Dentsu Inc plots restructure as CEO warns ‘transformation is essential’ for growth

Dentsu considers change in its holding group structure

Holding company Dentsu has revealed that it is planning a restructure to make itself fit for "an evolving market and changing client needs".

The marcomms giant said in a statement that it had commenced "analysis of potential changes to the group's holding structure". In English, this means that power will be redistributed to ensure that talent is more easily pooled across the company. As an international entity, the group will look to "establish a governance structure that is not restricted by the current framework".

"Due to the global development of business through Dentsu Aegis Network Ltd, which has seen rapid growth, it has become increasingly important for the group to make more unified and cross-sectional decisions within a set of shared values," the Tokyo-based marcomms giant explained.

"For this reason, it has become essential to establish a governance structure that is not restricted by the current framework of each operating company and enables expeditious decision making from a medium and long-term perspective taking into account the group as a whole."

In practice, this will see Dentsu Inc split into an operating company and a pure holding company that has shares in the split entity, the network, and the Japanese agencies. It promised more news on the structure to come in the coming months and said it will have the changes in place by 2020.

The changes were announced on the day Dentsu's chief executive emphasised the importance of transformation to sustain growth past 2021 during the group’s half-year earnings call.

Toshihiro Yamamoto admitted that the “market remains challenging” as its underlying operating profit for the first half of the year fell to ¥60,862bn from ¥61,970bn in 2017 (-1.8%). Underlying net profit decreased by ¥31,592bn from ¥39,382bn (19.8%).

Yamamoto noted that the “technological revolution” does provide opportunities for growth – if the group can position itself to take advantage of them. He said: “Flexible thinking and creativity remain at our core as we innovate across the marketing mix and deliver long-term value for our clients.”

Dentsu's rethink comes during a time when rival WPP adjusts to a future without Sorrell and Publicis looks to rally around the Marcel AI. Dentsu faces similar issues around greater client demand and the need to pool talent across the siloes. In the second quarter, it revealed that a significant sum had been invested in internal properties like HR, financial and information systems.

Yamamoto said the group is “more efficient and more streamlined” than it was but issued a warning for the future. “This transformation is essential if we are to realize sustainable growth beyond 2021 in a rapidly changing society.”

Internationally the group reported its fourth consecutive quarter of improving growth with Q2 reaching a high of 4.5%. Q3 may slowdown based on client movements. For example, Carat recently lost some vital Mondelez markets globally (while retaining the UK and Ireland).

Nonetheless, for the year, net profit has been revised up from ¥61,600bn to ¥79,500bn.

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