Investor Relations Operational and Other Risks

As part of its operating strategy, the ID Group advances its operations on the global playing field, with particular focus on China, Singapore, the United States, and Europe. A broad array of factors can affect these global operations, including trends in the global economy and exchange rates, laws and ordinances governing transactions, differences in business practices, and political and social changes. These and other factors have the power to impact the business results and financial condition of the ID Group.
 
Led by the Global Management Department, the ID Group maintains an appropriate understanding of business conditions at each overseas location and changes in the external environment. On individual risk events, the Group Risk Management Committee examines the details, confirms conditions, confirms progress on countermeasures, and examines the effects of countermeasures. In these ways the Group makes every effort to reduce risks.
 
The Group strives to avoid risks before they arise. To this end the ID Group provides employees with appropriate compliance training, to enhance commitment to compliance with laws and ordinances, and strengthens governance through regular audits of overseas locations.
 
The ID Group is also reinforcing communication with local management teams to promote enhanced transparency in management. By means of these efforts, the Group seeks to ensure stable growth in its global business and secure the confidence of stakeholders.

The Group recognizes the importance of hiring and cultivating excellent personnel to respond to the latest technology and enhance customer satisfaction. If the Group is unable to secure and train such personnel sufficiently, or is unable to supplement its workforce with people who can meet its needs related to business innovation, the Group may suffer impact on its business results and financial condition. In particular, in advanced fields such as AI, cloud computing and cybersecurity, demand for highly skilled specialists is rising. If hiring of such personnel does not proceed as planned, or if employees do not undergo sufficient training and reskilling after they are hired, the Group may suffer a decrease in competitiveness or miss out on business opportunities.
 
The Group strives to recruit and retain high-value-added personnel, both in Japan and overseas, including both fresh graduates and mid-career hires. After hiring, recruits undergo continuous training in technical and interpersonal skills. To respond to changing client needs, the Group invests actively in human capital to enhance skill sets. We provide “career enlightenment,” foster a corporate culture of self-starting, goal-oriented teams, and support health management. In these ways the ID Group focuses on employee engagement, boosting customer satisfaction and productivity in a virtuous cycle that continuously improves corporate value.

The ID Group constantly makes every effort to support and improve information security while providing services that earn the satisfaction of customers. However, in the unlikely event that unlawful access or a major error causes the loss, tampering, leak, or other compromise to information about transactions, the Group’s reputation may suffer, resulting in negative impact to the business results and financial condition of the ID Group. Recently, as a result of increasing sophistication and cleverness of cyberattacks, as well as ransomware, attacks targeting supply chains, insider threats, and human error, the risk of information breaches has heightened. A single incident of this nature has the potential to reduce public trust in the Group, generate claims for compensation of losses, or impact the continuity of Group business.
 
To ensure that personal information and other information assets are handled appropriately, the Group has established various regulations, including the Basic Policy on Information Management and the Privacy Policy. In addition, the Group is fully compliant with the Revised Personal Information Protection Act, which came into force in April 2022.
 
The Group has taken a number of steps to ensure data security. The Group has established a management framework to respond and confer across sectors on information management generally, spearheaded by an information management supervisor. Led by the Computer Incident Response Team (CSIRT), a dedicated cybersecurity team, the Group is strengthening various security measures and taking steps for effective response when incidents occur.
 
Finally, the Group is taking steps to improve employees’ compliance mindset. Employees are provided regular training on cybersecurity measures and education on revisions to Group regulations in response to laws and ordinances. Moreover, the Group has obtained certification under PrivacyMark and ISO 27001 and is committed to maintaining and supporting those certifications. The Group also strengthens its information management framework throughout the supply chain, including contractors, through careful supervision and assessment of conditions.

While risks related to large-scale natural disasters such as earthquakes, typhoons, and floods are rising steadily year by year, damage from natural disasters, conflict, terrorism and pandemic-level infectious diseases has become impossible to avoid completely. When the damage from such events rises beyond expected levels, the business results and financial condition of the Group may be impacted.
 
Such irregular events may obstruct the execution of Group operations. To minimize their impact, the Group has prepared a Crisis Management Manual and Business Continuity Plan (BCP). The Group has also taken a range of other preventive actions. Some head-office functions have been shifted to Sanin Business Process Outsourcing Center, mitigating risk from centralization, and the Group continues to advance diversification of work styles, including promotion of remote work. The Group will continue to strive to ensure business continuity by accumulating stores of food and medical goods, revising manuals, and conducting regular drills on the use of safety confirmation systems.

Technological progress in the IT space is advancing at blistering speed, creating enormous opportunities for the ID Group to grow by putting those technologies to effective use. However, if the Group is slow to respond, its competitiveness and brand could suffer. In particular, generative AI and other AI-related technologies have the potential to transform the Group’s very work processes and business model. Failure to respond appropriately to these rapid changes could negatively impact the Group’s business results and financial condition.
 
The ID Group is responding to this technical innovation with judicious action and timing. In its consulting arm, which specializes in AI services, the ID Group is gathering information on leading-edge AI technologies to provide expert consulting on AI and services supporting configuration. In its research-and-development arm, the Group is buttressing its governance structure. In addition to conducting research on AI agents and preparing standards for development of applications using AI, the Group is working to acquire certification under ISO 42001, the international standard on AI management systems. At the same time, led by the AI Advancement Committee, the Group is promoting general introduction and use of generative AI and AI agents and proactively offering employee training, including Group-wide AI training.

Application development and IT infrastructure projects together comprised some 46.9% of the Group’s net sales in the consolidated fiscal year under review. As these operations grow more sophisticated and complex even as delivery schedules shorten, problems may occur, including changes to required specifications during development, decrease in quality, and late delivery. In such cases, additional expense may be incurred to complete projects, or restitution of damages may be required, reducing the profitability of the project. Such outcomes may impact the business results and financial condition of the ID Group.
 
To hedge these risks, the ID Group is introducing quality management systems that conform to ISO 9001. When an inquiry for a new, large project is received, an order-acceptance review meeting is convened to examine the project based on management judgements of business policy, profitability, staffing, technical competence and opportunities to build technical knowledge. Also, the Quality Management Division analyzes and manages risk across all processes, from the project-proposal and estimate stages to delivery, conducting regular reviews of quality, cost and delivery (QCD) as the project unfolds. In this way abnormalities can be detected at an early stage to prevent the occurrence of unprofitable projects.

The Group also expects increasingly to engage in cross-disciplinary projects that straddle multiple services, as well as large-scale, bundled-contract-type projects. To manage such projects in a timely and accurate manner, the ID Group is revising its in-house project management procedures and overhauling management accounting and other in-house systems.

In the consolidated fiscal year under review, system management accounted for 39.4% of the Group’s sales. In system management, the risk always exists that operational error or the like can cause damage to systems, delays in providing information or other issues. If a major system failure were to occur, liability for damages could arise, impacting Group business results and financial condition of the ID Group.
 
The ID Group is making a number of moves to prevent such system failures. For example, the Group thoroughly implements a system for double-checking of high-impact projects and uses a suite of tools to enhance automation. The Quality Management Division plans and executes a variety of measures, including training to prevent failures, analyzing and giving feedback on the causes of failures, and on-site inspections. Moreover, the Group has obtained certification under ISO 9001 and is continuously improving quality. As of this writing, no major system failures have occurred.
 
DX is advancing in the field of system management, which is the Group’s core business. As DX progresses, companies are slashing maintenance costs in existing systems, advancing automation and moving to use of the public cloud, while major customers of the ID Group are shifting to next-generation systems and centralizing operations. Given the enormity of the transformation now under way, if the Group were to confine itself to simple, conventional operations, it would risk a major downsizing of its business.

The Group is vigorously advancing next-generation operation services. To ensure bright prospects for its system management operations, the Group is automating operations to increase value-added and improving efficiency through support for remote operation. The Group is also applying ID-VROP, a virtual system operation center developed by the Group, to the operation of multiple sites.

To assign capable people who fit the needs of its projects and to respond flexibly to fluctuations in order volumes, the ID Group is moving decisively to recruit from partner companies. Even so, changes in market conditions can cause unexpectedly rapid increases or decreases in the volume of orders received. In such cases, the Group may be unable to recruit the necessary personnel or release them in a timely manner. As an outcome, the business results and financial condition of the ID Group could be impacted.
 
To minimize this risk, the Group shares information closely with partner companies. Guided by a strong fundamental stance of strengthening compliance and governance, the Group regularly conducts partner meetings and seminars, sharing information about business policies, individual projects, and case studies of trouble encountered. With its core partners, the Group is further strengthening cooperative relationships, forming cooperative frameworks to improve its ability to win batch project orders and enhance quality management. In these ways, the Group is working to improve quality as well as its ability to recruit capable people.
 
Advanced areas of IT, such as IT infrastructure and cybersecurity, are expected to enjoy growing demand. The ID Group works hard to secure a sophisticated engineering workforce. The Group discloses information on its initiatives and personnel training policies in these fields. In tandem with training of its own employees, the ID Group supports partner companies in their efforts to cultivate technical personnel.