Yokogawa's Approach To Digital Transformation (DX)
PerspectiveYokogawa’s Approach to Digital Transformation (DX)Yokogawa’s Approach to DigitalTransformation (DX)Yukihiro Funyu *1Yokogawa Electric Corporation started tangible efforts to achieve digitaltransformation (DX) in 2018 as part of its three-year business plan “Transformation 2020(TF2020),” which recently concluded at the end of fiscal 2020.Yokogawa’s DX activities are divided into two areas: Internal DX, which focuses onimproving employee productivity, and External DX, which develops and provides valueadded digital services to customers. To transform the experimental results of Internal DXinto reliable External DX in a coordinated manner, Yokogawa took a Show Room approach.Since the optimal practices and methodologies have not yet been established, charting thecourse for DX requires trial-and-error.This paper outlines Yokogawa’s approach to DX over the past three years and its DXpractices.INTRODUCTIONYokogawa Electric Corporation is a long-establishedcompany founded in 1915. Although its original businessw a s m e a s u r e m e n t , Yo kog aw a h a s n ow s h i f t e d t o abusiness-to-business (B2B) manufacturing company focusingon the control business. This business accounts for about 90%of the company’s sales, about 70% of which come fromoverseas, indicating that Yokogawa’s business has becomehighly globalized (Figure 1).The main targets of the measurement and cont rolbusinesses are plants in the process manufacturing industrythat handle fluids and gases, such as oil, gas, chemicals, food,*1 Vice President,DX-Platform Center, Digital Solutions Headquarters,Digital Strategy Headquarters3Test and Measurement Business6.1%Aviation and OtherBusinesses 2.2%Net salesby segmentIndustrialAutomationand ControlBusiness91.7%NorthAmerica32.7Russia19.5All Europe32.6Middle East, Africa 55.5South and Central America9.0Japan 126.5Net salesby region(Billion yen)India 15.3China 47.3Southeast Asia,Far East 66.0(Results of fiscal year 2019)Figure 1 Yokogawa’s sales composition and ratio(fiscal 2019 results)and beverages. Therefore, the main area of our business canbe described as operation technology (OT). The wave of ITis also sweeping through plant systems. In particular, therecent progress of digital technology has led to the increasingneed for the digitalization of plant management usingIndustrial Internet of Things (IIoT) technology, integratedmanagement of OT security and IT security, and integratedYokogawa Technical Report English Edition Vol.64 No.1 (2021)3
Yokogawa’s Approach to Digital Transformation (DX)Figure 2 Yokogawa’s products and servicesmanagement of OT- and IT-related data. In response, we arestrengthening our IIoT sensor lineup and edge systems, aswell as expanding our products and services in the IT area,such as cloud applications that can be linked to edge systems.Although OT and IT have been operated and managedseparately, their convergence is increasingly attractingattention. We are also expanding products and services toreflect this trend (Figure 2).BASIC STRATEGIES OF THE TF2020 MIDTERM BUSINESS PLANTransform our businesses to achieve a sustainable society.ValueUnexpectedvalueDesired valueExpected valueRecurring model Platform is always up to date Improve functionality with periodic applicationupdate Personalized servicesBasic ng with customers toradically improve productivityFunctionalrestriction*Karl Albrecht4 levels of valueAdditionalfunctionCreation of new businesses andtransformation of business modelSimple selling model Need to adapt to technology Continue maintenance to maintain value When replacing, opportunity for othercompanies to enter the projectBasicfunctionBe an InnovativeValue CreatorTransform from simple selling model to recurring modelBenefit: Reduction of customers’ initial costs and stabilizing our revenueStrategy: Use the IIoT cloud platform that is under development.First, roll this out to new businesses. Then, using the know-how that has beengained, roll out to existing businesses.Investment costYokogawa’s mid-term business plan, TF2020 (fiscal2018-2020)(1), had three major initiatives: “transformation ofexisting businesses, especially the control business,” “creationof new businesses and transformation of business models,”and “improvement of productivity through group-wideoptimization.” Digital Transformation (DX) is positioned atthe center of these measures (Figure 3).out type, or capital expenditure (CAPEX) business. However,the construction of new plants is declining due to the energytransition, which is driven by the slump in crude oil pricesand the pursuit of a decarbonized society. Therefore, we areshifting to a recurring type or operating expense (OPEX)business, which uses our existing installed base and offersmaintenance of measurement and control systems and digitalservices. This business model is similar to servitization (shiftfrom goods to services) being attempted by various companies(Figure 4).Time Expand OPEX business Further strengthen in target industriesBe the MostTrusted PartnerTransformation ofexisting businessesDigital transformationDigitaltransformationBe a GloballyIntegrated TeamImprovement of productivitythrough Group-wide optimization Create life innovation business Transform business modelDramatically improvingbusiness efficiency Enhance cost competitiveness Optimize organizational structure Develop highly skilled personnel Creating digital businesses Transforming business processes Strengthening our information technology infrastructureFigure 3 Basic strategies of TF2020Yokogawa has been developing measurement and controlsystems and delivering them to process manufacturers at thetime of construction of their plants. This is defined as a sell4Figure 4 Shifting to the recurring businessSustainably creatingvalue through innovationOVERVIEW OF DX STRATEGIESAs mentioned above, promoting DX is the core of theTF2020 mid-term plan. There are two types of DX initiatives:Internal DX for employees and External DX for customers.Yokogawa’s Digital Strategy Headquarters is in charge ofInternal DX while External DX is managed by the DXPlatform Center of the Digital Solutions Headquarters toprovide digital services to customers. Regardless of whetherthe purpose is for internal or external use, the essence of DXis the same. So, we emphasize close collaboration betweenYokogawa Technical Report English Edition Vol.64 No.1 (2021)4
Yokogawa’s Approach to Digital Transformation (DX)Make full use of digital technology, create growth opportunities,and establish a foundation for growth for all transformationsSupport the productivity revolution andcreate growth opportunitiesExternal DX: Improve the value to beprovided to customers Achieve DX in existingbusinesses and createnew DX businessesDX-Platform CenterDigital Solutions HeadquartersInvestin ITValue for in-house operationValue for customersInternal DX: Improve theproductivity ofInnovate business processes employees by 20-30%Realize the digital businessApply AIand the IIoTto control systemsolutionsRPABuild an IIoTcloud platformMobileworkstyleDigitalmarketingDigital Strategy HeadquartersStrengthen IT infrastructureNetworkSecurity“Show Room”Establish a foundation for growthFigure 5 Yokogawa’s products and servicesInternal DX and External DX (Figure 5).What is the essence of DX? Among the many definitionsof DX, the most understandable and universal one is foundin the Guidelines for Promotion of Digital Transformations(DX Promotion Guidelines) (2) issued by the Ministry ofEconomy, Trade and Industry (METI). It states that DXenables companies to respond to rapid changes in thebusiness environment and to use data and digital technologyto transform their products, services, and business modelsbased on the needs of customers and society, as well as totransform their businesses, organizations, processes, andcorporate culture, and thus establish a competitive advantage.The first half of this definition can be applied to External DXand the second half to Internal DX. We need to work togetherwith customers to help them achieve Internal DX and obtaincompetitive advantage.As mentioned in this definition, “transformation” is theessence of DX. In this context, the term means corporatetransformation; specifically, the transformation of a company’sbusiness models, organizations, processes, and culture. Butwhat is this corporate transformation? According to theauthor’s experience, it is a process of integrating what hasbeen done mainly by line organizations, from the perspectiveof customers, employees, and partners. This idea means that acompany is part of the ecosystem that makes up society, andthat by building digital alliances with customers and partners,companies can increase efficiency in processes and operations(Figure 6).APPROACH TO DXTo achieve this kind of transformation, it is necessaryto reintegrate processes and systems within the companyCurrent structure (vertical)Ideal structure (cross-sectional)CustomersCustomersCXE BUD BUC BUB BUA BUE BUD BUC BUB BUA BUSales & MarketingSales & e Administration, Accounting & TreasuryLegal AffairsPartnersCorporate MarketingPXLegal AffairsR&DEXCorporate MarketingCorporate Administration, Accounting & Human Resources & General AffairsHuman Resources & General AffairsITITQuality Assurance and AuditQuality Assurance and AuditProcesses and systems by business unit, function, and regionResulting in low productivity and low speedEssence of DXReorganize processes and systems globally into an E2E structurefrom the perspective of customers, employees, and partnersFigure 6 Essence of DX5Yokogawa Technical Report English Edition Vol.64 No.1 (2021)5
Yokogawa’s Approach to Digital Transformation (DX)from the perspective of customers, partners, and employees.However, the processes and systems of many companiesincluding Yokogawa have been established through a bottomup, front-line approach, and reorganizing these would be adrastic overhaul.We have defined the final image of DX as “DigitalEnterprise,” and are working on transformation based on theimage of a future state in which “Anytime, anywhere, any way;all corporate activities can be operated remotely” (Figure 7).Anytime,Anytime, anywhere,anywhere, anyany way;way;allall corporatecorporate activitiesactivities cancan bebeoperatedoperated remotelyremotelyactivities. Until three years ago, the DSHQ worked as theInformation Systems Headquarters. To directly contributeto corporate transformation and promote servitization of inhouse activities, the DSHQ defined its missions as shown inFigure 9.Mission of the Digital Strategy HeadquartersHelp the Yokogawa Group to transform from a traditionalmanufacturing company into a world-class solutions andservices company with OT and IT integrated.OTITExternal DXInternal DXTransformation by which theYokogawa Group becomes aDigital Enterprise and a real-lifeexample of DXTo help customers transforminto a Digital Enterprise“Show Room”Figure 9 Missions of the Digital Strategy HeadquartersFigure 7 Ultimate goal of DXSince it is not easy to achieve such a future state, we needto proceed by the following three steps (Figure 8).Step 1: Reduce selling, general and administrative expenses(SGA) through comprehensive global optimization.Step 2: Maximize the added value of customers, partners, andemployees by using DX (organic integration of thesupply chain and the engineering chain).Step 3: Reintegrate processes in an end-to-end (E2E) structurefrom the perspective of customers, employees, andpartners.Step 3: Reintegrate processes in an end-to-end (E2E) structure from three perspec vesEmployeeCommunityforCommunity forCommunity foremployeescustomerspartnersOnePartner ringProductDesignSourcingSalesAsset Lifecycle Mgmt (ALM)Supply Chain Mgmt (SCM)Quality Mgmt (QM)PartnersHR & GAReduceSCM:PartnerProduct Lifecycle Mgmt (PLM)One Partner I/FMarketingOne Customer I/FCustomers (end customers/distributors)Customer RelationshipStep 2: Mgmt (CRM)Maximize the added value with customers,partners, and employees by using DX(DX target)ECM:CustomerCorporateStepMgmt 1:/ Biz PlanningSGA through comprehensiveAccounting & Treasuryglobalop miza on(Global DX core)Global Data Lake (IT/OT) & AI/ML PlatformGlobal Collaboration PlatformHybrid Cloud Environment / Security / Global SDNFigure 8 Steps in DXYOKOGAWA’S APPROACH TO DXTo efficiently implement these three steps, we are carryingout measures to perform Internal DX and External DX inparallel. The following is an overview of these measures.Approach to Internal DXI nter nal DX ai ms to i mprove the product ivit y ofemployees. To promote this, the Digital Strategy Headquarters(DSHQ) defined a clear mission and is engaged in related6Based on these missions, we have set the following fourmid-term policies for Internal DX.Policy 1: Global optimizationAvoid technological debt i and reduce IT costs tosecure resources for pursuing DX.Policy 2: Digitization and servitizationImprove the productivity of employees and reformcontact points with customers and partners.Policy 3: Security enhancementEnsure security for digital connectivity.Policy 4: IT transformationMake the IT department a driver of cor poratetransformation.Policy 1 is to comprehensively and globally standardizeback-office operations such as accounting and personnelaf fai rs, i nclud i ng i nter nal IT i n f rast r uct u re. We a repromoting global integration from the three perspectives ofIT infrastructure, applications, and data. In particular, sinceapplications are closely related to business processes, we areworking together with regional offices to standardize businessprocesses for making them seamless and reduce the numberof applications for lowering costs. These measures also aimto overcome the “2025 Digital Cliff,” a concern described inMETI’s DX report.Policy 2 is to promote various DX initiatives that willhelp improve the productivity of employees. Currently, thereare more than 10 DX initiatives in progress in Yokogawa.Among them, this special issue introduces a measure topromote data-driven management(4), Digital CX for reformingcustomer contact points(5), and Digital Factory for reformingthe operations of Yokogawa’s factories(6).Policy 3 is to strengthen security, which will becomeindispensable when digitalization progresses as a result ofi Developing a system from a short-term perspective will result in increasedmaintenance and operation costs in the long term. Continuously payingunnecessary costs is regarded as a kind of debt(3).Yokogawa Technical Report English Edition Vol.64 No.1 (2021)6
Yokogawa’s Approach to Digital Transformation (DX)Policy 2. An example of the global security enhancement inYokogawa(7) is also detailed in this special issue.The last policy is to transform the IT department itself,which is essential for smoothly implementing Policies 1through 3. This policy consists of three initiatives: globalizingthe IT depar tment for Policies 1 and 3, enhancing DXcapability for Policy 2, and transforming the culture in thedepartment. Due to space limitations, the details of theseinitiatives are not described in this issue; readers interestedin these topics are encouraged to contact us for furtherinformation.Approach to External DXThis section outlines the External DX activities aimingto strengthen high value-added digital services for customers.The DX-Platform Center, which is in charge of these activitiesunder the Digital Solutions Headquarters (DSol HQ), isdeveloping and providing a variety of digital services to helpcustomers become a Digital Enterprise.In addition, the center is also working on transformingYokogawa’s business model through External DX activities.There are many applications within the company that make useof the know-how cultivated in the OT domain. Since existingplant-related systems are for on-premises environments, mostof these applications are sell-out type packages. This type ofbusiness is similar to old licensing models of IT companiessuch as Microsoft in the past.In recent years, however, subscription-type services usingcloud services are becoming the standard in the IT domain.Although control systems are still mainly for on-premisesenvironments, IT technology is increasingly implemented. It isnecessary to consider making these systems cloud-enabled.Therefore, based on the Purdue Model (Figure 10),which is prevalent in the OT domain, we consider Level 0to Level 3 as the OT domain and Level 4 as the IT domain.Among them, we have developed cloud applications for Levels3 and 4 and have started to provide them as digital services.Major applications include analytical applications and AIapplications that run on our standard IIoT platform (YokogawaCloud). These are introduced in this special issue, along withtheir specific approaches and examples(8)-(11).Level 4Level 3Business Planning & LogisticsPlant Production Scheduling,Operational Management, etc.ContinuousControlDiscreteControlFigure 10 Purdue Enterprise Reference Architecture(PERA) (12)7Businessgoal Transform existing businesses into cloud-enabled (recurring) businesses Create new DX businessesRole-sharing Commit to target ordersand sales plansSharingknow-howDX ROICloud apps Business model OT technology Business knowledgeContribute to the transformation ofbusiness models (to recurring type) Commit to necessary DXinvestment (“from DX” budget) Billing based on sales Cloud platform DX technology DX engineering resourcesBoost DX sales andtotal salesSecure DX ROIExpand the lineup of cloudapps for the SDGs(energy conservation, safety,renewable energy)Contribute to Yokogawa’svalue creation storyFigure 11 External DX management schemeIn addition, the DSHQ and the DSol HQ allocateresources globally to handle the latest digital technologiesefficiently. The Singapore subsidiary is positioned as theglobal base for promoting External DX, and subsidiaries inIndia and China develop services, which are rolled out inJapan, Singapore, Europe, the U.S., the Middle East, and otherregions. In addition, the Tokyo office is strengthening its DXcapability by recruiting talented DX engineers from the IndianInstitute of Technology and other universities (Figure 12).Offshore Delivery Center: Cloud engineers Security engineers S4/HANA engineers ServiceNow engineersDevelopment subsidiary in ChinaSales companyin India::: .DX Lab:::: .R&D subsidiaryin India .::: .New employees and internsfrom India(Indian Institutes ofTechnology, etc.)Subsidiary in SingaporeExternal/Internal DX HQFigure 12 Organizational structure for promoting DXManufacturingOperations & ControlBatchControlDX-Platform Center and DigitalStrategy HeadquartersBusiness units Data scientists IIoT engineers AI/ML engineers DLT engineersDispatching Production, Detailed ProductionScheduling, Reliability Assurance, Levels2,1,0Finally, an overview of Yokogawa’s approach to businessmodel innovation regarding External DX is described.Although the DX-Platform Center is under the DSol HQ,it works as a cross-company organization and helps otherbusiness units to digitalize their services. This is also the mainmission of the DSol HQ. To achieve this mission, the DSol HQis engaged in cross-organizational activities. In particular, theDSol HQ is building a scheme for managing External DX asshown in Figure 11, standardizing the cloud platform, andoptimizing development and operation costs. At the sametime, the DSol HQ is strengthening the capabilities of otherbusiness units regarding business model planning to achieve ahigh return on investment (ROI) in all businesses.CONCLUSIONThis paper outlined Yokogawa’s DX approach. We hopethat this paper and the specific DX initiatives reported in thisspecial issue will help readers promote DX in their companies.Best practices for proceeding with DX have not beenestablished yet, and we are still working through trialand error. We believe it is important to actively exchangeinformation and work together with customers to create andYokogawa Technical Report English Edition Vol.64 No.1 (2021)7
Yokogawa’s Approach to Digital Transformation (DX)develop new value to solve problems. Yokogawa expresses thisdetermination in its corporate brand slogan: “Co-innovatingtomorrow.”REFERENCES(1) Yokogawa Electric Corporation, TF2020 mid-term business plan forfiscal 2018-2020, https://www.yokogawa.com/about/ir/? ga (accessedon March 29, 2021)(2) Ministry of Economy, Trade and Industry, “The Guidelines forPromotion of Digital Transformations (DX Promotion Guidelines)Ver. 1.0,” 2018 (in Japanese)(3) Ministry of Economy, Trade and Industry, “Examination of Issuesfor Digital Transformation,” https://www.meti.go.jp/committee/kenkyukai/digital transformation/pdf/001 haifu.pdf (in Japanese)(accessed on March 29, 2021)(4) Takao Katou, “Yokogawa’s Initiatives for Data-driven Management,”Yokogawa Technical Report English Edition, Vol. 64, No. 1, 2021, pp. 9-13(5) Shunichi Kajikawa, “Improving Customer Experience (CX) withDigital Technology,” Yokogawa Technical Report English Edition,Vol. 64, No. 1, 2021, pp. 15-18(6) Hideki Fujiwara, “A Digital Factory Approach to Data-drivenManagement in Factories,” Yokogawa Technical Report EnglishEdition, Vol. 64, No. 1, 2021, pp. 19-258(7) Tetsuo Shiozaki, “Yokogawa’s Approach to Cybersecurity in the IT/OT Convergence Environment,” Yokogawa Technical Report EnglishEdition, Vol. 64, No. 1, 2021, pp. 27-32(8) Joseph Ting, “Digital Transformation in Process Industries,” YokogawaTechnical Report English Edition, Vol. 64, No. 1, 2021, pp. 33-38(9) M K Naveen Kashyap, “Yokogawa Cloud Architecture for SmartManufacturing,” Yokogawa Technical Report English Edition, Vol.64, No. 1, 2021, pp. 39-46(10) Mike Aylott, “Supply Chain Digital Transformation for Profitabilitya n d S u s t a i n a bl e O p e r a t i o n s: I n d u s t r y Ne e d s a n d R e c e n tAchievements,” Yokogawa Technical Report English Edition, Vol. 64,No. 1, 2021, pp. 47-51(11) Hiroaki Kanokogi, “AI in the Process Industry,” Yokogawa TechnicalReport English Edition, Vol. 64, No. 1, 2021, pp. 53-60(12) Purdue Enterprise Reference Architecture model: Decision-makingand control hierarchy, 1992, https://en.wikipedia.org/wiki/PurdueEnterprise Reference Architecture (accessed on March 29, 2021)* All company names, organization names, product names, and logos thatappear in this paper are either registered trademarks or trademarks oftheir respective holders.Yokogawa Technical Report English Edition Vol.64 No.1 (2021)8
Yokogawa's Digital Strategy Headquarters is in charge of Internal DX while External DX is managed by the DX-Platform Center of the Digital Solutions Headquarters to provide digital services to customers. Regardless of whether the purpose is for internal or external use, the essence of DX is the same. So, we emphasize close collaboration between
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