Adoption of emerging technologies and new ways to consume IT accelerated during 2014, witnessed by strong growth in cloud services. However, the decline in traditional services coupled with the challenging macroeconomic environment, especially in Finland, affected overall market growth, which remained modest in Tieto's main markets throughout the year.
The overall IT services market in the Nordic countries is expected to grow by around 2% in 2015. GDP growth in Tieto's Nordic core countries is forecasted to be less than 2%, with Sweden achieving the highest increase. Finland is expected to experience slightly negative GDP growth, which might mean that IT market development will be somewhat slower than in the rest of the core markets. The shift from traditional IT to emerging services, such as cloud computing and customer experience management, will continue. The industrial internet market will also start to build up in the Nordic countries.
Clients continue to look for ways to stay competitive in their businesses and they continuously seek to differentiate themselves from their competitors with a superior customer experience, enabled by digital technologies and business models. Digital technologies are anticipated to disrupt clients' business and it will be critical for enterprises to have a digital strategy in place and the right competences to make it through the transformation.
- Customer experience management provides companies with means to differentiate themselves from their competitors by excelling in digitally empowered experience and utilizing advanced user behaviour analysis. Enterprises such as traditional retailers and banks need to invest in ensuring customer loyalty and new revenue streams through services that provide a seamless customer experience across multiple channels. The Nordic market is expected to grow by an annual rate of around 20% in the coming years.
- In industrial internet, clients utilize new ways to connect devices, collect and handle data and distribute intelligence and autonomy among devices. Clients are able to increase efficiency and to create entirely new businesses based on intelligent automated services. In these services, smart connected devices can be used in monitoring, optimization and self-coordination of operations and in taking predictive action. Benefits include increased availability and utilization of assets, lower maintenance costs and improved customer service. Industrial internet is utilized, for example, in remote diagnostics and operations, maintenance execution, supply chain management and service analytics. The Nordic market is expected to grow by an annual rate of around 50% (CAGR) to over EUR 5 billion by 2020.
- Cloud services: The market for transferring operations into scalable and flexible cloud environments is growing fast. Cloud-based technologies combined with global delivery and industrialized processes also enable enterprises to lower the total cost of ownership. Currently, cloud services are a standard part of new offers. The cloud market, including public and private cloud, is expected to grow annually by around 30% (CAGR 2013–2018) during the coming years. Private clouds are typically used as platforms for business critical core processes and are one of Tieto's focus areas. Due to the greater demand for standardized environments, Tieto is able to utilize automation. As a result, services are becoming less labour-intensive and more scalable due to the 1-to-many service model.
Industry sector drivers
Additionally, industry-specific drivers affect the IT service market:
- In the financial services sector, customer experience and digitalization, both in the front end and back office operations, remain focus areas for the banking and insurance sectors across all markets while some cautiousness to start new larger projects is evident. At the same time, cost savings pressure drives demand for infrastructure and application modernization and interest towards outsourcing and cloud services. In the small and medium-sized business segment, the market is dominated by the "as a service" model and there is also growing interest in the "business process as a service" models.
In the manufacturing and forest sectors, cloud services continue to drive growth. Digitalization of manufacturing with embedded advanced analytics is accelerating, providing new opportunities, e.g. for industrial internet solutions in the long term. Cost savings and efficiency improvements in the demand supply chain are important drivers for initiating new IT projects.
In the retail and logistics sector, changes in consumer behaviour continue to drive investments. Enterprises are investing in more advanced commerce solutions in order to achieve better consumer understanding, customer engagement, loyalty and increased revenue. This trend is creating higher demand for Customer Experience Management solutions for brick-and-mortar stores with online sales. Customers' ongoing cost cutting programmes also create demand for outsourcing and infrastructure services that enable them to reduce costs.
In the public sector, the weak financial outlook affects IT spending in Finland. However, cost cutting increases the pressure to deploy shared IT services and utilize existing frame agreements. Tieto sees relatively healthy demand for data centre and capacity services in Finland. In Sweden, the outsourcing trend continues to be strong and there is robust demand for cloud services.
In the healthcare and welfare sector in Finland, deliveries related to national interoperability have continued in the healthcare sector. Based on current estimates, healthcare customers in the public sector will be connected to the national archive during spring 2015. In 2015, deliveries will also continue to healthcare customers in the private sector, as they are required to connect to the archive by the end of the year. The reform of healthcare and welfare services may be delaying some decisions. Increasing regulation and digitalization of healthcare and welfare processes are expected to keep activity at a good level in all Nordic countries.
In the energy utilities sector, clients are starting preparatory activities related to regulatory changes and the harmonization of the Nordic markets prior to making further IT investments. The market for advanced metering infrastructure in Norway is progressing well. In the oil & gas market, investment levels are down due to ongoing cost cutting in this segment.
In the media sector, customers are driving business transformation reflecting the increased deployment of digital services. Due to clients' tight budgets, investment decisions are driven by cost reductions. This is expected to result in new outsourcing opportunities in the mid-term.
In the telecom sector, telecom operators remain under pressure and consolidation continues. Large transformation programmes are divided into smaller projects and customers have tightened their requirements for additional business value. Additionally, IT service providers are experiencing aggressive competition in this sector.
In the market for telecom product development, the share of software development in overall product design is increasing as the telecom and mobile area is going through many sweeping technology shifts. The communications infrastructure market is likely to experience a disruptive change over the next few years, as the network infrastructure may gradually go through a transition to cloud solutions. At the same time, semiconductor vendors are increasing their share in the value chain by offering ready-made solutions to infrastructure and device manufacturers.