STW to shed 30 businesses and remove ‘dead wood’ as more details emerge of shake-up

stw logoSTW Group has revealed it will reduce its number of businesses from 80 to 50 as more details emerged of the restructure and consolidation underway at the company.

Chief executive Mike 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 told an investor briefing 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”.

Mike-Connaghan-July-2014-2-234x350The 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.

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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”.

“We’ll keep incubating new businesses and innovating but we are looking to clean up the garden of STW,” he said. “We think that we’ll get from 80 to 50 and be there by the end of this year.”

He said the process was already well underway and stressed other businesses within the group would be merged to create larger entities with improved efficiencies.

In some cases, three companies will be merged as Connaghan argued that a specialist operation also needs the expertise of two or three other companies. Production was one area identified as being ripe for consolidation.

“The world is moving so fast that one company which is very specialised in one area really needs the speciality of another company to bring two, or three things together, to create a really powerful story in the modern marketing world,” he said.

The STW chief cited Ikon as an example, which he admitted had a “very tough year last year”.

“We clearly had to make some changes to that business,” he said. “What we have done is merge a couple of our other businesses [Moon and Shift] with Ikon to create pretty much the first new age full service agency. ”

The addition of advertising, strategy, design and digital to operate alongside a media led business in Ikon has created a “content business not just a media business”.

“We have gone from three different banners into one, creating the Ikon Sydney Group. It is a fantastic opportunity for us and we have already secured a couple of clients on a full service basis,” Connaghan said.

The consolidation has also began in Asia where Aleph has Edge have come together to form the “region’s largest digital native business”.

“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”,  Connaghan said. “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.”

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.

“We have already taken quite a few heads out, including the dead wood, and that has been a program that was clearly important and needed,” he said. “There is obviously a cost associated with that. We are driving hard into these operational efficiencies.”

He added: “We are forging ahead, we are firmly in control and we are winning.”

Steve Jones


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