Stuart Smith's Blog

Stephen Fry and Jeremy Paxman know who they are. The Great Polymath and the Grand Inquisitor both gave the Dentsu name a big leg-up last week by publicising some rather innovative animation involving an iPad and the London office – one on Twitter, the other on Newsnight.

Paxo: He's heard the Dentsu name

But do clients know who they are – those, at least, based outside Japan? That, in a nutshell, has always been the defining strategic problem of the world’s fifth largest marketing services holding company. Its dominance in one market – even now the world’s third largest – is crushing, thanks in part to the lack of conflict culture in Japan. But it has signally failed to replicate elsewhere the success it enjoys in its home market. Until three years ago, only 8% of its revenue came from the rest of the world.

“Wakon Yosai” – Western technique, Japanese spirit – may have been the underlying principle of Japan’s international industrial success, but it simply doesn’t work in a people business like advertising. Dentsu has been slow, not so much to recognise this as to deal with it. It has tried numerous strategic alliances with Western agencies over the years, none of which have borne it much fruit. The current one is Publicis Groupe, in which it is an 11% stakeholder (with 15% voting rights). It has also tried haphazard direct acquisition – most notoriously an already decrepit Collett Dickenson Pearce, for which it paid far too much money back in 1990. CDP withered on the vine; today its legatee, Dentsu London, is little more than a service shop for established Japanese clients like Canon.

But, make no mistake, change is in the air. There is an aggressive, some would say desperate, determination to do things differently before it is too late.

Take as a starting point Dentsu’s announcement this week that it is is pooling all of its North American, Latin American and European businesses (excluding Russia) into one giant operating company, Dentsu Network West.  One of the novel features of the new set-up is that it is completely captained by Westerners. Its group chief executive is Tim Andree, also ceo of Dentsu North America; its head of Europe is Jim Kelly – formerly a senior executive at WPP; its Latin American ceo, Renato Lóes – newly headhunted from Leo Burnett; and its finance director is Nicholas Rey, another new appointee.

This certainly marks a break with Dentsu tradition, which has always stressed tight Japanese direction out of Tokyo HQ. The key is Dentsu’s all-American pin-up boy Andree. The hulking  former National Basketball player (he’s 6ft 11in tall) and ex-Toyota-cum-Canon client has a special place in Dentsu history: in 2008 he became the first non-Japanese to be appointed executive director of the holding company, Dentsu Inc – a position just below the main board. It was a mark of the esteem in which he is held by Dentsu president and ceo Tatsuyoshi Takashima, who himself has a pronounced “internationalist” outlook. Mindful that Japan’s is a stagnant ad economy that has recently slipped behind China’s, could he sensibly be anything else?

But let’s return to Andree. During four years of frenetic activity as head of North America he has bought, on Dentsu’s behalf, Attik, 360i and McGarry Bowen. The last of these has, for the first time, enabled Dentsu to break into blue-chip clients such as Kraft, Verizon and Pfizer in their main market. DNW is Andree’s dividend – the roll-out of his North American model to Europe and Latin America.

The promotion of Andree is not the only indicator of strategic change at Dentsu. It has been unusually vigorous in trying to buy up the few independent digital assets still remaining. A $600m pre-emptive bid for AKQA, flagged up in an earlier post, is currently capturing the headlines. But let’s not forget the bitter contest over Razorfish, in which Dentsu put $700m on the table, only to lose out to its “strategic partner” Publicis – even though it came in with a lower bid.

There has been internal scepticism of the Publicis/Dentsu deal – as a strategic asset rather than an investment – right from its inception in 2002; the Razorfish fiasco seems to have brought that to a head. Dentsu has already begun to pull out of Publicis; total disengagement by 2012, when the agreement comes up for renewal, would be no surprise.

In short, Dentsu has belatedly realised it has no choice but to aggressively go it alone if it is to be anything more than a powerful regional player. Such behaviour is contrary to everything in its tradition, which is internationally passive while also very controlling. The small-print in the DNW initiative hints at much greater devolution from Tokyo – especially in the matter of strategic acquisitions. That remains to be seen.