Accelerating innovation and growth in focus
Digitalization is picking up speed. This demands businesses to change as the boundaries between industries blur in a way we haven’t seen before. In 2015 change was also at the centre of Tieto’s operations, as we put our focus on accelerating innovation and growth.
The changing behaviour of both consumers and corporate clients accelerates digitalization enabled by new technologies. It is already normal for consumers to have access to everything 24/7, including self-services and personalized digital experiences. This change is gradually hitting all industries and industrial processes. New opportunities arise not only within industries but also in new ecosystems in the intersection of multiple industries and consequently, traditional industry boundaries will be blurred. As a result, all companies must review, transform and digitalize their businesses in order to be able to provide services fitting the new digital world.
As the leading IT software and services provider in the Nordics, we are constantly looking for innovative solutions to benefit our customers. With strong industry and business insight, technology understanding and the ability to orchestrate new digital services, we support our customers’ needs in digitalization. To meet the ambitions set for being the best digitalization partner for our customers, we have focused on several growth initiatives.
IT services growing in challenging market environment
The overall IT services market grew by around 2% in the Nordic countries in 2015. The decline in traditional services coupled with the continued challenging macroeconomic environment in Finland continued to affect overall market growth. For us, however, 2015 was a year of growth for our main business, as our IT services business grew organically by 3%.
We have good reasons to be satisfied with how we were able to improve our profitability during 2015. With an underlying operating margin of over 10%, we continued on the path towards improved long-term profitability objective.
Looking ahead, Tieto estimates the Nordic IT services market to grow by around 2% in 2016 and expects full-year operating profit to increase from the 2015 level.
Emerging services continue to drive growth
In line with our company strategy, the main focus in 2015 was on accelerating our growth portfolio. We focused on the development of chosen growth businesses by investing in the offering and competence development as well as recruiting new talent. Furthermore, we implemented three acquisitions and launched a third start-up, Security Services, as announced in January 2016.
In the future, co-creation with partners and customers is becoming increasingly important in order to provide customers and consumers new better services and utilize the best technologies for the purpose. In 2015, we also concluded several partnerships to be able to provide customers with best-of-breed technologies supplemented with a stack of Tieto’s services and solutions.
To support innovation and longer-term growth, over the last few years we have continued to increase our annual, fully expensed investments in new service development from EUR 40 million to EUR 60 million, while continuing to improve profitability in line with our long-term objectives.
In 2015 Tieto had several growth initiatives and we targeted our most extensive investment measures towards our five growth areas: Customer Experience Management, Lifecare, Industrial Internet, Cloud Services with the latest addition being Tieto Security Services. With all these growth bets, our aim is to seek faster growth than the market in the long term.
Investing in capability renewal in 2015
To take advantage of the market changes, we have also invested in competence renewal. Recruitments in 2015 were high at 1 800 in total, of which around 500 were new positions to support our emerging services. The recruitment of over 400 professionals in the Nordic countries further strengthens our position as the leading advisor in our core markets.
To support our capability development in emerging areas, we’ve invested in competence development and recruited new types of competencies — business consultants, solution consultants, architects, user experience designers and software developers to join our talented teams. At the same time, many new services are less labour-intensive, and automation reduced the need for certain existing roles.
In addition to development and recruitments in new service areas, our performance drivers in 2015 also included automation in Managed Services and industrialization in application management. In our continuous pursuit of better productivity and efficiency, standardization and industrialization of service deliveries have a key role. The Managed Services automation programme was initiated in early 2015 and has since progressed on schedule. It has been a major contributor to the margin improvement we achieved in 2015.
Taking the lead in digitalization with new acquisitions
Adding also from the competence perspective and in accordance with our strategy, we completed three acquisitions during 2015. With the purchase of Software Innovation, a leading software company in the Enterprise Content Management (ECM) business in the Nordic countries, we were able to strengthen our presence in Norway and expand our scalable software-driven business.
The Nordic market for Customer Experience Management is anticipated to grow by around 20% annually. To strengthen its commerce capabilities and to drive growth across all industries, Tieto acquired Smilehouse, the largest Finnish solution provider of multichannel commerce with operations primarily in Finland and Sweden.
Then, to strengthen our position in paper and forest industries in Sweden, we acquired Imano, a Swedish consulting company offering consulting services and helping its clients in the paper and forest industries digitalize their business processes. Aligned with our strategy and in our efforts to reinforce the focus of operations we sold our Lean System business in Finland.
On our way to becoming the preferred digitalization partner
We are definitely on track in re-shaping Tieto’s competitiveness through active investments in both automation and new services. In 2015 we concluded both our annual customer experience and employee engagement surveys, and we were happy to see that the results confirmed the positive renewal of Tieto. I’m particularly pleased with the significant improvement in our employee engagement, which gives us a strong foundation to provide exciting career opportunities for professionals and drive innovation with our customers.
The next important milestone on our journey towards renewal is enhancing our employee experience and open source culture by moving the company’s head office to the West Coast Business Campus in Keilaniemi, Espoo during 2016.
Our industry continues to change at a rapid pace, thus opening up opportunities for growth and innovation. We look forward to expanding our growth and service development even further in order to help our clients make sure they are always one step ahead.
I would like to warmly thank our customers, employees, partners and shareholders for their support on our journey. In light of our progress and renewal over the last few years, we look forward to an exciting 2016!
President and CEO