GARTNER forecasts that by the end of 2025, at least 30% of generative AI (genAI) projects will be discontinued following the proof of concept phase due to issues like poor data quality, insufficient risk management, rising costs, or ambiguous business value.
“After last year’s hype, executives are impatient to see returns on GenAI investments, yet organisations are struggling to prove and realise value,” said Rita Sallam, distinguished VP analyst at Gartner.
“As the scope of initiatives widens, the financial burden of developing and deploying genAI models is increasingly felt.”
A significant challenge for organizations is justifying the large investment in genAI for productivity improvements, which can be hard to directly translate into financial benefits, according to Gartner.
Many companies are using genAI to revamp their business models and create new opportunities. However, these deployment strategies come with considerable costs, ranging from $5 million (£3.9m) to $20 million (£15.6m), as noted by Gartner.
“Unfortunately, there is no one size fits all with genAI, and costs aren’t as predictable as other technologies,” Sallam said.
“What you spend, the use cases you invest in, and the deployment approaches you take all affect the costs. Whether you’re a market disruptor aiming to infuse AI everywhere, or you have a more conservative focus on productivity gains or enhancing existing processes, each approach has different levels of cost, risk, variability, and strategic impact.”
Regardless of ambition, Gartner’s research shows that genAI demands a higher tolerance for indirect, future financial investment criteria compared to immediate return on investment (ROI).
Historically, many CFOs have been hesitant to invest today for future indirect value, a reluctance that can skew investment allocation towards tactical rather than strategic outcomes.
Realizing Business Value
Early adopters across various industries and business processes are reporting diverse business improvements based on use case, job type, and worker skill level.
According to a recent 2023 Gartner survey, business leaders reported an average increase of 15.8% in revenue, 15.2% in cost savings, and 22.6% in productivity.
“This data serves as a valuable reference point for assessing the business value derived from GenAI business model innovation,” Sallam said.
“But it’s important to acknowledge the challenges in estimating that value, as benefits are highly specific to each company, use case, role, and workforce. Often, the impact may not be immediately visible and may materialize over time. However, this delay doesn’t diminish the potential benefits.”
Calculating Business Impact
By evaluating the business value and total cost of genAI business model innovation, organizations can determine the direct ROI and future value impact, according to Gartner. This is crucial for making informed investment decisions about genAI business model innovation.
“If the business outcomes meet or exceed expectations, it presents an opportunity to expand investments by scaling genAI innovation and usage across a broader user base or implementing it in additional business divisions,” Sallam said.
“However, if they fall short, it may be necessary to explore alternative innovation scenarios. These insights help organizations strategically allocate resources and determine the most effective path forward.”
