AI Is Reshaping Application Modernization and Operations

Enterprises are reassessing their application portfolios as technical debt, skills shortages, and technology complexity increase maintenance costs and affect application performance. More than half identify legacy modernization, application performance monitoring, and optimization as their primary objectives. Among industries, banking, manufacturing, and healthcare and life sciences are seeing strong application modernization activity, with enterprises updating core systems, moving applications to the cloud, and improving application monitoring and performance. With the advent of Gen AI and AI agents, application operations are moving toward greater, but controlled, autonomy, with enterprises testing and leveraging these tools across the software development life cycle, including code analysis, incident triage, root cause identification, and automated remediation within predefined guardrails. As enterprises increase AI adoption and assess AI readiness in their application portfolio decisions, they will be able to embrace continuous modernization and adopt predictive observability to improve application agility, resilience, and performance.

In response, service providers are expanding AI-assisted modernization capabilities for code analysis and transformation, strengthening observability through predictive monitoring and anomaly detection, introducing AI-driven support automation for incident management and remediation, and integrating these capabilities within end-to-end application management platforms.

Both demand-side enterprise adoption trends and supply-side provider capabilities are analyzed in the Application Management Services 2026 Market Insights™ and Application Management Services 2026 RadarView™, respectively.

Avasant evaluated 47 service providers across two dimensions: practice maturity and future-proofing. Of the 47 providers, we recognized 33 that brought the most value to the market during the past 12 months.

The report recognizes service providers in five categories:

• • Leaders: Accenture, Capgemini, Cognizant, HCLTech, IBM, Infosys, TCS, and Wipro
  • Innovators: Atos, Deloitte, Kyndryl, LTM, NTT DATA, Tech Mahindra, and Unisys
  • Disruptors: EY, Fujitsu, Genpact, Hexaware, Hitachi Digital Services, Mphasis, Persistent Systems, and UST
  • Challengers: Birlasoft, DXC Technology, ITC Infotech, KPMG, PwC, and Virtusa
  • Tech pioneers: AWS, Google, Microsoft, and ServiceNow

Figure 1 below from the full report illustrates these categories:

“Enterprises need to modernize aging applications without disrupting the critical processes they support,” said Ruth Steinberg, partner at Avasant. “Clear portfolio priorities, phased modernization, and greater transparency can help reduce technical debt while maintaining reliable operations.”

The reports provide several findings, including the following:

• • Technical debt, skills shortages, and complex hybrid environments remain key barriers to application modernization. Older applications, complex dependencies, and limited documentation are increasing maintenance effort and slowing modernization. Enterprises are responding with phased modernization, structured knowledge capture, unified observability, and enterprise-wide application road maps.
  • Banking, manufacturing, and healthcare and life sciences are seeing strong application modernization activity. Enterprises are modernizing core banking and payment systems, manufacturing ERP and production applications, and clinical platforms and workflows to improve scalability, service delivery, and operational resilience.
  • Over 50% of enterprises are balancing legacy modernization with application
  • performance optimization. Enterprises are using cloud-native architectures, microservices, AI-assisted engineering, and observability to improve application maintainability, performance, reliability, and release speed.
  • Application operations are moving toward controlled AI-led autonomy. Enterprises are using Gen AI and AI agents for code analysis, incident triage, root-cause identification, and resolution recommendations. AI agents are beginning to execute approved remediation for recurring issues, while specialists retain oversight of complex or high-risk incidents

“Enterprises are embedding AI agents into core IT operations to shift from reactive to predictive, autonomous service delivery,” said Pranidhan Atreya, research analyst at Avasant. “Drawing on application dependencies, agents anticipate disruptions while humans oversee high-impact decisions.”

The Application Management Services 2026 RadarView™ also features detailed profiles of 33 service providers, along with their solutions, offerings, and experience in assisting enterprises in their application management journeys.

This Research Byte is a brief overview of Avasant’s Application Management Services 2026 Market Insights™ and Application Management Services 2026 RadarView™. (Click for pricing.)