Cloud repatriation or cloud exit are terms that we heard quite often in 2023 and will likely continue to command our attention in 2024. Is the cloud-first mantra, which was once widely touted as the future of all business operations, losing its luster? 

Thanks to several factors, CIOs are relooking at their public cloud strategies. While enterprises have greatly reaped the benefits of public cloud over the years, they are beginning to reassess their cloud-first or cloud-only strategies, opting instead to migrate certain workloads back to on-premise environments. Cost remains a key factor for this cloud repatriation.

A 2023 HashiCorp State of Cloud Strategy Survey reveals that almost all enterprises (94%) report “avoidable cloud spend” or what is known as ‘cloud waste’. 

“Cloud was at one point the biggest buzz, which took a long time to gain traction. Then it moved to a matured level of usage – a point after which many users realized that the costs were going immensely high. Strangely, accordingly to any law of technology, the cost should always come down as usage increases. Cloud has been the only exception to this rule,” says Sunil Mehta, CIO & Partner, BDO – a global professional services firm.

This, he adds, has led to ‘mixed feelings in the CIO community and the tech community at large’ about the future of public cloud as a platform of choice.  He was talking on the sidelines of Tech Saga 2024, one of the biggest gatherings of Tech visionaries, hosted by CIO Klub Pune chapter. 

“Strangely, accordingly to any law of technology, the cost should always come down as usage increases. Cloud has been the only exception to this rule,” says Sunil Mehta, CIO & Partner, BDO.

But is the public cloud aura really disappearing? Or is it the inherent evolutionary curve that  every technology will go through? 

Tech leaders emphasize that some key benefits of public cloud continue to be appealing and there are still quite a few takers for public cloud. Ashok Mandlik, SGM – IT, Deepak Fertilisers, vouches for the flexibility, scalability, agility, and the ease of innovation that comes with public cloud. 

“Most of the IT solutions today are available only on cloud platforms. Traditionally on-premise applications like ERP are also now moving to cloud. There is very little opportunity left to maintain these systems on-premise. That leaves organizations with no choice. Besides, an on-premise model is often not able to match the flexibility and agility that the cloud technology provides. The innovations that are rolled out by cloud players often compensate the downsides.”

Nevertheless, CIOs are increasingly going in for a workload-based approach as opposed to a platform-centric approach. They assert that certain workloads and applications are just not meant for the public cloud. 

“What we have typically seen is that CIOs want to put everything on the cloud without realizing what really needs to go there. That resulted in a lot of static data sitting on the cloud, which contributed significantly to the cloud cost upsurge. This trend was accelerated during COVID,” adds Mehta. 

“If the organization has clarity on the compute and storage parameters, the cost component can very well be controlled,” reiterates Mandlik. For many organizations, especially if they are not the very large enterprises, cloud is in fact ideal for balancing cost, performance, and security. 

“Traditionally on-premise applications like ERP are also now moving to cloud. There is very little opportunity left to maintain these systems on-premise. That leaves organizations with no choice,” says Ashok Mandlik, SGM – IT, Deepak Fertilisers.

According to Mandlik, security is still a strong reason for many firms to go in favour of public cloud. “For an on-premise model, enterprises will have to continue to invest on a wide-range of tools for risk mitigation and it’s an ever-evolving scenario. That is perhaps why security remains one of the strongest reasons for enterprises to go for public cloud. Add to that the need for backup & disaster recovery, and the availability of skilled manpower to manage the data Center, and many CIOs realize that cloud TCOs are in fact comparable with that of on-premise models,” he underscores. 

CIOs might often feel that they are walking on eggshells. They are falling back on the many learnings they have had over the years in finding the right fit. Hybrid and private clouds will see more adoption going forward as enterprises strive to control cost and maximize performance. Many ‘public-cloud only’ strategies are widely being shaken and revisited. 

“Hybrid cloud will certainly dominate. We will also see increased adoption of private cloud that provides the experience and security of a public cloud with better manageability and optimized cost,” believes Mehta. 

On-premise data centers still have very strong use cases in the manufacturing sector, Mandlik adds. Especially in process-heavy manufacturing establishments, the huge volumes of time-series data generated by OT systems still reside on-premise. But manufacturers leverage the cloud to analyze these data sets to derive business insights.

With more and more expensive AI workloads in the horizon, how are enterprises relooking at their cloud priorities? 

Enterprises’ cloud strategies are sure to get more nuanced – they are exploring a combination of public cloud, private cloud, industry cloud and co-location services, as they try to reassess each workload and place them in the right infrastructure. Cloud repatriation might be an obvious fallout of this reassessment. 

For the major hyperscalers who have long dominated the market, this is a decisive moment in their growth journey. Even though the pay-as-you-go model of the cloud is beneficial for fluctuating workloads, it can result in unexpected expenses when usage suddenly spikes. 

“There seems to be an increased interest towards Indian datacenter hosting companies and they could give the big hyperscalers a run for their money. Because cost is going to be a big differentiator in the cloud game,” states Mehta. 

Mandlik feels that the change is already happening. “Cloud providers now have become mindful of the fact that CIOs are increasingly conscious about cloud spending. Their dynamic pricing models (pay per use), simplified management mechanisms with flexible dashboards allow organizations to utilize the workloads and cloud services more meticulously,” he says. 

Above all, CIOs are relooking at their cloud strategies which they derived a few years ago. In today’s fast-paced world, one cannot expect a tech strategy to work for five years. Cloud is a perfect example of why our tech roadmaps should be versatile, according to Mehta.

“With cost becoming prohibitive, tech leaders must now go back to the drawing board and understand what needs to sit on cloud and what shouldn’t—and this must be done a lot more frequently now than before. Because the role of CIO is not about doing what everybody else is doing. We need to be a strategic leader than a blind follower,” he sums up. 

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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.

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