Tokyu Agency Restructures ahead of flotation.

Tokyu Agency restructures ahead of flotation

by
David Kilburn

Tokyu Agency, Japan's fourth-largest advertising concern, is restructuring its operations as it prepares to list its shares on the Tokyo Stock Exchange.

The agency's aim is to boost profitability by placing a greater emphasis on more lucrative abovethe-line advertising.

"We plan to list our shares on the Tokyo Stock Exchange in 1998, and so we must satisfy their requirements for financial performance in order to do this," said Hiromichi Ariyama, chief of corporate communications at Tokyu. The requirements include increasing profitability for three consecutive years. "With very little growth [in the industry], we can only grow by increasing our market share and by improving our margins," said Ariyama.

To achieve its goals, Tokyu is pulling back from below-the-line activities and trying to increase media billings. Currently, about 50% of the agency's $1.8 billion in business comes from above-the-line media, compared with 64% for the Japanese industry as a whole. Tokyu hopes to boost media billings to 75% of its total revenues within three years.

"Sales promotion, events, below-the-line are all too often unprofitable for us. We find we've been achieving commission levels no higher than 5% in this area," said Ariyama. "Of course, we are not going to deny our sales promotion expertise to our clients, but we will be making sure it is profitable for us, and we'll be looking for gross commissions of 20-30% to achieve this."

The plan is not good news for many of Tokyu's account executives. "We used to be an agency of account executives. That's changing. Our new focus is on creative and marketing people--we are building up their numbers and cutting down on the numbers of account executives," said Ariyama.

By 1998, the agency expects creatives and marketing people to outnumber account executives by a two-to-one margin, compared with near parity today. Since 1991, Tokyu has reduced its staff by 116 to 1,291. During that time it has cut 81 account handlers and 51 administrative jobs while increasing the creative and marketing staff numbers by 17 to 337.

One casualty of the changes is the agency's "cluster" organization introduced some years ago. Starting this month, instead of assigning creative teams to work alongside client service teams in a cluster, the agency has placed all of the creatives on all accounts in a separate group.

"Of course many of them will still be working on the same accounts," said Ariyama, "but we decided that, for an agency of our size, there was more to be gained from putting creative people together. We think this leads to more cross-fertilization of ideas and better synergy than was happening in the clusters." Tokyu hopes to get more foreign clients as well. Currently, it has only two major foreign clients, Nestle and Mobil.

Tokyu is the only leading Japanese agency without an international partner (Tokyu's smaller sister agency, Tokyu Agency International, managed independently, is associated with DMB&B). While the agency is not looking for an international link, it hopes to be able to attract international business through its relationships with other companies in the Tokyu group, a conglomerate of more than 400 transportation, real estate, retail and hotel companies operating throughout Japan and Asia.

Originally published in:Advertising Age

Tokyu Agency restructures ahead of flotation

by David Kilburn

by
David Kilburn