In November 2021, when IBM spun off its infrastructure services to create ‘Kyndryl’, there were quite a few naysayers. Many called it the unshackling of an unwanted part of the business with declining revenues and earnings. Two challenging years down the line, Kyndryl seems to have done a lot of things right. It’s third quarter fiscal 2024 earnings stand as a testimony.
It beat Wall Street’s expectations, cut its losses by 50% and raised full-year outlook, increasing its stock value by more than 12%. Its 10% revenue decline is attributed to the strategic exit from zero-margin, low-margin revenue streams. At the time of spinoff, about 40% of its contracts were reportedly making little or no profit.
In Q3 FY24, the company reported double digit growth in its consult revenue, indicating a strong growth in high-margin services. It’s clear that Kyndryl is shedding businesses that added little or no value, and becoming more focused towards areas where it sees higher margins and potential for growth.
Quite understandably, it was an uphill battle to turn things around, says Karen Forbes, Vice President – Global Go-To-Market and Customer Advocacy at Kyndryl, during her recent visit to Bangalore.
CIO Dimension caught up with Karen to know more about Kyndryl’s transformation journey.
Edited excerpts:
It’s been over two years since the spin off and it’s been a mixed bag, which is not a surprise after a big spin like this. How would you summarize the last two years of Kyndryl’s journey?
It has been a big journey for us to embed the brand in the market as we stand alongside some of the giants. We had to build a services company that was unshackled by a product company. Two years down the line, we can say with conviction that we are not a legacy spinoff losing money. Our business results clearly project that now. Besides, we are in the new areas of market, we have built new practices and capabilities and are growing those capabilities in our customers.
Our leadership had two key mandates for us during this massive transition. The first one is to look after our customers, most of whom agreed to stay with us. Secondly, we decided to retain every employee and give them the confidence to come across. Our leadership has done a fantastic job in steering us through that journey.
Two years ago, when the spin was announced, I don’t think many people were placing the bets on us. There was a lot of cynicism out there. But what we achieved in two years is phenomenal and each of us is proud of it.
Preparing an organization with about 85,000 employees worldwide during a transformation of this scale is not a small feat. What are your learnings?
The cultural journey has been challenging because we are changing hearts and minds. We were focusing on building confidence among our people. We spent a huge amount of time talking to them about the brand of Kyndryl, the purpose and mission of the brand.
We created something called the ‘Kyndryl Way’ which talked about the changes we must embrace as we become a services company. For example, most of our teams on the ground never had to work with channel partners or alliances before. We had to teach many new skills to our teams and build trust because this different way of engaging with customers was not usual for us in the ‘old co’.
The second big vector is our 3A’s strategic objectives that are at the center of our transformation, which is around Alliances, Advanced Delivery and Accounts. We have been making steady progress in all these areas. Our Alliances with tech leaders like AWS, Google and Microsoft have helped us expand our addressable market. Kyndryl Bridge platform has roughly 750 customers performing over 1 billion automations, generating annual savings of $500 million.
Kyndryl’s hyperscaler partnerships are a significant part of your growth strategy. Tell us a bit more about these alliances.
We exceeded our alliance revenue targets, with over $300 million generated this year and raised our full fiscal year target to $400 million. We increased our cloud-related capabilities with 38,000 hyperscaler certifications.
Clearly, there is a lot going on in the cloud space. We work with the hyperscalers to help customers understand what their cloud strategy must be VS leading them to a particular hypervisor. We work together a lot to understand what we can deliver to customers around data management, Gen AI, sustainability, hybrid cloud, FinOps and much more. Some of these areas help us build relationships beyond CIOs to include CFOs, data managers among others. As our revenue is historically shrinking, it’s important to be in those new places.
We are also building specific solutions and reference architectures around different industries like financial services and technologies such as genAI and analytics with each of these hyperscalers. So, we are moving the partnership beyond the cloud migration aspect to larger areas.
How are you modernizing your GTM to align with the new ways of doing things?
We have been focusing on simplifying how we show up in front of the customer. For example, instead of having multiple specialists as multiple touchpoints, we try to be more cross-practice to solve the customers’ business problem. We start with changing the narrative by focusing on ‘Innovate, modernize and secure’. It’s kind of a flip on from being a product company where you walk in and talk about the products that you like to sell.
We had an agreement with IBM to use their process and technology at spin. In the last two years, we completely modernized and transformed our front & back offices to “fit-for-purpose” modern IT infrastructure. This helped us consolidate over 80% of the application portfolio we inherited, from over 1,800 business applications to fewer than 360 applications. That made us more efficient and effective in the way we go to market.
The third important part of the GTM is the skills. We continue to invest heavily on the skills of our people. People are the heart of what we do and they are our most valuable asset as a services company.
Lastly, would you like to talk about some interesting customer stories from India and the significance of India as a market for Kyndryl?
India is a particularly exciting market for us. Some of our key customers in India are from the banking and financial sector. A notably big win for us from this sector is Canara Bank which partnered with us to manage and transform their IT operation including the application landscape. We also work a lot of with small finance banks like Suryoday Bank for technology transformation and digital banking. NPCI is another key customer for us, helping them manage their data centers which handle up to 70 billion transactions a month.
We have some really inspiring stories from our customers like Honda Motorcycle & Scooter India, USDC / Jain University and Dr. Lal Path Labs from India. Most importantly, what we see in India is a market where we can innovate in and scale for the rest of the markets globally.
