NEC Visionary Week 2023 Keynote "The NEC Platform Transforms Business and Society" [32:40]

Build the Future of Business and Society with Digital Transformation Professionals

MC:
Thank you very much for joining us today for NEC Visionary Week 2023.
President and CEO Takayuki Morita will begin his keynote presentation.

Morita:
Thank you very much for coming to NEC Visionary Week. The title of my presentation today is "The NEC Platform Transforms Business and Society." I will introduce NEC's approach to digital transformation, along with some case studies.

In 2019, NEC began providing "NEC Digital Platform"—NDP for short—which is at the heart of our DX business. In 2020, as well as collaborating with our group company ABeam Consulting, NEC launched its strategic consulting approach, strengthening upstream functions and initiating the project to turn NEC itself into a test site for DX.

In 2021, we entered into global alliances with hyperscalers like Microsoft, AWS, and Oracle, which has led to our global alliance COE activities that include ServiceNow and Celonis into NDP. Meanwhile, we have successfully expanded our DX resources so as to create a 20,000 strong-DX Professional team, comprising 10,000 people each from the NEC Group and ABeam, by 2025.

In 2023, we have formed a Digital Platform business unit that takes centralized responsibility for everything relating to the DX such as software, services, consulting, hardware, SE, operations, maintenance, and marketing. Thanks to these improvements, NDP does not just provide technologies but also everything from strategy consulting to implementation, and is evolving into a platform that enables the end-to-end realization of DX for all our customers.

Today I will talk about NEC's evolved DX from three perspectives. The first is NEC's corporate DX—aka corporate DX—which starts with the modernization of key IT systems and realizes data-driven management and smart work. The second is customer DX—aka business DX—which generates the transformation of business models and the creation of new businesses. Then the third is DX as social transformation—aka society DX.

First, let's talk about corporate DX. NEC is working on DX to realize data-driven management. Historically, each of NEC's business divisions functioned independently, with processes and IT undertaken separately. In the 2000s, due to global demand in respect to accounting, we first embarked on a group-wide DX initiative. At the time, transformation focused on consolidating IT systems, and we achieved steady results, reducing the number of systems from about 1,400 down to 750.

However, standardizing processes across different businesses was difficult - we could only standardize several IT systems, and inefficiencies such as different versions and add-ons remained. Now that we have transformed our business portfolio, we are once more aiming for company-wide data-driven management while standardizing IT systems, business processes and data. Achieving data-driven management goes beyond standardizing IT systems, business processes, and data – it also involves transforming the organization, its people, and culture. We thus need to dissect all aspects of our corporate activities and restructure it from a "To-Be" perspective, and to perceive this as corporate transformation. Now I would like to introduce our actual initiatives.

First, transformation of IT, rules, processes, and data. I believe that the modernization of operational systems is essential to efficiently standardize business processes and data. In NEC's case, we started by switching the key systems to SAP S/4HANA, and using cloud. We have completed that and are now moving the peripheral systems to the cloud and updating the key systems for the next-generation digital platforms. In the past, systems involved repeated add-ons, data maintenance was inadequate, and it was necessary for employees to use multiple systems for different purposes. The important points about next-generation key systems are "core" and "side by side."

SAP S/4HANA enables compatibility with the standardization of business processes in respect to the core. NEC's differentiation is side by side, and by making this properly independent from the core, we are realizing IT systems in which standardization and flexibility coexist. We are simultaneously standardizing processes and data. Until recently, business processes and data were scattered across each division, and in the company as a whole, there was difficulty with both data aggregation and agile situation assessment.

We thus standardized all the business processes from company-wide strategy to sales and business management. At the same time, we relooked at important items, such as product items and fair pricing, and established a master data. This allowed us to gather data laterally from upstream processes. We also ensured a certain degree of flexibility by optimizing processes in line with operations and sectors. Standardized data is stored on a data platform that is common to the whole company. Thanks to this, it has become possible to continually analyze and utilize company-wide data. This data has been made visible to all employees via dashboards. Dashboards have been created for areas such as marketing, finance, and the supply chain, with each CxO as the owner. It has now become possible for management and employees to accomplish their work while viewing the same data.

In line with this, we have embarked on the transformation of the organization, its people, and its culture. With data-driven management, I believe it is necessary for not just CxOs and executives but also ordinary employees to utilize the latest data in our daily activities from a company-wide viewpoint. In FY2021, NEC established a new specialist organization, the Transformation Office, directly beneath the President and CEO. This organization is promoting restructuring in all sectors from a To-Be perspective. From the perspective of company-wide optimization, we have helped to transform business activities by establishing business partner functions in each division to support each business in a data-driven manner.

Practically speaking, this involves even greater utilization of dashboards in our daily activities. What's more, various measures are being implemented, with a clear target, such as awareness reform sessions for executives, technology training for innovators in each division, and basic training for general employees. In this way, we are implementing data-driven management at NEC based on the concept of corporate transformation in which everything is restructured. Now I would like to cite two important points we have learned through this implementation while promoting corporate DX. The first is setting a long-term vision. As I am sure you are all aware, the journey to corporate transformation is long and tough.

A vision of how things should be is proposed by the top management must define the vision of the company and commit to it so that all employees do not lose sight of their goals and work towards fulfilling that vision. The second important point is the quick win. As we travel on the journey to corporate transformation, we all worry, "I wonder if we're on the right track?" At times like this, a a system must be put in place for employees to be able to see and feel results—however insignificant— for them to feel convicted. By proceeding with an awareness of agile development, this is perfectly feasible. Now I will briefly introduce a case study.
Within NEC, we have already released 67 dashboards that are being utilized by employees on a daily basis. An example of business process transformation is monitoring the negotiation management process. After standardizing the negotiation process, we mine the process and visualize the current situation to improve the operations. The information gleaned from this dashboard will allow us to take quick actions to boost profitability.

We have also established a "Cyber Security Dashboard", which everyone in the Global Group, from management to new employee, has aceess to, in order to visualize threats and risks that might otherwise be invisible. This dashboard has been accessed by employees more than 160,000 times, and as well as increasing employee awareness, it is leading to action in the form of measures to forestall risks. Regarding internal utilization, we released the Generative AI environment, which can be used safely and securely by all employees, in the space of just two weeks. We created a single package of systems that can be used by over 20,000 people at any time, and will continue to improve its functionality in an agile way. As everyone in the company becomes proficient in its use,
we believe this will lead to overwhelming improvements in productivity.

These corporate DX initiatives are still ongoing, and the knowledge acquired from them is being utilized by our customers for their own corporate DX. For example, ENEOS is working on the promotion of data management to enhance and accelerate its DX, to which NEC is also lending its support. Yamaha Motor Company is promoting modernization aimed at realizing DX. We supported the formulation of their DX vision, which involved updating IT systems that were siloed across their group companies.

We are also contributing to stronger IT governance in the 54 companies comprising Nankai Electric Railway, which has developed a wide range of businesses in the Kansai region, including its railway business. Through NEC's consulting, we are implementing security assessments and the visualization of IT assets for the company's mid- to long-term corporate DX. Establishing a value-creation infrastructure through in-house DX
and creating an environment to make full use of in-house data will help our future businesses to become more sophisticated and create higher added value.

Now I will talk about customer business DX, which leads to business model transformation and new business creation. Today I will introduce the initiatives of two companies. The first company is in the agricultural sector that supports our food supply. Kagome is working on the transformation to sustainable agriculture. One of Kagome's strengths is a value chain that starts in the fields, and the company cites enhanced cultivation support for producers of the tomatoes used in processed foods as one of its most important activities.

The demand for tomatoes used in processed foods is expected to increase in line with the growing world population. Yet the stable cultivation of tomatoes faces various problems,
including a decreasing number of producers, ongoing droughts caused by climate change,
and the soaring costs of agricultural materials. While overcoming these problems, in order to ensure the stable cultivation and supply of crops, Kagome and NEC are collaborating on a project that utilizes AI to improve efficiency and automation.

The first thing we worked on was turning the skilled craftsmanship of expert farmers into explicit knowledge. We developed a function that allow us to accumulate data
on everything from soil conditions to a series of processes that includes the timing of fertilizing and watering crops, and apply AI to analyze and visualize tacit knowledge of veteran farmers so as to provide optimal farming advice. So that anyone can utilize the skills, we channeled these into a versatile agricultural support solution, which was improved by incorporating what farmers wanted and needed. In order for farmers around the world to use this solution, as well as being global and shared,it had to be designed to suit the climate and conditions in each region. Development members from both companies visited farmers in multiple locations, and while receiving direct feedback,
they progressed with adding functions optimized for each region.

CropScope, the AI-based smart farming management solution, was born out of this collaboration. Thanks to the solution, results have included a 20% reduction in fertilizer use, a 15% reduction in the amount of water used on crops, and a 20% increase in yields. At present, the service has been introduced in 11 countries in Europe, North and South America, and Asia, and innovation through agritech in a production context is steadily progressing. What's more, NEC is proceeding with initiatives for even greater sophistication through proof-of-concept tests in the automatic spraying of water and fertilizer.

Next, as an example of DX in the financial sector, I will present a case study of Seven Bank, which helped to transform the Customer Experience. I will present a case study of Seven Bank, which helped to transform the Customer Experience. As declared by Seven Bank, its purpose is to "Create a better version of daily life by going beyond the wishes of our customers," and it is working to create unique new value that goes beyond the boundaries of finance. It is evolving the ATM—through which it interacts with customers—from a cash platform to a service platform aimed at a wide range of users,
and positioning this as one of its growth strategies.

NEC has partnered Seven Bank in the development and evolution of its ATM over the course of more than 20 years. For the latest ATM+ model, we were also involved from the conceptual stages in concept work on what future ATM should be, and supported them in all aspects from hardware design to user interface and the implementation of cutting-edge biometric authentication technology. The latest initiative is that customers will be able to use ATMs to deposit and withdraw money to and from their bank accounts using facial recognition only without any bank cards, from next year onwards. This will enhance convenience and also free customers from worries such as losing their bank cards, having their pin numbers stolen or used fraudulently.

I think we can say that DX has allowed us to transform the ATM into a service platform, which has transformed the customer experience. So far, I have talked about case studies
in which DX is used to transform customers' existing businesses. DX is also capable of creating new businesses.

The first case study is NEC X, which is NEC's own organization for generating new businesses. Right now, NEC X is sending researchers and technologies created at NEC's research laboratories to Silicon Valley, and in a start-up ecosystem for entrepreneurs and investors, is implementing a program to create new businesses. There are already more than 5,000 people in NEC's pool of external entrepreneurs, who utilize NEC technologies to undertake business studies, establishing start-ups and fundraising. NEC X is nurturing these entrepreneurs in partnership with other collaborators. NEC X has already achieved carve-out with ten new start-ups, including a service that searches for disaster victims using drones.

The second case study is the BIRD INITIATIVE, a service provided by NEC in tandem with partner companies in Japan to develop consulting services on new business creation for customers. By maximizing the utilization of DX to create new businesses for customers, the BIRD INITIATIVE offers total support in grand design support for
new businesses, business acceleration, and carve-out. The BIRD INITIATIVE's track record already includes 63 examples of supporting the generation of new businesses and 2 examples of carve-out.

I have talked about transforming existing businesses and generating new businesses as our support for customer DX. Lastly, I will talk about society DX. NEC supports the realization of safety, security, fairness and efficiency for cities and countries around the world. Among these, today I would like to talk about society DX in India.

Despite India's rapid economic growth, the development of urban functions such as social infrastructure and administrative services has not kept pace, and the country is dealing with various issues, such as traffic congestion, disaster response, and public safety. For over a decade, NEC has been contributing to DX for enhanced well-being. India has now adopted NEC's biometric authentication technology for their national ID system, in which 90% of her population is registered. This is contributing to the realization of safe and secure public welfare services.

In the field of distribution, we are cooperating with the implementation of a visualization system for 27 ports around India, and in transportation, with the implementation of a traffic management system for optimizing the management and operation of bus rapid transit (BRT) and improving passenger convenience. Right now, we are advancing with 16 projects across India. I will talk about a DX initiative in Kalyan Dombivli, which is one of the biggest cities in the mid-west of the country.

In Kalyan Dombivli, we built a system that enables sensing around the entire city via a network of sensors and drones. The system uses AI image resolution and image analysis technologies to reduce traffic congestion, for example, by visualizing traffic, identifying congestion and directing users to optimal routes. By visualizing the city, the system is also contributing to public safety and crime prevention. The region has a lot of rain, so flooding is also a problem, but monitoring of weather conditions and water levels in rivers is promoting swift evacuation.

The hub for utilizing this technology is the command control center, which has been provided by NEC. NEC has a proven track record in building numerous mission-critical systems that keep society running. This is another example of leveraging that expertise. As well as India, NEC is contributing to the creation of smart cities across the globe. Multiple issues have become apparent while making this contribution in so many locations. In order to solve urban problems, stakeholders need to be able to empathize with vision and realization, and the roadmap for these must be clearly presented. From our expertise in the technologies, NEC supports the creation of a roadmap for vision and realization. By realizing social implementation with high levels of social acceptance,
we have recognized the significant contribution that we can make.

For this, we are now actively working on the Thought Leadership activities. Through communicating its vision for the future with the aim of solving social problems, it will help us advance social implementation by building a network of likeminded people with whom we can work together toward shared goals, and demonstrating technologies and verifying values.

One example of this is NEC's Smart City Vision, which aims to improve QOL, revitalize regional economic infrastructure, and solve problems that are characteristic of particular regions. We believe that the key elements of this Smart City vision are co-creation with local stakeholders, and the establishment of open infrastructure for the use and application of data across multiple sectors. Regarding co-creation, NEC has become an originator by helping to establish the Smart City Social Implementation Consortium. This accelerates the cycle of service creation, testing, and deployment within an industry, government, and academia ecosystem.

Open data infrastructure is also very important. NEC is now providing the integrated operating system NEC City OS, which transforms services separated by functional layers into cross-disciplinary, optimized services.

Based on this Smart City vision and approach, we are currently providing support to 41 local governments in Japan for safe, secure, and attractive urban development. Today I would like to introduce a case study, Toyama City. Toyama had a sense of the critical nature of the declining population from an early stage, and set forth its Compact City Strategy in 2007. Its goal was to concentrate urban functions close to
public transportation routes; they worked to understand and created data on living conditions, and on urban sensing through IoT.

NEC supported the introduction of City OS for gathering and analyzing this data. This led to the development of various measures, such as utilizing data to keep children safe on their way to and from school. Toyama is also working on aluminum recycling to rejuvenate the region's industries. Aluminum is an important material for carbon neutrality and the production of lighter vehicles. However, in the context of increasing geopolitical instability, Japan is entirely dependent on imports for aluminum from natural resources, which poses an ongoing supply risk.

To resolve this problem through recycling aluminum, the local industries, government, and academia are working together to create an advanced resource recycling model. NEC is contributing to this with our digital technology. The two themes of this contribution are optimization of the aluminum refining process, and identification of environmental value through cross-sectoral data collaboration.

When it comes to recycling aluminum, there are countless process patterns, but NEC's AI is being utilized to deduce the optimum refining process from among these patterns. Our AI image recognition technology is used in each process to automate those that are traditionally performed by humans, such as checking elemental content of waste aluminum and assessing quality.

The second theme is the visualization of environmental value through cross-sectoral data collaboration in the supply chain. By utilizing DATA-EX, the data collaboration platform for industry use, and NEC's blockchain technology, we can ensure traceability in the supply chain as a whole and gain an understanding of reductions in CO2. As a result, it is possible to link with the demonstration of environmental value. Through these initiatives, we wish to contribute to carbon neutrality and the sustainable development of local industry in Toyama Prefecture. Going forward, NEC will realize society DX that leads to solutions for local issues.

We have now discussed three types of DX. At the heart of these is the NEC Digital Platform—NDP—This supports DX with an end-to-end business model that includes upstream consulting, SI and delivery, and maintenance and operations. Upholding this model are technology, and DX human resources and knowledge.

In terms of "technology," on top of NEC's proprietary technologies, our world-leading AI and biometric authentication, and security technologies that are becoming increasingly important in recent years—the state-of-the-art technologies of our global partners
are increasingly in demand. In terms of DX human resources and knowledge, the 7,500 consultants employed by our group company ABeam are another strength of NEC. Internally, NEC is also strengthening recruitment, and we plan to increase the number of strategy consultants to 1,000 by 2025. Furthermore, as a service for customers, we are providing feedback about the experience and know-how of internally verified DX, in which NEC is the so-called "client zero."

Now I will introduce three points relating to the evolution of NDP this year. The first is the NEC Generative AI Service. NEC's large-scale language model boasts world-leading performance in Japanese. The number of parameters has been reduced to just 1/13 of those of top global models, and as well as being very lightweight, can be used securely
in on-premises environments. Furthermore, with the necessary tools for introduction and an introduction support service featuring upwards of 100 Generative AI experts, we are providing end-to-end support for utilization of the service in everything from consulting to the construction of environments.

The second point is cyber security, which has become increasingly important. NEC launched the provision of our data-driven cyber security service in April of this year. With actual data exhaustively gathered from whole systems as a starting point, the service visualizes risks, supports the formulation of strategy through consulting, introduction, operation, monitoring, and handling of security measures, and ensures security in the entire company. The third point is expanding the provision of value through global alliances. NEC's Inzai data center is unique in Japan as a base for connecting to the public clouds of three global hyperscaler companies Last month, we also announced our strategic collaboration with Celonis, which is a global leader in process mining.

Going forward, we will further strengthen global alliances. In our position as a supporter of DX, which is the embodiment of social and corporate transformation, we at NEC believe that the trust of our customers and society is more important than anything else. We have invested this idea in the message "Truly Open, Truly Trusted." NEC will continue to generate innovation based on open co-creation. We will also check our latest technologies, such as Generative AI, from a rigorous ethical perspective, and provide these technologies in a form that enables our customers to always use them with security and safety.

As a DX professional, NEC will continue to support business and social transformation. Please expect yet further evolution of the NEC Digital Platform in the future.

Thank you very much.

CI:
Orchestrating a brighter world
NEC