Hitachi Group IT Performance Report 2017
Contents Message from CIO 1 2 Basic IT policy...1 Growth: Accelerating digital transformation...3 The Hitachi Group has been working to resolve wide range of social issues by utilizing digital technology such as AI for social innovation business which combined OT (operational technology) such as system control and operations and IT (information technology) which we have developed over 50 years with product system which has Hitachi's in-born strengths. 1 Taking the lead in digitalization, 3 4 Efficiency: Optimizing the Hitachi Group's IT resources...7 Control: Promoting information security governance to maintain the Hitachi brand and ensure business continuity...9 Hitachi Group IT Performance Report 2017 To support this social innovation business, our IT divisions are working to achieve both diversity and efficiency, and to optimize IT costs while improving speed. To do this, they are consolidating the Hitachi Group's IT environments to cloud systems following the latest trend in the world today. We are also installing Hitachi's IoT platform Lumada * 1 in in-house environments to make it easier to make use of cutting-edge digital technologies such as AI, analytics, and machine learning, to facilitate the accumulation and sharing of knowledges while expanding the use and application of data. Additionally, in view of growing the threat of cyber attacks, we have recognized information security as one of our key management challenges. To promote information security governance across the Hitachi Group as a whole, we have made an independent specialized division separate from our IT divisions, and strengthened our information security systems. I would like to leverage these initiatives in collaborative creation with our customers, and raising the value of our customers' businesses. This report details the strategies and current status of our IT divisions as quantitatively as possible. I hope you will all find this report useful. Shinichiro Omori Senior Vice President and Executive Officer, CIO Hitachi, Ltd. The Hitachi Group's IT Mid-Term Plan for 2018 was formulated in accordance with the 2018 Mid-Term Management Plan. In this IT Mid-Term Plan, we are strengthening our competitive IT based on the three pillars of Growth, Efficiency, and Control. (1) Hitachi Group's 2018 IT Mid-Term Plan In the 2018 Mid-Term Management Plan, Hitachi, Ltd. aims to focus on the social innovation business to become an innovation partner of the IoT age. Our IT divisions formulated the Hitachi Group's IT Mid-Term Plan for 2018 to support this aim, based on the three pillars of Growth, Efficiency, and Control. It is important to expand the use and application of vast amounts of digital data to maximize its value and effectiveness. Therefore, "Growth" focuses on two areas: First, creating innovation using digital data in front office that deal with face-to-face customer service, and workplaces that deal with creating solutions. Second, sophisticating the management decision-making through the expansion of digital data. As an initiative toward expanding digital innovation in front offices and other workplaces, we are introducing Hitachi's IoT platform "Lumada" to in-house environments, and accumulating and sharing expertise through the creation of case examples. In addition, to expand digital data that helps to sophisticate management decision-making, we are working on a platform that allows management information common in the Hitachi Group to be accumulated and used centrally. *1: Lumada: An IoT platform provided by Hitachi that enables the development of IoT-related solutions and easy customization
and accelerating social innovation business through IT To make steady progress on these initiatives, it is crucial that we develop our human resources. To do this, we have defined Hitachi-Group-standard "types" of IT human resources, and we are promoting skill enhancement particularly focusing on analytics engineers. Additionally, we must constantly understand advanced technologies, and revise and deploy technology policies that are required for the Hitachi Group. With this aim, we have set up an expert organization in the corporate IT strategy planning division. "Efficiency", which aims to secure a budget for strategic investment towards growth, involves continuous initiatives to reduce regular IT costs to establish a competitive IT portfolio. Particularly, we are promoting transition to a common IT platform in the Hitachi Group that actively uses public cloud technology, aiming to reduce costs associated with expanding consolidation. Our goal is to secure 35% of the entire IT budget for strategic IT investment. Regarding information security threats, we are strengthening our initiatives from the three perspectives "organizations", "systems", and "operations". As part of this initiative, for "Control" in FY 2017, we established a CISO* 1 who promotes all information security matters in the entire Hitachi Group. We have also isolated security functions from IT divisions, and established new, independent division specializing in security. We are also strengthening the robustness of IT environments step-by-step. Hitachi Group s 2018 IT Mid-Term Plan *1 CISO: Chief Information Security Officer Establishing data-driven business and management Growth Maximizing the value of digital information Reducing regular IT spending, and securing strategic IT investments to contribute to the correct divisions: Enhancement of in-house environments for Lumada, and accumulation and sharing expertise through the creation of case examples Establishment of a platform for accumulating and using data to centralize management information Efficiency Maximizing IT productivity Control Ensuring global IT governance Improving the efficiency of IT unique to individual Hitachi Group companies Consolidating and integrating common IT environments in the Hitachi Group FY 2015 (Results) FY 2018 (Targets)
2 Accelerating digital transformation We are continuing to introduce environments for accumulating and analyzing data, and enhancing the use and application of data in the Group. Accordingly, we are working to develop IT human resources and enhance the skills they will need for this expansion. (1) Creating innovation using digital data To expand the use and application of data, and effectively apply its results to our work, we must improve the efficiency of data analysis. To do this, we believe it is important to establish a platform for efficiently analyzing data collected and accumulated through many PoCs* and projects, visualizing the data, and making models of expertise that can then be reused. We are therefore enhancing Lumada in-house environments as a platform for promoting the use and application of data. By using Lumada in-house environments, we are collecting data from the entire work processes including the core value chain, from enterprise information systems and sensors installed in facilities and equipment, and loading this data into various analyses and visualizations. Based on the results of these analyses, we quantitatively evaluate work effectiveness to produce feedback for optimizing work processes. To be able to effectively use Lumada in-house environments, we are enhancing and providing analysis templates for reusing process sequences in data analysis. These templates contain specialist expertise so that sophisticated algorithms and machine learning can be used easily. Some case examples show that analysis work hours were reduced by approximately 70% by using these templates. We are also sharing expertise by introducing an analysis knowledge portal, which provides guidelines summarizing key points for each task in the analysis process. Also, it provides worksheets containing samples to help workers complete tasks efficiently. Optimizing entire end-to-end business processes by making use and application of data Finally, we are working on cooperation with business divisions by providing templates to third parties outside the Hitachi Group, and sharing Lumada common expertise in companies. AI *PoC: Proof of Concept Data Procurement Production Distribution Maintenance Overall optimization Feedback Studio Dashboard, application base, etc. Core Analytics Edge AI, machine Asset avatars learning, etc. Collecting data, controlling Foundry devices, etc. OS, security, etc.
70 Work hours required for analysis reduced by using analysis templates % Lumada in-house environments are used for a wide range of business areas including sales, procurement, and management. The number of case examples using such environments has increased by approximately 70%* compared to FY 2016. Recently analysis expertise has been accumulated by using data from sensors installed in facilities and equipment, and the number of case examples in the production and maintenance areas are increasing. Moreover, we are working on the efficiency improvement of maintenance services such as failure cause analysis of devices and facilities by using machine learning. Regarding a tendency to rely on individual skills to investigate failure causes, by indicating potential failure causes with machine learning, we aim to reduce time for investigation spent by maintenance staffs, and improve the availability of facilities and customer satisfaction. We are also using AI to make auditing work more efficient. Once AI loads auditing procedures then it automatically extracts candidate auditing targets from vast amounts of previously presented documents. We expect this extraction to take significantly less time compared to whole manual procedure. For example, in the production and maintenance areas, we carry out preventive maintenance and repair using predictive failure diagnosis technology. Specifically, by detecting unusual states of equipment in manufacturing line and addressing them before troubles, we aim to reduce maintenance time and improve the availability of production lines. Through this initiative, we expect to reduce regular maintenance time and failure repair time by approximately 33%. Also, we expect to reduce maintenance work hours and downtime in critical facility operations by approximately 92% by creating scheduled repair plans and arranging for replacement components in advance with predicting failures in product equipment about three months ahead. Percentage of use cases using Lumada in-house environments in each business area * Calculated in comparison with the numbers from April 2017 to February 2018. 5% 13% 27% 24% 22% 9% Opportunity management, etc. Inventory improving visualization, etc. Factory improving visualization, etc. Devices predictive diagnosis, etc. Performance improving visualization, etc. Work style innovation, etc.
2 Accelerating digital transformation (2) Sophisticating management decision-making by expanding digital data To allow flexible yet fast management decision-making in the entire Hitachi Group, we are accelerating the enhancement of environments for digital data use and application, to more efficiently identify cost structures of consolidated sales profit/loss and SG&A* 1, etc. We are continuing to work on the use and application of management information. For example, analyzing detailed data on indirect costs by organization, cost item, and work category is proving useful to optimizing SG&A and improving gross margins. In addition, we are considering using CRM* 2 -related and other data to help with decision-making in management resource distribution, in marketing, sales activities, and project management. To further accelerate the use and application of this kind of digital data, we aim to build environments so that we can efficiently accumulate, analyze, and visualize data from numerous sources. By centralizing data that has until now been siloed in their respective business areas, we will enhance a data accumulation and application platform so that users themselves can use data. *1 SG&A: Selling, General and Administrative expenses *2 CRM: Customer Relationship Management With the data accumulation and application platform, we can combine and use "individual information" in the core value chain area and "shared information" that centrally stores management data common in the Hitachi Group which is used for corporate-provided finance, sales, procurement, human resources areas. We will also implement security functionality and perform access control for user profiles, so that the appropriate data can be provided to the appropriate people. While enhancing this data accumulation and application platform, we are also simplifying and integrating the business systems that serve as data sources. By expanding the use of corporate-provided standard business applications, we can enable efficient and homogeneous digital data accumulation, as well as help to expand the global standardization of work processes and prevent duplicate IT investments. Data governance is also important in platforms for accumulating and applying data, which require accuracy, completeness, and consistency. Therefore, we have defined common rules for the use and application of data in the Hitachi Group, enhanced the structure for monitoring data quality, and are working to secure data quality by using the PDCA cycle. Data governance Enhancing a data accumulation and application platform for centralizing management information Dashboard (routine analysis) Checks necessary data at any time Lumada in-house environment External data Manager Administrator Worker Self-service BI (non-routine analysis) Freely analyzes breakdown data Data accumulation and application platform Standard business applications Business data Automates work using data Business-unit system
758 Ascertaining indirect cost items and breakdowns by job category at main Hitachi Group companies (FY 2016 results) billion yen 14 Standard IT human resources of the Hitachi Group classifications (3) Initiatives to shift our IT human resource portfolios Amidst the rapidly changing field of IT, for example the expanding use of public cloud systems and acceleration of digital transformation centering around the IoT field, the roles of in-house IT divisions are changing. Therefore, we believe it is urgent that we promote a systematic skill shift in IT human resources. Particularly, we are promoting the development and enhancement of analytics engineers, as the IT human resources that will drive digital transformation. Developing analytics engineers involves not only data analysis methods and IT knowledge; it is also crucial to be able to form hypotheses and think of ideas from a business perspective. To this end, we are planning to hold training courses to develop our analytics engineers, and raise skill levels. We are also promoting development through OJT, for example by participating in analytics projects using Lumada. We are promoting these initiatives not only with our IT divisions, but also involving our OT divisions. Going forward, we continue to accelerate the development of analytics engineers regardless of their respective divisions. To efficiently develop the required IT human resources in the entire Hitachi Group in near future, we established the Hitachi Group IT Human Resources Committee. This committee has used the information system user skill standards proposed by the general incorporated association "Japan Institute Users Association of Information Systems" as a base to define in-house IT tasks (functions), skills for completing tasks, and work jobs that require those skills, classifying the Hitachi-Group-standard IT human resources into 13 types. Later we added "analytics engineers (data analysts)" definition, making a current total of 14 types. By defining standard IT human resources types, we can now understand our human resources skill portfolio in the Hitachi Group. Based on this skill portfolio, the entire Group is now proposing plans and promoting measures to develop our common IT human resources to transform our human resources portfolio. Shifting the human resource portfolios of Hitachi Group IT divisions On-Site Resources Status as of April 2017 Projection for the end of FY 2021 *1: BU: Business units of Hitachi, Ltd. *2: CoE: Center of Excellence. Consolidates cutting-edge technology and expertise.
3 Optimizing the Hitachi Group's IT resources To build the right IT resource portfolio comparable to a global cutting-edge enterprise, promote expansion of strategic IT investments for growth. We are reforming our IT cost portfolios. (1) Reforming IT cost portfolios In the Hitachi Group, we have been promoting the "Hitachi Smart Transformation Project" to enhance growth and structural reforms in the global market. As a part of this project, IT divisions have been reducing regular IT spending across the entire Group. We are promoting measures to allocate resources, gained by reducing such regular IT spending, to strategic IT investment. We aim to expand strategic IT investment, which was 25% of the entire IT budget in FY 2015, to 35% in FY 2018. The Hitachi Group is working as one to reduce IT spending relating to regular operations and maintenance. To improve efficiency, IT environments in individual business units and Group companies are expanding measures to consolidate and integrate into a common Hitachi Group IT platform that actively applies public cloud technology. To enable each company's own IT that is differentiated for each business structure, business units and Group companies are promoting measures to improve the efficiency of operation and maintenance such as system integration. In order to optimize our investment in shared IT across the Hitachi Group, we have established a specialized division in our IT strategy planning division, within the Group s corporate management. This division maintains a shared investment policy, and defines and manages the decision-making process for investment. Defined responsibilities of process owner ( PO, responsible for budget management and profitability) and transformation engineer ( TE, responsible for the development and effectiveness of IT operations) are assigned, so that for specific investments the lines of authority and responsibility are clear. (2) Consolidating IT environments in the Hitachi Group Accelerating the use of public cloud systems To adapt flexibly to changes in business environments such as globalization, M&A (mergers and acquisitions), and expanding partnerships with external customers, and to both uphold system diversity and improve efficiency, we are accelerating the use of public cloud systems. For example, in collaboration environments, we are reducing system operation costs and improving efficiency by introducing global standard collaboration tools, as well as improving usability, for example by allowing staffs to use computers and smartphones from outside the company. There are now approximately 270,000 users of cloud collaboration tools. Reduction measures of regular IT spending Improving the efficiency of IT unique to individual Hitachi Group companies At the same time, to use in-house environments seamlessly with public cloud systems, we are improving usability and enhancing access management with SSO* using in-house IDs. The Hitachi Group had 38 cloud systems supporting SSO as of the end of February 2018, and we are promoting further expansion. To safely use public cloud systems, we have created usage guidelines for risk countermeasures, and verify each Group company that applies to use such systems is complying with the guidelines. By certifying companies for complying with guidelines, we can identify the status of public cloud use, ensure that no duplicate verifications are performed, and implement security risk countermeasures. Public cloud use in FY 2016 has increased by 38% compared to FY 2015. *SSO: Single Sign-On Accelerating the use of public cloud systems Consolidating the procurement and operation management of clients Consolidating the operation and maintenance of applications System integration etc.
38 Increase in the use of public cloud systems (FY 2016 compared to FY 2015) % 38 SSO-enabled cloud systems (As of the end of February 2018) systems Overview of public cloud use through SSO authentication SSO enables seamless use of in-house environment and public cloud Approved public cloud systems Authorization system On-premises Office Outside Consolidating the procurement and operation management of clients In the Hitachi Group, we are consolidating client procurement and operation management. We are reducing procurement costs through centralized purchasing that takes advantage of economies of scale, reducing operation and management costs through centralized management, and improving security measures based on the Hitachi Group security standards. We had over approximately 260,000 clients running as of February 2018. Among these, those that use consolidated or centralized management was approximately 130,000. We will continue to consolidate procurement and operation management for client environment going forward, to reduce IT costs. Overview of the consolidation of operation and maintenance of applications Company A ERP applications On-premises Company B ERP applications Company C ERP applications Each company's individual operations and environments *3 AMO: Application management outsourcing *4 DB: Database *5 EMEA: Europe, the Middle East and Africa Housing Virtual environments Consolidating the operation and maintenance of applications We are commonalizing individual ERP* 1 environments of each Group company, and standardizing operation and maintenance work (for approximately 40 companies and 70 systems* 2 ). We are proceeding with this consolidation and improving efficiency in the entire Group to reduce operation and maintenance costs. These initiatives enable us to plan efficient and scheduled ERP upgrades based on standardized environments in the future, and we expect a reduction in migration costs and improvement to system quality. We have already finished consolidating 8 systems, and will consolidate 30 more systems by 2020. *1 ERP: Enterprise Resource Planning *2 Results at the end of FY 2016 AMO* 3 Common Platforms Japan EMEA* 5 Company A Company B Company C Americas AMO services Platform services
4 Promoting information security governance to maintain the Hitachi brand and ensure business continuity Among the various risks surrounding IT, cyberattacks are daily becoming more and more sophisticated. The entire Hitachi Group is promoting preparation against a wide range of information security risks. (1) The Hitachi's security approach of "defense by the organization, by the system, and by operation" In the Hitachi Group, we are promoting safety and security based on the security approach "defense by the organization, by the system, and by operation". Not only do we build systems according to security measures, we also implement organization management and operative measures for monitoring and detecting unauthorized access from outside the company in order to continuously maintain the measures' effect. We believe it is important to perform risk analysis to ensure no biases in the three principles "defense by the organization, by the system, and by operation", and to always be thoroughly prepared for various risks. This is not just a challenge for IT; activities must involve management, business, and the organization as a whole, working steadily to establish processes and create manuals for this purpose. We believe in the importance of being ready for emergencies. Hitachi's approach to security: "Defense by the organization, by the system, and by operation" (2) Strengthening information security systems In its expansion of the social innovation business, the Hitachi Group acknowledges strengthening information security governance as an important management challenge in view of the advancement of IoT and growing the threat of cyber attacks. We have established a CISO who works directly under the CEO to promote all the information security matters in the entire Hitachi Group. Accordingly, we have isolated security functions from their IT divisions, placing them in a new, independent division, the "Information Security Risk Management Division", under the authority of the CISO. In this way, we are expanding and strengthening our information security structure. Information security systems Defense by the organization Defense by operation Technical requirements of security * *H-ARC Defense by the system
(3) Enhancing the security of IT environments IT divisions have taken information security measures to strengthen security to ensure robustness, for example: Network security, such as proxy services and VPNs* 1 Email security, such as spam filters and dynamic analysis End-point security, such as thin clients, antivirus, and remote wipes ID security Document security We are also promoting the following measures in collaboration with the Information Security Risk Management Division against the threat of sophisticated cyberattacks. Enhancement of network segment We are applying SDN* 2, a software-based network control technology to WANs* 3, to optimize network bandwidth and to minimize the area affected in emergencies by changing the configuration rapidly, and compartmentalizing networks. Vulnerability testing We are implementing checks and monitoring ("IP patrols") against the perceived risks of connecting devices not managed by the IT department to internal networks. Devices not managed by the IT department are detected through IP scanning, and low-security terminals are discovered at an early stage through vulnerability testing. By implementing vulnerability measures on low-security terminals, we will reduce the risk of virus infections and spreading via network connections. Thorough compliance with operation rules To address the ever-growing sophistication of vulnerability exploits, we are performing detailed evaluations of necessary ports, and closing unused ports. Furthermore, we always rule to apply the latest patch and execute it. Overview of security robustness (4) IT business continuity plans (BCP) Along with the basic approach of installing and operating servers in robust datacenters, the Hitachi Group also defines levels for emergency measures according to recovery time objectives for each service and recovery point objectives. Depending on the disaster recovery level, work is being done to prepare secondary servers and data backup environments, and to preserve data backups. We are also conducting periodic drills in line with BCPs. In addition to BCPs for emergencies, the Hitachi Group also conducts BCP drills in preparation for cyberattacks. Ensuring safety of backup data If the virus is spreading quickly, backup data might also be damaged at risk. To ensure the safety, we are storing data off site and installing equipment to immediately stop backup operations during an emergency, to prevent data backups from being overwritten by corrupted data. *1 VPN: Virtual Private Network *2 SDN: Software Defined Networking *3 WAN: Wide Area Network Firewall Firewall Firewall Firewall IP patrols of unmanaged devices and vulnerabilities
IT Strategy Division Hitachi, Ltd. Akihabara Daibiru Building, 18-13, Sotokanda 1-Chome, Chiyoda-ku, Tokyo, 101-8608 Japan Printed in Japan March 2018