At least 30% of generative AI (GenAI) projects will be abandoned after proof of concept by the end of 2025, due to poor data quality, inadequate risk controls, escalating costs or unclear business value, according to Gartner, Inc.
"After last year's hype, executives are impatient to see returns on GenAI investments, yet organizations are struggling to prove and realize value,” said Rita Sallam, Distinguished VP Analyst at Gartner. "As the scope of initiatives widen, the financial burden of developing and deploying GenAI models is increasingly felt."
A major challenge for organizations arises in justifying the substantial investment in GenAI for productivity enhancement, which can be difficult to directly translate into financial benefit, according to Gartner. Many organizations are leveraging GenAI to transform their business models and create new business opportunities. However, these deployment approaches come with significant costs, ranging from $5 million to $20 million.
"Unfortunately, there is no one size fits all with GenAI, and costs aren't as predictable as other technologies," said Sallam. "What you spend, the use cases you invest in and the deployment approaches you take, all determine the costs. Whether you're a market disruptor and want to infuse AI everywhere, or you have a more conservative focus on productivity gains or extending existing processes, each has different levels of cost, risk, variability and strategic impact."
Regardless of AI ambition, Gartner research indicates GenAI requires a higher tolerance for indirect, future financial investment criteria versus immediate return on investment (ROI). Historically, many CFOs have not been comfortable with investing today for indirect value in the future. This reluctance can skew investment allocation to tactical versus strategic outcomes.
Realizing Business Value
Earlier adopters across industries and business processes are reporting a range of business improvements that vary by use case, job type and skill level of the worker. According to a recent Gartner survey, respondents reported 15.8% revenue increase, 15.2% cost savings and 22.6% productivity improvement on average. The survey of 822 business leaders was conducted between September and November 2023.
"This data serves as a valuable reference point for assessing the business value derived from GenAI business model innovation," said Sallam. "But it's important to acknowledge the challenges in estimating that value, as benefits are very company, use case, role and workforce specific. Often, the impact may not be immediately evident and may materialize over time. However, this delay doesn't diminish the potential benefits."
Calculating Business Impact
By analyzing the business value and the total costs of GenAI business model innovation, organizations can establish the direct ROI and future value impact, according to Gartner. This serves as a crucial tool 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," said Sallam. "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."
The Latest
Half of all employees are using Shadow AI (i.e. non-company issued AI tools), according to a new report by Software AG ...
On their digital transformation journey, companies are migrating more workloads to the cloud, which can incur higher costs during the process due to the higher volume of cloud resources needed ... Here are four critical components of a cloud governance framework that can help keep cloud costs under control ...
Operational resilience is an organization's ability to predict, respond to, and prevent unplanned work to drive reliable customer experiences and protect revenue. This doesn't just apply to downtime; it also covers service degradation due to latency or other factors. But make no mistake — when things go sideways, the bottom line and the customer are impacted ...
Organizations continue to struggle to generate business value with AI. Despite increased investments in AI, only 34% of AI professionals feel fully equipped with the tools necessary to meet their organization's AI goals, according to The Unmet AI Needs Surveywas conducted by DataRobot ...
High-business-impact outages are costly, and a fast MTTx (mean-time-to-detect (MTTD) and mean-time-to-resolve (MTTR)) is crucial, with 62% of businesses reporting a loss of at least $1 million per hour of downtime ...
Organizations recognize the benefits of generative AI (GenAI) yet need help to implement the infrastructure necessary to deploy it, according to The Future of AI in IT Operations: Benefits and Challenges, a new report commissioned by ScienceLogic ...
Splunk's latest research reveals that companies embracing observability aren't just keeping up, they're pulling ahead. Whether it's unlocking advantages across their digital infrastructure, achieving deeper understanding of their IT environments or uncovering faster insights, organizations are slashing through resolution times like never before ...
A majority of IT workers surveyed (79%) believe the current service desk model will be unrecognizable within three years, with nearly as many (77%) saying new technologies will render it "redundant" by 2027, according to The Death (and Rebirth) of the Service Desk from Nexthink ...
Monitoring your cloud infrastructure on Microsoft Azure is crucial for maintaining its optimal functioning ... In this blog, we will discuss the key aspects you need to consider when selecting the right Azure monitoring software for your business ...
All eyes are on the value AI can provide to enterprises. Whether it's simplifying the lives of developers, more accurately forecasting business decisions, or empowering teams to do more with less, AI has already become deeply integrated into businesses. However, it's still early to evaluate its impact using traditional methods. Here's how engineering and IT leaders can make educated decisions despite the ambiguity ...