Although he only maintained a working state during office hours, and had delegated most of the game development management work to Hisao Oguchi, Takuya Nakayama's schedule did not become any lighter.
His current focus had begun to shift toward familiarizing himself with and gaining control over the sales and finance departments.
This was the substantive beginning of his father, Hayao Nakayama, transferring power to him.
Sitting behind the large desk, what lay before Takuya Nakayama were no longer various game project proposals, nor were they the material lists for the E3 exhibition.
Three half-meter-high stacks of folders were neatly arranged, with "Financial Statements" and "Sales Ledgers" printed on their covers.
As the future president, he did not need to use a calculator to verify every single invoice himself, nor did he need to personally wine and dine with channel distributors, but he had to be able to see through the business logic behind the reports at a glance.
Game development was code strictly executed by machines; if it didn't run, it didn't run, with rigorous software programs serving as the basis for execution.
Finance and sales, however, were gray areas; the game of numbers concealed countless tricks, and what was presented before him was not simply black and white.
Thus, he began to chew through this pile of dull data.
Director Hoshino knocked on the door and walked in, carrying two cups of black coffee in his hands, with several old documents tucked under his arm.
Thus, he began to chew through this pile of tedious data.
Director Hoshino knocked and entered, carrying two cups of black coffee and a few old documents tucked under his arm.
"Managing Director, I've found the audit working papers you requested from the past years," Hoshino said, setting down the coffee and handing over the documents.
Takuya Nakayama took the documents and took a sip of the bitter coffee. "Hoshino-san, you've calculated the accounts for the Investment Department clearly. From these three core financial statements of Sega's headquarters, have you discerned anything of note?"
Director Hoshino sat in the chair opposite, his demeanor rigorous. "Overall, it's very healthy. Jupiter's sales have driven a significant cash flow, the gross margin trend on the income statement is consistently rising, and the asset quality is also excellent."
"Not enough." Takuya Nakayama placed the income statement back on the table. "Income statements can be whitewashed. Excessive inventory loading, non-recurring gains, or even capitalizing R&D expenses—all can make an income statement look good. What I value is the cash flow statement."
He pointed to the paper. "Cash flow from operating activities is the lifeblood. Sega's operations are currently spread thin; hardware production, software development, overseas promotion—every single item is draining funds. If we rely heavily on financing or investment activities to maintain turnover, once we encounter a shock on the scale of Nasdaq, our capital chain won't just break immediately—at the very least, it will result in massive losses."
Director Hoshino straightened his posture.
He had assumed this young Executive Managing Director only focused on game creativity and capital operations; he hadn't expected him to strike at the heart of the matter when auditing the accounts.
Director Hoshino sat up straight.
He had expected this young Executive Managing Director to only be interested in game design and capital operations, but he hadn't expected him to hit the nail on the head when it came to auditing the accounts.
"And this," Takuya Nakayama said, pointing to the balance sheet. "Regarding the collection cycle, the payment terms for several major distributors in North America are dragging on too long. How long does it take for sold goods to be converted into cash? This has a direct impact on our financial security."
"That is indeed the industry standard in the North American market. The distributors are very powerful, and Tom has faced resistance in his communications with them," Director Hoshino explained.
"Industry standards are set by people. When Nintendo was at its peak, did distributors dare to delay their payments?" Takuya Nakayama tossed his red pen onto the table, making a sharp clacking sound. "We also need to keep a close eye on inventory turnover. Stockpiling can mask the true state of sales. I don't want us to look at the books and see hundreds of millions in profit, only to go to the warehouse and find it's all unsold plastic cartridges and stagnant discs."
Director Hoshino took out his notebook and quickly began to take notes.
"Don't end up looking like we've made hundreds of millions on paper, only to find the warehouse full of unsellable plastic cartridges and slow-moving discs." Director Hoshino took out his notebook and quickly made notes.
"Hoshino-san, please notify the Audit Department to extract and compile the management letters from all the audit reports of the past years," Nakayama Takuya instructed. "Auditors don't dare offend anyone in the main body of the reports; the real risk points and internal control loopholes are all hidden in those inconspicuous letters. I want to see the approval authority levels for major capital expenditures, to see if anyone has been overstepping their authority."
After dismissing Director Hoshino, Nakayama Takuya rubbed his temples.
Establishing a financial cognition framework was only the first step; he needed to understand where the money came from, where it went, and where the risks lay.
Next, it was time to get to the bottom of the sales lifeline.
He pressed the internal phone on his desk.
"Please ask Department Head Yoshimura from the Sales Headquarters to come over."
Ten minutes later, Yoshimura entered the office with the performance reports of several regional managers.
This veteran salesman, who had been with Sega for fifteen years, was respectful toward Takuya, but also carried the slickness of an old hand.
"Managing Director, this is the sales summary for the last quarter. Several major regions have exceeded their targets." Yoshimura handed over the report, his tone carrying a hint of wanting credit.
Nakayama Takuya did not take the report, but pointed to the chair opposite him. "Yoshimura-san, please sit."
Yoshimura sat as instructed.
"I won't look at the summary for now."
Nakayama Takuya leaned back in his chair, hands crossed. "Give me the customer structure."
Yoshimura sat down as instructed.
"I won't look at the summary for now," Takuya Nakayama said, leaning back in his chair with his arms crossed. "Give me a report on the client structure. What is the share of the top five clients?"
Yoshimura hesitated for a moment before reciting a few figures. "They account for about twenty-eight percent of total revenue."
"That's nearing the thirty percent danger zone," Takuya Nakayama said, looking at him. "What is the recent order trend for these top five clients? How is their payment attitude? Over the past year, have any major clients significantly reduced their orders or terminated cooperation?"
Sweat began to bead on Yoshimura's forehead.
In usual board meetings, everyone only looked at how much total revenue had grown; no one had ever interrogated him in such detail about customer churn rates.
"There's an agency in Kansai that reduced its orders by fifteen percent last quarter. The reason is they introduced Sony's PS console, which tied up some of their funds," Yoshimura answered, bracing himself.
"What about client credit terms and policies? Who is tying up a large amount of the company's funds? Do the credit terms approved by the Sales Department match those recorded by the Finance Department?" Takuya Nakayama's questions came one after another, giving the other person no chance to breathe.
Yoshimura took out a handkerchief and wiped his sweat. "Basically consistent. For a few major clients, to push sales volume, we appropriately extended the credit terms by half a month."
Nakayama Takuya leaned forward, pressing both hands on the table.
"Department Head Yoshimura, it's time to change the sales team's incentive structure."
Yoshimura looked up, his face full of confusion. "With the current commission and bonus structure, everyone is very motivated."
"They are motivated because commissions are based solely on reported sales figures," Nakayama Takuya ruthlessly burst the bubble. "This type of performance assessment encourages them to push inventory. To hit year-end targets, they offer excessive discounts to channel partners, extend credit terms, and even engage in fictitious transactions, piling up goods in the channel partners' warehouses. This is short-term poison; it makes the financial reports look good, but it damages Sega's long-term customer value."
"Furthermore, regarding this operational style—I don't believe you don't see the risks. While taking some risks for the sake of sales volume is worthwhile, that doesn't mean we can ignore the existence of those risks."
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