Chapter

Approach to Human
Capital Management
5

Message from the CEO and CHRO

7

An Organizational Strategy That Makes
the Most of Human Capital

8

A Discussion on the Nature of Human Capital
Professor Ito Kunio and President andRepresentative Director Sakashita Hideki

11

Findings from Research on Human Capital

5

Approach to Human Capital Management

Message from the CEO and CHRO
Theme

1

In Japan, a country with few natural resources, a company’s competitive advantage
used to arise from “hardware” such as factories, machinery or technology. In the era
ahead, however, “software” associated with people, such as ideas, hospitality andmotivation, will become the source of competitive advantage. I founded Link andMotivation with this conviction. Since then, we have been linking two concepts—the
Motivation Company, which increases and unifies employee motivation and connects
it to results, and the i-Company, in which each individual views themselves as theirown corporation. We also have been linking actual Motivation Companies and iCompanies to conduct human capital management with the objective of continuing to
produce both, in high quantity and quality.
Among the various characteristics of human capital, we particularly emphasize
engagement, which is the degree of mutual understanding and affinity between acompany and its employees. Engagement has been shown to have a correlation withcorporate performance and labor productivity, and the Link and Motivation Group puts
this finding into practice in improving engagement.

Chairman and Representative Director

Ozasa Yoshihisa

TOP MESSAGE

Human Capital Repor t 2023 - Chapter 1

Our Human CapitalManagement

6

Approach to Human Capital Management

Message from the CEO and CHRO

Theme

Because of our commitment to practicing what we preach, we have also been
making ongoing investments in human capital throughout LMG. I can explain thevalue of doing so from the two perspectives of return on investment and my own
experience. First, as a result of setting numerical targets for improving the skills of ourhuman resources and increasing their engagement in the sense of unifying them, our

Theme

3

human capital return on investment (ROI) has been extremely high. In terms of

Future Steps for Carrying
Out Our Mission

We place business strategy and organizational strategy on an equal footing andoperating income, this means that the value created exceeds the capital invested.

Moreover, in my own experience, in organizations with a high level of engagement,

conduct management that links them. Giving precedence to business strategy, followed

intentions expressed by the leader are promptly communicated and put into practiceby the organizational and human resource strategies to execute it, may be a common

throughout the workplace. Basically, in any workplace or company, there are times

approach. From my experience, however, business and organization are two sides of thewhen people approach change with fear or hesitancy, but employees of the Link andsame coin. For example, seeking a certain type of human resources because of the kind

Motivation Group instinctively adapt to change. I believe that in this dramaticallyof business you want to conduct is just one possible approach. It is also possible to firstchanging

andconsider the human resources you have and then decide the kind of business you will

engagement in particular, will not only raise labor productivity, but will also facilitate

conduct, choosing from the available options based on the personalities and skills of themore agile leadership.

people.

corporate

operatingenvironment,

improving

humancapital,That is why we invest in human capital: to improve the skills of our employees,
Click here for a video versionof this message (Japaneseonly).

increase their engagement, and securely unify them. In this way, we have made and willcontinue to make human resources our greatest and most powerful asset. Naturally, as amember of the service industry, we consider this stance critical for our future growth, so
we will continue to ramp up initiatives in order to carry out our mission.

Human Capital Repor t 2023 - Chapter 1

2

The Value of Human
Capital Management
as an Executive

7

Approach to Human Capital
Approach to Human Capital Management
Management

An Organizational Strategy That Makes the Most of Human Capital
The Link and Motivation Group’s
Approach to Human CapitalManagement

The management of a Motivation Company, which uses employee motivation as its growth engine, places its business andorganization on an equal footing. We believe that linking a business strategy that maximizes customer value and anorganizational strategy that makes the most of human capital while investing an appropriate amount of time and money inboth to obtain returns will increase corporate value over the medium to long term and enable us to carry out our mission.

Business
Strategy

LINK

Organizational
Strategy
Human Capital Repor t 2023 - Chapter 1

KGI
Productivity

Human Capital ROIBusiness Results per Employee

Management areas from the perspective of increasing value (proactive investment to generate business results)

Engagement

Human resource capabilities

Degree of alignment between the organization’s
vision and individual motivation

Degree of alignment between the abilities required by theorganization and the abilities possessed by the individuals in it

KPI
Organization

Abilities
required by theorganization

Recruiting

Investment
Targets

Proactive investment in recruiting humanresources who have the skills necessary
for business growth and a high level of
sympathy with the organization’s vision

Abilities
possessed by
the individual

Individual

Organization

Training
Proactive investment in training humanresources to develop the skills necessary forbusiness growth and continue to increase
their sympathy with the organization’s vision

Organization’s
visionIndividual
motivation
Individual

Systems

Corporate Culture

Investment in creating and operating
systems that make the most of employees’skills and continue to increase employee
sympathy with the organization’s vision

Investment in communication thatmakes the most of employees’ skills andcontinues to increase employee
sympathy with the organization’s vision

Management area from the perspective of risk avoidance (immediate response in the event of abnormal levels)

Supervision
TargetVarious risks related to human capital→ See page 65 for our understanding of human capital disclosure guidelines.

8
SPECIAL CONTENTS

A Discussion on the Nature of Human Capital
Humancapitalmanagement

has

been

attracting

attention.

Thismanagement approach views human resources as a type of capital andThat finding led to our publication of the Report of the Study Group on
Improvement of Sustainable Corporate Value and Human Capital in 2020.

emphasizes maximizing their value to improve corporate value over the
medium to long term. We take a look at the nature of human capital

Sakashita: When Link and Motivation was established in 2000, efficiency was

management in this conversation between Ito Kunio, who chaired thebeing heavily emphasized and expectations were high for IT. However, IT is usedstudy group that published the Ito Report for Human Capital Management

by people, and results will vary depending on the purpose of use. The Company

and is promoting human capital management from an academic

therefore started with the intention to prove the effectiveness of management

perspective, and Link and Motivation President and Representativethat focuses on people’s motivation and engagement, and to support such

Director Sakashita Hideki, who is promoting it from a business perspective.

management.
One way of approaching this issue is to look at the many companies where

Current State of Human Capital Management
Ito: When I talk to managers, they all say the same thing: Our people areimportant. But some data has emerged that presents a shocking state of affairs.
For example, when asked if they want to continue working at their current
company for a long time, employees in Japan answered “yes” at the lowest rate of
all countries surveyed.

communication consists solely of exchanging figures without any deeper
thought—without any discussion of why the company exists or why it is engaged
in a particular business or type of work. Even when those companies do suchthings, employees feel they are forced to do it, and consequently even if thosecompanies do conduct an employee engagement survey, they find it difficult toimprove. I think that improving motivation from within, rather than just external

At the same time, they were also least likely to say yes when asked if they want tomotivation such as raising salaries, will serve as the engine of growth for Japan.

change jobs (move to another company). Efforts to restore the competitivenessof Japanese companies will not produce results as long as employee
enthusiasm and engagement remain low.
President and Representative Director

伊藤 ItohKunio

Link and Motivation Inc.

In 1991, Mr. Sakashita joined Recruit Co., Ltd.,
where he was involved in organizational andpersonnel consulting as part of theComprehensive Human Resources Services
Division. In 2000, he participated in theestablishment of Link and Motivation Inc. as afounding member, and has been serving aspresident and representative director since2013.

Hideki Sakashita

Professor and DirectorCFO
Hitotsubashi CFO Education and ResearchCenterMr. Ito has a Doctorate in Commercial Science and has served
as a professor and dean of the Graduate School of Commerceand Management, and senior vice president at Hitotsubashi
University. He chaired the study group that publishedCompetitiveness and Incentives for Sustainable Growth: Building
Favorable Relationships between Companies and Investors(known as the Ito Report) in 2014 as well as other government
committees and projects on corporate governance, intangible
assets and ESG. In September 2020, the Report of the Study
Group on Improvement of Sustainable Corporate Value andHuman Capital (known as the Ito Report for Human CapitalManagement) published its findings for the Ministry of Economy,
Trade and Industry.

A Discussion on the Nature of Human Capital

Sakashita Hideki, President and Representative Director of Link and Motivation Inc., and Ito Kunio, Professor and Director of Hitotsubashi CFO Education and Research Center

Ito: I completely agree. Perhaps one reason for the low employee engagement at

Rather than making it all about the disclosure, it would be better to create aJapanese companies, which claim to value people, is their corporate philosophies.

positive cycle—to use the feedback on the information that is disclosed toI often hear it said that once those admirable sentiments are written down,

improve conditions at the company through human capital management,

Japanese corporate philosophies are treated as set in stone, and never again

which will show up in the next disclosure.

become the subject of a general debate.
However, as you mention, each employee should have a clear idea of why they
are working at their company and doing the job they do, then reconcile that withthe corporate philosophy. Those who are in basic agreement about their reasons
will work at the company for many years and do good work, while those who are
not in agreement will move on to another company. This kind of healthy turnoveris important.

Enhancing Management through Human Capital
Disclosure

Sakashita: The Link and Motivation Group conducts regular diagnoses of
employee engagement, which is thought to have a high correlation with corporate
growth in areas such as business results and retention of human resources. We
then disclose the level of employee engagement as an Engagement Rating.
At the same time, as a business, we conduct a cycle of diagnosis, transformationand disclosure for our client companies that leads to improvement in their corporate
value. We also try to make corporate conditions clear even without formal
disclosure through the online employee reviews collected by OpenWork, one of ourGroup companies. By doing so, any discrepancies between the details in a

Ito:

Looking at many Japanese companies these days, they are all

enthusiastically claiming that they will be making a major effort to disclose humancapital information, but I sense that all they are really thinking about is thedisclosure itself. Take the ratio of women in management positions, for instance.
Their interest in the topic ends with somehow just making it look like they aremeeting their targets, which has a different meaning from the original objective.

9

company’s integrated report or other disclosure materials and actual conditions are
made clear.
As we work in this way for a more open labor market, we intend to promote andhelp spur human capital management by expanding the organizational andpersonnel consulting support for diagnosis, transformation and disclosure that wehave offered since the Company was established.

A Discussion on the Nature of Human Capital

Sakashita Hideki, President and Representative Director of Link and Motivation Inc., and Ito Kunio, Professor and Director of Hitotsubashi CFO Education and Research Center

10

People Turn Strategies into Reality

For example, companies in the manufacturing industry offer factory tours. People

Ito: Companies communicate their management strategy externally through, for

see the company in action, it leaves an impression, and they invest in it. The

example, their medium-term management plan. Then, when investors see ansame is true for human capital management. For a company to talk about its

appealing strategy, they want to know how feasible it is.

recruiting without showing potential investors what they are talking about is a

In considering feasibility, the responsibility for turning a management strategy into

wasted opportunity.

reality falls to the people in the company. But actually, until now virtually no

Human Capital Rather Than Human Resource

information was disclosed about the human resources who carry out the

management strategy. When investors want to see whether a company is capable

Ito: Until now, Japanese companies have managed their people as resources.

of executing its management strategy, if the disclosed information does not clearly

Going forward, they will need to fundamentally change the way they view people.

address this issue, they will have doubts about the company’s ability to perform

In other words, people are not a “resource” that decreases with use, but rather asustainably. I therefore believe that disclosure of human capital information istype of “capital” whose value increases without limits when placed in the right

crucial in the sense that it helps people understand a company’s ability toenvironment. The value of all human capital is not identical across the board; that

execute its management strategy. Link and Motivation is a listed company. How

is something management and employees have to get together and discuss at

is it for you?

each company. I think Link and Motivation already does this. Is that the case?

Sakashita: To take an example from sports, I think that human capital disclosure
is like showing not just the scores of games, but also details on the players’

training.

Sakashita: Since our founding, we have held that human resources are acompany’s biggest and strongest asset. Rather than simply adjusting people to fit

Ito: That’s an interesting analogy. Admittedly, there is usually no way of knowing

a business, this management philosophy also adjusts the business to fit its people.

how seriously players are working on the various aspects of their game. However,I also think that corporate climate and corporate culture are important fordisclosing information is a way for a company to show that it has a specificunderstanding human capital.

training schedule and its employees are highly motivated to train, and thus that its
business results will improve.

Note: Click here for a video of thefull conversation (Japaneseonly).

11

Approach to Human Capital Management

Findings from Research on Human Capital
A study conducted by our research organization, the Motivation Engineering Institute, has shown therelationship between engagement and corporate performance and investment metrics.

Relationship between Engagement and Corporate Performance

Relationship between Engagement and Investment Metrics
We analyzed the quantitative relationship between engagement, which
is an important element in human capital investment, and theimpact of engagement on management.

investment metrics ROE, ROIC and PBR.

The results showed that engagement has a positive

The results showed that the higher the level of engagement,
the higher the ROE, ROIC and PBR.

impact on both operating margin and labor productivity.
Click here
for details.

Operating Margin

Correlation between Engagement and Operating Margin

Labor Productivity (Index) Correlation between Engagement and Labor Productivity

Note: “ES” stands for Engagement Score

Click here
for details.

Correlation between Engagement and ROE

Correlation between Engagement and ROIC

Note: “ES” stands for Engagement Score

Correlation between Engagement
and PBR

Human Capital Report 2023 - Chapter 1

In joint research with the Iwamoto Laboratory at Keio University’s
Graduate School of Business Administration, we analyzed the