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IBM has completed the separation of its Global Technology Services (GTS) into Kyndryl, a separate publicly traded company.
GTS was IBM’s managed infrastructure business. According to the company’s Securities and Exchange Commission annual reports, GTS last made a profit in 2011, when Sam Palmisano was chairman of IBM’s board and Ginny Rometty had just taken over as CEO.
The 2011 annual statement outlined the company’s 2015 plan to generate 50% of its business from software. In that annual report, Palmisano said: “By becoming a very different company from what we were just a few years ago, we have become much more like the company IBM has been for most of its history.”
As chairman, president and chief executive officer of IBM, Rometty oversaw the $34bn acquisition of Red Hat, laying the foundation for a hybrid cloud business strategy. When Arvind Krishna took over as CEO and president, he took this further. By separating GTS from the rest of IBM, the company wants to concentrate on its hybrid cloud platform, artificial intelligence (AI) capabilities and consulting services to help clients on their digital transformation journeys.
When IBM announced its plans last year, ISG analyst Mrinal Rai wrote: “IBM’s legacy managed infrastructure services business was not only impacting the focus on accelerating its cloud growth, but it also was resulting in a significant conflict of interest between its on-premise infrastructure and its Red Hat-enabled business.”
Multipronged approached to managed services
Kyndryl launches as the world’s largest IT infrastructure provider, with what it claims is “a differentiated approach” that integrates development, security and operations. The company has 90,000 employees worldwide offering advisory, implementation and managed services to more than 4,000 global customers, including 75% of the Fortune 100 across financial services, telecommunications, retail, airline and automotive sectors.
Unlike other spin-offs where the newer firm is smaller and more vulnerable, “NewCo”, the unnamed business that later became Kyndryl, is twice the size of its next biggest competitor, according to Rai. He said the new business is not only positioned to leverage cognitive capabilities from IBM Watson, but will also be open to work with products and services from other technology providers in the future.
“This provides strong potential for the company to sell AI-led automation and cloud migration services to help streamline costs for its IT infrastructure clients,” he added.
Tosca Colangeli, Kyndryl president for UK and Ireland, described the company as “a $19bn, 110-year-old startup”. For Colangeli, the business is focused on providing technology for mission-critical systems, a $500bn market opportunity.
The company is focused on six practice areas. Cloud represents the largest market opportunity. “We are focusing on where clients want to go,” said Colangeli. Previously, cloud services were infrastructure services tied to the IBM public cloud and IBM’s ecosystem. As an independent business, Kyndryl has an opportunity to work with a bigger partner ecosystem. This potentially unlocks more opportunities to participate across platforms.
Core enterprise is the part of Kyndryl that supports its customers’ existing technology. Colangeli believes IT modernisation is a hybrid journey. “Clients will modernise where it makes sense, but the hybrid story requires data integration,” she said.
This is Kyndryl’s third focus area and covers applications, data and AI. Previously, data services at IBM involved managed databases and spinning disks, hard drives and storage. As an independent company, Kyndryl is aiming to provide higher-value data engineering services, curation and orchestration.
Colangeli said the company would develop services around developing data integration and data fabrics, and then making use of the information gleaned from these systems to drive automation. For instance, managed database administration and application management are among the services Kyndryl will look to build out.
Like other IT services businesses, Kyndryl offers a security and resilience practice. “Security and resilience is a high-growth area for us. We have been very focused on cyber resilience orchestration,” said Colangeli. While it is partnering with IBM, which offers threat intelligence through its X-Force platform, Colangeli said Kyndryl has also partnered with Dell. Through such partnerships, she said Kyndryl will build out a portfolio of security capabilities.
Network and edge computing is another of the focus areas that will be built out through partnerships and alliances. “We are putting a lot of investment in here,” said Colangeli. “We are in the development and build-out [phase] driven by customers.”
One example is the 2019 Vodafone partnership it has taken over from IBM. This created a new venture to offer companies the open, flexible technologies they need to integrate multiple clouds and prepare for the next wave of digital transformation enabled by AI, 5G, edge and software-defined networking (SDN). Discussing how this partnership would evolve, Colangeli said: “We are providing transformational networking out of our datacentres to address clients’ needs.”
The sixth focus area for Kyndryl is end user computing, which covers IT service management, supporting desk-side users, device as a service and scalable services for flexible and hybrid working.
Infrastructure services has been a declining margin business for years, according to Forrester principal analyst Ted Schadler, but he points out there are big opportunities to use automation and cloud migration to streamline the costs and capital requirements for infrastructure. These appear to be very much part of the strategic mix that Kyndryl is looking to focus on.
What is clear from the conversation with Colangeli is that Kyndryl is hoping to build on the existing customer base from GTS by building services around partnerships and alliances that were harder to develop when it was inside IBM. Colangeli has personally visited 100 customers as Kyndryl separates out the GTS contracts from the parts that remain with IBM. Some of IBM’s customers will now have two distinct technology providers: Kyndryl for managed IT infrastructure services and IBM for hybrid clouds.
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