The Hitachi Group - Case Study Example

Introduction Founded in 1910, The Hitachi Group consists of a total of 1091 companies including overseas, associate and subsidiaries. It has seven business units and employs 355,879 people globally. It ranked the 23rd largest company in the world in the 200 Global Fortune 500 companies (Hitachi, 2007). The company’s first products in 1910 were three 5hp electric motors in 1910 and from there it went on to electric locomotives, refrigerators, microscopes, computer-aided traffic control systems for the bullet trains, and into DVD-RAMs. As of June 26, 2007 the board of Directors consists of the Chairman assisted by 12 directors. Hitachi Group is doing business in various fields from social infrastructure to home appliances, materials, logistics, and services (Vision, 2007). Hitachi works on the corporate philosophy of contributing the society through technology. Its founding philosophy The Hitachi Spirit is important even in this day and age. The Hitachi Group includes many business divisions and companies, and many technologies, products and solution technologies in electronics, nanotechnology and biotechnology specializing in information systems, electronic devices, power and industrial systems, consumer products, materials and financial services. With its headquarters in Japan, it has a global reach and spans across the Americas, Asia, Europe and Oceania. Hitachi is an enterprise with high potential and caters to the diverse needs of the society. The brand message that Hitachi carries is Inspire the next. This has great significance. ‘Inspire’ comes from the Latin word spirare which means to invigorate, to breathe in, to encourage or to uplift the spirit (Brand, 2007). After next nothing has been added to allow the stakeholders and others interested in the company to imagine and fill up the blanks which could range from society to system. History Hitachi was founded in 1910 by Namihei Odaira as an electric repair shop and moved on to manufacturing electric motors (History, 2007). By 1915 it had completed 10,000 hp (7,355 kW) water turbines. The first large-scale DC electric locomotive was manufactured in 1924 and the first refrigerator in 1932. it then went in for water turbines and set up the first large-scale cold strip mill by 1954. At the World Exposition in Brussels in 1958, the company launched the electron microscopes. It introduced the first electronic computers based on transistors in 1959. The company then diversified into monorails and elevators and y mid-70s it had released the first series of general-purpose large-scale computers. Liberal trade policies, incentives, growing foreign direct investment (FDI), advancement in information technology and communication have all stimulated the process of globalization (Lee & Tai, 2006). To have economies of scale and for comparative advantage, companies started to expand overseas. Pressure from the shareholders and the workers urge companies to expand (Savitsky & Burky, 2004). With the company expanding overseas operations, it launched Hitachi Europe Ltd in 1982 and Hitachi Asia Pte Ltd in 1988. In 1990, Hitachi released very large-scale computer with the world’s fastest processing speed at that time (History, 2007). The company constantly was engaged in improvisation of the products already introduced while developing new products and diversifying into a wide variety of products. It delved into high technology and released application processor for mobile phones. In 2006 Hitachi went in for production of 2.5-inch HDD using perpendicular magnetic recording technology and continues to innovate. In 205 the company unveiled the world’s first hard disk drive/DVD recorder that can store one terabyte of data (Tech News, 2005). This can record about 128 hours of high-definition digital recording. The company had seen ups and downs and in 2001 had to slash 14,700 jobs during the IT downturn (BBC, 2001). Out of these 4500 job losses were outside of Japan. Toshiba, Casio, Sanyo and Fujitsu also suffered job losses during the same period. The Hitachi shares also fell by 5.5% during this downturn. Global strategy The founding spirit can be captured in the words: “harmony,” “sincerity,” and “pioneering spirit.” Hitachi strives to provide new value by resolving fundamental issues faced by the global community. Its founding philosophy is to serve the community through technology. Standards of Corporate Conduct is the basis for the Hitachi brand and CSR activities. It thus aims to foster shared values throughout the group. Through the Hitachi Group Headquarters, established in 2004, Hitachi is strengthening integrated management of the group, improving management oversight and executing business strategies to enable the organization to demonstrate its collective strengths (AR, 2006). Hitachi has been quick to identify and take advantage of the opportunities. In 2004 they announced a new business strategy for China. They aimed at nine different businesses in the Chinese market which include power and industrial equipment systems, building systems, transportation systems, information and telecommunication systems, medical systems, consumer electronics, construction and resource development systems, automotive systems and materials, and components and materials for information electronics and digital consumer electronics (Business Wire, 2004). They showcased in three Chinese cities, Beijing, Shanghai and Guangzhou, which also demonstrated their collective strengths and an understanding of the Chinese society. Recognizing its responsibility as a corporate citizen, Hitachi assured that it would work to contribute to the Chinese society. Corporate strategy and corporate governance Hitachi has increased autonomy and allows each business group to manage its cash flows. Hence the profit responsibility also lies with each group. An executive officer will be responsible for monitoring and risk management and for suggesting structural reforms. To increase speed and flexibility of business operations and to strengthen supervision, Hitachi emphasizes on corporate governance and internal control. In support of this, they have four members from outside of Hitachi on the Board (AR, 2006). To foster synergy and cohesiveness within the group it is nurturing partnerships while respecting each other’s independent creativity. The company is also promoting the compilation of guidelines for environmental compliance, risk management and internal audits. They are working towards increasing the corporate value through dialogue with the shareholders and other stakeholders. Hitachi is concentrating on strengthening internal control over financial reporting. They have gone beyond the legal requirements as per the Sarbanes-Oxley Act, 2002 and COSO (Committee of Sponsoring Organizations of the Treadway Commission) to enhance transparency and credibility. They delegate authority to executive officers which speeds up decision making. They have set up internal controls and improved management efficiency. Setting up and maintaining internal control is not just a legal requirement but social responsibility as well (CSR, 2007). Each company within the Hitachi groups is individually responsible to set internal controls. The management assessment of each company is collected by group companies and business groups and finally reported to Hitachi Ltd. Management of human resources Like Toyota and Matsushita, Hitachi too believes in sending Japanese expatriates to foreign locations. This practice of human resource management affects policies like job transfers, seniority based pay, and lays emphasis on control through specialization (Belberdos & Heijltjes, 2002). It is effective to the extent that it can practice total quality control systems and JIT procedures. Consequently there is a low failure rate of Japanese expatriates but on the negative side, this practice creates a ceiling on promotion for the host country managers and there is increased turnover among the host country employees. According to Hofstede (1984), different cultures imply different mental programming, which governs activities, motivation and values (cited by Gilbert & Tsao). Culture has a significant impact on perception, problem-solving and cognition and often leads to differences in satisfaction levels on the same product between global customers. Expectations differ. Levels of literacy differ and so do performance evaluation standards (Pizam & Eliss, 1999). The management of overseas affiliates would be more effective through the appointment of host country nationals in managerial positions but the Japanese managers have a negative perception of foreign nationals. It is now changing its stand and the management is being strengthened by deployment of outside personnel. The Hitachi global leadership program will select and train personnel for about 180 important management positions overseas. Hitachi has taken a psychological approach to retaining talent. Senior managers are given psychological coaching to retain the most talented bosses and change certain aspects of their behavior (Personnel Today, 2003). The training program focuses on interpersonal styles, feedback skills and preparation for a new personal development plan. This helped to demonstrate the commitment to the staff at a time when the semi-conductor industry was experiencing a slow down. Hitachi believes in nurturing the people so that they are able to respond to the challenges that confront businesses today. The staff compensation system matches the employee qualification and grades which aids to maximize motivation. Even the evaluation systems are open so that employees receive one-to-one feedback on the evaluations. The “360-degree Feedback Program” enables the individuals to learn their own strengths and the areas of improvement. They are also able to brush up their leadership and management skills by implementing a skill development plan. “Shoyama Online” is a communication tool that allows direct communication between the President and the employees. Hitachi expects its 60,000 employees to attain a certain level of English from the day they join the company (Viewpoint, 2002). Different levels of employees are expected to attain predetermined points on the Test of English for International Communication (TOEIC) scale. They recognize the need that executive in the highest positions must be proficient in English. Hitachi supports a work-family life balance and since March 2000 it has been following the "Gender-Free and Family-Friendly Plan" (Diversity, 2007). This has helped to create a better work environment, eliminate the gender discrimination and encourage better work-family life balance. While they have made substantial progress, there is need for greater awareness and towards this objective they introduce the "Diversity Promotion Project," in 2006. They show the challenges that women face at the workplace and encourage everyone to involve themselves to help them overcome the challenges. Hitachi creates an environment where every individual can realize their potential. They are now re-employing retirees which helps them benefit from the rich experience, skills and know how of the employees. This is line with the "life-plan selection system" introduced in Japan by the government. Employees with physical handicap also work as part of the team. At the end of June 2006, the Hitachi Group ratio of employment for physically challenged persons reached 2.05% at Hitachi, Ltd. and 1.70%, on average, among major Group companies in Japan. The Group believes in diversity and feels it is critically important to have an open corporate culture that embraces diversity. Diversity for them includes sexual orientation, age and religion apart from race and ethnicity. This is based on the belief that diversity at workplace strengthens relationships and reduced staff turnover. Corporate Social Responsibility (CSR) Hitachi is concerned about the climate change, poverty, information security breaches, and healthcare issues. Hitachi has contributed to the advancement of the world through its unique approach based on the Hitachi Founding Spirit of harmony, sincerity and pioneering sprit. In November 2006, they devised new strategy based on the key phrase collaborative creation and profits (CSR, 2007). The ultimate objective is to achieve sustainable growth and resolve the issues that face the society today. The CSR information is not just communicated but they ensure that it pervades every activity of daily activities of each employee. Not only in Japan, even overseas, have the local offices initiated CSR workshops. Post (2000) emphasizes that an organization’s global corporate citizenship is shaped by internal and external factors. How a company deals with past public issues, stakeholder issues and community concerns determines the employees’ perception of the importance of citizenship matters. Hitachi responded in a responsible manner when in the year 2006, a malfunction occurred in the low-pressure steam turbine in the Hamaoka Nuclear Power Station Unit No. 5 of Chubu Electric Power Co., designed and manufactured by Hitachi (CSR, 2007). The company has suffered financial losses in the turbines case but it is taking it as a lesson and not escaping responsibility. The phenomenon was something that engineers were unable to anticipate during the design stage but the company expressed regret over what occurred. They are working to upgrade the existing technology and further improve upon the capabilities to increase company-wide reliability. To remedy the problems, Hitachi redesigned and manufactured the turbines so that they could tolerate foreseeable vibration stress. They have used cutting-edge testing equipments at the testing stage to improve verification accuracy. Current financial position Fiscal 2006 was a challenging year for them and even though every division saw increased revenues, there was an overall deficit. As of March 2006, the company and its subsidiaries had operating loss carry forwards of ¥373,151 million which it can offset against future taxable income (AR, 2006). Even for March 2007, it had forecast a net loss but since the company is working in line with its founding philosophy and all its projections and planning is geared towards that, it expects to recover losses gradually. The plans and visions are promising but uncertainties exist in various sectors. For instance, profit and sales would largely depend upon the foreign exchange rate, on the demand of the products that the company is pursuing, on the local political conditions. Besides, it also depends upon the company’s ability to respond to the constantly changing technology. Hitachi is no doubt versatile and responds timely to challenges, but it is important to adopt new technology on a cost-effective basis and be acceptable in the market. Its partnering with different companies demonstrates its versatility to change and keeping ahead. The overall response to the company’s products and services are determined by its environmental consciousness, social responsibility, and serving through technology, which Hitachi is focusing on. In 2006, the Group had net sales of US$ 80.9 billion and the maximum contribution came from the power and industrial systems and the Information systems and the telecommunication systems (Factsheet, 2006). The company spent 4.3% of its revenues or USD 3462 million on research and development. Innovation at Hitachi Japanese firms have traditionally helped each other in foreign countries, especially Matsushita, Toyota and Hitachi. They have strong incentives to replicate their domestic keiretsu relationship overseas. One large firm overseas would take the lead and help other firms to settle down in that country. Since the 1990s the Japanese electronics industry started facing tremendous pressure due to various reasons (Belberdos & Zou, 2006). Rapid technological advances changed the industrial and market structure. Most electronics products now have short life-cycles and constant radical innovation. As a result cost reduction and product differentiation become critical to sustenance. In this case, Hitachi has responded by introducing innovative products. In response to this challenge, Hitachi recently showed off radio frequency identification, or RFID, chips that are just 0.002 inches by 0.002 inches and look like bits of powder (Kageyama, 2007). These chips are thin enough to be embedded in a piece of paper. RFID tags are known to store data but they need to be brought close to the reading devices that beam energy to the chips. This sends the information back to the readers. RFID is not a new technology and is widely used for tacking and identifying items. It has applications at the airports in tracking luggage and is used by retail giants like Wal-Mart to track the goods from the moment they leave the stores. The new chip is an improvement on its predecessor from Hitachi — the Mu-chip, which at 0.4 millimeters by 0.4 millimeters, looks about the size of the period at the end of this sentence (Kageyama). The photograph below demonstrates how tiny it is: The newly developed RFID chips were placed next to human hair as has been shown in the above picture for comparison. It is as tiny as an invisible speck of dust. It is sixty times smaller than the Mu-chip and can handle the same amount of information which gets stored as a 38-digit number. The new chip needs an external antenna and the smallest antennas are about 0.16 inches which appear as giants in front of the chip. The company is still studying the application of this miniature chip. Yet another innovative product that the company is launching is what it claims are the worlds thinnest liquid crystal display panel television sets (Japan Today, 2007). While there are others who like Sharp, Victor and Wooo UT who have come with similar products, Hitachi has been innovative in separating the tuner from the TV body. Innovation is expected to be achieved through collaborative creation. Striving to serve the society through technology, Hitachi has partnered with General Electric Co (GE) for nuclear power and with Clarion for car information systems (Hitachi News, 2006). The global alliance with GE is expected to generate overseas orders and growth is expected by its leading-edge maintenance and service technology. Hitachi is further focusing on innovations where the emphasis is on profitability. The sale of innovative products, where their market share is highest or even where they have the second position, accounted for about 30% of the sales in 2005. The company wants to increase this to 40% by the year 2009. Hitachi intends to increase its share of the growing market for large-screen plasma TVs. Hitachi is strengthening its global operation by setting up production facilities in North America, Europe and China. It is partnering with Matsushita in Europe for plasma TVs and with IPS Alpha in the area of LCD TVs. Hitachi’s strategy to create a global alliance with GE will generate growth of overseas orders for nuclear power stations in the global markets like the United States. This will be aided by Hitachi’s distinctive leading-edge maintenance and service technology and high-reliability monitoring control systems. To expand in mainland Europe, Hitachi intends to build on UK orders for lightweight aluminum cars. They are also planning to go in for railway vehicle maintenance in the UK. Thus, Hitachi is truly an innovative company which has risen from a simple electric repair shop to a multinational through sheer dedication, commitment and responsibility to the employees, customers and the stake holders. It continues to grow and takes financial losses as learning experiences. It does not shirk from responsibility and believes in investing in people as well as in research and development. References: AR (2006), Financial Section, 30 Nov 2007 Belberdos, R. A. & Heijltjes, M. G. (2002), THE DETERMINANTS OF EXPATRIATION IN JAPANESE MULTINATIONALS: Vertical Business Groups and executive staffing policies in Asia, 30 Nov 2007 Belberdos, R. & Zou, J. (2006), Foreign Investment, Divestment and Relocation by Japanese Electronics Firms in East Asia, Asian Economic Journal, Vol. 20 No 1, pp. 1-27 BBC (2001), Hitachi cuts 14,700 jobs, 30 Nov 2007 Brand (2007), about "Inspire the Next", 29 Nov 2007 Business Wire. (2004), Hitachi Announces New China Business Strategy With Aim of Being ``The Most Trusted Partner in China; Also Targeting High, Double-Digit Annual Growth, 29 Nov 2007 CSR (2007), Hitachi Group Corporate Social Responsibility Report 2007, 29 Nov 2007 Diversity (2007), Promoting Diversity, 29 Nov 2007 Factsheet (2006), CORPORATE FACT SHEET, 30 Nov 2007 Gilbert, D. & Tsao, J. (2000), Exploring Chinese cultural influences and hospitality marketing relationships, International Journal of Contemporary Hospitality Management 12/1 [2000] 45-53 History (2007), History, 29 Nov 2007 Hitachi News (2006), Hitchi announces its corporate strategy, 29 Nov 2007 Hitachi. (2007), Hitachi Ltd, 29 Nov 2007 Japan Today (2007), Hitachi to market worlds thinnest LCD TVs, 30 Nov 2007 Kageyama, Y. (2007), Hitachi shows off worlds smallest RFID chip, 29 Nov 2007 Lee J-W & Tai S (2006), International Journal of Emerging Markets, Volume 1 Number 3 2006 pp. 212- 224 Personnel Today, (2003), Hitachi takes psychological approach to retaining talent, 29 Nov 2007 Pizam, A. & Eliss, T. (1999), Customer satisfaction and its measurement in hospitality enterprises, International Journal of Contemporary Hospitality Management, 11/7 [1999] 326-339 Post, J. E., (2000), Moving from Geographic to Virtual Communities: Global Corporate Citizenship in a Dot.com world, Business and Society Review, 105:1 27-46 Savitsky J J & Burki S J (2004), Globalization and the Multinational Corporation, 29 Nov 2007 Tech News (2007), Hitachi Unveils The World’s First Terabyte DVD Recorder, 29 Nov 2007 Vision (2007), Vision, 29 Nov 2007 Read More