WORKING GROUP

3:1

IT 01
TABLE OF CONTENTS

CONSULTANTS
INDUSTRY OVERVIEW
- INDUSTRY DEFINITION

03 INDUSTRY ANALYSIS
- PORTER'S FIVE FORCES
- PESTEL ANALYSIS
- INTEGRATED PORTER & PESTEL
- STRATEGIC GROUPS
- CONCLUSION

12 FINANCIAL ANALYSIS
- INDUSTRY OVERVIEW
- INDUSTRY FINANCIALS

14 COMPETITIVE STRATEGY
- TIETOEVRY'S CURRENT STRATEGY
- TIETOEVRY IN A VRIO-ANLYSIS
- SUGGESTED FUTURE STRATEGY

17 STRATEGIC INTEGRATION
- PROFTIABLE STRATEGIC POSITIONS

Isabelle Norberg, Spencer Robild, Emma Dubo,

Elias Horn Maurin, Alexander Silwer & Gustav Holmin

24477, 24485, 24549, 24827, 24696, 24781

SERVICES OUTSOURCING WITHIN THE NORDICS TO PRIVATE AND PUBLIC CLIENTS 01
INDUSTRY DEFINITION

HORIZONTAL DELIMITATION GEOGRAPHICAL DELIMITATION

MAINTENANCE REPAIR The horizontal delimitation of IT-consultants is defined as services outsourcing, The geographical delimitation of
including creative design consulting, development consulting, package the nordic countries are motivated
COMPUTER FACILITIES MANAGEMENT implementation, web design, system and platform integration, intranet and by their homogenous markets,
CREATIVE DESIGN CONSULTING
extranet development as well as internet consulting. Since these services are very mainly attributed to their similar
PLANNING & LOGISTICS DEVELOPMENT CONSULTING intertwined and often offered as an integrated package, it would be misleading to characteristics in terms of;
solely include one of them in the delimitation. level of technology within IT-
INTERNET CONSULTING
HELP DESK SUPPORT consulting,
INTRA-/EXTRANET DEVELOPMENT
Furthermore, IT-consulting services permeate large parts of the customers educational institutions relating
SERVICES OUTSOURCING supply chain, stretching from the installation of the first employees computer to to supply of IT-engineers,
PACKAGE IMPLEMENTATION the launch of their digital marketing campaign, which results in a broader process of public procurement,
delimitation. However, other parts of IT-consulting, listed to the left in blue, face culture & working conditions
SYSTEMS SUPPORT SYSTEM AND PLATFORM INTEGRATION
different bargaining power in relation to both buyers and suppliers due to differing leading to similar careers
WEB DESIGN complexity in their processes. Thus we excluded them to make a coherent and across the nordics.
TECHNICAL STAFFING
viable analysis of the specific services outsourcing industry within IT-consulting.
Thus, this delimitation more
elaborately explain differences in
profitability due to strategic
VERTICAL DELIMITATION positions and choices compared to
a broader delimitation where these
environmental factors differ.
The vertical delimitation is limited to IT Services
Outsourcing as placed just before private
corporations and the public sector (customers) in Project-specific consultants
the value chain.

Suppliers are divided into competence-suppliers Experts

and product suppliers. Educational institutions
provide the suppliers of competence (experts,
Educational Outsourced
competence IT Services
Private
corporations
DEFINITION
employees and outsourced labor) with the institutions
knowledge and skills needed, while product Employees Outsourcing &
suppliers provide the IT-software needed to Public sector
perform the services. Project-specific consultants Private corporations IT Software The industry is defined as IT Services outsourcing
are involved in some projects due to special skills, within the Nordics to both the private and public
but are not included in the definition of IT-
sector.
consultants.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
A GROWING INDUSTRY WITH A HIGH LEVEL OF CONSOLIDATION 02
INDUSTRY OVERVIEW

INDUSTRY OVERVIEW MARKET POWERS

THE EVOLUTION OF THE INDUSTRY During the last decades, larger parts
of companies' operations are cloud
based. The complexity of the new IT
era and the digitalization mega trend,
has increased the demand for
outsourced IT services and this is COVID-19 PANDEMIC SUSTAINABILITY DIGITALIZATION
reflected by the increasing revenue The pandemic has The digitalization has
There is a trend of
the last decade for IT-consulting firms. negatively affected the set requirements for
focusing on CSR and
industry demand and companies and the
the digitalization helps
limiting industry growth public sector to
to adapt to a more
with more difficulty to modernize their
1990 2000 2010 2020 acquire new clients.
sustainable business.
processes.
Many systems Few systems Many systems,
in-house in-house cloud based

INDUSTRY LIFE CYCLE

THE NORDIC MARKET FOR IT SERVICES
The Nordic market for IT services is valued to 200 billion SEK. IDC forecasted the Nordic market for IT services to grow from
$24.4 billion in 2018 to $29.5 billion in 2023 with a CAGR of 3.2% in 2019–2023. As digital transformation progresses and The IT industry turnover is
changes the way IT services are produced, sold and used, the differences in the Nordic market becomes much more continuously growing, at a rate
important and defined by variations among industries. The increase of registered companies and employees clearly shows of 11,6 % (2018) in Sweden, partly
the growth and demand for IT services. The table below shows the evolution of number of employees. driven by the digitalization mega
trend and the industry has
KEY ASPECTS OF THE INDUSTRY experienced high growth for
Due to the industry’s human capital-intensive character, many consecutive years. The
it is exposed to margin pressure as wage costs increase industry is also experiencing a
more than the price of consulting services. high level of consolidation,
Market demand is high and driven by cyclical trends such further proving their shakeout-
as high willingness to invest and global trends as phase in the industry life cycle.
digitalization, durability and covid-19.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
A CONCENTRATED MARKET WITH A LACK OF IT-ENGINEERS 03
SUPPLIERS - PORTER'S FIVE FORCES

BARGAINING POWER OF EMPLOYEES OUTSOURCED COMPETENCE

There is generally a high shortage of competence within the industry, with an estimate of a Simple “low-competence” skills are
Lack of IT-consultants Outsourcing of simple tasks
shortage of 70 000 IT-consultants in 2022, which gives the firms a disadvantage when recruiting. outsourced, with low switching costs of
BARGAINING BARGAINING choosing another supplier.
POWER POWER
Highly educated IT-engineers/developers possess expertise and competence
No other substitutes A small threat exists of forward
that can not be replaced by others with a different education. Threat of forward integration
BARGAINING integration as consultants in Ukraine/India
POWER BARGAINING develop more knowledge and skills to
The competence of the employees is absolutely crucial for the firm's profits
POWER retain customers themselves.
Revenue dependent on employees and success. This is often the only way for differentiation amongst the
companies within the industry.
BARGAINING
POWER
Employees develop company-specific skills and customer relationships, which
Important to maintain competence
BARGAINING
leads to high switching costs. At the same time, IT-engineers/developers have EXPORT NETWORK
many companies to choose from and low switching costs of doing so.
POWER
Revenue dependent on knowledge Individual experts have nisched
Threat of forward integration If an employee were to be dissatisfied, they could start their own company knowledge within certain areas,
BARGAINING and revenue is dependent on
BARGAINING and retain customer relationships from before.
POWER expert knowledge in many cases.
POWER

Abundance of experts Low switching costs when choosing experts and

several substitutes for expert knowledge reduce
BARGAINING
the bargaining power for experts.
CONCLUSION Suppliers have a very high bargaining power since the
POWER

HIGH BARGAINING POWER

labour market is concentrated with a lack of IT-
engineers/developers and the employees are the firms
most valuable resource. There are high requirements for IT SOFTWARE Even though individual software
suppliers have strong bargaining power
education, and since the amount of qualified people is Small impact on cost structure due to the uniqueness of their product,
5/5 limited, they have a very high bargaining power. BARGAINING
IT software constitute a small part of
IT-consultants cost structure.
POWER

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
HIGHER BARGAINING POWER FOR THE PUBLIC SECTOR 04
BUYERS - PORTER'S FIVE FORCES

NUMBER & SIZE THREAT OF INFORMATION ASSYMETRY SWITCHING COSTS PRICE SENSITIVITY
BACKWARD INTEGRATION

There are a lot of private Corporate customers can Difficult for the customers to know A customer can easily Consultant services is generally
PRIVATE
corporate customers and have experience and the value of the services switch to another IT- not a large post in the firms
CORPORATE IT-consultants are rarely resources in-house, and beforehand and can thus negotiate consultant after finished budget structure. Quality is more
CLIENTS dependent on separate can chose to integrate for lower prices due to adverse projects, leading to low important than price. In some
customers. backwards. selection and the Lemon’s principle. switching costs. cases projects can be extensive
and economically important.
BARGAINING BARGAINING BARGAINING BARGAINING BARGAINING
POWER POWER POWER POWER POWER

PUBLIC Public sector actors are a Can to some extent be a It is as hard for public sector as for Low and almost no switching costs, The official contracts highly
concentrated group of backward integration threat, private corporate clients to evaluate and the official contracts make the value price, which often
SECTOR
buyers and often buy large since there are some skilled IT- the consultants on beforehand, but switching costs even lower since they determines which option
volumes. consultants within the public has a larger possibility to negotiate have to evaluate all the possible they choose and can thus
sector. prices through official contracts. options for every new project. be seen as price sensitive.

BARGAINING BARGAINING BARGAINING BARGAINING BARGAINING

POWER POWER POWER POWER POWER

CONCLUSION
MEDIUM-HIGH BARGAINING POWER
The private corporate customers can be seen as having a high bargaining power, but is weakened by the fact
that there are a significant number of customers that demand a concentrated group of services from IT-
consultants. Public sector is very strong since they are price sensitive and negotiate services through official
contracts, buy services in large volumes and form a concentrated group of buyers.
4/5

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
POSSIBLE SUBSTITUTES CONSTITUTE A LOW THREAT 05
SUBSTITUTES - PORTER'S FIVE FORCES

SUBSTITUTE PRICE-PERFORMANCE SWITCHING COSTS

IN-HOUSE COMPETENCE Consultants are expensive and there is thus an attractive price-
performance benefit of in-house competence long term, which
Low for customers with high competence in-house, but
high otherwise.
increases the threat.

TECHNICAL CONSULTANTS Technical-consultants can offer similar value as IT-consultants,

but not with regards to specialized IT services.
Somewhat high, since it requires the firm to have their
own IT infrastructure.

STANDARDIZED SOLUTIONS Payment systems, like Klarna, offer a standardized solution for
website payments and increases the threat of substitutes.
Somewhat low, since standardized solutions are often
cheaper than individual based solutions.

HIGH-TECHNOLOGY TOOLS If AI and machine learning become developed into practical tools,
the threat of substitutes increases.
Relatively high switching costs. The organization has to
be adjusted into working with technical tools, instead
of hiring consultants.

PROJECT-SPECIFIC CONSULTANTS Customers can implement projects without hiring IT-consultants,

with the help of other suppliers and it could potentially be price-
The switching costs are high since the IT-consultants
take full responsibility for leading the projects, which
efficient but poses a low threat due to the time needed. in this case has to be handled by the customer itself.

CONCLUSION
MEDIUM-LOW THREAT OF SUBSTITUTES
IT-consultants are hard to substitute since they solve complex problems, but with the development of the technology and new
standardized solutions the threat is increased. However, it will take some time until organizations have adjusted to the new
technological environment and it will require IT-consultants to reach to this state. There are generally imperfect substitutes, but
relatively good price/performance and medium high switching costs, so the threat of substitutes can be seen as medium-low.
2/5

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
LOW CAPITAL REQUIREMENTS INCREASE THE THREAT FROM NEW ENTRANTS 06
NEW ENTRANTS - PORTER'S FIVE FORCES

A well-known company brand retains customers, and large corporations often seek well- The increasing salary development and the
Brand/customer relations Low profit margins
established IT-consultancies for projects. The company brand is also important for recruitment of stagnant price level lead to low profit margins,
employees, and since the industry is based purely on their knowledge and skills, a strong brand for THREAT OF which lowers the threat of new entry.
THREAT OF
NEW ENTRY recruitment is important. This doesn't increase nor decrease threat of new entry significantly. NEW ENTRY

The importance of close and personal relationships with customers pose a strong threat for
Forward integration
forward-integration by employees. Employees can retain their current customers through their
own business. The threat of forward integration highly increases the threat of new entrants.
THREAT OF NEW ENTRANTS IS HIGH
THREAT OF
NEW ENTRY
Brand indifference Profit margins
Large companies might have large expert networks and a broader array of competencies but
the effects are weak on entry barriers. Customers are increasingly demanding package
Demand for package solutions solutions for all business aspects involving technology/IT. This increases the economies of scale
THREAT OF a company can gain from having a broad assortment of offered services/competencies, which Low
NEW ENTRY comes with company size. This doesn't increase nor decrease the threat of new entrants. Low demand for
*now
package solutions
*in five years
Little to no need of capital to enter the market since almost the entire cost structure is based on
Capital requirements
variable costs (salaries). In 2019 the personnel costs as a share of turnover in the industry as a
THREAT OF whole was ranging from 46.5% to 59.2%. The low capital requirements highly increases the threat
Forward Low capital
NEW ENTRY of new entrants. High requirements
integration

CONCLUSION
MEDIUM THREAT OF NEW ENTRANTS

The low capital requirements to enter the market combined with the risk of forward integration put the industry at a high risk
of new entrants. The benefits due to economies of scale, a strong company brand and the low profit margins decreases the risk
of new entrants slightly. The threat of new entrants is likely to decrease when profit margins decline and forward integration
3/5 becomes less attractive when demand for package solutions and brand becomes more important.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
COMPETITION FOR CUSTOMER RELATIONSHIPS STRENGTHENS RIVALRY 07
RIVALRY - PORTER'S FIVE FORCES

Actors & Size A few big firms dominate the industry, which creates intensive rivalry amongst these actors. The
industry can aslo be expressed as fragmented with thousands of small actors. This increases the
MARKET SHARES
THREAT OF threat of competitive rivalry. IBM, Evry, CGI and Tieto held IBM
TURNOVER FOR THE SOFTWARE & IT
8.7%
RIVALRY 500 MDKR
CONSULTANCY SERVICES INDUSTRY 28.6% of the market Tieto
COMBINED, SWEDEN
together, before the merger 6.5%
400 MDKR
between Tieto & Evry, while CGI
The IT industry turnover is growing at a rate of 11.6 % 71.4% was held by other, 6.6%
Growth 300 MDKR
smaller companies. The fact
(2018) in Sweden, partly driven by the digitalization
Evry
mega trend, and thus dependent on IT-consultants,
200 MDKR
that such a large share was
THREAT OF 6.7%
which mean that they don’t have to compete held by other, smaller
RIVALRY 100 MDKR

regarding market shares on another firm’s expense. companies implies that it is

0 MDKR
2013 2014 2015 2016 2017 2018
relatively easy to enter the Others
market, but that the actors 71.4%

Exit barriers may not have large margins.

There are low fixed costs without specified assets which makes it easy to exit, and the exit
THREAT OF barriers are substantially low, leading to low threat of competitive rivalry.
RIVALRY

Even though the public sector often chooses IT provider based on price, the low profit margins and
Price competition
increasing salary development give little leeway for price competition. Most companies within the CONCLUSION
THREAT OF industry have similar profit margins, and since the industry is competence-intensive, customers MEDIUM THREAT OF COMPETITIVE RIVALRY
RIVALRY could experience signs of unprofessionalism if prices were to decrease compared to competitors.
There is relatively high intensity in an
industry with great growth, with a small
group of dominant actors and a large
Information asymmetry exists between customers and IT-consultants services. By delivering high
Customer relations group of others. There is high rivalry
quality services with customer service in mind, companies retain recurring customers who value regarding customer relations, which
THREAT OF personal relationships with their choice of IT-consultants. Local knowledge as well as a strong 3/5 implicates that the threat of rivalry is
RIVALRY brand is important to get more customers, and with an increasingly international market high. However, the growth of the market
companies need to be able to provide services in several countries. Customer relations are the means that companies don't have to
primary base for competitive rivalry within the industry. The threat of rivalry is high. compete on another firm's expense.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
THE DIGITALIZATION MEGA TREND BENEFITS THE INDUSTRY 08
PESTEL

Maintaining a high
skill supply
The public sector is a large
customer for IT-consultants,
which makes political
decisions important for the
industry. For instance,
decisions with regards to
network expansion and
infrastructure are regulated
by politicians. Also, since the
IT-consulting industry relies
heavily on skills and
increase. Also, since IT-
expertise, the political
decisions with regards to
education and the
maintenance of skill supply
can have a remarkable
the industry the shortage
impact. All Nordic countries
offer education in IT on a high
level, including practical skills
training, which increases the
supply of IT-consultants.
Lower cyclical sensitivity
Since the financial crisis in
2008 and the recession that
followed up until around year
2012 we have, in general
terms, experienced a booming
economy in the world. This has
resulted in large investments,
which clearly has benefited
the industry. Furthermore, IT
processes closely linked to
companies’ operations have
the case of GDPR introduced
become even more important
for their businesses which has
decreased its cyclical
sensitivity.
profitable many industries
However, the economical
effects of covid-19 have still
limited industry growth. It has
become more difficult to
acquire new clients and most
of the current business
depends on maintenance.
Women in tech Technological trend Importance of CSR National regulations
The industry is heavily The technological Environmental The legal aspects of software
dominated by men and development has become a consciousness has become a and data storage increase the
today they represent strong global trend during global trend which leads complexity of their services,
almost 70 % of all IT- the recent decades and is companies to increase their yet provide opportunities for
consultants. However, in becoming a more integrated focus on CSR. Since IT-consultants to specialize as
the past few years there part of people's every day digitalization can streamline experts within the area,
has been increased lives. This in turn has the process toward more potentially increasing
promotion for women in spurred a strong demand for sustainable solutions in demand for services
tech. Companies now host IT-consultants and their society, the demand for IT- outsourcing. This has for
a larger amount of expertise. consultants will likely instance become apparent in
exclusive events and talent
programs. The results from The increased usage of home consultants provide services in 2016. Limiting corporations
this show a positive trend. electronics also leads to new and do not rely on big to follow specific national
Consequently, as more adaptations for companies exploitation of particular regulations, however, can
talent and expertise join and in order to stay sources, requirements on a hinder them from making
more sustainable production efficient use of economies of
of IT-consultants today will are forced to digitalize big does not limit the industry scope as they have to adapt
decrease accordingly. parts of their operations. for continuing its growth. their software to each
country.

P E S T E L
INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
TRENDS IN SOCIETY HEAVILY AFFECT THE INDUSTRY FORCES 09
INTEGRATED PESTEL/PORTER

SUBSTITUTES BUYERS SUPPLIERS COMPETITIVE RIVALRY THREAT OF NEW ENTRY

STRENGTHENING The digitalization mega trend and

General legal requirements
The digitalization quick technological development
EFFECT ON THE Demand on IT- mega trend leads to has made IT-consultants strive for
of starting a business have
The digitalization mega
decreased heavily
INDUSTRY FORCES trend accelerates the consultants has increased demand for the latest technological solutions
throughout the Nordics
development of AI and decreased in general educated IT- and specialist competence. This
FROM GLOBAL during the last decade,

+
machine learning, due the covid-19 engineers/developers has resulted in a trend of an
leading to an increased
TRENDS potentially increasing pandemic, leading to and a lack of those increasing amount of mergers &
threat of new entrants as
the threat of increased bargaining increases the acquisitions within the industry
IT-consultancies bring a
substitutes. power for buyers. bargaining power of which decreases the amount of
high risk of forward
suppliers. competitors and increases rivalry
integration from suppliers.
intensity within the industry.

WEAKENING The technological For IT-consultants

focusing on e.g.
Decreased shortage
Competitive rivalry is partly The technological
development is of IT-consultants as development is becoming
EFFECT ON THE becoming remote working and more women enter
driven by the digitalization
mega trend, and thus increasingly more complex,
areas related, the
INDUSTRY FORCES increasingly more
bargaining power of
the industry as well
dependent on IT-consultants, demanding a broad array of
complex, demanding as more political services/skills offered
FROM GLOBAL their buyers has which mean that they don't

-
even more high- focus on IT-education which is often correlated
decreased due to the have to compete regarding
TRENDS skilled and educated
increased demand of
can decrease the
market shares on another with large established
competence, which bargaining power of actors within the market
remote working firm’s expense, which
decreases the threat suppliers (particularly which is decreasing the
solutions from the decreases the rivalry.
of substitutes. the employees). threat of new entrants.
ongoing pandemic.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
3 IDENTIFIED STRATEGIC GROUPS AND ONE QUESTION MARK 10
STRATEGIC GROUPS

Characteristics
STRATEGIC GROUPS %
PROFITABILITY
Giants: Large company with a broad service portfolio. Average 2020 numbers
75
They gain competitive advantage through economies of Focused
scale within corporate functions such as Procurement,
Marketing and Human Resources Management. The size also
allows for complete solutions, which attracts big customers

Service Portfolio*
and drives revenue.
50

Aspirants: SME with a relatively broad service portfolio.

Are at competitive disadvantage due to insufficient
economies of scale and insufficient differentiation, therefore
unable to pursue premium pricing and to reduce costs.
25

Boutiques: SME with a relatively small service portfolio.

Specialization allows for premium pricing and reduces costs, Broad

both affecting margins positively. Specialization however Small Size Large

slows growth since larger customers demand integrated *The focused service portfolio relates to the extent of pure consulting versus pure 0
solutions. selling of third parties integrated solutions. Broad service offering implies both Boutiques Giants Aspirants
consulting and selling of third party services.

Question marks: Large company with a relatively small

service portfolio. They are in an extremely profitable
position, however is unattainable in practice due to the need
for agile organisations that can adapt their business model
easily to keep their portfolio focused. It is therefore difficult
to achieve sustained competitive advantage at large scale.
Mobility barriers
The mobility barriers between the strategic groups includes
competence, resources and local expertise within different markets
and customer segments as well as customer relations.
KEY STRATEGIC CHOICES
Giants;
acquiring specialized boutiques to remain hi-tech
CONCLUSION
minimizing bureaucracy and keeping culture
optimizing the economies of scale There are two preferred strategic groups within the
Aspirants;
industry; the giants who gain economies of scale, focusing
choosing whether to scale up or specialize on asset turnover and growth through acquisitions, and
building HRM and culture to attract talent the boutiques who focuses on high profit margins
through a specialized service portfolio. Aspirants need to
Boutiques;
choose which of these to aspire for, since this group lacks
continuously monitoring the environment to reduce risk of
outdated offering
sustained competitive advantage to be profitable.
building deep customer relations and excelling in marketing
of their services

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
NEUTRAL OUTLOOK WITH NEUTRALIZATION OPPORTUNITIES 11
SUMMARY OF INDUSTRY ANALYSIS

FORCE STRENGTH CONCLUSION NEUTRALIZATION OPPORTUNITIES

The digitalization mega trend leads to increased demand Attract new employees by developing a strong employer brand
Suppliers for educated IT-engineers/developers and a lack of those Retain current employees by increasing ownership and improving workplace culture
increases the bargaining power of suppliers. Offshore simple tasks to increase profit and decrease dependency on employees

Demand on IT-consultants have decreased in general due Create lock-in effects by specialized customer relationships and IT-systems
Buyers the Covid-19 pandemic, leading to increased bargaining Retain customers by improving customer service and regular follow-ups
power for buyers. Reduce threat of backward integration through emphasis on the public sector

The digitization mega trend accelerates the development Specialize in AI and advanced tech to be on the forefront of technical development
Substitutes of AI and machine learning, potentially increasing the Develop own standardized solutions to reduce the threat of substitutes
threat of substitutes.

Legal requirements of starting a business have decreased Focus on specialist competences and experts to reduce the threat of generalist IT-
New entrants heavily throughout the Nordics during the last decade, consultants forward integrating
leading to an increased threat of new entrants. Build a strong company brand to stand out against new entrants within the market

There are few actors with a large market share, but the Increasing focus on customer relationships and sales to successfully compete
Competitive rivalry digitalization has meant that IT-consultants doesn’t have Structure the sales force by CRM-systems and Key Account Managers to improve
to compete regarding market shares on another firm’s customer relationships
expense which decreases the rivalry.

A CHALLENGING ENVIRONMENT WITH POSSIBILITY FOR GROWTH

The IT-consultancy industry is unattractive in some sense, since the industry forces are strong for suppliers and buyers. The lack of it-consultants in
the industry puts the companies in a tough situation since the employees are the companies' most important resource. However, the low threat of
substitutes and a medium threat of industry rivalry and of new entrants, in combination with straightforward neutralization opportunities increases
industry attractiveness. The global digitalization mega trend will continue to positively affect demand for IT-consultants and the continuous growth
clearly states that the attractiveness in the industry is evident for the ones who can neutralize the threats.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
STRONG GROWTH BUT VARIANCE IN PROFITABILITY
REVENUE PER EMPLOYEE REMAINS SIMILAR
12
INDUSTRY OVERVIEW

KPI:S FOR COMPARABLE COMPANIES

COMMENTS

The industry has grown at a CAGR of approximately 11% from

2015 to 2020. 3 of the 4 comparable companies are growing at
a faster pace. Overall, industry growth pace is high.
TietoEvery holds an approximate market share of 15%.
EBIT margins are hovering around 10%, with Netlight being
the exception.
There are large firm differences in return on equity, mainly
driven by differences in capital intensity.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
DIFFICULT TO MAINTAIN PROFITABILITY FOR LARGE FIRMS
TIETOEVRY'S PROFITABILITY IS IMPAIRED BY THE WIDE PRODUCT OFFERING
13
INDUSTRY FINANCIALS

DUPONT CONNECTION TIETOEVRY VS. NETLIGHT - PER FTE ECONOMICS COMMENTS ON TIETOEVRY

Strong utilization of global

IMPLICATIONS recruitment drives down
Companies operating in the personnel cost
industry show a generally
stable profitability. Large Revenue per employee – on par
companies have a harder time with best-in-class Netlight
maintaining profitability than
small companies, as there are Other operations cost expected to
no clear economies of scale. In shrink somewhat, following
addition, the industry is not merger related one-offs
particularly sensitive to the
economic cycle as there is a Operating margin is taking a hit
constant demand for IT from the Cloud & Infra portfolio
consulting services. (adj. EBIT <10%)

The organization depends heavily

THE IT INDUSTRY IS CONSOLIDATING AT A FAST PACE on services and materials,
reflected in the high operating
cost – Netlight posts lower cost
Poor customer satisfaction, reduced profitability and a hungry venture capital are the
background to the wave of consolidation that is washing over the industry. In 2018, 89 of the TietoEvry’s Balance sheet is large
100 largest companies had either been sold or acquired. Among the eleven who did nothing, given its business
such as Netlight and Centigo, have both a stated strategy of growing organically. When the
larger companies find it difficult to achieve their set growth goals through organic growth
alone, acquisitions are a way to increase delivery capacity and enter new areas of expertise or TietoEvry's profitability is impaired by
enter more industries. But it is not only larger companies that acquire. Many medium-sized the wide product offering. Large
companies have also acquired smaller players to supplement their offerings. potential in combining a focused
offering with size. The question remains
There are no signs that the acquisition rate will slow down in the next few years. Lack of skills whether or not it is feasible.
and the fact that the companies receive more numbers of transactions than they can handle
drives this development. Growing organically is currently problematic when staff turnover is The merger of the dominant actor in Norway, Evry and the dominant actor in Finland, Tieto, created a giant with the potential
high and recruitment is sluggish. When profits rise and cash is replenished, it is natural to use to become largest in the Nordic market for IT services. In connection with the acquisition, it was estimated that EUR 75 million
capital to increase the company's growth rate through acquisitions. in synergy effects will be achieved to 60 percent in 2021 and to 90 percent in 2022.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
TIETOEVRY BEING "STUCK IN THE MIDDLE" 14
CURRENT STRATEGY

COMPANY OVERVIEW CURRENT BUSINESS MODEL

2,786 billion EUR in VALUE CREATION VALUE CONFIGURATION VALUE CAPTION
TietoEvry is a Nordic IT software and services company, based in
total revenue (2020)
Finland, providing IT services outsourcing with a market share
of 15-20 %. Being a A cost leader
Creating digital
Approximately company with that's offering
advantage for
In June 2019, The company Tieto acquired the similar-sized IT 24,000 employees customers unique,
businesses and local presence
company EVRY for 1.2 billion EUR. The intention with the innovative and
societies in the and global
acquisition was to expand on the Nordic market. The new Active in approximately customized IT
Nordics capabilities
company was then named TietoEvry. 20 countries services

CURRENT STRATEGIC POSITION CONCLUSION

The firm infrastructure is rigid and has a path dependency which
has through their big size led to bureaucracy and power politics, COST LEADERSHIP
where talent is not optimized or rewarded and the leadership is
insufficient. The most central cost leadership factor in
TietoEvry's strategy concerns their low
The lack of growth can be derived from the imprecise key personnel costs. Employee salaries are
performance indicators and lack of accountability within the below industry standard and the bonus
organization, thus the sales and marketing unit is at a competitive and renumeration system for employees
disadvantage. is not extensive in relation
competitors.
TietoEvry is currently pursuing a hybrid
DIFFERENTIATION strategy, being stuck in the middle
according to the strategy clock
The firm mainly differentiates through between cost leader and complete
their broad service offering. By doing so differentiation, which hinders them
they are able to offer package deals and
from growth.
target a larger segment than
competitors. COMPETITIVE ADVANTAGE
to
TietoEvry also aims to differentiate

COMPETITIVE SCOPE
The focus on cost cutting in human resources management and lack through their Swedish values COST
LEADERSHIP
DIFFERENTIATION

of training and development programmes internally, and the firm
infrastructure, hinders product development and innovation.
HR management, sales & marketing as well as service development
are the three main areas that hinders TietoEvry from achieving
sustained competitive advantage. These areas are investigated
further through a VRIO analysis in the following slide.
Furthermore they are clearly saving in
their advertising and marketing, spending
only 2.4 % of other operating expenses.
predominantly revolving around their
work life balance in Human resources
management. However, this benefit is
not leveraged to deliver results to clients
due to their cost leadership with no COST DIFFERENTIATION
FOCUS FOCUS
reward systems that gives incentives and
spur motivation among employees.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
NEED FOR IMPROVEMENT OF ORGANIZATIONAL SUPPORT 15
VRIO ANALYSIS

RESOURCES &
VALUE RARITY INIMITABILITY ORGANISATION
CAPABILITIES
Employees experience work-life balance which Employees seldom feel work-life Rigid firm infrastructure that doesn’t support
HUMAN RESOURCE leads to less burnout and less employee turnover.
Since TietoEvry lacks excellence nor
their human resources. Need to cut middle COMPETITIVE
balance due to the nature of the has positive complex interlinkages,
MANAGEMENT work, making TietoEvery unique in
managers and make a more just distribution DISADVANTAGE
Remuneration and salary are below industry thus there is no point of imitating of remuneration and bonus incentivization
standard. No bonuses or awards granted to industry. However, it is negative for their human resources management. programmes for those within the operational Salaries below industry
employees. This lead to inefficient allocation of the firm not to incentivize employees units. standard
time and competences.
to put in extra work. Managers lack leadership
Managers lack leadership capabilities. No current Heavily political and bureaucratic capabilities
internal leadership and managers programmes. environment, enforced by senior executives, Lack of profound
Unfit leaders, resulting in inefficient projects and and the lack of profound development development programmes
unmotivated employees. programmes limit employees personal
career development.

Their long history in the sector lead to long-term

customer relationships that constitute a major part
MARKETING of revenue. The long-term customer relationships
& SALES are important, however TietoEvry is spending below
(2.4 % of other operating costs) industry average on
advertising and marketing.
These savings within marketing leads to a lower
realised organic growth than what is expected in a
growing industry. The neglect of this department
with low budgets does not create value nor
competitive edge since the salesforce becomes less
motivated and perform below standard.
They are not working with marketing TietoEvry could leverage its complex The salesforce need to be more
and sales in any unique ways. They network and size to build their sales aggressive for growth not suffer. To
COMPETITIVE
reach out through their home page, and marketing functions. have a motivated salesforce a DISADVANTAGE
google ads, LinkedIn and through better strategic management
articles. These are common sales and However, since their marketing and control/performance management Salesforce not aggressive
enough
marketing strategies in the industry. sales strategy is neither particularly system is required. This could
Rely on common
valuable nor rare there is no need further be incentivised with slightly marketing strategies
for other companies to imitate increased budgets for their
TitetoEvry's strategy. marketing activities.

TietoEvry are experienced within the IT- Being a large and established company they can Extraordinary service development in the Even though TietoEvery have a rare and TEMPORARY
SERVICE consulting industry and their long secure a unique position. TietoEvry does this by; industry require large CAPEX and the inimitable position there are pitfalls in the COMPETITIVE
experience in the business makes them
→ Profound relationships with major stakeholders interdependent complex interlinkages based organizational structure that hinders them
DEVELOPMENT within the value chain (close connections to
on relationships with educational from sustaining their competitive ADVANTAGE
trustworthy in providing valuable services. technical universities, government etc)
& INNOVATION → Ability to acquire innovative ventures within IT institutions and the business community. advantage. The main aspects that are
These are resources that TietoEvry lacking for long term competitive advantage Experienced and trusted in
They collaborate with universities through consulting
are; the industry
having graduate programs. They frequently possesses but that are very difficult for
host seminars on new trends in the industry,
Furthermore, their location enhance their competitive
other, smaller, companies to imitate. The → Leadership capabilities
Company size and profound

attempting to be "thought-leaders".
advantage. They are located with target markets in
size of the company therefore give them → Performance incentives
relations with stakeholders
innovative countries. Sweden ranked second,
Denmark sixth, Finland seventh and Norway competitive advantage in the area. → Internal communication and trust
enables rarity and
inimitability
twentieth.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
TIETOEVRY SHOULD MOVE TOWARDS A DIFFERENTIATION STRATEGY
A DECENTRALIZED ORGANISATION, INCENTIVISING EMPLOYEES AND TECHNOLOGIAL INNOVATION WILL BE VITAL FOR SUCCESS 16
FUTURE STRATEGY

LACKING ASPECTS OF TODAY THE COMPETITIVE STRATEGY GOING FORWARD

According to the previously discussed generic strategic position for TietoEvry, as well as financial KPI:s, it The attractive strategic position lies within being agile to adapt to COMPETITIVE ADVANTAGE
is evident that they are pursuing an ineffective strategy. Their operations during previous years has changing customer trends within the IT consulting industry’s hyper
shown a negative trend and has resulted in low EBIT-margins compared to its' competitors. By trying to competitive advantage. This demands a differentiation strategy for
be cost leaders and at the same time pursuing to differentiate themselves from its' competitors, they TietoEvry to be able to charge a premium price for their services. To

COMPETITIVE SCOPE
COST
can be seen as "stuck in the middle". differentiate themselves via innovative work with cutting edge DIFFERENTIATION
LEADERSHIP
technology, they need to allocate resources to the training of
The VRIO-analysis show that TietoEvry has a competitive disadvantage in "human resource employees and change the recruitment processes for managers to
management" and "sales & marketing", but shows potential for a sustained competitive advantage in focus more on leadership and less on technical skills. It requires a
innovation because of its competitive parity today, which gives an opportunity for differentiation. shift of power to the operational unit that senses the ongoing trends
and performance systems that incentivizes excellence and motivation
However, being in the strategic group as "giants" will be the right position for TietoEvry going forward for employee effort. Thus salaries need to be raised, bonuses need to
COST DIFFERENTIATION
due to its large service portfolio and company size. By adapting to new standards and be bound to performance and accountability needs to be defined FOCUS FOCUS
improving/developing resources and capabilities, TietoEvry will be able to better position themselves further. This requires a restructuring, greater focus on innovation,
within their strategic group. This could be handled by reducing its service offering, by cutting off sales, market research and being thought leaders.
intermediaries, as they lack profitability when prices decrease.

TO PURSUE A DIFFERENTIATION STRATEGY IN PRACTICE, TIETOEVRY HAS TO IMPROVE IN THE FOLLOWING AREAS:

ORGANIZATIONAL STRUCTURE HUMAN RESOURCES INNOVATION

To increase task ownership and promote TietoEvry should implement a strong To differentiate the services offered,
entrepreneurial drive, a divisional incentive program offering employees bonus TietoEvry should focus on adapting to new
structure with more decentralisation checks and competitive salaries to retain technological solutions, continuously
should be implemented with a employees and increase employee loyalty develop employee competence, and
responsible division head and efficiency specialize in AI/Machine Learning
Divisions should be monitored and less More low-competence skills should be The divisional structure and incentive
profitable divisions should be cut off offshored and employees should focus on programs will facilitate new technical
high-competence skills solutions and specialised competence

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
STRATEGIC INTEGRATION
KEY SUCCESS FACTORS
CUSTOMER RELATIONS
Customer relationships have proved to
be the base for industry competition and
excellence within customer service,
relations and retention have proven
critical for success.
17
INDUSTRY ANALYSIS
The IT-consultancy industry is unattractive in some sense, since the industry forces are strong for suppliers and buyers. However, the low
threat of substitutes and a medium threat of industry rivalry and of new entrants, in combination with straightforward neutralization
opportunities increases industry attractiveness. The global digitalization mega trend will continue to positively affect demand for IT-
consultants and the continuous growth clearly states that the attractiveness in the industry is evident for the ones who can neutralize the
threats.

EMPLOYEE RETENTION
Since there is a general lack of
competence within the industry,
attracting potential employees and
retaining current employees is critical to
neutralize suppliers' bargaining power.
COMPANY BRAND
The services offered within the industry
are relatively difficult to differentiate
and a strong company brand is thus of
importance
customers.
to attract potential
COMPETENCE & INNOVATION
Specialized competence within advanced
technical solutions and being the
industry leader of new technologies is
one of the few ways to differentiate
oneself from industry competitors.
FINANCIAL ANALYSIS
From a financial point of view, the industry tells a compelling case. Between 2015 and 2020, industry topline has grown with a CAGR of 11%.
While the industry growth is strong, some of the growth can be said to be owing a highly optimistic investment sentiment among corporation -
at the same time, the DuPont analysis shows that cyclicality is somewhat limited. However, there are large differences in firms profitability.
Hence, smart strategic decisions and positioning are extremely important. TietoEvry's profitability has taken a hit following the merger. A
portion of their decreased profitability can be attributed to the larger balance sheet, and we expect profitability to pick up following
realization of merger synergies which may improve per employee economics. Many lessons can be learned from other players, especially
Netlight.
COMPETITIVE STRATEGY ANALYSIS
TietoEvry is currently pursuing a hybrid strategy by being a cost leader in the Sales- and HR Department, while still differentiate from
competitors by offering innovative and unique solutions to clients. As the VRIO-analysis suggests the focus on cost leadership hinders them
from achieving their differentiation goals, the main reason being that employees lack incentives and that managers lack leadership skills. As a
result they are therefore stuck in the middle. The hypothesis that this strategy negatively affects growth and profits is supported by financial
data. A new proposed strategy would be for TietoEvry to transition towards a complete differentiation strategy. To achieve this, the most
crucial improvements concern making their organizational structure more agile, improve processes and cultivation of innovative service
development and incentivising employees and develop leadership capabilities in the HR department.

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
THE FUTURE OF IT SERVICES OUTSOURCING
HOW TO ACHIEVE PROFITABILITY IN THE INDUSTRY
BUILD CUSTOMER RELATIONS TO
NEUTRALIZE THE THREAT OF
RIVALRY AND REDUCE THE
BARGAINING POWER OF BUYERS
RETAIN EMPLOYEES TO
NEUTRALIZE SUPPLIER'S
BARGAINING POWER
A STRONG COMPANY BRAND
NEUTRALIZES THE THREAT
OF NEW ENTRANTS AND
ATTRACTS EMPLOYEES
DEVELOP COMPETENCE AND
INNOVATION TO NEUTRALIZE
THREAT OF SUBSTITUTES AND
REDUCE THREAT OF NEW ENTRANTS
CONCLUSION
INDUSTRY OVERVIEW INDUSTRY ANALYSIS
18
TWO POSSIBLE PROFITABLE STRATEGIC POSITIONS
Maintaining and developing great relationships
with the volume-heavy public sector can prove GIANT BOUTIQUE
successful to reduce buyers' bargaining power,
and a developed sales force can be the vital factor FIRMS FIRMS
to stand out against the industry rivals.
LEVERAGING INDUSTRY GROWTH HIGH PROFIT MARGINS
If companies would implement incentive programs, As the industry is constantly growing, an Boutique firms have a great opportunity
offer higher salaries and internal education, the excellent opportunity to grow without to offer premium pricing and gain high
competing for rivals' market shares exist profit margins through their nisched
employee satisfaction would increase and the
threat of forward integration would decrease. by adapting to the industry development. boutique offerings and low fixed costs.
GROWTH THROUGH ACQUISITIONS SPECIALIZED SERVICE PORTFOLIO
With a focus on brand marketing, companies can
Firms can grow through acquisitions, Through a smaller, more specialized
successfully build their brand to attract potential
thus acquire specialized competence and service portfolio e.g. focused on machine
employees (decreasing the bargaining power of
diversify its portfolio, since it's difficult to learning, boutique firms can differentiate
suppliers) and reduce the threat of new entrants
grow organically as a giant. themselves and attract customers.
by leveraging their knowability.
COMPANY BRAND AND SALES FOCUS INDIVIDUALIZED OFFERS FOR CUSTOMERS
By increasing R&D and by applying more advanced
As a giant, the firm should focus on & EMPLOYEES
technological solutions by developing competence,
building a strong company brand, which As a boutique firm it is easier to tailor
firms would be able to differentiate themselves
would enable them to differentiate services to its customers as well as
from its competitors to be able to attain a
themselves and offer premium pricing. awarding employees accomplishments.
sustained competitive advantage.
The IT Services Outsourcing industry is generally medium-attractive and is affected by strong industry forces as well as high industry
growth. The industry growth combined with a high level of insecurity regarding the technological development makes agility and an ability
to adapt two important factors to keep up with the changing industry. Two profitable strategic positions exist where firms can successfully
leverage key success factors and neutralize several of the industry forces to become profitable. Giants can grow through acquisitions and
attract customers and employees through a strong company brand to reach economies of scale. Secondly, boutique firms can differentiate
themselves through specialized competencies, individualized customer offerings and reach high profit margins through their expertise.
FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION
REFERENCES
ARTICLES
"Köpa eller bli uppköpt – därför konsolideras it-branschen i rasande fart", IDG, hämtad 2021-05-16, https://computersweden.idg.se/2.2683/1.714110/kopa-eller-bli-uppkopt-it-branshen

"Omsättning och tillväxt", IT- och Telekomföretagen, hämtad 2021-04-28, https://www.itot.se/om-oss/statistik/omsattning-och-tillvaxt/

"TietoEvry fortsätter att skära ner - 160 får gå i Sverige", IDG, hämtad 2021-05-15, https://computersweden.idg.se/2.2683/1.739065/tietoevry-skar-ner

"Ytterligare 300 tjänster ska bort från Tietoevry när molnet tar över'' IDG, hämtad 2021-05-12, https://computersweden.idg.se/2.2683/1.750241/ytterligare-300-tjanster-ska-bort-fran-tietoevry-nar-molnet-tar-over

REPORTS
IT-kompetensbristen; En rapport om den svenska digitala sektorns behov av spetskompetens, 2017, https://www.itot.se/app/uploads/sites/2/imported/ITTelekom-Rapport-Brist-Pa-IT-kompetens-webb.pdf

Nordic IT Services Market Forecast, 2019, https://www.marketresearch.com/IDC-v2477/Nordic-Services-Forecast-12778784/

Netligtht Annual Report 2020, https://www.netlight.com/wp-content/uploads/Annual-Report-2020.pdf

TietoEvry Annual report 2020, https://ar2020.tietoevry.com/siteassets/tietoevry2020_annual_report_full.pdf

TietoEvry Corporate Governance and Renumeration 2020, https://ar2020.tietoevry.com/siteassets/tietoevry2020_governance.pdf

LITTERATURE WEBSITES
Exploring Strategy, Johnson G., Whittington R., Scholes K., Angwin D., Regnér Å., 11th Edition, Pearson https://www.tietoevry.com/ https://www.capitaliq.com/
https://www.scb.se/
https://www.itot.se/amne/jamstalldhet/
https://www.glassdoor.com/FAQ/TietoEVRY-Question-FAQ200073-E315536_P4.htm

INDUSTRY OVERVIEW INDUSTRY ANALYSIS FINANCIAL ANALYSIS COMPETITIVE STRATEGY STRATEGIC INTEGRATION