Hitachi, Ltd. (6501) Earnings Call Transcript

The time has come to start the Hitachi Ltd. Web Conference on 2024 Human Resources Strategy. Regarding materials, for those of you who have requested to participate should have received via e-mail. Please confirm the materials. I would now like to introduce the speakers: Hidenobu Nakahata, Senior Vice President and Executive Officer, CHRO; Lorena Dellagiovanna, Vice President and Executive Officer and Chief Sustainability Officer, Chief Diversity, Equity and Inclusion Officer. Those are the 2 speakers for today's meeting. Nakahata-san, please start.

Thank you very much for your participation today. Today, we'll be talking about the HR strategy for Hitachi Ltd. In June of this year, we had the Hitachi IR Day. We had the presentations from the business sectors and environment and green strategy. Innovation was discussed, and governance was also discussed during the IR Day. Today, we will take up the topic, which we did not take up at the IR Day, which is the S part of ESG, and we will be discussing the human resources strategy. These are the key takeaways. First of all, HR strategy is an important part of management strategy. Therefore, we must follow the human resources policy in line with the management strategy. If the management strategy changes, then HR strategy must change as well. We have been making drastic changes to the management strategy since 2010. And therefore, the HR strategy has also undergone significant change. In April, Mr. Kojima, President, announced the midterm management plan. And the management strategy remains intact. It is -- will be further strengthened for further growth. At the same time, in order to realize the management strategy, human resources are of utmost importance. And therefore, HR strategy must also be accelerated going forward. Now based on the management strategy, I would like to talk about the HR strategy and take up the major measures and talk about the progress made in the past 10 years as well as plans going forward. Regarding the sustainability strategy and diversity, equity and inclusion, this will apply to all the HR strategies. And therefore, I'd like to ask Lorena to discuss this point on this matter. Lorena, over to you.

Thank you so much, Nakahata-san, and hi, everyone. So very quickly in the next midterm management plan, in Hitachi, we aim to further evolve our social innovation business and achieve the growth, leading our competitors behind through green, digital and innovation. We aim to contribute to the society, protecting from one side, the planetary boundaries and from the other side, improving the well-being. This is a big challenge, but thanks to our capabilities and thanks to our workforce, we are really focusing on that, and we are committed even more on sustainability. That's why from April 1 of the actions the company has taken has been to strengthen the management structure and integrated all the sustainability topics in one organization and appoint the Chief Sustainability Officer. DI is one of the core, is playing a very important role because when we have to solve social challenges like protecting planetary boundaries and improving well-being, we need innovation. And to get innovation, we need better ideas. And that's why a diverse team working in a very inclusive matter can really bring to better idea. In this context, the HR strategy is playing a very, very important role because, thanks to this strategy, DI can be implemented across the whole organization. And this is today's focus of the presentation from Nakahata-san. Thank you.

Thank you very much. This is the agenda. We would like to discuss 3 points. First of all, let me talk about the HR strategy. Along this strategy, we have to, first of all, talk about how business strategy has changed. In 2009, we were set with a very significant [indiscernible] JPY 787.3 billion. And therefore, we were compelled to implement a major shift to management strategy. Product and systems were provided to the domestic market, but now we have shifted to the social innovation business. Data service is also included. This will be implemented globally. This is the significant shift that we have made. Now the social innovation has been coined by Hitachi. So let me explain this further for the customers as well as the society, not just for the present, but we aim to resolve the issues and challenges for the future. Not just products and systems are to be provided, but rather IoT, AI and other innovation will be brought to them in services that we provide, which means that what we have to do, first and foremost, is the customers', society's needs once we identified. Hitachi has been focused on product. We felt that high-quality products can be sold. But we are now focused on the market. What are the challenges prevailing in the market, and what kind of service that we can provide utilizing our production systems is now our major focus. Let me give you one example of social innovation. This is in Genova, Italy, smart mobility business. The railway was the operating system as well as the trains and rolling stock. But utilizing IoT as a service offering can be made specifically for the public transportation as well as the private transportation. The overall city's transportation can be digitally moved so that optimized transportation can be enabled. In this way, 10 years ago, we have made a significant shift. But in the MTMP 2024, Lumada cycle business will be expanded further. Using data, we will expand the profitability over the whole cycle, especially in the Lumada business, in 2021 was -- will be increased by JPY 1.4 trillion to JPY 2.7 trillion over the period. Now based on this transformation, let me move on to the following page. What is the type of human resources that will be required to enable this? We want to deploy this social innovation business globally. It means we have to be quite sure that customers look for the challenges for the future. So what's the kind of human resources, kinds or organizations are required -- are the people who understand the market. Therefore, we will need diverse human resources across countries with the divestures. And we wanted to transcend regions, this will also require a specific type of human resource strategy. We have to look for issues. So human resources must be proactive. That is the type of resources we require. Changes are occurring, very special agility will be required. So let me compare it to the past. In the past, product and services were provided [indiscernible] at the left hand side. Japan was growing and electric power companies as well as banks as well as other customers' requests will be taken into consideration to provide products to accommodate their needs. But mostly, the warehouse was Japanese men and working at the same place in time. But now we want to implement the social innovation business globally -- looking for issues globally. That means that we are not going to be provide services from Japan. That means diverse human resources will be necessary transcending time and space. So let me go on to the next page. This is regarding the overseas business. Let me give you a further detailed explanation. On the left-hand side is overseas business is 59% -- and what used to be 29% it grew to 59%. 57% are non-Japanese employees. 370,000 number of employees, we have 210,000 that are non-Japanese. In the past, it was 20%. So it has changed significantly. As you can see on the right-hand side, the other 210,000, 100,000 people have joined us through M&A such as GlobalLogic as well as Honda companies. They have joined us through M&A. This is having an impact on the human resources strategy. Now given this backdrop, we have been making changes in the HR strategy. We started this in 2021. It took time with same time to implement the strategy. What we've done, first and foremost, is to have a global foundation that is a standard database, grade performance management must be standardized globally. We spend time to establish this foundation. Using this foundation, we have been hiring people as well as D&! have been implemented. And now let me talk about the individual measures. This is the major HR actions in 2024 MNP. Today, I will talk about the 4 areas indicated in red. Next page, please. First is diversity, equity and inclusion. This will be promoted as other. This is because the management strategy has changed, in order to implement this and to have a social innovation business on a global basis, diversity, equity and inclusion will be essential. It was the engine of the business. It will be led by our President, Kojima, and Lorena is also leading this thing. Next, the management strategy is changing. That means that what is expected of management leaders will undergo a significant change. That is the reason why we need diverse management leaders. In the past, when product and systems was our business, it was difficult and challenging, but we were focused and had the leaders appointed from the given view. But that will not suffice going forward. And because of the volatile environment, we need knowledge and gather information from other areas than your own. Globalization and digitalization will be essential. These attributes will be required for future leaders. That means the collaboration as well as leadership, team leadership as well as performance and inside change and acceptance of our diverse talent will be required. More diverse leaders will be required going forward. Now we need to have a diverse management leaders, and that is of utmost importance. So therefore, actually, we have expected 70 executive officers, non-Japanese as well as female ratio. Representation will be -- has been enhanced. 2012, there was no females or non-Japanese. There were Japanese males in terms of executive officers. 2021 has exceeded the 10% and this will lead to 30% in 2030, and half will be non-Japanese. Otherwise, we will not be able to achieve growth for Hitachi in the future. How are we going to nurture such management leaders? It is not spontaneous. That means that we have to select our future potential management leaders and nurture them with intention. Now on the executive side, Mr. Kojima is in the selection process about 25 meetings -- talent committees by business. So the diverse talent, which is considered to be GT+ will be selected who are the future leaders. And we have also selected the future 50. The upcoming young talent have been selected as well. GT+ is 530, and non-Japanese 152, and women, 107 for Future 50, inclusive alumina, we have 31 non-Japanese and 26 females. So, we have more diversity. We are now establishing full, and we will give them stretched assignments for the people who have been selected to nurture them with intent. The executive officers as well as next-generation CEO and -- will be presented to the Nomination Committee. Higashihara-san is also included in the Nomination Committee. The next CEO will be discussed. So we are also conducting interviews as well. Through this process, we will be selecting the CEO for the future. We are spending time to enable this process. This Nomination Committee will be also discussing with GT+ as well as Future 50. So they will be very much involved in the nurturing process as well. This is regarding the Future 50, especially on the management side, as you can see. For the 119 that have been selected, we want to nurture them as they -- get them experienced in terms of management list. And currently, 14% of that experience, global -- Hitachi Global Life Solutions 400 billion, 5,000 people is the size of this company. This is also being implemented in this very next additional human resources. So in order to expand the Lumada business by twice. As you see on the left-hand side, we have -- we need to have digital talents. And whether we can increase the number of additionally capable talents or not, that is the -- we have 67,000 people, and we would like to increase that up to 98,000 people by 2024, and that will be the differentiating power. And what the kind of people do we want, that is indicated here. So first of all, we need to recruit from outside. And another way is to develop in-house and M&A. So these are the 3 ways in order to enhance and develop our people. Next page, please. So in the past few years, so the talents, particularly outside of Japan and in Japan, we have 2 different parts in the charts. So the outside of Japan and Japan, our approaches are different. Overseas, 2021, there was a significant increase in July 2021, GlobalLogic was acquired, and that added the headcount. And the 21,000 and overseas is going to be 59,000, and 1,650 people are from GlobalLogic. So the recruiting capability of our GlobalLogic in South America, India and Europe, we need to take the ability to hire people in Vantara as well. As for Japan, recruiting -- well, we can hire up to 1,000 people per year. So that means the digital talents can be increased by 100. It is sufficient. So it is important to develop our own people in-house, 10,000 people each year. And we have Hitachi Academy. We have about 100 courses, 6,000 people sit on the -- received the training on DX. So through this activity, we would like to differentiate ourselves. And thirdly, this is to develop the Hitachi culture globally. 100,000 new people joined Hitachi outside and from outside. So the universal value of Hitachi shall be told and shall be cultivated. Well, the mission, the corporate philosophy values and the harmony, sincerity and pioneering spirit shall be told and fully understood. And in order to enhance the engagement of our people and GlobalLogic, this is an example. PMI, we worked very heavily. And as you see on the left-hand side, GlobalLogic in May 2021, before they joined Hitachi, we went to San Jose, and we met all the executives there. And the 3 values of Hitachi and the direction of Hitachi business were explained, and we gained their understanding and the acceptance. And in day 1, the FS Day, we had a town hall meeting, and the global employee survey is to be conducted, and compared to the time they joined Hitachi, the engagement survey results in February this year is even higher than when they joined -- initially joined Hitachi. And the growth on the culture in order to foster that, as you see on the right-hand side, make a difference. This is the idea contest competition to encourage the difference. So all the people in Hitachi will be able to make contribution to this idea. And 457 entries were made. And these are presented to the President. In PMI, in order to integrate the culture, well, what is important is HR management system -- our integrated management system. So this is what we are focusing upon. And the growth mindset shall be cultivated. So as you see, global performance management, the bottom left, as part of the appraisal and the evaluation, well -- shall also be modified to this direction. And this is about Japan job based on the talent. And already, well, the 160,000 people in Japan have already adopted the -- still on the membership-based HR management system, but the rest has been shifted to the job based on the employment. So the significant changes needed. There is a change will be in the mindset among different generations, particularly younger people. They can do -- hop jobs. And also, the social innovation business is to be done globally. So the type of business is changing. So because of these major changes of Hitachi, we did this in the past, but we assigned jobs to the people. And we hire people at the -- once in a year in the lump sum, and they are located and relocated to different positions for promotion and then retire when they reach the age limit. With this kind of system, it is very difficult to hire people from outside, mid-career. And also the non-Japanese and the personnel are going to be excluded from this system. So the -- what is the -- we have to do is to create a job-based personnel system. So as I mentioned earlier, why the membership system worked in the past, it is because in the past business model was based upon Japanese business, based upon the product. So the stable the balance in Japan was more important. However, now, as we are embarking upon globalized business, it is more important to clarify the definition of a job-based works. And the other purpose is the growth. So for both company and the people to grow together, job-based management system is important. So people will be encouraged to raise their hand and the subject to what they want to do. That is to be encouraged. So first of all, we need to make the position more visualized, and the job duties shall be visualized. Company's responsibility is to show what is required from the people. And then visualization of the human resources, what kind of talent do they have? What kind of abilities do they have? They need to express that clearly, and the matching will be facilitated between the 2. And it takes time to create this system. This is about people. People do not like change. So since 2013, we started these activities to change the system via the mechanisms systems like job description, HGG and the recruiting. We can create these systems, but these are not sufficient. Communication is needed. Why do we need to shift to job-based management system? So since 2017, we started -- we have 100,000 new members in Hitachi. So we have been having a session -- discussion with the union as well. So as you see at the bottom, 82% of the people recognize the necessity of job-based HR, and 87% people feel the necessity of proactive career building. But are they taking actions, for only 42%. And also the behavior change. For example, LXP, AI-based recommendation of training and learning program was adopted. And the communication is continuing. So these are what we would like to enhance. So from now on, I would like to talk about the KPI for HR strategy. And I would like to point out some of the challenges. So we are working on these activities as part of our HR strategy, and they shall be reflected on KPIs. And first of all, we have the business management strategy. We have targets. And then we have HR strategy and the KPI. So this is -- these are the steps or the other components of our ideas. Some of them are quantifiable. Others are qualifiable and qualitative. And the global business expansion from that viewpoint, the HR KPIs, for example, the diversification ratio in executive class is to be focused upon, and we need to set the target and try to achieve the target, and we need to track the progress. Next, this is about the growth of the business. What shall we do to achieve growth? So how much -- how many digitally capable talents do we need to have? And also the introduction of the job descriptions in Japan and also the talent acquisition ratio of experienced employees in Hitachi. These are to be encouraged as well. So this is the first page I mentioned at the very beginning. So the -- in the past 10 years, we promoted the HR strategy. In line with the business strategy, we are still in the process. We'd like to continue making efforts and would like to make the presentation to outside, external parties as well.

Nakahata-san, thank you very much. We would now like to proceed to Q&A. [Operator Instructions] Any questions? Okawa-san, please. I'm sorry, this is taking time for connections. So if you have any questions from the media, we will take the question now. [Operator Instructions].

I hope you can hear me.

Yes, we can hear you well.

I have 2 questions. First question is regarding future leaders, future CEO candidates. Let me confirm. For the Future 50, you mentioned the number. But for 2016, what was the ratio of non-Japanese and females in the 2016? And for group companies, you have mentioned 14%, I think. What is the specific strategy that you're going to be implementing to achieve these numerical targets?

So please refer to Page 21. Regarding Future 50 first. For 2016, actually, it started in 2017. So it's a number for 2017. At that time, non-Japanese we hardly had any. There were only several. And now we've been able to increase to the level shown on this table. That is response to your first question. Now regarding group company leader, assignment is indicated here. As I mentioned earlier, Global Life Solutions is one example. And we also have the group IT companies as well. And the presidents have been selected from the Future 50 already. And for the overseas entity, we will also consider them to be assigned as well, not just Japanese, but also non-Japanese as well.

Second question. So as you are pursuing the job-based HR system, I think you need more mobility. So when Hitachi -- people have left Hitachi. Could you possibly accept them to come back? What is your view on this? Other specific strategies to bring people back to Hitachi when they've already left.

Now regarding mobility, it will be very important as we implement a job-based HR system, and other companies are following suit as well. So there will be more mobility in the labor market. When Hitachi -- actually, we see many people who leave Hitachi and come back. And just because they have left Hitachi in the past, it doesn't mean that we are not going to accept them in the future. So it depends on the skill, experience of that individual. If the job matches, they will be a candidate regardless of where they've been at Hitachi in the past or not. I hope I have been able to answer your question.

For the new job -- people who have left Hitachi, do you have a special mechanism to offer these jobs?

Experienced hires are subject to same condition. When we try to hire, we will provide the information outside as well. And alumni of Hitachi can become a candidate if they so wish.

So now we'd like to welcome the questions from the people who are on the Japanese-speaking on their list. Mr. Yoshizumi?

My name is Yoshizumi from SMBC Nikko. Do you -- can you hear me?

Yes, I can hear you.

I have 2 questions. First of all, the -- looking at your own strategy, Lumada is quite important. And among the business segments, cross-border, in other words, to take away the border between the different business segments is important. But today, you talked about the entire strategy. So one by one you -- how about the coordination across the organization? Are there any mechanism to encourage the people from different units or other organizations? Also, are there any points that you are focusing upon in order to encourage that? And particularly from the viewpoint of evaluation of the people, I think it is also key to Lumada business in the future.

Thank you very much for your question. So this is about the social innovation business, Lumada business. That is across the sectional digital business. So we created Hitachi Digital this year -- early this year, and this is something that we need to promote. So the Hitachi Digital, one rule of that organization is to do cross-functional across the group companies, across company, across BU and promote digitalization. So they have the cross-functional, cross-organizational rule to promote that. Last week, I went to the U.S., and the Hitachi Digital Summit was organized in San Francisco. This is for internal Hitachi, but the people inside Hitachi, what kind of businesses are being generated? So that was to be shared. 150 people got together in San Francisco for that event. So to share that the information was one function of the growth and the organization activities. And this is not the work that -- you may have a work, which is not suitable for your BU, but there's an opportunity that you can contribute to other BU or the other organizations. In which case, the question is how to evaluate such a contribution? And that is what we need to consider from Hitachi Digital scope. Not just digital. Today, we have Lorena, and she is working on Green. Green activities are also cross-organizational, cross-functional activities. So they help incorporate across different organizations and across the different units to promote these ideas. That is important activities for the future.

Second question is about the cost. So do you have any issues that you are aware of related to cost? And what is the current status, digital? And we do have many people, the talents available in Japanese labor market. We are competing over the other talents. And inflation means that the wage level is rising. So from a cost point of view, on the -- are there any other strategy that you have to differentiate yourself from other companies in terms of the competitiveness? And how to capture the competent people from the market? And the cost effectiveness of your activities, do you have any particular ways to do that? And do you feel any issues on the -- could you please elaborate on your response?

So for the cost associated, yes, we have inflation. In the U.S. and in India, turnover is very high right now in Hitachi. And the -- so we are fighting for people, for the availability of the personnel. But that said, we are trying to increase the number of digitally capable people. So what do we have to do? So GlobalLogic, I mentioned about the recruiting capability of GlobalLogic. So how many people in which region do we need to secure and hire? That is reflected on cost significantly. I didn't mention this, but the GlobalLogic, originally, including Ukraine, Eastern Europe as well as India, so these are the places on the GlobalLogic that hire people. And they hired people with some experience. That means the wage level is higher. For the coming 3 years, we are going -- we have expanded the scope more broadly. And one may be junior, younger engineer, but we also try to hire those people who tend to be hires in junior. And we are also including the scope of countries like the South America or Eastern Europe. We are trying to expand the scope of recruiting activities. And we asked them to join the company, and we develop them for the talent development. We changed our approach, and we can manage that so that we can reduce the cost, and we can develop them in-house, and the Japanese people can also be trained together with them. So we would like to choose the right approach in developing the people. Did I answer your question?