Increasing investments into innovation and growth
Tieto aims to become customers first choice for business renewal as the leading Nordic software and services company. As digitalization gains speed, demand for new innovations and the renewal of customers business and IT increases. Tieto seeks a pivotal role in this change and aims to pursue the significant opportunities of the future data-driven world.
For Tieto, 2016 was a year of renewing our strategy and further increasing investments into innovation and growth. To increase value for our customers, we continued our investments in future innovation, growth businesses and software-based industry solutions. Moreover, as a major step in enhancing employee experience and Open Source Culture, the company's head office moved to Keilalahti in Espoo, Finland.
Tieto's new strategy to accelerate innovation and growth
Since our strategy launch in 2012, we have successfully renewed our company: increased our investments in growth businesses, recruited new competencies and established in-house start-ups. After consistent work and solid strategy execution, it was the right momentum for us to accelerate growth and innovation further.
Our new strategy 2016-2020 builds on the solid achievements of our previous strategy period 2012-2016 and upon a strong foundation of differentiating industry software and insight, full life-cycle services, industrialized service delivery and efficient, focused operations.
As stated in our new strategy, Tieto aims to become customers first choice for business renewal. It has been very encouraging to see the good engagement we have been able to create among our stakeholders after the strategy launch.
Increased investments in growth businesses
In the digital world, all enterprises and organizations are facing a dual agenda: to run existing businesses and operations more efficiently, and to innovate new products and services with customer experience at the center.
With a strong growth and innovation agenda, we continued our investments on a higher level into future competencies, technologies and services. In parallel, we are constantly improving our productivity and competitiveness by continuing to step up standardization and automation.
In 2016 Tieto drove scale and repeatability through investments in software businesses. Growth will be based on a strong solution foundation built on a dynamic portfolio proven in current markets. The portfolio includes high-growth businesses like Customer Experience Management, Security Services and cloud services, in which the company has increased its investments during the past two years. In 2016 we also established new Data-Driven Business unit to deploy data-driven ideas together with our ecosystem.
In addition, to support innovation and longer-term growth, Tieto annually invests around EUR 130 million in the development of new offerings and its data centres.
We also continued to seek growth through M&A, with the acquisition of Emric, a Nordic market leader in software and services for credit processing. This will strengthen Tieto's position in the financial sector, enabling us to provide the full value chain to Nordic banking and finance customers within retail banking and consumer finance markets.
Employee experience in focus
In this rapidly changing world of digitalization, the required skills and competences are evolving fast. Recruitments in new service areas and related competence development together with active co-innovation with our customers and partners, ensure that we stay one step ahead of competition.
During 2016, Tieto added around 800 new competences in IT services. As a part of our long-term renewal we also actively support all employees with initiatives that enable everyone to constantly learn more and acquire new skills that fit the market demands.
Our employees and their experience was also in focus when we relocated to our new headquarters in Espoo. Keilalahti office is an activity based workplace environment which encourages collaboration and ensures strong communication between all the building's users. Furthermore, to help innovate and co-create new ideas, we also included a hub for our ecosystem of partners, customers and colleagues in Keilalahti. All these efforts foster the Open Source Culture, which promotes increased transparency and openness.
Sustainability and transparency
The importance of Tieto's sustainability work has increased significantly during the past years. In the light of the Paris agreement on climate change and the United Nations Sustainable Development Goals, customers as well as other stakeholders are more and more interested in building sustainable value chains. Tieto's aim as a corporate citizen is to minimize environmental impact, be an ethical forerunner, and create value for all stakeholders.
Digital solutions are important vehicles for reaching the United Nations Sustainable Development Goals. Tieto has explored the environmental impacts of IT since 2010 by calculating the estimated CO2 emission reductions from our digital transaction services and other digital services replacing paper. In 2016, these estimated reductions amounted 228 ktons CO2 through these services alone.
To help mitigate climate change we are applying a structured approach involving the whole company. In 2016, our energy consumption decreased by 6%, hence reaching the annual target of -3.5%. Our reported CO2 emissions decreased by 4% in the full-year.
During the year, our work to become an ethical forerunner in society also continued with undiminished pace. Tieto has zero tolerance to corruption and any other unethical behaviour. 86% of our employees took our Code of Conduct and Anti-corruption e-learning in 2016. The Supplier Code of Conduct Rule coverage represents 85% of our total spend among regular suppliers. Implementation of business ethics throughout the value chain will continue in 2017 and beyond. As part of this, sustainability is today an integral part of our regular customer dialogues.
We have been a signatory of the United Nations Global Compact (UNGC) principles for human and labour rights, anti-corruption and environment, since 2010, and are committed to continue supporting the UNGC. In 2016, we also initiated a new CR materiality analysis together with our main stakeholders, with the aim to renew our CR long-term plan for the current strategy period (2017-2020).
IT market in the Nordics
We at Tieto envision a future in which information is the biggest driver of continuously increasing societal and economic value. We seek a pivotal role in this change providing customers with new opportunities to renew their businesses and co-create future innovations.
In 2016, the overall IT services market grew by around 2% in the Nordic countries.
Given the developments in our market environment, we can be pleased that for the full year our total revenues grew by 2% and IT services grew by over 4%. We were also able to continue on the path towards improved long-term profitability objective, with an underlying operating margin of over 10% in 2016.
Looking ahead, digitalization of customers business – with two-fold agenda to grow revenue through innovation and to reduce costs by improved efficiency – continues to drive IT market growth and in 2017, the market is estimated to grow by 2–3%. Emerging services are expected to experience double-digit growth and the decline in traditional services will continue.
Focusing on Nordic enterprises and the public sector, we seek to grow and further increase our 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 aims to continue to drive shareholder returns above industry average as well as to maintain its positive financial development and attractive dividend policy. At the same time, the company is continuing its investments to support innovation and growth.
Seizing opportunities together
Our industry continues to change at a rapid pace, thus creating a platform for growth and innovation. We firmly believe in the power of openness and co-innovation, and in this ecosystem, Tieto has a unique opportunity to shape the future we live in.
I would like to warmly thank our customers, employees, partners and shareholders for another year of collaboration and progress.
I look forward to continuing the renewal of our customers' business and stepping up Tieto's growth and innovation agenda even further together with our constantly expanding ecosystem.
President and CEO