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Two Steps Forward

How 106-year-old Hitachi aims to lead on sustainability solutions

Only a relative handful of companies live to be centenarians, let alone get a chance to reinvent themselves for the digital age.

Only a relative handful of companies live to be centenarians, let alone get a chance to reinvent themselves for the digital age. General Electric (formed in 1892), Ford (1903), General Motors (1908), Honeywell (1906), IBM (1880s), Schneider Electric (1836) and Siemens (1847) — all are examples of companies in some stage of transforming themselves to compete in our connected, cloud-based, data-intensive world.

Add to that list Hitachi, which dates to 1910, a sprawling Japanese conglomerate comprised of some 900 business units, from healthcare and finance to energy and railroads. Like many of its centenarian peers, Hitachi is seeing vast opportunities to build and leverage digital solutions that address some of the world’s most pressing sustainability challenges.

Indeed, it’s not just an opportunity — it’s key to these companies’ survival.

Six years ago, when Hitachi celebrated its centennial, the company was ripe for an overhaul. It had been losing money for years, including $2 billion in 2010 alone. Hiroaki Nakanishi, its newly installed president, launched the Smart Transformation Project in 2011, which restructured the company following the global financial crisis. (Nakanishi became CEO last month.) Among other things, he vowed to make environmental innovations core to the company's operations for the next 100 years. As part of that transformation, he announced a goal to make all Hitachi Group products comply with the company's Eco-products guidelines by 2025.

Having a 100-year goal itself is pretty extraordinary these days. Publicly putting sustainability at its core is unheard of.

Having a 100-year goal itself is pretty extraordinary these days. Publicly putting sustainability at its core is unheard of.

That initiative helped set the stage for Hitachi’s current strategy: to integrate its information and infrastructure technologies to align sustainable development with the operations of cities, healthcare, and energy, food and transportation systems.

Hitachi’s move is reflective of what Harvard economist Michael Porter calls the third wave of IT-driven competition, where "smart, connected products offer exponentially expanding opportunities for new functionality, far greater reliability, much higher product utilization, and capabilities that cut across and transcend traditional product boundaries." All of which is disrupting value chains, he said, "forcing companies to rethink and retool nearly everything they do internally."

Hitachi is hardly the first to do this retooling. GE’s Ecomagination (2005) and Industrial Internet (2012) initiatives include both sustainability and digital offerings (although these two GE marketing brands are not overtly integrated). IBM’s Smarter Planet initiative (2008), highlighted how to capture the potential of "smarter" systems to achieve economic growth, near-term efficiency, sustainable development and societal progress. (The campaign appears to have run its course: the advertising has pretty much disappeared, and the most recent entry in IBM’s Smarter Planet blog was in October.) There’s also Cisco’s Smart Cities initiative and countless other corporate marketing offerings centered around the technologies that comprise the Internet of Things, or IoT: cheap, ubiquitous sensors; cheap, ubiquitous bandwidth; and cheap, ubiquitous computing and storage.

Social innovation

Hitachi’s term of art is "social innovation," which addresses "issues faced by society and customers through innovation that combines both IT and social infrastructure," according to the company’s website.

Social innovation is "a representation of the overarching strategy we've had for 106 years," said Kevin Eggleston, general manager, Americas at Hitachi Insight Group, a newly formed unit announced last week to bring together the company’s digital and IoT solutions and services across the company’s business units. From its very beginnings, Eggleston explained, Hitachi took an engineering perspective to addressing the major problems in Japan. "That's always been the case throughout the history of Hitachi — the sense of if we do good, we do well as a company."

Today, Hitachi believes it can do quite well taking on society’s core challenges to meet the growing needs of a planet with 9 billion people in the not-too-distant future.

Its social innovation initiative resulted from an 18-month strategic exercise in the run-up to Hitachi’s centennial, looking at the megatrends facing the world and how the company could address them. Those that stood out included urbanization, such as density issues, population increases, migration trends, health challenges related to an aging population, climate change and resource constraints.

Hitachi and Japan had been grappling with these trends and issues for 20 or 30 years and had gotten really good at solving for them.

Hitachi already had deep experience in many of these arenas, as a Japanese company that was a big player in that island nation, explained Erica Hauver, senior vice president of Hitachi’s Social Innovation Business.

"Hitachi and Japan had been grappling with these trends and issues for 20 or 30 years and had gotten really good at solving for them," Hauver told me. "So it was with that DNA and experience that the question was being asked in our boardroom about how Hitachi could bring greater human security, greater comfort, greater quality of life and reduced negative environmental impacts in a world of greater vulnerability to natural disasters, denser living conditions and resource scarcity."

A matter of what matters

Key to finding business success amid these challenges is what Hitachi refers to as the "Internet of things that matter." That is, in a world where just about everything is connected, only a subset of those have societal significance.

"It's not just refrigerators talking to you and ordering groceries," said Eggleston. "It's about feeding the world. It's not just thermostats managing your personal space more efficiently, but how to sustainably power the world."

One place Hitachi sees big opportunities are microgrids — small-scale power networks that can operate independently from or connected to the main electrical grid, using sensors, data and analytics to deliver just the right amount of power as cheaply and efficiently as possible at any given moment. Microgrids represent a fast-growing market opportunity — nearly $35 billion annually by 2022, according to the research firm MarketsandMarkets. Microgrids’ applicability spans campuses, commercial operations, neighborhoods and communities, military bases, disaster recovery efforts and as primary power to islands and remote regions that traditionally have imported diesel and other dirty fuels to run generators.

For Hitachi, microgrids — and the company’s new Insight Group — represent an opportunity to knit together some of its myriad technologies, said Hauver. "It allows us to scale what has historically been a very customized customer solution, into hundreds and thousands of microgrids that can be operated remotely, optimized for energy efficiency, resource productivity and economic optimization."

Another application with worldchanging potential is in reducing supply-chain food waste. Hitachi sees opportunities to improve the food industry’s "cold chain" — the term given to the uninterrupted series of storage and distribution activities that maintain a given temperature range for food and medicine. Doing this effectively and energy-efficiently requires the kinds of complex data, monitoring and analytics that are at the heart of IoT systems "that matter." Hitachi has business units in refrigeration, transportation, healthcare and other related activities that will need to come together to create such integrated offerings.

Breaking down stovepipes

Of course all this knitting together of products and services requires patience and persistence, particularly in a firm that, like most, traditionally has been stovepiped into separate business units and product lines.

Hitachi is trying to break down its stovepipes. Consider healthcare, said Eggleston. "What we've done in healthcare is consolidated everything that we do into more comprehensive solutions so that doctors can see, from a patient walking in the door to treatment for cancer — the entire value chain for that patient — and drive healthcare costs down and outcomes up."

It’s also a matter of collaborating externally, including with competitors, he said. "We believe that there are few big players — us, GE, IBM, Siemens, a few others — that have a unique obligation to both partner together and compete to make this market bigger, faster. That's our vision overall around the social innovation strategy."

A challenge for Hitachi will be remaking its business models, transitioning from a company focused on commoditized, lower-margin products, into one offering higher-margin services.

Still another challenge for Hitachi will be remaking its business models, transitioning from a company focused on commoditized, lower-margin products into one offering higher-margin services. The company is undergoing a major reorganization that began when Toshiaki Higashihara became Hitachi’s president two years ago. The goal is to transform the company into a more customer-oriented business instead of a corporate framework built around product categories.

Can a centenarian conglomerate teach its hundreds of farflung operations to play well together, not to mention collaborate with competitors, then integrate various products and services to take on the world’s food, energy, transportation and healthcare challenges? It’s a open question, and Hitachi’s quest to harness sustainability as a long-term business focus will be interesting to watch.

The big bet is that there is sufficient market demand to make it all worth the effort. Said Hauver: "What customers want are solutions that drive resource efficiency and greater economic outcomes. And with Hitachi's vision layering on the social and environmental imperative as the sort of initial screen through which many of these decisions are made, there is a belief that by viewing the world through that lens, we are going to find the areas where the market wants Hitachi to bring sustainability solutions to market."

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