Kyndryl’s consulting business may be less than it seems

Special report Kyndryl has bet on becoming a consulting-led business, but among those who recently left the IT biz there’s skepticism about the corporation’s claims.

Following our report last month about the managed infrastructure services firm’s ability to win new clients, we were contacted by a source familiar with the company’s consulting business.

Kyndryl inherited numerous managed service accounts – through which it provides outsourced IT to customers – when it was spun out of IBM in late 2021. Many of these multi-year contracts cost more to service than they generate in revenue, so Kyndryl has been looking to improve the margins of these deals when they’re up for renewal while also developing its consulting business. This involves working with companies to co-develop technical solutions that can be implemented to improve business outcomes – an arrangement that keeps Kyndryl from bearing the repair liability if a project falls short.

In many cases, these are so-called digital transformation projects that involve moving an existing IT service – possibly Kyndryl-managed – to a large cloud service provider.

The information being presented to shareholders is wildly optimistic

“The information being presented to shareholders is wildly optimistic,” said a source we’ll refer to as “Dakota” because company severance agreements impose speech limitations and to not harm future employability.

The Register was told previously that Kyndryl has been classifying work done on managed service accounts (its outsourcing accounts) as consulting work. Dakota got in touch to explain the situation in more detail, based on their concerns that the corporation’s recent claims at its November 21 Investor Day “were not grounded in anything approaching reality.”

Dakota served in a role that involved servicing consulting deals, explaining that except for the largest accounts, the two primary points of contact for clients involve customer partners and consulting partners.

Kyndryl’s shift to a consulting-led biz has meant that consultants are supposed to be the ones hunting for new opportunities that get presented to the team that puts proposals together.

But over the past year and half not a single opportunity came in via consulting partners, Dakota claimed, adding that experience was common among other insiders in a similar position.

Everything not a managed service got a consulting code

Yet the company has been booking consulting business. According to Dakota, that’s largely just labeling that in their view doesn’t reflect reality.

At Kyndryl, deals get tracked using what’s known as a Level 30 code. These are applied to all elements of a deal so that revenue can be allocated by Service Product Line – network/edge, security, cloud, and so on.

“When deals are signed, that’s how they know to give bonuses,” said Dakota. “What they started doing was that everything not a managed service got a consulting code.”

So if a job involved staff augmentation or L1 onsite IT service, or a short project for data transformation, it got labeled consulting.

Anything that had a discrete delivery program that wasn’t a multiyear code got coded as consulting, Dakota explained. But actual consulting didn’t get coded as consulting because it wasn’t happening – at least not that Dakota saw.

How widespread these practices have been is unclear. We spoke with several other recently exited Kyndryl workers who offered supporting versions of events at the company.

But not everyone we contacted said so.

“Please know that the terms of the separation agreement I signed prevent me from speaking about details regarding Kyndryl publicly,” one former employee said.

“I can share that I was part of a high performing team that consistently exceeded revenue, margin, and CSAT [customer satisfaction] targets the last three years post spin-off from IBM. In fact, we closed several new logos [customers] in the US and overseas. Hence, I encourage you to continue investigating with Kyndryl directly to ascertain a more balanced and comprehensive view. Many parts of the business are healthy and should not be categorized by some of the blanket statements in your earlier article.”

Asked about this, Dakota said, “I’m sure there are parts of Kyndryl that are functioning well. Kyndryl as a whole however is a different beast.”

There are parts of Kyndryl functioning well. Kyndryl as a whole is a different beast

Kyndryl did not respond to a request for comment.

Another individual we spoke to, whom we’ll call “Finley,” recounted a visit several months ago by a Kyndryl US executive to Texas, during which some employees were berated for poor performance.

“They’re losing money hand over fist,” said Finley. “The European markets are keeping Kyndryl afloat but the US [business] is dying … They’ve let a lot of people go. Everybody with my job title is gone in the US.”

Kyndryl last month announced a $300 million share buyback program and reaffirmed its fiscal 2025 guidance.

According to Dakota, Kyndryl started getting rid of business development executives in March 2023 as part of its push into consulting. But then the biz failed to hire consultants to effect that transition and those who already had consulting expertise saw the writing on the wall and left.

Then in October, we’re told, cuts were made to customer technical advisors in four of the six pillars that Kyndryl focuses on – mainframe and network/edge were spared, but those involved in AI, security and resiliency, cloud, and digital workplace services are said to have lost their jobs.

The reason that’s problematic, Dakota said, is “you cannot get a customer-facing proposal out the door without the positions they eliminated.”

Kyndryl has a tool called GPE – originally in Lotus-1-2-3 and currently written in Java – that employees have to be certified on. And many of the employees certified on the system, we’re told, have now been let go.

They’ve got these deals, but they don’t have anybody to work on them

The result is that people who don’t have access to this tool, who don’t have experience in consulting, and who don’t understand consulting financials, are now tasked with getting deals out the door.

Finley recounted hearing from a colleague on the delivery side of the business about the lack of staff to keep deals going. “She’s like, ‘They’re laying us all off now, they’ve got these deals, but they don’t have anybody to work on them.'”

Dakota fears many of the proposals that are in-play will vanish because there’s not enough staff to work the deals and follow up with customers.

“It’s really disheartening to see behavior at IBM, during the 2018 to 2020 period, being repeated at Kyndryl,” our source told us.

Dakota observed that while Kyndryl lets benched employees – those sidelined for lack of a billable project, a precursor to being laid off – believe that there are internal positions available, that’s not the case. “In reality, they’re not hiring in the US,” said Dakota.

Finley added, “One of the major problems they have is you can take the Kyndryl out of IBM, but you can’t take the IBM out of the Kyndryl.” ®