Kyndryl bets on partnerships, consulting arm to redeem itself

While Kyndryl’s overall revenue is on a decline, Kyndryl Consult is growing in double digits, acting as the only green shoot for the IBM spin-off.

IBM spin-off Kyndryl is betting on its consulting arm, dubbed Kyndryl Consult, to return to growth by rapidly expanding its partnership ecosystem to deliver more diversified offerings.

“We have established an ecosystem of around 30 partners since our spin from IBM well over 24 months ago. Our most recent global partnerships were announced late last year with Palo Alto Networks and Dynatrace,” said Mark Slaga, global practice leader at Kyndryl Consult. Kyndryl Consult has also expanded its existing partnerships with hyperscalers, such as Google Cloud, to ready itself to deliver on generative AI, Slaga said.

Other collaborations include partnerships with software providers such as Cisco, Red Hat, Veritas, SAP, Oracle, Nokia, and Veeam.

These partnerships or alliances aid Kyndryl to not only deliver more diversified offerings than earlier, but also capitalize on larger technology trends, such as the greater demand for digital transformation, cloud migration, management of rapidly growing data, security concerns about IT systems, and accelerating the pace of technological advancement, to increase its revenue. According to Slaga, this was not fully possible when the company was a part of IBM and had to give preference to IBM’s software and services.

These alliances also help Kyndryl build more capabilities for its open integration platform — Kyndryl Bridge — which was developed to connect to an enterprise’s present IT infrastructure and asses it to help CIOs solve issues in the entire IT system.

In its latest annual report, Kyndryl cited the example of a five-year deal with a US-based healthcare services company and how this company was able to leverage these new capabilities of Bridge.

“Under this new agreement, our customer will use Kyndryl Bridge to integrate AIOps and automation capabilities. As part of this collaboration, Kyndryl will deliver and support evolving IT capabilities via a built-for-purpose dedicated command center,” the company said in the report.

As part of the agreement, Kyndryl is also expected to use its partnership with Microsoft to help the healthcare services firm migrate critical workloads, resulting in a more modern and resilient hybrid cloud infrastructure.

Such partnerships are helping Kyndryl expand its addressable market by moving beyond its core expertise area of infrastructure, according to Tom Reuner, executive research leader at HFS Research.

The partnerships have also forced Kyndryl to reskill its existing engineering and technical talent to be able to service diversified areas of technology, Slaga said.

Kyndryl Consult — the only green shoot

Kyndryl is leveraging its consulting arm to engage with new customers and pick up new projects.

Kyndryl Consult is essentially acting as the new business development team for Kyndryl, said IDC analyst Neha Gupta, adding that the enterprise customers or projects brought in by the consulting business are serviced by the company’s six global managed services practices, each managing a different aspect of technology: Cloud Services, Core Enterprise & zCloud Services, Application, Data and Artificial Intelligence Services, Digital Workplace Services

Security & Resiliency Services, and Network Services and Edge.

The separation from IBM and segmentation of its businesses, too, is an advantage as it allows Kyndryl to go after a more diversified set of clients or projects, Gupta said.

Kyndryl’s short-term plan is to ensure that the consulting arm starts contributing close to 20% of the company’s total revenue, according to Slaga.

“For new customers, Kyndryl Consult may go through the transformation advisory group. They level up the conversation to cover IT Strategy & Transformation (assessment and road mapping), Enterprise Architecture & Integration (hybrid IT design and migration planning), and Program & Change Management (implementation), and then it goes into Capability Area Patterns and Practices for implementation and more in-depth consultation,” Slaga explained.

Slaga said that the company was prioritizing existing accounts by activating its open integration platform — Bridge and adding consulting partners based on the industry sector.

The existing accounts or clients, according to Steve Dickens, vice president of hybrid cloud at The Futurum Group, would be the company’s first primary target to expand its business.

“Kyndryl will be looking to engage the C-Suite of its ~4k customers to drive digital transformation consulting engagements. The traditional outsourcing business gives it access to the highest levels of IT as a service delivery partner so they will look to build from these relationships into more project-focused engagement,” Dickens said.

A closer look at the company’s financials, at least for the last two quarters, reveals that Kyndryl Consult is the only green shoot for the company at the moment.

Despite the company reporting a 9% year-on-year decline in total revenue for the fourth quarter, the consulting arm of the business reported a 12% year-on-year growth and accounted for about 15% of the company’s total revenue.

For the previous sequential quarter, the consulting arm reported 19% year-on-year growth while accounting for 14% of the company’s total revenue.

For both quarters, Kyndryl cited its decision to reduce inherited zero-margin and low-margin third-party content in customer contracts as the reason behind its fall in revenue.

Delivery effectiveness and a more nuanced approach to its customer accounts, according to Reuner, are the main reasons for Kyndryl’s significant progress since its separation from IBM.

Kyndryl’s revenue dwarfs rivals

Despite Kyndryl’s revenue taking a hit since it spun off from IBM, the company is still much larger than its rivals.

“Kyndryl’s mainframe business is 6x bigger than their nearest rival DXC and this provides a center of gravity for mission-critical workloads,” said Dicken from The Futurum Group.

Kyndryl Consult competes with the likes of IBM Consulting, Deloitte Consulting, and consulting arms of Accenture, Capgemini, Tata Consultancy Services, Wipro, and Cognizant.

However, according to Slaga, the next phase of growth for Kyndryl Consult will continue to come from regular projects, such as modernizing IT, modernizing applications, moving to a new data center, and moving to a cloud-native architecture, as the practice leader believes that enterprises are still far away from implementing generative AI.

Presently, enterprises are continuing with cost-optimization efforts and no big budgets for generative AI deployments have come to the fore, Slaga said, adding that proof-of-concepts (PoCs) were being actioned by the company along with projects that check the data readiness of enterprises to deploy generative AI at scale.

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