Mid-term Management Plan
COMMIT5000
A leap forward to a value co-creation platform
With three capabilities“Make a world where valuable things come springing up”
Contributing to

The realization of a world where no one is left behind
The happiness and prosperity of all mankind
The creation of corporate value that captures the heartsof all stakeholders

Revenue of ¥100 billion in the fiscal year ending June 2025
Revenue of ¥500 billion in the fiscal year ending June 2030

Scala, Inc.
1st Section of the Tokyo Stock Exchange: 4845

August 14, 2019

CONTENTS
001

Mid-term Management Plan COMMIT5000

Ⅰ Executive Summary
So farFrom now on

Enhancing the three capabilities further Aiming for
500 billion yen in revenue in 10 years

029

006

030

033

013

Definition of the management design sheet

015

So far: Leading the industry with communication tools utilizing the three capabilities
From now on: Expand the targets of three capabilities and aim for sales of 500 billion yen
High-growth area: AI/ IoT area and social-problem-solving areas such as SDGs

Visualization of creating corporate value through
GCC management™ framework

Overview of the management design sheet

043

047

Ⅱ Corporate and Management Philosophy

Value Creation Management Support Business: Aiming for revenue of 180 billion yen in the fiscal year
ending June 2030
Social problem-solving business: Aiming for sales revenue of ¥ 100 billion in the fiscal year ending
June 2030

Realized Corporate Philosophy and Management Philosophy: The foundation of the midterm
management plan

053

SaaS/ASP BusinessBusiness model that sets other companies apart
SFA Business

060

061

Field marketing businessCurrent status of customer support businessCurrent status of other businesses

Major drivers of corporate value and financial strategy
Financial strategy
Financing
Dividend Policy

Contributing to the realization of a world where no one is left behindContributing to the happiness and prosperity of all mankind
Contributing to the improvement of corporate value that captures the hearts of all stakeholders“Truth, goodness, beauty” theory and “GCC” : Advancement of humanity and achieving better
conditions for every stakeholder

Ⅵ Current status of existing businesses
Overview of existing primary businesses

The meaning of co-creation: What do we create with empathy?
Solving global social problems with AI/ IoT and value creation theory

Ⅴ Overview of individual strategies-Details of 500 billion yen revenue
IT/ AI/ IoT business: Aiming for revenue of 220 billion yen in the fiscal year ending June 2030

Management Philosophy (Vision, Mission, Value)

Ⅲ Significance of the value co-creation platform

The direction to enhance the three capabilities and theframework of growth story

Fields to be realized in June 2020: Explanation by segment

Corporate Philosophy

019

Ⅳ Overview of overall strategy
Aiming for revenue of 500 billion yen by improving
the three capabilities

Overview of new segments and sales targets for each business

Visualization of corporate value through Growth, Connection, and Confidence

Scala Co-creating Shared Value
Aiming for continuous CSV improvement

Organize business fields in three new segments

009

The idea of “Excellent Goal-Setting”
The importance of focusing on excellent goal-setting that are particularly important in social issues
Efforts towards excellent goal-setting

Providing various solutions for the global market, private companies and governments
The Driver for growth: one-stop solution for “corporate value creation and AI/ loT
implementation consulting”

Three theories supporting GCC management ™
Human theory: Positive Psychology-Well-being
Theory of Knowledge Creation: tacit knowledge; explicit knowledge; AI/ IoT
Shareholder Value Theory (Capital Theory)

Leading the industry by providing communication
tools for large companies with three capabilities

Promoting “Three strategies to grab the hearts of customers” for Large Companies

002

021

Ⅶ Company Overview / History
Disclaimer

Ⅰ

Executive Summary

From now on

So far

Leading the industry by providing communication
tools for large companies with three capabilities

Enhancing the three capabilities further
Aiming for 500 billion yen in revenue in 10 years

Up until now, Scala Group has grown by providing values with the three capabilities in following scopes:
1) Large Japanese companies
2) IT resources within Scala Group3) Optimal combinations of issues and resources between Scala Group and its customers

Promoting “Three strategies to grab the hearts of customers” for Large Companies
The Scala Group promotes “Three strategies to grab
the hearts of customers” 1) optimum customization,2) stress-free cloud computing, and 3) attractive
monthly billing for approximately 1,000 large
companies including listed companies in Japan.
It has built a top-class track record in providing
security-enhanced cloud-based communication tools
with SaaS / ASP. As a result, the business performanceis steady, and consolidated revenue for the fiscal year
ending June 30, 2019 was ¥ 17.1 billion. The following

three capabilities 1 were the keys to earning this result:1) Capability to determine real issues

Providing various solutions for the global market, private companies and governments
Henceforth, targets of the three capabilities will be expanded dramatically as shown in figures below.
1

Expanding targets not only to Japanese but also to global companies, private companies, governments,
municipalities, and NPOs. For scope of activities, in addition to existing sales, our service in management consulting
and media platforms will be strengthened.

2) Capability to discover hidden value of resources
3) Capability to maximize value by proposing andexecuting optimal combinations of issues andresources.

2

3

Three capabilities

Three strategies to grab customers’ heart

Capability to discover hidden value of resources
Expanding targets to not only internal but external resources as well, and with the utilization of AI / IoT technology,
targets will expand to “people, assets, capital and knowledge” resources involved in problem-solving. In addition, thescope of activities will be expanded to “people, assets, capital,” such as organizational design, education for leaders,financial investment and M&A advisory.

These three capabilities led the strategy to grab thehearts of customers.

The background of Scala Group leading the industry with its three capabilities and its
communication tools for large companies

Capability to determine real issues

Capability to maximize value by proposing and executing optimal combination between issues
and resources
Expanding targets not only to Scala Group and its customers, but all related stakeholders. Expanding scope ofactivities to operation of AI-based matching platform, investor relations support aiming for market value maximizationand provision of various solutions.
Medium- to long-term targets for revenue and operating profits by expanding targets of the three capabilities

Determine real issues

Identify the most valuable issues
for clients,
including unstructured data

2

Discover hidden value ofresources

Propose the best solutions
for problem
solving among various IT resources

3

Maximize value by proposing
and executing optimal
combination ofissues and resources

Provide IT solutions that maximize
shareholder value and satisfactionlevel of various stakeholders

1

Provide solutions that maximize customer’ssatisfaction level with minimum IT resources
Provide low-burden service with reasonable
price to customers in cloud form
1. Optimum customization
2. Stress-free cloud computing
3. Attractive monthly billing
Pursue both shareholder value maximizationand high customer satisfaction levelwith low IT resources

In the field of communication tools for large companies
there was a lot of room for improvement in the optimal combinations of issues and resources.

Although as a late starter, Scala Group became the industry leader
with these three capabilities.

1

Capability, literally, translate to “ability”, “ talent ”,“quality” and “skills”” refers to the organizational capabilities and strengths that are
the driving force of corporate growth and is an important concept that constitutes a management strategy.

001 Mid-term Management Plan COMMIT5000

Three capabilities

1

2

3

Determine realissuesUp until now:
targets and activities

From now on:
targets and activities

TargetLarge Japanese companies

TargetJapanese, global, all private enterprises,governments,
municipalities, NPOs

Activities

Direct sales

Activities

Sales, management consulting, media platform

TargetInternal resources

TargetInternal, external resources, IT, AI / loT in general,
Provision of all(people, assets, capital, knowledge)

Activities

Design, Execution, Operation

Activities

Design, Execution, Operation,
Organization design, leader/ employee education
Capital investment, M&A advisory

TargetScala Group and its customers

TargetScala Group and its customers
All related stakeholders

Activities

Proposal and execution support of
optimal matching

Activities

Proposal and execution support of optimal matching,
AI-based matching, Investor relations support,
market value maximization support

Discover hidden
value of resources

Maximize value
by proposing andexecuting optimal
combination ofissues and resources

Among these, it will become a market of several hundred trillion yen in the next 10 years withthe targets of Scala Group’s three capabilities being met
Focusing on two fields: 1) Solution by means of AI / loT; 2) Solution to social issues such as SDGs

The year ending June 2025
The year ending June 2030

Revenue Target

Operating profit targets

100 billion yen
500 billion yen

10 billion yen
50 billion yen
Mid-term Management Plan COMMIT5000

002

Ⅰ Executive Summary

With the three capabilities, Scala Group will leap
forward to become a “value co-creation platform”
with the service it provides, Scala Group contributes
to realizing a world overflown with value. Scala is also
aiming to become “the ideal company for the world”
by contributing to:1) The realization of a world where no one will beleft behind2) The happiness and development of all mankind

The priority areas we focus on are 1) AI / loT and 2)
solutions to social issues such as SDGs 2, of each highgrowth rate and a hundred trillion yen market globally
can be expected. We are aiming to achieve a Revenueof 100 billion yen and operating profit of 10 billion yen
for the year ending June 2025; and a Revenue of 500
billion yen and operating profit of 50 billion yen for theyear ending June 2030. Moreover, we will enhance
our three capabilities greatly to achieve this goal.

One-stop Solution: Consulting of both “Corporate value creation and AI / loT implementation”

Three capabilities

1

Determine realissues

One-stop solution for “corporate value creation + AI / IoT implementation consulting”

Comprehensive support for digital transformation

Activities to be enhanced:
Management consulting3) The creation of corporate value that captures
the hearts of all stakeholders

The Driver for growth: one-stop solution
for “corporate value creation and AI / loT implementation consulting”
The utilization of AI is expected to become
increasingly important in the future for companies
to achieve the optimal combination of issues andresources in management. Therefore, we will build amanagement consulting system that simultaneously
provides corporate value creation and AI / IoT
implementation support. We will facilitate consulting
and implement the optimal customized AI / loT tools
by cooperating with consulting companies, which has
a proven track record of visualizing the value creation
process for global AI / loT research institutions andtechnology providers. Through upstream, logical,
physical, organization/communication design and byproviding internal employee training and education,
we offer one-stop support from execution tooperation and maintenance. In addition, to facilitate
this service, we provide hands-on support according
to the team structure required for each project,
by introducing human resources at the CxO level.
Particularly, we will create a one-stop support systemfor digital transformation (DX) through a “value

creation management + AI / IoT consulting” onestop solution. Furthermore, we plan to expand ourinvestment fund and establish an engagement fundthat financially supports AI-based value creation. We
will also establish a CVC (Corporate Venture Capital)and support the optimal combination of start-ups
and large companies using AI. We will support digitaltransformation (DX) for enterprises through all aspectsof “People, assets, capital, and knowledge.”

2

Given the above direction, the system of the onestop solution of “Corporate value creation and AI / loT
implementation consulting” is expected to be built in
the fiscal year ending June 2020. The figure below
presents an overview.

3

2

Sustainable Development Goals (SDGs) are international goals from 2016 to 2030, as described in the “2030 Agenda for
Sustainable Development” adopted at the United Nations Summit in September 2015. Consisting of 17 goals and 169 targets forrealizing a sustainable world, pledging to leave no one behind.

003 Mid-term Management Plan COMMIT5000

Discoverhidden value ofresources

Maximize value
by proposing
and executingof optimal
combinationof issues andresources

Resources tobe included
and their
activities
respectively• Scheduled to provide consulting to simultaneously
support the introduction of AI / IoT that directly improves
corporate and shareholder value, with collaboration
with companies with deep knowledge of AI / IoT among
management consulting companies which introduce
value creation management system to top executives• Advising from perspectives of a wide range of stakeholders
based on top management and on-site information• Providing advice that takes negative aspects of AI into
account

AI / IoT• Scheduled to provide consulting service thatsimultaneously supports value creation management
consulting and AI / IoT introduction support• In order to implement the most suitable AI / loT tools after
cooperating with global AI / loT research institutions andtechnology providers, we provide one-stop support fromexecution, operation to maintenance (by provision of
upstream, logical, physical, organization / communication
design, and internal employee training and education)

People• Provide hands-on support of AI engineers, data scientists
according to needs for execution• Introduction of CxO level talents for execution of above
activities

Assets(including
intellectual
property)• Analyze AI / IoT intellectual property globally and makerecommendations as needed

Money(Capital)• Finance from the to-be-established engagement fund asneededInformation(Knowledge)• Development of communication tools that facilitate thecreation of a knowledge creation cycle for corporate value
management using AI

Use AI suchas natural
language analysis
of internal
information
to discoverproblems more
systematicallyand automatically

Provide all
resources
includinginternal/external,
AI / IoT, people,
assets, capital,
knowledge

Activities to be enhanced
1) Build and implement avalue creation system thatenhances the satisfactionof all stakeholders• Create a value creation cycle that enhances satisfaction
and with all stakeholders unite to support the
management of the company

Introduction,
Proposal /execution ofvalue creation
theoreticalframework

Activities to be enhanced
2) Comprehensive
advisory that reflects thevalue creation system instock prices• In the business of integrated report creation support / IRsupport / sponsored securities analyst report, AI makes it
easy for investors to understand management changes,
disclosure in Japanese and English

Further support
to increase thestock priceMid-term Management Plan COMMIT5000

004

Ⅰ Executive Summary

As will be described in detail, in the fiscal year ending June 2020, we plan to comprehensively implement
measures to enhance three capabilities in the form shown in the following table.

Overview of new segments and sales targets for eachbusiness

Outline of the overall image of measures to enhance the three capabilities in the fiscal year ending June 2020

1

Three
capabilities

Enhancement measures in the fiscal year ending June 2020 and its significance

Determinereal issues• For social issues such as SDGs, build an issue databasetargeting areas where the optimal combination of issues
and resources has not progressed, and based on that
information, establish a media platform and strengthen
the ability to search for true issues. As a management
consulting firm, we will also contribute to strengthening
the ability to propose the optimal combination of
resources and issues and resources that contributes toproblem-solving.
• Develop consulting to provide value creation
management consulting and AI / IoT introduction
support at the same time

Strengthened activities (1):Management consulting
Strengthened activities (2):
Database Media platform

AI / IoT

People2

Discoverhidden valueof resources

Resources
to beincluded andactivities

3

Maximizevalue byproposingand executing
optimalcombinationof issues andresources

Discovering thereal issues that leadto the expansionof corporate value
through backward
casting

Reflecting the above measures to enhance three capabilities, we plan to organize business fields in the following
new segments. Firstly, the “Value Creation Support Business” will be the new segment that mainly strengthens theability to determine real issues (first capability)
Secondly, “IT / AI / IoT – Relating” Business is the segment that mainly reinforces the capability to discover thehidden value of resources (second capability) based on all information-related businesses, including existing SaaS/ASP and SFA business. It reinforces tackling AI / loT.
Thirdly, “Social-Issue-Solving” Business is the new segment that mainly reinforces the capability to maximize
corporate value by maximizing optimal combinations of issues and resources.

• Collaborate with global AI / IoT research institutes
and technology providers, in order to customize andintroduce optimal AI / IoT tools, we provide one-stop
support from execution to operation and maintenanceby providing upstream/ logical/ physical/ organization/communication design, internal human resources
education and training• In order to support the above implementation, providing
hands-on support by introducing AI engineers and data
scientists as necessary.
• Introduction of CxO personnel to support the above
implementation

Assets(includingIntellectual
property)• Introduce Venture company to large companies• Provide technologies, etc. that contribute to solving
problems using patent databases• Establish business to support M&A, act as anintermediary for M&A and as a business partner forresources necessary to achieve management goals

Money(Capital)• Establish an engagement fund and apply AI to increasevalue• Launch CVC fundInformation(Knowledge)

Use AI such as natural
language analysis ofinternal information
to discover problems
more systematicallyand automatically

Organize business fields in three new segments

Three capabilities and new segments

Three capabilities

Provide all resources
including internal/
external, AI / IoT,
people, assets,
capital, knowledge

New Segments

1

Segment that strengthens the capability
to determine real issues

New“Value Creation Support” Business2

Segment that strengthens the capability
to discover hidden value of resources

Strengthen
the existing“IT / AI / IoT – Relating” Business3

Segment that strengthens the capability
to maximize value by proposing andexecuting optimal combinations ofissues and resources

New“Social-Issue-Solving” Business• Develop communication tools that facilitate theknowledge creation cycle

Activities to be enhanced
1) Build and implement avalue creation system thatenhances the satisfactionof all stakeholders• Entry into value creation management consulting
business

Introduction,
Proposal/ executionof value creation
theoreticalframework

Activities to be enhanced
2) Comprehensive advisorythat reflects the value
creation system
in stock prices• Entry into Integrated Report creation support, IR
support, sponsored securities analyst report business

Further support toincrease the stock
priceSpecific examples of initiatives in the fiscal year ending June 2020 (specific details are subject to change at any
time depending on the circumstances surrounding the initiatives) are shown for each segment and each major
sub-segment. The following chart shows the sales targets for the fiscal year ending June 2025 and June 2030.

Dramatically improve the three capabilities of the Scala Group
Achieve high growth in (1) Solution by means of AI / loT, (2) Solution to social issues such as SDGs

005 Mid-term Management Plan COMMIT5000

Mid-term Management Plan COMMIT5000

006

Ⅰ Executive Summary

IT / AI / IoT-related business : Specific initiatives and medium- to long-term sales targets
for the fiscal year ending June 2020

“Social-issue solving” Business: Specific initiatives and medium- to long-term sales targets
for the fiscal year ending June 2020

Revenue TargetMain
sub-segments

Overview

SaaS/ASP• The core business of the Scala Group. Provide corporate communication tools
with SaaS / ASP to 1,000 large enterprise customers• Together, provide comprehensive advice on value creation which incorporates
AI-based natural language analysis, and will strengthen it as a one-stop service
that provides AI / IoT design, installation and operation with the understanding of
top executives

SFA• Developed by consolidated subsidiary Softbrain [TSE First Section: 4779]. Provide
sales support system. Won first place in business improvement, installation effect,
service and system satisfaction. Evaluated with No.1 in overall satisfaction as CRM/ SFA. Supported by a wide range of customers from large companies to small andmedium-sized companies, regardless of scale, industry, or business format, andhas a transaction record of over 5,000 companies.

Field Marketing• Developed by Softbrain Field Co., a consolidated subsidiary of Softbrain [TSE First
Section: 4779]. Provides sales support and market research by registered staff
nationwide. Agency for sales promotion and sales, based on data gathered fromall over the country using methods such as mystery shoppers and store surveys, inaddition to supporting sales and recruitment.

Call center and others• Performs call center consulting and entrusted system development. Aims for highgrowth by strengthening AI / IoT in analysis methods and information collection
methods.

The yearending June
2025

The yearending June
2030

60

220

billion yen

billion yen

Main
sub-segment

HealthTarget:Developing
countries※ Researched by ESP Research Institute, Inc. May 2018 Males and females in their 20s and 60s / Company managers / executives / group
executives, company employees / group employees (including temporary employees and contract employees) / CRM / SFA users / 300
people / Web questionnaire

Education“Value creation support” Business : Specific initiatives and medium- to long-term sales targets
for the fiscal year ending June 2020
Revenue TargetMain
sub-segments

Overview

Compressive advisory ofvalue creation• One-stop consulting for people, assets, money, and knowledge based on theoriesof psychology, knowledge creation, information mathematics, and the theory of
improving shareholder value. For assets, we collaborate with CVC to match thenecessary technologies, and further provide M&A advice.
• Comprehensive analysis and proposals for the possibility of increasing corporate
value by introducing AI / IoT• Comprehensive advice on concept/ logical and physical design in cooperation withIT / AI / IoT business• Perform human resources and organization, training / leader development
business, provide human resources development advice closely linked to value
creation management, and CxO level personnel introduction as needed• Advise on communication design and organizational design based on knowledge
creation theory• Develop comprehensive M&A advisory services using large corporate networks

Engagement
fund• Invest in companies that have the potential to increase value in value creation
comprehensive advisory operations to gain capital gains. Reflecting shareholder
value up to market capitalization with investors-facing communication support

CVC• Invest in large companies and ventures that contribute to solving social problems• Achieve a reliable exit with IT / AI / IoT business, social problem solving business,and collaboration with value creation comprehensive advisory business

Fund

Investors-facing
communication support• Collaborate with the Value Creation Comprehensive Advisory Business to create
equity stories, sponsored securities analyst reports and Integrated Report, support
briefing sessions, set up investor meetings• Development of automatic generation system for securities analyst reports using AI

007 Mid-term Management Plan COMMIT5000

The yearending June
2025

The yearending June
2030

30

180

billion yen

billion yen

Revenue Target
Overview

The yearending June
2025

The yearending June2030

• Contribute to the creation of a better country by developing safe and secureenvironments (improvement in food culture / sanitary environment / healthawareness /insurance environment) in developing countries. Has already started in
Myanmar and plans to expand• Gather personal health data, combine with insurance data to commercialize
insurance business• Discover excellent local talents from human resources connections and approach
local connections• Build a value chain from a network of local partner companies• Aim to improve the health level starting from meals for total health throughcommunity sites, smartphone apps, IoT / big databases, and AI learning platforms• Utilize funds from engagement funds and governments• Remotely collaborate with medical care in developed countries to improve medical
quality• Support comprehensive industry development, and the specific value creation
impact will be quantified through the inflow of human resources and consulting of
inflow conversion process, per capita in come will increase as the result• Coming under SDGs health / water / hygiene / growth / employment. Market size
¥ 318 trillion* as of 2017.
• Promote the creation of entrepreneurs and the development towards advanced
countries by providing business-related education such as IT and management.
Provide efficient educational programs for entrepreneur creation• Digitalization of teaching materials, E-learning, analysis of learning results,
competition awareness app. Introduction and utilization of funds from humanresources companies, governments and local governments• Process consulting for becoming developed countries through productivity
quantification• Coming under SDGs education. Market size ¥71 trillion* as of 2017

Environmental problems• Establish a comprehensive information platform with issue database, resources
database, and optimal combination advisory function to solve environmental
problems from a broad perspectives based on the theory of resources circulation
which is based on microorganism-based biotechnology such as algae• Collaborate with various organizations dealing with environmental issues, research
institutions, and large companies with technology• Coming under SDGs water / sanitation / energy / innovation / climate change /marinere sources / terrestrial resources. Market size ¥1,888 trillion* as of 2017.

Regional revitalization• For local cities in Japan and overseas, collaborate with local governments,
regional banks, and SMEs to support local culture succession issues, from regional
revitalization to nationwide development. Ripple effect analysis using input-output
tables• Establish a matching platform for human resources / money / culture transmission.
Establishing a network of young talents and local culture successors• Support with cultural media, matching platform, and optimal team building system.
Cooperation with local government budget sand regional banks• Applied value creation to local culture / technical projects• Coming under: SDGs growth / employment / inequality. Market size 329 trillion
yen* as of 2017

Investment fund

• Invest in things that can be commercialized and aim for capital gains

Patent, Intellectual
Property Database• Create a database of patents and intellectual property related to fields that
contribute to solving social problems, and generate matching algorithms using AI.
Support the optimal combination of issues and resources

10

100

billion yen

billion yen* Deloitte Tomatsu, https://www2.deloitte.com/jp/ja/pages/about-deloitte/articles/dtc/sdgs-market-size.html

Mid-term Management Plan COMMIT5000

008

Ⅰ Executive Summary

Visualization of creating corporate value through
GCC management™ framework

In the future, in order to further expand this concept
and build an integrated value creation system thatcovers "people, assets, capital and knowledge", weintroduce the idea of GCC management system™
developed by J-Phoenix Research Co., Ltd 3.
(hereinafter “JPR”), which conducts managementadvisory for creating corporate value.
In JPR, the following three elements are considered
important for creating corporate value that captures
the hearts of all stakeholders: 1) Growth through social
contribution as a challenger (Growth); 2) Improving
profitability and asset efficiency through stakeholder
bonds (Connection); 3) Improving trust and security(Confidence). The acronym used for the concept is

Visualization of corporate value through Growth, Connection, and Confidence
The Scala Group proposes and implements optimal
combinations of issues and resources which enhances
the ability to maximize value and seeks to improvethe value of all stakeholders. In order to achieve theseobjectives, we have gained trust in our customers
based on proactive challenges and experience, know-how, and achievements in new technologies andearned new services from the real challenges acquiredby seriously listening to customer needs. By doing
so, we have developed this unique subscriptionbased business model, which connects to continuous
growth.

“GCC Management™.” The elements of corporate
value are 1) Sales Growth, 2) Return on Invested
Capital 4 and 3) Business Risk (Capital cost / WACC 5).
The contents explained in GCC management can besummarized as follows.

Visualization of creating corporate value through GCC management ™ framework

1

Capability to Determine real issues

2

Capability to discover hidden value of resources

3

Capability to maximize value by proposing andexecuting optimal combination of issues andresources

Construct a value co-creation platform“Make a world where valuable things come springing up”
Contributing to
The realization of a world where no one is left
behindThe happiness and prosperity of all mankind
The creation of corporate value that captures thehearts of all stakeholders

3

GrowthGlobal market will be created at the level of 1,000-2,000
trillion yen in the next 10 years
Focus on AI / IoT field and field that solve social problems
such as SDGs

Increase customer numbers

Explore needs of customers

In addition to 6,000 large
Japanese companies of
Scala GroupAI / IoT field and Socialissue-solving field such as
SDGs
Determine customers’ real
problems

Targets expand to Japanese,
global, all private enterprise,governments, local
governments, NPOs
Provide “people, assets,money and knowledge” incooperation with partners

Connection

Promote a value creation process that facilitates“connections” among all relevant stakeholders andmaximizes stakeholder satisfaction

Confidence
Propose and execute a value creation process taken
long-term and indirect impacts into account while
maintaining sustainability

A comprehensive advisory firm for company valuation founded in 2003. We conduct a wide range of consulting activities related
to value creation management, including management consulting, IR consulting and for sponsored securities analyst reports.
For details, see: https://www.j-phoenix.com/

009 Mid-term Management Plan COMMIT5000

Revenue
GrowthFully strengthen the three capabilities
that promote strategies tocapture customers' hearts

Corporate value

Business strategy and profit structure for profitable products and services

Asset
Profit rate
Efficiency
Improvement improvement

Become an ideal company for the world

Logic for improving corporate value

GCC Management™ Framework

Reducebusinessrisks

Direction of the Scala Group

Providing solutions thatmaximize value creation,with AI / IoT as an importantfactor

Accelerate growth in the
AI / IoT / SDGs domain

Expected to have the highest
growth potential globally
Achieve an annual growthrate of 30-40% in the field of
AI / IoT and SDGs

Differentiation throughoptimal combination ofissues and resources

Achieve high added value and operational efficiency
maximization by discovering hidden value of resources

Maximize asset efficiency by discovering hidden value ofresources

Building stable cash flow based on a value co-creation
platform

Until 2022 The AI market is
expected to have an annual
growth rate of 30-40% Take
advantage of such growth
FY2025: Net sales of¥100 billion yen
FY2030: Net sales of¥500 billion

Increase operating profit
marginImprove return on
invested capital [ROIC]
From the current 13% tonearly 30% in 10 years

Economic Value
Added(Excessive profit)

Effective use of invested
capitalReduce business risk andrequired returnfrom investors,
Maintain it around 5%

Effective use of invested
capital4

Invested capital is capital that is procured from the capital market and invested in the business. Calculated as Total assets -Nonbusiness assets such as surplus cash and deposits -Current liabilities other than interest-bearing debt.

5

Returns required by investors. Calculated by weighted average of creditors and shareholders. Also called capital cost or Weighted
Average Cost of Capital, WACC. The higher the business risk, the higher the WACC.

Mid-term Management Plan COMMIT5000

010

Ⅰ Executive Summary

The following figure shows the image of annual revenue and operating profit in the above plan.

Based on the above assumptions, the following figure illustrates the long-term trend of increasing corporate value
under the Excess Profit Method6 framework. In the long term, we aim to achieve a theoretical shareholder valueof ¥ 500 billion.

Target of Mid-term Management Plan

Revenue Target as of June 2025

Shareholder value projection by the Economic Value Added method: Estimated on the assumption thatthe goals of the medium-term management plan have been achieved

Operation Profit Target as of June 2025

Shareholder value projection as of end of June 2025
[ 100 million yen ]1,000[ 100 million yen ]

1,000

100

[ 100 million yen ]

900

100

800
720
30

72

300

700
600

500
360
270

10

150

20
80

20

200

250

2020.62021.6

400

31
540

320

500

41

30

200

50

600

300

24

200

400

100
0

IT / AI / IoT

2022.62023.62024.62025.6

Conporate Value Creation Support Business2020.62021.62022.62023.62024.62025.6

Shareholders’EquitySocial-issue-solving Business

Revenue Target as of June 2030

ExcessProft Value

Growth Value Growth Value Growth Value Growth Value Growth Value Shareholder
June 2021
June 2022
June 2023
June 2024
June 2025 value taken into
account of thegrowth value ofJune 2025

Shareholder value projection from FY6/2025 to FY6/2030

Operation Profit Target as of June 2030

[ 100 million yen ]6,000[ 100 million yen ]5,000[ 100 million yen ]

500

5,000

1,000

4,000
3,000

1,800

2,000

1,000

1,000

100
2,200

100
300

0

600
2025.62026.6

IT / AI / IoT

2027.62028.62029.62030.6

Conporate Value Creation Support Business2025.62026.62027.62028.62029.6

Shareholder value Growth Valuetaken into account June 2026of the growth valueof June 2025

2030.6Growth Value
June 2028

Growth Value
June 2029

Growth Value Shareholder value
June 2030 taken into accountof the growth valueof June 2030

Social-issue-solving Business
6011 Mid-term Management Plan COMMIT5000

Growth Value
June 2027

Excess Profit estimates the profit exceeding the investor's satisfactory return for the invested capital used. Its present value
becomes “Excess Profit Value ”, and when excess profit grows, it becomes “growth value”. In addition, assets that are not usedin the business are added as nonbusiness asset values to estimate the theoretical corporate value. Theoretically, the estimatedcorporate value by the discounted cash flow method (DCF method) and Excess Profit method are the same.

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Ⅰ Executive Summary

Overview of the management design sheet
Definition of the management design sheet
The management design sheet is a “tool for designing management by accurately evaluating the role of intellectual
property in the corporate value creation mechanism”7 created by the Intellectual Property Strategy Promotion

Office of the Cabinet Office. As the social and economic environment changes from the 20th century type,where a stable supply of goods leads the market, to the 21st century type, where users with diverse values
seeking experience and empathy are driving the market, the role of intellectual property, as the driving force ofmanagement, is increasing. The management design sheet was developed based on expert knowledge andpractitioners in various fields to visualize such movement and was announced in June 2018. It is possible to takea bird's-eye view of the management of a company in the framework of a time axis, creating awareness of therelationship between “resources”, “business models”, and “values”. The following figure shows the contents of the
management design sheet.

Overview of Scala Group strategy development by management design sheet

From now on : What to aim for

So far : Company's current status
In the field of communication tools for large Japanese companies, despite a late starter, we became the industry leader with aunique system that can realize optimal combination of issues and resources

Resources

Business model• Strong engineer-sales collaboration systemthat accurately captures customer needs
and needs accurately shared with engineers• Providing security-enhanced cloud-based
communication tools in SaaS / ASP• Data of customer needs for over 1,000
companies

Intellectual Property
Technical capabilities to accommodate
customization at attractive prices foreach customer

Establishing a system for global solutions by strengthening three capabilities for solutions in AI / IoT field and social-problemsolving field such as SDGs, aiming for sales of 500 billion yen

Value• Fixed revenue earned from a monthly fee ofcontinuous cloud customization

Resources

Business model• IT / AI / IoT related business• A collaborative value-creation platformthat realizes the optimal combination for
discovering true issues and identifying thevalue of resources

Provided values• Understand customer issues and provide
optimally customized services on a cloudbasis.

There capabilities in IT field

Company strengths• Proposing and executing three capabilities
in all areas of "people, assets, money,
knowledge: (1) Determine real issues (2)Discover hidden value of resources (3)Maximize value by proposing and executing
optimal combination of issues andresources.

Intellectual Property

1) Determine real issues

Ability to propose and execute
optimal combination of issues andresources for all stakeholders using
AI / IoT to support and realize valueenhancement

2) Discover hidden value of resources
3) Maximize value by proposing andexecuting optimal combination ofissues and resource

External environment so far

External environment so far- Factor • Customization takes time and growth is limited+ Factors • Market growth due to the advent of the AI / IoT era

optimal customization and low cost for customers.

Challenge

Challenge

1

Challenge

2

3

Target the ability to create the hidden value of resources, including
AI, IoT, people, assets, money, and knowledge

Strengthen the ability to build value creation stories and the ability
to propose optimal combination of issues and resources

Strategy

Strategy

Strategy1• Strengthen AI analysis capabilities for unstructured data such as
SDGs• Build a database for each issue so that the most value-creating
combination of issues and resources can be discovered

Necessary resources(Intellectual Property)

013 Mid-term Management Plan COMMIT5000

promote similar strategies

Build a collaborative value creation platform and strengthen theability to explore real issues• AI analysis ability

Reference: https://www.kantei.go.jp/jp/singi/titeki2/keiei_design/index.html- Factor • Potential for companies with large databases to• Rise of SDGs related market•Three capabilities are effective in both fields• Increased demand for SaaS / ASP

7• From a global perspective, explore realissues in the AI / IoT and SDGs fields,
discover the hidden value of optimal
resources and realize and implement
optimal combination of issues andresources• Value creation support business• Three capabilities: (1) Determine real issues;(2) Discover hidden value of resources (3)Maximize value by proposing and executing
optimal combination of issues andresources.

Company strengths

Three issues and threestrategies derived from “thecurrent state of the company”
and “what we should aim for”

Provided values• Social-problem-solving business• Database of issues and resources for all
stakeholders• By eliminating useless functions,development costs can be reduced withattractive fees

+ Factors • No companies in the industry that can achieve both

Value

1

2

• Strengthen collaboration with various external companies,
partners, research institutions, etc.
• Establishing a one-stop support system for digital transformation

Necessary resources(Intellectual Property)2• Organizations and talents to customize and introduce AI / IoT tools

3• Execute M&A and enter the value creation management consulting
business• Provide support to increase the stock price of listed companies

Necessary resources(Intellectual Property)3• Management consulting ability based on the theory of corporate
value creation• Ability to support the visualization of value creation that captures
investors' hearts

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014

Ⅱ

Corporate and Management Philosophy

We will explain in detail the corporate and management philosophies that play a fundamental rolein management direction.

Corporate Philosophy

Management Philosophy (Vision, Mission, Value)

Scala Group’s Corporate Philosophy

Vision (Aim) : Contribute to the happiness and prosperity of all mankind

The Scala Group has the following three corporate philosophies.

By providing a wide range of services that promotes communication between people and between companies andpeople, we discover valuable people, assets, and information. Additionally, by delivering to those who recognize
their value in a timely manner and by fully supporting information sharing to the world, we aim to contribute topeople's the happiness and prosperity of all mankind.
Also, by discovering the people who recognize value and by delivering this to them at the right time, values
are properly compared and things with higher value remain in the world. By pursuing a world with accelerated
processes of creating greater value, we aim to solve various social problems, create technologies that lead to theevolution of humankind and create a society full of value.

Demonstrate ethical values

Fulfill social responsibility

Prosper foreverIn all corporate activities, we act
with social ethical reflection anddiscernment.

Recognizing the social nature of
a company and responding to therequests of various stakeholders,
we contribute to the maintenanceand development of society.

The goal is to grow long-termand steadily to contribute to the
future of Japan in 10 years and 50
years from now.

Convince employees,
customers, and shareholders
that choosing Scala Group isa good choice

Major goal is to “contributeto the happiness andprosperity of all mankind”

Strong awareness ofbalance of interests among
stakeholders

Respond flexibly to changes
in environment

Obey social rules
Do not take action that is
ambiguous
Each employee has highethical standards and always
acts with trust.

Contribute to themaintenance anddevelopment of society by
becoming a “good corporate
citizen” 8

Have a strong will to achieve

Actively strive to achieve theplanScala Group’s Management Philosophy (Vision, Mission, Value)

VisionContribute to the happiness andprosperity of all mankind(Aim)

Mission(Role to play)

Value(Principle for actions)

Become an ideal company
for the world
Provide unlimited possibilities
for those who continue tochallenge anything

Based on the above corporate philosophy, the following management philosophy (vision, mission, and value) is set
forth.
In addition, the Scala Group's subscription-based business model has been adopted by businesses all over theworld. By being recognized as spreading truly useful value to the world, we aim to make the Scala business modela global standard.
Consequently, we provide unlimited possibilities to people (including employees) who have a strong will to
realize their dreams; they continue to challenge business that are new/ interested in us/ skilled ,without worrying
about failure, and achieve a higher chance of success; they aim to fulfill all dreams by indirectly contributing to
the maintenance and development of society not only for employees, but also family members, friends, peers,
shareholders, customers, and local communities that share the same will.
8

Corporate citizen: One of the terms in business administration field. The concept that companies should be good citizens before
pursuing profits. In society, companies should be able to exercise their rights, at the same time being obligated and should beaware that they are citizens of the community. (From Wikipedia)

015 Mid-term Management Plan COMMIT5000

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016

Ⅱ Corporate and Management Philosophy

Mission (Role to Play): Become an ideal company for the world
As a role to be fulfilled, the mission is to “become an
ideal company for the world.” Due to the richness ofscience and technology and discovering new andold social problems, we contribute not only to direct
social contributions in the IT business domain, but also
indirectly to people's happiness. We aim to contributeto solving not only Japanese issues, but also global
issues as well as to the prosperity of mankind.
In such a role, we discover the true value that is easily
hidden by using Scala Group's unique mechanism,breaking down hurdles, so to speak, by activating the“Value Incubation Cycle”, we will accelerate the speedof world development, and “uncover unnoticed true
values”.
We believe that the true value that leads to people's
happiness can not only be achieved by advancesin science and technology but also by “facilitating
communication.” New values are created anddiscovered when people and companies repeat input/
output with each other towards the same goal. We

will strive to create services that are conscious of“communication design.”
From achieving individual happiness, to achieving thehappiness of society as a whole, we will bring together
the capabilities of the entire Scala group, maximize
the value created, and support it to spread widely
throughout the world. The Scala Group's businessmodel itself is the greatest value of the Group, and we
aim to become a value incubation that leads to thehappiness of Scala employees and all those related to
the Group.
This business model is unprecedented, subscriptionbased and has evolved from the “hospitality” spirit thatis unique to Japan. Additionally, this model solicits
value and encourages friends and comrades to talkabout their dreams and passions. And by acting
boldly and coordinating systematically to expand to
the world, we will become the world's Scala Group,
aiming to become the world's top business with thisnew business model using IT.

Realized Corporate Philosophy and Management Philosophy:
The foundation of the midterm management plan

The realization of the above corporate and management philosophy in ten years is the basis of the overall strategy
described in detail below. The embodiment of “having ethical values”, “fulfilling social responsibility”, “prospering
permanently”, “contributing to the happiness and development of all mankind”, “becoming an ideal company for
the world” and “providing unlimited possibilities for those who continue to challenge” connects with enhancing thethree capabilities, and with this, we aim to achieve the midterm management plan.

The corporate philosophy and management philosophy lead to the enhancement of three capabilities
and become the basis of the midterm management plan

Philosophy

We provide unlimited possibilities for those who
continue to challenge anything. We motivate our
employees to be able to grow and realize their own
happiness by linking what they can do to their dreams
and ambition because they are in our Group. Also,
we execute specific steps by calculating backwards
from the goal and adhering to achieving the goal.
We always compare reality with big goals and plans,clarify the gap, and repeat the PDCA cycle for theissues to be addressed. The Scala Group values theimportance of staying on goal to realize big dreams,
while surpassing the current situation, past successful
experiences, existing concepts, and vested interests.
In addition, we do the correct job with high ethicalstandards. We focus on creating an environment inwhich we can accomplish big things this cannot be
accomplished alone because if we are taking the017 Mid-term Management Plan COMMIT5000

correct actions, we will have people who understandand collaborate with us.
We believe that realizing what others cannot do easilyis the root of the Scala Group's growth, and we believethat an abundant environment in which we canthoroughly pursue the possibilities of “I can!” will leadto personal growth. This sentiment is the “Scala Value”
and we emphasize “never giving up.”
We believe that because we all have a strong desire
to achieve great goals, we are able to respect, work
together, and improve. This will lead to the growth of
the Scala Group and everyone who is gathered there,
and in collaboration with companies that share thesame objectives, we aim to challenge the world withan organized subscription-based business model toachieve top success.

Mid-term Management Plan
Mid-term management plan
COMMIT5000

Corporate Philosophy• Have ethical values• Fulfill social responsibility• Prosper forever

Value (Values and Action Guidelines): Provide unlimited possibilities for those who
continue to challenge anything

Three Capabilities

1

With three capabilities
A leap forward to a value cocreation platform

Discover real issues

Contributing to:Management Philosophy• Contribute to the happinessand development of all
mankind• Become an ideal company for
the world• Provide unlimited possibilities
for those who continue tochallenge

2

3

The realization of a world
where no one in the planet
will be left behind

Discover hidden value of

The happiness anddevelopment of all mankind

resources

Maximize value by proposing
and executing optimal
combinations of issues andresources

The creation of corporate
value that captures thehearts of all stakeholders
Revenue of ¥100 billion in the fiscal
year ending June 2025
Revenue of ¥500 billion in the fiscal
year ending June 2030

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018

Ⅲ

Significance of the value co-creation platform

The meaning of co-creation : What do we create with
empathy ?
The concept of “collaborative creation” is similar to “co-creation.” Although both entail drawing diverse stakeholders
together to create value, Scala Group uses the term “co-creation” because we believe it has a stronger meaning ofcreating value with empathy towards a goal.

Solving global social problems with AI / IoT and value creation theory
The “value co-creation platform” aims to solve global social problems with AI / IoT and value creation theory. By
doing so, we aim to realize a “world where valuable things come springing up,” and to contribute to the happinessof all humankind and the advancement of humanity. Based on AI / IoT and value creation theory, throughcommunication between people and companies, we get to know, understand, communicate with each other,which leads to discovery and realization, and thus, realizes the following three contributions.

Contributing to the realizationof a world where no one is left
behindThe Scala Group contributes to thehappiness of people not only inJapan but also around the world.
We work for the benefit of the entire
world by using AI / IoT technology
and psychological theory to close
the gap of deep-rooted inequality
between regions and races.

Contributing to the happinessand prosperity of all mankind
Happiness beyond religion andculture is realized by presenting themeasurement of happiness to all
people and helping them achievethis. We also contribute to theadvancement of technologies andsystems that make people's lives
around the world richer and more
comfortable.

Contributing to theimprovement of corporate
value that captures the heartsof all stakeholders
To capture the hearts of all
stakeholders means to excite
all the people surround thecompany, including employees,
customers, shareholders, and local
communities. First, we will expand
the excitement circle from within
the company, and then broaden
it to include customers andshareholders.

We will realize the above three contributions by solving social problems around the world and by showing theworld “the ideal corporation the world needs” and “the ultimate form of social contribution.”entire human race. The second concept is the “GCC
management™” concept described above. This is amanagement philosophy developed by JPR with thebelief that there is a common concept of happiness in acompany, which is comprised of a group of individuals.
With the concept of “growth, connection, andconfidence”, we aim to systematically analyze how

the improvement of individual, corporate and investor
happiness connects to elements of corporate value,
sales growth, ROIC and WACC and leads to theimprovement of corporate value. With the GCC
concept, it is possible to achieve better conditions foreach stakeholder and improve corporate value.

Integration of non-financial information and financial information that captures the heartsof all stakeholders, under “GCC management™”
By focusing on the happiness of all stakeholders,
GCC Management™ is an analytical framework thataims to evaluate the sustainability of shareholder
value by combining both non-financial and financial
information in an integrated manner. We use aframework of three corporate value elements toassess investor happiness. JPR’s concept of happinessfor employees uses the five desire-stage theory of
Maslow, a renowned American psychologist: people

feel happy if five desires are met. The same principle
can be applied to shareholder value, it can be said
that its sustainability is higher if improving employee
happiness is taken into consideration.
JPR calls the Excess Profit (Economic Value Added)
generated by the strategy that aims to improvehappiness of all employees as the “Happiness Value
Added™” concept.

Analysis of corporate value creation that grabs the hearts of all stakeholders through GCC Management™

Perspectives of all stakeholders
5 elements of happiness = Why

Investor perspective
3 elements of corporate value = How

Maslow's psychology

Self-actualization
needs

Motivating regular
employees witheasy-to-understandwords

Esteem needs
Belonging and loveneeds
Safety needs
Physiological needs

GrowthSales growth

Growth by Social contribution
as a challenger

Connection
ROIC

Enhancement of profitability andasset efficiency by bonding of all
stakeholders

Confidence

Top-notch investorfriendly
CG codeStewardship code
friendly

WACC

Enhancement of reliability andsecurity

The following elements are also included:(1) Integration of financial and non-financial information;(2) Management being conscious of ROIC and Capital Cost
(3) Systemization and visualization of responses to ESG and SDGs

“Truth, goodness, beauty” theory and “GCC”: Advancement of humanity and achieving
better conditions for every stakeholder
As previously mentioned, although our targets are
the AI / IoT field and fields related to social problem
solving, such as the SDGs, we believe it is important tofocus on two concepts when tackling those targets.
The first one is the “truth, goodness, beauty” theory.
In other words, it is possible to grasp the essence of019 Mid-term Management Plan COMMIT5000

things by pursuing “truth,” to set good ethical conduct
by pursuing “goodness,” and to guide people andgain stakeholder sympathy by pursuing “beauty.” We
will approach the ideals of “truth, goodness, beauty”
as a company, meaning selecting business with theawareness of contributing to the prosperity of theMaximizing Happiness Value Added™
Enhancing happiness is to ask the significance of acompany's existence, that is, “why does the company
exist? (Why).” The concept of corporate value is to ask
how the company’s existence links to value creation(How). By using this framework, it is possible to explain
the concept of creating corporate value in an easy-tounderstand manner to employees.
It is possible to consider issues in a balanced mannerby pursuing “truth, goodness, beauty,” which
contributes to the prosperity of the entire humanrace, and by pursuing “GCC” which contributes to thehappiness of each and all stakeholders. We would liketo create a platform that “co-creates” value together
with various stakeholders while empathizing the
pursuit of these two factors.

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020

Ⅲ Significance of the value co-creation platform

Three theories supporting GCC management™
Corporate management is summarized by the extent to of utilizing the three theories: human theory, knowledge
creation theory, and capital theory (shareholder value theory).

that is, high sales growth, improvement of ROIC (dueto improvement in productivity and sociality), andimprovement of WACC (due to reduction of labor risk
which is the reduction of business risk). It is thoughtthat there is a close relationship between improving
creativity and improving corporate value due to theabove stated factors (increased sales, improved ROIC,
and reduced WACC). GCC management builds amanagement system that takes advantage of these
relationships.

Three theories supporting GCC management™

The Relationship between Positive Psychology and GCC Management

Theoretical framework to illustrate long-term corporate value

Five factors of positive psychology

Human Theory

Knowledge Creation Theory

Shareholder Value Theory

P

Pleasant Emotions

Management strengths:
Grab all employees’ heart including
the junior level, as the company
unites together

Knowledge creation system:
Supports business activities
necessary for creating
corporate value

Based on the excess profit theory:
Integrate human and knowledge
factors into shareholder value

E

Engagement

R

Relationship

Human theory: Positive Psychology-Well-being
Human theory emphasizes positive psychology.
Positive psychology is a field of psychology thatstudies the advantages and merit of making individuals
and society prosper. This idea is based on a model
proposed by Dr. Martin E. P. Seligman, professor of
psychology at the University of Pennsylvania who was
the former president of the American Psychological
Association. According to Dr. Seligman's model,
he proposes the following five factors to measurehappiness: “Positive emotion”, “EngagementImmersion” and “Relationship-positive humanrelations”, “Meaning–feeling the meaning of life
and work and a sense of contributing to something
bigger than oneself”, and “Achievement – a sense ofachievement from work and activities9”. When these
indicators improve, it is said that the person has good
physical, mental, and social conditions – “well-being”
is achieved, and human creativity, productivity, andsociality are improved, and five stages of desire aresatisfied.
Improving creativity is considered to contribute to
the development of high value-added products,

M

A- Positive emotions- Immersion- Positive human relations

Meaning & Purpose- Realizing the meaning oflife and work

Achievement- Sense of achievement fromwork and activities

Have positive emotions such as enthusiasm, joy, hope,appreciation, love, and reverence

Have a sense of immersion and of being deeply involved in work,social activities, and human relations

Being in a human relationship of love, support, understanding andtrust, and having diverse and rich relationships
Have a sense of being involved in activities that fulfill the purposeof life or of contributing to something larger than yourself
Also, a state where you feel the significance of your daily activities
and life, or that you feel that you are important
A state of getting a sense of achievement from the activity or
feeling joy from achieving the goal
Genuine feeling of self-improvement through activities

When Employees’ these “five factors” of positive psychology are in good condition= Means Good conditions mentally, physically, and socially= Well-being achieved

Increase employee creativity, productivity, and sociality.
Contribute to increase sales, improve ROIC, and reduce WACC
Improvement of well-being = improvement of GCC
9Wikipedia https://en.wikipedia.org/wiki/Positive-psycholgy

021 Mid-term Management Plan COMMIT5000

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022

Ⅲ Significance of the value co-creation platform

Theory of Knowledge Creation: tacit knowledge; explicit knowledge; AI / IoT

Shareholder Value Theory (Capital Theory)

The GCC management™ theory emphasizes a theory
that systematizes the knowledge management
framework focused on knowledge creation activities,
advocated by Kojiro Nonaka, Professor Emeritus ofHitotsubashi University (Professor, Graduate Schoolof International Corporate Strategy, Hitotsubashi
University). The theory states that, by going throughthe four conversion processes - “Socialization,”“Externalization,” “Combinations,” and “Internalization,”
the tacit knowledge possessed by an individual
becomes knowledge (formal knowledge) shared bygroups and organizations. It is also called the “SECI
model,” from the initial letters of the four processes.
“Socialization” is the transfer of tacit knowledge
from person to person by sharing experiences.
"Externalization" is the expression of tacit knowledge
in words and sharing it with participating members.
"Combinations" is the creation of new knowledge by

In the GCC management system, shareholder value,and corporate value are based on the Economic
Value Added Theory. Excess profit or Economic Value
Added (also called Economic Value Added EVA 10 )was awarded the Grand Prize in the “5th Corporate
Value Improvement Award” held by the Tokyo Stock
Exchange and implemented by Kao Corporation.
It is being used widely as an index for estimating
corporate value globally. In the calculation based on
the Excess Profit method, it is possible to understandthe corporate value creation structure more deeply bydividing the corporate value into four parts: invested
capital, excess profit value, growth value, and nonbusiness assets. The possibility of overvaluation issuggested if the market capitalization is larger than
the theoretical shareholder value and if the market
capitalization is lower, a possibility of undervaluation
is suggested. The contribution to corporate value foreach fiscal year can be visualized as shown in the

combining and rearranging “externalized” knowledge.
And “Internalization” is the acquisition of the“externalized” and “combined” knowledge as one’s
own know-how or skills.
Since tacit knowledge is nothing but a large amount of
unstructured data, in order to accelerate management
based on this theory, we believe the socialization andexternalization of tacit knowledge using AI should beaccelerated, resulting in more efficient promotion of
corporate value creation management utilizing on-site
information. Once formal knowledge is formed, it will
be important to obtain and analyze large amounts ofstructured data by IoT.

Relationship between knowledge creation theory and AI / IoT

Excess Profit Method Calculation

Analysis of large amounts of unstructured data is main =AI analysis is effective

New tacit knowledge
related to corporate value
creation appears again
at operational level due
to changes in business,social and technologicalenvironment etc.

Local wisdom is shared
as tacit knowledge at
operational level

Tacit knowledge isverbalized as a concept

Socialization

Externalization

The process of creating
tacit knowledge by
sharing experiences

The process of verbalizing
tacit knowledge intoa clear concept(formal knowledge)

figure of next page.
In the figure, the calculation is as follows: Shareholders'equity = Invested capital + Non-business assets Interest-bearing debt, which is shown in a simpler
way. In this way, it is possible to speculate how many
years of growth are factored into the stock priceand promote smooth communication with various
stakeholders.
Excess profit estimates the profit exceeding theinvestor's satisfactory return for the invested capital.
“excess profit value” is its present value, and whenthe excess profit grows, it becomes “growth value”. In
addition, assets that are not used in the business areadded as value of non-business assets to estimate
the theoretical corporate value. Theoretically, theestimated corporate value derived by the discounted
cash flow method (DCF method) and by Excess Profit
method are the same. It is possible to calculate simply
as follows.

Excess profit=

operating profit after tax(NOPAT margin)

NOPAT *=

Operating profit

Invested capital=

total assets

Non-business asset value=

cash and deposits
exceeding
10% of salesー

invested capital

× （

ー

1

×

weighted average
capital cost）effective tax rate

* Net Operating Profit After Tax

Internalization

Combination

The process closely
related to behavioral
learning that transforms
formal knowledge into
tacit knowledge

The process of creatinga knowledge system
by combining formal
knowledge

Verbalized concepts shared
as formal knowledge toorganizations
Knowledge system,
command system andinformation system areformed by turning theminto formal knowledge anddatabase＋

WACC** Weighted Average Cost of Capital

Shareholders' equity cost
A training system based on formal knowledge and on-siteleadership has permeated the worksite and knowledge isfully understood by employees

Analysis of large amounts of structured data is main =Big data analysis by IoT is effective

=

β

ー

interest rate of Interestbearing debt after tax=

TOPIX and the slope of the primary
regression equation of the 5-year
daily return of the target company's
stock price

＋

E

＋

＋

land revaluation

×（

cost of shareholders'equityrisk free ratecurrent liabilities otherthan interest-bearingdebt

ー＋ short-term securities ＋ investment securities

deferred hedge gains/ losses＋non-business asset
value

D

×（

/（
E

risk premiumMarket capitalization at the time of
calculation

Dforeign currency
adjustment account

E

＋

D

））

/（

D

＋

E

×

β

））

Short-term interest-bearing debt
of the latest financial result at thetime of calculation + fixed liabilities+ minority stakeholder interests

The risk-free rate is estimated based on the 10-year yield of government bonds
The risk premium is estimated based on the difference between the previous TOPIX dividend-included return and the yield on government bonds.

10 Registered trademark of Stern Stewart & Co.

023 Mid-term Management Plan COMMIT5000

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024

Ⅲ Significance of the value co-creation platform

It is possible to calculate the shareholder value by combining the excess profit value obtained above, present valueof the annual increase perpetual value and the shareholder value. The diagram is as follows.

The following diagram shows the overall picture of GCC management™, which summarizes the three theories.

Decomposition of shareholder value by Excess Profit method
Shareholders’Equity＋Excess Profit’s terminal value
for this term＋Present value of the amount of
improvement in future Excess Profit Value

Overview of theoretical basis of GCC Management™
＝

Shareholders’Value

Human Theory

Knowledge Creation Theory

1

Motivate employees withmeaningful goals

6

Build a knowledge creation cyclethat promotes an increase in thenumber of customers and unit
price, and accelerates with AI / IoT

2

Immersive mechanism

7

Build a knowledge creation cyclethat promotes high added value
and accelerate with AI / IoT

3

Collaborate between
employees anddepartments

8

Build a knowledge creation
cycle that promotes efficiency
improvements and acceleratewith AI / IoT

Improve profitability
Optimal management of people andknowledge

4

Measure employee
motivation

9

Build a knowledge creation cyclethat promotes asset efficiency
and accelerate with AI / IoT

Improve asset efficiency
Optimal management of people andassets5

Manage correlation
between motivation andproductivity / creativity /social improvement

Build a knowledge creation
cycle that accelerates efforts to
reduce business risks, improve10
governance, and improve
ESG and SDGs initiatives, andaccelerate with AI / IoT

Lower capital costs, improved
sustainability and sufficient financial
capital due to decrease in business risk

Needs of stakeholders otherthan investors

GCC Management™

5 yearlater
4 year
later

Value
gap

3 yearlater

2 yearlater
1 yearlater
ExcessProfitValue

Estimated number of years of growththat share price has taken into accountShareholders’
Value
Marketcapitalization

Shareholders’
EquityThe following chart shows the idea of excess profit linked to the management perspective.

Shareholder Value Theory

Expand sales
Increase market share in target
markets by satisfying social needs

Investor Needs

Excess Profit Method and Corporate Value Improvement Management Framework

GrowthCorporate Value
Factors
Revenue

Measure to improve
corporate value
1

2

Achieve higher growth
rate

Related Metrix
Driver for corporate value

Business Risks

4

Achieve higher profit
rates

NOPAT Margin

Achieve higher revenue
with lower capital

Invested Capital
Turnover ratio

Reduce businessrisks

Weighted Average of
Cost of Capital
WACC

Principle to improve value of companies:
Achieve higher ROIC/WACC and sustain higher growth rate
Establish differentiation and competitive advantages that are difficult to imitate

025 Mid-term Management Plan COMMIT5000

Connection

Growth rate

ROIC
3

Self-actualization needs

Return on
Invested
CapitalDemonstrate the ability
to create EVA by theamount ofcapital raised

6

2

7

3

8

4

9

5

10

Esteem needs
Belonging and love needs

Sales
growthImproved ROIC

Confidence

Safety needs
Physiological needs

ROIC

1

Reduced WACC

ROIC/
WACC

Value creation that captures
the hearts of
employees, society,and business partners

Improve brand value

Value creation that
captures the hearts ofinvestors

Mid-term Management Plan COMMIT5000

026

Ⅲ Significance of the value co-creation platform

The following figure shows a detailed analysis of the Scala Group’s current strategy using the GCC Management™
analysis framework. It can be summarized as a highly sustainable strategy that pursues a virtuous cycle of happinessand improvement of corporate value. In the future, we will visualize and disclose future strategies with the following
framework.
The current status of the Scala Group viewed in the GCC Management™ framework

GCC
Management™

GCC Management™ Analysis Framework

Self-actualization
needs
Esteem needs
Love and belonging
needs
Safety needs
Physiological needs

GrowthA feeling of excitement : Growth throughsocial contribution as a challenger

Connection
A feeling of excitement : By the bonds ofall stakeholders Increase profitability andasset efficiency

Confidence
A feeling of excitement Improving
trust and security

Sales growth

Improvement of
ROIC

Decrease inbusiness risk
(decrease in WACC)

Perspectives ofneeds= Happinessperspective

Analysis of Scala, Inc. - Comprehensive strategy overview of enhancement of all stakeholders'happiness and corporate value

Evaluated to be highly sustainable

Sustainable formationof ESG / CSR / Societal/
Human / Intellectual/ Industrial / Financial
CapitalThe needs of customers, employees, managers
and traders = happiness
The company's
intrinsic strategy

GrowthIn the AI / IoT era, allinformation will be
converted into data,
and based on that
information, accurate
demand forecastingand supply systemconstruction will
become possible, andbusinesses that meetsocial needs will develop
more quickly. Scalais trying to develop abusiness that contributes
to its development.
Because there aremany opportunities tocommercialize morechallenging and difficult
needs, it is expected todevelop into a company
with many opportunities
for employees to realize
themselves. = Expanding
sales growth

Focus on trends in social
needs related to IT
services in the AI / IoT era

Self-actualization
needs
Since there aremany opportunities
to commercialize
more challenging
and difficult needs,
it will be a company
that provides many
opportunities for
employees to realize
themselves

By strengthening
the connection withcustomers and theconnection between
salespersons andsalespersons, products
and services withhigher added value
will be developed,
operational efficiency
and asset efficiency will
increase. As a result, it
is expected to develop
into a company where
customers, employees,
and employees respect
and understandeach other. Promote
efficient management= improved profitability& improved capitalefficiency = improved
ROIC

In the AI / IoT era
Expect to contribute tosocial needs Formation ofsocial capital

Optimize customizationin all fields, matchingpeople with companies,
management resources
and services

Pursue unique positioning
in a market / competitive
structure with acustomized cloud model

Establish competitive
advantage and difficultyin imitation throughstrong collaboration
between salespeople andengineers

Connection

Improving Happiness Value-Added™

Social needs =Happiness

By strengthening
the connection
between customers,
salesmen andengineers, products
and services withhigher added value
are developed andthe esteem needs
are satisfied

Connect people andbusinesses
Achieve social andenvironmental harmony

Contribute to theformation of human andintellectual capital in the AI/ IoT era

Promote high added value
Efficient value chain
and organizational
management

R&D and new businesscan be executed boldlyManagement(Numerical values /Financial indicators)

If thetargetmarketsize isAI / IoT
related, it
will growabout
30% forthe time
being

Expand market
share withdifferentiatedstrategies

Improvegross
profit curb
SG & A
expenses

Efficient
upfront
investment

Shareholders’needs = Happiness
Sustainable
formation of
corporate value

Revenue
Growthpotential
Enjoy
growthin AI / IoT
relatedfieldsGrowthrate of
15%-20%for 5 years
and thendecrease
gradually,
close
to zerogrowth in
10 years

Growth¥30.8
billionGap¥32.9
billionImprove
profitability
Shareholder
value

Maintain
operatingprofit at
10%-11%¥46.7
billionImprove ROIC
from 11% to 16%
Social needs
are fulfilled bystrengthening theconnection withcustomers andthe connection
betweensalespeople andsalespeople

Connect people andbusinesses
Achieve social andenvironmental harmony

Shorten cash conversion
cycle

Contribute to theformation of industrial
capital in the AI / IoT era

Efficient capital
investment

Improve sustainability
with subscription-based
business

Reduce business risks byfocusing on
subscription-based
business

Formation of financial
capitalImprove fund-raisingcapabilities andimplement attractive
rewarding policy ina highly profitablesubscription-based
businessLower
working
capitalturnover
ratio

Lower
fixed asset
turnoverratio

Improveinvested
capitalturnover ratio

Improve from
43.7% to33.3%

Economic
Value
Added

¥9.1
billionMarketcapitalization

Confidence

Stock-type, stablebusiness, aiming forbusiness which has aclear future and lessinsecurity = lower
business risk = lower
WACC

027 Mid-term Management Plan COMMIT5000

Has economic
stability
Security needs
satisfied

Easy to build amentally andphysically healthy
workplace based onstable profits

Reduce risk offluctuations/sales/ profits¥13.8
billionReduce
WACC
PromoteM&A througheffective useof interestbearing debt

Shareholders’equity¥6.7
billionMid-term Management Plan COMMIT5000

028

Ⅲ Significance of the value co-creation platform

The idea of “Excellent Goal-Setting”

Scala Co-creating Shared Value

The importance of focusing on excellent goal-setting that are particularly important insocial issues

Aiming for continuous CSV improvement

The Scala Group will create a goal-setting/problem
database of SDGs, policies, corporate visions,academic journals and past history relating to future
global social issues. We will then quantify the social
impact and urgency of these problems, prioritize themand develop a “Global Excellent Goal Index”. We would
like to proceed with disseminating information both
domestically and overseas, prioritizing difficult goals.
In other words, this database will not only set the goalsof the Scala Group, but will also be able to propose
excellent goals that are extend beyond religion andrace, aimed at global companies.
Furthermore, more wisdom will create collective
intelligence and more meaningful goal-setting canbe established around the world by opening up thisdatabase to the general public. We wish to contributeto improving “the capability to determine real issues”
globally.

During the next stage when the goal is decided,
resources must be secured to move toward the goal
“to uncover unnoticed true values”. Finally, we aim tobuild a system that proposes the optimal combinationsof issues and resources. We will develop a databasematching algorithm that supports all of these actions.

By implementing the strategies described above
and resolving social issues using our strengths, we
can achieve a differentiation strategy that leads tosustainable corporate growth. This idea is based on
the paper “Creating Shared Value (CSV)” (A strategy ofcommon value that simultaneously realizes economic
and social value) published by Harvard professor
Michael E. Porter and Researcher Mark R. Kramer in
2011.
CSV is a management strategy in which a for-profit
company pursues both economic incentives andsolving social problems through its primary businessand creates a synergistic effect between the two. We
believe that there is no trade-off between economic
and social benefits and, as a result of pursuing both
simultaneously, new markets can be developed.
In order for CSV to be successful, it is necessary to
co-create with a wide variety of partners, including
many companies and public institutions. A “societyof diversity” is indispensable for solving large social
problems.
By strengthening Scala’s three capabilities and value

Efforts towards excellent goal-setting

What Scala Group aims forStrengthen three capabilities of Scala Group

Excellent Goal-setting
Evaluate importance in index/Database1

Development of Matching Algorithm
Optimal combinations of goals and resources

029 Mid-term Management Plan COMMIT5000

Determine real issues

2

Discover hidden valueof resources

3

Maximize value
by proposing andexecuting optimal
combination of issues
and resources

Resource DB
People/assets/money/knowledge (various tools/intellectual property/ know-how)Formal knowledge + tacit knowledge

creation support capabilities as well as solving social
problems with AI and cooperating with various
partners, we will create new markets and bring out
economic benefits. As a result, stock price will be
maximized, thus satisfying investors.
We believe that this is consistent with the spirit of the
traditional Japanese “three-way good” philosophy(“good seller, good buyer, good society”). We aim
to spread this Japanese traditional management
philosophy globally, and ultimately contribute to therealization of “a world where valuable things comespringing up.”
In addition, Japanese companies are said to havethe “tacit knowledge” of on-site capabilities. Tacit
knowledge is unstructured data, which is difficult
to apply to normal IT technology. However, if tacitknowledge can be structured using AI, it can beapplied to management using IT technology. We
believe that using AI to uncover unnoticed true valueof on-site knowledge will lead to Japanese companies
leveraging their strengths.

Three capabilities held by
Scala GroupStrengthen the ability tosupport corporate value
creation, with utilization of AI
Corporate with various
partners
By the use of AI, making onsite tacit knowledge useablewith IT technology

Contribute to improvement of CSV, support corporate
value creation worldwide by utilizing“Three-way Satisfaction” and “On-site Advantages”
Pursuing both social
problem solving andeconomic benefits throughcore businessWork towards amanagement strategy thatcreates a synergistic effectbetween the two
Towards improvement of
CSV

Contribute to solve global
social issue with Japanesetraditional “Three-way
Satisfaction” philosophy“Good for sellers, good forbuyers, good for the society”
Provide support forcorporate value creation
which utilize the onsiteadvantages of Japanesecompanies“Make a world where valuable things come springing up”
Contributing to:
The realization of a world where no one is left behind
The happiness and prosperity of all mankind
The creation of corporate value that captures the hearts of all stakeholders

Mid-term Management Plan COMMIT5000

030

Ⅲ Significance of the value co-creation platform

Scala Co-creating Shared Value

players who “creates value together” and are strongly
encouraged to participate, but also academia, public
support organizations, users and investors through theengagement fund. Without being confined to existing
concepts, we emphasize the concept of Scala Cocreating Shared Value, which aims to “co-create ” anew market with “TEAM JAPAN.”S C S V
Scala Co-creating Shared Value＝The Scala Group's value co-creation platform will
attract a wide range of participants who share theideas of the Scala Group. We will promote andpursue a CSV strategy (Co-creating Shared Value)that solves social problems in business ways, thatis, simultaneously pursuing economic and social
benefits.
We believe that sustainable development can beachieved by creating a new market, and we placeemphasis on creating a “co-creative” environment. In
order to involve every player and achieve “diversity andunity” as a business, not only should large companies
and VBs (venture businesses) be positioned as

Scalathinking
Empathy and
Co-Creationcompanions

031 Mid-term Management Plan COMMIT5000

×CSV
Solve social issues
through business×

Co-creation

Co-Creation

Mid-term Management Plan COMMIT5000

032

Ⅳ

Overview of overall strategy

The three capabilities of the Scala Group and the background of becoming the industry leader

Aiming for revenue of 500 billion yen by improving
the three capabilities

Three capabilities

Three strategies to grab customers’ heart

1

Determine real issues

Identify the most valuable issues forclients, including unstructured data

2

Discover hidden value ofresources

Propose the best solutions forproblem solving among various IT
resources

3

Maximize value by proposing
and executing optimal
combination of issues andresources

Provide IT solutions that maximize
shareholder value and satisfactionlevel of various stakeholders

So far: Leading the industry with communication tools utilizing the three capabilities
Promoting the “three strategies to grab thehearts of customers” for large companies
The Scala Group promotes “Three strategies to grab
the hearts of customers” (1) optimum customization,2) stress-free cloud computing, and 3) attractive
monthly billing for approximately 1,000 large
companies including listed companies in Japan. We
have a top-class track record in providing cloud-based
communication tools with enhanced SaaS / ASP.
The three capacities have been strengthened by
the following three capabilities: (1) the capability todetermine real issues, 2) the capability to discover
the hidden value of resources, and 3) the capability
to maximize value by proposing and executing
optimal combinations of issues and resources. As
shown in the diagram below, the three capabilities
will enable us to pursue “three strategies that grab
the hearts of customers” and maximize shareholder
value in the long term simultaneously. We believe that
improving shareholder value over the long term isextremely important as it contributes to improving thesustainability of value provision capabilities.

Mechanisms that create differentiation anddifficulty in imitation
In the field of communication tools for large
corporations, there is significant room for
improvement in the optimal combinations of issues
and resources, this is why the Scala Group has beenable to achieve the top class performance in theindustry utilizing the three capabilities mentioned
above. The following figure shows the differentiationand imitation difficulty of the contract development
type of a SaaS/ASP company and a general cloudtype SaaS / ASP company. We believe that there is nocompany on such a large scale as the Scala Group
that operates using similar business models.

033 Mid-term Management Plan COMMIT5000

Cloud service providers primarily develop package
products that cover the contents of the greatest
common denominator, so customization is not usual.
Also, if a customer requests customization, a high costburden is required. Conversely, contract development
companies do customization, but it is difficult tocontrol costs in a form in which monthly billing isallowed, and attractive monthly billing is not common.
Therefore, it can be said that the services establishedby the Scala Group, are less likely to be easily imitatedby other companies. The following diagram shows theoperation of the three capabilities at the operational
level.

The value provided by the Scala Group
contributes to improving the threecapabilities for users
The communication tool provided in this way is aprocess for companies and individuals to discoverpeople, resources and information that have thenecessary value, which includes all of the following
process: “Find/ Discover”, “Apply/ Purchase”, “Deliver”,“Check/ Inquire”, “Guide/ Recommend” and“Aggregate/ Analyze” Using these tools, the customers
will be able to improve their ability to “determine
real issues,” discover “valuable people/ resources/
information” for problem solving and make “combining
problems and resources optimally” possible. In otherwords, it can be said that the users’ three capabilities
are improved.
The value of communication tools provided by Scalais thought to be the ability to increase users’ ability to
optimally combine issues and resources. The following
figure illustrates this idea.

Provide solutions that maximize
customer’s satisfaction level withminimum IT resources
Provide low-burden service withreasonable price to customers
in cloud form
1. Optimum customization
2. Stress-free cloud computing
3. Attractive monthly billing
Pursue both shareholder value
maximization and high customer
satisfaction level with low IT resources

In the field of communication tools for large companies
there was a lot of room for improvement in the optimal combination of issues and resources.
Although as a late starter, Scala Group became the industry leader with these three capabilities.

Differentiation and imitation difficulty of the Scala Group’s business model

Difficulty to imitate
Scala differentiation strategy

Salesman and engineer worked
closely to construct system

Identify needs accurately
Optimal customization with
low-cost development

General cloud-type SaaS/ ASP
company

Contract development typecompany

The method of developing SaaS / ASP
products that cover the contents of thegreatest common divisor in advance isthe mainstream way, not so important toflexibly customize to best meet customer
needs

Despite providing thoroughcustomization, charge
customers for all costs
Inflexible style

Ensure excess profits despite productdevelopment

Continuous customization Achieve
stable profits withcloud/monthly billing
Targeting large companies
with three strengths
New customer development /further exploration of existingcustomers

Minimize customized development,
reduce additional development costs,
and collect upfront investments with amonthly charge from customers
There is no pursuit of collaboration
between salespeople and engineers
to perform thorough customized
development.

Customers bear high costs andburden of contractdevelopment costs is always
a problem
Difficulty to introduce cloud /monthly billing

Mid-term Management Plan COMMIT5000

034

Ⅳ Overview of overall strategy

Mechanisms to strengthen the three capabilities so far

SaaS / ASP business communication tool provided by Scala Group and the significance for users

Overview of SaaS / ASP business communication tools provided by Scala Group
Three capabilities

Activities to enhance capabilities
Category

123• Determine real customer issues through close collaboration
between salespeople and engineers

Determine real issues• Carefully select and provide IT solutions that contribute tosolving problems

Discover hidden value of resources
Maximize value by proposing and executing
optimal combination of issues
and resources

1

Service Name

Website support service

In-site search engine
Invalid link detection system

i-print

Website printout system

i-linkplus

Related link view servicei-ask

FAQ system• Dispatch project managers to optimize solutions if necessary to
maximize the satisfaction of various stakeholders

i-catalog

Product site management service

i-learning

E-learning system

i-flow

Progress management, approval system

Accurately grasp customer
needs through direct sales

CMS(Contents management service)

CRM service

Salespeople
Customers

Accurately share information
on customer needs throughstrong cooperation between
salespeople and engineers

Engineers
1) Optimal customized functions
2) Stress-free cloud base3) Attractive monthly billing2

3

i-searchi-linkcheck• Optimize on every (possible) customer's existing IT infrastructure

Determine real issues

Differentiation and high added value,cost-effectivenessAs a result, unit price increases

Overview</>

LaCoonWebsite construction platform

i-entry

Comprehensive questionnaire CRM service

dbecs

Web mailer for business use

i-assist

Virtual assistancei-livechat

Web chat system

i-giftDigital gift service

Telephone-type service

SaaS-tpye IVR

Automatic voice response

News delivery service

Corporate news

Providing important business information

Data management / IP management

PatentManager

Patent management system

GripManager

Contract management system

Site management

FresheyeSearch / information portal site

IoT / Big data

Safe driving diagnosis

Big data processing and management

SFA (Sales Force Automation)

e-Sales manager

Sales support system

Field marketing

Field activities, field researchMarket research and store field activities

EC

Online card shop

Trading site for trading cards

Customer Support

Contact center

Customer support consulting

Discover hidden value ofresources
Create and customize IT resources
for needed functions only

The Scala Group communication tool improves
three capabilities of users
Company/Individual

Maximize value by proposing and executing
optimal combination of issues and resources
Optimization including on cloud environment and dispatch
project managers as needed to maximize satisfaction of
stakeholders involved

1

Discover companies and individuals seeking people,
assets and information

Communication tools provided by Scala Group3

Develop only features the customer needs can reduce development cost
1)optimal customization

Optimal customization allows to build 2) stress-free cloud-based service with
3) an attractive monthly billing scheme for customers

Find /
DiscoverApply /
Purchase

DeliverCheck /
InquireGuide /
Recommend

Aggregate/ Analyze

Maximize value by
proposing andexecuting optimal
combination of issues
and resources

Discover valuable people, assets andinformation

People/ Assets/ Information

035 Mid-term Management Plan COMMIT5000

Determine real issues

2

Discover hidden valueof resources

Mid-term Management Plan COMMIT5000

036

Ⅳ Overview of overall strategy

The Scala Group is aiming for growth inareas with three features
The Scala Group is aiming for growth in three distinct
areas. The Scala Group, which promotes suchstrategies, has focused on solving problems with thethree features shown in the diagram below, promoted
differentiation, and as a result, developed a business
which is subscription based and generates stable cash
flow. The first feature is that there is a great need to
explore the “true issues” behind the apparent issues.
The second feature is that it is difficult to solve using
the value of apparent resources, and it is necessary
to determine the value of the hidden resources. The
third feature is that because the best combinationsof issues and resources are difficult to obtain, “it isnecessary to have a mechanism to fill the gap and a

proposal to maximize value while taking into accountthe satisfaction of stakeholders”.
For issues with above features, three capabilities
enable us to provide differentiated services, products
and solutions from a long-term perspective, which
promotes a subscription-based business model andenables us to acquire stable cash flow.
The above features will be illustrated in the example
below, which is a service we provided to a major
nonlife insurance group. A transportation company,a customer of the insurance group, needed amanagement system to prevent driver accidents.
Therefore, the group considered installing a device
such as a drive recorder and building a system that
contributes to reducing insurance premiums by
preventing accidents.
To start a new insurance service with the new system

The type of problem solving that the Scala Group has focused on

Real issues

There is a great need to explore
the “true issues” behind theapparent issues

There is a great need to explore
the “true issues” behind theapparent issues

Apparent issues

Feature 2
It is difficult to solve withapparent resources, and it isnecessary to discover the valueof hidden resources.

are not scrutinized carefully, making it necessary to
determine the value of hidden resources. Furthermore,
it was necessary to cooperate with various vendors,
and it was difficult to optimally combine issues andresources, which makes a mechanism to fill the gap
and a proposal to maximize value, as it is necessary toconsider stakeholder satisfaction. For issues with thesethree features, the Scala Group can provide solutions
with three capabilities, and as already mentioned, it
met the customer’s needs by customizing the optimal
combinations of issues and resources.

Three characteristics of the challenges faced by the major insurance group and Scala Group’s solutions

Feature 1

Real issues

Feature 1

and overtake other companies in the industry, initialdevelopment speed and continuous addition offunctions were necessary. As a partner that has anabundant track record, stability, and vision to realizea new business synergy from the user's perspective,
the Scala Group was consulted, and with the threecapabilities, Scala was able to customize optimal
combinations of issues and resources. As a result of
meeting client needs, the Scala Group has grown intoa business with annual sales of several hundred million
yen.
In this case, it was necessary to use IoT to solve theproblem, and there was a great need to find the “trueissue” behind the manifested problem. In addition to
the IoT, it is necessary to optimally combine various
new technologies such as sensors and databases, butthere is a risk of incurring loss if the current resources

Value of apparent resources

Feature 3
It is difficult to optimallycombine issues and resources,
and a mechanism to fill the gap
is necessary.
Proposals necessary for
maximizing value inconsideration of stakeholder
satisfaction

Value of hidden resources

Problem-solving with the three features is possible with the three capabilities.
By providing differentiated services, products and solutions
from a long-term perspective, a subscription-based business model isencouraged and enables us to achieve a stable cash flow

037 Mid-term Management Plan COMMIT5000

Necessary to solve problems using
completely new IoT

Feature 3

Apparent issues

Feature 2
It is difficult to solve withapparent resources, and it isnecessary to discover the valueof hidden resources.
In addition to IoT, it is necessary to
optimally combine various newtechnologies such as sensors anddatabases, but there is a risk of
incurring loss
if not carefully examined

Value of apparent resources

It is difficult to optimallycombine issues and resources,
and a mechanism to fill the gap
is necessary.
Proposals necessary for
maximizing value inconsideration of stakeholder
satisfaction
Need to collaborate withvarious vendors

Value of hidden resources

In response to the above situation,
the Scala Group provides problem solving solutions
with three capabilities

Mid-term Management Plan COMMIT5000

038

Ⅳ Overview of overall strategy

From now on: Expand the targets of three capabilities and aim
for sales of 500 billion yen

Medium- and long-term targets for sales and operating income by expanding the scope of the three capabilities

Up until now:
targets and activities

Three capabilities
Up until now, Scala Group has grown by providing values in the following scopes of the three capabilities:
Target of capacity (1) : Large Japanese companies
Target of capacity (2) : IT resources within Scala Group1

From now on:
targets and activities

TargetLarge Japanese companies

TargetJapanese, global, all private
enterprises, governments,
municipalities, NPOs

Activities

Direct sales

Activities

Sales, management consulting,media platform

TargetInternal resources

TargetInternal, external resources, IT,
AI / loT in general, Provision of all(people, assets, capital, knowledge)

Activities

Design, Execution, Operation

Activities

Design, Execution, Operation,
Organization design, leader/
employee education Capital
investment, M&A advisory

TargetScala Group and its customers

TargetScala Group and its customers
All related stakeholders

Determine real issues

Target of capacity (3) : Optimal problem-resource combinations of Scala Group and its customers
Going forward, as shown in the figure below, we will dramatically expand the scope of the three capabilities.
The target of “the capability to determine real issues” covers not only Japan but also global markets, and all privatecompanies, governments, municipalities, and NPOs. The scope of “the capability to discover the hidden valueof resources” extends not only to internal resources, but also to external resources and AI / IoT in general, and2moreover, the “people, assets, capital, and knowledge” involved in problem solving.

Discover hidden value ofresources

The target of the ability to propose and implement the optimal combinations of issues and resources to maximize
value not only covers customers and the Scala Group, but also all relevant stakeholders.
By expanding the scopes of the three capabilities, we will expand our business on a larger scale globally and realize
high growth by determining real issues, discovering optimal resources necessary for resolution and combining
optimal issues with resources. Specifically, we will focus on fields where high growth can be expected and a global
market will be created on the scale of several hundred trillion yen such as (1) AI / IoT and 2) Social-problem-solving
such as SDGs. We aim to achieve a revenue of ¥100 billion and operating income of ¥10 billion in the fiscal year

3

Maximize value by
proposing and executing
optimal combination ofissues and resources

Activities

Proposal and execution support of
optimal matchingending June 2025, and revenue of ¥ 500 billion and operating income of ¥50 billion in the fiscal year ending June

Proposal and execution supportof optimal matching,AI-based
Activities
matching, Investor relations
support, market value maximization
support2030. To achieve this, the three capabilities will be greatly enhanced.
What are SDGs?

Among these, it will become a market of several hundred trillion yen in the next 10 years
with the targets of Scala Group’s three capabilities being met
Focusing on two fields: 1) Solution by means of AI / loT ; 2) Solution to social issues such as SDGs

SDGs is an abbreviation for “Sustainable Development Goals” and was described in the “2030 Agenda
for Sustainable Development” adopted at the United Nations Summit in September 2015.

Revenue Target

Operating profit targets

It is an international goal from 2016 to 2030.

The year ending June 2025

100 billion yen

10 billion yen

Consisting of 17 major goals for realizing a sustainable world and 169 targets to solve the problems of

The year ending June 2030

500 billion yen

50 billion yen

the world and create a sustainable society, promising to leave no one behind.
This has become a major trend for happiness that is being addressed around the world.

039 Mid-term Management Plan COMMIT5000

Mid-term Management Plan COMMIT5000

040

Ⅳ Overview of overall strategy

High-growth area: AI / IoT area and social-problem-solving areas such as SDGs
In the business of (1) AI / IoT and 2) areas of socialproblem-solving such as SDGs, many problems exist
where true issues are unclear, appropriate resources
are not manifested, and the relationships of various
stakeholder interests are complicated. It is not easy
to recognize the real issues/challenges, identify the
resources for problem-solving, implement the optimal
combinations of issues and resources, and maximize
the value for all stakeholders at the same time.
For example, in the case of AI, according to McKinsey's
analysis, it is predicted that a market of 13 trillion
dollars (about 1,385 trillion yen11) will emerge on theinternet by 2030, while the costs incurred by loss ofwork and unemployment due to AI is expected toreach several hundred trillion dollars12. We believe thatthe process of proposing the optimal combinationsof issues and resources while considering maximizing
the value of all stakeholders will become increasingly
important. The SDGs are also expected to create a$ 12 trillion market by 2030, according to the Business& Sustainable Development Committee Report 13.
The SDGs need to consider the influence of a very
wide range of stakeholders, as the emphasis is on“no one left behind”. From the above-stated two fields
to their related fields, we believe that we can realize
great value creation opportunities by strengthening
our following three capabilities 1) determining realissues, 2) discovering the hidden value of resourcesand 3) maximizing value by proposing and executing
optimal combinations of issues and resources.

Fields of social-problem-solving, such as SDGs and AI / IoT, have three targeted features

There are many problems such as complicated stakeholder interests
Discover real issues, identify resources to solve problems, and execute theoptimal combinations of problems and resources
It is not easy to balance everything and maximize the value for all stakeholders

Feature1
There is a great need to explore
the“true issues” behind theapparent issues

Real issues

Feature3
Apparent issues

Feature2
It is difficult to solve withapparent resources, and it isnecessary to discover the valueof hidden resources.

Value of apparent resources

It is difficult to optimallycombine issues and resources,
and a mechanism to fill the gap
is necessary.
Proposals necessary for
maximizing value inconsideration of stakeholder
satisfaction

Value of hidden resources
Three features that support Scala Group’s three capabilities

11 Calculated using the exchange rate as of August 4 (¥ 106.58/$). The following dollar figures are converted into yen at the same rate.
12 MCKINSEY GLOBAL INSTITUTE “NOTES FROM THE AI FRONTIER MODELING THE IMPACT OF AI ON THE WORLD ECONOMY”
September 2018
13 A better world than a better business” (January 2017) “Business & Sustainability Committee Report”

041 Mid-term Management Plan COMMIT5000

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Ⅳ Overview of overall strategy

The direction to enhance the three capabilities and theframework of growth story
To realize the above goals, the Scala Group will greatly enhance the three capabilities. In the fiscal year ending June
2020, we will strengthen M&A, business alliances, cooperation with university research institutions, public support
organizations, and other external partners. We will work on:
1
2
3

Building a value co-creation platform and strengthening the ability to determine real issues
Spanning targets from AI / IoT to people, assets, capital, and knowledge for the ability to create the buried
value of resources
Strengthening the ability to build value creation stories and the ability to propose optimal

combinations of issues and resources

1

Building a value co-creation platform and strengthening the ability to determine
real issues

Specifically, we will build an issue database for eachof the following SDG issues, and will understand what
has the most impact on value creation.
In addition, there are many cases where potential
2

needs cannot be made into a database immediately
and are not structured, so we will strengthen AI
analysis capabilities to handle unstructured data.

Spanning targets from AI / IoT to people, assets, capital and knowledge for theability to discover the hidden value of resources

Currently, we are working with various external
companies, partners, advisors, research institutes,
and public support organizations, and applying
resources from all “AI / IoT, people, assets, capital, andknowledge” to those issues, thus building a system
to improve the ability to discover the hidden value ofresources according to needs.
Special emphasis is placed on value creation and
AI / IoT introduction support. We plan to provide
management consulting, including value creation and
AI / IoT introduction support at the same time. In order
to collaborate with global AI / IoT research institutions
and technology providers to customize and introduce
optimal AI / IoT tools based on the results of theabove, we provide one-stop support from execution
to operation to maintenance (by providing logical,
physical, organizational and communication design,
as well as internal employee training and education).
In addition, to support the above implementation,
we will provide hands-on support by AI engineers

043 Mid-term Management Plan COMMIT5000

and data scientists with the team structure required
for each project through CxO introducing personnel.
We will create a one-stop support system for digitaltransformation through one-stop solutions with value
creation management and AI / IoT consulting. The
following is the solution system that will be built in thefiscal year ending June 2020.
A major move is the full enhancement of “money(capital)”. In the future, we believe that AI will be
indispensable for companies to achieve the optimal
combinations of issues and resources in management.
In addition to value creation and AI / loT consulting,
we are planning to expand investment fund businessand management consulting business through M&A
and launch an engagement fund that systematicallysupports value creation on an AI basis. We also set up
a Corporate Venture Capital (CVC) to support the
optimal combinations of venture and large companies.

SDGs challenges and market size estimates in 2017

Item

Field

Goal

In 2017 price levels
Market size
(trillion yen)

1

Poverty

By 2030, eradicate extreme poverty for all people everywhere, currently measured
as people living on less than $1.25 a day

183

2

Hunger

By 2030, end hunger and ensure access by all people, in particular the poor andpeople in vulnerable situations, including infants, to safe, nutritious and sufficient
food all year round

175

3

HealthBy 2030, reduce the global maternal mortality ratio to less than 70 per 100,000
live births

123

4

Education

By 2030, ensure that all girls and boys complete free, equitable and quality
primary and secondary education leading to relevant and effective learning
outcomes

71

5

GenderEnd all forms of discrimination against all women and girls everywhere237

6Water/ Hygiene

By 2030, achieve universal and equitable access to safe and affordable drinking
water for all

76

7

EnergyBy 2030, ensure universal access to affordable, reliable and modern energy
services803

8Growth/Employment

Sustain per capita economic growth in accordance with national circumstances
and, in particular, at least 7 per cent gross domestic product growth per annum inthe least developed countries

119

9Innovation

Develop quality, reliable, sustainable and resilient infrastructure, including regional
and trans-border infrastructure, to support economic development and humanwell-being, with a focus on affordable and equitable access for all

426

10

Inequity

By 2030, progressively achieve and sustain income growth of the bottom 40 per
cent of the population at a rate higher than the national average

210

11

City

By 2030, ensure access for all to adequate, safe and affordable housing and basic
services and upgrade slums

338

12

Production/
Consumption

Implement the 10-Year Framework of Programmes on Sustainable Consumption
and Production Patterns, all countries taking action, with developed countries
taking the lead, taking into account the development and capabilities ofdeveloping countries

218

13

Climate change

Strengthen resilience and adaptive capacity to climate-related hazards and natural
disasters in all countries

334

14

Marineresources

By 2025, prevent and significantly reduce marine pollution of all kinds, in particularfrom land-based activities, including marine debris and nutrient pollution

119

15

Land resources

By 2020, ensure the conservation, restoration and sustainable use of terrestrial
and inland freshwater ecosystems and their services, in particular forests,
wetlands, mountains and drylands, in line with obligations under international
agreements

130

16

Peace

Significantly reduce all forms of violence and related death rates everywhere87

Mid-term Management Plan COMMIT5000

044

Ⅳ Overview of overall strategy

3One-stop solution with value creation management + AI / IoT consulting

Threecapabilities

1

Determine realissuesStrengthening the ability to build value creation stories and the ability to propose
optimal combinations of issues and resources

One-stop solution for “corporate value creation + AI / IoT implementation consulting”

Comprehensive support for digital transformation

Activities to be enhanced:
Management consulting• Scheduled to provide consulting to simultaneously
support the introduction of AI / IoT that directly improves
corporate and shareholder value, with collaboration
with companies with deep knowledge of AI / IoT among
management consulting companies which introduce
value creation management system to top executives• Advising from perspectives of a wide range ofstakeholders based on top management and on-site
information• Providing advice that takes negative aspects of AI into
account

Investor relations are also important for realizing the ultimate value of listed companies, so we will enter thebusiness to support integrated report creation, investor relations and sponsored securities analyst reports.
Specifically, we will incorporate businesses with such functions through M&A.
Overview of the three-capability enhancement plan for the fiscal year ending June 2020

Use AI such as
natural language
analysis of internal
information to
discover problems
more systematicallyand automaticallyThreecapabilities

Enhancement measures in the fiscal year ending June 2020 and its significanceStrengthened activities 1):
Management consulting

AI / IoT

2

3

Discoverhidden value ofresources

Maximize value
by proposing
and executing
optimalcombinationof issues andresources

Resources
to beincluded
and their
activities
respectively

PeopleAssets(includingIntellectual
property• Scheduled to provide consulting service thatsimultaneously supports value creation management
consulting and AI / IoT introduction support• In order to implement the most suitable AI / loT
tools after cooperating with global AI / loT research
institutions and technology providers, we provide onestop support from execution, operation to maintenance(by provision of upstream, logical, physical, organization/ communication design, and internal employee training
and education)• Provide hands-on support of AI engineers, data scientists
according to needs for execution• Introduction of CxO level talents for execution of above
activities

1

Provide all
resources includinginternal/external,
AI / IoT, people,
assets,capital,knowledge• Analyze AI / IoT intellectual property globally and makerecommendations as needed2

Determine realissuesDiscoverhiddenvalue ofresources

Strengthened activities 2):
Database
Media platform

AI / IoT• Collaborate with global AI / IoT research institutes
and technology providers, in order to customize andintroduce optimal AI / IoT tools, we provide one-stop
support from execution to operation and maintenanceby providing upstream/ logical/ physical/ organization/communication design, internal human resources
education and training

People• In order to support the above implementation,
providing hands-on support by introducing AI
engineers and data scientists as necessary.
• Introduction of CxO personnel to support the above
implementation• Introduce Venture company to large companies• Provide technologies, etc. that contribute to solving
problems using patent databases• Establish business to support M&A, act as anintermediary for M&A and as a business partner forresources necessary to achieve management goals• Establish an engagement fund and apply AI to increasevalue• Launch CVC fundResources tobe included
and activities

Money(Capital)• Finance from the to-be-established engagement fundas needed

Assets(includingIntellectual
property)

Information(Knowledge)• Development of communication tools that facilitate thecreation of a knowledge creation cycle for corporate
value management using AI

Money(Capital)

Activities to be enhanced
1) Build and implement avalue creation system thatenhances the satisfactionof all stakeholders• Create a value creation cycle that enhances satisfaction
and with all stakeholders unite to support the
management of the company

Information(Knowledge)

Introduction,
Proposal /execution of value
creation
theoreticalframework
3

Activities to be enhanced
2) Comprehensive
advisory that reflects thevalue creation system instock prices• In the business of integrated report creation support / IRsupport / sponsored securities analyst report, AI makes it
easy for investors to understand management changes,
disclosure in Japanese and English

Further support toincrease the stock
price

Maximizevalue byproposing andexecuting
optimalcombinationofissues andresources• For social issues such as SDGs, build an issue databasetargeting areas where the optimal combination ofissues and resources has not progressed, and basedon that information, establish a media platform andstrengthen the ability to search for true issues. As amanagement consulting firm, we will also contributeto strengthening the ability to propose the optimal
combination of resources and issues and resourcesthat contributes to problem-solving.
• Develop consulting to provide value creation
management consulting and AI / IoT introduction
support at the same time

Use AI such as
natural language
analysis of internal
information to
discover problems
more systematicallyand automatically
Discovering thereal issues that leadto the expansionof corporate value
through backward
casting

Provide all
resources includinginternal/external,
AI / IoT, people,
assets, capital,
knowledge• Develop communication tools that facilitate theknowledge creation cycle

Activities to be enhanced
1) Build and implement avalue creation system thatenhances the satisfactionof all stakeholders• Entry into value creation management consulting
business

Activities to be enhanced
2) Comprehensive advisorythat reflects the value
creation system
in stock prices• Entry into Integrated Report creation support, IR
support, sponsored securities analyst report business

Introduction,
Proposal /execution of value
creation theoreticalframework
Further support
to increase thestock priceDramatically improve the three capabilities of the Scala Group
Achieve high growth in (1) Solution by means of AI / loT, (2) Solution to social issues such as SDGs

045 Mid-term Management Plan COMMIT5000

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046

Ⅴ

Overview of individual strategies- Details of 500 billion yen revenue

Thoroughly utilize the sales base of 5,000
large companies

Fields to be realized in June 2020 : Explanation by segment

Business selecting to date is considered a segment and it can be grouped into three categories: (1) IT/ AI / IoT
related business, 2) social-problem-solving business, and 3) value creation support business. (Note that this content
has not yet been reflected in the court disclosure documents. As soon as the content is finalized in the fiscal year
ending June 2020, it will be reflected in the court disclosure.)
Here is an overview of the initiatives that are expected to develop in each business area in the fiscal year ending
June 2020.

These businesses are currently based on existing
consolidated businesses. We have 5,000 customers,
primarily large companies. In the fiscal year ended
June 30, 2019, revenues were ¥ 17.1 billion, and weare developing information-related services such ascommunication tools and sales support tools. In thefiscal year ending June 2020, we will expand AI / IoTrelated services and aim for dramatic growth based on
our existing business foundation.

Realize high growth in cooperation withmanagement consulting companies withdeep knowledge of AI / IoT
In collaboration with the Value Creation
Comprehensive Advisory Business, which will be
described later, we will develop corporate value

creation consulting through customized AI / IoT in
combination with consulting for corporate value
creation. The most important aspect of AI / IoT
deployment is to incorporate it smoothly at theoperational level in line with each company's culture
and management philosophy. We plan to cooperatewith companies that are well-proven external partners
in corporate value management consulting and havedeep knowledge of AI to promote the understandingof top management, provide advice that matches onsite operation, and train the AI talent and scientists
who are needed for design, implementation andoperation.
In order to collaborate with global AI / IoT research
institutions and technology providers to customize andintroduce optimal AI / IoT tools, we provide one-stop
support from execution to operation to maintenance(by providing , logical, physical, organizational andcommunication design as well as internal employee
training and education).

IT / AI / IoT business: Aiming for revenue of 220 billion yen in the fiscal year ending
June 2030

Value Creation Management Support Business: Aiming for revenue of 180 billion yen in
the fiscal year ending June 2030

With the following business development, we will aim to achieve revenue of 220 billion yen in the fiscal year ending
June 2030.

With the following business development, we aim to achieve revenue of 180 billion yen in the fiscal year ending
June 2030.

Overview of IT / AI / IoT business
Revenue TargetMain
sub-segments

Overview

SaaS/ASP• The core business of the Scala Group. Provide corporate communication tools
with SaaS / ASP to 1,000 large enterprise customers• Together, provide comprehensive advice on value creation which incorporates
AI-based natural language analysis, and will strengthen it as a one-stop service
that provides AI / IoT design, installation and operation with the understanding of
top executives

SFA• Developed by consolidated subsidiary Softbrain [TSE First Section: 4779]. Provide
sales support system. Won first place in business improvement, installation effect,
service and system satisfaction. Evaluated with No.1 in overall satisfaction as CRM/ SFA. Supported by a wide range of customers from large companies to small andmedium-sized companies, regardless of scale, industry, or business format, andhas a transaction record of over 5,000 companies.

Field
Marketing• Developed by Softbrain Field Co., a consolidated subsidiary of Softbrain [TSE First
Section: 4779]. Provides sales support and market research by registered staff
nationwide. Agency for sales promotion and sales, based on data gathered fromall over the country using methods such as mystery shoppers and store surveys, inaddition to supporting sales and recruitment.

Call centerand others

Overview of Value Creation Management Support Business

The yearending June
2025

The yearending June
2030

60

220

billion yen

billion yen• Performs call center consulting and entrusted system development. Aims for highgrowth by strengthening AI / IoT in analysis methods and information collection
methods.

* Researched by ESP Research Institute, Inc. May 2018 Males and females in their 20s and 60s / Company managers / executives / group
executives, company employees / group employees (including temporary employees and contract employees) / CRM / SFA users / 300
people / Web questionnaire

047 Mid-term Management Plan COMMIT5000

Revenue TargetMain
sub-segments

Overview

Compressive
advisory of value
creation• One-stop consulting for people, assets, capital, and knowledge based on theoriesof psychology, knowledge creation, information mathematics, and the theory of
improving shareholder value. For assets, we collaborate with CVC to match thenecessary technologies, and further provide M&A advice.
• Comprehensive analysis and proposals for the possibility of increasing corporate
value by introducing AI / IoT• Comprehensive advice on concept/ logical and physical design in cooperation withIT / AI / IoT business• Perform human resources and organization, training / leader development
business, provide human resources development advice closely linked to value
creation management, and CxO level personnel introduction as needed• Advise on communication design and organizational design based on knowledge
creation theory• Develop comprehensive M&A advisory services using large corporate networks

Engagement
fund• Invest in companies that have the potential to increase value in value creation
comprehensive advisory operations to gain capital gains. Reflecting shareholder
value up to market capitalization with investors-facing communication support

CVC• Invest in large companies and ventures that contribute to solving social problems• Achieve a reliable exit with IT / AI / IoT business, social problem solving business,and collaboration with value creation comprehensive advisory business

The yearending June
2025

The yearending June
2030

30

180

billion yen

billion yen

Fund

Investors-facing
communication
support• Collaborate with the Comprehensive Value Creation Advisory Business to create
equity stories, sponsored securities analyst reports and Integrated Report, support
briefing sessions, set up investor meetings• Development of automatic generation system for securities analyst reports using AI

Mid-term Management Plan COMMIT5000

048

Ⅴ Overview of individual strategies-Details of 500 billion yen revenue

Value creation advisory businessIn this area, we will work together with companies
with proven track-records of conducting value
creation advisory. Based on the theory of psychology/
knowledge creation, information mathematics, and thetheory of improving shareholder value, we will provide
one-stop comprehensive advice while considering
people, assets, capital, and knowledge. For assets,
we will collaborate with CVC (Corporate Venture
Capital), which will be established to match necessary
technologies and intellectual property, and to provide
M&A advice. We will comprehensively analyze andpropose the possibility of improving corporate value
by introducing AI / IoT. We will also cooperate with IT/
AI / IoT business to provide comprehensive advice onareas like concept, logical and physical design. To that
end, we will promote the project in the following five
steps to lead to success.

the relocation of those who lost jobs due to AI. We
will continue to provide advice that emphasizes raisingsatisfaction levels of all stakeholders in the long term.

Fund businessWe will expand our engagement fund and CVC. By
collaborating with companies that already have a
track record, we aim to expand business development
as soon as possible. We will invest in companies
that have the potential to increase value under ourcomprehensive value creation advisory and aim forcapital gains.
We aim to ensure a return increase by reflecting
shareholder value up to market capitalization by
supporting communication with investors.
CVC invests in large corporations and ventures that
contribute to solving social problems and works
with IT / AI / IoT businesses, social-problem-solving
businesses, and comprehensive value creation
advisory businesses to ensure a secure exit.

Five steps for introducing AI
1

Execute the pilot project that is
expected to be most effective forgaining propulsion

2

Build an in-house AI team3

Provide a wide range of AI training

4

Develop AI strategy

5

Develop internal and external
communication

The most important step is step 1. It is importantthat the direction of the value creation system isestablished as a precondition for this, and we will
identify this point in the Value Creation Advisorybusiness.
We also conduct business in human resources,
organization, training and leadership development,
and provide human development advice closely linked
to value creation management and introduce CxOlevel human resources as necessary. We will also
advise on communication design and organizational
design based on knowledge creation theory.
It is expected that many jobs will be lost due to theintroduction of AI, so we will consider retraining andSocial problem-solving business: Aiming for sales revenue of ¥ 100 billion in the fiscal
year ending June 2030
With the following business development, we aim to achieve revenue of ¥ 100 billion in the fiscal year ending June
2030.
Overview of social-problem-solving businessMainsub-segment

HealthTarget:Developing
countries

Communication support business forinvestors
When a customer is a listed company, communication
with investors is extremely important in addition torealizing the hidden value. In this respect as well,
we will expand our business while working withexperienced advisory companies. In collaboration withthe comprehensive value creation business, we will
support the formation of market capitalization which
comprehensively reflects shareholder value by creating
equity stories, supporting integrated report creation,briefing sessions, identifying optimal investors andsetting up investor meetings through AI, and creating
sponsored securities and analyst reports.

Education

Revenue Target
Overview

The yearending June
2025

The yearending June
2030

10

100

billion yen

billion yen• Contribute to the creation of a better country by developing safe and secureenvironments (improvement in food culture / sanitary environment / healthawareness / insurance environment) in developing countries. Has already started in
Myanmar and plans to expand• Gather personal health data, combine with insurance data to commercialize
insurance business• Discover excellent local talents from human resources connections and approach
local connections• Build a value chain from a network of local partner companies• Aim to improve the health level starting from meals for total health throughcommunity sites, smartphone apps, IoT / big databases,and AI learning platforms• Utilize funds from engagement funds and governments• Remotely collaborate with medical care in developed countries to improve medical
quality• Support comprehensive industry development, and the specific value creation
impact will be quantified through the inflow of human resources and consulting of
inflow conversion process,per capita income will increase as the result• Coming under SDGs health / water / hygiene / growth / employment. Market size ¥318 trillion * as of 2017.
• Promote the creation of entrepreneurs and the development towards advanced
countries by providing business-related education such as IT and management.
Provide efficient educational programs for entrepreneur creation• Digitalization of teaching materials, E-learning, analysis of learning results,
competition awareness app. Introduction and utilization of funds from humanresources companies, governments and local governments• Process consulting for becoming developed countries through productivity
quantification• Coming under SDGs education.Market size ¥ 71 trillion * as of 2017

Environmental problems• Establish a comprehensive information platform with issue database, resources
database, and optimal combination advisory function to solve environmental
problems from a broad perspectives based on the theory of resources circulation
which is based on microorganism-based biotechnology such as algae• Collaborate with various organizations dealing with environmental issues, research
institutions,and large companies with technology• Coming under SDGs water / sanitation / energy / innovation / climate change /marine resources / terrestrial resources.Market size ¥ 1,888 trillion * as of 2017.

Regional revitalization• For local cities in Japan and overseas, collaborate with local governments,
regional banks, and SMEs to support local culture succession issues, from regional
revitalization to nationwide development. Ripple effect analysis using input-output
tables• Establish a matching platform for human resources / money / culture transmission.
Establishing a network of young talents and local culture successors• Support with cultural media, matching platform, and optimal team building system.
Cooperation with local government budgets and regional banks• Applied value creation to local culture / technical projects• Coming under: SDGs growth / employment / inequality. Market size 329 trillion yen* as of 2017

Investment fund

• Invest in things that can be commercialized and aim for capital gains

Patent, Intellectual
Property Database• Create a database of patents and intellectual property related to fields that
contribute to solving social problems, and generate matching algorithms using AI.
Support the optimal combination of issues and resources* Deloitte Tomatsu, https://www2.deloitte.com/jp/ja/pages/about-deloitte/articles/dtc/sdgs-market-size.html

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Ⅴ Overview of individual strategies-Details of 500 billion yen revenue

Projects for developing countries: Focus on
health and education
In this field, “Health” and “Education” will be specificallyaddressed in the fiscal year ending June 2020.
First, with regard to “Health”, we will develop safe
and secure environments (food culture/ hygiene
environment/ health awareness/ improving insurance
systems) in developing countries and develop
businesses that contribute to the creation of a better
local country. The practice has already begun in
Myanmar, and if successful, it will be expanded toother countries.
In developing countries, there are many patterns of
illness due to challenges in healthy eating habits;
however, medical expenses are relatively high andthere is a shortage of doctors. Thus, there are manycases where a vicious circle of inability to receive
treatment has occurred.
In this case, we aim to enlighten the cooking method
using local ingredients as recipes for healthy Japanesedishes, etc., and at the same time, gather personal
health data, analyze health status, convert it into
insurance data, cooperate with major insurancecompanies and commercialize the insurance business.
We support constructing a system that can cover
insurance for large numbers of people who are sick.
As for medical care, in order to compensate for the
shortage of doctors, we aim to establish a remotetreatment system in cooperation with medical carein developed countries using image recognition
technology. In order to commercialize them, we willfind excellent local human resources from humanresources connections and build a value chain fromthe network of local partner companies.
In addition, we aim to improve the overall health level
starting with healthy meals through community sites,
smartphone apps, and IoT/ big database/ AI learning
platforms. We will provide financial support by utilizing
funds from the engagement fund and subsidies
from nations and local governments. Ultimately, we
will support the development of the overall healthindustry. The impact of the specific value creation
will be quantified by quantifying the inflow of humanresources and inflow conversion process consulting,aiming to contribute to an increase in per capita
income. These are SDGs in the field of health / water/ sanitation / growth / employment, and the market
size, as of 2017, is 318 trillion yen14.
Regarding education, we will commercialize thecreation of entrepreneurs and contributions to

051 Mid-term Management Plan COMMIT5000

local development by providing business-related
education such as IT and management. We support
the education of business people, educationrelated organizations, and local educators bypromoting efficient educational programs for creating
entrepreneurs.
Educational hurdles will be reduced throughdigitalizing teaching materials, e-learning, analyzing
learning results, and competition awareness apps. We
are planning to introduce funds from human resources
companies, nations, and governments. We will also
conduct process consulting for becoming advanced
countries by quantifying productivity. It corresponds tothe education field of SDGs, and the market size as of2017 is 71 trillion yen.

Investment fundPatent Intellectual Property DatabaseIn the social problem-solving business, if there is aneed to establish a separate business entity, we will
establish an investment fund to provide financial
resources and aim for long-term capital gains.

We will create a database of patents and intellectual
property related to fields that contribute to solvingsocial problems, generate matching algorithms withAI, and support the optimal combinations of resources
for the challenges in each of the above initiatives.

Projects for developing countries: For “Health,” initiatives have already been specifically aimed at in Myanmar

Improvementof earing habits

Data related to eating habit
through recipe websites/apps(e.g. nutrition balance)

IoT,
big data

Promotionof healthawareness

Utilization ofcustomer assets

Contact withinsurance

Environmental issues
We are scheduled to establish a comprehensive
information platform with issue database, resources
database, and optimal combinations advisory
function to solve environmental problems from awide range of viewpoints based on the theory of
resources circulation based on microorganismbased biotechnology such as algae. We collaborate
with various organizations, research institutions,and large companies with technology that handles
environmental issues corresponding to the following
SDG areas: water and sanitation/ energy/ innovation/
climate change/ marine resources/ terrestrial
resources. The market size as of 2017 is 1,888 trillion
yen. The image is as follows.

Examples of recipe sites
operated by i-catalog

Visualization andrecording of activity data
by wearable device

Big data analysis, AI
Accumulation ofhealth databy providing
medical examination
service

A society where people
can work and live
safely and with a peaceof mind

Real-time totalization
by linking with API

Awarenessof disease
prevention

Resolve environmental issues with microbial technology

Regional creation
For local cities in Japan and overseas, we will
collaborate with local governments, regional banks,and small and medium enterprises to support local
culture succession issues and develop businesses that
contributes to regional revitalization and nationwide
development. We will build a matching platform forhuman resources/ monetization/ culture. We will builda network of young talent and a network of local
culture successors and develop human resources
who can promote the business locally. We provide
support through cultural media, matching platforms,
and optimal team building systems, as well as workwith local government budgets and regional banks
to promote the creation of application value in otherbusinesses of local culture/ technology. It corresponds
to the growth, employment/ inequality of the SDGs.
The market size as of 2017 is 329 trillion yen.

Personal health
Database
Compressive platform

Problem solving platform using microbial technology
Three mechanisms for collaborative value creation that grab the hearts of all stakeholders globally
1

Carbon fixation

Liquidregeneration
Possible energy
production

Database for global resource recycling issue
Methane gas
emission issue

2

Sewagetreatment toincreasesustainability

Phosphorus
depletion issue

Sustainableproductionof food(secure food,
fodder, bait andfertilizer )Safe water andhygiene issues

Nitrogenfixation

Production oforganic
valuablesthat enhancesustainability

Collaborative intelligence platform

Optimal matching algorithm between issues utilizing AI and microbial technology
Optimal coordination mechanism, organizational design, and knowledge creation acceleration mechanism to solve problems of related stakeholders
Communication tools and knowledge accumulation mechanisms that support the above
Arrangement and adjustment function of rights and obligations (secretariat etc.)

Technology database of usefulmicroorganism

3

Database of microbial related
technology

Database of microbial technology
related parties

Database / organizing method ofinterested parties’ rights and obligations

Comprehensive database of microbial technology resources and solutions

14 Deloitte Tomatsu, https://www2.deloitte.com/jp/ja/pages/about-deloitte/articles/dtc/sdgs-market-size.html , same as below

Mid-term Management Plan COMMIT5000

052

Ⅵ

Current status of existing businesses

SaaS/ASP Business

Overview of existing primary businesses

Business Overview and Trends in Major
Services

The Scala Group is currently working on five businesses. These will be developed as IT / AI / IoT / businesses.
Business description of Scala

Business segment

Business description

SaaS/ASP

Provision of SaaS/ASP-type services that use the automated voice technologies
in the browser, telephone, fax, etc. over the Internet or telephone lines

SFA

Provision of services such as the licensing of the sales support system, cloudservices, customized development, marketing consulting, marketing skill
training, and operation consulting and education by using iPad and other tools

Field marketing

We offer SaaS / ASP type services using automatic
voice technology such as Web, telephone, fax
through the Internet and telephone lines. This allows
applications to be used over telephone lines and theInternet without large-scale capital investment. The
main products include “i-search,” a search engine
that can improve the ease of viewing by displaying
images and guide users accurately. The systemcalled “i-ask” enables users to solve their problems byregistering frequently asked questions in advance on

List of service provided by SaaS/ASP Business

Category

Provision of services related to field activities, marketing research, etc.
Provision of one-stop consulting services related to customer supports, suchas call center operations and diverse BPOs

Customer support

Website support service

Provision of the EC website for buying and selling battle-type trading cards;
contracted development of software; publishing business-related books, etc.

Other

CMS
(Contents management service)

Net sales and operating income by segment
Sales revenue by segment

Operating profits by segment[2019 June, in million yen]

[2019 June, in million yen]

68

1,587
9.3%

3.2%

3,980

23.3%

2,744

CRM service

138

6.4%

319

703

14.8%

16.0%

3,955

4,844

23.1%

28.3%

32.7%

922

42.9%

SaaS/ASP

SFA

field marketing

053 Mid-term Management Plan COMMIT5000

support service

othersthe company site, and the “IVR” system that makes
automatic responses in response to voice calls on thecorporate telephone. In addition, as a service related
to IoT and big data, we provide big data processing
and management services for the safe driving
support service “Smiling Road,” sold by Sompo Japan
Nipponkoa Insurance, Inc.
As already shown, we provide comprehensive
services related to all communication tools for clientcompanies as follows.

Service Name

Overview

i-searchIn-site search engine

i-linkcheck

Invalid link detection system

i-print

Website printout system

i-linkplus

Related link view servicei-ask

FAQ system

i-catalog

Product site management service

i-learning

E-learning system

i-flow

Prosperity management, approval system

LaCoonWebsite construction platform

i-entry

Comprehensive questionnaire CRM service

dbecs

Web mailer for business use

i-assist

Virtual assistancei-livechat

Web chat system

i-giftDigital gift service

Telephone-type service

SaaS-tpye IVR

Automatic voice response

News delivery service

Corporate news

Providing important business information

Data management / IP
management

PatentManager

Patent management system

GripManager

Contract management system

Site management

FresheyeSearch / information portal site

IoT / Big data

Safe driving diagnosis

Big data processing and management

SFA (Sales Force Automation)

e-Sales manager

Sales support system

Field marketing

Field activities, field researchMarket research and store field activities

EC

Online card shop

Trading site for trading cards

Customer Support

Contact center

Customer support consulting

Mid-term Management Plan COMMIT5000

054

Ⅵ Current status of existing businesses

Business model that sets other companies apart
Discover customers’ real challenge andneeds through direct sales

Expansion from hook products to wideusage

Direct sales business accounts for 80% of ScalaGroup’s sales, taking the needs of each company into
consideration and adding individual customizationfrom the minimum required packages. This
customization not only uncovers the apparent needs
but also potential needs, and we propose to “find realissues” and “discover the hidden value” of internal IT
resources and propose the optimal combinations ofissues and resources to maximize value.
As previously mentioned in detail, the Scala Group
provides customized services despite being in the SaaS/ ASP business. This is achieved by carefully listening
to customer requests and customizing them in close
proximity. With conventional SaaS / ASP service, only
uniform service without customization is provided
for each customer. Through customization, theScala Group can greatly differentiate itself from othercompanies. This business model is made possible bydirect sales, which accounts for about 80% of the total
sale. The Scala Group is based on the principle thatsales staff visit customer companies and sell directly,
where sales representatives can talk to customers, andengineers are in direct contact with real users, so they
can accurately determine customers’ needs and "findreal issues". This allows Scala to directly understandand resolve the needs of customer companies.

The Scala Group positions “i-search” and “i-ask” ashook products. Although sales of these two products
are limited, we expose customers to the attractivenessof the Scala Group by using these products, which
stimulates interest in future products. An example
is Sompo Japan Nipponkoa Insurance, Inc. Initially,
this customer started by using “i-search.” Currently,
dozens of our services are provided to Sompo Japan
Nipponkoa, with usage amounting to tens of millionsof yen per month.

Scala Group products that do not competewith other companies
Typical products of the Scala Group include “i-search”
and “i-ask.” “I-ask” is a FAQ system, which is alsooffered by major IT companies. In general, when you
create a new service, you try to determine and exceed
the capabilities of the pioneering IT product, but thisprocess incurs high developmental costs. In addition,
when developing the products, the existing companies
may further expand, which makes catching-up difficult
or impossible. The Scala Group, on the contrary,offers significantly fewer initial functions than existing
companies, but “finds out the true issues”, “discovers
the hidden value” of the internal IT resources,
proposes optimal combinations of the issues andresources to maximize value through customization.
As Scala prioritizes customers over products, there isno need to compete with other companies' products
and costs can be kept low.

055 Mid-term Management Plan COMMIT5000

A leap in the AI / IoT era
In the AI / IoT era, as the data subject to AI advances
became more diverse and information that has notbeen converted into data until now is fused with IT
technology, there is a demand for IT companies toprovide more customized services. We can expect
a big leap forward in this business that promotes a

strategy centered on customization. In addition, if
security is enhanced, the need for cloud-based
stress-free services will increase. We aim for significant
growth through synergies with the value creation
management support business, which will become
one of our new businesses.

Expanding business opportunities in the AI / IoT era and the significance of Scala Group positioning

Improved earnings stability with high longterm usage rate by customers
As previously mentioned, at Scala Group, sales
representatives visit customers regularly, including in
the early stages of service development. Scala Groupalso responds immediately to complnts when theyarise.
This increases customer satisfaction, so that mostcompanies use Scala’s services for a long time.

Increase customer satisfaction by
diversifying services
With the know-how accumulated by responding to
the demands of many customers, we have establishedmany service lineups at low cost. Customer unit priceand customer satisfaction increased by linking multiple
services. We are also eager to provide unprecedented
services and meet the needs that major companies
find difficult to respond to due to their subdivided
departments.

Further evolution and development of
SaaS / ASPThe Scala Group is already building an industry-leading
share in the site search “i-search,” FAQ system “i-ask,”
and the automatic answering system “IVR.” With thegoal of encouraging the use of these services, such as
corporate marketing and communication tools withusers, we will continue to improve and create services
that meet the needs of companies with a focus on
CRM and CMS.

Data that need to
be customized
and digitalize by
use of AI

Expected CAGR* of 30-40 % in 2017-2022 in the AI market of
unstructured big data (i.e., IoT big data, voice data, video, text data)

Data thatneed to becustomized

Scala’s strong growth potential
in the age of AI / IoT with its three strengths1) Optimal customization, 2) stress-free cloud services,
3) attractive monthly billing

Data handled
by package
services

Applying

ing
Search
ing
d
n
fi
d
an

and purchasing

Delivering

Checking
and inquiring

Guiding andrecommending

Co m piling
andanaly zing

* Surveyed by an independent IT consulting and research firm, ITR Corporation (published on 12/11/2018, estimating CAGR of 35.6% in 20172022. Source: https://www.itr.co.jp/company/press/181211PR.html
According to the Nikkei Newspaper article “IDC Japan announced projection of spending in the global AI system market,” the spending in AI
systems will more than double to $79.2billion in 2022 vs. 2019 with a projected CAGR of 38.0% in 2018-2022.

Mid-term Management Plan COMMIT5000

056

Ⅵ Current status of existing businesses

SFA BusinessCurrent status of customer support businessBusiness is being developed by a consolidated subsidiary, Softbrain Co., Ltd. Based on thedevelopment concept of “Most user-friendly CRM / SFA”14, we are always developing services that support
the most advanced devices. As a result, in the user survey for CRM / SFA, we won the first place in usability,business improvement, introduction effect, service satisfaction and system satisfaction. Softbrain has been
rated as the No.1 15 CRM/SFA in overall satisfaction.
It is supported by a wide range of customers, from large companies and from small and medium-sizedcompanies, regardless of scale, industry, or business type, and boasts a track record of serving over 5,000
customer companies. Based on the solid know-how gained from these cases, we provide reliable solutions
to solve business issues.

One-stop solution with specialists andScala Group tools

Field marketing businessThis business is primarily operated by Softbrain Field Co., Ltd., which provides sales support and market
research by registered staff nationwide. In order to enable customers to respond to the constantly
changing business environment, we conduct sales promotions and act as sales agents in addition to
supporting sales and recruitment based on data gathered from all over the country, using methods suchas mystery shoppers and storefront surveys.

Unique business model with flexible
employment

Strategic direction of field marketingbusiness

This business regards workers as consumers andemploys them based on the concept that they
can work more comfortably, that is, they can work"wherever they want", "when they want", "whatever
they like", "as much as they want". Through a cast
network of 256,567 casts (as of 2018) nationwide that
sympathize with this philosophy, we have created aunique business model called “field cloud-sourcing”.
Specifically, housewives who have been viewed as“consumers”, are viewed as attractive resources with astrict consumer perspective from a service provider’sview. We aim to pay attention to the “housewives” andcreate synergies with this, due to labor shortages.

We aim to connect companies and consumers andcontribute to the revitalization of the community.
Softbrain Field Co., Ltd. creates a consumercentered network in the local community by creating
employment in its own living area for housewives
who are the main registrants of the cast network. This
will not only revitalize local business, but also aim tofurther revitalize the community by linking companies
that provide products and services to consumers withcast networks.

14 CRM / SFA: CRM stands for “customer relationship management” and means IT tools for “customer relationship management”.
On the other hand, SFA is an abbreviation for “Sales Force Automation,” meaning “automation of sales activities.” CRM is amanagement concept called “customer relationship management” and a system for realizing it. SFA refers to systems and toolsthat make sales activities more efficient.
15 Web Survey by ESP Research Institute, Inc. May 2018, Men and women in their 20s to 60s / Company managers, managing
directors, board members and group board members, company employees and group employees (including temporary
employees and contract employees) / CRM / SFA users / 300 people

057 Mid-term Management Plan COMMIT5000

This business is operated by Leoconnect Inc. a
subsidiary of the Scala Group which conducts
contract work for subsidiaries of the Hikari Tsushin
Group. It mainly undertakes inbound call center
operations for the products of each company within
the Hikari Tsushin Group and resolves issues in a onestop related to call center operations, from inquiry
reception to follow-up after response.
By combining Leoconnect know-how with the ScalaGroup tools, not only will the service provision costsof both companies be halved, thus improving profit
margins, but also opportunities will arise as the SaaS/ASP services of the Scala Group are ordered andintroduced by Hikari Tsushin Group subsidiaries.

Strategic direction of customer support
business
We will promote further cooperation between tool
knowledge and development. For this business,
not only will this accelerate cooperation between

customer support consulting and call center-related IT
services and improve the quality of customer service,
but it will also promote product purchases andprevent service cancellations. We will accelerate thedevelopment of a proposal-type inbound center.

Enhance inbound response support
This business will strengthen the multilingual callcenter function to support inbound measures of eachcompany and local government as a response to theincreasing number of foreign tourists visiting Japanin preparation for the 2019 Rugby World Cup andthe 2020 Tokyo Olympics. We aim to provide highquality concierge services. As it is not likely that local
governments and companies have implemented
enough inbound measures, many business
opportunities may be missed. For this reason, Scala’s
subsidiary, Scala Communications and Leoconnect
will cooperate together to translate local governmentand company FAQ pages, and if there is no solution,connect to a multilingual operator to provide video
chat support and concierge service at all times.

Create synergies with consolidated subsidiaries

Scala Communications
System development and cloud services

i-ask

SaaS-tpye IVR

i-livechat

i-assist

Connect Agency

Leoconnect

Cloud PBX services

Customer support consulting

Asset Free
Second Billing Service Fee per second
One Stop Service
Cloud PBXInternet

A siteB siteHome

Call center• Inbound call, outbound call
24 hours / 365 days
• Multiple languages• Multi devices, Office devices• Professional for complainants

Supervising

OutsideConsulting

Identify

Back-Office• Counting/Analysis• Confirmation of documents• Date entry, control• Sealing envelop such as invoice

Analysis

Data gathering

Problem finding

ResultVerification

Improved

KPI, Effectivenessmeasurement

Planning
Preparation
Doing

Research

Planning

Mid-term Management Plan COMMIT5000

058

Ⅵ Current status of existing businesses
Major drivers of corporate value andfinancial strategy
Current status of other businesses
System development business

EC BusinessThis business is primarily operated by Softbrain
Offshore Corporation. With years of offshoredevelopment know-how, we place emphasis on“removal of dependence on specific individuals” and“thorough project management” to avoid failures that
tend to happen due to offshore development. We alsooffer best practices by combing measure flexibly suchas utilizing domestic partners.
The recent situation of domestic softwaredevelopment is becoming increasing severe andoutlined in the following:This business is operated by Plube, Inc., which
operates an e-commerce site "Yuyutei" that buys andsells competitive trading cards. Its strength is that
operations such as logistics, systems, sales, purchases,
and marketing are all conducted by the company
itself.
Plube is continuously improving and refurbishing
the system and services it provides, such as thedevelopment of smartphone apps to provide TCG
users with the best trading experience and is actively
handling new game titles as the No. 1 TCG (tradingcard game) net shop. In addition, it will continue
to provide timely and in-depth game strategy
information, thereby creating a place where TCG users
come most often and aiming for corporate growth.
In this business, the Scala Group will accumulate
experience and know-how such as product inventory
management, nationwide shipping, product pricing
and will expand to operate EC sites for individuals in
the future.

1) Development delays due to chronic engineer
shortage2) Lack of response to increasing small-scale
development projects
3) Increased operating costs
Facing these challenges, Scala Group will implement
the following measures:
1) Utilization of abundant engineers overseas(offshore development)
2) Utilization of domestic partners (near shoredevelopment)
3) Discover excellent local talents from humanresources Maintenance work (operations) byoverseas outsourcing or supported by overseas
personnel

Publishing BusinessIn this business, the “Diamond Sales” editorial
department was established at Diamond, Inc. for thelaunch of “Diamond Sales.” In 2005, Softbrain Co.,
Ltd. participated as capital and merged with Diamond,
Inc. Currently, Diamond Sales focus on publishing awide range of business books such as management,
marketing, sales with our corporate customers aswell as conducting consulting on IR, branding andmarketing enhancement.

059 Mid-term Management Plan COMMIT5000

The following shows the image of changes in major drivers of corporate value. As the ratio of invested
capital to sales declines moderately, ROIC is aimed to increase from around 13% to 30%.
WACC is estimated to be 5% from a comprehensive perspective, based on the method explained in the
explanation section of GCC management, the yields of past government bonds, the total yield of TOPIX andthe movement of the stock price of the company.
Image of major drivers of corporate value

June 2020

June 2025

June 2030

Revenue¥20 billion¥100 billion¥500 billion

NOPAT
Margin

5%

6%

6%

ROIC

13%

20%

30%

Invested
Capital*turnover ratio

41%

30%

20%

WACC

5%

5%

5%

*Invested capital is defined below. Cash and deposits-1.5 months of revenues = surplus funds
Total assets-surplus funds-surplus funds other than interest-bearing debt-valuation under IFIS.
For Softbrain Co., only equity was converted into invested capital.

Financial strategy
The Scala Group aims to improve corporate value over the medium to long term, and views revenue andearnings per share of non-GAAP indicators as objective indicators. To achieve sustainable growth, we will
promote existing businesses, and to further accelerate growth, we aim to increase corporate value by
realizing business expansion and business development in other fields through M&A.

Financing
The Scala Group's funding demand is mainly for continuous implementation of shareholder return policies,
growth investment and M&A aiming at business expansion and corporate value enhancement. These funds
are basically financed with cash on hand, and fundraising is carried out by borrowing from financial
institutions and issuing bonds as necessary.

Dividend Policy
The Scala Group considers appropriate return of profits to shareholders an important management issue
and provides stable and continuous dividends while strengthening its financial structure and securing
internal reserves necessary for business development. The Scala Group pays dividends from retained
earning twice a year, an interim dividend and a year-end dividend. In the fiscal year ending June 2019, weplan to increase dividends by ¥ 4 per share to ¥ 24 per share which sees dividend increase for the 10thconsecutive year. Since we are developing a stable cash flow business, we have a high growth rate and a
50% payout ratio. In the long term, the medium-term management plan aims to achieve an EPS growthrate of about 30-40% annually and an increase in dividend per share of 20-30% annually.

中期経営計画 COMMIT5000

060

Ⅶ

Company Overview / History

Company Overview (as of 14 August 2019)

History

Corporate nameScala, Inc.

1991

Dec.

Kenzo Tamura and Hideki Shimazu founded Database Communications (now, Scala, Inc.)

Established

December 11, 1991

1999

Jan.

Representative

Norikatsu Nagino

Formed sales agency contracts for the Japanese market with Us-based Computer Corporation ofAmerica and started Model 204 support

Ebisu Prime Square Tower, 1-1-39, Hiroo, Shibuya-ku, Tokyo,
150-0012 Japan

2001

May

Listed on the Osaka Securities Exchange's NASDAQ Japan market (now, TSE JASDAQ (Standard))

Location

2003

Apr.

Capital1,604 million yen

Acquired the patent management software (product name; PatentManager) of Interscience Co., Ltd.
with the aim of entering the patent management system field

Fiscal year end

June

Oct.

Acquired Dbecs Co., Ltd. as a subsidiary to enter the CRM field

Listing

Tokyo Stock Exchange First Section [4845]

Apr.

Acquired Vodamedia Inc, as a subsidiary with the aim of entering
the IVR (interactive voice response) field)

Employees

487 (as of December 31, 2018; consolidated base)Full-time and contracted employees only

Sep.

Renamed as Fusion Partners, Co. in the transition to a holding company structure and established
Database Communications (now, Scala Services Inc.) as a new company and transferred its business.

2006

June

Merged subsidiaries Vodamedia and Dbecs and renamed it to Digi-Ana Communications Inc.
(now, Scala Communications Inc.)

2010

Nov.

Acquired NewsWatch Inc. as a subsidiary

2012

Apr.

Merged subsidiaries Digi-Ana Communications and NewsWatch(now, Scala Communications Inc.)

2013

Aug.

Norikatsu Nagino was appointed as Representative Director and President

2014

May

Listing transferred to the TSE Second Section

Dec.

Elevated to the TSE First Section

2015

Nov.

Acquired TriAx Corp. as a subsidiary

2016

Jan.

Renamed subsidiary Database Communications as PAPEL, Inc.
(now, Scala Services Inc.)

July

Acquired Softbrain Co., Ltd. as a subsidiary

Dec.

Changed the corporate name to Scala, Inc.

Dec.

Merged subsidiaries Digi-Ana Communications and TriAx and renamed it to
Scala Communications Inc.

Apr.

Scala Services began operation

Aug.

Acquired plube Co., Ltd. as a subsidiaryMar.

Acquired Leoconnect, Inc. as a subsidiaryNov.

Acquired Connect Agency, Inc. as a subsidiaryNov.

Established Scala Next, Inc.

Dec.

Established the Mandalay Branch (Myanmar) of Scala Next, Inc.

Company organization chart (as of 30 June 2019)
Scala, Inc.

SaaS/ASP business

Scala Communications Inc.
Scala Next Inc.
Scala Services Inc.
Connect Agency Inc.

SFA business

Softbrain Co., Ltd.

2004

Softbrain Services Co., Ltd.
Softbrain Integration Co., Ltd.

Field marketing business

Softbrain Field Co., Ltd.
2017

Customer support business

Leoconnect, Inc.

Other business

Softbrain Offshore Co., Ltd.
Diamond Business Planning, Inc.
plube Co., Ltd.

061 Mid-term Management Plan COMMIT5000

2018

Mid-term Management Plan COMMIT5000

062

Ⅶ Company Overview / History

Long-term business performance since listing

Scala Group business description and history of business development since its foundation

Streamline operations andtarget the TSE First Section listing

Entry to new fields

Business segment

Business scale
expansion2018.112018.032017.08

2016.122016.072015.112014.122014.05

2012.04

2010.112006.06

2004.09

2004.04

2003.10

2003.04

2001.05

Acquired Connect Agency as a subsidiary

Acquired Leoconnect as a subsidiary

Acquired plube as a subsidiary

Merged Digi-Ana Communications and TriAx
Renamed to Scala, Inc.

Acquired Softbrain as a subsidiary

Acquired TriAx as a subsidiary

Elevated to the TSE First Section

Listing in the TSE Second Section

Merged Digi-Ana Communications and
NewsWatch

Acquired NewsWatch as a subsidiary

Merged Vodamedia and Dbecs

Established Database Communications andtransferred business

Acquired Vodamedia as a subsidiary

Acquired Dbecs as a subsidiary

Acquired the patent management software(product name; Patent Manager) ofInterscience

Current JASDAQ listing

SaaS/ASP

Provision of SaaS/ASP-type services that use automated voice technologies on the browser,
telephone, fax, etc. over the Internet or telephone lines

SFA

Provision of services such as the licensing of the sales support systems, cloud services, customized
development, marketing consulting, marketing skill training, and operation consulting andeducation by using iPad and other tools

Field marketing

Provision of services related to field activities, marketing research, etc.

Customer support

Provision of one-stop consulting services related to customer support, such as call center
operations and diverse BPOs

Other

Provision of the EC website for buying and selling battle-type trading cards; contracted
development of software; publishing of business-related books, etc.
Wholly-owned subsidiary
Holding company

Holdingcompany
17,112

Sep. 2004: Moved to a holding company
structure and changed corporate name

Consolidated subsidiary
Holding company

Dec. 2016: Changed
corporate name

Fusion Partner

Scala

Dec. 1991: Founded
Oct. 2016: Founded
Apr. 2017: Began operation

Sep. 2004:
Succeeded businessA database sales agency

12,826Sales
revenue

Description of business

Scala Service
Oct. 2017:
MergedDatabase Communications

10,664

Newly established and succeeded businessmillion yen

295

492

452

321

516

1,026

1,436

1,723

1,823

1,501

1,228

1,351

1,670

1,733

1,883

2,241

Jan. 2016: Changed
corporate name

PAREL, Inc.

Database Communications

2,694

New business, etc.

Nov. 2018:
Established

Scala Next
2,153

Dbecs

23

134

69

34

28

123

147

206

248

314

378

567

March 2018: Became a consolidated
subsidiary Acquired 51% voting rights from a
subsidiary of Hikari Tsushin (9435)

Scala Communications

Oct. 2003: Became a subsidiary621

Sep. 2004: Acquired business

12

IVR (interactive voice response)

Vodamedia-50

Connect Agency

Nov. 2010: Became asubsidiary

Digi-Ana Communications

1,106

OperatingprofitCloud-based PBX service

NewsWatch
CRM business

1,562

million yen

News distribution

SaaS/ASP
business

June 2006: Merged

Apr. 2012: Merged
Dec. 2016: Merged

Nov. 2015: Became a subsidiary
Web system

-158

TriAx

27.2%

12.0%

15.2%

14.9%

18.1%

20.1%

25.3%

8.2%

Operatingprofit ratio

4.8%

1.6%

SFA business

23.1%

10.4%

12.2%

12.6%

0.7%

0%
7.8%

SoftbrainFieldmarketingbusiness
Customer
supportbusiness

7.5%

July 2016: Became a consolidated subsidiary. Acquired a
50.2% equity stake through market transaction

Softbrain Field

Feb. 2018: Became a consolidated subsidiary. Acquired 66%
voting rights from a subsidiary of Hikari Tsushin (9435)-9.7%

Call center business

Leoconnect

Subsidiaries

Contracted business-15.4%
Fiscal Year Ended
June 2019

Fiscal Year Ended
June 2018

Fiscal Year Ended
June 2017

Fiscal Year Ended
June 2016

Fiscal Year Ended
June 2015

Fiscal Year Ended
June 2014

Fiscal Year Ended
June 2013

Fiscal Year Ended
June 2012

Fiscal Year Ended
June 2011

Fiscal Year Ended
June 2010

Fiscal Year Ended
June 2009

Fiscal Year Ended
June 2008

Fiscal Year Ended
June 2007

Fiscal Year Ended
June 2006

Fiscal Year Ended
June 2005

Fiscal Year Ended
June 2004

Fiscal Year Ended
June 2003

Fiscal Year Ended
June 2002

Fiscal Year Ended
June 2001

Fiscal Year Ended
June 2000

063 Mid-term Management Plan COMMIT5000

Softbrain Offshore
Publishing

Other
business

Diamond Business PlanningEC siteAug. 2017: Became a subsidiaryplube

Mid-term Management Plan COMMIT5000

064

Disclaimer
This material includes forward-looking matters such as forecasts, prospects, targets, and plans related to
Scala Inc. (hereinafter referred to as “Scala” ). These are based on the predictions made at the time
based on information obtained by Scala at the time of preparation of this document. Certain
preconditions and assumptions are adopted in this document, including subjective projections and thosewhich are not judgments of Scala’s executives.
Also, various risks and uncertainties may prove to be inaccurate in the future or may not be realized in
the future. Therefore, the actual results, business results, financial condition, etc. of the Scala Group may
differ from its forecasts, outlooks, targets and plans.
For this reason, the Scala Group has no obligation or policy to update such information to the latest
information from time to time regarding the forecasts, prospects, targets, plans, etc. posted in thisdocument.
The information contained in this document is for informational purposes only and is not intended for
application, investment solicitation, or sales recommendation in any securities, financial products, ortransactions. At the same time, the accuracy, completeness, fairness, and certainty of the content are
not guaranteed. Therefore, Scala is not responsible for any damage caused as a result of using thisdocument.
The copyright of this document and all other rights related to this document belong to Scala.

17F, Shibuya Hikarie, 2-21-1, Shibuya, Shibuya-ku,TOKYO 1508510 JAPANTEL : +81-3-6418-3960
https://scalagrp.jp

Published Aug. 2019
Revised June 2020
Copyright Scala, Inc. All rights reserved.