Australia lags on tech modernisation as AI pressure grows

Kyndryl has published research showing that 49% of Australian organisations are behind on their technology modernisation goals, as AI adoption adds pressure to ageing technology estates.

The company's first State of Modernisation Report also found that Australian organisations are shifting their reasons for modernisation away from cost reduction and retiring legacy systems. Instead, respondents cited improving business agility and innovation, increasing control and governance of critical technology environments, and improving performance, security and integration across systems as their main drivers.

The research comes amid broader debate over older systems in government and business, after Home Affairs called for a review of legacy systems following recent AI-related breaches.

Kyndryl surveyed 2,000 business and technology leaders globally across five continents and 12 industries. In Australia, the data suggests organisations are managing more diverse technology environments rather than moving towards a single model.

Public cloud, private cloud, mainframe, edge computing and on-premises infrastructure are all expected to remain in use. Over the next 12 months, 80% of Australian organisations expect to increase public cloud use, and the same proportion expect to increase edge computing. Meanwhile, 79% expect greater use of software-as-a-service, 74% expect more private cloud use and 49% expect growth in on-premises infrastructure.

Mainframe role

The report found that mainframes remain a significant part of mission-critical operations in Australia. About a quarter of mission-critical applications run primarily on mainframes, while roughly 55% of Australian mainframe estates are more than 10 years old.

That age profile is prompting organisations to modernise existing environments and connect them with newer systems, including AI tools, rather than replace them outright. In Australia, 31% of organisations rank enabling advanced AI among their top three reasons for modernising mainframes.

Across the global sample, every organisation with a mainframe reported plans to deploy AI on that platform. The study found that AI now outranks spending cuts, legacy replacement and the shrinking pool of legacy skills as a driver of technology investment decisions.

Delays and risks

The findings suggest delays are widespread. Globally, 98% of organisations had delayed modernisation projects and experienced negative business impacts as a result.

In Australia, respondents identified delivery disruption, regulatory requirements, integration with legacy systems and AI governance as major barriers. Their top execution risks were security, compliance and regulation, followed by downtime and business disruption, and the challenge of finding and retaining the right skills.

The report also highlighted poor visibility into existing systems. Globally, only 9% of respondents said they fully understood their applications' dependencies, while one-quarter said they had large numbers of undocumented applications.

That complexity is being compounded by AI, which is pushing organisations to distribute workloads across different environments based on performance, latency, data, cost and governance needs. Rather than simplifying technology estates, AI is widening the range of systems businesses must manage.

Agentic AI

Kyndryl's study examined the use of agentic AI in modernisation work, including dependency mapping, code conversion and documentation. Globally, 10% of organisations said they had deployed agentic AI in production for modernisation.

Australian adoption remains at an earlier stage. Only 6% of organisations said they were actively using agentic AI in production across multiple modernisation use cases, while 25% were piloting it and 43% were evaluating its potential.

Organisations already using agentic AI are making quicker progress, according to Kyndryl. Among global early adopters, 67% said they were ahead of or on track with modernisation goals, compared with 51% of other organisations.

Martin Schroeter, Chairman and Chief Executive Officer of Kyndryl, linked the findings to changing expectations around technology investment. "AI is creating new possibilities and raising expectations for the business outcomes technology should deliver," he said.

He added: "Modernisation is about preparing for what comes next, and the leaders making the most progress are investing across their technology environments-strengthening resilience and putting those investments to work where they deliver the greatest value."