Alignment of People Strategy with Management Strategy

1. Management Principles and Four Pillars of People Strategy

NSG Group is addressing "Human Capital" as one of material issues (materiality) defined based on Our Vision, the new management principles set forth in 2018 to attain sustainable growth of the Group and contribute to a sustainable society in the medium to long term. People are the "capital" indispensable for the company to maintain business activities. Group considers having corporate culture, personnel system, and workplace environment in place so that employees can find opportunities to "grow" and "find joy in working" is the goal of "Human Capital Investment" and should strive to enhance the effectiveness and efficiency of such investment to keep driving its growth under the "Human Capital Management".

NSG Group has instituted the office of Group CHRO to enhance the effectiveness and efficiency of “Human Capital Investment” and identified four pillars of the People Strategy in alignment with Our Vision, i.e. Talent Management, Employee Engagement, Create Corporate Culture、and Improve HR Department's Capability.

Talent Management

NSG Group has always valued Sumitomo's philosophy of "People are our most important asset" since its establishment in 1918. As such, Talent Management in alignment with Core Values is enumerated as the first pillar of the People Strategy. Among the six Core Values set forth as the basis on which we work and conduct ourselves, "Respecting others and unleashing their potential" is the value we are committed to first. Through Talent Management, we aim to develop employees' abilities to deliver results in a drastically changing business environment and provide each employee with "opportunities" to unleash their potential to the full.

In 2018, we introduced Talent Management as part of our wider Talent Strategy supporting the Group's Vision and Values. With this introduction, we migrated key global talent records and data to a new talent management system, while at the same time providing all managers with comprehensive training on talent development processes. Since then, we have continued to expand the use of our Talent Management system, which involved the introduction of our NSG Behavioural Competency model to the Performance Review discussion in 2019. This Competency Model has been integrated globally across our core people processes and become a platform for talent development activities in support of not only Talent Management but Employee Engagement, Create Corporate Culture, and Improve HR Department's Capability. Moreover, the introduction of Competency Model and Talent Management System has led to an increased transparency of employees' performance reviews and succession plans with the management sharing talent data irrespective of countries, regions or business units. This helps to reduce "organizational silos" characteristic to the conventional talent development process and realize more holistic and dynamic Talent Management based on consideration from the groupwide perspective.

Group's succession plans are developed and maintained by assessing the readiness of candidates on a short-, medium-, and long-term basis while facilitating the nomination of candidates across regions and business units and formulating the subsequent development plans and policies based on such assessment. These plans are reviewed on a regular basis every year. Especially, the succession plan for senior management is discussed annually by the Nomination Committee chaired by External Director with regard to options and activities likely to be taken to improve the quality of the plan, including promotion of candidates' readiness, development of potential, clarification of concerns and gaps. Also another important way of improving the quality of these plans, we monitor the ratio of succession plans utilized for actual appointments, the diversity of candidates and so forth. (In FY2022, nearly 80% of the senior management appointments was based on succession plans.)

Employee Engagement

The second pillar of the People Strategy is Employee Engagement, which is aligned with Mission defined in Our Vision. The aim of Employee Engagement is to create pleasant and people-friendly surroundings by embracing the "purpose" of working for each of diverse employees (Inclusion & Diversity) while promoting teamwork and communication at workplace along with the Group's core purpose of "changing our surroundings, improving our world".

In specific terms, we roll out a whole host of measures to improve the "well-being" of our people such as promoting the work style reform, ensuring human rights are respected, expediting I&D, providing education and training (reskilling) to acquire the skills needed for the future, and keeping them safe from workplace injuries or occupational illness.

As for people's work style, NSG Group strives to improve the environment for realizing diverse working styles in the "new normal" based on the demands of society and the guidelines of the government. We reviewed the way organizations and individuals should be and aimed to shift to a new work style that maximizes productivity and performance while observing infection control measures. Amongst all, we introduced remote work extensively and adopted flexible time without core time in order to realize the work style not bound by place or time. In addition, we not only improved IT environment for working from home to accommodate employees to work online such as attending/hosting online meetings, but supported managers to enhance their online management capabilities by introducing a regular check-in system to improve management of subordinates, providing support to managers for remote team management and communication, and setting up a remote counter for health consultations, etc.

Also, safety, respecting human rights, taking personal ownership for actions and communicating with openness and involvement are particularly emphasized as they are considered to embody "integrity" articulated in our Core Values, and defined as behaviors expected of all employees in the Code of Ethics. During 2020 our approach to Employee Engagement changed significantly, due to the global pandemic. Since many team members were either working reduced hours, furloughed or working remotely, it was not feasible for the management team to visit plants and worksites and listen to the voices of employees directly. Our Leaders and Managers, however, placed the safety of our team members front and center of all activities during this difficult time capitalizing on technology to enable conversations, meetings and wellbeing 'check in' points.

NSG Group's Code of Ethics sets forth carrying out our business activities in a safe, professional, legal and ethical manner, and in a way that demonstrates corporate social responsibility and sustainability as its overriding basis and at the same time, acknowledges internationally proclaimed human rights explicitly. These are also reflected in our overall employment policies and standards, providing our employees with reassurance for their fair treatment. Our Equal Opportunities and Diversity policy prohibits discrimination based on race, color, creed, religion, beliefs, age, gender, sexual orientation, national origin, disability, union membership, political affiliation, or any other status protected by law.

Among the initiatives to improve employees' "well-being", Group particularly has been focused on promotion of Inclusion & Diversity globally in recent years. In the meantime, there is a unique initiative of "Health Management" implemented exclusively in Japan. Although health is a universal issue, personal information about health must be handled with particular attention to privacy, which necessitates different ways of handling the matter not only culturally but legally between countries and regions. Thus, HR related actions concerning health are limited to Japan so far. Inclusion & Diversity and Health Management activities are explained in detail later.

Create Corporate Culture

The third pillar is Create Corporate Culture, which is aligned with Aspiration that articulates the desired future position of the Company. In order for each and every employee to be able to pursue the aspiration "to become the most trusted partner in all industries we work in through innovation", we aim to foster the corporate culture conducive to creative thinking and innovation, and that cherishes personal value such as customer focus by helping managers develop competency for coaching and feedback to their subordinates.

NSG Group defines 'corporate culture' as the culmination of the tendencies of each employee's thinking and behaviors, and believes that a robust corporate culture can be fostered by encouraging changes in thinking and behaviors through 'dialogue' between superiors and subordinates as sell as among colleagues. Particularly after the formulation of the Medium Term Vision and the Medium Term Management Plan RP24, an emphasis has been placed on the dialogue on the direction the Company should take, and even during the pandemic, we have continued to hold dialogue sessions with our employees across the Group by leveraging Microsoft Teams and other online technology. This includes a number of NSG Summits to improve communication with our global leaders, and Town Hall meetings for middle managers around the world.

Improve HR Department's Capability

The last pillar of the Popular Strategy is Improve HR Department's Capability. It is the HR department that implements HR measures aimed at maximizing the corporate value creation according to the management principles of Core Values, Mission, and Aspiration at the Group level. We believe that we can better ensure the achievement of this goal by improving the capability of HR Department.

In order to improve the capability of HR Department, we hold online meetings twice a month with all HR managers from the Head Office and Regions, which provide us with the opportunity to learn from each other's best practices and to roll out new, effective measures globally. In addition, every two years, though currently interrupted by the pandemic, we convene potential future HR executives from around the world to provide them the training to learn about the NSG Group's human resources management while building up a global human network.

To support the previously mentioned Talent Management, a talent management system called SABA has been introduced worldwide, where data on managers at all levels is accumulated in the cloud to increase the effectiveness and efficiency in talent development.

2. People Strategy to realize Medium Term Vision and MTP

In May 2021, NSG Group publicly announced its “Medium Term Vision” and “Revival Plan 24 (RP24)” as its new Medium Term Management Plan. In RP24, we decided to work on the following as “Corporate Culture Reform”:

  • Development and appointment of those who can lead reform (to expedite Inclusion & Diversity)
  • Recognition of delivering on the reform through incentive schemes
  • Encouragement of open communication between management and frontline/ region/ business units
In order to develop a People Strategy that will contribute to the fulfilment of this Medium Term Vision and RP24, we conducted an employee survey 'Your Voice' targeting all NSG Group employees with the aim of grasping the current state of human resources, organization, and corporate culture. Then, an "As is-To be" gap analysis (see below for details) was performed comparing the results of our survey with the results of similar surveys made by global manufacturing companies of the same size as the NSG Group (benchmark). The analysis used the proportion of employees who held a positive assessment of the Group's situation as an indicator and compared it to the benchmark. From this, we decided to take the focused measures mentioned below where the NSG Group's indicator was low. The effectiveness and efficiency of human capital investments in these measures will be monitored in the second round of Your Voice survey scheduled in 2023.

Talent Management

Our goal toward 2024 is to embed the knowledge and application of Talent Management practices in the workplace and to develop leaders at all management levels, who have the ability to realize the Medium Term Plan - RP24. Our Human Capital investment includes; Leadership assessment, selection, and training by emphasizing specific areas of the NSG Competency Model, which align with the RP24 Corporate Culture reform - "Customer focus", "Swift decision making and action", and "Overcoming difficulties". At the same time, we will also provide employees with reskilling and training in areas such as digitalization, marketing, and new business development necessary for the reform. Through ongoing training, we are providing continuous learning opportunities at all levels even in the environment of "With Corona", and promoting the transition of our Group programs from face to face learning events to an appropriate mix of ‘Blended Learning’, which includes virtual class rooms, action learning sets and face to face development activities. In terms of hierarchical talent development, our particular focus will be on accelerating Regional Talent pool, the population below Global Talent. By holding regular Global Talent Meetings, we aim to strengthen the identification and development of talent who will evolve into Global leaders in the future. Especially in Japan, where our headquarters is located, the number of candidates for global management positions registered in Succession Plans is currently declining. To address this issue, AP (Acceleration Pool) meetings will be launched in Japan in 2022 with a view to accelerating the identification and development of younger talent in their 20s and 30s who will be ready to assume Regional or Global management roles beyond national borders in the next 10-15 years. We will also create individual development plans (IDP) for the target group and implement measures such as cross-department transfers, special trainings, and assignments to project teams.

Human Resource Investment for RP24 Achievement

Employee Engagement

In 2018, NSG Group switched its performance appraisal system from a five-point relative rating scale to a four-point absolute rating scale. The current "Impact and Value Model" will be reviewed ahead of its fifth anniversary in 2023. Given the changes in the business environment since 2018, we will consider making changes and improvements to the system, to ensure fair performance evaluation and increase employee engagement in the reform.

We will also discuss career tracks and incentive schemes for professionals who despite their skills and experience indispensable to the Group are currently delayed in their promotion or pay raise because they are not on the management track, with a view to rewarding them in a fair manner for their contributions and increasing their retention.

Create Corporate Culture

As part of the "NSG Listening Strategy" launched in 2022, we introduced a new employee survey "Your Voice". The survey results were circulated to Global SBU/Function Leaders who then shared and discussed the results with their team members in all 28 countries during the "Let's Focus" session.

Global Leaders have access to the results of their team, country, region, and the Group. Following the "Let's Focus" session with Global Leaders, team members organized "Let's Talk" sessions with their own team to discuss necessary actions. We are encouraging employees to change mindset and behaviors through the dialogues in "Let's Talk" sessions hosted by each department and workplace. In addition, ideas and suggestions for the reform presented by team members have led to improvements in the working environment. We believe that through these activities, we can boost employees' self-esteem and self-efficacy for culture reform and improve our work environment.

In preparation for the "Let's Talk" session, HR provided training materials for managers to effectively facilitate the meeting. Supervisors were trained to have dialogues with employees through their daily work and to give constructive feedback. We tried to embed the practice of giving feedback into our corporate culture to urge each employee to adopt behaviors to realize RP24.

In October 2022, all members of the Group's senior management gathered face to face to decide on specific actions they would commit to demonstrate in order to promote cultural reform. We plan to hear from employees in the next "Your Voice" in 2023 to see if management is taking the initiative in adopting behaviors to deliver culture change.

Lastly, I&D activities are essential to NSG Group's corporate culture reform and therefore, we will provide full support for such activities implemented in each region, some of which are described below.

Improve HR Department's Capability

In order to realize a people strategy that advances "human capital management," it is essential to collect "non-financial information" related to human capital and make timely management decisions based on such information. As NSG Group has expanded its business through acquisitions and integrations over the years, our human capital data is in principle, managed by each site or country, with the exception of SABA, a talent management system for managers and above. Collecting such separately managed data around the globe requires a high level of data governance to ensure alignment between data content and management purposes, consistency of data definition, legality of data provision across countries, and security of data storage.

Therefore, our goal for 2024 is to establish "HR Data Governance" and roll it out globally, as a first step towards the implementation of an integrated human capital management system.

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