Legacy Systems Revitalized: AI Insights for State Agencies

Breakthroughs breathe new life into legacy systems as agencies look for platforms to safely run AI models with sensitive data, ISG Provider Lens™ report says

State and local governments in the U.S. are reevaluating mainframes as strategic resources while reconsidering options between reengineering and cloud migration. This insight comes from a new research report released today by Information Services Group (ISG) III, a renowned global technology research and advisory firm focused on AI.

The 2025 ISG Provider Lens™ Mainframe — Services and Solutions report for the U.S. public sector highlights that AI is making mainframes easier and more cost-effective to maintain. Agencies are finding that mainframes may be particularly suitable for running AI workloads, which helps safeguard mission-critical data. Notably, there has been a surge of interest in this area from public-sector entities in 2024, a trend expected to persist into 2025.

“AI presents new opportunities for the public sector to capitalize on mainframe systems,” said Nathan Frey, ISG partner and lead, U.S. Public Sector. “Agencies are weighing these possibilities against the challenges of transitioning long-established data and applications, often leading them to rethink their strategies.”

The report notes that state, local, and educational (SLED) agencies are now evaluating which applications to retain on mainframes, optimizing those applications, and efficiently accessing mainframe data for AI model integration. Generative AI can help streamline software development, testing, and documentation processes, facilitating either the refactoring or maintenance of mainframe applications. Additionally, AI tools like code assistants and chatbots can mitigate the skills shortage in mainframe environments by assisting newer developers.

Growing enthusiasm for AI is prompting more agencies to recognize the substantial processing and data management strengths of mainframes. The Trump administration’s intent to decrease federal government size may amplify the adoption of AI for automation. Similarly, state and local governments are considering automation to manage tight budgets and assume some federal responsibilities.

The report indicates that policies regarding the offshoring of state and local government data are evolving. New hybrid cloud architectures facilitate the use of external resources for cost savings while adhering to regulatory guidelines. Furthermore, DevOps methodologies enable agencies to segregate sensitive information, which must remain domestic, from less critical data that can be stored abroad.

The demand for mainframe services in the public sector has spurred interest from various service providers. Agencies are increasingly selecting providers that possess substantial experience in the public sector and demonstrate a solid understanding of mainframe needs.

“State and local agencies in the U.S. are taking proactive steps to modernize outdated mainframe IT environments,” stated Jan Erik Aase, partner and global leader of ISG Provider Lens Research. “The leading service providers are equipped with the AI tools and specialized expertise necessary to facilitate this transition.”

Additionally, the report examines other trends related to mainframes within the U.S. public sector, including increasing IT collaboration among SLED agencies and the influence of new training programs offered by providers.

For further insights into the challenges related to mainframes faced by the U.S. public sector—including software licensing complications and political uncertainties—see the ISG Provider Lens™ Focal Points briefing available here.

The 2025 ISG Provider Lens™ Mainframe — Services and Solutions report evaluates the capabilities of 29 providers across four quadrants: Mainframe Optimization Services, Application Modernization Services, Mainframe as a Service, and Mainframe Operations.

The report designates Wipro as a Leader in all four quadrants. In addition, DXC Technology, Ensono, Kyndryl, and TCS are noted as Leaders in three quadrants each. Meanwhile, Accenture, FNTS, and Infosys are recognized as Leaders in two quadrants each. Other companies, such as Avanade, Capgemini, HCLTech, NTT DATA, and Tech Mahindra, are acknowledged as Leaders in one quadrant each.

Moreover, DXC Technology is recognized as a Rising Star for having a “promising portfolio” and “high future potential” defined by ISG.

In customer experience, UST is acknowledged as the global ISG CX Star Performer for 2024 among mainframe service providers, earning the highest customer satisfaction ratings in ISG’s Voice of the Customer survey, which is part of the ISG Star of Excellence™ program, the premier quality award in the technology and business services sectors.

Customized versions of this report are available from FNTS and RecoveryPoint.

The 2025 ISG Provider Lens™ Mainframe — Services and Solutions report for the U.S. public sector can be accessed by subscribers or purchased individually on this webpage.

About ISG Provider Lens™ Research

The ISG Provider Lens™ Quadrant research series is a unique evaluation of service providers, combining empirical, data-driven research with the practical experiences of ISG’s advisors. Enterprises benefit from comprehensive data and market analysis to help inform their sourcing decisions, while ISG’s insights support their advisors in validating market knowledge and recommending solutions to clients. This research currently covers a variety of providers operating globally across Europe and in the U.S., Canada, Mexico, Brazil, the U.K., France, Benelux, Germany, Switzerland, the Nordics, Australia, and Singapore/Malaysia, with additional markets set to be included in the future. For further information about ISG Provider Lens research, please visit this webpage.

About ISG

ISG III is a global AI-centric technology research and advisory firm. Serving over 900 clients, including 75 of the world’s top 100 enterprises, ISG leads in technology and business services and is now leveraging AI to assist organizations in achieving operational excellence and accelerated growth. Founded in 2006, ISG is recognized for its proprietary market data and in-depth understanding of provider ecosystems, supported by a team of 1,600 professionals dedicated to helping clients optimize their technology investments.

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Will Thoretz, ISG

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Julianna Sheridan, Matter Communications for ISG

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