Enterprises in Europe are extending generative AI beyond coding assistance and embedding it throughout software engineering to accelerate application modernization, according to a new research report published today by Information Services Group, a global AI-centered technology research and advisory firm.
Companies rethink how software is built, maintained and assured as AI becomes embedded in application lifecycles, ISG Provider Lens report says.
The 2026 ISG Provider Lens AI-driven ADM Services report for Europe finds that enterprises continue to prioritize application modernization despite subdued economic growth, elevated energy costs and geopolitical uncertainty. Organizations increasingly expect these investments to produce measurable business results that include improving productivity, reducing operational complexity and strengthening resilience.
"European enterprises are now taking a more practical approach to older applications," said Matthias Paletta, director at ISG. "Instead of replacing them entirely, companies are retaining important business knowledge while updating the technology that supports them."
European enterprises increasingly favor continuous application modernization, using AI-assisted documentation, business-rule extraction, code transformation and automated testing to update older systems. Development teams are also taking greater responsibility for operations, while quality engineering is being incorporated earlier in software development. As the lines between them blur, application development, managed services and quality assurance are beginning to form a single engineering lifecycle.
Engineering platforms are becoming more important as companies seek a unified way to manage application work from requirements through deployment and operations, ISG says. European buyers also want to avoid dependence on a single foundation model, hyperscaler or AI platform. They increasingly expect to use environments that include different language models and integrate their own AI agents. As a result, providers are focusing less on proprietary models and more on how they coordinate AI while giving clients flexibility as technologies change.
Quality assurance is a growing priority as more software is generated by AI, the report says. European enterprises now expect testing to take place throughout development rather than after applications are completed. Quality teams are expanding their focus beyond conventional software to encompass AI-generated code, autonomous agents and models. Providers are responding by supporting ongoing validation, helping organizations maintain reliability as automation increases and making quality central to AI-based development.
"Software engineering is becoming less about supplying development capacity and more about applying specialized knowledge where it matters," said Oliver Nickels, lead author of the report. "Enterprises need providers that can combine technical expertise with local understanding and disciplined oversight as AI assumes a larger role in application work."
The report also explores other application trends affecting European enterprises, including changing workforce requirements amid increasing automation and growing demand for regional expertise in regulated industries. The report evaluates the capabilities of 35 providers across three quadrants: Application Development Outsourcing, Application Managed Services and Application Quality Assurance. Leaders in all three quadrants include Accenture, Capgemini, Cognizant, DXC Technology, HCLTech, Infosys and Wipro. Atos, Deloitte, NTT DATA and T-Systems are Leaders in two quadrants each. In customer experience, Altimetrik is named the global ISG CX Star Performer for 2026.
About ISG
ISG is a global AI-centered technology research and advisory firm. A trusted partner to more than 900 clients, including 75 of the world's top 100 enterprises, ISG is a long-time leader in technology and business services that is now at the forefront of leveraging AI to help organizations achieve operational excellence and faster growth.
