Leading in Asia requires a unique skillset to navigate the distinct group of challenges in the region and create breakthrough value. At a convening of 75 of Japan’s most prolific business leaders on the topic of CEO excellence, we heard from the executive chairman of Hitachi about his leadership journey. Since taking the helm in 2016 until becoming executive chairman in 2022, Toshiaki Higashihara has boldly reimagined the conglomerate’s trajectory. Here we share his insights on preparing for the CEO role, reshaping corporate governance, nurturing future leaders, and more—all in pursuit of Hitachi’s long-term global vision. The following is an edited version of these insights.
What did you learn about Hitachi’s culture and challenges prior to becoming CEO?
Toshiaki Higashihara: As part of my preparation to become CEO, I focused on fact finding about the company, and I spoke with many employees to learn what was really happening.
In the fiscal year ending March 2009, Hitachi recorded a loss of 787.3 billion yen ($5 billion), which amounts to about 2.1 billion yen ($13.3 million) of losses per day. This is often referred to as the largest loss for a manufacturing company. But the real issue is not just that. In my opinion, the real issue at Hitachi was this: when you joined the company, there was still a strong sense of lifetime employment, accompanied by the expectation that you would remain there until retirement. Then there’s the Japanese mentality, where people don’t really speak their minds. Furthermore, to avoid criticism, they tend to become perfectionists, setting a narrow scope to achieve perfection, and this mindset becomes ingrained. What happens as a result? Organizations become rigid, and the personnel become entrenched, which I think may have led to the worst traits of corporate culture in Japan, often called “big company disease” or bureaucracy.
What challenges did you encounter with the company’s internal structure after taking on the role of president and COO, and how did those challenges shape your approach to restructuring the organization once you became CEO?
Toshiaki Higashihara: In 2014, I assumed the role of president and COO of Hitachi, Ltd., overseeing the various in-house companies within the organization. However, information didn’t reach me. It would only get as far as the heads of the individual internal companies. What happened was, by the end of December, through the third quarter, they would tell me they could meet the budget. But after December, with only about three months left, they’d say it was impossible. In the end, I had to summarize and announce what the results would be for the upcoming year. But if we give this to investors, the stock price drops—and it keeps dropping. This was called the “3Q Shock,” and it happened two years in a row.
As soon as I became president and CEO, I dismantled the internal company structure. At that time, internal companies were operating at scales of 1 trillion yen ($6.3 billion) or more. I broke them all down into smaller units of 200 billion yen ($1.3 billion) or 300 billion yen ($1.9 billion). For example, for the Information & Telecommunication Systems Company, we split it into the financial business unit, public business unit, and healthcare business unit, among others. We called these units the “front.” This was the go-to-market team that would interact directly with customers. Meanwhile, across the entire company, we realized we needed a digital platform. So we created a company-wide platform, which we named Lumada.
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What changes did you implement to the governance structure, and how have these adjustments impacted the organization’s performance and decision making?
Toshiaki Higashihara: In June 2011, only four out of 13 board members were outside directors. Most were Hitachi alumni; but this has been completely revamped. Now, nine are outside directors alongside me, the executive chairman, the president, plus one more alumnus. This is the new structure. This change has enhanced the objectivity of the board of directors, allowing the executive side to take decisive actions while the board ensures proper governance. This organizational structure was created so that bold actions could be taken.
How have your strategic changes impacted the organization, and what new capabilities does the organization have today that it lacked before?
Toshiaki Higashihara: [One deal] I really wanted was acquiring [digital product engineering company] GlobalLogic. Despite its revenue of 100 billion yen ($634 million), why was GlobalLogic worth 1 trillion yen ($6.3 billion)? Because by 2025, if the era of chip-to-cloud and cloud-to-chip emerges with 5G and cloud technology, we will need designers for such technologies, and digital talent is in short supply.
Hitachi had a digital team. However, there was no one who developed things from scratch in an agile manner. The reason for buying GlobalLogic is simple. Even if we lose 28,000 people, the retention risk is smaller than the risk of Hitachi’s business not succeeding. In other words, the risk of falling behind in digital by 2025 was deemed greater, so we made the purchase. After completing the acquisition in July 2021, by 2024, revenue has grown to about 280 billion yen ($1.8 billion), increasing by 2.8 times, and it continues to grow.
Talent development has been a cornerstone of your leadership approach. How have you built a pipeline of future leaders?
Toshiaki Higashihara: Now that I’m the executive chairman, I’ve handed on the CEO role. Today I’m focusing on developing talent for the next five to ten years.
Since 2017, I've been interviewing about 300 people each year to identify future executive candidates, selecting 50 of them annually to take part in off-the-job training programs. Now we have over 400 potential executives. These candidates first need to understand and empathize with others, which I believe is essential.
Building strong individuals is effective, but creating strong teamwork is even more crucial. Take how manager Hideki Kuriyama led Team Japan to victory in the 2023 World Baseball Classic. Although the US team may have had stronger individual players, Kuriyama focused on collective strength. He declared that “everyone is a captain.” Right now we are creating strong individuals, but the next step for Hitachi is to cultivate teamwork skills based on empathy.
