TietoEVRY rewires its operations for growth
Nordic IT services champion TietoEVRY has unveiled what is calls “the biggest change in the company’s history,” with a wide-ranging overhaul of its structure.
The company, which takes its current shape from the merger between Finland’s Tieto and Norway’s EVRY back in 2019, is effectively splitting its business into two groups: high-growth areas to prioritize for invest-ment; and more traditional service lines to scale up through partnerships.
TietoEVRY plans to double-down on cloud-native services, data and software engineering and scalable soft-ware businesses, with the creation of four new units: Business Design & Engineering; Health & Care Soft-ware; Financial Services Solutions; and Industry Software.
Two other business units: Enterprise Modernization (applications management); and Cloud Platform Ser-vices; will look to build scale through partnerships, while protecting margins through the increased use of automation.
The company’s president and CEO, Kimmo Alkio, expects this reorganization to put TietoEVRY on track for revenue growth of 5% in 2023 and a 15% adjusted EBITDA margin. In contrast, the company’s revenue was down 5.6% to €2.8bn in full-year 2020 (a fall of 2.2% on an organic basis), with an adjusted operating profit margin of 12.7%.
TietoEVRY also confirmed the sale of some its software assets focused on the construction, retail, and transport markets, to Nordic software company EG. The businesses collectively employed 80 staff and contributed €13m in annual sales, and further assets could be spun out as the company pushes for more focus in its software strategy.
PAC’s View: TietoEVRY’s move is nothing radical and many of its larger peers have already followed a similar playbook in recent years.
Splitting the areas of the business with higher growth potential into more autonomous divisions to increase their operational agility, while ensuring that the more general areas of cloud infrastructure services and appli-cations management remain competitive against larger international rivals through increased efficiency and a fleshed-out partner ecosystem. It makes good sense on paper.
We have seen similar moves several times before (look at the way that Atos and Capgemini have built out their cloud infrastructure partnerships in the last couple of years as an example), but it provides the compa-ny with a much more focused structure at the end of the bedding-in period following the merger two years ago.
The company has spent the last decade battling against a rising challenge from the leading Indian IT ser-vices providers in particular. And while its long-term relationships and core software products have helped it to defend its presence in key accounts such as and banking group DNB (with whom it signed a new three-year, €200m deal in June), it has also lost out to the likes of TCS and Cognizant as they have invested in their local operations, enhanced their domain expertise and flexed their global muscle.
In this context, TietoEVRY’s reshuffle is a necessary move that will provide its more dynamic moving parts with a platform on which they have a greater opportunity to thrive. It is important that the company’s indus-try expertise doesn’t get lost in the reorganization so it is encouraging that several of the divisions are verti-cally-aligned.
PAC expects IT services investment in the Nordic region to grow at a healthy CAGR of 3.8% through to 2025, so if TietoEVRY is aiming to outstrip the market, it needs to back-up today’s announcement with in-vestment to ensure it stays in tune with customer demands while attracting the best talent.