Services firm hopes redundancies will give it a more competitive cost structure
March 20, 2012
HELSINKI -- Tieto launches its strategy for 2012–2016 with the objective of becoming the preferred partner in business and IT transformation based on its strong position in the Nordic countries. Tieto will build its competitiveness and future growth through industry expertise, geographical focus and simplified operations.
Tieto will expand its capabilities to cover full IT lifecycle services by investing in Consulting and System Integration (CSI). Product Engineering Services (PES) will pursue global opportunities. In order to improve profitability and price competitiveness, Tieto will drive actions to simplify its operations and achieve a competitive cost structure by means of a planned net reduction of EUR 50 million in the company’s cost base.
Full IT lifecycle services and industry focus as customer value drivers
Based on Tieto’s long experience in selected industries, the company will emphasize industry-based knowledge in its operations. The company will create higher customer value by integrating industry knowledge with Consulting and System Integration services (CSI), Managed Services (MS) and industry products, including its own IPR.
The company will expand from its strong position in managed services to provide full IT lifecycle services to cover larger IT needs and opportunities. Tieto aims to increase the share of CSI revenue from the current level of less than 20% to over 25% of total revenues towards the end of the strategy period. Growing CSI enables Tieto to increase its market share and become more resilient towards price pressure.
Focus on markets where Tieto can be among the Top 3 IT service providers
Within the current core market, the Nordic countries, expansion builds on the company’s strong position in Finland and Sweden. The company has decided to revisit its expansion strategy outside the current core market. Tieto seeks to continue operations in countries or expand to markets where the company has the potential to be among the Top 3 vendors, has the ability to provide full IT lifecycle services and sees a strong fit with its industry offerings. Countries where the long-term outlook for EBIT is less than the company’s 10% target will be optimized for profitability and evaluated for potential exit.
In Russia, Tieto will focus on supporting Nordic customers and locally on the financial services and the oil and gas industries. A profit optimization programme is currently under way in Russia and it is expected to yield positive results during the first half of the strategy period. The scope of operations in Germany will be reviewed during 2012.
Product engineering pursues global opportunities in the connected world transformation
Tieto sees an opportunity to capitalize on the evolution of the connected world by utilizing its strong position in Telecom R&D services, global delivery capabilities and proven quality. Tieto has decided to operationally enable Product Engineering Services (PES) to pursue its global customer base and opportunities by reducing operational dependencies in the IT services business. PES acts as one of the key sources for Tieto’s innovation, future growth and financial performance. The profitability of PES is expected to be in line with Tieto’s profit objectives during the strategy period.Improved profitability and quality essential prioritiesImproved profitability and quality are top priorities during the strategy period. Key sources for the targeted level of operating margin (EBIT) and quality are as follows:
simplified operations to create a competitive cost structure driving a significant part of the profit improvement
efficiency and quality improvements in managed services through automation and offshoring driving price competitiveness and contributing to profit improvement
growth of high-margin services in CSI enabled by investments in competencies for technology consulting and project management
global expansion of PES
rationalization of non-core country operations and product portfolio during the strategy period.
Simplified operations to create a competitive cost structure – personnel adjustments started
Tieto will continue to simplify operations and operating structure to create a competitive cost structure with a view to achieving annualized net savings of EUR 50 million by 2014. Around one fourth of these savings are anticipated to affect operating profit for 2012.Improving price competitiveness requires reduction of overhead costs and increased productivity across the company. Tieto has started Group-wide actions to reduce non-customer centric work, cut overlapping tasks and improve productivity. Additionally, the utilization rate is at an unsatisfactory level in some businesses.
The negotiations are expected to lead to a reduction of about 1 300 employees of which close to 500 in Finland, close to 300 in Sweden and around 500 in other countries. The negotiations with labour union representatives will be started in accordance with the local legislation and labour practices in each country.
The planned redundancies are anticipated to account for a substantial part of the targeted net savings and will mainly be implemented during 2012. The one-off costs related to the planned streamlining actions are estimated at around EUR 50 million, but will be specified during the negotiations.
Tieto Corp.
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