Fujitsu Limited (6702) Earnings Call Transcript & Summary

Thank you very much, ladies and gentlemen. Now we'd like to start the Fujitsu ESG Briefing. Thank you very much for taking the time out of your busy schedule to attend this briefing session. My name is Takashi Koto, Head of Investor Relations, and I'd like to serve as the moderator for today's session. First of all, I'd like to introduce the speakers for today. Corporate Executive Officer, EVP, Chief Human Resource Officer, Hiroki Hiramatsu is today's speaker. And this is today's schedule and agenda. First of all, about the Fujitsu's Human Capital Management, Hiramatsu is going to explain for about 25 minutes, which will be followed by a Q&A session, which will start at 2:25 p.m. Japan time for about 1 hour. Today, we have the members and they are from media, and we do not separate the time for the QA session with media and QA session for the analysts and the investors, so anyone is welcome to ask a question in Q&A. And it is importantly necessary for you to participate in the Zoom webinar and please confirm the e-mail that you received in advance for the details and procedures for the Q&A. So without further ado, let us begin the session. Hiramatsu, over to you.

Thank you very much. This is Hiramatsu, CHRO of Fujitsu. Thank you very much for attending today. So today, I would like to mainly talk about the "S" of ESG, particularly what is the quite important topic for us, which is the Human Capital Improvement Concept. So first of all, I will talk about the HCM, the Concept of Human Capital Management of Fujitsu. And based upon that concept, what we have done during the period of the previous midterm plan will be explained. And then I will talk about the people portfolio management and the actions that we are going to take during the period of fiscal '23 midterm plan. First of all, this is about the idea behind the Human Capital Management, HCM. And we invited the 5 CHRO, in addition to Fujitsu and we conducted the CHRO Roundtable. So we conducted 6 in-depth discussion in the past 1 year. And in April this year, we announced the report of this CHRO Roundtable. And I'd like to mention 3 important points about the CSM. Well, the -- I feel whether they are uncomfortable on the emphasis that put too much on just the disclosure of the information. And also, this is the common issue to be tackled by all the HR officers across the Japanese companies, and we stay at the level of casual exchange of opinion so far, but we didn't -- we were not able to have the in-depth discussion about this topic. So that is the reason why we organized this CHRO Roundtable. And this is the common framework that we identified as a result of the discussion. So to realize the strategy, how HR actions are related. So the consistent story and also we identified the KPIs are relevant, and it is important to proceed based upon those KPIs. And the initiatives by the HR, we separated them into 2 areas. What is shown in blue are the people portfolio and also the definition of the requirement and the important aspect about the results and assignment. So this is a result-oriented initiatives. And on the other hand, D&I Engagement, what is shown in red shows the supporting initiatives to sustain the results. And as you see, these are what we plotted as against our story of Human Capital Management, we intended to cover comprehensively. However, we were able to introduce the areas which are shown in red, which are easier for us to handle. However, when it comes to the different requirement definition, which are closely related to business, which are shown in blue, these are the areas that we have had difficulty on the covering. So based upon this analysis, we decided to create a story of our the HC Management. So we set purpose and the HR vision in order to proceed accordingly. We also shifted to job-based HR management and the right -- and the position to the right person. We transferred the authority to various units and the developer vision business portfolio and people portfolio for the next 3 years. In order to fulfill the resource gap, we expanded our posting system to enhance people mobility and enhance the external hiring and also to reinforce the competitiveness and to achieve the sustaining impact. The Connect evaluation, which looks at the impact on the purpose and vision is also included. And also, via through the one-on-one sessions and the purpose curving, we introduced these ideas and also to provide support to career development, career ownership. So the -- in order to achieve the sustainable development, not just the management team, but all the other managers have to be involved in understanding the strategy regarding the HR actions. And at the same time, how to use the data related to HR was also discussed at the roundtable. So this is the case of Fujitsu. Vertically, you see different data related to HR. And horizontally, you see the growth of the revenue and the profit of each different business unit. And the data is still insufficient, but we are beginning to see some correlation. For example, at the top of this table, the posting and career recruitment, these ratios are high. And then we see the positive correlation to the better business result and improvement. So in the HCM model, the mobility of the HR is a key driver to enhance the business. That was the hypothesis. And actually, this is the data to support that hypothesis. We would like to continuously look into this relationship. Now based upon the story that I mentioned, I would like to show you some of the programs and also initiatives and the results. So back in 2020, we introduced our purpose, make the world more sustainable by building trust in society through innovation. That is our purpose. And to realize this purpose, we created HR Vision, which is to support the accomplishment of this purpose. Purpose HR vision in order to achieve them, job-based management system and the consistent HR management system were introduced as the major change, organizational design, job-based remuneration and career development, HR development, all these actions and programs are interrelated, and we provide a story to connect all these activities. So all these stories are really convincing to the employees to fully understand the changes of the HR systems. We conducted the change -- introduced the changes of HR systems. And we know that all these programs have to be consistent. So based upon such a lesson in the past, we decided to introduce this approach. So this is about the review of the organization and the positional design based upon business strategy. So one of the reasons why we shifted to job-based HR management is that we need to clearly identify strategy and vision and then assign the people who are most suitable to the positions under this strategy and vision. We used to have a traditional approach to HR. It was up to HR division to decide upon who to hire and the recruitment programs. But now the businesses are defined. And then as an extension of the business, the HR shall be conducted. So that's the lesson that we learned. So it is not the right person for the right place, but we need to offer the right place for the right people. And if there is unalignment, then there will be a big gap. So the HR Resource and Management Authority was transferred to the business unit so that they can -- they're more freely hire mid-career talents. And the significant expansion of the hands-up posting is shown here. Right down the places for the right person in order to speed up this process, it is important to raise the mobility of the people. And to enhance the employee engagement, it is desirable to encourage people to raise their hands and look for the positions that they would like to assume. This leads to mobility of the people. In other words, this resulted in the more competition in securing the people within the company. And unless the managers were able to explain fully the attractiveness of their workplace, then they will not able to get the people they want. So that resulted a major change in the mindset. So -- because of the expansion of the posting system, the sense of the uncertainty also increased and support was needed. Usually, it was up to the managers and the company to decide where people should go. However, now they -- the people are faced with the necessity to understand where they want to go. But I think this kind of uncertainty is healthy. To overcome this sense of uncertainty and the need to have the stronger career ownership, we have several programs as you see here, Job Challenge, for example, or the Assign Me, which is the opportunity to experience different position without transfer. These are the mechanisms introduced based upon the voices of the people. And also, we introduced a new evaluation scheme, the management by -- the target was changed. Well, at the time of the change in order to develop ourselves in order for -- to encourage people to think about their own development, we introduced what is called the Connect. So the managers and also employees are the targets. So impact behaviors and learning and growth are the criteria to look at. And the close communication between the managers and the subordinates are encouraged and that will be used for the further development of the people. And this shows the results of these programs. First of all, posting. 2020 and the following 3 years, well, at about 80,000 total population, 20,000 people applied for the posting system; 7,500 people passed and they were transferred to the place they wanted to go. So this resulted in the higher mobility and this also enhances the career ownership attitude. And also, as for the global posting, for global jobs, we also have global posting programs. Well, there may be the difficulty associated with languages and others, but the applicants are also increasing for global posting. And the people who are posted to different positions, I assume that the motivation of those people are enhanced. But on looking at the result of the survey after posting and relocation, the sense of the accomplishment and also the motivation were raised significantly. And those people who -- the 13,000 people who were not able to pass the posting programs, we make sure that the result will be explained to the applicants who are not successful. And then that results in their own learnings and that also motivates them to work harder, to try once again for the posting. So the higher level of mobility shall be led to the development of people as well as organization. This is about the career ownership, which has been posted. Well, the number of the hours on the training sessions over the past 3 years, as you see, there has been significant increase in the participation and the learning. For example, the number of Udemy participants and hours spend on the learning on Udemy increased significantly in the past 3 years, and the career support was also augmented. And by answering the simple questions on the web -- internal web, your career support situation is analyzed and good advice is provided. Professor [indiscernible] of Jose University supported us in this program and the 15,000 people applied for this program. Well, the sense of career development is weak, that is what is said about the Japanese people working at the Japanese companies. However, if we provide good instructions and the guidance, the people are strongly motivate to develop themselves. And when it comes to investment, we've reviewed the -- first of all, the remuneration level, 10% increase for all the employees' remuneration. And at the leader level of the union members JPY 11 million and also the managers the JPY 20 million. And before the review of the remuneration, career development increased to 400 to 800 people, significant increase in the number of mid-career recruitment. So the posting resulted in the more competition in getting the right people across the organization, and that led to the efforts to enhance their attractiveness in getting the right talents, and this is what we would like to continue working on. We announced a new management plan. And I would like to use a few slides to talk about the new midterm plan and our people portfolio. Fujitsu announced our materiality. In order to realize our purpose, we have established 3 areas of materiality that are essential to achieving our purpose. They are solving global environmental issues, developing a digital society and improving people's well-being. And we have also identified 11 key issues to focus on across key areas, including addressing climate change, maintaining information security and contributing to health care for an improved quality of life. Fujitsu will contribute to society by fully leveraging our capabilities, including our leading-edge technologies and diverse talent and we will develop and create future technologies and offerings to solve societal issues. This is our Value Creation Concept for 2030. We have a newly established Our Vision for 2030 as a technology company that provides digital services that contribute to sustainability across industry and realizes net positive for stakeholders, including society, customers, shareholders and employees. Fujitsu defines net positive as Fujitsu which exist in society must address the materiality of solving global environmental problems, developing a digital society and improving people's well-being. In addition to maximizing financial returns and making a positive impact on society as a whole through technology and innovation. As outputs and outcomes to achieve our vision and purpose for our financial indicators and 3 areas of materiality, we have set target levels for 2030. By investing capital and pursuing materiality in line with our key strategies, we will continue generating outputs and outcomes in both financial and non-financial terms and invest them as inputs to improve our value proposition. I will use this and HR-related themes written on this page. And we have to be responsible for these HR strategies. And we also think the contribution for the business side is also increasing in importance. And this is from our midterm plan material, and this slide explains about expansion of Service Solutions. This segment consists of On Cloud Digital Services centered on Fujitsu Uvance and Traditional On-Premise Services. In the 3 years up to fiscal 2025, we are targeting approximately 20% increase in revenue and approximately a twofold increase in adjusted operating margin. And On Cloud Digital Services, we will try to expand sales of high profit business to increase both revenue and profit. We are focusing on further expanding our consulting capabilities, enhancing strategic partner alliances, developing leading-edge technologies for business implementation and developing our people to provide digital services. For On-Premise Services, we aim to improve productivity through delivery standardization and expand modernization to promote the shift to the cloud so that we can increase profitability. These services we provide a number of infrastructure systems to support our customers' businesses. Across the entire company, we will continue improving quality and strengthen security to ensure the stable operation of customer systems and eliminate unprofitable projects. I've been summarizing the new midterm plan. And bearing that in mind, I now want to talk about the image of our business portfolio, which is our human resources -- on which our human resources portfolio is based. What business will be expand, where and how much. We have business segments on the vertical axis and the regional front on the horizontal axis and what business will we expand. And on the other hand, we will also clarify areas to be stemmed down by increasing productivity. For example, Service Solutions segment is entering on Uvance, we want to expand this business significantly. So we need a very granular plan for this business. And people responsible for businesses and regions that they need to be aligned in strategy. And from HR perspective, we need to scrutinize our people portfolio. These are some of the matters that we have to discuss together between HR and the business side. In order to realize our business portfolio, it is necessary to prepare this kind of a plan. And to change our business portfolio, it is necessary to identify the gap between the current situation and what kind of personnel and what role will be needed in the future. When there is a particularly large gap, we break down to the subcategory of rules to consider measures such as recruitment and re-skilling. This is the plan by role and in accordance with the region. Global team formation and cross-country human resource utilization are becoming common place. In planning our hiring, development and in shifting talent, we can now think strategically and flexibly about where. At the global delivery center in 7 countries throughout the world, we are preparing a personnel plan and our Fujitsu research in addition to U.S. and the United States, in India and U.S., we are trying to hire talented people. And we have this one Global 1 team research structure. And going forward, on a corporate basis, we will promote shared service. And globally, where do we need to hire what kind of person now to be assigned where, that is what we need to consider. And global branding, operation, and we want to take a birds eye look at the global talent market so that we can acquire talent on a global basis. In order to realize people portfolio, we will establish specific measures, KPIs and investment amounts into areas that require investment and introduce the process for regular monitoring. In order to be able to adjust the cost, if necessary in light of the business portfolio, the business situation of each BG region, we want to use data and be able to have timely discussions with the business side and HR. I've been talking about HR measures, and it takes time to see benefit from HR benefits, and we thought it was difficult to make a full investment, and we thought it was difficult to measure return on investment ROI. But as I have been explaining, we need to prepare this kind of a plan going forward. And we want to discuss with the business side, whether we can achieve enough return or not. And this is a bold challenge for HR, but we also think this is an opportunity to be able to challenge into businesses that we have not been able to challenge so far. I now want to introduce to you a number of specific measures. In order to fill in the people portfolio gap, recruiting and rescaling not only that, we also need to focus on upskilling. For example, we need to strengthen consulting capabilities. To expand our Fujitsu Uvance modernization business, we plan to increase our consulting workforce to 10,000 by 2025. We established an organization to oversee the consulting business across Fujitsu Group and defined consulting roles and areas and set targets for regional enhancement. In order to achieve 10,000 consulting personnel by 2025, we are considering specific measures such as receiving educational equipment for each consulting area. Next, transformation to upscale front personnel or customer-facing environment. And from 2020 to 2021, we conducted a Business Production Transformation program for approximately 8,000 domestic sales employees develop their skills. From 2021 to 2022, we implemented a business accompaniment program that utilizes skills developed through business produced transformation and natural business. And from 2023, in order to take a consulting approach to help solve customers' management issues, we want to realize the Fujitsu Uvance. In the On-Premise area, which provides a safe and secure environment for customers, we will improve productivity to upskilling such as quality improvement and operational automation on the cloud -- in the on-cloud area, which enables customer transformation through Fujitsu Uvance will expand our resources to rescale training and promotion of qualification to accelerate the growth of focus areas. 3S, SAP, Salesforce and ServiceNow, and in addition to them, Azure, AWS, Cloud-related skills should be acquired by our employees. We want to set a target number of people to be qualified with these skills. This is the target for fiscal 2025 for non-financial indicators in our new midterm plan. And this slide, and I would like to introduce to you the personnel or human resource-related measures. First, employee engagement. About employee engagement, we increased engagement by 6 percentage points in the previous midterm plan period. However, there is a big gap between the target of 75%, and it is a big problem that Japan is lower than overseas. We want to feedback the survey results to the managers, and we also want to propose actions to be taken. And we also want to have a personalized learning content for each employee to make improvements. And engagement survey and other HR data, we are analyzing the correlation between the 2 types of data. And we are sharing vision with BG heads, and we've been able to understand that career development has a positive impact on making this kind of improvement. We want to take action so that the engagement will be improved in all layers of our organization. Next, about promoting DE&I. The KPI for non-financial indicators is the ratio of female managers. The company is -- we want to increase to 20% and then to 30% by 2030 and Japan is also lower than overseas in this area. And in Japan, we only have about 10%. And ratio of female managers are included as KPIs for incentive for senior executives, but we think we need to change our corporate culture going forward. For example, Work Life shift is introduced, so that the flexible and diversified work styles will be introduced and voluntary hosting system is introduced. As a result, there's an increase in ratio of female managers amongst newly appointed managers. Positive action, mindset reform, work life shift, we want to take this kind of a multifaceted approach. Realizing well-being is also an important theme. A road map to fiscal 2030 has been drawn and this has being worked on. Step one is that each employee can understand and talk about their well-being. We plan to conduct a global survey of the proceed value of well-being. Here again, we will use data to visualize the well-being situation of each employee and take improvement measures. Finally, the purpose of Human Capital Management is to achieve sustainable corporate value improvement. To do this, we need to draw a business aligned talent portfolio and strategically fill the gap. The reason for the slow growth of Japanese companies, including Fujitsu, is that we've not been able to do so strategically and broadly. It is a difficult challenge, but we want to make full use of data and visualize our trial and efforts so that top management and HR can dynamically and continuously discuss how to review our human resources portfolio or people portfolio. This concludes my explanation. Thank you for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]