Canadian businesses face significant hurdles in their efforts to modernize for AI, according to Kyndryl’s first State of Modernization Report, published on 1 October. The report, based on a survey of 2,000 business and technology leaders worldwide, reveals that 98% of Canadian organizations have delayed modernization projects, with 47% falling behind on their goals.
Budget Constraints and Resistance to Change
Umair Dinarwala, Kyndryl’s Vice President of Modernization and AI, highlights that budget constraints, resistance to change, and technical capacity are the primary barriers. Canadian respondents reported higher levels of these challenges compared to the global average. Dinarwala notes that these issues are compounded by the need for a cultural shift and organizational change management, as modernization involves more than just technology upgrades.
The report shows that 57% of Canadian respondents cited budget constraints or approval delays, compared to 48% globally. This disparity shows the financial pressures Canadian organizations face in pursuing modernization initiatives.
AI Drives Modernization Efforts
Despite these challenges, Canadian organizations are actively modernizing, with AI as the leading driver for application modernization, network modernization, edge computing growth, and increased mainframe usage. 75% of Canadian respondents said AI is increasing their network architecture requirements, reflecting the technology’s growing influence on infrastructure demands.
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Canadian organizations are also ahead of the global average in mainframe modernization, with 73% undertaking such projects compared to 68% globally. Over the next year, 34% plan cloud modernization, and 41% plan application modernization, indicating a strong commitment to ongoing improvement.
The need to adopt AI now outranks other priorities, such as cutting spending or replacing legacy systems. However, delays in modernization have consequences, including an inability to adopt new capabilities quickly (48%), higher long-term costs (43%), talent retention challenges (31%), and security vulnerabilities (29%). These impacts highlight the urgency of addressing modernization barriers.
Dinarwala emphasizes that modernization requires aligning ambition with budget and prioritizing continuous improvement. He also notes that sovereignty is a growing factor in modernization strategies, with 61% of Canadian respondents addressing it mainly through a compliance lens, compared to 74% in the United States. Dinarwala explains that sovereignty is about controlling and protecting data, not just keeping it within the country, and that organizations must balance these concerns with business outcomes.
Visibility and Understanding Application Dependencies
A significant gap exists in understanding application dependencies. Globally, only 9% of organizations fully understand their application dependencies, while in Canada, the figure is 18%. Dinarwala finds this surprising, as modernizing is challenging without a clear understanding of existing systems. This lack of visibility complicates efforts to plan and execute modernization initiatives effectively.
