The Founding Philosophy of The Hitachi Company - Case Study Example

Introduction Founded in 1910, 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 Hitachi Group consists of a total of 1091 companies including overseas, associate and subsidiaries. It has seven business units and employs 350,000 people globally (CSR, 2006). As of June 2006, the Board of Directors comprises of 14 members, four of which are from outside Hitachi. It is currently faced with certain issues – keeping itself abreast of the ever-changing technology and maintaining its market share, management of human resources, handling the loss of reputation due to the turbines failure, serving the society and bringing a turnaround of group finances. This paper aims to examine how the company aims to achieve these through its global strategies. Global Strategy Hitachi has grown and developed due to its commitment to understand the relationship between customers and society (CSR, 2005). They believe in creating products that exceed customer expectations. They respond timely to the dynamic changes that take place in the world and society. Right solutions or right products and services suitable for customers, is their philosophy. ‘Quality First’ is the basic principle of the Hitachi Group. 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’s corporate strategy is to promote collaborative creation and profits (Business Wire, 2006). They have adopted a market-oriented approach with profit as the basic policy. Through the implementation of fully FIV(a) (Future Inspiration Value) based management, the creation of a business portfolio with higher profitability, moving forward with group management, and innovation in collaboration with partners and group companies, Hitachi plans to establish a structure to generate stable profits. Hitachi has decided to shift to business areas in which it can utilize its strengths by timely management decisions based on the FIV rule. This strategy would require reorganizing and restructuring. The company has decided to realign their business portfolio and narrow down its focus to four key themes which would help it to harness the synergy of the Hitachi Group's technologies, knowledge, people, and other resources - "IT-Based Quality Lifestyle Solutions," "Sustainable Environmental Solutions," "Advanced Healthcare Solutions," and "Intelligent Management Solutions." (Hitachi, 2006). It is thus essential to determine how innovation, operations, marketing, human resource management and finance fit in with and contribute to the global strategy of Hitachi. Analysis In line with its founding philosophy to serve the community through technology, Hitachi’s theme at 2005 World Exposition in Aichi, Japan was - “Nature Contact-Interacting with endangered animals brought back to life by Hitachi IT”. Hitachi recognizes that children are moving away from the sciences which, creates a need to develop human resources and nurture a scientific spirit. This was done with the specific intention to attract children, to give them an opportunity to reflect on the importance of biodiversity and the global environment and to develop their spirit of enquiry. Technology continues to be an important element in all their activities. 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. 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 expects to make a net loss of Y55bn ($467m) in March 2007 (Nakamoto, Sep 2006). The group revenues would be higher than forecast but unexpected costs due to compensation claims with turbines in its nuclear plants in two electric companies and costs related to thermal power plant in US would result in losses to the company. The operating profits are expected to be Y35bn, or 62 per cent below its previous forecast of Y93bn. At the same time, efficiency and profitability are at stake as Hitachi can face huge compensation claims after problems with its nuclear turbines forced two power companies to close their plants (Nakamoto, Aug 2006). Discussion Hitachi has been responding to the challenges posed by the rapidly changing market globally. They have stuck to their corporate strategy and have initiated steps in every direction accordingly. 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. The global alliance with GE is expected to generate overseas orders and growth is expected by its leading-edge maintenance and service technology (Business Wire). They focus on innovations in which emphasis is on profitability. Hitachi intends to increase its share of the growing market for large-screen plasma TVs (Business Wire). 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. 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. 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 (Business Wire). The Hitachi global leadership program will select and train personnel for about 180 important management positions overseas. 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 aims that its new products would account for 75% of the total production shipments in 2007 from 50% in 2005 (Business Wire). Its innovative technology of using new head material is raising yields resulting in cost reduction and making its products competitively priced. Challenges posed by firms from Korea and Taiwan have forced Hitachi to reduced market share and on many occasions it had to take firm strategic decisions to minimize losses. As such, during the IT downturn, like all other companies, Hitachi too suffered. They announced 14,700 job cuts (Rahman, 2001). It had to cut down on fixed costs through restructuring of manufacturing operations and job losses. Major reshuffles took place at Hitachi in 2005 in which even the President for seven years stepped aside to help accelerate reforms (Nakamoto, Dec 2005). Hitachi is now localizing development, production, marketing and service operations. This would accelerate globalization and improve the earnings of overseas business operations. The overseas sales are expected to go up to 45% by 2009, up from 38% in 2005 (Business Wire). While in Europe they would emphasize on railway system storage and power, in US they would concentrate on consulting and automotive equipments systems. In China the growth areas would be elevators and escalators. Localization of operations would help it to strengthen growth businesses. The company has suffered financial losses in the turbines case but it is taking it as a lesson and not escaping responsibility. They are working to upgrade the existing technology and further improve upon the capabilities to increase company-wide reliability. Their investment in research and development is expected to strengthen the R&D resulting in a system that will emphasize profitability (Business Wire). Youth and female managerial staff are being taken in increasing numbers and trained. They are now encouraging local overseas youth but at the same time, they are also utilizing the expertise of its employees over 60 years of age. To ensure that it remains at the forefront of corporate governance, it now has an internal control system in place. In response to environmental management, Hitachi Group is working towards emission neutral by 2015. As of March 2006, the company and its subsidiaries have operating loss carry forwards of ¥373,151 million which it can offset against future taxable income (AR, 2006). Even in March 2007, it forecasts 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. References: AR (2006), Financial Section, 30 Nov 2006 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 2006 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 Business Wire (2006), Hitachi Announces Its Corporate Strategy, 30 Nov 2006 CSR (2006), Company Profile, 30 Nov 2006 Hitachi (2006), Philosophy & Strategy, 30 Nov 2006 Nakamoto, M. (Sep 2006), COMPANIES INTERNATIONAL: Hitachi profit forecast turns to loss, 29 Nov 2006 Nakamoto, M. (Aug, 2006), Hitachi faces damage claims over turbines, 29 Nov 2006 Nakamoto, M. (Dec 2005), Hitachi shuffles executives to stem losses, 29 Nov 2006 Rahman, B (2001), Hitachi announces 14,700 job cuts and forecasts loss, 29 Nov 2006 Viewpoint (2002), Hitachi expects…all its employees to be able to speak English, Training Strategies for Tomorrow Volume 16 Number 1 2002 pp. 8-9 Read More