Foundation for Value Creation

Message from theChief Technology Officer
The R&D Division celebrated its 100th anniversary
in 2018. Inheriting Hitachi’s corporate credo andfounding spirit, our R&D operations support thegoal of Hitachi being “an Innovation Partner for theIoT Era,” while also driving the future growth of thecompany by addressing societal issues.

Norihiro Suzuki
Vice President & Executive Officer
Chief Technology Officer (CTO)

R&D Initiatives Targeting Social Innovation Business Expansion
In fiscal 2015, to promote global R&D centered oncollaborative creation with our customers, we establishedthe Global Center for Social Innovation (CSI) in five key
regions, setting up bases in Tokyo, North America, China,
Europe, and Asia-Pacific (APAC). Using a systematizedcollaborative creation methodology called “NEXPERIENCE,”
CSI researchers share their vision directly with customers
as part of a process of original value creation that ranges
from identifying issues to testing solutions and creating
practical business models. At the same time, positive

steps are being taken to help upgrade and expand digitalsolutions that employ Lumada.
I believe this process is creating positive feedback cycles,in which resolving customer issues helps us to reinforce
Hitachi’s core technologies while at the same time generatingknowledge to support new business development based on
accumulated customer cases. We are upgrading our focus onopen innovation approaches as a way of expanding suchinitiatives globally, for example by building ecosystems thatspan industry, academia, and the government sector.

R&D Investments for Enhanced Efficiency
Hitachi invests approximately 4% of revenues into R&D on
the four focus business domains that drive the SocialInnovation Business, as well as open innovation and otherprojects. I would emphasize the fact that our investment inopen innovation in fiscal 2018 was over 60% higher than infiscal 2015. The establishment of the CSI enables us to workwith customers from the research stage to develop the technology for products and services that address societal
issues, thus boosting the efficiency of our R&D. Moreover,
we are looking to make R&D even more efficient by shortening development time by leveraging AI and other digital technologies for our research work itself.

Fiscal 2018 R&D PoliciesBecoming a Global Innovation Leader to Drive Evolution Towards a Global Company
Objectives

Policy Directives

Strengthen monetization capabilities to expand the Social
Innovation Business

Enhancing collaborative creation of global solutions
From individual solutions to connected industries
Focus on growth domains and regions

Increase world-leading products and services

Creating and focusing on world-leading technology
Create world-leading technology to support the Social
Innovation BusinessAccelerate open innovation

Participate and engage with global community

Promoting basic research to resolve societal issues
Accelerate creation of disruptive technology
Create vision to lead “Society 5.0”35Enhancing Collaborative Creation of Global Solutions
To drive the evolution of our collaborative creation efforts withcustomers, we are looking to develop new “ConnectedIndustries” solutions that can generate greater value thanthose for individual solutions, and those that can connect avariety of solutions in different industries for multiple customers.
One practical example of this is an initiative where small- andmedium-sized customers in industrial sectors and financial
institutions manage and share global supply chain information.

Utilization of a blockchain platform to digitize order-related
information from customers to suppliers can improve theoperational efficiency of procurement and inventory
management, while also facilitating faster decisions by thefinancial institutions relating to aspects such as settlement andfunding. By focusing on growth domains and societal issues
across global regions, we are helping to expand the Social
Innovation Business-related collaborative creation.

Creating and Focusing on World-leading Technology
The R&D Group is also actively trying to create world-leading
technology to support the Social Innovation Business. For
example, our development of high-speed rolling stock andtraffic management systems to enhance railway safety,
comfort, and convenience is helping Hitachi’s business growthin Europe. Elsewhere, we are applying fluid analysis technology
developed in the railway field to improve compartment design
to help achieve the world’s fastest elevator. In the industrial
sector, Hitachi has secured a world-first with the development
and commercialization of a compact and energy-efficient
amorphous motor-integrated oil-free scroll compressor.
Going forward, we aim to develop world-leading technologies
in fields such as blockchain, autonomous vehicles, smart
manufacturing, AI, and robotics.
For the creation of world-leading technology, it is necessary
to enhance the value offered by Hitachi’s OT, IT, and productswith the utilization of digital technologies. For that, it is also
important for us to strengthen our human capital. Aiming toincrease the number of data scientists working throughout theHitachi Group to at least 3,000 by fiscal 2021, we haveinstituted a training program and established the Professional
Community to support top-class researchers and practitioners
from every field. In this online community initiative, the R&D
Group plays a major role in driving the continued evolution ofcore technology development and value creation.
In addition to internal efforts to strengthen human capital,
we are investing in the development of technology platforms
through an open innovation R&D consortium, based oncollaboration with research institutions, academia, open
community partners, and start-ups both in Japan and overseas.
Through our open community initiatives, we are actively
involved in open-source projects and a consortium in fields
such as blockchain and edge computing, and have also joinedHyperledger, a project sponsored by the Linux Foundation as
well as the Edgecross consortium. Through Geodesic Capital,a venture capital firm in which Hitachi owns an equity stake, weare also promoting collaboration with start-up ventures. We
are accelerating the creation of world-leading technologies
through such activities and initiatives.

Promoting Basic Research to Resolve Societal Issues
Communicating a vision for the future and creating disruptive
technologies are both essential to resolving societal issues.
Hitachi has established joint R&D centers with the Universityof Tokyo, Kyoto University, and Hokkaido University to develop
visions to support realization of the “Society 5.0” concept.
The laboratories established with these three institutions arefocusing on different topics, namely urban planning andenergy (Hitachi University of Tokyo Lab), issues facing society
in 2050 (Hitachi Kyoto University Lab), and regional issues
and food/health (Hitachi Hokkaido University Lab). Each lab isalso responsible for related global communications. We areworking to identify practical research topics within these
initiatives, and converting research findings as a major sourceof potential business opportunities. Efforts to create disruptive
technologies include a project to develop quantum computing
with UK-based Cambridge University, and a regenerative
medicine project based at the Kobe Biomedical Innovation
Cluster. I see these initiatives helping to lay the foundation for
Hitachi’s new businesses of the future.
Besides patent activities to reinforce product businesses,
we are promoting novel intellectual property (IP) activities tosupport ecosystem construction. Our IP programs areincorporating data and other information assets to help36

accelerate the development of digital solution businesses
based on AI, analytics, and other digital platform technologies.
Through these R&D activities, I am confident that we willcontribute to the growth of Hitachi and the SDG No.17 target“Partnership for the goals.”
SDG Focus

Historical/Projected R&D Expenditure(Billions of yen)
500.0

450.0

3.4%

3.3%

334.8

333.7

3.5%

3.6%

3.7%

400.0

350.0

350.0
323.9

332.9

300.002014

R&D expenditure

2015

2016

2017

R&D expenditure relative to revenues

2018(Forecast)(FY)