On a recent trip to Japan, Dentsu director and executive officer Tim Andree spoke to Barry Lustig, a regular columnist for Campaign, about the areas the company is looking to for growth and how it is charting its course at a time when the holding company model seems to be under siege.
Andree is responsible for Dentsu’s international operations, which continue to grow at a healthy clip. Recently issued results for the year’s first half showed revenue growth of close to 10% across Dentsu Aegis Network, driven by digital.
While growth in Japan has been slower, Andree notes that the low cost of capital there has enabled Dentsu’s aggressive M&A strategy (since buying Aegis in 2012, the company has made around 150 further acquisitions). The addition of companies such as Merkle have been important drivers of new business, Andree says.
Having begun his career at Toyota in the 1980s, Andree joined Dentsu in 2006. In 2013, he became the company’s first non-Japanese board member.
Many agency holding companies are busily reorganising their brands and businesses. How is DAN responding to this trend?
As we began to build our global business [with the purchase of Aegis in 2013], we were very cognisant of the importance of digital. From the beginning—and this is something that I stressed—we did not want to build the traditional holding company. As Dentsu was moving toward globalisation and digitalisation, what good would it do us to be WPP but smaller? Of course, legally we are a holding company. We buy companies. We own companies. But we have tried to design this in a complementary system with deep specialisms that can operate in an integrated fashion and deliver a holistic solution.
The reason you are seeing a lot of changes in our competitors now is that they are responding to that model. It used to be that unbundling was important; that a holding company had deep specialisms and sold them against each other. Now with the advent of the digital economy, clients want partners who can work across geographies, across disciplines and deliver for them in an integrated way.
When you see the competitors shifting, they are doing so more for efficiency. They are trying to get their organisations which were designed to compete against each other to collaborate. We were able to design this from the beginning.
Over the last year or so, more than a few major clients have cut their advertising and media budgets. How has this affected DAN?
Our growth in 2017 was atypical because there has been a pullback in spend. There has also been a disassociation between advertising spend and GDP. They used to go in synch, but they have been separating in the past year or so. The short-term response for us has been to focus on winning new business.
In 2017, we won about US$5.2 billion in media [net new business], more than anyone else. I think that the competitive pressures have brought out some of the best in us. But our growth was atypical in the sense that we grew 17% last year but our organic growth, which is usually about 50% of the total, was much smaller. This was the first time [since we bought Aegis] that we didn't outstrip our competitors. We were more ‘in the middle of the pack’.
Our response to that is to continue to trust our strategy and to trust our process. We are continuing to focus, in the short term, on new business opportunities which we have been quite successful at with our systems, platforms and infrastructure. We are focusing on integrating the acquisitions that we have already made and building out from them.
Many consultancies, tech companies and others are moving into areas where advertising agencies dominate. How will DAN compete with its new competitors?
A key acquisition for us was Merkle. It brought us new capabilities, particularly in the areas of data management and data analytics. That acquisition has worked really effectively for us to build us a base, particularly in the US.
There is no doubt that there are new competitors in the marketplace. We are seeing competitors like consultancies or new media groups taking a different form. Initially, from consultancies like Accenture and others, where we were seeing a lot of competition was for our M&A. We would be targeting the same companies.
But we have a compelling offering for companies [looking to be acquired]. I still think, that in many respects, we are the acquirer of choice. That wasn’t always the case.
Do you perceive new market entrants a credible threat to DAN’s businesses worldwide?
I think it's very difficult for any consultancy to try to cherry pick a certain, high profit area of our business. It's going to be a challenge for all of the consultancies to push into execution. And I think that we are now competing in areas which have traditionally been the [domain] of consultancies.
The ability to go upmarket and provide real value to clients in the consultancy areas is a real subject of what kind of innovation we can bring to the table. This has driven our investments in data insights and analytics which allow us to come to the table with a higher level of consulting capabilities than we have had in the past… and that [these capabilities] can be connected to execution. That's the opportunity for us. We are trying to move upmarket whereas the consultancies are trying to move in and move down into execution. It's a harder transition for them.
For example, our investment in M1, which came out of our Merkle investment, has played an important role in our new business wins. We are working hard to make M1 global in seven markets by the end of the year. Once that happens, I think we will have almost a two-year lead on the rest of the industry in providing people-based marketing, in terms of providing personalization and scale. This capability has been central to our big media wins in the past year has been our ability to do that. That's a key point of differentiation between us and our competitors.
What are your medium and long-term goals for growth?
In the medium term, our focus is on the US and China. And I expect the top 10 markets to continue to be our focus. We still have an opportunity to take share in these markets even though we have been growing much faster than our competitors.
China is a market that requires a long-term commitment to succeed. We have been there 30 years or so, and we will continue to focus on China. Over the long term, there is still clearly an opportunity in APAC which is largely driven by India and Southeast Asia.
Right now, I think that the most important market is the US. We have an opportunity to scale there. We have the most advanced representation of our operating model being executed in that market.
What sectors will drive growth?
Growth will clearly be in digital. Digital is growing at three times the pace of traditional media growth. And then areas of mobile, social which are growing at five times. Core areas of growth will be in data analytics, insight capabilities that come along with our investments. If you look at the investments that we have been making in the past year, they all are focused on the areas of expanding digital capabilities, expanding performance media and expanding our data analytics investments.
Top talent has more choice of employers than ever before. Why would they choose to work for a company like DAN?
It's no longer the ‘old world’ of communications. There are a variety of tech jobs in business. This is a big reason why people are coming to us. We are also gaining our talent through acquisition. As organizations join our group—and we have completed about 150 acquisitions since we bought Aegis—we have a track record of retaining that talent over time. [Acquiring agencies] brings to us innovation, new capabilities and new management talent. So, I think people are joining us because 1) they see fast growth 2) they see a high level of potential and 3) they see innovation and opportunity.
What are the implications for staffing considering the rise of AI and other technologically driven platforms?
The type of jobs we need to fill are certainly going to change. For example, we have now close to 7,000 data scientists working somewhere in our operations. Whether or not that is going to reduce the number of people in our industry is unknown. Time will tell. The centre of this is going to be creativity and the special talent that someone can bring to the table; higher value-added talent.
I think that jobs that are necessarily repetitive or burdensome can be done in the future with AI. That will free us up for other kinds of opportunities.
Over the next 12 to 24 months, what are your top priorities?
Nothing is going to change for me. The areas where I focus may change geographically. But there are a few priorities that drive everything.
The first priority is clients: understanding our clients’ needs, their businesses, their challenges and making sure that translates well into our people and our teams. The second area I prioritise is our people and making sure that I get around the world. It is very important to deeply understand what is happening in various markets, listen to our people and help build our organisation to support their challenges. The third priority is to spend time mentoring the future [of our organization]. I spend time with our high potential people and helping to ensure that the organisation has long, deep and well-organised succession planning. And also, that we cultivate our talent for the long term.
How important is Japan to DAN’s identity? What advantages does its Japanese roots give it in terms of its ability to compete?
Our global business is made up of 145 [markets] that make up 62% of our revenue. Japan is one country and it makes up the rest. Japan’s extremely central and obviously our most important country.
We are on the journey to becoming a global company headquartered in Japan. We are the only company in our industry headquartered in Asia, where we believe that there will be tremendous growth. There are so many positives about Dentsu both culturally and from a business perspective. It's also not lost that a big part of our global strategy has been M&A. This has been served well by the low cost of capital in Japan.
Those elements of being Japanese headquartered have been very important to our success heretofore and will continue to be very important to our success in the future.
Barry Lustig is managing partner of Cormorant Group, a Tokyo-based business and HR strategy consultancy.