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STW Group merges Asian agencies as company begins major restructure to remove ‘dead wood’

stw logoAustralia’s largest communications group STW, which is part owed by WPP, has merged two of its companies in Asia as part of a major restructure to reduce its number of businesses from 80 to 50.

Singapore-based design and development company Aleph Labs has been merged with Edge, a digital advertising agency launched in 2013, to form the Asia’s “largest digital native business”.

Edge has 450 staff and offices in Thailand, Malaysia, Singapore, Indonesia and Vietnam, where it acquired Red Brand Builders in October last year.

CEO Mike Connaghan said in an investor briefing: “Aleph was a Singapore-based businesses with aspirations for the rest of the region and Edge was a business with many satellite business which were not well connected and not well led. The guy who is running Aleph is a fantastic leader who needed that geographic spread and Edge needed better leadership and a base in Singapore where most of the money is controlled from.”

In a candid talk, Connaghan spelt out the need to build “bigger and better” businesses after admitting shareholders has become concerned at the unwieldy structure of the organisation which meant it was prone to “nasty surprises”.

He said it was time to “clean up the garden of STW” and create a structure that ensured a larger group of senior executives had greater oversight of its business.

Connaghan added that the process of consolidation “will be bruising” and admitted it will lead to job losses and the removal of “dead wood”.

The candid remarks came after STW announced the creation of a 14-strong executive council who will each take responsibility for certain divisions in the company.

Connaghan elaborated on the structure by telling investors the scale of the company was too large to be effectively managed by only two or three executives.

“For the last few years we have run very lean at the centre of STW and rightly so until last year when we had a bad year,” he said. “What became apparent last year, when we had a nasty surprise from three businesses which really let us down quite badly, was that we probably weren’t close or deep enough with every single company to make sure that we didn’t get any surprises.”

Along with the EXCO, measures introduced to prevent such surprises will be a change to its re-forecasting which will move from a quarterly basis to weekly, he said.

Connaghan said management “copped some criticism” over the structure with shareholders saying it was “impossible” for so few executives to have oversight of so many businesses.

“Having 80 businesses used to be a boast but I know many shareholders were concerned about how many businesses we have and we are really looking to rationalise that down to a lower number,” Connaghan said.

“We have a quarterly re-forecasting, but now with this deeper oversight and with a closer watch on things, it will be weekly. We are going to keep on top of these companies and making sure that all the levers in those businesses, the hiring, the firing, the contract signing all have a much closer, deeper oversight.”

While explaining how the EXCO is designed to ensure businesses are better controlled, Connaghan conceded it was time to “have a goal to have fewer, bigger, better businesses”.

He added STW was in the process of selling and closing non-core businesses which “have run out of life force or geographically don’t make any sense” either strategically or in terms of growth potential.

“We will divest businesses that are less relevant to our world,” he said, adding they will, in some cases, remain “friends and partners”.

Connaghan said the rationalisation will not be pain-free, saying “some people won’t be along for the journey”.

“But that is fine,” he said. “Where we are creating something new, clearly there are going to be people who aren’t part of that future. Indeed part of the reason that you bring businesses together is to get some savings out of those businesses.

“In some cases where you have three businesses you have three managing directors and if you only have one business you only need one MD. So there is going to be some fall out through some of the rationalisation.”

It is unclear how many jobs will be lost but Connaghan said the process has started.

Steve Jones

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