Digital Transformation—Opening Up the Future through Co-creation of Values—(Summary)
May 19, 2020

Keidanren

Digital Transformation—Opening Up the Future through Co-creation of Values—

Introduction

Society 5.0

Image of co-creating futuresociety through digitaltransformation (DX)

Chapter 1

Industrial
structural DX

Japan-original DX
centered on co-creation;
Industrial structural reform

Chapter 2

Corporate DX

Viewpoints in thepromotion of corporate DX

Chapter 3

Establishing new rules
and governance;

Conclusion

International rollout through cocreation by industry, academia,
and government

Rulemaking for data use;
Governance innovation

IntroductionAccelerating Digital Transformation
as Reiwa Reformation

 Advancement in digital technology has brought about rapid socialtransformation—namely, digital transformation (DX). In an era ofunpredictable future, now is the time to take up the challenges of theunknown in various fields.
 As of May 2020, mankind is facing the crisis of coronavirus disease(COVID-19). There have actually been various attempts to stem thepandemic with digital technology. COVID-19 has brought aboutsignificant changes in the global situation and people’s mentality.
 In addition to COVID-19, the world faces a mountain of problems.
Striking a balance between economic growth and sustainability is amajor social concern. In this situation, Japan is proposing “Society 5.0”
as the concept of a social model that creates values while solving
problems.
 In spite of Japan having entered the new Reiwa era, there are still deeprooted social structures and practices from the preceding Showa andHeisei eras. It is necessary to achieve Japanese-style DX in order topromote bold changes characterized as Reiwa Reformation andopen up a new future.
2Introduction

Society 5.0: Co-creating the FutureThe new Society 5.0 (Creative Society) will be a society that we will create
ourselves by combining DX with the imagination and creativity of diversepeople to create values and solve problems. The viewpoint of building abright future society through DX is important.

＝DX

AI × data

×Imagination andcreativityof diverse people

Value creation
Diversity
Autonomous decentralization

Security and safety
Environmental harmony

3Chapter 1

Digital Transformation

The change brought about by data and digitalization is not a technologicalone; it is a major change in the very foundation of society and culture,transforming the value standards and yardsticks of society.
DX is not limited to simple "kaizen", labor saving, automation, greater
efficiency, and optimization using digital technology. DX is reform to create
new values, which sometimes comes with the destruction of established ideas,
in response to fundamental social changes.

Digital Transformation
Definition in this Proposal

Fundamental and revolutionary changes insociety, industry, and life as a result of advances in the use ofdigital technology and data; and radical changes implemented
by industries, organizations, and individuals
toward such transformation.

 DX is not simply the modification of IT systems; it is an issue that shakes up thevery foundation of society and business. Companies should work proactively andvoluntarily on DX as the top priority management issue.

4Chapter 1

Industry in the Society 5.0 Era

Industries have so far been classified based on types of businessand products; but, going forward, they will be classified based on
experience value provided to consumers and the problems theysolve. The pyramid industrial structure with major companies at its
apex will transform into a flat co-creation structure.
Up to Society 4.0Society 5.0 and thereafterIndustries based on productand business types

Industries based on values
realized and issues solved

Electricity, autos, infrastructure,construction, medical equipment,
logistics, financial services, etc.

Comfortable mobility,
environmentally friendly energy,
realization of health, etc.

It is necessary to switch to an autonomous,
decentralized co-creation framework whereby
businesses build an industrial structure based on theconsumers’ values and bring together technologies andchannels in their areas of expertise to realize these values.

5Chapter 1Direction of Japan-Original DX

With DX moving ahead in many countries, it is important for Japan to set its
own direction, harnessing its strengths and characteristics while
collaborating internationally. Japan-original DX should aim at realizing
consumers’ values through co-creation by diverse entities.

Japan-original DX
Value co-creation model: Realizing consumers’ values
through co-creation by diverse entities• A model that removes existing divisional and sectoral boundaries for thepromotion of organic, autonomous co-creation by various entities
sharing the consumers’ values—such as companies in the same ordifferent industries, startups, universities, and national and localgovernments.
• This model goes beyond conventional corporate and business tie-ups; itpromotes more fundamental, organic collaboration for the realization ofconsumers’ values.
• Diverse entities work to share trusted data in accordance withconsumers’ will.

DX originated in other countries

United States• Tech giants offer a variety ofinnovative services.
• Conventional industries undergobusiness conversion through DX.

China• State spearheads DX. Big
technology companies collectmassive data.
• Value sharing through the social
credit system is expanding.

European Union• Each member country promotes
DX in their areas of expertise.
• The EU pursues a single digitalmarket strategy but prioritizes
the protection of individual rights,
such as by enforcing the General
Data Protection Regulation.

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Chapter 2

Overview of Corporate DX

The key element and differentiation factor of corporate DX is co-creation.
Premised on co-creation, direction in strategy and implementation isdetermined for each component: management in charge of overall direction of
the organization; human resources model for DX promotion; specificorganizational structure and culture to be established; and the technologicalfoundation, such as data and systems, to be built for DX and legacytransformation (LX).
１Co-creation

 Organic, autonomous co-creation to realize consumers’ values Co-creation by diverse entities (in terms of industries, size, history, etc.) in variousforms (services, products, data, human resources, etc.) using digital technologies
Promote co-creation to gain profit

２

Management  Desirable DX vision and qualifications of managers
 Methods for refocusing management, formulating business strategies (for existing,spin-off, and new businesses), and reforming businesses, through DX

３

Human resources Human resources
model for DXpromotion
 Training andpersonnel systems

４Organization

 Organizationalculture Organizational
structure (e.g.,Dejima units)

５Technology

 Building dataand systems for
DX and LX

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Chapter 2

１Corporate DX (I)Co-creation●Co-creation in the Society 5.0 era

Co-creation means an unprecedented dimension of collaboration
premised on providing values and solving social problems from theconsumers’ point of view, going beyond simple corporate or businesstie-ups. It aims at building new business models and ecosystems inwhich diverse entities generate profit by combining a variety ofmethods to integrate their strengths and compensate for each other’s
weaknesses.

●Co-creation methods

Requirements for co-creationa. Two or more independent
entities
b. Equal partnershipc. Sharing of resources andrisks
d. Utilization of DX
e. Creation of consumers’
valuesEntities collaborate with others to build new businesses by adopting one or more methods including those
not listed below. The key is to create mechanisms and venues for diverse entities to participate, clarify
the objectives and the consumers’ values to be realized, be spearheaded by an entity taking theinitiative, ensure multitiered communication, and build governance systems supporting co-creation.

(1) Co-creation through services and products

Co-creation participant companies with superior or unique services and products provide them asa series of integrated services valuable to clients, utilizing application program interface (API)linkage and other mechanisms. It is also important to develop services and products from scratch
through co-creation.

(2) Co-creation using data

Participant companies promote data-driven businesses by sharing the data they own or effectively
utilizing data from multiple companies through personal data trsut banks.

(3) Co-creation through human resources

Participant companies create services and businesses that provide values and help solve social
problems from the clients’ standpoint, for example by mutually supporting, and facilitatingexchange of, core DX staff members, digital and IT specialists, and other personnel needed byeach company.

8Chapter 2２Corporate DX (II)Management●What is required of managers

a. Understanding of and resolve to implement DX
b. Clear management vision and leadership in cocreationc. Knowledge of new technologies and businesses
d. Refocusinge. Timely decisions and actions●Business strategy

Formulation of specific strategies for businessreform is necessary with the refocusing ofmanagement.

３

Human resources●Personnel for DX promotion

Promoting DX requires a variety of personnel, andeach phase needs different qualifications andabilities:
comingup
withnewideas,
conceptualizing the grand design, and drawing up
and executing business plans. These can besummed up in the kishotenketsu [introduction,development, denouement, and conclusion] model.

Kishotenketsu human resources model

Producer-type personnel orchestrating the entire process arealso a key factor

9Chapter 2４

Corporate DX (III)Organization●Organizational culture

The most important organizational culture is togenerate new ideas and facilitate change throughdiversity.

●Organizational structure

Various organizational structures are conceivable in
implementing business strategies. Creating aDejima unit is also effective.

５Technology●Technological attributes essential to DX-readinessTo achieve DX-readiness, it is essential to swiftlyadopt digital technologies and thereby continue
providing systems and services to clients andemployees. These require the ability to consistently
implement DX while focusing on the latest
technological trends.

●Co-creation of data

To advance co-creation, it is crucial to build aconnectable yet autonomous and decentralizedarchitecture as the common infrastructure; define
quality criteria for data to be transmitted and linked
together so as to avoid factors obstructing data
sharing; and ensure that a possible co-creation
participant satisfies the criteria.

10Chapter 2

Co-creation DX Indices• We present our Co-creation DX Indices, as examples of qualitative indices for phased improvements in the five factors essential toadvancing DX centered on co-creation.
• As a first step, we advise companies to work to reach Level 2, the DX-ready level, before aiming at the achievement of a higher level.

Lv5

 Drive industrialrestructuring centeredon multiple cocreation projects

 A majority ofmanagers lead DX
 Appoint global talents
to the management
 DX accounts for 30%of profit Globally roll outkishotenketsu
personnel
 Turn literacyeducation into assets
for marketing Position DX in the heartof the organization
 Succeed in transforming
into DX-basedorganization byreorganizing existing
divisions Lead DX implementation
projects on its own
 Fully adopt AI, cloud,Agile, etc. in most DX
implementation projects
 Engage in full-fledged LX

Lv4

 Drive multiple cocreation projects tocreate new businessareas Management drives
DX Appoint multiple
outside talents to themanagement
 DX accounts for 10%
of profit Acquire almost sufficientkishotenketsu personnel
through outside
recruitment and cocreation
 Provide full-fledged
literacy education

 Have an independent DX
promotion unit
 Run multiple DX projects
launched by existing
divisions Have the entire company
engage in organizational
cultural reform Undertake majority of DX
implementation projects
on its own
 Introduce AI, cloud, Agile,and other major
technologies with
implementation inprogress Partially start LX

Lv3

 Define co-creation areasand incorporate them inmanagement plans Start co-creation
projects that harness thecompany’s strengths

 Incorporate DX vision in
management plans andannounce such vision
 Appoint an outside talent
to the management
 Make certain amount of
profit through DX

 Start expansion ofhuman resources
through outside
recruitment and cocreation
 Start implementation ofliteracy education

 Pursue multiple new
businesses launched by
the DX promotion unit
 Start operational
collaboration withexisting divisions
 Engage in full-fledged
organizational culturalreform Introduce AI, cloud, Agile,and other major
technologies for DX
implementation projects
 Start LX projects uponplan approval Recognize that cocreation is indispensable
for DX promotion
 Identify the company’s
strengths andweaknesses inundertaking co-creation

 Management
understands the essenceof DX Undertake selfevaluation on DX
 Appoint technology
experts to management
 Set profit target throughDX Have a recruitment planin place throughassessment of adequacyof kishotenketsu
personnel
 Implementation ofliteracy education plansin place Have a DX promotion
unit set up
 Establish collaboration
method between DX
promotion unit andexisting divisions
 Start organizational
cultural reform Define technical areasof DX implementation
projects
 Assess the need for
LX and draw up
implementation plan Focus on internalefforts

 Leave DX examination
to individual divisions
 Fail to recognize DX’s
impact on the industry
and the company’smanagement

 Definition ofnecessary DX
personnel pending Implementation ofliteracy educationplans pending Organizational
response to DX
promotion pending Have DX systemic
response mostlyoutsourced
 Drafting of LX visionpending

DX-Ready

Lv2

Lv1

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Chapter 3

Establishing New Rules and Governance

To promote DX, it is essential not only to reform the domestic systems andrules through close public-private cooperation but also to formulate global
rules in order to roll out Japan-original DX internationally and create values
with its partners in the world.

●Rulemaking for data use• At present, individual jurisdictions adopt their own strategies, systems, and rules for data use,
resulting in fierce competition.

• To realize Society 5.0 through the international rollout of value co-creation DX, it is necessary
to establish consistent rules backed by a global consensus to enable secure data use acrossnational boundaries.
• The concept of “Data Free Flow with Trust” precisely aims to advance such efforts.
• It is important to establish rules at the World Trade Organization, ensure bilateral or
multilateral regulatory cooperation, and utilize private-sector frameworks such as the World
Economic Forum.

●Governance innovation• Flexible risk-based regulation by the government is necessary to encourage the private sector
to undertake innovative initiatives. At the same time, the private sector needs to take adisciplined approach, such as through voluntary formulation and announcement of codes ofconduct, to supplement government regulations.
• The G20 Ministerial Statement on Trade and Digital Economy of June 2019 called forgovernance innovation. Various stakeholders should participate in the discourse on afundamental review of regulations in response to progress made in DX.
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