan
Targets
Adjusted operating
income ratio
more than

Reduce costs(3 reforms PJ, etc.)

Implement structural reforms
Strengthen project management

Increase NOPATReduce loss costs
Withdraw/replace unprofitable business

10%

Reduce tax expenses

Implement Appropriate tax management

Increase equity in earnings ofaffiliated companies

Realize joint venture/alliance synergies

Improve asset efficiency(Improved invested capital ≒ business asset efficiency)

Increase ROIC

ROIC increase drivers

Examples of major action items (to be further broken down and assigned to each division)
Early collection of trade receivables
Reduce inventories

Increase working capital turnover

CCC improvement
Trade payables: Set appropriate payment dates
Acquire advance payments
Implement pre-investment checks and post-investment monitoring

Improve business asset efficiency(Increase asset turnover ratio)

Review held real estate, sell idle real estate assets

Increase fixed asset
turnover ratio

Manage goodwill
Review cross-shareholdings and equity-method investments

Reduce cash on hand andinterest-bearing debt

2018 Mid-termManagement Plan

2021 Mid-termManagement Plan

¥4.0～4.5 trillion
Strategic investments area
• Sector- IT (including Lumada)- Energy- Industry• Region- North America- APAC

Investment for
further growth¥2～2.5 trillion*¥0.5 trillion

OperatingCash FlowsCAPEX/
Shareholder
return, etc.

CAPEX/
Shareholder
return, etc.

R&D ¥1.0 trillion

More than¥2.5 trillion¥1.8 trillion¥1.6 trillion

ExpandInvestment

Expand pooling

Basic investment policy
M&A• Expand the digital solutions businesswhile strengthening products andservices and securing human resource
development, which are efforts essential
to providing solutions
R&D*Including theacquisition of
ABB's power grids
business, etc.

Investment
for growth

Investment

Debt/
Asset sale, etc.

Improve accuracy of cash flow forecasts

Resources

R&D ¥1.2 trillion scale• Strengthen development focused on AI(image analysis, voice recognition,
machine lear ning, etc.), robotics,
electrification and security to establish a
Cyber Physical System (CPS)
Human resources• Produce and strengthen human resources
who can create new innovation using
digital technology and provide optimal
digital solutions to customers throughexternal recruitment and internal humanresource development

35

The Hitachi Group’s Growth Strategy

Financial and Capital Strategy
Financial Analysis of Past Five Years
The following is a summarized financial analysis of the Hitachi Group over the past five years.
• In addition to the adoption of CCC as a management indicator, the strategic reorganization of Group companies has led to the realization of streamlined assets overthe past five years.
• Specifically, this includes an approximately ¥2.55 trillion reduction in interest-bearing debt and an improvement in the D/E ratio from 0.83 to 0.23.
• Although the cumulative dividend payout ratio was below 30%, the total amount of dividends paid increased. Most of operating cash flow was used to repay debt.
(¥ billion)

Revenues

FY2014FY2015FY2016FY2017FY20189,774.9

10,034.3

9,162.2

9,368.6

9,480.6

Adjusted operating income

641.3

634.8

587.3

714.6

754.9

EBIT

534.0

531.0

475.1

644.2

513.9

Net income (loss) attributable to Hitachi, Ltd. stockholders

217.4

172.1

231.2

362.9

222.5

12,433.7

12,551.0

9,663.9

10,106.6

9,626.5

701.7

699.3

765.2

697.9

807.5

8,137.3

8,425.4

5,566.9

5,594.9

5,212.1
1,004.7

Total assets
Cash and cash equivalents
Total Liabilities
Interest-bearing debt

3,557.3

3,604.4

1,176.6

1,050.2

4,296.3

4,125.5

4,096.9

4,511.6

4,414.4

Non-controlling interests

1,354.0

1,390.4

1,129.9

1,233.6

1,151.8

Total Hitachi, Ltd. stockholders’ equity

2,942.2

2,735.0

2,967.0

3,278.0

3,262.6

Total Hitachi, Ltd. stockholders’ equity ratio

23.7%

21.8%

30.7%

32.4%

33.9%

0.83

0.87

0.29

0.23

0.23

Capital expenditures (Completion basis)

431.2

528.5

377.5

374.9

414.7

Depreciation

350.7

366.5

302.7

265.4

271.6

R&D expenditures

334.8

333.7

323.9

332.9

323.1

3.4%

3.3%

3.5%

3.6%

3.4%

Total Equity

D/E ratio (Including non-controlling interests) (times)

Ratio to revenues
Net cash provided by operating activities

451.8

812.2

629.5

727.1

610.0

Net cash used in investing activities(612.5)(730.7)(337.9)(474.3)(162.8)

Free cash flows(160.7)

81.4

291.6

252.8

447.1

Net cash provided by (used in) financing activities

233.2(26.4)(209.5)(321.4)(320.4)
77.2

Dividends to Hitachi, Ltd. stockholders*

55.5

57.9

57.9

67.5

Dividends to non-controlling interests*

32.5

39.5

38.2

34.3

42.9

Total cash dividends paid

88.1

97.4

96.2

101.9

120.2

* Those figures are reported in the Consolidated Statement of Changes in Equity presented on P.100.

As a result of the above, in terms of formulating strategy going forward, Hitachi will maintain an awareness of three issues:(1) Further improvements to profitability and capital efficiency through ROIC management, (2) lowering WACC using moderate
leverage within appropriate financial discipline and (3) reducing capital costs and increasing Total Shareholder Returns (TSR)
through the execution of rational shareholder return measures with consideration for share buybacks in addition to dividends.

Ensuring Financial Stability
Hitachi recognizes that ensuring the stability of our financial base is an importantmanagement issue in terms of realizing the growth investments (approximately¥2.0 –¥2.5 trillion over three years) and continuous return of profits targeted in
the 2021 Mid-term Management Plan. To this end, we must maintain an

Rating Company

Long term

Short termStandard & Poor’s
Ratings Japan (S&P)

A

A–1

Moody’s Japan K.K.
(Moody’s)

A3

P–2

Rating and Investment
Information, Inc. (R&I)

AA-

a–1+

A-rating on our corporate bonds and a D/E ratio of about 0.5 times.
The Hitachi Group’s ability to generate cash has increased steadily over the
past five years with improvements in our financial structure leading to ratings
improvements as shown in the table on the right, with S&P upgrading its ratingsfrom A- to A and from A-2 to A-1 in August 2018, and Moody's maintaining its
rating of A3 and P-2, while R&I changed its ratings from A+ to AA- and a-1 to
a-1+ in August 2019.
As of August 31, 201936

Hitachi Integrated Report 2019

Financial and Capital Strategies and Shareholder
Returns Going Forward

Basic Approach to Shareholder Returns

Basic Approach to Funding Procurement

Returning profits to shareholders through the medium- to long-term

Funding procurement is conducted by the most appropriate means inenhancement of corporate value and ongoing dividends is anlight of a variety of conditions, including the timing and funding required

important management priority for Hitachi. With regard to dividends,

for business. When procuring funds through borrowing, our financial

our policy is to attempt to provide stable dividend growth, while

discipline policy is to maintain a D/E ratio of less than 0.5 times and an

ensuring funding necessary for investments. Under this policy, weinterest bearing debt/EBITDA ratio of less than 2.0 times.

make decisions based on overall consideration for performance

Furthermore, over the next three years leading up to fiscal 2021, we

trends, financial conditions, dividend payout ratios and other factors.

plan to make large-scale growth investments of around ¥2.0–¥2.5

Share buybacks are conducted flexibly to supplement dividends intrillion, which will be procured through our own capital, borrowings andaccordance with funding demand and the business environment.

asset sales amounting to approximately ¥4.0–¥4.5 trillion.

Internal reserves are used for M&A, R&D, capital investments and otheractivities to ensure Hitachi’s competitiveness and growth as a global
company based on medium- to long-term strategies.

Basic Approach to Capital Costs

The total amount of shareholder returns over the next three years up

Regarding the cost of capital (hurdle rate) used for individual

to fiscal 2021 is planned to exceed levels in the previous three years.

investment decisions, calculations are made on a case-by-case basis
in light of interest rates, country risks and the expected stock market
returns in the country where the investment will be made.

Total Shareholder Returns (TSR) for Hitachi, Ltd., Over the Past 10 Years
400
350
300
250

Hitachi share price
TOPIX including dividends
TOPIX Electrical Equipment
including dividends

200
150
100
50

Past 1 Year

Past 3 Years
Cumulative

Annual rate

Hitachi share price

-4.6%

44.9%

TOPIX

-5.0%

26.2%

TOPIX Electrical Equipment-10.8%

40.9%

3
/0

3

19
20

18
20

17
20

Past 5 Years

Cumulative/annual
rate

/0

3
/0

3
20
16
/0

3
/0
15
20

03
20
14
/

3
/0
13
20

3
20

12

/0

3
20
11
/0

/0
10
20

20
09
/

03

3

0

Past 10 Years

Cumulative

Annual rate

Cumulative

Annual rate

13.2%

3.3%

0.6%

209.6%

12.0%

8.1%

47.1%

8.0%

153.3%

9.7%

12.1%

51.3%

8.6%

170.6%

10.5%

Note: The graph and table above show return on investment for investments made from the fiscal year ended March 31, 2009, taking into account dividends and stock prices as of the fiscal year ended March 31, 2019. Hitachi, Ltd.,
investment performance, including stock prices and dividends, is indexed using 100 as investment amount as of March 31, 2009. The TSE Stock Price Index (TOPIX), which is a comparative indicator, is similarly indexed using data
including dividends for electrical equipment.

Total shareholder returns (TSR), including dividends and stock price, are shown above.
Looking at the past 10 years, the annual rate of return is 12.0%, which is higher than the market average (Tokyo Stock Price Index and Tokyo Stock
Price Electrical Equipment Index). In the most recent fiscal year 2018, the market share price fell, resulting in almost the same negative return as the
TOPIX. Also, although the stock price has entered an adjustment phase due to declines in business performance over the past five years in the fiscal
years ended March 31, 2016, and March 31, 2017, the stock price recovered in line with stronger performance and TSR has exceeded the market
average over the past three years.
Hitachi will continue efforts to improve shareholder value with management and financial strategies enabling us to realize a TSR that exceeds thecost of shareholders’ equity.

37

The Hitachi Group’s Growth Strategy

Accelerate Innovation
An R&D Strategy to Accelerate the Global Creation of Value
For more than 100 years since the Company’s foundation, Hitachi’s

technologies to expand Lumada business during the three years

R&D has been putting the Hitachi Mission – “Contribute to society

covered by the Plan.

though the development of superior, original technology and products”

The strength of Hitachi’s R&D lies in its centralized ownership of theinto practice, developing the most cutting-edge technologies andtechnology platforms and knowhow integral to the Hitachi Group’s

fostering innovations that ushered in the future. As part of our 2021

operational technology (OT), IT, and products, as well as the fiveMid-term Management Plan, Hitachi aims to become a global

Hitachi sectors, allowing the Company to establish a value creation

innovation leader advancing the realization of the United Nations’cycle that extends from collaborative creation to development, andSustainable Development Goals (SDGs) and Society 5.0. Moreover, tofurther accumulation. Moreover, as Hitachi creates solutions that

contribute to enhancing social, environmental, and economic value forprovide value to our customers, R&D efficiency continues to improve

our customers, the Hitachi Group will invest ¥1.2 trillion in R&D tothrough the value creation cycle.

establish an ecosystem for driving innovation and enhance our core
To become a global innovation leader advancing the realization of SDGs and Society 5.0
Research & Development Group

Raise peoples' QoL and customers' corporate value
Improvesocial value

Improveenvironmental value

Improveeconomic value

Collaborative
Creation

Value, Solutions

Simultaneously improve the three customer values through our five solutions
Societal andcustomer issues
IT solutions

Energy solutions

Industry solutions

Mobility solutions

Smart Life solutions

Products

Products

Products

Products

Products

Wide range
businesses
issuesValue Creation
Cycle
Accumulation

Development“OT x IT x Products”
Technology platforms, Knowhow

1. The Evolution of Collaborative Creation to Accelerate Innovation
The Evolution of Collaborative Creation Accelerating Innovation
Building an Innovation Ecosystem
In the 2021 Mid-term Management Plan, we will accelerate open

Evolving Collaborative Creation through Open Innovation with
Stakeholders

innovation where we will grow together with partners by using

Further Evolution of Open Innovation

Hitachi’s technology platforms and knowhow, and bringing in external
knowledge, as we work to create the three values of social,environmental, and economic value by raise peoples’ quality of life andcustomers’ corporate value.
To accomplish this, we are developing NEXPERIENCE, Hitachi’s
original customer collaborative creation methodology to promote

Setting up“Kyoso-no-Mori”

Vision creation
and rule building

Fusion of collaborative creationand technology development
Foster an ecosystem for industryacademia-university collaboration
Conduct ideathons*1 andhackathons*2

Creation ofservice ideasdelivery of Lumada solutions. We expect to realize this throughKyōsō-no-Mori, the new research initiative launched from the Central
Research Laboratory, and through stronger collaboration withindustry-academia-government initiative and startups.
In April 2019, we established a new Corporate Venturing Office topromote collaboration with external startups, and in June establisheda corporate venture capital fund. By promoting investment in andcollaborative creation with startups, especially in Europe and the US,
we are bringing in disruptive technologies and business models.

38

Hitachi Integrated Report 2019

Industry-academia-government ecosystem(WED-C41R, joint research with universities)
Open forums / Ideathons

Solutiondevelopment andverification

Hackathons / startup collaboration

Business model/ testing

Lumada ecosystem / joint businessprogramKyōsō-no-Mori

Evolution of NEXPERIENCE*1 Ideathon: A competitive event to generate ideas*2 Hackathon: A competitive event to develop commodities such as services, systems, and applications

Creating Visions through Industry–Academia- Government Collaboration
Joint laboratories were established with the University of Tokyo,

Prefecture. The Hitachi-Hokkaido University Laboratory is also

Kyoto University, and Hokkaido University in 2016 for the purpose ofworking on themes such as “regional issues” and “food and health.”

creating value to resolve future societal issues.

Further, in 2018, we also signed a collaboration agreement withThe Hitachi The University of Tokyo Laboratory holds open forums

Tsinghua University to resolve future societal challenges in China.

under the themes covering societal issues such as “urban planning”

Through such efforts, we hope to gain insight into future societaland “energy” to publish books and policy proposals to share visions,issues, and by innovation, we will communicate to the world new

as well as conducting verification trials in Matsuyama City, Ehime

visions to achieve both the resolution of those challenges and while

Prefecture, to resolve regional challenges. The Hitachi-Kyoto

realizing economic development.

University Laboratory developed a “policy-proposing AI” focusing on
issues in society in the year 2050m and is verification trials in Nagano

Launching Kyōsō-no-Mori to Accelerate Collaborative Creation with Partners and Customers
To foster an innovation ecosystem, Hitachi launched a new researchoutside of Japan in areas such as FinTech and blockchain

and development initiative, Kyōsō-no-Mori, from the Central

applications. In parallel, Hitachi is cooperating with Kokubunji City to

Research Laboratory in Kokubunji, Tokyo. The Company

evaluate local digital currencies, while in North America, theconsolidated the customer collaboration functions of the Akasaka

Company has started developing technology such as remotefacility in Kokubunji, to facilitate agile development of value bycontrol for 5G solutions, and will continue to expand open

deepening the fusion with cutting-edge research.

innovation globally from Kyōsō-no-Mori.

At the Kyōsō-no-Mori Opening Ceremony, a panel discussion washeld on “smart city initiatives” with the ambassadors from Thailand
and Australia participating in dialog on the value and significance ofsmart city initiatives. Further, to generate ideas and accelerateinnovation, ideathons*1 and hackathons*2 are being held both in and

2. Enhancing Core Technologies to Expand the Lumada Business
Strengthening Core Technologies Supporting Lumada
In addition to promoting innovation through collaborative creation, we

successes that we are achieving through OT X IT X Products. In theare focusing investment on the “5 sectors x Lumada,” Lumada coremobility sector, “Dynamic Headway” which is currently undergoing

technologies and strengthening products, to expand Lumada

field tests will be further advanced so that it can be provided to notbusiness.

only trains but also as an facility planning optimization solution for

Lumada is being deployed in each sector. For the IT sector, we arebuilding facilities such as elevators. In the smart life sector, we arefocusing on data utilization solutions for financial, social, and public

focusing on smart therapies, smart cities, and connected cars,

systems. In the financial area, we are working with state-owned

including autonomous driving and software updates via Over the Airbanks in India for next-generation digital payment platforms and(OTA).

developing solutions based on next generation blockchain
technology in North America. In the energy sector, we are aiming for a
low-carbon or decarbonized society through system stabilization
solutions suitable for introducing renewable energy. Meanwhile, in theindustry sector, to realize the “smartification” of priority areas such as
manufacturing, maintenance and logistics, we are working tomaximize customer KPIs through the seamless connection of on-site
operations with management. Notably, we have achieved practicalpredictive maintenance technologies to improve the operating
efficiency of industrial and medical equipment, which represents

39

The Hitachi Group’s Growth Strategy

Accelerate Innovation

SectorIT

Solutionexamples• Financial solutions• Predictive maintenancesimulations

Lumada(core technologies)

Products

Energy• System stabilization• Automated power
distribution• Energy management• P2P Electric power
trading

Mobility

Smart Life

• Next-generation
manufacturing• Next-generation
maintenance• Next-generation logistics• Building/facility solutions• Smart ticketing• Connected cars
• Smart therapies• Smart cities

Cyber Space

AI, Video analysis
Sensing
Electrification• Storage

Industry

Data

5G
Robotics
Security

OT for Real

Physical Space• High voltage transmission
systems• HVDC• Circuit breakers,transformers• Large centralized powersources• Global railway vehicles• Railway vehicle inverters• High-speed elevators• Service robots• Air compressors• Marking• 3D printing• EV components• Diagnostic and treatment
systems• Home electronics and airconditioning equipment

HVDC: High Voltage Direct Current

To strengthen Lumada core technologies, our efforts are directed
towards realizing Lumada CPS (Cyber Physical System) whichconnects cyberspace with the real world, focusing on AI andaudiovisual analytics, sensing, electrification, 5G, robotics and security.
The strength of Hitachi's AI is that its development is based on

Sensing
Ultrasensitive vibration sensor that can measure very small
status changes in large spaces exceeding 100 meters.
Digital city monitoring/Ultrasensitive sensors

equipment control technology, product design, and maintenancetechnology that the Hitachi Group has built-up over the years. For

Roads

Commercial facilities
Water andsewage systems

example, in predictive maintenance technology for industrial

Undergroundareas

equipment, the AI visualizes the difference between a normal state oran abnormal state which could lead to material degradation or failure,from real-world operational data. This helps to determine whether there
is a high probability of industrial equipment failure. This technology
already has a good track record in Hitachi’s medical equipment and is

DetectingcircuitControl
circuitMEMS• Damage to underground piping(leak detection)• Construction status• Crowd movement
Understanding conditions
during a disaster• World’s highest sensitivity* (15ng/√Hz)• Wide detection range (>100m)

being used in regions such as North America.
In the area of audiovisual analytics, video images from stations and* MEMS sensor

Data analysis, AI technology

Semiconductor device technology

buildings are analyzed in real time, allowing specific people to be searchedor tracked, as well as human flow analysis. In sensing, we have realized an
extremely sensitive vibration sensor that can detect and measure verysmall signals even in large spaces exceeding 100 meters by applying

Solving societal issues also requires the creation of disruptive

MEMS technology based on semiconductor device technology fostered

technologies. In collaboration with the University of Cambridge in theat the Central Research Laboratory. We are currently proceeding with

UK and CEA-LETI in France, Hitachi has successfully demonstrated

water leakage detection field tests using this device. Such technologies

the world’s first silicon quantum bit *2 system which promising

will be key in realizing safety and security in smart cities.

advantages for system integration for quantum computers. In the near

*1

With regard to products, we are aiming to deliver world No. 1

future, we believe this will contribute to resolving complex societal

technology. For example, with inverter technology which is central toissues. In 2017, the Hitachi established the Hitachi Kobe Laboratory inelectrification, we have created and commercialized the world’s mostthe Kobe Biomedical Innovation Cluster to achieve practical

efficient full SiC inverters for use in railway cars. For diagnostic andapplications in regenerative medicine. The Laboratory has alreadytreatment systems, Hitachi has developed the world’s smallest particle

created technologies contributing to a healthy society, including theaccelerator for the treatment of cancer, and it is currently in operationworld’s first successful automated culture of retinal cells derived fromat a heavy ion therapy center in Japan. Furthermore, we have realized

human iPS cells.

wear- and corrosion-resistant material which was unachievable with

Globally, we are promoting joint research with many universities

existing alloys, and have started applying it in the 3D printing of

based on their respective strengths to create disruptive technology andindustrial machinery parts.

enhance technology platforms. For example, in the area Fintech, we

By accelerating such efforts, we hope to contribute to the global
expansion of Lumada business based on OT x IT x Products.
*1 MEMS : Micro Electro Mechanical Systems

40

Creating Disruptive Technologies

Hitachi Integrated Report 2019are working with Stanford University and in the smart manufacturingarea, with a research institute in Germany.

We are also actively participating in the open communities, contributing

deployment of Lumada solutions. We aim to move ahead of otherto open projects and consortiums in areas such as blockchain andcompanies to acquire intellectual property rights for coreedge computing. Also, through participation in organizations such astechnologies supporting Lumada, centering on Lumada CPS. We will

WEF-C4IR,*3 we are also actively involved in forming rules.

also promote an open policy for intellectual property related to public*2 Quantum bit: the smallest unit of encoded quantum information, including in the direction of the electron spin
*3 WEF C4IR: World Economic Forum, Center for the Fourth Industrial Revolution Network

matters to contribute to the design of future societies, and themaintenance and progress of societal norms. Further, we will aim toestablish an intellectual property strategy for a new era, “IP forSociety,” by working with international organizations.

Initiatives in Intellectual Property
Amid an ongoing international pro-patent shift, Hitachi isstrengthening its intellectual property activities in products andsolutions. To demonstrate our OT x IT x Products strengths, we havedrafted an intellectual property masterplan that defines areas of focus
and bolsters our patent creation activities. This has resulted in Hitachi
being awarded the National Invention Award three years in a row,
including for railway cars and particle beam cancer treatment
equipment. Under the 2021 Mid-term Management Plan, we will be
accelerating the creation of solutions to further drive the global

3. R&D Investment, Portfolio and R&D structureWith the goal of enhancing competitiveness in the five core Social

The R&D structure to achieve these goals includes the Global Center

Innovation Business sectors, the Hitachi Group’s R&D investment

for Social Innovation (CSI) that will lead through ideation and solution

amounts to about 4% of total revenue. Approximately ¥1 trillion wasdevelopment, the Center for Technology Innovation (CTI), responsible

invested in R&D during the period covered by the 2018 Medium-term

for building world No. 1 technology platforms, and the Center forManagement Plan and the aim is to increase this to ¥1.2 trillion during

Exploratory Research (CER), addressing the challenge of resolving

the 2021 Mid-term Management Plan. This includes corporate-led

challenges faced by future societies, together with the research bases

R&D investment focused on collaborative creation with our customers,in North America, Europe, China, and Asia. In FY2019, a North

global No. 1 technology, and exploratory research, as well as

American employee was appointed to be head of CSI to further

investment to accelerate the global development of Lumada businessaccelerate the global deployment of Social Innovation Business.

which is our engine for growth. To realize this, we are establishing a

Through such measures, Hitachi will aim to simultaneously realize

common digital platform for efficient global development, as well as

improvements in social, environmental, and economic value.

enhancing our research resources worldwide.

Trends in R&D Spending
FY2014FY2015FY2016FY2017FY2018FY2019 (forecasts)

R&D expenditures (¥ billion)

334.8

333.7

323.9

332.9

323.1

335.0

Share of revenues (%)

3.4%

3.3%

3.5%

3.6%

3.4%

3.7%

R&D spending has remained generally flat due to portfolio restructuring, including the sell-off of listed subsidiaries, and the fact that investment has been carefully focused in targeted areas.
Moving forward, we will continue to focus investment in the field of digital solutions, including Lumada.

[Recognition for Outstanding Technology and Design]
Hitachi was bestowed the Imperial Invention Prize in the National Commendations for Inventions for its global railway vehicles, which was highly
evaluated for design and technologies focused on analyzing comfort and safety. In addition, Hitachi has been granted prestigious awards forsemiconductor measuring equipment, X-ray fluoroscopy equipment, open MRI equipment, and storage equipment, with Kazuo Hiramoto
receiving the Medal with Purple Ribbon award for his development of an innovative particle therapy system.

41

The Hitachi Group’s Growth Strategy

Accelerate Innovation
Human Resource Strategies Supporting Innovation Creation
With the goal of creating innovation and new value in the global and digital era, Hitachi is focused on securing and fostering a diverse workforce andthe organizations capable of driving sustainable growth. We have established a firm relationship between employees and the Company by providing
places of employment that offer a favorable work-life balance, focusing on worker safety and health, and respecting the basic rights of employees
and ensuring equal opportunities. Hitachi is also proactively engaged with all its employees regarding compensation and career advancement.

Transforming Human Resources Management

Global Human Resources Management

The development of the Social Innovation Business requires us toTo create a global common platform for HR management, Hitachi has

actively investigate social and customer issues, and then cooperate

introduced a Global HR Database, as well as Hitachi Global Grade andwith customers to create all new solutions.

Global Performance Management since 2012.

Hitachi is working to transform human resources management with

Hitachi launched in full human capital management integrated

the aim of placing the right person in the right position anywhere in theplatform in January 2018, centralizing processes and measures

world. Clarifying through a global standard the role, responsibilities,

enacted to date. The three main benefits of this platform are as

and reporting lines of each position, and embracing a common

follows.

understanding serves to accelerate the creation of a solid global
structure for Hitachi. In addition, it fosters an organizational culture that

(1) Improving Talent visibility

recognizes and makes best use of its diverse and self-motivatedUntil very recently, it was quite difficult to quickly get a handle on theindividual workers.

skills and abilities of employees in a given country, region, or company.
Improved visibility in this respect allows us to make appropriate

The Transformation in Human Resources Management

placements and provide training suited to a particular individual, to findand develop future leaders, and facilitate better communication

Previously

Current direction

Providing high-quality products andsystems mainly to meet the needs ofdomestic clients in Japan

Identifying worldwide client needs and global
issues of social concern, then providing
problem-solving services to meet theseneeds・Homogeneous organization centered onJapanese and male full-time employees
・Work styles sharing same locations andtomes
・Domestic/individual companies

・Proactive organization with diversity oftraits, including nationality and gender・Work styles unconstrained by location ortimes
・Group/global concerns

・Tendency to rely only on training/job
placements designed for long-term
employment
・Job placements designed for extensive
overtime
・Imprecise division of job duties

・Employees plan their careers
proactively, and retention by managers
becomes important・Creation of environments enabling
efficient and engaged work
・Taking on challenges and making
reforms are promoted

Optimally tailored HR programs andinitiatives for individual companies andcountries

Introduction of groupwide and global
HR Management initiatives

between managers and employees.
(2) Strengthening the “I will” culture
The platform allows employees to enter their own experiences andskills, with all employees having access to that information at all times.
This expands the likelihood of employees taking on challenges in work
areas of interest, resulting in the creation of a workforce of proactive
employees able to think and act for themselves.
(3) Improving Speed and Efficiency
The use of global common data allows us to quickly and smoothly
launch a new project by rapidly and efficiently placing the human

Launched global HR management

Throughout
Japan
Pensions, hiring,
travel, expenses,
etc.

Throughout
CountryA

Throughout
Country
B

Groupwide and global HR
management initiatives• Global HR Database• Hitachi Global Grade• Global Performance Management• Global Leadership Development• Other42

Hitachi Integrated Report 2019

Company G

Company F

Company E

Company D

Company C

Outside Japan

Company B

Company A

Japan

Hitachi, Ltd.

Company E

Company D

Outside Japan

Company C

Company B

Company A

Hitachi, Ltd.

Japan

resources necessary to that project.

Ensuring Fair Evaluations and Compensation

Human Resources Management Initiatives
Fiscal 2012
Global Human Resources Database

Amid the ongoing globalization of business, there is an increased need

Goal: Create a database of human resources information
Global Leadership Development

to establish a global human resources system that ensures fairevaluations and compensation. In order to attract a diverse and highly

Goal: Create a pool of leading global talent and foster theirdevelopment

engaged workforce, Hitachi is focused on building a consistentFiscal 2013
Hitachi Global Grade

Compensation Philosophy” based on “maintaining market

management system and accordingly follows a common “Global
competitiveness,” “pay for performance,” and “ensuring transparency.”

Goal: Use of a uniform Group standard to assess position weightings
for managers and those in higher job positions

We are developing a compensation system that is fair andHitachi Insights (Employee survey)

competitive in the context of each country or region’s labor market,

Goal: Improve employee engagementwith an individual’s compensation determined after an evaluation of
their performance. Individual assessments are conducted annually to

Fiscal 2014
Global Performance Management

set each employees compensation, and feedback on theirGoal: Promote growth and sustained improvement in both thebusiness and the individual by linking the goals of the two
Fiscal 2015–2018
Hitachi University (educational platform for Hitachi Group employees
all over the world)
Goal: Use HR development to contribute to sustainable global growth

performance results is provided to inspire them to develop and groweven further.
We ensure compliance with the laws and regulations of each country
in which we operate when determining compensation. Starting pay for
new graduates in Japan—representing about half of all new graduates

Global Hiring Support System

recruited each year across the Group’s global operations—was

Goal: Ensure hiring of the best individuals as business expands,
improve efficiency in hiring, lower costs

roughly 20% higher than the weighted average of Japan’s regional

Human capital management integrated platform

minimum wages.

Goal: Improve HR visibility, strengthen the “I will” culture, improve
speed and efficiency

2021 Human Resources Strategy

Fostering the Next Generation of Leaders

The mission of the human resources division is “contributing to the

In addition to Hitachi University, the Group’s global learningbusiness through talent and the organization.” The division formulated

management system, we have developed a variety of educationalits 2021 HR Strategy based on the goals of the 2021 Mid-term

programs tailored to different jobs and positions. We are also focusing

Management Plan announced in May 2019. The HR Strategy focusesresources on selective training courses aimed at developing futureon achieving growth throughout the world through a diverse workforce

managerial candidates at an early stage. In these courses, participantsthat is happy and proud to work at Hitachi and creating for all

discuss what is necessary for the growth of Hitachi. The opportunity toemployees a safe and vibrant workplace that respects a wide range ofgenerate ideas to present to senior management helps to cultivate thediverse values.

next generation of leaders—people with a unique perspective andHitachi is committed to building a company where employees withdetermination.

different cultural backgrounds, as well as experiences and ways ofIn addition, we have identified a group of about 50 employees fromthinking can work together. We aim to instill in all our employees

around the Hitachi Group with next-generation development potential.

around the world a shared sense of values, including the “Harmony,

People in this “Future 50” group are selected on merit, regardless ofSincerity, and Pioneering Spirit” values central to the Hitachi Groupage, gender, or nationality.

identity, with the “One Hitachi” idea crossing national, regional, andThey are given challenges to help expand their horizons and build theirdepartmental borders and contributing to the betterment of society.

perspective, including tough assignments, different types of work, andWe are also promoting measures aimed at the optimal placement ofinternal and external training opportunities. The Future 50 grouppersonnel through the visualization of HR data, the use of analytics

members receive one-on-one mentoring opportunities with independent

based on accumulated data and HR technologies, and improved

directors to benefit directly from their extensive business experience andefficiency. Finally, we are focused on advancing initiatives for fiscal

global perspective. Our aim is to change mind-sets so that we can

2021 based on the four key concepts of Talent, Culture, Organization,

develop people for important positions in the future.

*1

and HR Transformation.
*1 HR technology refers to technologies using new forms of IT, including big data and AI in human resources tocreate new value.

43

The Hitachi Group’s Growth Strategy

Accelerate Innovation
Strengthening Front-Line HR and Establishing a
Digital HR Training Policy

Diversity & Inclusion
Diversity is the wellspring of innovation at Hitachi and our growth

Hitachi in April 2016 shifted to a business structure with strengthened

engine. Hitachi regards personal differences—gender, nationality, race,

front-line functions to accelerate collaborative creation with ourreligion, background, age, and sexual orientation—as facets ofcustomers as part of the drive to advance the Social Innovation

people’s individuality. By respecting our employees’ individualities andBusiness. Hitachi’s technologies and know-how must be developed so

positioning them as an advantage, Hitachi frames its diversity andthat they can be provided as a service by front-line personnel, who areinclusion as conducive to both the individual’s and the Company’s

closest to our customers. With this in mind, we have strengthened thesustainable growth. We will adapt to the diverse needs of ourfront-line talents we expect to drive the Social Innovation Businesscustomers by using our diverse capabilities, our outstanding

moving forward.

teamwork, and our extensive experience in the global market.

While there are a number of companies focused on achieving a digital

We are promoting diversity management as a key managementtransformation through digital technologies such as AI, IoT, and big

strategy under the initiative slogan “Diversity for the Next 100.” We

data, one key challenge throughout the world is the shortage of data

believe it important to share opinions and recognize diverse values ifscientists specializing in data analysis. In addition to its digital solutions

we are to provide optimal solutions based on an accurate

focusing on the fusion of OT (operational technology) and IT, Hitachi

understanding of the complex issues confronting society and ourhas launched measures to foster a digital workforce that can becustomers. With the goal of having members with different values on

expected to drive digital transformations.

the same team sharing the same goals, we are working not only toWith a target of increasing the number of data scientists to 3,000 by

secure and train a diverse workforce, but also to create an

fiscal 2021, Hitachi’s strengthening of its data scientist workforce atenvironment where each of these individuals can work to the best ofgroup companies in Japan and overseas will allow us to further

their abilities.

support our customers and drive the expansion in digital solutions.

Hitachi, Ltd., and 15 major group companies jointly operate theAdvisory Committee and the Diversity Development Council, which
focus on accelerating the promotion of diversity across the Hitachi

Strengthening Front-Line HR and the Digital HR
Training System

resources and providing work-life management. The Advisory
Committee implements to the fullest the Company’s diversity

Before the 2016 start of the new front-line structure, discussions on

management policies, while the Diversity Development Council sharesbolstering front-line talents were initiated by a preparatory committee,

best practices and discusses specific diversity-related activities. Each

which includes officers and business unit managers and was createdcommittee meets every six months. Group companies and businessin 2015. The committee defined front-line functions, roles, andgroups/sites have also set up their own diversity-promotion

personnel qualifications necessary to bolster the front-line workforce.

organizations and projects, such as those to help develop women’s

Based on these discussions, the Company also identified the need tocareers, to enhance initiatives geared to the challenges faced bydevelop human resources, from leaders to practitioners, to promoteindividual workplaces. Hitachi from fiscal 2018 has broadened thethe Social Innovation Business, and in 2016 created the Social

sharing of diversity promotion policies across the entire group, with

Innovation Business Front Talent Development Program, consisting ofGroup companies around the world working together to accelerate

four phases, as well as action learning, group training, and e-learnings

implementation.

programs. Phase 1 and Phase 2 focused on action learning using realworld projects for leaders expected to drive the collaborative creation
business, with Phase 3 and Phase 4 focusing on employees in the
Hitachi Group as a whole based on the results of the first two phases.
Integrating its training institutions to further strengthen and foster its
digital workforce, including front-line workers, Hitachi newly launched
Hitachi Academy in April 2019, which will now be charged with training
the human resources expected to drive digital transformations. The
new entity will combine measures designed to foster digital humanresources with on-the-job-training as it seeks to build a new digitaltransformation training system and accelerate the Social Innovation
Business.

44

Group as a whole, including in regard to supporting diverse human

Hitachi Integrated Report 2019

Diversity Activities and Developing Women’s Careers

fiscal 2020 compared with fiscal 2012. These efforts demonstrate ourWith the goal of promoting participation in management decision-commitment both internally and to the world to improve our diversity

making by people with differing backgrounds and enabling as many

management.

female employees as possible to take up leadership positions, Hitachi,

As part of our efforts in this area, we have been hosting since 2016

Ltd., has created two key performance indicators (KPIs) for the

the Global Women’s Summit, inviting 100 or more female employees

appointment of women in executive and managerial positions.

from Hitachi Group companies around the world. The event is held in

In fiscal 2013, Hitachi set a goal of promoting women to executive

different areas of the world and is focused on improving awareness inpositions by fiscal 2015. In April 2015, the Company appointed its firstleadership and career planning, and to enhance motivation through thefemale corporate officer, a position equivalent to the executive level.

formation of a global support network. The day the summit is held

We will continue to promote this goal to ensure that diverse views andfeatures a message from President and CEO Toshiaki Higashihara, thevalues will be reflected in our management. In November 2017, weparticipation of executives, and the exchange of opinions among the

publicly announced our commitment to increasing the rate of female

many female employees attending.

executive and corporate officers to 10% by fiscal 2020. We are also
working to promote more female employees to managerial positions,aiming to double the number of female managers to 800 by the end of

Number and Ratio of Female Managers(persons)(persons)
3,727

3,670

800

3,459

3,365
577
600

6.4%

6.0%
474

509

635
6.8%

6.4%

6.3%

434

4,000

3,638

3,000
4.8%

400

4.0%

3.7%

4.1%

4.2%

2,000

1,000

200
73

0

2000

2014

Female managers, Hitachi, Ltd.*1 (left scale)
Percentage of total, Hitachi, Ltd.*1

2015

2016

2017

2018

(FY)

0

Female managers, Hitachi Group*2 (right scale)

Percentage of total, Hitachi Group*2

Note: Figures include section chiefs and above.
*1 “Female managers” in fiscal 2017 include managerial employees dispatched from Hitachi, Ltd. to non-Group companies and those accepted from non-Group
companies by Hitachi, Ltd. Figures prior for fiscal 2016 and earlier include regular managerial employees dispatched to non-Group companies but exclude those
accepted from non-Group companies.
*2 All full-time, regular female managers excluding those dispatched to non-Group companies.

Ratios for Female and Non-Japanese Executives and Corporate Officers (Hitachi, Ltd.)

Number of female executive and corporate officers (persons)Ratio of female executive and corporate officers
Number of non-Japanese executive and corporate officers (persons)Ratio of non-Japanese executive and corporate officers

June 2017

June 2018

June 2019

2

2

4

2.4%

2.6%

5.0%

3

5

7

3.7%

6.4%

8.8%

45

The Hitachi Group’s Growth Strategy

Environmental Vision and the Decarbonization Business
The Environmental Vision and Hitachi
Environmental Innovation 2050
As climate change, resource depletion, ecosystem destruction, andother environmental issues grow more serious, the responsibilities and

The aim of Hitachi’s environmental management

contributions of companies are growing, given the increasing demands
and expectations for reductions in the environmental burden of theirbusiness activities.
In response to global demands for a reduced environmental burden,
we created a management strategy called the Environmental Vision,
which declares, “Hitachi will resolve environmental issues and achieveboth a higher quality of life and a sustainable society through its Social
Innovation Business in collaborative creation with its stakeholders.” We
aim to achieve a low-carbon society, a resource efficient society, and aharmonized society with nature in accordance with this Vision. To
guide our efforts toward 2030 and 2050, in September 2016 weestablished long-term environmental targets called Hitachi
Environmental Innovation 2050. To achieve these long-term goals, wehave been updating our Environmental Action Plan every three years.
We are strengthening and promoting our environmental activities under
the Environmental Action Plan for 2021 (covering fiscal 2019–21),
created in line with the 2021 Mid-term Management Plan.
Hitachi’s Environmental Vision
http://www.hitachi.com/environment/vision/index.html

Efforts to Achieve a Low-Carbon Society
Hitachi Environmental Innovation 2050 sets targets for reducing CO2

Carbon Pricing (HICP) framework in fiscal 2018 to provide incentives

emissions to help the world meet the challenge of climate change. In

for raising production efficiency at factories and offices and making

line with a scenario to keep the increase in global temperatures below

energy-saving investments. And we are taking a variety of steps to

2°C, we have established reduction targets of 50% by fiscal 2030 and

accelerate the shift to renewable energy sources at our business sites

80% by fiscal 2050 (compared to fiscal 2010 levels) throughout theboth in and outside Japan.

value chain.
Approximately 90% of the value-chain emissions of our products andchange on corporate operations, in June 2018 we announced ourservices—from the procurement of raw materials and parts to

support for the recommendations of the Task Force on Climate-related

production, transportation, use, disposal, and recycling—result from

Financial Disclosures (TCFD). We are actively disclosing climate-related

the use of our products and services after they were sold. For thisinformation in accordance with these recommendations and conducting

reason, reducing CO2 emissions during the stage of use is crucial todialogues with investors.

reducing emissions across the value chain.
We will further enhance the energy efficiency of our products andservices to reduce CO2 emissions during their use. We will also seek toexpand our decarbonization business, utilizing IT and other innovativetechnologies to offer system solutions that collectively contribute todecarbonization.
We are advancing reduction measures for CO2 emissions during
production and other stages as well, introducing the Hitachi Internal

46

In light of heightening investor interest in the financial impact of climate

Hitachi Integrated Report 2019

Expanding the Decarbonization Business to Address Climate Change
To help build a sustainable society through the Social Innovation

In the industry sector, along with improving the overall efficiency ofBusiness, the 2021 Mid-term Management Plan cites the goal ofclients’ factories through the provision of high-efficiency industrial

simultaneously increasing social, environmental, and economic value

products, we are using IoT and AI to optimize entire factory operations

for our customers by supplying solutions in the five sectors of IT,

and helping our customers reduce their CO2 emissions.

energy, industry, mobility, and smart life. It also sets a reduction target

In the mobility sector, we are promoting energy savings by making

of more than 20% for our value-chain CO2 emissions by fiscal 2021

trains lighter and introducing operating systems that use cutting-edge

compared to fiscal 2010.

IT technologies to improve overall efficiency.

We are utilizing Lumada to expand our decarbonization business.

For smart life solutions, we are providing clean-energy vehicles,

Through collaborative creation, we will help the world mitigate andsmart home appliances, and other highly efficient, energy-saving

adapt to climate change.

products and services to make people’s lives safer, more convenient,In the IT sector, we are contributing to building a low-carbon society

and comfortable by improving connectivity through the use of IT. In

by transforming social systems and lifestyles by providing innovative

addition, we are working with our business partners to build smart

digital solutions.

cities and smart mobility systems that bring those technologies

With regard to energy, we are contributing to CO 2 emission
reductions through the provision of power generation systems using

together, thereby helping to create decarbonized cities that improve
the lives of all residents.

non-fossil energy, such as renewable energy and nuclear power, andcreating smart grids that transmit and distribute power efficiently andstably and can optimize local supply and demand.

Decarbonization Business: A Hitachi Focus

IT
solutions
Finance and publicoriented solutions• Promoting digital solutions

Data center• Developing smart data
centers

Servers/storage• Enhancing energy-savingfeatures of servers andstorage

EnergysolutionsPower grid solutions• Enhancing efficiency of
power transmission/
distribution

Industrysolutions
Smart logistics• Improving energy-savingfeatures through fully ITenhanced logistics

Energy management

Factory automation• Advancing smart energy
management to reduce
peak electricity demand• Enhancing energy
efficiency through shorter
lead times

Power generation

Water business• Promoting power
generation systems using
wind and other non-fossil
energy sources• Enhancing efficiency ofwater and sewage systems

Industrial products• Enhancing efficiency ofindustrial products

Mobility
solutions
Railways• Enhancing energy-savingfeatures of rolling stock• Developing smart operating
systems

Elevators• Enhancing energy-savingfeatures of elevatorsand escalators throughreplacement• Enhancing energy
efficiency through totalbuilding solutions

Smart Lifesolutions
Smart cities• Reducing CO2 throughcomprehensive urban
energy management
solutions

Vehicle electrification• Promoting electrification
through electric powertrainsystems

Home appliances• Enhancing energy
efficiency of home
appliances• Promoting connected
home appliances

Smart therapies• Enhancing energy-savingfeatures of medical devices

47

The Hitachi Group’s Growth Strategy

Strengthen Lumada
As society and business continue to generate more data, Hitachi’s Lumada acts as an engine that creates new value fromthese data and accelerates innovation. We launched the Lumada business in 2016, and its revenue has grown rapidly inthree years, from ¥900.0 billion in fiscal 2016 to ¥1,127.0 billion in fiscal 2018. Under the 2021 Mid-term Management Plan,
we are promoting measures aimed at expanding our business with the goal of achieving revenue of ¥1,600.0 billion.

What is Lumada?
Lumada creates value from customers' data and drives digital innovation
Hitachi will develop a global Social Innovation Business that will improve thecultivated within Hitachi. Along with the development of information

quality of people's lives, raise corporate value for our customers andtechnology (IT) and the Internet of things (IoT), social and business

contribute to resolve social issues. We will accelerate innovation in each ofactivities continue to generate data at an increasing rate of speed.

the five business sectors, creating solutions that provide new value.

Hitachi has focused on these data as a new source of value in future

Lumada is a general term for the solutions, services and technologies
that utilize Hitachi’s advanced digital technologies to create value fromsociety and launched the Lumada business in 2016 with the goal ofusing large volumes of data to create innovation for the world.

customers' data and drive digital innovation. It is derived from the words

With Lumada as a common platform, we will create new value and“illuminate” and “data” and was created based on the idea of combining

establish an advanced cyber-physical system that links digital and real

the strengths of the operational technology (OT), IT and products

spaces (actual physical things) in real time.

Lumada business model
The Lumada business provides value by analyzing business issues andof solutions, such as income from fees. To this end, Hitachi will

combining Hitachi’s digital technologies to solve customer problems

leverage its strengths in OT x IT x Products to commoditize its

with the lowest amount of customization as possible. In fiscal 2018,

expertise in various industries and operations. At the same time, werevenue in the Lumada business was ¥1,127.0 billion, and its adjusted

will make the shift to digital solutions that can be provided to a number

operating income ratio had already exceeded 8%, the level of theof customers, thereby expanding the Lumada business. Furthermore,entire Hitachi Group. Rather than relying merely on product sales, we

we will intensify our collaborate efforts to build new ecosystems withwill build a profit model based on value created through the provision

our customers and partners.

Lumada Revenues
FY2016FY2017FY2018FY2019 (Forecast)

FY2021 (Target)

Revenues (¥ billion)

9,162.2

9,368.6

9,480.6——

Lumada revenues (¥ billion)

900.0

1,006.0

1,127.0

1,170.01,600.0

Share of total revenues (%)

10%

11%

12%

—

—

* Lumada revenue is included within Hitachi’s consolidated revenue.
The IT sector comprises about 80% of Lumada revenue while the Industry sector accounts for about 20%.

Strengthening our overseas business structure
Currently, about 90% of Lumada business revenue comes from Japan.

2019, we established a joint venture with India’s largest state-owned

We are strengthening our overseas business structure, primarily incommercial bank, State Bank of India (SBI). Through this venture, weNorth America and Asia, with the goal of accelerating the global

aim to build a digital payment service platform for the next generation.

expansion of the Lumada business moving forward. In the future, we

By collaborating with SBI, which has about 400 million customers

will continue to recruit new personnel while acquiring companies(equivalent to roughly one third of India’s population), we are analyzing

capable of collaborating with customers to produce digital solutions

and utilizing vast amounts of digital payment data obtained from point-

and investing in partners. These efforts will contribute to our goal ofof-sale (POS) systems, e-commerce and transportation fare payment

nearly doubling our number of relevant overseas personnel from its

systems in an effort to provide high value-added services in India.

current level of 23,000 to 40,000.
As an example of collaboration with overseas partners, in January

48

Hitachi Integrated Report 2019Collaborative creation processes and customer cases in the Lumada business
Here, we will introduce collaborative creation processes of the Lumada business, as well as customer cases that are models of the digital solutions
that we have cultivated thus far.
Concept of Lumada

Customers
Solutions and services

Co-creation

Issue analysis

Prototyping andvalue verification

Hypothesis building

Provision tocustomers, operation

Customer OT assets
Field data

Customer IT assets
Co-creation with customers and partners(NEXPERIENCE, etc.)
Domain expertise(Solutions, customer cases)

Business data

P.49
Collaborative
creationprocesses andcustomer casesin the Lumada
business

P.53
Lumada platform

Platform products and technologies(IoT platforms)

Lumada ecosystem

Methodology and services aimed at accelerating collaboration with customers and partners
Support ranging from the discovery of potential issues and strategic planning to value verification(1) Issue analysis and hypothesis building through
NEXPERIENCE, a collaborative creation process

Overview and Process of NEXPERIENCE

Before creating innovation, one must first discover potential issues.
However, corporate issues are becoming more complex as society
globalizes and diversifies. When collaborating using Lumada,
Hitachi uses NEXPERIENCE, its unique collaborative creation

Collaborative
creationprocess

process, discover issues, propose solutions and verify value.

Sharing our vision
with customers

New concept creation/prototype
development and demonstration

Environmental analysis

Customer analysis

Discovery of
future business
opportunities

Analysis ofmanagement
issuesPlanning

Plan implementation

Verification

Evaluation ofbusiness feasibility

To solve a variety of issues through collaboration withcustomers, NEXPERIENCE combines the perspectives ofservice engineering researchers and designers andsystematizes methods and IT tools that support the entire

Creation of Business model
service ideas
designService profitability
assessment

Techniques
and tools

collaborative creation process. Specifically, NEXPERIENCE

Business value simulation

involves analyzing issues related to management and business
operations through workshops with customers and partners
and designing measures, such as new services and business,that solve these issues.

Collaborative
creation
space

49

The Hitachi Group’s Growth Strategy

Strengthen Lumada(2) Prototyping and value verification conducted through the Lumada Competency Center
If we can clarify issues facing customers and society, as well as

necessary for PoC*1 that follows hypothesis planning by offering ahypothesized solutions, through NEXPERIENCE, we can use

variety of services, including Pentaho, a data integration and analysis

resources including the Lumada Competency Center to determine

platform that is also Lumada’s core software; services withwhether we are capable of solving these issues by using them to build

development and management tool environments that support agile

solution prototypes that help us analyze whether proposed solutions

development *2; and Hitachi AI Technology/H, our own artificial

will produce their intended results.

intelligence technology.

The Lumada Competency Center provides system testing
environment services that support rapid prototyping conducted*1 Proof of concept*2 A group of development methods employed in software engineering with the goal of achieving rapid andadaptive software development.

through the use and application of data and hypothesis verification. We
support the speedy establishment of the system environments

Accumulation of industrial and operational expertise
Quickly providing reliable digital solutions to customers’ management issues by utilizing our abundantcache of customer cases(1) Customer cases(2) Customer cases that support the entire value chain

Hitachi has accumulated a wide range of industry and business

As of the end of March 2019, we have established more than 650

expertise and knowledge in the form of Lumada customer cases withcustomer cases and are continuing to steadily expand this number. We

the goal of rapidly utilizing them to collaborate with customers in a

are also pushing forward with our establishment of customer cases

variety of fields. Lumada customer cases are models of digitalthat can be used by customers to support efforts common to a wide

solutions that have created new value through collaborative creation

variety of industries, such as predictive maintenance for equipmentwith customers. Each customer case organizes elements such as how

and devices. Examples include cases related to medical devices,value was created using data and which technologies were applied in

power generating equipment and other machinery equipment.

terms of artificial intelligence and analytics.

In the future, we will continue to conduct investment aimed at further

When promoting new collaborative creation with customers, Hitachi

strengthening our lineup of reusable solutions while working to solve

makes use of Lumada customer cases that fit customers’

customer problems throughout the value chain, including inmanagement issues, as well as Lumada solutions based on an

management, sales, planning, design, procurement, manufacturing,abundance of expertise, to establish appropriate mechanisms for eachlogistics and maintenance.

customer and swiftly achieve digital solutions that create true value.

Customer Case Examples
Customer Case

Industries

Goals and issues

Manufacturing industry

Manufacturing plan, inventory management

Common across industries

Security enhancement

digitalization of refined skills

Manufacturing industry

Improvement of product quality

Customer-centered marketing

Retail industry

Marketing

Improve credit analysis

Financial industry

Decision-making support

Inventory optimization

Wholesale, retail and manufacturing industries

Manufacturing plan, inventory management

Service industry

Marketing

Crop growth analysis

Agriculture

Productivity improvement

Predictive maintenanceCommon across industries

Preventive maintenanceElectricity, gas, heat and water supply industry

Facility management

Transportation industry

Delivery and transformation management

Revenue/Loss simulation
Streamlining of cybersecurity monitoring operations

Analysis of fan club member information

Improvement of operating rates and fault diagnosis
Delivery optimization50

Hitachi Integrated Report 2019

(3) Lumada customer cases
CASE
1

Overall optimization of production sites used for high-mix, low-volume production in the manufacturing industry­
Collect and analyze various data on people and other elements of the production process to improve its efficiency

Customer needs are diversifying and digitalization is progressing at a

production model using IoT technology and succeeded in reducing the

rapid rate while global competition intensifies. These trends have resulted

production lead times of its flagship products by 50%.

in demand for high-mix, low-volume production that reaches the same

Overall optimization of production sites using Lumada

level of productivity as mass production through mass customization.

Think

Hitachi’s Omika Works handles controls systems manufactured for social
infrastructure such as electric power, railways and water and sewage
systems through high-mix, low-volume production, and, under thesecircumstances, faces the need to monitor the progress of production
processes in real time. In response, the Omika Works installed about
80,000 RFID tags and approximately 450 RFID readers, collecting

Monitoring systems
for progress andoperation

Operational
improvement
support system

Monitoring for the movementof people and goods
Visualization of on-site logistics

Bottlenecked operations
Analysis andcountermeasures

Modular design
Quick design
Feedback system

Factory
Simulator
Countermeasure andprocess planningOn-site logistical
forecastingdetailed data concerning the progress of work conducted by employees
and the flow of goods. Furthermore, the Omika Works combined and

MD methodshared a variety of information gathered by existing systems, including

Built-in tag

process and production management systems, and analyzed the

Database
accumulation

Bottlenecked operations

movement of people and goods throughout its production site. This
enabled the establishment of a more precise production plan.

Production lines at the Omika Works

Sense

Act

Furthermore, the Omika Works improved the efficiency of its design
process through the effective use of design assets and improved theprecision of its production plans using a factory simulator. Throughthese efforts, the Omika Works established a high-efficiency

CASE
2

Image
depictingoperations

Image
depictingoperations

Image
depictingoperations

Predictive maintenance for machinery and equipment­Collecting data from sensors installed in machinery and equipment to diagnose and detect issues, thereby avoiding failure and reducing maintenance costs

Failures and unplanned downtime at facilities that compose ourdata collected from sensors attached to equipment and detect signs ofindustrial and social infrastructures have a major impact not only on ourabnormalities. We also color code and display various information,businesses but also on society. Accordingly, we recognize the need toincluding equipment operation statuses, relevant changes andensure the continuous and stable operation of these facilities, whichindications of possible defects, making it easier to view and identify.

requires proper equipment maintenance and quality control.

This will enable the customer to detect situations in which equipment

However, many operators do not have analysis methods despite

statuses or product quality differ from the norm at an early stage, thereby

having gathered data indicating the status of their equipment andpreventing breakdowns and unplanned downtime. As a result, we canresort to conducting analysis manually. This results in a large workload

expect to be able to reduce maintenance costs by raising equipmentthat prevents the proper use of valuable data.

operation rates and ensuring the suitability of replacement parts.

With this customer case, we examine and analyze large volumes ofNote: P. 39-41 "Strengthening core technologies supporting Lumada."

Machanical equipment

Predictive Diagnostics Solution
Collect operational data measured by sensors

Customer value
By addressing anomalies before a failure occurs,
the company was able to gain various benefits

Detect anomalies, examine the cause, and address
anomalies at an early stage

Register countermeasures (identify probable causes)(1) Use automatic diagnosis technology to diagnose the status of the facility (detect
warning signs of impending failures).
(2) Visualize the diagnosis results on screen(3) Identify possible causes based on past events.

!

What is an anomaly?
An anomaly is a warning sign of an impending failure.

OperatingstatusSensorvaluesRunning (normal)

Running?

Facility status view

StoppedChanges in operating status(status is different fromnormal)Affected sensor view

Anomaly

FailureBreakdownTime

Sensor status view

51

The Hitachi Group’s Growth Strategy

Strengthen Lumada
CASE
3

Raising credit analysis accuracy through the use of AI­
Improve the accuracy of personal loan screenings through AI-based data analysis

Upon understanding customer income and financial conditions, it

we expect will allow loans to be granted to more customers than was

becomes necessary for financial institutions to predict future credit

previously possible.

losses based on factors such as global economic trends. This requires

One developmental effort involving this customer case is Hitachi’s

high-level expertise. Mortgages have been particularly difficult to

May 2019 establishment of Dayta Consulting Co., Ltd., a joint venture

predict using conventional data analysis methods due to their long

formed through collaboration with SBI Sumishin Net Bank, Ltd., that

payback periods.

provides screening services using artificial intelligence. The Company

With this customer case, Hitachi utilizes internal data from financial

plans to provide screening services for various types of lending,institutions (e.g., card loans, mortgages), as well as external data (e.g.,

including mortgages and card loans, to financial institutions including

economic indicators, GIS information) using “Hitachi AI Technology/

regional financial institutions.

Prediction of Rare Case,” an artificial intelligence it developed in-houseto predict the occurrence of rare events, thereby ensuring highly
accurate screenings. This allows for more detailed screenings, which

Data
Internal data
• Card loans• Mortgages, etc.

AI equipped with new algorithms from Hitachi
Improvement of credit analysis systems for personal loans using artificial intelligence

Data compilation andprocessing

External data

Probability of default (PD)estimation model

Customer value• More detailed loan
screenings become
possible• We expect to be granted
to more customers• Economic indicators• GIS information, etc.
GIS: Geographic Information System

Development of an AI-based production planning system through collaborative creation with
Suntory Beverage & Food Ltd.
In recent years, beverage manufacturers have faced the need for

Under these circumstances, Suntory and Hitachi have begun

prompt and flexible product supply in response to diversifying

collaborative creation based on the concept of “Harmony between

consumer requirements and fluctuations in demand caused byPeople and AI,” combining the former’s expertise regarding planningchanges in weather and climate. In addition to fulfilling theseand the latter’s AI technology to develop a system that enables theneeds, it is necessary for these manufacturers to formulate optimal

creation of optimal production plans in the face of changing

production plans that account for complex constraints, such as

demand and complex constraints. We applied this system todelivery times, production capacity and production andproduction planning conducted at Suntory’s actual manufacturingtransportation costs. Suntory Beverage & Food Ltd. (“Suntory”)

bases and verified that it was possible to reduce the amount ofhas been basing its production plans on the experience ofwork time put into planning from its previous average of

responsible staff. However, creating plans that account for

approximately 40 hours per week to approximately 1 hour. Aiming

complicated restraints requires a high level of planning ability and ato optimize its production plans throughout Japan, Suntory

huge amount of time. Furthermore, production plans are drawn up

launched full-scale operation of this system in January 2019 and isfor each area, which means that the most optimal conditions will

currently working to build a stable supply system that can provide

differ for each location. For these reasons, Suntory has been

immediate response to fluctuating demand and to improve

unable to formulate an optimal plan that effectively utilizes all of its

productivity by raising operational efficiency.

production resources.

52

Hitachi Integrated Report 2019

Lumada platform
Quickly build appropriate systems by utilizing open and secure IoT platforms(1) IoT platform architecture
Lumada has established an open and secure IoT platform that can

The platform's structure for flexibility combining technologies isquickly provide digital solutions by swiftly combining advanced

defined by six elements. These elements make the achievement of an

products and technologies from both inside and outside Hitachi Group.

open and flexible platform possible with architectural specifications andThis platform enables us to comprehensively provide a variety ofconnection methods that meet global and industrial standards.

mechanisms, such as advanced analytics technology and asset
management functions, thereby allowing for the prompt realization ofThanks to these attributes, digital solutions utilizing Lumada’s IoT
platform are intelligent, composable, secure and flexible.

appropriate digital solutions.
Features of Lumada’s digital solutions
Intelligent

Composable

IoT platform architecture

Analytics technology such as machine learning and artificial intelligence allow
for deep insight and awareness that leads to action.
Hitachi’s core technologies can be widely combined with OSS* and thirdparty technologies to maximize outcomes (results).
* Open Source Software

SecureFlexible

Users can ensure high levels of security by confirming the appropriatenessof connecting equipment, managing the security of stored data andcontrolling access.

StudioDisplay results

Analytics

Analyze data through AI andanalytics technology

Data management

Gather and process data

Edge

Core

Relay device data to
IoT systems

Prepare a data lake andaccumulate data

Foundry

We can provide flexible solutions that fit equipment, devices and IT
environments currently in operation both through the cloud and on-site*.

Provide infrastructure, such as servers andnetworks, for IoT systems* Involves installing equipment inside company facilities and implementing and operating systems from within.

(2) Lumada Solution Hub, a mechanism enabling the speedy composition of solutions

packages Lumada solutions and application development
environments in forms that are easy to implement and then registers
combine business solutions and application development
environments are registered and stored in the Lumada Solution Hub

sin
Bu

tion
s

catalog. This system enables smooth transitions from the speedy
verifications of solutions, which are conducted through collaboration
with customers, to production environments. Furthermore, it allows for
efficient rollout to multiple locations, including those that are situatedoverseas.

Consulting
services

Partnersolutions

LumadaSolution Hub

s
ion
m
he
rt

and provides them on cloud platforms. Easy-to-reuse packages that

customers’ dig
ed up
ital
tran
spe
o
t
new solutions
sfo
e
s
t
a
n
a
e
r
n
o
rm
c
i
o
S
l
d
u
tion Htadalyatub regiolu tive he Lum
s
a
t
te
r in
o
b
ess soluUs
Co e slla

Launched in 2019, the Lumada Solution Hub is a system that

Application
development
environments

Operationaltools

In the future, the Lumada Solution Hub will be opened up to partners
and register solutions that they have developed, in addition to the
Hitachi solutions that are already a part of the Hub’s catalog. With
these solutions, Hitachi will accelerate the creation, distribution andutilization of digital solutions while speeding up the construction of
Lumada ecosystems.

Partner cloudservices

Analysistools
Hitachi cloudservices

Center of
Excellence• Assemble human resources who aredigitally savvy in terms of OT and IT• Promote the use of solutions and facilitate
the registration cycle• Develop human resources
who employ these solutions

53

The Hitachi Group’s Growth Strategy

Story of Value Creation in the IT Sector
The use of digital technologies such as 5G, AI, IoT and robots is essential for companies aiming to continuously raise their corporate
value amid dramatic environmental changes and a focus on digital transformation, or the revolutionization of corporate management
through digital technology, is rising even further. In Japan, where the birthrate is rapidly declining and the population is aging at an
alarming rate, IT-related market is expected to be necessary for improvement in productivity and work-style reforms.

Results and Targets
Revenues (¥ billion)/
Overseas revenue ratio (%)

Principal Products and Services
Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)

42%

FY2018 Revenues
Services & Platforms

29%

2,600.0

10.8%

338.0

2,121.6

35 %IoT platform

230.1

Data analytics
AI
Cloud service
Security
IT products (storage server)
Control systems

FY2018 (Results)

FY2021 (Target)

FY2018 (Results)

EBIT (¥ billion)/EBIT ratio (%)
12.5%

325.0

FY2021 (Target)

ROIC
Maintaining high level despite the investment
to expand global digital business10.0%

billionFront Business

65%

Financial systems
IT for banking, insurance andsecurities
Public systems
IT for public offices, municipalities
and educational institutions
Systems for social infrastructure
IT for power generation/energy,transport and communication carriers
Defense systems
IT functions commonly used for allcompanies
Application development,
engineering, operation andmaintenance, project management
and quality assurance* Defense systems are included in"others" for accounting

19.6%
15.0%

212.6

FY2018 (Results)

FY2018 (Results)¥2,121.6

13.0%

FY2021 (Target)

FY2021 (Target)

Note: Figures for each subsegment include intersegment transactions.

Vision and Targets under the 2021 Mid-term Management Plan

Growth Strategies under the 2021 Mid-term Management Plan

Accelerate customer innovation with advanced IT

Digital transformation, which involves attempting to produce

In the IT Sector, we will meet the expectations of customers in Japanreforms in corporate management and business models, isand overseas with the power of digital technology, achieve a

receiving an increasing amount of attention. Under these conditions,sustainable society and aim to become a top-class global solution

mobile payment systems utilized in mobile phone networks, which

provider. Moving forward, we will aim to improve social value throughhave a global penetration rate of more than 100%, are becoming

advanced digital solutions operations in the financial and social

commonplace in people’s lives and are becoming gigantic

infrastructure fields. At the same time, we will strive to create

infrastructures that generate large amounts of data every day. In

environmental value by raising environmental efficiency throughout theaddition, new discoveries and expansion are expected in a wide

lifecycle of our products and services.

range of domains within the X-Tech (crosstech) market, where
FinTech, HR Tech and other digital technologies are used todevelop new services in various fields and industries and transform
industry structure itself. Furthermore, we anticipate growth in theinformation and communication technology-related market moving

54

Hitachi Integrated Report 2019

forward. Under these circumstances, we have steadily improved
profitability and created the cash necessary for growth investmentin the IT Sector by reinforcing front functions and manufacturing
capabilities through reorganization of SI businesses; withdrawing
f ro m o r c o n c l u d i n g l o w - p ro f i t b u s i n e s s e s s u c h a s t h ecommunication network equipment business; and reducing loss
cost through thorough and enhanced project management. Moving
forward, we will continue to expand the Lumada business, whichacts as the core of growth, and invest one trillion yen over the three
years covered by the 2021 Mid-term Management Plan toaccelerate global expansion.

Acceleration of Global Expansion
Previously, in the IT Sector, we established Hitachi Vantara in 2017,
followed by Hitachi Global Digital Holdings in 2018. Also, in 2018,
we acquired REAN Cloud, a cloud-related service provider in the
United States, and, in 2019, we started collaboration in the digitalbusiness with Virtusa, a global IT service company in the UnitedStates. We have also established a joint venture with State Bank ofIndia, the largest state-owned commercial bank in India, and areworking to develop platforms for cutting-edge next-generation
digital payment services. Over the three years covered by the 2021
Mid-term Management Plan, we will invest approximately ¥830
billion into efforts aimed at further strengthening our overseas

Expansion of the Lumada Business
The Lumada business will serve as a growth engine for all of Hitachi

business and will target further business expansion through M&A
and other initiatives.

through the utilization of data and co-creation with customers andpartners. The digital tools and wide-ranging industry and business

Collaborative Creation of Value within the IT Sector

expertise used to make this possible are being condensed into
customer cases adjusted so they can be reused by many

Lumada plays a core role in our efforts to provide social, environmental

customers.

and economic value and to achieve social innovation. On the other

Lumada’s customer cases have been accumulated as “workplace

hand, Hitachi cannot achieve objectives related to the SDGs andknowledge” of “OT × IT × Products,” which Hitachi has refinedSociety 5.0 on its own. We believe that these objectives can only bethrough its customer-centered policies. By using Lumada as aachieved through co-creation with a wide range of customers andstarting point, we can minimize customization and develop andpartners.

implement speedy solutions. Furthermore, the ability to expand

For example, since 2017, we have been supporting the digitization

Lumada into a wide range of areas, such as mobility, smart life,of subsidy payment operations and other financial services offered

energy and industry, is a major factor that distinguishes Hitachi fromby the state-owned Vietnam Post. In fiscal 2018, we expanded theits competitors.

scope of this digitization to include social security subsidy andWe worked to expand digital solutions using Lumada during thepension payment operations and are currently promoting further

three years covered by the 2018 Mid-term Management Plan,

expansion on a nationwide scale. Through this co-creation, Hitachi

launching the business globally in 2016 and investing about ¥100

will combine its technologies with Vietnam Post’s services to improvebillion into the launch of related businesses. Currently, we havethe quality of people’s lives. We aim to help improve convenience foramassed more than 650 customer cases (as of the end of fiscal

6 million subsidy recipients starting in 2020.

2018), which are examples of co-creation with users. On the other

Together with our customers and partners, we will form a Lumada-hand, we must refine Lumada’s customer cases and the solutions

centered ecosystem that enables expertise, resources and skills tothat embody them on an ongoing basis as the management andbe shared while further accelerating social innovation.

business issues facing our customers continue to change
constantly. As we move forward, we will strive to expand theLumada business by accumulating new customer cases andsolutions through co-creation with customers and partners.
Over the three years covered by the 2021 Mid-term Management
Plan, we will continue to invest ¥150 billion in the Lumada businessand related projects, aiming to expand the use of Lumada in othersectors and to develop and expand the digital specialists/humancapital essential to the acceleration of the Lumada business. In
fiscal 2021, we will increase our number of digital specialists to
30,000.

55

The Hitachi Group’s Growth Strategy

Story of Value Creation in the Energy Sector
The world’s energy demand continues to expand against a backdrop of population growth and economic development, as well
as social innovation such as the recent expansion in the scale of data centers and the spread of electric vehicles. On the other
hand, serious power shortages in developing countries remain a problem and one billion or more people are forced to live without
electricity. Furthermore, movements to reduce CO2 emissions and decarbonize are picking up speed throughout the world in the
midst of response to global climate change. Hitachi will respond to these issues with energy solutions that leverage the strengths of“OT × IT × Products” in business fields such as renewable energy and power grids.

Results and Targets
Revenues (¥ billion)/
Overseas revenue ratio (%)

Principal Products and Services
Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)

More than
1,700
1,700.011%

456.6

More than
1,520

304.2
171.6

More than 180

FY2018 (Results)

FY2021 (Target)

FY2018 Revenues

More than10%80%¥456.6billion*1
Energy BU

More than
170.0
7.9％

Nuclear
Energy BU

62%Power grid (14%)

38%

Substation, breakers, transformer

Nuclear power plant (ABWR)
Remotely operated vehicle*2

35.9Services (24%)

Fuel transport and storage

Control system maintenanceservices

casks

FY2018 (Results)

EBIT (¥ billion)/EBIT ratio (%)

ROIC

FY2021 (Target)

Renewable Energy Solutions (16%)
Mega solar*3

More than
170.0

Others (8%)

7.5%
5.8%

More than
10％
FY2018 (Results)(254.8)(55.8%)FY2018 (Results)

FY2021 (Target)

FY2021 (Target)

Energy BU
Nuclear Energy BU*1 Includes the control systems business, which is posted in IT Sector*2 Developed as operations of International Research Institute for Nuclear Decommissioning. This development
was conducted using business expense subsidies provided by the Agency for Natural Resources and Energy
in connection with decommissioning efforts and water pollution countermeasures.
*3 FY2018 figures except one-time expenses.

Vision and Targets under the 2021 Mid-term Management Plan
Providing energy solutions that contribute to a stable energy
supply and efficient facility management
The energy business forms the core of the Social Innovation Businessand contributes to the achievement of the SDGs. In the Energy Sector,
we will provide energy solutions that make use of the strengths of “OT× IT × Products,” such as nuclear power generation systems,
renewable power generation systems, power grid systems forreceiving and transforming, transmitting and distributing electricity,

The Chugoku Electric Power Company, Inc.’s Shimane Nuclear Power Station
Unit 3, under construction

predictive diagnostics for equipment and remote monitoring services.
Providing these solutions will enable us to contribute to a stable energy
supply for customers, efficient facility management and the cutting of
CO2 emissions, as we work toward a low carbon or decarbonizedsociety.

Ultra-high voltage gas insulated switchgear (UHV GIS)

56

Hitachi Integrated Report 2019

Growth Strategies under the 2021 Mid-term Management Plan

In the renewable energy business, Hitachi will strengthen its

Previously, in the Energy Sector, we have been converting our

combining its services and Enercon’s wind turbines to develop windbusiness portfolio in response to changes in the market environment

power solution business, which will stabilize operation and reducesurrounding energy while promoting the launch of high-value-added

maintenance costs.

partnership with Germany-based wind turbine manufacturer Enercon,

service businesses and the enhancement of the solution business. In
the future, the power transmission and distribution market is expected

Power grid businessto expand significantly both in Japan and globally against a backdrop

In the power grid business, we will promote the expansion ofof the spread of renewable energy and the expansion of distributed

businesses in industrial fields, including the expanding data centers

power supply. In response to these projections, we plan to acquireand electrification of factories and the provision of solutions related to

ABB’s power grid business during the first half of 2020. Digitalelectric vehicles. In the HVDC (High Voltage Direct Current)

technology is indispensable for the achievement of advanced energy

transmission business, we will conduct active development related to

management, and power grids are an area in which Hitachi can fully

the offshore wind power market and interregional and international

utilize its digital technology. Hitachi’s energy business had been

DC power transmission. In addition, we will work on the development

primarily concentrated in Japan. However, we will accelerate global

and deployment of new solutions that fuse DC transmission andbusiness expansion by utilizing the expertise and resources of thedigital technologies.

power grid business of ABB which has the largest share of the global
power grid market. At the same time, we will also focus on
strengthening and expanding our solution and service businesses

Further Demonstration of Our Competitive
Advantageusing Lumada. In addition, Hitachi will continue to engage in initiatives

Taking advantage of its “OT × IT × Products” strengths, Hitachi will

aimed at providing a stable energy source through its nuclear energy

provide solutions, including power generation and power gridbusiness while using its advanced technological capabilities andsystems, to all customers involved in energy production, distribution

abundant knowledge to contribute to the decommissioning of theand consumption. Furthermore, following the acquisition of ABB’s

Fukushima Daiichi Nuclear Power Plant. Furthermore, we will use thesepower grid business, which has the largest share in the global

same attributes to promote construction that is compliant with newmarket, we will accelerate new innovation by combining its products

regulatory standards and aims to support the early resumption ofand software with Lumada.

operations at domestic nuclear power plants.

Enhancement and Expansion of the Solution andService Businesses Using Lumada

Collaborative Creation of Value within the Energy Sector

In the energy solution business, we received orders for a management

Promotion of open innovation

platform for high-temperature parts for gas turbines used in privately

Hitachi is promoting industry-academia collaboration in pursuit of new

owned industrial power generation equipment in 2019. This platform

value creation in the Energy Sector. Targeting the realization of Society

uses Lumada to improve the efficiency of inspection and maintenance5.0, we are working to create a new vision and produce newwork while raising the maintenance capabilities of operators. Following

innovation at the "Hitachi the University of Tokyo Laboratory", which wethe acquisition of ABB’s power grid business, we will aim to develop

established with the University of Tokyo in 2015. In the Energy Sector,

solutions on a global scale by utilizing its customer base, engineering,

we are building a platform with the goal of simulating long-term energy

technologies and systems.

supply and demand. These simulations will allow different renewableenergy implementation methods to be evaluated and verified, enabling

Service businessauthorities to determine which method is most effective in terms of

In 2017, we concluded contracts in the service business withachieving the goals of the Paris Agreement.

customers. Through these agreements, we will provide solutions that

Hitachi will contribute to social, environmental and economic values bycombine power generation systems with integrated energy andexpanding its provision of energy solutions that utilize Lumada,equipment management services to provide total solutions for energy

including grid and renewable energy solutions, energy management

conservation issues. Moving forward, we will combine Lumada withsolutions and energy conservation and decarbonization solutions.

our on-site capabilities and digital technologies to develop a variety ofFurthermore, we will aim to contribute to the management of 25% ofservice solutions that improve the efficiency of inspection planning

the world’s substations and the supply of stable energy to about 1.8

upgrade and accelerate maintenance and provide predictive

billion people.

diagnostics aimed at preventing failure, as well as remote monitoring.

57

The Hitachi Group’s Growth Strategy

Story of Value Creation in the Industry Sector
In the world of industry, the speed and complexity of market changes caused by factors such as climate change and resource shortages
are increasing along with the working-age population decreases and global competition intensifies. Under these circumstances, thecreation of new services and innovations using advanced digital technologies, such as AI, IoT and big data analysis technologies, is indemand in a variety of different fields. As a result of this demand, the global IoT market is expected to experience a high rate of growth.

Results and Targets*1
Revenues (¥ billion)/
Overseas revenue ratio (%)

Principal Products and Services
Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)

30%
22%

843.6
251.8
169.1
419.8
FY2018 (Results)

1,000.0
348.0
181.5
470.5
FY2021(Target)

FY2018 Revenues¥843.6

Industrial
Products Business

50 %

9.1%

91.0
6.9％

30.5

58.2

16.0

12.7
12.7

billionIndustry &Distribution BU

Mass-production business (32%)
Air compressors

45.1

32.9

Drive systems

Water &
Environment BU

Marking systems

FY2018 (Results)

FY2021(Target)

Power distribution equipment, etc.

ROIC

Drive systems
Pumps

86.0
56.6
9.4
14.5
32.9
FY2018 (Results)

31.9
16.0
39.3
FY2021(Target)

solution business*2

Radial compressors

8.6%
6.7%

10.8%

Transport systems, etc.

9.0%
FY2018 (Results)

FY2021(Target)

Industry & Distribution BU
Water & Environment BU
Industrial Products Business*1 The impact of a large-scale overseas Engineering, Procurement, Construction (EPC) project of the Industry& Distribution BU has been excluded. Figures for Hitachi Plant Services and Hitachi Plant Mechanics, whichwere transferred in FY2019 from the Industry & Distribution BU to the Water & Environment BU and Hitachi
Industrial Products, respectively, were revised retroactively. Figures for each subsegment include intersegment
transactions. Figures for each BU include the control systems business, which is posted in the IT Sector.
*2 Air conditioning and water treatment facilities for factories, social infrastructure, etc.

Vision and Targets under the 2021 Mid-term Management Plan

seamless solutions that achieve overall optimization. The keys to achieving“Increasing the efficiency of customers’ production and processing

simultaneously possesses products, OT and IT; the use of Lumada andsystems,” “providing safe and secure water environments” androbotic SI, which drives digital innovation; and the construction of value“reducing CO2 emissions”

chains that range from management to workplace and from procurement toIn the Industry Sector, we aim to become the best solution partner for

manufacturing while spanning across fields such as logistics, sales, services

customers in the industrial field by utilizing our strengths in “Products ×and maintenance. With these keys in place, we will aim to become the best

OT × IT.” Furthermore, we will create social and environmental value by

solution partner for customers in the field of industry.

these goals are the Industry Sector, which is a business entity that

“increasing the efficiency of customers’ production and processing
Improving the Overall Value of Customer Businesses

systems” through the provision of solutions that contribute to

Maximize environmental value Maximize social value

distribution fields; “providing safe and secure water environments” to
70 million people per day worldwide using water and sewage
infrastructure and seawater desalination technology; and “reducing
CO2 emissions” through energy-saving products.

Growth Strategies under the 2021 Mid-term Management PlanAs the world changes and customer needs diversify and become morehigh-level, we face various issues that arise between the workplace,

Total seamless solutions

productivity and quality improvements in the manufacturing andCyber space

Management

Manage data
mentManagement

Manage data
ment

Workplace

WorkplaceManagement
data

huMan
Method Material
MachineWorkplace 4M data

huMan
Method Material
MachineWorkplace 4M*4 data

Management

Manage data
ment

Total seamlesssolutions

WorkplaceManagement
data
huMan
Method Material
MachineWorkplace 4M data

Managementthese issues as “boundaries.” By connecting cyber spaces and real spaces

WorkplacehuMan
Method Material
MachineWorkplace 4M data

Real space

using digital technology, we will solve “boundary” issues and provide total

Hitachi Integrated Report 2019

Vision of the Industry Sector*3 Supply Chain Management (SCM)*4 4M: huMan, Machine, Material and Method

huMan
Method Material
MachineWorkplace 4M data

management and the supply chain. In the Industry Sector, we recognize

58

20 %

Water supply and sewage, utility

Built-to-order business (18%)

EBIT (¥ billion)/EBIT ratio (%)

30 %Digital solution business

Global SCM*3
network

Management

WorkplaceCollaborative Creation of Value within the Industry Sector
Total Seamless Solutions that Solve “Boundary” Issues
In the Industry Sector, we will provide total seamless solutions while
focusing on four next-generation solutions (manufacturing, logistics,
maintenance and utility) and connected products, thereby helping to
improve the overall value of our customers’ businesses.
One Lumada solution contributing to the achievement of these goals
is the digital twin solution, which was launched in November 2018. The
solution facilitates AI analysis and simulation by using an advanced
data model to link manufacturing workplace OT and IT data in cyber
space, supporting the optimization of the entire production process.
Data Modeling of Business Operations and 4M and the
Optimization of Production Processes through Digital Twin

Strengthening of OT Area through the Acquisitionof the Robotic SI BusinessIn the Industry Sector, we believe that the manufacturing industry will
evolve from “manufacturing through people and machines” to“manufacturing through people and robots” before progressing to“manufacturing that connects management with the workplace.”
Under these circumstances, we have decided that OT areas related to
the Robotic SI business, which accumulates field data, will become
increasingly important in addition to rising needs for advanced andoptimized manufacturing conducted using robots. In accordance withthis judgment, we reached acquisition agreements in 2019 with JR
Automation, a United States-based robotic SI business operator, andJapan-based KEC.
The industrial world is facing a growing need for automation due tolabor shortages and rising labor costs, and the robotic SI market is
expected to grow rapidly as a result. In the Industry Sector, we will
work to expand the Robotic SI business on a global scale by mutually
utilizing the resources of JR Automation, KEC and Hitachi Industrial
Equipment Systems and the research and development capabilities ofHitachi.
In the Industry Sector, we will globally develop Lumada solutions thatutilize digital technology based on 4M data obtained workplace from
customers by acquiring technology, expertise and customer bases
from these two companies in the robotic SI market. This will enable us

Production
plan

Parts

to contribute to the improvement of our customers' management andProduction

Products

Conceptual diagram of the digital twin solution

to help raise the overall values of their businesses through seamlesscollaboration between workplace and management.

One example of the application of Lumada at manufacturing workplaceis our collaboration with the AMADA Group, a major metalworking
machinery manufacturer. After delivering servo motors used in pressing
machines, we constructed a tooling IoT production line by applying
robotics in 2017. We also contributed to the improvement of productivity
and operational efficiency in 2019, when we built Assembly Navigation
System with the goal of upgrading manufacturing workplaces.

KEC’s Robotic SI business

In Pursuit of Further Growth in the Industry Sector
In the Industry Sector, we will strengthen and expand total seamlesssolutions that leverage the strengths of “Products × OT × IT” andaccelerate and enhance global expansion in pursuit of further growth.
Assembly Navigation System at the AMADA Group’s Fujinomiya Works

Furthermore, we will aim to become a business entity that provides
high added value by expanding recurring business*5 and improving

Furthermore, because of the importance of connected products in
the Industry Sector, in 2017, we worked to increase our global strength
in terms of connected products by acquiring Sullair, an air compressor

capital efficiency.
*5 Cycling business that exists after sale service market and continual replace demand such as replacement
parts.

manufacturer in the United States.

59

The Hitachi Group’s Growth Strategy

Story of Value Creation in the Mobility Sector
Global population is growing and urbanization is advancing rapidly, so that the proportion of people living in urban areas is
expected to rise to 68% by 2050, from around 55% today. In addition, the negative impact from climate change is causing
environmental, economic and social damages. Against this backdrop, in the mobility realm, the demand for clean and highly
efficient mobility solutions such as one for faster and more environmentally friendly intercity transportation and alleviation of
dependency on car use within city centers, and smart solution to manage the people flow in high-rise buildings.

Results and Targets
Revenues (¥ billion)/
Overseas revenue ratio (%)
82%

80%

Building Systems

616.5*1

9.8%

8.1%

55%

1,270.0
650.0*1

124.8
100.2

61.8

46.3*1

*1

620.0

54.0

63.0

FY2018 (Results)

FY2021 (Target)

FY2018 (Results)

FY2021 (Target)

142.6

80.8*1

78.5

13.6%

13.1%

Building Systems BU
Railway Systems BU*1 Figures for Railway Systems BU include the control systems business, which is posted in the IT segment.

Our Ideal under the 2021 Mid-term Management Plan

51.1%

billionericasAm9.9%

37.9%

Interlocking

ETCS*

Satellite Train Control

Driverless

CBTC*

Facility Control

Components
TMS** CBTC：Communications-Based Train Control
TMS：Traffic Management System
ETCS：European Train Control System

Elevators

Rolling Stock

Jap
an

A

Railway Systems
Business Unit
M

EA

62.

%
27.8

FY2021 (Target)

FY2021 (Target)

57.7%

Moving walkways

E

FY2018 (Results)¥616.5

Sale / Manufactureof E&E

Escalators

Building equipment management services

Signalling& Turnkey
FY2018 (Results)

64.1

E&E Modernization

Building Systems
Business Unit

FY2018 Revenues

*1

54.3

42.3%

C
PA

135.1

Building
Servicesbillion

ROIC

11.2%

10.9%

¥621.6
E&E maintenance services

621.6

EBIT (¥ billion)/EBIT ratio (%)

APAC/Others 4.4%

FY2018 Revenues

China 52.5%

1,238.1

Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)

J a p a 4 3.1 %n

57%

Railway Systems

Principal Products and Services

Very High Speed
Shinkansen
CommuterIntercity
LRV
Metro
Monorail
Components

3%Service &Maintenance11.0 %RS Maintenance
RS Refurbishing
Signalling Operation &Management
Asset Management

Growth Strategies under the 2021 Mid-term Management Plan

Providing People with Safe, Secure and Comfortable

In the Building Systems Business Unit, we expand technologicallyTransportation Services

advanced and competitive products and services, which include theIn the Mobility Sector, we deliver social value by providing people withworld’s fastest elevator (according to our research as of September

safe, secure and comfortable transportation services, and products2019) with the speed of 1,260 meters per minute, and Lumada

and services for urban spaces such as buildings. At the same time, wesolutions leveraging Hitachi Group’s robust resources on digitalcreate environmental value by realizing transportation services thattechnologies such as Internet of Things (IoT) and artificial intelligence.

have a low environmental impact and contribute to, for example,

Meanwhile, in the Railway Systems Business Unit, we realize thereducing CO2 emissions.

differentiation from other competitors by providing total solutions
spanning the manufacture of rolling stock to operational control, IC
ticketing and seat reservation system, and solutions utilizing IoT anddigital technologies for operation optimization, driverless operationand digital ticketing.

60

Hitachi Integrated Report 2019

Building Systems Business Unit

operation, and digital ticketing utilizing location information and other

The market for elevators and escalators (E&E) is expected to continue

data to realize automatic payments via smartphones. In addition to

expanding steadily. Particularly high rates of growth are expected in thefurther reinforcing services and solutions such as these, we will

Asian market, especially in India, which has the world’s second largest

augment the value for customers and provide safe, secure andmarket scale. In the largest market, China, the expected growth area

comfortable transportation services.

has been shifted from new installation to maintenance andIn January 2019, we acquired Ansaldo STS (now Hitachi Rail STS),

modernization of E&E. In Japan, the demand for E&E modernization is

an Italian leader in railway signaling systems, converting the company

expanding and the expectation for new solutions leveraging digitalto a wholly owned subsidiary and delisting it. In addition to further

technologies for workers and tenants in buildings is increasing.

enhancing our strength in the signaling and turnkey businesses, we

Against this backdrop, the Building Systems Business Unit has

expect this move to generate synergies through organizational

achieved growth globally based on its sophisticated products andoptimization and increased production efficiency, allowing us to further

technologies, which are exemplified by the top share (Hitachi research)

expand our global operations.

of order received in fiscal 2018 by unit in China, the world’s largest
market for new installation of E&E, accounting for more than 50% of
the total. Going forward, we plan to combine manufacturing and salesof E&E with building services to realize business growth and increased
profitability. To this end, we are stepping up investment centering on
digitalization. Specifically, we are accelerating investment in a global
control center that functions as a basement for providing leading-edgebuilding services, such as a sophisticated remote monitoring service
which utilizes digital technologies and a solution which realizes efficientand comfortable movement by using sensors in buildings andanalyzing the flow of people.
In addition, in Asia and Middle East, where demand for new

Value Co-Creation in the Mobility Sector

installation of E&E is surging, we are deploying our sales and service
bases, and expanding our business through maximizing the capacity

In the Building Systems Business Unit, we are working on enhancing ourutilization of factories in China and utilizing sophisticated maintenanceproducts and services through the analysis of the data gathered fromand modernization technologies which we have developed in Japan.

elevators, escalators and building equipment, increasing added value ofmaintenance services such as sophisticated remote monitoring andcontrol, providing data to building owners and managers, and creating
new businesses leveraging Lumada.
By positioning the global control center as a core competence anddeploying new solutions leveraging Lumada to the customer base wehave built in E&E business, we aim to develop our business further andrealize the expansion of building service business other than E&E anddifferentiation from manufacturers specializing in E&E.
In the Railway Systems Business Unit, for Denmark’s Copenhagen

Railway Systems Business Unit

Metro we are working on the maximization of transportation capability,

Demand in the railway market is expected to expand throughout thecongestion alleviation and cost reduction through detecting demand

world thanks to economic development. Growth, mainly for rollingbased on the number of people waiting at station platforms and realizing

stock, signaling system and control system, is expected in Europe,

autonomous and flexible operation. With core products such as this, we

Middle East, Africa and Americas.

aim to expand business in the urban transport market in Europe, where

In fiscal 2018, the Railway Systems Business Unit set records forbusiness volume is the highest in the world. Demand is also expected torolling stock deliveries and orders, revenue and adjusted operating

flourish in Americas. There, we aim to secure growth opportunities byincome ratio, highlighting our efforts to build a firm global business

utilizing existing manufacturing bases and leveraging our market

platform. In the future, we intend to move forward with rolling stock,presence in services and maintenance.

signaling system and turnkey business as core businesses. We willIn the Mobility Sector, through social innovation businesses such asalso concentrate investment in digital technologies and IoT to enhancethese, we will provide people around the world with products andour competitiveness further. We are encouraging our Dynamic

services that are safe, secure, comfortable and environmentally friendly.

Headway, which optimizes operations based on demand, autonomous

61

The Hitachi Group’s Growth Strategy

Story of Value Creation in the Smart Life Sector
While global economic development continues, societal issues such as global warming, traffic jams and accidents, aging and nursing
care have become more prominent. Progress is being made on the development of technologies aimed at resolving these issues,
including electrification, autonomous driving, AI, robotics and personalized medicine. This progress is giving rise to a variety of business
opportunities. We are confident that IoT solutions related to daily life will be integrated within smart cities and will comprehensively
support the lives of people living in urban areas. In fact, the global smart city market is expected to reach $2 trillion or more in 2025.

Results and Targets
Revenues (¥ billion)/
Overseas revenue ratio (%)

Principal Products and Services
Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)
More than 10%

More than 60%
42%1,816.0

More than 2,100.0

More than 210.0
5％

971.0

1,200.01,700.0

485.0More than 500.0
More than 400.0

38.0
22.4
33.0

More than 40.0

360.0
FY2018 (Results)

FY2021 (Target)

FY2018 (Results)

FY2021 (Target)

85.3

More than 44.0

ROIC
More than 15%

More than 10%

145.5

More than
120.0

93.4

EBIT (¥ billion)/EBIT ratio (%)
8%

FY2018 Revenues

Healthcare¥1.8

trillion
Automotive
Systems

20%

Diagnostic systems
Treatment systems

Smart Life &Eco-friendly Systems

53 %Powertrain
Chassis parts
Safety systems

27%

Home appliances
Air-conditioning systems

More than 210.0
10.0%More than
120

29.5
30.7

More than 50.0
More than 44.0

FY2018 (Results)

FY2021 (Target)

FY2018 (Results)

FY2021 (Target)

Healthcare
Smart Life & Eco-friendly Systems
Automotive Systems* The healthcare and related business includes revenues of healthcare-related businesses ofHitachi High-Technologies Corporation ("Hitachi High-Tech")

Vision and Targets under the 2021 Mid-term Management Planbusinesses, establishing the powertrain, chassis and safety systems

Accomplishing business structural reform in support of our next

navigation, automotive lithium-ion battery and cargo handling materials

stage of growth through digital technology

businesses were sold as non-core businesses.

businesses as core businesses. Meanwhile, the energy station, car

We have promoted business structural reforms in the Smart Life Sector

In terms of core business products, we will form strategic alliances andover the past several years, including the deconsolidation of the air-conduct M&A with the goal of achieving one of the world’s top three

conditioning systems business and the sale of the car navigation andmarket shares and improve profitability by pursuing economies of scale inautomotive battery businesses. During the period covered by the 2021

both procurement and manufacturing. As a first step toward these goals,

Mid-term Management Plan, we will accomplish business structural

we decided to acquire Chassis Brakes International in June 2019 in an

reform by improving profitability through business replacement andeffort to strengthen the competitiveness of the chassis and safety systems

operational restructuring. At the same time, we will establish abusinesses. We will expand the safety systems business, which integrates

business model for Lumada and develop our digital service business,

electric steering and suspensions, while giving due consideration to theleading us into our next stage of growth.

market environment, where the shift to electric brakes is under way.
Competition in product development utilizing electrification and automation
technologies is intensifying both in the automotive system business and

Growth Strategies under the 2021 Mid-term Management Plan

throughout the industry. For this reason, rising research and development
costs are proving to be a primary cause of reduced profitability. As a

Significant Improvement in Profitability throughBusiness Replacement and Operational
Restructuring
Automotive Systems businessas a common foundation for research and development, reducing investment
overlap between businesses and improving efficiency.
In addition, we are promoting the use of Lumada customer cases with theChief Executive Officer Koch assumed his position at Hitachigoal of streamlining operations such as marketing, design, procurement,

Automotive Systems, Ltd., during fiscal 2018, ushering in structural

production and quality improvement using digital technologies.

reforms. He promoted the classification of core and non-core

62

corporate organization, the Research & Development Group of Hitachi acts

Hitachi Integrated Report 2019

We will achieve our target adjusted operating income ratio of more than 10%

by boosting business efficiency through scale expansion, raising research andcreated from these technologies. Our basic strategy is to create

development efficiency and improving operations through the use of Lumada.

innovative healthcare solutions by combining AI with ourmeasurement and analysis technologies. Hitachi will develop

Smart Life & Eco-friendly Systems businesshealthcare business on the basis of a measurement and analysis

The Smart Life & Eco-friendly Systems business, which has a longtechnology portfolio, which the Research and Development Group of

history of developing products from consumer perspectives, is a core

Hitachi and Hitachi High-Technologies have built.

business aiming to improve the quality of people’s lives in the Smart

Hitachi’s top priority in the healthcare business is to minimize theLife Sector. We will create solution businesses using “design thinking,”

invasiveness (generally, invasiveness refers to stimuli that can disrupt

which involves coming up with methods for improving our lives without

the homeostasis of the body’s internal environment) of diagnosis andbeing shackled by preconceptions.

treatment. In the medical treatment field, we are focusing on cancer

In April 2019, Hitachi Consumer Marketing, Inc., which had been intreatment solutions using less invasive radiation. In accordance withcharge of home appliance sales, merged with Hitachi Appliances, Inc.,

this focus, we integrated Mitsubishi Electric Corporation’s particle

which had been handling design and manufacturing. This merger led

therapy systems business in June 2018. Moving forward, we willto the establishment of Hitachi Global Life Solutions, Inc., which iscontinue to strengthen investment related to this business, including

venturing into challenging new fields.

the development of technologies that greatly reduce equipment

We are already launching a lineup of new connected products,
including robotic vacuum cleaners and refrigerators that can becontrolled and managed using smartphones. Furthermore, we areaccelerating efforts aimed at creating solution businesses, launching
services such as “Doshiteru,” a monitoring service for elderly
individuals who live alone, and “Peloridge,” a smartphone app forsharing experiences and emotions related to food.
In addition to expanding solution businesses, it is essential that we
improve business efficiency. In October 2015, Hitachi’s air-conditioning
systems business was merged with the air-conditioning systems
business of Johnson Controls in the United States, creating Johnson
Controls–Hitachi Air Conditioning, an unconsolidated subsidiary of the
Hitachi. By combining the sales channels, technical capabilities andresearch and development of these two businesses, we strengthened
the global competitiveness of our air-conditioning systems business.
Additionally, in the home appliances business, we will promotecosts, with the goal of expanding the use of particle therapy.

Establishment of a Lumada Business Model
Machine data is collected via the Internet from Smart Life Sector
products, including connected cars, connected home appliances andhealthcare equipment. Using Lumada’s analytics and AI to process thisbig data, we can create new economic value by automating productoperation, as has been done in the case of autonomous driving
systems.
Once devices that support our daily lives are automated and various
solutions are provided, subsequently these devices are integrated into
smart cities and a new data economy is created. Under the 2021 Midterm Management Plan, we will invest approximately ¥30 billion in the
Smart Life Sector, focusing on the smart city market in Asia, a region
that continues to urbanize. Furthermore, we will aim to secure ¥100
billion in orders of the Lumada business.

collaboration with strategic partners overseas under a flexible capital
policy and conduct business operations with an emphasis on
investment efficiency.

Collaborative Creation of Value within the Energy Sector
Focusing on the three themes of health, safety and comfort, the Smart

Healthcare businessLife Sector creates social, environmental and economic values by

Many hidden and unmet needs exist within the healthcare businesscreating communities that are easy to live in, which helps improve thefield, and high rates of growth are expected to continue in the future.

quality of people’s lives. We also provide particle therapy systems,

On the other hand, technology in the existing diagnostic imaging

allowing people to live normally while receiving cancer treatment, andsystems business has matured, and the business has entered acontribute to the elimination of fatal traffic accidents throughstage of competing for business scale expansion. Accordingly,

autonomous driving technologies. Furthermore, we will contribute to

selection and concentration are becoming increasingly important.
The strength of the Hitachi Group in this field lies in its measurement

the prevention of global warming by reducing the CO2 emissions of our
products through electrification and IoT technology.

and analysis technologies, which originated from research anddevelopment concerning electron microscopes that was continuously
conducted from 1942, when the Group’s Central ResearchLaboratory was initially established. All of the major healthcare
products that we have developed so far, including products related to
X-ray and ultrasonic diagnostics, MRI, CT, mass spectrometry, DNA
sequencing, bioimmune analysis and optical topography, were all63