In its strategy for 2016–2020, Tieto aims to address its customers’ dual agenda: to run their existing businesses efficiently while innovating new services. Tieto is enhancing its competitiveness and growth through three strategic choices:
- Services to accelerate customer value
- Nordic leadership and international expansion
- Active participation in open ecosystems and co-innovation.
Focusing on Nordic enterprises and the public sector, Tieto seeks to grow by further increasing its market share in the Nordics. Growth will also be supported by international expansion of selected industry solutions that have proven to be effective in current markets.
Tieto’s strategy and financial objectives remain unchanged and as stated in the strategy launch in 2016. Tieto continues to drive shareholder returns above industry average. Positive financial development and attractive dividend policy are expected to continue while the company has increased its investments to support innovation and growth.
Strategy implementation in 2017 and 2018
Tieto continued to consistently execute its strategy based on the objectives set for the year. In 2017, the focus was, e.g. on innovation and growth, quality and customer experience, productivity and ensuring future skills.
Tieto’s growth of 4% in local currencies exceeded market growth and was supported by acquisitions. Emric, acquired in 2016 to accelerate growth in Industry Solutions, and Avega, a consulting company acquired to strengthen Tieto's foothold in Sweden, both contributed to growth in 2017. In line with the objectives set for the year, growth in Sweden rose to 8%, and also organically sales were up by 5%.
To ensure the company’s position as customers’ first choice for business renewal and help increase the company’s Nordic market share by 1–2 percentage points by 2020, investments in offering development were maintained at an elevated level of close to EUR 75 million, representing 5% of sales. The largest portion of investments are targeted at selected industry solutions, including the use cases in Tieto’s Data-Driven Businesses, with a view to gaining momentum towards the end of the strategy period. Tieto aims to raise the share of Industry Solutions close to 40% of the Group sales by 2020. In 2017, Tieto continued to follow the roadmap for the company’s software renewal while Industry Solutions’ growth in 2017, totalling 5%, was somewhat below the long-term target. With important launches planned for 2018, investments are anticipated to yield results during the second half of the 2016–2020 strategy period.
The 2017 automation programme aiming to ensure constant productivity improvement and competitiveness has been thoroughly implemented. Additionally, the company’s ambition to reduce sales & administrative costs has progressed, decreasing the share accounted for by these costs from around 15% to 13–14% of sales.
Overall, 2017 was a strong year for all key stakeholder groups, including:
- Employees: improvement in employee experience, measured by the annual employee engagement survey
- Customers: all-time high customer experience based on Net Promoter Score – customer-centricity coupled with systematic practices help Tieto restore and further improve quality
- Shareholders: healthy returns maintained with strong dividend payout while innovation and investments in selected solutions continued to ensure future growth.
Tieto was recognized for its achievements during the year, which will provide a good basis for strategy execution in 2018. In its research published in 2017, Forrester named Tieto a Strong Performer in hosted private cloud services in Europe. In addition, Thomson Reuters recognized the company’s continued focus on innovation, good performance and social responsibility, and selected Tieto for its Top 100 Global Tech Leaders list.
In 2018, Tieto will continue to invest in accelerating growth based on selected high-growth businesses. The focus will be on growth in Sweden, proven scalability in Data-Driven Businesses and key launches in Industry Solutions, including Transaction Banking and Hospital Information System solutions.
Tieto is seeking to grow faster than the market in the long term. The company aims to accelerate customer value with end-to-end industry solutions and active modernization of customers’ technology landscapes. Additionally, data-driven businesses help Tieto and its customers to capture the opportunities provided by the data-driven economy and artificial intelligence.
Tieto drives scale and repeatability through investments in software businesses, including start-up businesses with strong growth potential. Industry solutions based on leading industry-specific software products, system integration capabilities and partnerships form the basis for Tieto’s differentiation.
Growth will be based on a strong solution foundation built on a dynamic portfolio with selected industry solutions and growth services. The company has increased investments mainly in the following growth businesses during the past two years:
- Selected industry solutions and Data-Driven Businesses with aggregated annual sales of around EUR 340 million in 2017
- Lifecare (Healthcare and welfare)
- Case management (Public sector)
- Banking solutions (Financial services)
- Payments (Financial services)
- Data-Driven Businesses – started in July 2016 and reported within selected industry solutions
- Selected growth services with annual sales of around EUR 190 million in 2017
- Cloud services
- Customer Experience Management
- Security Services.
In 2017, sales of the growth businesses amounted to around EUR 530 million and the increase totalled 8%, comprising growth of 6% in the selected industry solutions and Data-Driven Businesses and 13% in selected growth services.
Tieto’s start-ups, Security Services and Customer Experience Management, were the strongest growing businesses. Security Services, launched in late 2015, completed its year with double-digit growth in the fourth quarter and saw a full-year sales increase of 19%. Increasing awareness of cyber security and the need for protection continues to accelerate the demand for security services. Tieto anticipates that the EU General Data Protection Regulation will open new opportunities during the first half of 2018. Customer Experience Management (CEM) posted full-year growth of 26%. Tieto continued to develop omnichannel capabilities as well as agile customer-driven solutions enhancing personalized user experiences based on data and intelligence. The focus has been on the development of a next-generation customer experience solution built on new microservices architecture combining business knowledge, design, software development and rapid deployment. The solution is targeted at omnichannel marketing, sales and service. Cloud services posted growth of 10% 1). There is strong interest in shifting from current service environments to Tieto’s OneCloud solution. The solution, launched in early 2017, is a dynamic solution that enables customers to efficiently manage multiple cloud services through one platform.
Growth solutions within Data-Driven Businesses, such as Intelligent Wellbeing and Empathic Building, and their expansion from Finland to other Nordic countries, have developed favourably and have received good customer feedback. Also, Tieto is implementing Digital Data PaaS (Platform as a Service) solution for customers in a number of industries and the good momentum is expected to continue. In 2018, the focus will be on acceleration and scale.
1) Cloud services growth of 10% includes both infrastructure cloud and selected services such as cloud-enabled consulting and shared integration services. Infrastructure cloud (Infrastructure as a Service and Platform as a Service) sales in the full year were up by over 15%.
Performance drivers 2018
In IT services, Tieto aims to grow faster than the market during the year. To support this ambition, Tieto is committed to actions driving competitiveness and will continue its investments in innovation and growth. In line with its aim of accelerating growth in the consulting-driven Swedish market, Tieto completed the acquisition of Avega Group AB in December 2017. This will also affect sales in 2018. Avega’s annual sales amount to around EUR 45 million, of which around EUR 4 million was recognized in 2017. IT services’ performance drivers also include
- solution launches contributing to growth
- offering development
- recruitments in new service areas and related competence development
- automation and industrialization in service deliveries
- salary inflation.
The company will continue to renew and strengthen its service and solution portfolio with a special focus on selected industry solutions driving growth. Offering development costs are anticipated to remain at the 2017 level at close to 5% of Group sales.
Capital expenditure (CAPEX) is anticipated to remain below 4% of Group sales.
In line with the market change, competence renewal will continue. In addition to close to 450 employees from acquisitions and new outsourcing agreements, Tieto recruited close to 250 new employees in 2017, mainly in new competence areas. As part of its long-term renewal and the need to increase productivity and price competitiveness, Tieto initiated actions to optimize its productivity and cost structure globally in 2017. Redundancies implemented during 2017 amounted to over 500 and the actions altogether resulted in gross savings of around EUR 20 million in 2017. The company expects that the actions will result in additional gross savings of around EUR 20 million in 2018, mainly in the first half. Around half of the total redundancies affect the Technology Services and Modernization service line.
Tieto currently estimates that its full-year restructuring costs in 2018 will represent 1–2% of Group sales. Overall, Tieto’s restructuring needs will be based on automation, other productivity improvements and the need to align the company’s competence base with market demand.
Salary inflation is anticipated to amount to close to EUR 30 million in 2018.
At the annual level, Tieto anticipates positive growth and profitability development to continue while financial development is anticipated to experience a degree of quarterly variations during the year. The first quarter will be affected by a lower number of working days whereas the second quarter is expected to be stronger. Additionally, first-quarter currency effects will be negative based on year-end exchange rates. Further details on currency sensitivity are available at www.tieto.com/currency-impact. The market for Industry Solutions is expected to remain good, especially in the financial services and healthcare and welfare segments, and Tieto’s product launches during the year are anticipated to accelerate growth towards the second half of the year.