Chapter 4 Driving Innovation to Stay Ahead in a Changing World

Chapter 4

1.

Transforming the Organization andCorporate Culture1) Formulation of MTBP 2019

Driving Innovation to Stay Ahead in a
Changing World
2019–2021

Finding itself in a rapidly changing business environment, the Kawasaki
Group implemented a series of reforms under the banner of “Changing
Forward.” In 2019, it launched its Medium-Term Business Plan
(MTBP) 2019 (FY2019–2021). Moving toward its primary goal of“balancing autonomous business management and company-wide
corporate governance," Kawasaki introduced a divisional system andchanged its corporate structure from that of a company with a board ofcorporate auditors to a company with an audit and supervisorycommittee. On top of that, it spun off the rolling stock business as wellas the motorcycle and engine business into new companies.
COVID-19 began to spread globally in the early 2020s. This spreadbrought business across the world to a near standstill as thetransportation of people and goods came to a grinding halt and supply
chains suffered massive disruptions. Working against this backdrop, theKawasaki Group saw aerospace and rolling stock orders spiral
downward, resulting in year-on-year decreases in sales and profits infiscal 2020.
In the meantime Kawasaki adopted the Group Vision 2030: Trustworthy
Solutions for the Future in November 2020. The company identified
three areas it should focus on in order to achieve the vision of a safe andsecure remotely connected society, near-future mobility, and energy andenvironmental solutions.
Kawasaki was determined to leverage its diverse range of unique
technologies and work hard to overcome the hurdles created by the
COVID-19 pandemic while solving a myriad of problems facing theworld as it kept its eye on achieving a sustainable society.

Kawasaki saw the profitability of some of its businesses significantly
drop during the period of the MTBP 2016 medium-term business planthat ended in fiscal 2018 and urgently needed to strengthen its financialbase. On the other hand, the businesses that were driving growth wereabout to reap returns as expected on investments that had been made on
an ongoing basis.
It was against this backdrop that Kawasaki launched its MTBP 2019 inApril 2019. The plan envisioned a fiscal 2030 operating income marginof 10% or more (with annual sales growth of 5% or more) in light ofmegatrends in the business environment and the SDGs. The company
decided to make selective investments over the three years of the MTBP
2019 by placing the most emphasis on strengthening its financial base inorder to achieve further growth. The outline of the plan is as follows.
[Basic Policy](i) Strengthen the financial base
Return to the philosophy of emphasizing quality over quantity to
improve operational quality (including project risk management),and strengthen the financial base toward future growth(ii) Total optimization of business portfolios
Balance autonomous business management and company-wide
corporate governance
Implement carefully selected investments of labor, resources, andbudgets, from the viewpoint of total optimization. Consider
megatrends and SDGs. Clarify each business’s role, optimal scale,and form(iii) Business model innovation (“Changing Forward”)
Make good use of core competencies to increase enterprise value
through business and value chain innovations (without sticking toin-house development and production)(iv) Innovate company organization/culture (“Changing Forward”)
Construct cross-organizational functions and management systems
for total optimization and a company culture to face evolving
challenges

MTBP 2016

MTBP 2019

Operatingincomemargin: 10%
or moreFCF: ¥120 billion or more
over 3 years

Core components(precision machinery, general-purpose
engines, semiconductor robots) Remote monitoring (track monitoring,gas turbines etc.)
 Engine MRD1 AUVS2 SOPass3
 Medical robots

Existing Business Domains

Brand licensing marker
development

FY2019-2021

Designpars

Manufacturing/assembly

Sales/logistics

Service/maintenanceand operation

Value chain

FY2030Long-Term Vision and the MTBP 2019118

 Hydrogen technologies
 Medical robots
 Next-generation vehicles

Strengthen financial base Selective
Investments toward further growth
Sales growth rate after
FY2019:5%or more per year

FY2016-2018

Amount of added value

Before-tax ROIC:10% or more
Operating income margin:
6% or more

Press conference announcing the MTBP 2019

Continuously increase value Expanding value chains not dependent solely on internal resources

FY2030Goals for FY2021 (milestone) Profitability declined andquantitative goals were notachieved
 However, development of
medium-to long-term
growth driver businesses
progressed as planned
 Expecting to begin reaping
returns from fiscal 2021

Group report on the MTBP 2019

1. MRO: Maintenance, repair and overhaul
2. AUVs: Autonomous underwater vehicles
3. SOPass: Ship Operation and Performance Analysis Support System

Business Model Innovation Breaking Away from Insourcing Policies(Changing Forward)

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Part 2/The Last 25 Years (Overall History)[Management Targets (FY2021)]
Before-tax ROIC*1
10% or more
Ratio of operating
6% or moreincome to sales(100 billion yen or more)
120 billion yen or more
FCF*2
over 3 years*1 ROIC = EBIT/invested capital (i.e. shareholders’ equity + interest-bearing debt)*2 FCF before spending on growth investment

Company

Division
Naval and Special Ship Business
Ship & Offshore
Division
Structure Company
Merchant Ship Business Division
Rolling Stock,
Domestic and Asian Business
Construction
Division
Machinery & Crushing North American Business Division
Plant Company
Aerospace Systems
Aerospace Business Division
Company
Aero Engine Business Division
Energy Solutions Business Division
Energy System & Plant
Plant Engineering Business Division
Engineering Company
Marine Machinery Business Division
Motorcycle Business Division
Motorcycle & Engine 4 Wheel & PWC Business Division
Company
General Purpose Engine Business
Division
Precision Machinery & Precision Machinery Business
Robot Company
Division
Robot Business Division

Chairman Kanehana (left) and President Hashimoto (right)

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Chapter 4 Driving Innovation to Stay Ahead in a Changing World[Key Measures]<Reinforce earning power and corporate strength ahead of fiscal
2021>• Improve earning power and free cash flow
• Strengthen project risk management/quality control systems• Clarify the position of each business via a portfolio and rebuildthem• Innovate business models by breaking away from insourcing
policies• Innovate company organization/culture and implement K-Win
activities<Achieve quantitative goals with FY2021 as a checkpoint>• Achieve goals through profit & loss/cash flow quantity models<Spell out long-term policy for years up until FY2030>• Growth vision for FY2030• Megatrends in Kawasaki’s markets/SDGs• Achieve discontinuous innovations
Although the outlook for the global economy was uncertain due to thetrade friction between the United States and China and the slowdownof the Chinese economy, Kawasaki decided to invest in growthbusinesses with an eye to fiscal 2030 while moving forward to achieve
its management goals. The company also started looking at its vision
for 2030 (Kawasaki Vision).

4) Transition to a Company with Audit &Supervisory Committee
Kawasaki changed its status from a company with a board of corporate
auditors to a company with an audit and supervisory committee
following the approval of its shareholders at their ordinary general
meeting on June 25, 2020. The transition was designed to give the Boardof Directors more input on management strategies and other matters andenable them to respond swiftly to rapid changes in the businessenvironment while further strengthening its supervisory function.
This change delegated a significant portion of the authority to makebusiness decisions to executive directors and executive officers
appointed by the Board of Directors and added greater agility to thedecision-making process. At the same time, the composition of the Boardof Directors was also changed. The percentage of outside directors wasincreased to make management more agile and efficient as well as ensuretransparency. As of October 2021, six of the 13 directors were outside
directors. In order to ensure the board maintained a diverse perspective,
two women and one non-Japanese national were appointed as members.

Structure after Transition to a Company with
an Audit & Supervisory Committee
Before transition
Inside11 directors
OutsideInside5 corporate auditors
OutsideAfter transition
Directors who are
Insidenot Audit &Supervisory
Outside13
Committee Members
directors
Directors who are
InsideAudit & Supervisory
OutsideCommittee Members

8
3
2
3

5
3
2
3

2) Introduction of a Divisional Organizational
Structure
Kawasaki focused on ensuring both autonomous business
management and company-wide corporate governance under the
MTBP 2019. As part of this policy, it introduced a divisionalorganizational structure in April 2020. This involved reorganizing 28
business units into 14 strategic divisions of the company-widebusiness portfolio and appointing division heads who would be incharge of executing the operations of their respective divisions.

3) Inauguration of Yasuhiko Hashimoto as
President
In June 2020, Kawasaki’s president, Yoshinori Kanehana, became its
chairman, and Yasuhiko Hashimoto, its senior executive vicepresident, became president. Hashimoto had worked on thedevelopment of industrial robots and taken charge in the launch of arobot business for semiconductor manufacturing equipment as well as
the establishment of Medicaroid Corporation, a company thatdevelops medical robots.
In assuming the position of president, he stated, "I have theresponsibility to chart a course for the future and take steps needed toenhance our potential as a company while continuing the reforms
former President Kanehana has implemented so far." He also
proclaimed his commitment to tackling the issues facing society withspeed while keeping an eye on the market.

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2.

Chapter 4 Driving Innovation to Stay Ahead in a Changing World

Implementing Group Vision 2030
1) Formulating Group Vision 2030

Group Vision 2030 and the three key themes that drive theGroup’s efforts to achieve it

In November 2020, Kawasaki adopted a new vision statement, theGroup Vision 2030: Trustworthy Solutions for the Future, describing
what the Group envisioned itself becoming by 2030. Group Vision
2030 embodies the corporate message, “changing forward,” which
Kawasaki announced in 2017. It underscores the Group’s commitment
to providing timely and innovative solutions in an ever-changing
world in order to build a future full of hope. It promises to go beyond
organizational and divisional boundaries in taking on new challenges
and expand the horizon of possibilities to sow the seeds for further
growth. The company picked three key themes that drive its efforts tofulfill Group Vision 2030.

Frontier

Pioneering the technology frontier with ourchallenger “DNA”
We will continue to respond to the frontier of the new era’s social
challenges, based on the unique perspective of challengers we’ve
always had since our founding, in order to create a hopeful future.

New Values Providing innovative solutions to the problems
facing the world
We are committed to providing solutions with new and high added
value to a wide range of customers and society, by concentrating thetrustworthy technologies and knowledge that we have been building inorder to provide innovative solutions and to speedily accommodatesocial change.
Cross Over Becoming a creative challenger that continues togrow by breaking barriers
To provide innovative solutions focused on social challenges, we willcontinue to be an open-minded, free-thinking, and creative team that
goes beyond the boundaries of internal and external organizations andof product/service categories, leveraging our rich diversity.
Business scale 200 billion yen

Business scale 600 billion yon

A Safe and Secure RemotelyConnected Society

RCP Testing BusinessGroup Vision
2030 initiatives
Robotic Assisted
Surgery System

For the Future

Remote Robot Business

Near-Future Mobility
Delivery Robot• Decreasing birthrate
and aging population• Remotely-connectedsociety• Global environment

Unmanned VTOL
Energy and Environmental Solutions• Disaster response

Hydrogen Technology
Demonstration

Commercial
Demonstration

Full-Scale
Commercialization

Group Vision 2030 initiatives

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The company identified three areas it should focus on in order toachieve this vision, including a safe and secure remotely connectedsociety, near-future mobility, and energy and environmental solutions.
A safe and secure remotely connected society: Applying remotecontrol and robot technologies in various fields such as medicine,
healthcare, manufacturing, and industrial infrastructure to make"working from a remote place" possible with an eye to achieving asafe and secure society and proposing new ways of working andliving. And in addition, providing solutions that will protect lives andproperty from disasters that have been a common occurrence in recent
years.

Near-future mobility: Combining technologies for aircraft, off-road
four wheelers, robots, and more to develop new forms of mobility,
such as remotely controlled, unmanned transport helicopters and selfdriving delivery robots, to offer smart society solutions that use newmodes of transport and travel, including solutions to the last-miledelivery challenge.
Energy and environmental solutions: Leading the world in building ahydrogen supply chain for the production, transportation, storage, andutilization of hydrogen, developing CO2 separation and capture
technology, electrifying transportation systems, and more to help
achieve a sustainable, carbon-neutral future.

2) Transitioning to a Business Structure forCreating Solutions
In addition to focusing on the three fields noted above, Kawasaki
decided to operate businesses within the three areas of Land & Air
Transportation Systems, Motion Control & Motor Vehicles, andEnergy & Marine Engineering to create solutions and allow businesssegments to collaborate more effectively. The company alsotransformed via major organizational changes. In April 2021, it
merged the Ship & Offshore Structure Company and the Energy
System & Plant Engineering Company to establish the Energy
Solution & Marine Engineering Company, with the aim ofstrengthening competitiveness through synergies among the hydrogen,marine, and engineering businesses.
Parallel to this restructuring, the company spun off its Rolling Stockand Motorcycle & Engine Companies as separate companies in orderto ensure the autonomous management of each.

Transitioning to a Business Structure for Creating Solutions

Land & Air Transportation Systems
Airplane and rolling stock businesses
leveraging dependable quality andcompetitiveness Aerospace Systems Company
 Kawasaki Railcar ManufacturingCo., Ltd.
New company established in
October 2021

A safe and secure remotelyconnected society

Near-future mobility

Motion Control & Motor Vehicles
Extending management resources
to mass-production businesses andstrengthening synergies in corecomponent businesses
 Precision Machinery & Robot
Company
 Kawasaki Motors, Ltd.
New company established in
October 2010

Energy and environmental
solutions

Energy & Marine Engineering
Businesses in energy, mainly hydrogen, as well as marine engineering Energy Solution & Marine Engineering Company

Transitioning to a Business Structure for Creating Solutions3) Spinning off Rolling Stock and Motorcycle &Engine Businesses
Establishing Kawasaki Railcar Manufacturing Co., Ltd.
Kawasaki Railcar Manufacturing Co., Ltd. was established on October
1, 2021. Rail systems are an environmentally friendly means of public
transportation intertwined in people’s daily life and can contribute in a
big way to carbon neutrality. The market was expected to grow at a
relatively stable pace across the globe, as illustrated by the growing
need for rail services that accompanied economic development incountries across Asia.
Having established an organizational structure that would enable it toquickly and flexibly work with other industry players in this growing
market, Kawasaki Railcar Manufacturing adopted the following
corporate philosophy: “We pledge to ensure day-to-day safety and tobring about an exciting future by constantly tackling challenges incraftsmanship and technological innovation.”

Dhaka Mass Transit Company Limited’s Dhaka MRT Line-6 in
Bangladesh

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Chapter 4 Driving Innovation to Stay Ahead in a Changing World

Establishing Kawasaki Motors, Ltd.

Hybrid motorcycle under development by Kawasaki Motors, Ltd.

Kawasaki Motors, Ltd. was established on October 1, 2021. The
power sports business, selling motorcycles and off-road four wheelers,and general-purpose engine business were experiencing a once-in-acentury transformation with CASE.* They were also making headway
on compliance with environmental regulations and partnerships inelectrification and advanced safety technologies. The power sportsbusiness was a Kawasaki Group core business and its only B2C
business, and required flexible and bold decision-making.
Working against this backdrop, Kawasaki Motors focused on keeping
its operations flexible, creating stores based on the concept of“enjoying with five senses,” and offering products and services thatwere tailored to customer needs in order to build a stronger brand andachieve sustainable growth.
* CASE stands for Connected, Autonomous/Automated, Shared, andElectric.

4) Introduction of a New Personnel System

Off-road four wheeler

In April 2021, Kawasaki overhauled its personnel system. Aiming toachieve Group Vision 2030, the company introduced a brand new
personnel system that would enable the people that made up its
diverse workforce to maximize their abilities and produce high addedvalue results. It adopted a new approach and framework ofcompensation and evaluation that placed greater emphasis on abilities,
roles, and achievements to enhance its ability to respond quickly tochanges in society.
Built around the concept of “challenge and commitment” (setting
challenging goals in addition to minimum goals and accomplishingthem with speed and determination), the new personnel system wasdesigned to foster a culture that encouraged employees to try new
things.

Job-based System Boosts Employees’ Desire to Grow
For senior officials, the company adopted a job-based system, inwhich salary and compensation were determined on the basis of theirroles, such as the duties they should perform and results they should
achieve. The breadth of jobs associated with all positions in thecompany was measured by clarifying the required knowledge,
experience, responsibility for achieving expected results, etc. The
company applied job ranks that were based on this to raise awarenessabout the new personnel system.
The company also designated certain individuals as corporate
executives, from among those who perform important corporate duties
and those who possess outstanding behavioral characteristics, to beevaluated, trained, and assigned with a bigger corporate picture in
mind.

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This would facilitate active exchange among employees and bridge
the chasm between internal companies while unleashing potential
synergies between businesses as the company aimed to continuously
enhance its enterprise value.

Assigning Employees with the Right Stuff andDeveloping Next Generation Leaders
For general employees, seniority, including age, and employment
history was off the board. The new system placed greater weight on
individual abilities. Kawasaki could now quickly find and promote
outstanding young employees in a system that motivated young
employees to further their professional development while still
enabling veteran employees to thrive in the workplace regardless of
their age.
The new system also integrated categories E (clerical and technicalpositions) as well as R (planning management and development
positions) and created category V (planning and professional
positions) while merging full-time positions into category G andpartner employees into category A (clerical positions). This
realignment of positions and professional qualifications into larger
categories would provide employees with opportunities to work awider range of jobs and help them gain extensive experience while
recognizing employees who performed more difficult tasks.

5) Launching Presidential Projects
Moving toward achieving the objectives of Group Vision 2030,
Kawasaki went beyond the boundaries of its individual internal
companies to leverage the Group’s strengths as a whole. This
included implementing a series of company-wide reforms andestablishing the Presidential Project Management Division in January
2021. It set up various organizations dedicated to PCR testing
services, near-future mobility, and more in order to quickly create
new businesses that transcended the frameworks of its internal
companies.
The Presidential Project Management Division consisted of the
Project Promotion Department, Administration Department, PCR
Supervisory Department, Advanced Smart Mobility Supervisory
Department, and eWork Business Group (newly established in
February of the same year), where many employees appointed fromacross all internal companies could pursue synergies that crossed theboundaries of the internal companies.

Initiatives of the PCR Supervisory Department
In early 2020, the novel coronavirus (COVID-19) began to spreadaround the world. In April of the same year, the Japanese government
declared a national emergency.
Kawasaki and its subsidiaries, Medicaroid and Sysmex Corporation,
jointly developed an automated robotic PCR testing system that fully
automated processes involving the risk of infection. Following thelaunch of the first testing service at Fujita Health University in March
2021, Kawasaki started offering a testing service for local
governments in May and for international passengers departing from
Kansai International Airport in September.

Automated robotic PCR testing system

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Chapter 4 Driving Innovation to Stay Ahead in a Changing World

Initiatives of the Advanced Smart Mobility Supervisory
Department

K-RACER unmanned VTOL aircraft

In August 2021, Kawasaki was commissioned by Ina City, Nagano
Prefecture to build a platform for transporting cargo to locations deepin the mountains using the K-RACER unmanned VTOL aircraft. The
company also developed an automated delivery robot designed toachieve smooth, stable operations even on rough and bumpy roads
and conducted testing at a hospital and in urban areas. In November
2021, the company successfully completed proof-of-concept testingfor unmanned cargo transport using its K-RACER and delivery robot
with the aim of helping to solve societal issues such as labor shortages
in the logistics industry.

Initiatives of the e-Work Business GroupIn December 2021, Kawasaki and the Sony Group Corporation
established Remote Robotics Inc., a joint venture for remote robot
platform businesses. The joint venture started demonstration tests withan aim to build remote control platforms for robots utilizing theadvantage of both companies.
Automated delivery robot

Suiso Frontier liquefied hydrogen carrier

Artist’s rendering of the pilot scale test facility at the Maizuru
Power Plant (Photo: Kansai Electric Power Company Inc.)

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6) Initiatives for a Decarbonized Society
In 2010, the Kawasaki Group publicly announced its plan to build a
CO2-free hydrogen supply chain for the international transport of lowcost hydrogen produced overseas in order to meet growing
expectations for hydrogen-related businesses that hold the key toachieving a decarbonized society. In 2018, with the support of theJapanese and Australian governments, the Group started working withpartner companies to demonstrate its technology for building aninternational supply chain designed to liquefy hydrogen produced
from Australian brown coal and transport it to Japan. In 2022
Kawasaki became the first in the world to successfully transportliquefied hydrogen internationally. In 2021, a commercialization
demonstration project aimed at making the transport of hydrogen
more economically feasible by increasing the size of equipment andfacilities was adopted as a Green Innovation Fund project. Efforts areunderway to achieve an annual supply of 225,000 tons when the
supply chain becomes available for commercial use in 2030.
Kawasaki has also announced that it would aim for achieving carbon
neutrality on its own at its domestic plants by 2030 through initiatives
centered on hydrogen power generation.
In addition, the company and the Research Institute of Innovative
Technology for the Earth (RITE) will start a joint pilot demonstration
at the Kansai Electric Power Company Inc.’s Maizuru Power Plant in
2023 under the New Energy and Industrial Technology Development
Organization (NEDO) project for applied research on coal combustion
waste gas and advanced carbon dioxide solid absorption materials.
The energy-saving carbon dioxide separation and capture system usedin the demonstration is expected to be a next-generation CO2
separation and capture technology because it has the potential tosignificantly reduce the energy required for CO2 separation andcapture compared to conventional technologies.

7) Trustworthy Solutions for the Future
Kawasaki aims to create a new world via each of the three key focusesof its Group Vision 2030: a safe and secure remotely connectedsociety, near-future mobility, and energy and environmental solutions.
The hydrogen business will not only produce products that arecompatible with hydrogen fuel, but also create a clean hydrogenpowered society. Near-future mobility will focus on creating a society
with new transportation and logistics systems tailored to changes in
the movement of people and goods. This also means shifting fromconventional manufacturing to selling services, i.e., shifting to thebusiness model of providing solutions that meet the changing needs ofsociety. In order to make that possible, Kawasaki will bolster
partnerships with government agencies and other companies as it
works to build a network of like-minded partners.
Today, the world is facing multiple problems, including climatechange, resources, poverty and hunger, aging populations, and ashrinking workforce. On top of that, the spread of COVID-19 ishaving a tremendous impact on people's health and economies aroundthe world.
Working in a global environment, the Kawasaki Group will continue
to explore market wants and how it can satisfy those wants as it strives
to quickly deliver needed solutions. The Group's social role andresponsibility is to do its best to achieve a sustainable society byproviding solutions that meet the needs of all. All of Kawasaki’s
businesses will continue to make a change for the better and do
everything necessary to create the kind of new customer value theworld needs as it moves forward to provide “Trustworthy Solutions
for the Future.”

Ceremony to commemorate the completion of the JapanAustralia supply chain for large-scale marine transportation ofbrown coal-derived hydrogen127