Hitachi Integrated Report 2022

CEO Message

Introduction

Whatʼs Hitachi

The Story of Collaborative Value Creation with Stakeholders

Mid-term Management Plan 2024

Materiality

Value Creation

Business Strategies

The Value Creation Process

Sustainability

Human Resources Strategies

Mid-term Management Plan 2024

Data

34

Financial Strategies

CFO Message

Corporate Governance

Innovation Strategy

Innovation Strategy in the Mid-term Management Plan 2024

Under the Mid-term Management Plan 2024, we will expand investments in innovation acrossthe entire Hitachi Group for further growth. A cumulative total of 100.0 billion yen will be invested
in advanced research during the three-year plan, expanding Groupwide R&D investment to 1.1
trillion yen. We will also invest an additional 50.0 billion yen in corporate venturing (CV). Throughthese investments, Hitachi aims to create radical innovation to solve future societal issues.

Innovation Promotion Structure for DX/GX Global Growth
Fully leveraging the Hitachi Group’s technology platforms, human capital and the customer
network, we will create DX/GX innovations under a global structure. The Research & Development
Group with a highly diversified workforce of 2,300 people, will be leading the creation of
innovation through digitalization and other technologies. Together with Hitachi Ventures GmbH
(HVG), we will work to create innovation that will solve issues faced by customers and society
through collaborations with leading startups in a wide-range of fields. The Global Intellectual
Property Group is promoting the establishment of a new intellectual property platform to provide
value to global customers under experienced global leadership. We will accelerate global
business growth together with Hitachi Energy, GlobalLogic, and business units in each region.

Protect Earth

Resolving customer and societal issues
with data and co-creation

Sustain society

MMP 2018

Wellbeing

A society where every individual
is comfortable and active

MMP 2021

MMP 2024

April 2019
Opened Kyōsō-no-Mori

Established Innovation Growth Strategy Division

Launched NEXPERIENCE/Lumada

Reorganized technology platforms

Established global collaborative creation hubs
for co-creation with customers in Japan,
North America, Europe, China and Asia

Integrated the technology platforms of
Hitachi Energy, Hitachi Astemo, Hitachi Vantara
and GlobalLogic; created synergies

Create digital service businesses

Open Labs

June 2019 Launched new CV fund company

Create radical innovation

Acquired business models
through startup investment and collaborations

Backcast from 2050 to resolve
customersʼ future management issues

Pursued innovation through collaborative creation
Established a three-center structure for co-creation
with customers (CSI), technology innovation (CTI)
and exploratory research (CER)

Collaborated with the University of Tokyo, Kyoto University,
Hokkaido University, University of Cambridge,
Tsinghua University, and the KOBE Biomedical Innovation Cluster

Formulate innovation investment strategies
to inspire customersʼ next of growth
Provide value through OT × IT × Products
to support customer growth

CSI: Center for Global Social Innovation, CTI: Center for Technology Innovation, CER: Center for Exploratory Research, CV: Corporate Venturing

Cumulative investment(over three years)

Advanced research investment:
100.0 billion yen

Enhance R&D investment in advanced research

1.1trillion yen

874.4

billion yen

812.1

200.0

About
billion yen

1,020.0

higher

62.3

100.0

MMP 2021

MMP 2024

Sectors,
Group
companies
Advancedresearch
investment(corporate)

Innovation Growth Strategy Division
Formulate and execute innovation investment strategies
that stimulate further customer growth
Keiji Kojima, President & CEO

Research & Development Group 2,300 people
Drive innovation with digitalization and technologies toprovide value through co-creation
Norihiro Suzuki, CTO and GM of the R&D Group

Global Intellectual Property Group 200 people
Establish intellectual property platform to provide value toglobal customers
Stephen Manetta, CIPO

Asia
India: Strengthen digital engineering
APAC: Focus on green buildings and smart cities

CV investment:
50.0 billion yen

Enhance investment in corporate venturing
Cumulative fund size
(billion yen)

Expanding Hitachi Group Investments in Innovation

Planetary Boundaries

R&D investment(billion yen)In the Mid-term Management Plan 2024, we will be focusing on generating innovation
through digitalization to achieve global business growth. During the Mid-term Management
Plan 2021, we opened Kyōsō-no-Mori and expanded co-creation with customers, whilereorganizing technology platforms and acquiring business models through startup investment
and collaborations. To further accelerate these initiatives under the Mid-term Management
Plan 2024, the newly established Innovation Growth Strategy Division will formulate innovation
investment strategies that will inspire the next of growth for customers, and under this strategy,
promote the creation of digital service businesses and radical innovation.

ExpandHV Fund

100
80
60
40
20
0

HV
Fund 1FY2019HV
Fund 2

FY2021

50.0

MMP 2024

EuropeChina

Create the environment
business in collaboration with
Hitachi Energy and Hitachi RailParticipate in the European
Environment ecosystem

Expand industrial GX/DX
business in collaboration
with local group companies

Hitachi Energy: Gerhard Salge, CTO

Hitachi China: Yasushi Harada, CTO

Strengthen decarbonization
efforts

North America

Japan

Enhance creation of digital
service businesses throughcooperation with GlobalLogic,
Hitachi Vantara and Hitachi
DigitalPromote customer co-creation
targeting DX/GX, establish
world-leading technology
platforms, create radical
innovation addressing planetary
boundaries and wellbeing

GlobalLogic: Sunil K. Singh, CTO

Hitachi Integrated Report 2022

CEO Message

Introduction

Whatʼs Hitachi

The Story of Collaborative Value Creation with Stakeholders

Materiality

Value Creation

Business Strategies

The Value Creation Process

Sustainability

Human Resources Strategies

Mid-term Management Plan 2024

Data

35

Financial Strategies

CFO Message

Corporate Governance

Generating Digital Service Businesses with the Lumada Growth Model
Under the Mid-term Management Plan 2024, we will further develop the Lumada growth model to co-create innovation together with customers and promote digital services that address ourcustomers’ next management challenges. To ramp up the Lumada growth cycle, we will deepen our understanding of captured signs and changes in society and customers, draft together with ourcustomers visions for new growth, and provide innovations to realize that growth. In the Lumada growth model, we will promote the categorization of business segment characteristics and operations
as well as work with the global front teams to strengthen marketing activities, to materialize and scale up through co-creation.

Backcasting from 2050 to Generate Radical Innovation
In formulating the Mid-term Management Plan 2024, we explored future societal issues throughrepeated discussions with international organizations, universities, customers and startups.
Based on these discussions, we understood that the societal challenges that need to beaddressed as we approach 2050 are “an environmentally-neutral society,” “a society which
supports an active 100-year lifespan of its citizens,” and “the co-evolution of digital technologies,
people and society,” and set them as areas of focus. We are addressing these concerns throughsuch initiatives as “energy storage and supply” and “direct air capture” to realize a carbonnegative society; “minimally invasive cancer treatment” and “designed cells” to overcome cancer
and intractable and infectious diseases; and “Ultra Big Data Management” and “silicon quantum
computers” to facilitate a data economy and computing innovation. Hitachi will be taking on thechallenge of creating radical innovation to resolve future issues by backcasting from 2050.

Value

Environment

Present

2030

Arrival of a hydrogen-based society
realizing carbon neutrality• Carbon pricing• Hydrogen mobility
Development of a circular economy
facilitating zero waste and acomprehensive recycling-based society• Restrictions on plastics

2050• Carbon neutrality• Full-scale utilization ofhydrogen energy

Environmentally-neutral society• Energy storage and supply• Direct air capture• Transition to bio-based andresource recycling

Safety,Security &Healthcare

Eradication of cancers with biomedical
technologies• Overcome COVID-19 pandemic
Advances in AR/VR enabling flexible workstyles• Remote work

Resilience

Advances in AI leading to the automationof a wide range of operations• RPA acceleration due to labor shortage
Acceleration of technology development
cycles using quantum computers• Risk analysis, Traffic control• Expansion of regenerative
medicine, Cell therapy
market expansion• Remedy gaps using avatars
and online education

Society with active,
100-year lifespans• Minimally invasive cancer
treatments• Designer cells• AI governanceCo-evolution ofdigital technologies,
people and society• Material and new drug
developments• Ultra Big Data Management• Silicon quantum computerInd

Ecosystems

us

tri

Radicalinnovation
ecosystems
Academia

Cutting-edge facilities

es

Glo
ba
gov l instit
ern utiome
nts ns/D
R&

Customers and partnersses
sin tsBu uniups

Foster innovation
ecosystems

Innovation andresearch strategiesrtSta

Through investments and collaborations with startup companies, Hitachi will achieve radical
innovation and acquire groundbreaking business models contributing to the expansion of theLumada business. In 2019, we established Hitachi Ventures GmbH (HVG) and launched the first
fund. We have now launched a second fund and invested in 17 companies. In May 2022, HVG
CEO Stefan Gabriel was ranked 19th on the Top 50 Powerlist by Global Corporate Venturing.
Under the Mid-term Management Plan 2024, we will expand innovation ecosystems withcustomers, startup companies, academia and others. Specifically, we will focus on three areas
identified in backcasting from 2050: “achieving a decarbonized and carbon-negative society,”“overcoming cancer and intractable and infectious diseases,” and “promoting the co-evolutionof digital technologies, people and society.”

Policies andframeworks

Collaboration themes toaccelerate radical innovations

Accelerating Outside-in Innovation through Startup Investments
Decarbonized • New approaches in carbon removal technologies• Negative-emission business model
society• Improved efficiency of artificial photosynthesis
Carbon negative (photocatalysts and new devices)
Overcoming cancer • Fusion of biopharmaceutics and radiotherapies
and intractable and • Designed cell innovation technologies(genetic design, cell manufacturing andinfectious diseases evaluation of cell functions)• Metaverse/Web 3.0 applications andCo-evolution ofbusiness models (societal infrastructure
digital technologies, and industrial fields)•
Quantum
applications and use cases
people and society• Quantum service business models

Hitachi Integrated Report 2022

CEO Message

Introduction

Whatʼs Hitachi

The Story of Collaborative Value Creation with Stakeholders

Materiality

Value Creation

Business Strategies

The Value Creation Process

Sustainability

Mid-term Management Plan 2024

Data

36

Financial Strategies

CFO Message

Corporate Governance
Human Resources Strategies

R&D Strategy
Basic Policy of Hitachi’s R&D

Creating Growth Drivers

Hitachi’s R&D strength is that it has established a value creation cycle based on owning platform
technologies for OT × IT × Products, and know-how, and pursuing technology development
through co-creation with customers and partners, adding to greater know-how.
Under the Mid-term Management Plan 2024, Research & Development will work closely with
Hitachi Digital, the Global Environment Division and the Innovation Growth Strategy Division thatare leading the growth strategy across the Hitachi Group. We will accelerate our initiative for theco-creation of value to further advance the Social Innovation Business, focusing on “Digital,”“Green,” and “Innovation” as the growth drivers. By generating innovation which will drive theLumada growth model, we will contribute to the growth of our global business as well as create
the next pillars of growth through radical innovation backcasted from 2050.

Hitachi is developing data-driven solutions under the Lumada growth model. By implementing
the Lumada four-quadrant value co-creation cycle, our goal is to create growth drivers that
support customer businesses. In Research & Development, we are furthering our understandingof customers’ next business challenges while promoting the co-creation of innovations anddigital services to resolve these issues. The Lumada growth model will be deployed worldwide
together with GlobalLogic and others.

Accelerating Value Co-creation
We will develop Hitachi’s unique co-creation approach, NEXPERIENCE, into a methodology toresolve societal issues and deploy the Lumada growth model. Through activities such as thosein our university joint laboratories, we are capturing the kizashi (signs) of change in society andcustomers, to develop visions and business scenarios.
Initiatives in fiscal 2021 included participating in the Transition to Zero Pollution panel discussion
hosted by Imperial College London in the United Kingdom to promote consensus-building
on expectations and issues regarding a decarbonized, recycling-oriented society. Transition
to Zero Pollution aims to achieve net zero emissions by 2050 (the state where the amount of
CO2 produced is equivalent to that removed from the atmosphere). Additionally, forums androundtables were held at the H-UTokyo Lab. and Tsinghua University in China to discuss therealization of a carbon neutral society in each region. In fiscal 2022, we are proactively engaged
in the creation of new innovations, including the establishment of a joint research center with
Imperial College to accelerate the development of decarbonization and natural climate solutions.

MAINTAIN
MAINTAINManaged services

Managed services

PLAN

Digital engineering

Understandcustomer
Digitalengineering

PLAN

management challenges
Understand our customersʼ
management challenges
Operate, maintain,
Develop solutions withmove to next challenge
IT/OT/Products
Operate, maintain,
Develop solutions withand assess for the next step AI tools / Methodologies / Customer Cases / Solutions
IT/OT/Products
Implement solutions

OPERATEOPERATE

Implement
solutions
Connected
products

Connected products

System integration

System integration

BUILD

BUILD

Examples of Value Co-creation in Finance and Public Services
Current issue: Operational excellence

Next challenge: Create new demand

PLAN

Optimize work processes with design thinking

Design cross-industry financial and public service
products based on OT know-how

BUILD

Increase work process system efficiency using“AI (RPA, dialogues, automated responses),”awarded first place in an international competition(SemEval2020)

Launch of Sustainable Finance Platform as interindustry coordinated services using IoT andblockchain technology, implement an inter-industry
coordinated IoT information distribution system

OPERATE

Hitachiʼs “Explainable AI” analyzes and evaluates
operational data, and supports the implementation of
AI in work systems, continuous operations and improvements

Data analysis with assured security in DFFT and
Blockchain/NFT discussed at first GTGS hosted
by the World Economic Forum

MAINTAIN

Hitachiʼs sensitivity analysis service automatically analyzes
the voice of customers, and provides customer service
improvements through product planning, sales strategies,
risk countermeasures, and so on.

Offer value distribution services leveraging
metaverse and Web 3.0

AI: Artificial Intelligence, RPA: Robotics Process Automation, GTGS: Global Technology Governance Summit, DFFT: Data Free Flow with Trust,
NFT: Non-Fungible TokenHitachi Integrated Report 2022

CEO Message

Introduction

Whatʼs Hitachi

The Story of Collaborative Value Creation with Stakeholders

Materiality

Value Creation

Business Strategies

The Value Creation Process

Examples of the Value Creation Cycle in the Fields of Energy, Railway and Transport
Current issues: Innovations in asset management

Next challenge: Promote user transition to CN

PLAN

Optimize facility costs with design thinking

Consider asset optimization, including gas and hydrogen,based on a CN scenario created through sharedunderstanding of issues with stakeholders in an industryacademia co-creation forum hosted by H-UTokyo Lab.

BUILD

Deploy Hitachiʼs digital maintenance platform and digitaltwin equipment diagnoses and management systems tomaintain and improve analysis accuracy in line withchanges in equipment status

Co-create and verify using the area energy management
verification environment created at Kyōsō-no-Mori bycombining Hitachi power generation, power
storage, and equipment maintenance technologies

OPERATE

Implement remote and automated equipment inspections
using “image diagnostics AI technology" that has achieved thehighest level in an international competition (TRECVID2020)

Introduce DERMS to implement grid-edge control
systems using technology such as Hitachiʼs gridedge solution for distributed energy sources

MAINTAIN

Provide condition-based services with Hitachiʼs APM
which was selected as a Leader in the IDC MarketScape
2020–2021 Vendor Assessment

Provide multi-energy optimization service with
EaaS and MaaSAPM: Asset Performance Management, CN: Carbon Neutrality, DERMS: Distributed Energy Resource Management System,
EaaS: Energy as a Service, MaaS: Mobility as a Service

Hitachi Product Strengths
Hitachi is promoting the provision of value to customers through OT × IT × Products. In terms of
products, during the Mid-term Management Plan 2021, we were able to establish the top global
technologies, winning prominent awards for high-speed railways, in-vehicle inverters, particle
beam cancer treatment systems, and biochemical immune-assay systems.
In the Automotive System business, we are working on gearless, high-efficiency drive systems
and multi-port EVs realizing the industry’s most substantial size and weight reductions.
Regarding the drive system (in-wheel motor), we aim to reduce energy loss by 30% compared
to previous motors, and have been selected for support by the Japanese government’s Green
Innovation (GI) Fund, aiming for even higher efficiency.
In the measurement and analysis systems business (Hitachi High-Technologies), we will
enhance the competitiveness of our semiconductor inspection and manufacturing equipment
while integrating and analyzing data generated from equipment in processing, inspection,measurement and analysis to provide feedback on manufacturing processes and products
to realize customer process innovations. Through co-creation with customers, we will use
the data generated from products for predictive diagnostics, analytics visualization andoptimizing operating conditions to contribute to reduced development time, improved yields inmanufacturing, and increased productivity for customers.

Sustainability

Mid-term Management Plan 2024

Corporate Governance
Human Resources Strategies

Data

37

Financial Strategies

CFO Message

Further Evolution of Lumada
In conducting R&D to further evolve Lumada, Hitachi is engaged in the creation of Lumada
cyber-physical systems (CPS) that link the digital and physical spaces in real time. We are also
focusing on the key technologies of AI, 5G, beyond 5G, security, electrification, and metaverse/
Web 3.0. For the area of security, we are developing Public Biometric Infrastructure (PBI)
technologies realizing data free flow with trust (DFFT) and promoting enhanced security for
crypto assets. Regarding metaverse/Web 3.0, which will support future societal infrastructure,
we will accelerate co-creations with startup companies.

Creating the Next Pillars of Growth
By backcasting from 2050, Hitachi is taking on the challenge to generate radical innovation for
the next pillars of growth: “an environmentally-neutral society,” “a society which supports anactive 100-year lifespan of its citizens,” and “the co-evolution of digital technologies, people andsociety.”
To realize a decarbonized and carbon negative society, we are working to realize a large-scale,
low-cost hydrogen production system; high-efficiency artificial photosynthesis; and a fuelproduction cycle fed directly by CO2.
For “overcoming cancer and intractable and infectious diseases,” we are working to develop
even more advanced cancer therapy through technology such as automated positioning ofparticle beam radiotherapies. Furthermore, we are developing designed cells based on genetic
modification and cell measurement technologies.
For the “co-evolution of digital technologies, people and society,” we will further enhance ultrahigh-speed database engines to realize data extraction performance speeds more than 100
times faster than conventional systems.
We are also accelerating developments for bio transformation (BX) and quantum transformation(QX), which will follow DX and GX.

Hitachi Integrated Report 2022

CEO Message

Introduction

Whatʼs Hitachi

The Story of Collaborative Value Creation with Stakeholders

Business Strategies

Value Creation

Materiality

The Value Creation Process

Sustainability

Mid-term Management Plan 2024

Data

38

Financial Strategies

CFO Message

Corporate Governance
Human Resources Strategies

Intellectual Property (IP) Strategies
At the same time, “Collaboration” is an intellectual property strategy based on collaborative creation.
As co-creation activities with customers and partners increase, we have expanded the scope of our IP
activities to include copyrights, patents and trade secrets, as well as information assets such as data andinformation, to promote partnerships and build ecosystems.
“IP for society” involves activities utilizing intellectual property in specific fields of a highly public nature
to maintain and evolve social norms. We will promote the creation of ecosystems and partners andcontribute to the improvement of social value.

Becoming a Global Leader in IP Activities
Under the Mid-term Management Plan 2021, in line with the stated visionof becoming a global leader driving enhanced value through the use of
intellectual property and the goal of realizing IP-driven social innovations,
we engaged in value-based (Environment, Safety & Security, Resilience)
intellectual property activities. In the Mid-term Management Plan 2024,
we established a new vision to become a global leader that resolves
societal issues and grows our DX and GX businesses using intellectual
property. We will achieve further advances and growth in the our Social
Innovation Business through the protection and use of intellectual
property centered on Green, Digital and Innovative initiatives.
Stephen Manetta
Additionally, in fiscal 2022, the name of the Intellectual Property Division
CIPO and General Manager,
was changed to the Global Intellectual Property Group. The position of
Global Intellectual Property
Chief Intellectual Property Officer (CIPO) was newly established to leadGroup
Hitachi Group intellectual property activities, and Stephen Manetta, whobrings a wealth of experience in global intellectual property management
was appointed as CIPO. By sharing insights gained from regional intellectual property activities at a global
level, and identifying beneficial insights, we will promote the creation of new value leading to innovation.
Hitachi formulates and executes an intellectual property strategy based on three pillars: “Competition,”"Collaboration," and “IP for society.”“Competition” is the intellectual property strategy based on competition, centering on acquiring andusing intellectual property rights with a focus on patent rights. We are formulating and strengthening theintellectual property master plans tailored to each business.

Intensifying
competition

104
103
102
101
100

Open

10-1

Launch
100

101

102

Growth potential (recent invention CAGR)

100 Entry difficult

Figure 3： Hitachiʼs strategy matrix

Hitachi well-positioned

Degree of market maturity
Intensifying competition

80
60
40
20
0

Competing02

Promising
4

6

8

10

Hitachi technology share (%)

12

Hitachi superiority

105 Mature

We are also promoting activities that contribute to innovation by analyzing intellectual property
information. For example, we are promoting the following initiatives in the environment field:
Market analysis based on number of inventions by all applicants (Figure 1). Each dot represents atheme, with market growth potential estimates (horizontal axis) based on the compound annual
growth rate (CAGR) of the most recent inventions, while market scale estimates (vertical axis) are
derived from the cumulative number of inventions, which are then divided into four quadrants toanalyze the degree of market maturity. For each theme, Hitachi’s technology share (Figure 2) isestimated (horizontal axis) based on the ratio of Hitachi inventions among total inventions, while
the degree of oligopoly is estimated (vertical axis) based on the ratio of top 10 companies among
total inventions, from which we can analyze Hitachi’s positioning. By combining these metrics(Figure 3) and identifying themes in areas where markets demonstrate high growth potentialand Hitachi has a high technology share (orange area at upper left), we contribute to innovation
activities by identifying growth areas where we can utilize Hitachi’s powerful existing technologies
to make proposals and share with other business divisions.

Figure 2： Hitachi technologyʼs positioning
in the environmental field
Degree of oligopoly (technology
share of top 10 companies)

Scale (cumulative total inventions)Figure 1： Number of inventions andgrowth potential in the environmental field

New Initiatives Linked to Innovation

Open

MatureHitachiwellpositioned

Theme A(e.g., smart grids)

Theme B(e.g., railway power
regeneration)

Launch・・・・・・

Promising

Theme C(e.g., combined renewableenergy and storage)

Theme D(e.g., IT infrastructure
resilience)

・・・

・・・

Competing

・・・

・・・

・・・

・・・

Entry
difficult

・・・

・・・

・・・

・・・