Faced with a rapidly evolving business landscape fueled by AI and faster cycles of product development, Mitsubishi Electric—a 100-year-old manufacturer with historical ties to the samurai—is undergoing an extensive digital transformation.
In this article, I broadly summarize the who, why, and how of digital transformation at Mitsubishi Electric.
Who is Mitsubishi Electric?
Products
Mitsubishi Electric consists of nine business groups, producing thousands of products ranging from satellite systems, to power generation, home products, train operating systems, semiconductors, elevators, defence systems and more. Its FY23 revenue was close to $36 billion USD, with an operating profit of around $1.87 billion USD.
History
y
Mitsubishi Electric was formed in 1920; however, the Mitsubishi Group dates back to 1870, when Yataro Iwasaki, with family ties to the samurai, originally founded Mitsubishi as a shipping company.
Keiretsu diversification
Mitsubishi Electric is part of the Mitsubishi Group–a diversified conglomerate including Mitsubishi Corporation (trading and investments), Mitsubishi Heavy Industries (heavy machinery and equipment), MUFG (financial services), and Mitsubishi Motors.
The group is considered one of the most prominent examples of "keiretsu" in Japan—interlocking relationships and cross-company collaborations. Keiretsu has historically made Japan a difficult market to penetrate due to its exclusivity.
Specifically, Mitsubishi is classified as a "horizontal keiretsu" ("kigyō shūdan")—a diversified portfolio of industries, whereas Toyota is a vertical keiretsu ("seisan keiretsu").
Digital Transformation - the ‘Why’
Mitsubishi refers to itself as a "global integrated business enterprise that develops and operates businesses together." However, in reality within Mitsubishi Electric, the nine business groups were operating independently. While the groups shared some customers, their products and technology were functioning as independent silos, preventing the groups from capitalizing on potential synergies, customer data and innovating together.
At stake was remaining competitive in a rapidly changing business landscape. Competitors are adopting cloud and AI technologies, as well as modern product practices, fueling faster cycles of product development (and ‘sooner’ time to learning).
A year and a half ago, Mitsubishi Electric announced a new strategic direction called 'Circular Digital Engineering Enterprise.' The strategy aims to create integrated solutions for customers and unify the nine business groups.
Another core driver of the transformation was company culture. A hierarchical culture, with traditional decision making and product development techniques, had led to decisions being based on seniority and opinion, exemplified by the 'highest paid person’s opinion' (the HIPPO effect). This type of culture has a tendency to stifle innovation and slow product development as it hinders new ideas from being surfaced.
Digital Transformation - the ‘How’
Knowing that addressing culture and ways of working would require a long-term effort, Mitsubishi Electric established a ‘Digital Transformation Innovation Center’ with around 30 members. The team devised the transformation strategy and approach, guided investments, and initiated product experiments.
Key transformation steps included:
Establish cloud-enabled, data-centric product management platforms
A key first step was to invest in cloud-enabled product and data platforms. Previously, Mitsubishi Electric lacked a common customer database to share information between business groups and to track product performance, making it challenging to establish a data-informed product culture. They invested in three product management platforms, including:
An IoT platform called “Linova”, enabling device usage monitoring
A home appliance integration app called “MyMU”, enabling product usage data collection
A data integration / business intelligence platform called “KOTOLiA”, enabling product data analysis and information sharing
Adopt modern product development practices
As a manufacturer, Mitsubishi Electric acknowledged not having a modern digital product development process. To accelerate adoption, they borrowed from one of the best—Amazon—and developed their own variant called the ‘Circular Cell Engineering’ process. Central to this approach was Amazon’s Working Backwards methodology, which involves:
Customer-centric product development: Focuses on understanding and solving customer needs.
Develop a press release from the future (no PowerPoint): A detailed, customer-facing press release is created as if the product has already launched.
Data-led approach: The press release often includes graphs, charts, and research to support the product’s value proposition.
Iterative product development methods: Agile sprints and product discovery techniques.
‘Two Pizza’ cross-functional teams: Small, autonomous teams that can theoretically be fed with two pizzas.
The internal Circular Cell Engineering methodology contained four key steps, as follows:
Circular Cell Engineering
With the new circular product development approach, coupled with their investment in cloud-enabled, data-centric product management platforms, Mitsubishi Electric was now able to run experiments, receive feedback, and iterate products in short learning loops.
Conduct an initial experiment
Mitsubishi Electric initiated its first experiment to test the new product development approach by creating a digital service called ‘MeAMOR.’ The service allows family members living apart to “gently watch” over one another by monitoring IoT-connected Mitsubishi devices, such as a refrigerator, air conditioner, or bathtub, through an app. One use-case targets busy professional children who, due to distance, have limited time to care for a grandparent but can monitor their behaviour through appliance usage, such as how often the fridge is opened or the temperature settings of baths and air conditioners.
Experiment learnings form the social proof for improving ways of working
Humans typically adopt new ideas in a upside-down U shape, starting with early adopters through to laggards (Rogers, Diffusion of Innovations, 1962).
The MeAMOR experiment led to an important new cultural learning: data-informed product development. The circular loop methodology coupled with end-user data created the environment for shorter, closed-loop product experiments. Previously, products were manufactured and shipped without readily available end-user data, thus extending the development lifecycle. In the past, the MeAMOR experiment might have taken years, or even decades.
Through the intelligence platform (KOTOLiA) all team members, junior and senior, could access product data, fostering fact-based decision making. This created the kernel of a culture that valued data over hierarchy (facts and data over HIPPOs). Furthermore, colleagues newer to the organization were able to contribute, whilst previously they may not have been comfortable.
In terms of transformation, the approach exemplifies thinking big, starting small, and learning fast. The initial experiment provided significant learnings and the social evidence for further transformation within the company.
Incentivize breaking down silos
To break down silos and encourage collaboration, the Digital Transformation and Innovation Center formed the nine business groups into four business areas, assigning Area Owners to each. The mission of the Business Area Owners is to create integrated solutions across their respective areas.
Incentives and structure play a significant role in shaping organizational behaviour. If culture eats strategy for breakfast, then incentives eat culture for breakfast, lunch and dinner. By establishing the four business areas and incentivizing collaboration, Mitsubishi Electric is increasing the likelihood of developing integrated solutions and overcoming organizational barriers between the business groups.
Facilitate a radical shift: customer focus
The experiment learnings also facilitated a radical shift in product mindset and strategy. Previously, in the absence of closed-loop product data, Mitsubishi Electric had focused on its competitors for features and pricing. The new platforms coupled with an iterative product development process enabled a radical shift towards their customers and user behaviour.
Additionally, Mitsubishi Electric previously approached product development with a narrow focus—by directly addressing customer needs or requests. Henry Ford famously said, 'If I had asked people what they wanted, they would have said faster horses.' Mitsubishi Electric has learned to think more broadly about customer needs and what customers are 'hiring' the product to do. A useful framework for this is Jobs to Be Done, which emphasizes understanding the underlying needs and motivations driving customer choices.
Final reflections
I think this is a fascinating case study in transforming a century-old culture and rapidly bringing a company into the Digital Age through a 'learning by doing' approach that delivers early proof points (quick wins).
In my experience with transformation, the significant learnings from improving ways of working typically emerge in the second or third year—this is also evident from the experiences at Mitsubishi. Patience is critical when it comes to improving ways of working, as there will inevitably be resistance from the late majority and laggards, who require evidence and social proof in order to be convinced.
Finally, one of my favourite quotes from the case study comes from Richard Taylor at Amazon: 'Be stubborn on the vision, but flexible on the details.' I couldn’t agree more.
Sources:
Mitsubishi Electric Org Chart click here
MeAmor: https://kuratoku.lcx.mitsubishielectric.co.jp/meamor/
AWS Conversations with Leaders podcast click here
Mitsubishi Electric products click here
Mitsubishi Electric FY23 financial results click here
Diffusion of Innovations Theory click here
Jobs to be Done Theory click here