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The top challenges for IBM as it works towards a hybrid cloud future

IBM sits at a crossroads.
Arvind Krishna (IBM)

Arvind Krishna (IBM)

IBM has been shaking up its core strategies under the leadership of new CEO Arvind Krishna, with a fresh focus on hybrid cloud and artificial intelligence (AI). However, challenges still remain. 

Krishna took the IBM helm in April last year after former CEO Ginni Rometty’s resignation announcement the preceding January, a move which saw her leave IBM after close to 40 years, nearly eight of which were as CEO. 

Krishna came to the role after focusing on the cloud for several years, having held the roles of cloud and cognitive software senior vice president and hybrid cloud director of IBM research, among other positions in a 30-plus-year career with the company. 

Krishna’s cloud leadership was clearly a deciding factor in the transition and, as CEO, he has very much continued to drive IBM’s ongoing transformation efforts as it works to shed much of its legacy baggage and move towards a future filled with hybrid cloud, artificial intelligence, quantum computing and other recent and emerging technology areas.  

Indeed, IBM’s US$34 billion acquisition of open-source software provider Red Hat in 2019 helped to further pave the company’s way into the hybrid cloud market, thanks in no small part to Red Hat’s OpenShift Kubernetes container platform. 

Now, after a challenging 2020, IBM has completed strategic acquisitions and spin-offs to transform its core and create a foundation for growth.  

Today, the company sits at a crossroads, according to analyst firm Gartner.  

“After largely completing its strategic transformation, IBM’s 2021 performance will establish whether the company can return to sustained growth,” a new report by Gartner suggested. 

The report, Hybrid Cloud and AI Focus Will Enable IBM to Transform Enterprise Digital Strategies, noted that IBM’s core strategy right now is to accelerate digital transformation in enterprises with hybrid cloud, artificial intelligence (AI) and client-value-oriented services.   

Authored by several Gartner analysts, including Chirag Dekate, Patrick Sullivan and Bob Gill, the report suggested that IBM’s primary goals are to enable enterprises to securely unlock value from their data, reinvent and automate processes, accelerate predictive businesses and maximise value capture enabled by digital opportunities. 

“To achieve these goals, IBM’s strategy is to redefine itself as a hybrid cloud and AI company – a strategy that pervades its entire portfolio of services, software, hybrid cloud platform and infrastructure stack,” the analysts stated.  

A big part of IBM’s innovation play going forward revolves around IBM Research, the company’s research and development division. The analysts claimed the division was essential to IBM’s overall strategy because it is infusing near-term portfolios with innovative capabilities and driving the future of compute, including leadership in quantum computing. 

So far, so good.  

But IBM now finds itself facing challenges on at least two fronts, according to the Gartner analysts. 

Despite the clear promise of IBM’s stack-based approached with layered Red Hat OpenShift, the company faces two challenges: alternative cloud platforms and new customer acquisition, the report noted.

In terms of alternative cloud platforms, the analysts posed the question: how effective is the IBM cloud strategy for customers who choose not to replace their existing container strategy with OpenShift?  

Additionally, the report questioned what value could IBM provide to customers who use a different Kubernetes-based platform, such as Google Anthos or VMware Tanzu, or, perhaps, even employ a different approach entirely, like Azure Arc? 

When it comes to new customer acquisition, the Gartner analysis also questioned how, or if, IBM can appeal to organisations that have already invested in other distributed cloud players?  

“How does IBM plan to attract net new clients with its redefined cloud strategy?” the report queried. 

Part of the answer, perhaps, may come in the form of Kyndryl, a spinoff of IBM’s managed infrastructure services, which is expected to be complete by the end of 2021.  

Although the name – a portmanteau of ‘kyn,’ stemming from the word kinship and ‘Dryl,’ from tendril – may be deemed questionable in some quarters, the intention is clear: the removal of a major distraction on the road to IBM’s goal of becoming a prodigious hybrid-cloud player. 

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From Gartner’s perspective, the spin-off of the managed infrastructure services business into Kyndryl will help to streamline the IBM Global Technology Services (GTS) organisation from which it is being spun out. Post-spin, the streamlined GTS business will be part of IBM Services and will focus on enabling hybrid cloud, application modernisation, AI transformation and technology support.  

Krishna himself has likened the move to Big Blue’s previous large divestitures such as its decision to get of its networking business in the 90s and PCs in the 2000s to focus on bigger things. 

But this may come with its own set of problems, with Gartner warning of customer concerns around the continuation of service quality as the company with which clients may have been dealing for years, IBM, turns into a different entity entirely – a factor that could turn longtime customers off going forward. 

According to Gartner, the appointment of a former IBM CFO, Martin Schroeter, as Kyndryl’s CEO suggests that it will be highly focused on managing costs.  

“The impression that Kyndryl is intended to be a lean, price-competitive organisation also raised client concerns about possible impacts to service quality,” the report stated.  

Against this backdrop, it should be kept in mind that IBM Services will partner closely with Kyndryl after the spin-off. Indeed, Kyndryl will be IBM’s largest sales channel for IBM cloud and, as such, a vital ingredient to the success of its long-term goal to become an established cloud leader.  

Kyndryl’s success is essential to IBM’s cloud success, but the spin-off's future is far from clear.   

“As Kyndryl provides new choices for its tools and platforms, IBM may see its sales pipeline negatively impacted for certain offerings, including IBM cloud,” the Gartner report said. “The risk for Kyndryl is that many existing IBM clients have bought into the advantages of sourcing traditional and digital services from one provider.  

“The split will separate Kyndryl from the cloud, digital and transformational skills that its clients see as essential,” it said.  

In addition, clients who originally selected IBM as a one-stop-shop for all IT solutions and services may choose to reassess their strategic sourcing approach and explore alternatives, potentially impacting both IBM and Kyndryl, the report noted. 

In fact, the Gartner analysts went so far as to warn enterprises currently partnered with IBM to ensure that Kyndryl does not reduce service quality as part of its cost optimisation drive by linking any novation of IBM contracts to a right to cancel the Kyndryl contract if it persistently fails to meet service expectations. 

Regardless, in associated analysis, Gartner has maintained its overall rating of IBM as ‘positive,’ flagging largely good feedback from the company’s customers.  

“The company will build all new software on Red Hat OpenShift,” Gartner said in a separate report. “IBM now has more than 3,000 clients on the platform, with a material pipeline for future adoption.  

“Most Gartner clients reported that IBM and Red Hat were meeting customer needs in targeted industry verticals. Clients also expressed satisfaction with IBM’s container support, which was faster than that of any other independent software vendor (ISV),” it added.