Australian AI investment rises but most projects stall at pilot stage
A new report shows that while Australian organisations are increasing investment in artificial intelligence, most remain stuck at the pilot phase and are facing mounting pressure to deliver results.
The latest Kyndryl Readiness Report, based on surveys of 3,700 senior leaders across 21 countries, highlights both momentum and significant concern among Australian business and technology decision-makers as they seek to modernise technology, respond to regulatory uncertainty, and reskill staff to realise AI's potential.
AI spending and stalled progress
Australian business leaders report that their companies' AI spending has increased by an average of 32% over the past year. Despite this, 62% have not moved their AI initiatives beyond pilot projects. Nearly two-thirds of leaders now feel greater pressure to demonstrate return on investment from AI than they did last year.
According to the report, the gap between investment and tangible outcomes is most evident in the slow pace of progress beyond initial experimentation. While the majority anticipate significant disruption, most organisations have yet to fully integrate AI into their operations. Billions of AUD are being spent nationally, yet key barriers continue to hinder advance, including integration challenges, compliance demands, and persistent shortages of staff with relevant technical skills.
Concerns and readiness in global context
The survey places Australia in a group of nations categorised as "high readiness, high concern", alongside countries such as Ireland, the United Arab Emirates, and India. Local organisations report higher average readiness to manage risks and adopt AI technology, but also express greater worries about sovereignty, security, and resilience than peers in the US, UK, Singapore, or Canada. On the whole, just 33% of Australian organisations assess themselves as truly ready for the future, a figure that matches global averages for digital transformation preparedness.
"Australian organisations are facing a readiness paradox. They're among the most ready to navigate external risks and scale innovation efforts, and among the most concerned about doing it in the right way," said Graeme Beardsell, Managing Director, Kyndryl A/NZ. "This is especially true when it comes to AI. Investments in AI are on the rise, but many organisations are yet to progress beyond the pilot phase. Readiness to drive business outcomes with technology now means practical action: designing clear guardrails to scale AI, strengthening cyber resilience, and modernising core systems to support transformation."
Last year's edition of the report highlighted a disconnect: while 87% of Australian business leaders thought their IT infrastructure was 'best-in-class', only 38% felt prepared for future disruption. This year's findings suggest improvement, but the mismatch between confidence and genuine capability remains. Some 62% of respondents believe their foundational technology holds back innovation, and 58% say their businesses struggle to keep pace with technological change.
Workforce transformation and skill shortages
The use of AI is also reshaping the Australian workforce. The report finds that 92% of leaders expect AI to "completely" transform jobs within their organisations in the next 12 months. Yet most employees are not regular AI users today, and few possess the technical skills required for such transformation. Key workforce concerns include having the right human skills to exploit AI opportunities (41%), how to upskill workers whose jobs may be replaced by AI (39%), and ensuring sufficient technology expertise is available (38%).
Cloud and data strategy amid regulatory change
Security and regulatory challenges are also reshaping how Australian organisations manage and store data. Due to global regulatory shifts and growing awareness of data sovereignty, nearly all leaders (94%) indicated that they would make changes to their cloud implementations, prioritising enhanced security and compliance (43%). Three out of four respondents reported concern about the geopolitical risks of managing data in global cloud environments, leading to steps such as reevaluating data governance policies (47%), considering data repatriation (42%), and adopting more local technology providers (32%).
Cloud strategies are being further revised as 69% of organisations report changes in response to geopolitical uncertainties, such as new regulations or tariffs. Companies are assessing where and how data is stored, processed, and accessed as they adapt to what the report describes as an increasingly fragmented regulatory environment.
