Social Innovation for Today’s Challenges: Hitachi

Making Green Work
KEY LEARNING SUMMARY

Social Innovation for Today’s Challenges

featuring Andrew Winston

February 9, 2011

in collaboration with

© 2011 Harvard Business School Publishing. Created for Harvard Business Review by BullsEye Resources www.bullseyeresources.com

Making Green Work―Social Innovation
for Today's Challenges
February 9, 2011

Introduction
Tadahiko Ishigaki, Senior Vice President and Executive Officer, Chief Executive for the Americas, Hitachi, Ltd.
Angelia Herrin (Moderator), Editor for Research and Special Projects, Harvard Business Review

OVERVIEW A new approach to value creation leads to “social
innovation”—innovation that is good for society and profits.
Companies seldom recognize how linked their business
results are to the success of their stakeholders. Viewing value Some companies are starting to view success in broader
creation more broadly would unleash a wave of “social terms. They are recognizing the many ways in which their
innovation” that is good for society and profits. own economic destinies are connected to those of their
stakeholders and societies. “Shared value creation” is the
Hitachi is a social innovator that has developed solutions to
guiding principle. It holds the potential to be the next major
the challenges of Japan’s natural resource scarcity. The
transformation of business thinking. (For more information
company’s flexible global products and systems solutions
about shared value creation, see the HBR website.) This new
allow customers to make smarter use of resources amid
way of thinking about value creation is unleashing a wave of
diverse constraints. Social innovation has helped Hitachi
“social innovation”—good not just for society but for profits.
become both an industry-leading competitor and a force of
constructive societal change. Hitachi is highly focused on social innovation.

For Hitachi, “social innovation” is about the fusion of
CONTEXT technologies to build environmentally sound, socially
Angelia Herrin described a new business principle that sustainable infrastructure that contributes to more
sustainable societies.
promotes social innovation. Mr. Ishigaki explained the
significance of social innovation to Hitachi.
“Hitachi firmly believes that our focus on social
innovation is a roadmap for leading change and
KEY LEARNINGS making a meaningful societal contribution."
Businesses need to recognize how closely connected their
—Tadahiko Ishigaki
economic success is to the success of stakeholders.
Hitachi was “born” in 1910 and “raised” in Japan, an island
Too often, companies are not part of the solution to problems nation lacking many essential natural resources, such as oil,
that are critical to their very viability—such as the depletion gas, and coal. Accordingly, energy resource scarcity has long
of natural resources they need for their businesses. been a driving force in Hitachi’s development of new
Michael Porter, author of the Harvard Business Review technologies. Hitachi has worked on questions such as:
article, “The Big Idea: Creating Shared Value” (January/  How can we reduce energy consumption?
February 2011), says that companies’ narrow approach to  How can we minimize undesirable waste?
value creation, focused on financials, is outdated. It blinds  How can we create cleaner, safer environments?
leaders to the needs of stakeholders—customers, suppliers,
The company’s continued dedication to overcoming such
employees, community—who will ensure their companies’
challenges has helped Hitachi grow into a leading social
long-term survival.
innovator, set far apart from industry competitors. A century
Instead, corporate leaders must connect business success to of experience—both successes and failures—has built the
social progress, not as philanthropy, but as a way to achieve firm’s expertise in infrastructure technologies.
the economic success they seek.

© 2011 Harvard Business School Publishing. Created for Harvard Business Review by BullsEye Resources www.bullseyeresources.com. 1
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February 9, 2011

Among the wide variety of socially sustainable infrastructure products and systems solutions is flexibility, for applicability
projects in which Hitachi has been involved are power to different kinds of operations facing different kinds of
generation plants, water supply systems, high-speed resource constraints in different regions of the world.
passenger railways, and IT systems.
While Hitachi stands ready to be part of the solution to the
Hitachi’s global products and systems solutions can help world’s environmental, social, and sustainability challenges,
address the world’s sustainability challenges. the company believes that public policy has a crucial role to
Today, Hitachi is well positioned with best-in-class play as well.
technological solutions that allow organizations to make
smarter use of resources. A hallmark of Hitachi’s global

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February 9, 2011

Keynote Presentation
Andrew Winston, Founder, Winston Eco-Strategies; Author, Green Recovery and Green to Gold

OVERVIEW But that perspective is rapidly becoming outdated. Mounting
Pressures on corporations to embrace sustainability—and pressures on companies are making sustainability an issue for
prove to customers and other stakeholders they have done which companies have no alternative. Consider:
so—are bearing down from myriad directions. Going green is  The world must become more efficient. Globalization
no longer a compliance issue; it is now a business mandate. and the surge in the world’s consuming class have
driven up demand for, and constrained supplies of, the
But this mandate need not be viewed as onerous. This is
materials of modern life. With the world’s population
because great possibilities exist for organizations that see this
projected to swell to 9 billion by 2050, it is apparent
mandate as an opportunity to challenge existing beliefs, to
that companies and countries must figure out how to
innovate, and to leverage to create value.
provide a high quality of life to many more people
using drastically less “stuff.”
CONTEXT
Mr. Winston discussed the many ways in which companies “Demand for everything that goes into society is
are being compelled to go green and what this means for rising relentlessly . . . and supply can't keep up."
companies that seize the opportunities that are presented. —Andrew Winston

 The public discourse about sustainability is changing.
KEY LEARNINGS Titans of capitalism such as venture capitalist John
Rapid changes in how the world works have left companies Doerr and GE CEO Jeff Immelt are speaking out in
with little alternative but to embrace sustainability. favor of a price on carbon, to drive energy innovation.
It is unfortunate that climate change has become so  The logic of decoupling economies from dependence
politicized in the United States. That hasn’t always been the on fossil fuels is not debatable. The BP oil spill was a
case (as Republican presidents have signed most of America’s reminder of how difficult it has become to access the
significant environmental legislation), and isn’t the case fossil fuels on which modern life depends.
around the world.
 Stakeholder concerns about sustainability are
But from a corporation’s point of view, neither politics nor proliferating. Increasingly diverse groups (NGOs,
the science of climate change matters. In today’s world, the customers, employees, donors, communities) are
business logic for embracing sustainability is unassailable. asking increasingly tough questions and making
Executives from Shell call sustainability a “TINA” issue— sustainability-related demands of companies. Environ-
“There Is No Alternative.” mental concerns run the gamut, from the toxicity of
chemicals to promoting biodiversity, protecting water,
Historically, companies viewed sustainability as an
and securing future sources of energy.
unwelcome expense and obligation requiring compliance.
Green didn’t belong in the boardroom, the thinking went, as  Countries are aggressively pursuing alternative
it had nothing to do with value creation. This “compliance” energies. Among announcements over the past six
lens for viewing sustainability is still common among many months, Portugal, Germany, South Korea, and China
companies. are dramatically increasing investments in renewable

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February 9, 2011

sources of energy. Six countries hold all the patents in
“The value you can create by seeing your
clean energy, with Japan having the most (many by business through a sustainability lens is so large
Hitachi). China is investing heavily in high-speed rail. that it's okay that there's no choice."
 Market forces are compelling companies to innovate —Andrew Winston
on environmental problems. HBSC estimates that the
global market for climate change solutions will grow to Viewing business through a sustainability lens spurs value-
$2.2 trillion by 2020. Alternative energy technologies creating social innovation.
have become big business. There are basically only a few ways companies create value:
 Transparency and technology are empowering green- lowering costs and/or risks, boosting revenues, or enhancing
minded consumers. Consumer product companies their brand. Value is being created through sustainability in
should be worried about “Good Guide,” a website with all of these ways.
an iPhone app that allows consumers to compare Once a company views its business through a sustainability
products’ sustainability rankings as they shop by lens, innovative ideas for saving costs and creating upside
scanning bar codes into phones. The software gives the become apparent. These ideas are not just low-hanging fruit;
scanned product’s ranking and suggests alternatives they are “fruit on the ground.” There are four interrelated
with better scores. keys to realizing opportunities related to green:
 Businesses are pressuring each other to go green.
Get Smart
While Walmart (see case study below) has led the way
in “greening” its supply chain, other companies are Companies are collecting and analyzing data on energy usage
pressuring their suppliers to go green as well. and environmental footprints along their value chains. Data-
based insights are driving new kinds of conversations—and
Moving green from a compliance issue to a business opportunities—among suppliers, employees, and customers.
imperative is actually good news.
For example, data about a product’s environmental footprint
Companies know their customers are increasingly concerned might point to a change in raw materials or processes, saving
and informed about the environmental footprint of the money and carbon emissions. Leveraging data more effect-
products they buy. To date, executives have viewed green as a ively can lead to more cost-efficient use of energy or other
“tie-breaker.” The thinking goes that all else being equal, resources (e.g., smart meters that supply data on facilities’
consumers will choose the product they perceive to be electricity consumption saved Valero $200 million per year).
greener. But research among hotel chains shows that green
Get (Your People) Engaged
has gone from being a “tie-breaker” to a “deal-breaker.”
Corporate clients are requiring hotels to meet high green There is no better way to galvanize employees than through
standards to retain their business. sustainability initiatives. More engaged employees bring HR-
related benefits (greater retention, productivity, etc.) and
With customers setting higher standards than the govern- contribute innovative ideas.
ment, sustainability is no longer a compliance issue. Meeting
Get Lean
customers’ expectations has become a business imperative.
Energy efficiencies and cost savings go hand in hand. A
The reality that green has become a TINA issue need not be company might find opportunities in facilities (e.g., changing
interpreted as a somber message. It is a message of light bulbs saved a hotel chain $1.2 million per year),
opportunity, because viewing a business through a sustain- distribution or transportation (slowing its trucks to 62 mph
ability lens provides an opportunity to create value. saved Conway $10 million per year and cut carbon emissions
by 15%), or IT systems (Yahoo, Microsoft, and Google now

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February 9, 2011

build datacenters in climates where no air conditioning is To promote social innovation, companies need a genuine
needed, saving $3 million per center). commitment to sustainability.

Companies often espouse sustainability but lack the
“People talk about low-hanging fruit. I'm talking structures, policies, and practices that show seriousness of
about fruit on the ground." purpose. To systematize the asking of heretical questions and
—Andrew Winston
to promote social innovation, companies need the right
corporate structures, resource commitments, and policies/
Get Creative and Heretical practices. For example:
In an increasingly green economy, success will mean  Compensation and incentive structures that reward
developing new products and services that create revenue in sustainability and innovation. How a company incents
socially responsible ways; i.e., social innovation. determines what its people focus on.
How can companies tap the creativity that leads to social  Organizational and governance structures that reflect
innovation? They need to engage in business heresy. Game- commitment to sustainability and innovation.
changing innovations are often the result of heretical Examples of commitment from the top would be a
questions that disrupt existing belief systems. board-level sustainability committee and/or a
 UPS asked, “What if drivers stopped making left sustainability officer.
turns?” Born was a policy that reaped safety benefits,  Resource commitment to sustainability and
environmental benefits, and cost savings. innovation. Often, a company has a chief sustainability
 Conway asked, “Does a shipper have to move fast?” officer with a staff of one intern. Resource
Born was its money-saving 62-mph policy. commitments should match a company’s rhetoric.

 Tennant asked, “Must floors be cleaned with  Culture that encourages everyone to take
chemicals?” Born was a floor cleaning system using no responsibility for sustainability. Until sustainability is
toxic chemicals, only tap water. everyone’s job, heretical questions won’t be asked. This
culture requires strong CEO commitment.
 Caterpillar asked, “Why can’t heavy equipment have
power and low emissions?” Born was a diesel-electric WALMART CASE STUDY
hybrid that moves 25% more material.
Walmart has reaped much economic value from its green
 Xerox asked, “How can people use less paper?” The initiatives: lowering costs, enhancing its brand, and more.
company is transitioning away from its traditional The gigantic company ($400 billion in annual revenues) has
product lines as it explores that question. been a titanic force in greening its supply chain. This has had
a far-reaching ripple effect as the retailing giant’s suppliers
 Toyota became the world’s largest carmaker because
have forced change along their value chains. A few of Wal-
it invented the hybrid Prius. Now Boeing is asking,
mart’s green supply chain activities include:
“Can we fly without fossil fuels?”—and finding that the
answer is “yes.”  Requiring suppliers to provide data on their carbon
footprint.
“Heretical questions force innovation. The  Setting stricter standards than the government’s for
companies that ask and answer fundamentally the amount of lead in toys.
heretical questions will create the most value."
—Andrew Winston  Requiring suppliers to trace every component and raw
material.
 Doubling the amount of locally sourced food sold.

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February 9, 2011

Panel Discussion
Jane Nelson, Director, Corporate Social Responsibility Initiative, Harvard Kennedy School of Government; Senior
Fellow, Brookings Institution
Andrew Winston, Founder, Winston Eco-Strategies; Author, Green Recovery and Green to Gold

OVERVIEW By “resource-constrained,” Professor Nelson refers not just
The central challenge of our time is: How will we sustain and to natural resources but also financial resources, and in the
improve standards of living in an increasingly resource- U.S., human capital resources; specifically, the STEM
constrained world? (science, technology, engineering, and math) skills that
American companies need to remain competitive and that
The private sector has the innovation capabilities and the educational system is failing to supply. By “distrustful,”
technological expertise to provide solutions. But companies she refers to the increasing demands for transparency and
could be doing much more to advance the social and accountability that stakeholders are placing on companies.
environmental agenda.
Within that central challenge for society are three challenges
However, it is public policy that must take the lead in solving for corporations:
the world’s critical problems with frameworks that enable
1. How do companies drive sustainability into the core
the private sector to implement needed solutions. Different
businesses and throughout the entire value chain and
nations approach this responsibility very differently.
business model? Social innovations are not just new
products and services, but include process and
CONTEXT
business model innovations. The Harvard Business
Professor Nelson explained her framework for thinking about Review article “The Big Idea: Creating Shared Value”
the corporate sector’s sustainability challenges and opportu- (January/February 2011) provides a framework for
nities. She and Mr. Winston then shared their perspectives on thinking about this.
how countries and companies are—and should be—
2. How do companies leverage their CSR and
approaching sustainability issues. They took questions from
philanthropic investments to create more value for
the audience both in the room and via the Web.
society via social innovations? Philanthropy as
practiced today represents a tiny percentage of the
KEY LEARNINGS social value companies could be creating. Companies
Sustaining economic growth, creating jobs, and eliminating need to think more creatively about using their
poverty comprise the central challenge of our time. resources (an under-tapped resource is employee and
Jane Nelson sees the central challenge of our time, in the retiree volunteerism, for example) to create more social
United States and globally, as: good; e.g., catalyzing social innovation within the
communities they seek to help.
How are we going to sustain economic
growth, create jobs, and continue to eliminate “There are more and more examples of
poverty in an increasingly resource- companies using CSR investments to catalyze
constrained and distrustful world? social innovation within communities."
—Jane Nelson

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February 9, 2011

3. How do companies pursue sustainability goals in autocracy,” Mr. Winston quipped. In two years, China built
more systems-level ways? Not only are companies the largest solar industry in the world, from nothing. Once
driving green agendas throughout their own value Beijing sets policy, it’s set.
chains, but increasingly there are innovative collabora-
It is true that while China is the world’s largest user of
tions between companies and via public/private
renewable energy, it is also building a coal plant a week. But
partnerships. These partnerships are focused on
its coal plants are cleaner than America’s. Beijing is not
finding and implementing operational and policy-level
unaware of the challenges that China’s environmental
sustainability solutions. For example, companies in
problems present to its population.
various industries (IT, engineering) are working
together on the concept of “smart cities.” In China, Ms. Herrin observed, the government is proactive
Public policy must lead the way, playing roles that on the green agenda and dragging the private sector along,
businesses simply cannot. whereas the reverse seems true in the United States, where no
strong federal government leadership exists. Mr. Winston
Per Mr. Winston, “We have a very serious problem facing us
agreed: “China’s government is united and can be a knee in
as a species.” Businesses have to be part of the solution,
the back of companies to go greener.”
because it is companies like Hitachi that have the
technological solutions. Yet companies cannot implement President Obama did mention in his recent State of the Union
solutions in the absence of supportive public policy address the need to remove fossil fuel subsidies, noted Mr.
frameworks. Winston, which would be a backdoor route to a climate
change policy. Many don’t realize that the federal government
Global policy standards are needed for both environmental
has direct subsidies of $20 billion per year going to fossil
and social issues, said Professor Nelson. This includes a price
fuels versus $3-$4 billion to ethanol and comparatively little
on carbon emissions.
to hydro and wind power. Mr. Winston attributed these
Mr. Winston agreed. He found Google’s announcement that it distorted subsidies to the power of the major oil companies
would make a major investment in wind farms to be a bit sad, over the American political process. However, Professor
as that is an investment the government should be making. Nelson noted that the major oil companies are diversifying
“For us to pretend that the private sector can build the into alternative energies.
initiatives at the scale that is needed is ridiculous. To build a
In Europe, she observed, there is more proactive public
high-speed rail system in the U.S., $50 billion will be needed;
discourse on social issues than in the United States. There are
that won’t come from venture capitalists.”
more large, systems-level, public/private partnerships
When President Eisenhower supported building the highway looking for solutions, more public policy debate on social
system, he had nearly unanimous support in Congress. responsibility issues, and more engagement among
Today, lawmakers are deeply divided on the issues of federal companies.
spending and debt. Mr. Winston believes “we have to manage
both debt and investment.”
This important discussion is continuing online. Please
Countries differ in the degree to which the government is add your voice to the blog by going to
providing the necessary leadership. http://blogs.hbr.org/events/2011/02/social-progress-
In the United States, the political system works against economic-succe.html
prospects for a consistent federal environmental policy. One
election can sweep into power lawmakers who don’t even
believe in climate change. “There’s something to be said for

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February 9, 2011

BIOGRAPHIES
Tadahiko Ishigaki
Senior Vice President and Executive Officer, Chief Executive for the Americas, Hitachi, Ltd.

Mr. Ishigaki has served as Senior Vice President and Executive Officer, and Chief Executive for the Americas, Hitachi, Ltd., and
Chairman of Hitachi America, Ltd., since April 2008. Prior to his current post he served as Senior Vice President and Executive
Officer, and Chief Executive for North America, Hitachi, Ltd., and Chairman of Hitachi America, Ltd., since January 2007. He
was Senior Vice President and Executive Officer, and General Manager of the Corporate Marketing Group, Hitachi, Ltd. from
2006-2007. He previously was President & Director, Hitachi Home & Life Solutions, Inc. and Vice General Manager of the
Consumer Business Group, Hitachi, Ltd. from 2004-2006. From 1993-2004 he served in a number of headquarters-based senior
executive marketing positions for Hitachi, Ltd including senior management roles for Hitachi’s consumer electronics businesses,
including executive positions at Hitachi Europe. He joined Hitachi, Ltd. in 1968. He graduated from Faculty of Business and
Commerce, Keio University.

Jane Nelson
Director, Corporate Social Responsibility Initiative, Harvard Kennedy School of Government; Senior Fellow, Brookings
Institution

Jane Nelson is the Director of the Corporate Social Responsibility Initiative at Harvard Kennedy School, a Senior Fellow at the
school's Mossavar-Rahmani Center for Business & Government, and a non-resident Senior Fellow at the Brookings Institution.
During 2001 she worked in the office of the UN Secretary-General, Kofi Annan, and with the UN Global Compact preparing a
report for the United Nations General Assembly on cooperation between the UN and the private sector. She was a Director at the
International Business Leaders Forum from 1993 to 2009, where she now serves as a senior adviser. Prior to joining the IBLF,
Jane was a Vice President at Citibank and responsible for marketing for the bank's Worldwide Securities Services business in
Asia Pacific, Europe, and the Middle East. She has worked for the World Business Council for Sustainable Development in Africa
preparing a report for the 1992 Rio Earth Summit, and for FUNDES (Fundación para desarrollo sostenible) in Latin America
undertaking research and co-authoring a book on small enterprise development. Jane has authored four books and over 70
reports, book chapters and articles on public-private partnerships and the changing role of business in society, especially in
emerging markets, and co-authored five of the World Economic Forum's Global Corporate Citizenship reports. In 2009 she was
one of the five track leaders for the Clinton Global Initiative, leading the track on ‘Developing Human Capital.’ She serves on the
advisory councils, research groups, or boards of the World Environment Center, the ImagineNations Group, FSG Social Impact
Advisors, the Initiative for Global Development, the Center for Global Development, the International Council of Toy Industries
CARE process, Instituto Ethos in Brazil, and the review process for the IFC’s Policy and Performance Standards on Social and
Environmental Sustainability.

Andrew Winston
Founder, Winston Eco-Strategies; Author, Green Recovery and Green to Gold

Andrew Winston, founder of Winston Eco-Strategies, is the author of Green Recovery, a strategic plan for using
environmental thinking to survive hard economic times and prepare your company for growth when the downturn ends. He is
also the co-author of Green to Gold, the best-selling guide to what works—and what doesn't—when companies go green.

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February 9, 2011

Andrew is a globally recognized expert on green business, and has appeared in major media, including Wall Street Journal,
Time, BusinessWeek, New York Times, and CNBC. Andrew is dedicated to helping companies both large and small use
environmental strategy to grow, create enduring value, and build stronger relationships with employees, customers, and other
stakeholders. His clients have included Bank of America, Bayer, HP, Pepsi, Boeing, and IKEA.

Andrew bases his work on significant in-company business experience. His earlier career included advising companies on
corporate strategy while at Boston Consulting Group and management positions in strategy and marketing at Time Warner and
MTV. After these more traditional roles, Andrew pursued his passion to explore the overlap between business and environment.
He served as the Director of the Corporate Environmental Strategy Project at Yale's renowned School of Forestry and
Environmental Studies.

Today, Andrew is a highly respected and dynamic speaker, reaching audiences of thousands of people around the world and
acting as a practical evangelist for the benefits of going green. He also writes extensively on green business strategy, including a
weekly column for Harvard Business Online, regular pieces on Huffington Post, and a monthly strategy e-letter, Eco-Advantage
Strategies. For his efforts, Andrew was recently named a "Planet Defender" by Rock the Earth.

Andrew received his BA in Economics from Princeton, an MBA from Columbia, and a Masters of Environmental Management
from Yale. He lives in Riverside, CT with his wife Christine and two young sons.

Angelia Herrin (Moderator)
Editor for Research and Special Projects, Harvard Business Review

Angelia Herrin is Editor for Research and Special Projects at Harvard Business Review. At Harvard Business Review, Herrin
oversaw the re-launch of the management newsletter line and established the conference and virtual seminar division for
Harvard Business Review. More recently, she created a new series to deliver customized programs and products to organizations
and associations.
Prior to coming to Harvard Business Review, Herrin was the vice president for content at womenConnect.com, a Web site
focused on women business owners and executives.

Herrin’s journalism experience spans twenty years, primarily with Knight-Ridder newspapers and USA Today. At Knight-
Ridder, she covered Congress, as well as the 1988 presidential elections. At USA Today, she worked as Washington editor,
heading the 1996 election coverage. She won the John S. Knight Fellowship in Professional Journalism at Stanford University in
1989–90.

The information contained in this summary reflects BullsEye Resources, Inc.’s subjective condensed summarization of the applicable conference session. There may be
material errors, omissions, or inaccuracies in the reporting of the substance of the session. In no way does BullsEye Resources or Harvard Business Review assume any
responsibility for any information provided or any decisions made based upon the information provided in this document.

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