Strategy

International business 1

The Arts of Disruption and Synergy in a Shifting Global Landscape

In the context of the global economy, our industry, and Dentsu’s own business, the pot stirred and stirred in 2016— creating changes in significant and unexpected ways for 2017. Geopolitical instability and uncertainty have manifested themselves in many ways through the many markets we call home. Emotionally, politically, and economically, we are witnessing a turning inward; globalization is in retreat; we have seen a rise in nationalism, protectionism, and bilateral trade agreements.

Global GDP expectations remain positive, but uncertainty, insecurity, cross-cultural tensions have real and tangible impact on the commerce we aim to stimulate through our efforts. In times like these, the Dentsu Aegis Network takes every opportunity to reinforce with our people the importance, the opportunity, and the privilege we have of working across borders, of working in a human business that touches real people—clients and consumers— in virtually every corner of the globe.

At Dentsu Aegis Network, we are great believers in the incredible dynamic that comes from connecting our people from diverse markets and specializations. As with a chemical reaction, it invariably produces great energy and enthusiasm, and consistently reconfirms for us that we are in a business of building bridges.

In 2017, our industry is adapting to the new realities of a consumer-led economy that is transparent and interdependent. Walls, siloes, and barriers cannot work in this environment.

Convergence, addressability and real-time—as driven by data—are the new currency of competitive advantage. As the digital economy scales with the further advancement of AI, IoT, Robotics, neuro-sensor technologies, augmented and virtual reality, and other new platforms, we are witnessing and experiencing a clear and conspicuous cycle of disruption and bridge building, repeating itself ad infinitum. As disruption continues to occur at a faster and faster pace, so increases the need for us to bridge the new specializations that necessarily arise. Similarly, as we continue to broaden and deepen our capabilities in more markets around the globe—through organic evolution as well as acquisition—so increases the need for us to build bridges and mutual synergies between all of our markets.

In the course of my eleven years with Dentsu, we have pursued globalization and digitalization with great success, which can be measured in our overall growth, our expansion of digital revenues and the percentage of our business that is derived from outside of Japan. Since the acquisition of Aegis Media and the formation of Dentsu Aegis Network in 2013, we have delivered consistent outperformance of the market and our competitors, in organic growth, top-line growth, and operating profit margin.

That growth continues to be accelerated by strategic acquisitions. With 45 acquisitions in 2016, totaling an anticipated consideration of £2.6 billion (GBP), we led the industry in M&A in FY2016. For Dentsu, these acquisitions are the accelerant—not the strategy—and they have performed as such. Acquisitions have allowed us to scale in key markets and in faster growing segments of the business. Further, our strategic intent to build the leading data and CRM capabilities we have today, would not have been possible organically.

As we proceed, it is not only our responsibility, but our imminent opportunity, to build more bridges and drive more mutual benefit between all of our operations, and specifically to connect our strength in Japan with our best-in-class capabilities throughout our global network. This opportunity lies in two key areas, ripe with potential for synergy.

CLIENT SYNERGY: Building bridges through clients

Delivering more value to our clients in more ways, across more geographies, and through more relevant aspects of their business is our ultimate aspiration as a solutions network, because multi-dimensional value for clients is the primary indicator of an evolved, indispensable, global offering. There remains unrealized potential in extending numerous relationships with global marketers that reside with Dentsu Inc. to the global markets and offerings of Dentsu Aegis Network (including overseas Dentsu offices). To this end, we look to extend synergies already realized and to put a major emphasis on identifying and realizing significant new client synergies between Dentsu Inc. and Dentsu Aegis Network (in both directions).

TALENT SYNERGY: Building bridges through talent

As always, the primary value to our clients is to understand, engage and move consumers to act, in every market in which our clients compete for share. Consequently, the quality, diversity, strength, and knowledge of our people— the human element—will remain at the core of our business.

One outsized strength of Dentsu over the last several years has been the performance of our acquisitions in every respect. We have been extremely successful identifying the right organizations, attracting them, aligning motivations and stimulating post-transaction synergy and growth. We’ve also retained key talent post acquisition at a rate which remains at a level higher than the industry average. This is an under-reported and inestimable advantage for this network. And an ongoing testament to the people in it.

Another critical opportunity moving forward is to combine the world-leading specialist capabilities of the Japan-based business (Dentsu Inc.) with the global experience and platform of the overseas network (Dentsu Aegis Network). We are currently five years into a talent agenda designed to stir the pot by moving talent more regularly and fluidly around the network. In particular, this agenda stimulates positively disruptive additions to the overseas network from Japan HQ, and vice versa.

Potential provided for shareholders : Building bridges into value

Talent and client synergies do not merely result in a more truly global network, but more fully realized potential for shareholders. This is because talent and client synergies are the cornerstones of organic growth, a metric on which Dentsu has outperformed the industry; they are integral components of our M&A deals, which tend to favor strategic and revenue synergies over mere cost-cutting rationale; they are a core driver of how we achieved our targets and consistently outperform the peer group, such as Dentsu Aegis Network’s appropriately two times organic growth vs the peer average in four consecutive years after the acquisition.

Indeed, our distinct imperative as a global solutions network for our client partners is to play a leadership role in both the stirring of pots—i.e. disrupting the status quo, through innovation, new data, new insights, and new ways of moving consumers—and BUILDING BRIDGES to bring value.