Barry Lustig
Jun 17, 2015

Where Dentsu's venturing

Dentsu's approach to venture capital points to significant cultural changes in one of the advertising industry's most complex organisations, writes Barry Lustig of Cormorant Group.

Barry Lustig
Barry Lustig

A few months ago, Dentsu made an announcement that 35-year-old employee Kotaro Sasamoto, a recent graduate of Harvard Business School, would lead Dentsu Ventures as its managing partner. This new business unit will make big and small technology investments globally.

Dentsu has been so active acquiring and restructuring that it’s not easy to prioritise what’s significant and what’s not. On the surface, Dentsu Ventures seems like a routine corporate experiment. However, it’s likely indicative of material changes at HQ if one is able to read between the lines.

Dentsu Ventures is a by-product of two important issues most of us know almost nothing about, namely: 1) how Dentsu HQ is transforming after its acquisition of Aegis and 2) what strategy Dentsu might employ to ensure its long-term future.

Unfortunately there isn’t a simple storyline with regard to this transformation as Dentsu has been and continues to be a big and complex company. We can, however, get some hints about where Dentsu may be headed by taking a look at this new unit’s management, mission and structure.

The translation of the Dentsu Ventures announcement into plain speak may read as follows:

'Dentsu Ventures, a new venture capital unit, will be run by a relatively junior employee who took a couple of years off work to get a business degree overseas. This employee and his team will invest company funds strategically yet speculatively with its main focus outside of Japan. Furthermore, Dentsu Ventures is partnering with an outside investment company on portfolio selection and management.'

This announcement would be impossible to imagine a year ago let alone before the acquisition of Aegis in 2013. It seems that Dentsu is changing at home in Japan as well as abroad.

Kotaro Sasamoto is hardly alone in having earned an elite qualification abroad. There are more than a handful of Ivy League graduates working at Dentsu HQ. Nearly every employee is a graduate from a highly ranked university.

In the not-so-distant past though, if an employee were truly indispensable, they’d be working and working at HQ in Tokyo. Taking a couple of years off work, even if the time was spent on earning a Harvard MBA, was generally frowned upon.

It’s a subtle sign, but Sasamoto’s appointment is credible evidence that senior Dentsu management is redefining the skills and experience mix it considers necessary for future leadership of the business. As further evidence of the increasing importance of foreign study and experience to the leadership, Dentsu president Tadashi Ishii majored in Hispanic studies, and at least two of Dentsu’s most influential global officers spent significant time working abroad: board member and EVP Yuzuru Kato and executive officer Hiroaki Sano, a rising star who goes by the name of Charlie and leads the Dentsu-branded agencies outside of Japan.

Then there is the question of seniority. While 35 may be ancient in the world of Snapchat and Facebook, at Dentsu HQ, where length of service matters, Sasamoto is a relative junior. It would seem that HQ is encouraging “younger” employees with different experience than their predecessors to take on highly visible, global management roles.

In going through the press release and website, the most significant point to note is that Field Management, a newly established venture capital firm, has partnered with Dentsu on such an important and visible strategic initiative.

When I spoke with Sasamoto, he told me that, “an important aspect of  Dentsu Ventures' mission is to help bring new ideas, talent and styles of working into the company. This is essential to our company’s future.” Dentsu is not just talking about incorporating external expertise into its operations. It’s learning how to do this as a practical matter then putting it in to action.

During a recent trip to Tokyo, an official from the Japan Business Federation, Japan’s most powerful business association, made an observation to me about Dentsu that left an impression. He said that Dentsu’s business domain in Japan is almost impossible to define, but its influence is felt almost everywhere.

This assessment rings true when one considers that Dentsu’s first-tier subsidiaries develop and test industrial software and help chefs design award-winning menus and recipes. One Dentsu company will happily tidy up your office and collect its trash. Dentsu’s second tier subsidiaries and investments are even more far reaching in their influence. In Japan, Dentsu is a diversified company far outside the core of advertising and media.

When I asked Sasamoto about Dentsu Ventures' investment focus, he dutifully listed data analytics and emerging social and media platforms as top priorities for the fund. But the excitement in his voice rose palpably when he spoke about investments in fields like “robotics, IOT, healthcare technologies and other high potential sectors long-term".

The significance of Dentsu Ventures' establishment cannot be taken at face value. Why it was started and how it is structured is the story, at least for now.

Dentsu is not going to tell us directly about how it’s transforming and what this transformation means. However, as we have just seen, it will send out clues to help us infer what might be going on.

In addition to Sasamoto, expect to see other fresh faces from its ranks in global decision-making roles at Dentsu HQ. Also expect to see a selectively more open and cooperative company. These changes will likely help Dentsu become an even more confident, responsive and aggressive competitor at home and abroad.

Furthermore, Dentsu is clearly eager to gain experience nurturing entrepreneurs and emerging technologies overseas. If (and when) Dentsu decides to make big and diverse investments with top-tier venture and private equity funds globally, it will fundamentally change its future business and our industry. Get ready.

Barry Lustig is partner at Cormorant Group, a brand and market strategy consultancy with a focus on Asia-Pacific.

 

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