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Fujitsu CEO laments outage in Tokyo bourse but sticks to reform

Tokita uses 'out of office' policy to send wider transformation message

Fujitsu CEO Takahito Tokita speaks to Nikkei Asia in Tokyo. (Photo by Kosuke Imamura)

TOKYO -- Bowing somberly during an online news conference on Monday, Fujitsu CEO Takahito Tokita apologized for the error in the company's equipment that led the Tokyo Stock Exchange to halt operations for a whole day last week.

"This is supposed to be an occasion to talk about Fujitsu's digital transformation, but I first need to apologize ... as the leader of the company that supplied devices and developed systems that caused errors [at TSE], for causing troubles for a lot of people," said Tokita.

"With the TSE, we will put all our efforts into investigating the cause and preventing another incident."

As Tokita's words acknowledged, the outage at the TSE has cast a shadow over his efforts to explain how he is trying to transform the IT vendor, where he took over as CEO last year.

But arguably it may also help him to further cement his reputation as a CEO determined to capitalize on a crisis -- as he has tried to do during the coronavirus pandemic.

Tokita apologized about the error in the company's equipment that led the Tokyo Stock Exchange to halt operations last week in the online press conference on Monday.

Fujitsu made headlines in July by declaring that it would shift permanently toward a "work from home" or "out of office" model after its positive experience during the pandemic.

But that policy, with a plan to halve Fujitsu's office space, is just the most visible of the changes that Tokita wants to drive through to try to reinvigorate growth at the company, now 85 years old.

"It is my motto to do everything at the same time, because [reforming] step by step would not be effective," Tokita said in an interview with Nikkei Asia before the TSE outage. While some say they prefer to go back to how it was in 2019 rather than imagine a post-pandemic world, Tokita said he would "change everything that needs to be done to move forward."

The virus has not changed his agenda -- but has created an unexpected opportunity, he said. "Things that I would have done during my term in a few years can now be done in a year," he told Nikkei Asia before the TSE incident happened.

Fujitsu should be well placed to capitalize on renewed impetus for digitization in Japanese society -- a priority for the recently installed prime minister, Yoshihide Suga. He wants to overhaul old working practices and inefficiencies such as the long-standing requirement that contracts be on paper and authorized using hanko stamps. Remote work has also accelerated discussions about overhauling Japanese working practices, including giving employees clear job descriptions rather than being subject to their company's whims.

And across the world, the pandemic has emphasized the way companies rely on IT to knit together disparate -- and sometimes locked-down -- operations.

But Tokita admits that his own company has been bogged down by problems typical of many Japanese companies.

"We were allocating a big part of our ICT budget on operation and maintenance of legacy systems, and little of the budget was left to invest in new things," he said.

Changing such existing systems is not easy, since it affects the whole supply chain and product delivery processes. "Everyone -- not just Fujitsu but all management executives of any companies -- recognize the same challenge," he said.

Since the coronavirus outbreak, Fujitsu has implemented other reforms to its work practices, including training programs to improve communication between employees and the distribution of work smartphones to its employees.

People walk past a screen of blank prices in a stock quotation board in Tokyo on Oct. 1. (Photo by Shihoko Nakaoka)

As Tokita recognizes, a transformation of his own company's culture -- including a shift in working practices -- would give it credibility in trying to sell change to its customers. It would be "the most important marketing activity," he said.

His company is also buoyed by the success of Fugaku, the Japanese supercomputer that this year was acknowledged as the world's fastest and most powerful.

But the TSE incident on Oct. 1 is undoubtedly a setback. Fujitsu's share price dropped by 2.75% the next day, though it is up almost 40% this year.

Fujitsu has customers in the public and private sectors across fields including finance, manufacturing and health care. After selling a lot of its hardware businesses -- such as mobile phones, PCs and semiconductors -- in the last few years, the company has been focusing on services for information and communication technology. While its annual revenues have been falling since 2017, net profit increased by 2.6 times to 18.1 billion yen ($170 million) in the April-June quarter compared to a year earlier, even amid the pandemic. 

Tokita suggested that the company's broad customer base makes it well suited to support transformation across society. Digitization "does not function if one part [of the communication] is stuck," he said.

Kota Ezawa, an analyst at Citigroup Global Markets Japan, said he is optimistic about Tokita's leadership and ability to help Fujitsu face rivals in the U.S. and China.

"Tokita has already done so much in one and a half year. He did more than just talking about concepts, and actually set up a company, relocated staff and established remote work practices," Ezawa said.

Since the coronavirus outbreak, Fujitsu has brought in other reforms to its work practices, including training programs to improve communications between employees and distributing work smartphones to its employees.  (Photo by Kosuke Imamura)

Tokita took over the role of CEO after Fujitsu announced nearly 3,000 layoffs in early 2019. "The company's strength has improved, and it is my mission to [create] businesses that lead to the future," he said. In April, Fujitsu launched a consulting subsidiary to support customers for digitization. The company is targeting sales from the subsidiary of 20 billion yen for the fiscal year ending March 2023. 

From this year, Fujitsu has also reorganized departments so employees specializing in retail and finance work together more closely. It also launched a team that would focus on the 5G market, taking advantage of Fujitsu's ability to provide telecommunications equipment, software and applications.

Changes in businesses need to come hand in hand with internal reforms because creating new departments "is nothing unless people's mindsets do not change," said Tokita.

There are plenty of competitors in digitization services, from startups to tech giants such as Amazon or Google that are expanding their cloud businesses, but Tokita said rivals could also be partners. He said international technology companies had approached him about partnering with Fujitsu to access the Japanese market, appreciating its wide range of clients.

For example, the company announced a partnership with the U.S. software company Palantir Technologies in June. Palantir's advanced data analysis software can be incorporated into the solution Fujitsu offers to its Japanese clients in areas such as smart cities and disaster prevention.

About 70% of Fujitsu's revenue of 3.8 trillion yen in the fiscal year ended March 2020 comes from Japan. Fujitsu has the top share as the IT services vendor in the country, followed by Hitachi and NTT Data, according to market researcher IDC.

The company does not set goals for how much overseas businesses should account for in overall sales, but Tokita said this does not mean his company cannot grow outside of Japan.

"Solving problems of [clients in] Japan would provide solutions for global problems," he said.

Additional reporting by Niki Mizuguchi in Tokyo

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