Fujitsu 2011 Annual Report Download - page 91

6. Other Operational Risks
The Fujitsu Group makes every effort to eliminate known risks
but can offer no guarantee of its ability to always achieve every
desired outcome in the course of executing business operations.
Some of the specific risks faced in this respect are detailed below.
1) Deficiencies or Flaws in Products and Services
The Fujitsu Group builds and supports the infrastructure behind
the modern network society, which has become increasingly
global and sophisticated. In accordance with our corporate phi-
losophy the Fujitsu Way, quality is one of our most important
values, and it underpins the trust that customers and society
place in us.
We are committed to improving quality at the design and
development stages as well as in manufacturing by setting rules
on quality control throughout the company. We are also promot-
ing strict quality control when purchasing components from exter-
nal suppliers. These efforts notwithstanding, it is impossible to
totally eliminate the possibility of deficiencies or flaws occurring
in products, including software. While the Group is also setting
rules on quality control throughout the company, promoting
software modularization, standardization of development work,
and enhanced security measures in order to improve the quality
of system development and other services in the technology
solutions business, the possibility of defects arising cannot be
excluded. With respect to systems that play a critical role in sup-
porting social infrastructure, following the incidents involving
system problems at the Tokyo Stock Exchange in November 2005,
we have been checking for any potential problems in these sys-
tems, including the operating environment, software and hard-
ware, in cooperation with our customers. In addition, we have
continuously made improvements to the quality, contracts, and
related rules in order to ensure the stable operation of social
infrastructure systems. We cannot, however, entirely eliminate the
possibility of deficiencies or flaws. In the event that such deficien-
cies or flaws occur in the products or services, the Group may have
to initiate product recalls or repairs, engage in system recovery
work, pay damages to customers or suffer opportunity losses, all
of which would negatively impact Group sales and profitability.
2) Project Management
Due to such factors as the increasing scale and sophistication of
systems and more rigorous demands from customers, as well as
the advance of open system environments, system development
work is becoming increasingly complex. At the same time,
greater competition is leading to increasingly intense pricing
pressures. To deal with this situation and prevent incidences of
delayed delivery and loss-generating projects, we have been
revising our approach to making contracts with customers,
advancing the standardization of sales and system engineering
business processes, and working to manage risk from the busi-
ness negotiation stage through actual project implementation.
The Group continues to maintain reserves for losses as necessary.
In addition, we are striving to industrialize the system develop-
ment process in order to strengthen our cost competitiveness.
Nevertheless, in spite of these measures, there is a possibility
that we may be unable to completely prevent incidences of
delayed delivery the occurrence of loss-generating projects.
3) Investment Decisions and Business Restructuring
In the ICT industry, large investments in R&D, capital expendi-
ture, business acquisitions, and business restructuring are neces-
sary to maintain competitiveness. Accordingly, the success or
failure of these initiatives has a profound effect on the business
results of the Fujitsu Group. When making such investment and
restructuring decisions, we give ample consideration to a range
of factors such as market trends, customer needs, the superiority
of the Group’s own technologies, the financial performance of
acquisition candidates and our business portfolio. There is, how-
ever, the risk that markets and technologies, as well as acquisi-
tion candidates deemed attractive by the Group, may fail to grow
as anticipated, or that supply and demand imbalances or price
erosion may be more severe than expected. The Group takes a
number of steps to mitigate this risk, including the consideration
of investment efficiency and responding to inherent fluctuations
by dividing investment into multiple phases and forging agree-
ments with customers prior to investment. Nonetheless, there is
no guarantee that the Group can generate sufficient returns on
such investments.
4) Intellectual Property Rights
The Fujitsu Group has accumulated technologies and expertise
that help distinguish its products from those of other companies.
Legal restrictions in certain regions, however, may impair our
ability to fully protect some of the Group’s proprietary technolo-
gies, with the result that we could be unable to effectively pre-
vent the manufacture and sale of similar products developed by
third parties using the Group’s own intellectual property. More-
over, the creation of comparable or superior technologies by
other companies could erode the value of the Group’s intellectual
property. The Group has instituted internal policies, including
stringent clearance procedures prior to launching new products,
to ensure that no infringement of other companies’ intellectual
property occurs. However, there is the possibility that the Group’s
products, services or technologies may be found to infringe on
other companies’ intellectual property, and that earnings may be
impacted by such consequences as the need to pay for usage
rights or cover costs associated with modifying designs. In addi-
tion, the Group has previously instituted a program to compen-
sate employees for innovations that they make in the course of
their work, and will continue to implement this program in the
future in accordance with related laws and regulations. Neverthe-
less, the Group faces potential risk from lawsuits initiated by
employees in regard to compensation for innovation created in
the workplace.
5) Human Resources
The growth and profitability of the Fujitsu Group depends heavily
on human resources. As such, a major issue for the Group is the
ability to recruit, foster, and prevent the attrition of talented
FUJITSU LIMITED ANNUAL REPORT 2011
RESPONSIBILITY
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BUSINESS AND OTHER RISKS