In the recent past, Dentsu has seen more than its normal share of news headlines when it comes to acquisitions or aggressive growth plans clearly aimed to build a global footprint. Under the leadership of Tim Andree, Executive Vice President, Dentsu Inc (Also, Executive Chairman, Dentsu Aegis Network and President & CEO, Dentsu Network), the company is successfully growing out of a Japan-only image and becoming a full-fledged global competitor. In a candid interview with DMA’s Noor Fathima Warsia, Andree speaks on the company’s philosophy, its M&A strategy and what makes Dentsu unique as a holding company.
Unlike some of the other companies that are experiencing a two-speed world, Dentsu has been speaking of a ‘three-speed’ world. What is triggering this for the company?
This year, specifically for us, has been a three speed world. There are markets such as Western Europe and Northern Europe that are witnessing stable growth as Japan does for us – these are our steady growth markets where we expect to beat market growth. Southern Europe is still volatile but it is not affecting us much yet because even though we are a prominent player there, it is only 8 per cent of our overall revenue.
The second speed is the fast growing world of the emerging markets – the BRIC and the next 11. While there has been some mitigation in growth there, these markets are still clocking double to even triple digit growth rates. We expect it to stay that way and we think we will grow twice as fast as the market growth rate.
The third speed, which in a manner is more specific to us comes from North America, a developed market that is still growing at a fast pace. As Dentsu Aegis, we have been a historically small player in this market. We are at present a new and a very competitive option for clients. We believe that this is a different speed where we would grow much faster than the industry. To give you an example, since our acquisition of McGarry Bowen and 360i, we have grown at 40 per cent in North America.
What are some of the things fuelling these growth expectations?
Largely, our recently attained position of being a full-fledged competitor. Aegis operates in 110 markets, but its offering has been largely in the digital creative, digital performance media and traditional media space. Dentsu has been operating in 29 markets and in all of these markets we have fully built out our service capabilities as we have in Tokyo. By coming together, we have more geographies and more combined clients. Now, we are in more than 110 markets, Dentsu has 6000 clients and Aegis has 5000 clients and we have more capabilities to be able to cross sell. We bring the best of breed technology and creative solutions from great agencies that is integrated in a friction less way and delivered across the region. In our existing client database, in some form or another, we have 77 of the top 100 advertisers in the world. We believe that if we can utilise the cross offering of our services, we would be able to grow organically by giving clients what they want.
Since we are on the subject of the Aegis acquisition, merging a company is one thing but what are the challenges that you faced in merging two holding companies that clearly have very different organisational cultures?
We don’t blend culture to begin with. It is essentially about values and whether the two organisations strategically complement each other. Our deal with Aegis is an incredibly friendly one. We have strength in Asia and they are dominant in Europe. We both have fast growing operations in America. There is very little overlap between the disciplines of the two companies. We both share similar values around client centricity, innovation and doing things in a different way.
Our way of bringing talent and organisation into our company is built on the idea that we want people to stay and we want to empower them. We are not looking at a company as just an asset or a set of brands or clients — we are looking at the strategy of the company, how it complements us or does something for us that we have not been able to do yet. Most importantly, how can we accelerate the growth of the company with our resources. If you look at all our acquisitions since 2006, through our philosophy around people and empowering companies, we have been able to help many companies move faster towards their growth destinations. We believe we have the same with Aegis. Granted it is the biggest deal ever done in the industry and it is a complicated set of organisation but the complementary nature and the goodwill around the management team has been the most important aspect of this deal. The team is here and staying. We created an environment for them where they know they are going to lead their businesses. Aegis had an operating model that is collaborative with a single P&L (profit & loss) so that brands don’t compete with each other. And that has been Dentsu’s model as well. If we can take this, where we have best in class agencies that don’t compete with each other and whose nature is towards collaboration, my conviction is that that is what clients want.
We are different from the other holding companies by design. We are not trying to create a financial model but a frictionless marketing services model for global clients. Our shareholder community will be rewarded if we do this well. It would drive organic growth and help increase our capabilities to serve clients. If client outcomes are achieved, we get paid not only for efficiency but for increased profitability.
Your philosophy on expanding your global footprint also seems to factor in what clients are doing. APAC is an important market for most companies right now – what are some of the expansion plans that you have for the market?
Chasing growth or assets when it comes to making market investments is only one factor. There are various others, such as where are clients, where we are strong versus where we are weak. Where should we scale to benefit clients. So, we are looking at the different markets in the region separately for this. We have a very scaled-up operation in Australia. Our intention is to take the power of the three hubs – India, Australia and China – and project capability into less scaled markets such as Taiwan and Korea or into the hyper growth expectations markets such as Vietnam and Myanmar that are really coming up and showing signs of life. On this aspect as well, there is something unique about being Dentsu.
The old, pre-internet protocol world was built for scale. With the advent of internet enabled media, the way to focus on scalability has changed. The way we see it is how can we structure our hubs and be nimble in moving knowhow and capability around markets. We are trying as much as possible to view the world in the 21st century. Dentsu is the first fully scaled global communication competitor that is built since the advent of digital and that is our advantage. The basic structure of the four other big companies was built in the 80’s and the 90’s. We don’t want to build our organisation in the old world. We are new and different and we understand the importance of globalisation and the convergence of how brands are seamlessly connected.
We have a lot of work to do but our strategy is clear and our business model is right – our risks are now execution risks. We are trying to mitigate the cost of complexity for our clients, by bringing in a business model based on collaboration, worldclass solutions and a global approach. I firmly believe we are the only ones following this course.
With one exception, your acquisition strategy in the region was focussed on digital companies. Will this continue?
Particularly in the digital space, the world keeps changing and we have to use our capital to keep ourselves fresh and evolving. We are looking to add scale where we lack it and add capabilities which we have not developed yet but the most important piece of our M&A strategy (Merger and Acquisition) is to first ascertain how we can accelerate a business by aligning it to us. If you see our history, whether it is McGarryBowen or any other company, they have grown after becoming a part of Dentsu. For instance, McGarryBowen had a very strong growth in 2012 fiscal and most came from existing clients which is healthy. It remains one of the real hot agencies in North America and we are now taking it global into markets such as Shanghai, UK and Germany.
Do you have similar plans for TapRoot in India?
On TapRoot, I have to first say that I am so proud and pleased with the deal. Every organisation in the world would want them to join but they chose us. There is tremendous potential for such companies to add to our creative reputation and raise the creative bar creatively across the organisation. And as they have aspirations to grow outside of India, we would support that. But you have to understand that the biggest disservice you can do to a great creative unit is to franchise it because that is when it begins to lose lustre. If I have any talent at all, we are not going to screw companies up. That is our basic two-fold promise to companies we look to align with – we would do no harm and here is how we can make you better.
Sadly, many in the M&A world don’t realise that it is a very high risk situation when you are dealing with human service. You are not dealing with inanimate objects but with talented people and with culture that needs to be nurtured with a human strategy. If we can effectively continue to do that, putting both the clients and the creativity of our talent first, we can be incredibly competitive on a global scale.
Some people say that Dentsu has been paying too much to companies while acquiring them…
We pay full and fair value for a company. We don’t speak about finances in particular but I can tell you that we are very fair in our valuation and that is how we attract the right talent. We don’t buy fixer-ups. And you can see the bench strength that we have added, as an organisation, managerially from Aegis. To attract the best and brightest, you have to pay a fair value for the company. Also, for the management team to stay for a great haul, they need to believe that we have paid fair value. I believe we have done great deals. I don’t believe what I read in the papers – there is a lot of ego in the business. Our track record on our acquisition can be judged not only with the impact on the financial performance but the fact that talent has stayed with us and got leadership positions in our company. Jerry Buhlmann, my partner from Aegis, is an example of this.
Dentsu is viewed as a player that understands technology. What is the company’s take on how technology will change the way consumer is interacting with brands in the future?
I am flattered you say this. Japan is an early adopter market. I tease people all the time that if you want to see tomorrow, go to Japan! The market itself has a very demanding consumer base. It has an intuitive nature to technology. Dentsu has been fortunate by scale and capability but now we have to open up a bit and push this capability out in the world. We have always believed that it is not about above or below the line but through the line. We want to be at the nexus of technology, storytelling and entrepreneurship. To answer your question, I don’t know what the future brings for us. What I do know is that we are at a time in this business where anything is possible. It is a time of great convergence, great ‘globality’ and if you are not excited about where we are as an industry today, then nothing would be too exciting.