Kinetic IT report flags AI & sovereign execution gap

Kinetic IT has released a report on technology modernisation in the Australian public sector, produced with research firm ADAPT.

Titled The Sovereign Technology Report: From Complexity to Confidence, it examines how government agencies and critical infrastructure operators are struggling to modernise ageing systems while maintaining control, accountability and resilience across hybrid technology estates.

The findings draw on surveys and executive interviews with leaders across the public sector and regulated industries, alongside ADAPT's 2025 Government Edge research series. They reflect growing pressure on agencies to adopt artificial intelligence, strengthen cyber resilience and keep essential services running without extra budget or staff.

One of the report's central themes is that technology sovereignty has shifted from a procurement or policy issue to an operational one. Its key test, it argues, is whether organisations can retain visibility and control over critical systems during incidents or other periods of disruption.

AI pressure

The research found strong interest in AI but much lower operational readiness. It found that 60 per cent of agencies identified agentic AI as an investment priority, while only two per cent said they had the governance, data maturity and assurance needed to support safe deployment.

It also found that 74 per cent of leaders reported a severe or significant capability gap in data, analytics and AI, making it the largest skills shortfall identified in the study.

Jacqui Adams, Head of Digital Transformation at Kinetic IT, said: "The report highlights an opportunity to close the gap between ambition and readiness. Digital capabilities have the potential to enhance productivity, strengthen decision-making and improve the way citizens and businesses engage with government."

She said leaders are focused on identifying and addressing the barriers to adopting and scaling these technologies, including the need to co-design and deliver a cohesive AI strategy and operating model aligned with enterprise priorities.

"Of note is the establishment of robust and responsive governance and data frameworks to ensure speed is balanced with trust, resilience, accountability and long-term flexibility."

Adams said weak structures become more visible as digital programs expand.

"The research shows that digital technologies amplify the underlying characteristics of a system. Therefore, if an organisation's strategy, services, customer journeys or practices are opaque, fragmented, poorly governed, badly designed or vulnerable, digital transformation will accelerate these challenges while making them harder to detect and more consequential."

She said this confirms what Kinetic IT sees every day: agencies that embed sovereignty by design into their AI strategy and operating model are laying the foundations to build trust, strengthen resilience, improve accountability and retain control over their digital capabilities.

Execution risk

The main barrier to transformation is not ambition but execution under pressure, according to the report. It found that 73 per cent of Australian public sector leaders identified funding and resourcing constraints as the primary obstacle, while many agencies lacked a formal reinvestment model for maintaining technology assets.

That combination leaves organisations trying to modernise faster, improve resilience and introduce AI while continuing day-to-day operations with little room for service disruption. Questions such as who responds during an incident, where accountability sits and how quickly systems can recover now sit at the heart of transformation planning, the report says.

Murray Thompson AM CSC, Chief Strategy Officer at Kinetic IT, said: "The report introduces the concept of 'sovereign execution', which is the operational discipline of maintaining control, accountability, resilience and evidence across modern technology environments, regardless of which vendors, platforms or delivery partners are involved."

He said sovereignty in this context is not about ownership, vendor origin or compliance, but the ability to retain meaningful control over systems, data and capabilities where it matters most.

"This requires leaders to make deliberate choices early in the design of their strategy and operating model to ensure they can balance speed with trust, resilience, accountability and long-term flexibility."

Hybrid reality

Another finding is that hybrid operating models are likely to remain in place for years. Many agencies are still part-way through cloud migration programs, and larger organisations are often further behind, leaving them to manage legacy systems, cloud environments, operational technologies and multiple suppliers at the same time.

Adams said: "Modernisation is no longer a future-state conversation. It's happening now, with agencies also managing legacy platforms, workforce pressures, regulatory obligations and increasingly complex delivery environments."

She said that as platforms, data and AI move closer to the core of how government and critical services are designed, managed and delivered, public trust is becoming a key measure of transformation success.

"Success isn't just 'does the technology work?' It is 'do citizens trust the outcome, and can we maintain operational control, flexibility and accountability?'"

Thompson said hybrid environments are no longer a temporary transition state for government agencies but are becoming the long-term operating reality for many organisations.

"Agencies are modernising while simultaneously maintaining legacy platforms, managing complex cloud setups, supporting operational technologies and coordinating multiple delivery partners."

The report also points to rising concern about fragmented accountability in multi-vendor environments, especially during incidents. In sectors where service failures can carry economic, social or national security consequences, delivery confidence is starting to matter more than speed alone.

Thompson said this is changing how technology decisions are made.

"Leaders want confidence that systems can be governed, secured and operated under pressure, not just modernised quickly."

He said sovereignty is now about who holds privileged access, who can respond in the first hour of an incident, how accountability is maintained across multiple providers and whether organisations can evidence control under pressure.

Adams said the research is intended to help organisations navigate the operational realities shaping transformation efforts and offer practical insights for modernising sustainably, ethically and safely in today's environment.

She said public sector organisations must balance technology transformation, operational continuity, cyber resilience, and staff and citizen experience at the same time.

"The leaders making progress are transforming with intent to build trust, resilience and accountability."