The Dark Side of AI Innovation: Looming Failure of 30% AI Projects

According to a Gartner, Inc. report, more than 30% of generative AI (GenAI) projects will be discontinued after they prove the concept stage by the end of 2025. The main factors contributing to this are poor data quality, insufficient risk management, rising costs, and a lack of clear business value. These obstacles create significant hurdles for organizations, often leading them to abandon their GenAI initiatives prematurely.

We have Rita Sallam, Distinguished VP Analyst at Gartner, talking on this important subject matter.

Rita said, “After last year's hype, executives are impatient to see returns on GenAI investments, yet organizations are struggling to prove and realize value. As the scope of initiatives widens, the financial burden of developing and deploying GenAI models is increasingly felt.”

Investment Justification Challenges

A key difficulty for organizations lies in justifying the large investments made in GenAI to boost productivity. According to Gartner, translating these productivity gains into measurable financial benefits is challenging. While many companies are using GenAI to overhaul their business models and seize new opportunities, the associated costs are substantial, often 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.”

Higher Tolerance for Future Investment

Regardless of an organization's ambitions with AI, Gartner's research reveals that GenAI projects demand a greater tolerance for financial investment with future benefits rather than immediate returns on investment (ROI). Historically, many Chief Financial Officers (CFOs) have hesitated to commit to investments that offer indirect or delayed value, often preferring tactical initiatives that promise faster results over long-term, strategic gains.

Business Value Realization from Early Adoption

Early adopters of GenAI across various sectors and business processes have begun reporting notable improvements, although the results vary based on the specific use case, job role, and skill level of workers. A recent Gartner survey found that these organizations experienced an average 15.8% increase in revenue, 15.2% in cost savings, and a 22.6% boost in productivity. This survey was conducted among 822 business leaders 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.”

Measuring GenAI's Business Impact

Gartner emphasizes that organizations can accurately assess the business impact of GenAI by analyzing both the value generated and the costs incurred through GenAI-driven business model innovations. This analysis is essential for making informed investment decisions, as it helps organizations determine both the direct ROI and the long-term value of these innovations.

“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.”

Gartner CIO & IT Executive Conference Highlights

Gartner analysts will share further insights on generative AI and trends reshaping the future of IT and business at the upcoming Gartner CIO & IT Executive Conferences. The conferences, scheduled for September 23-25 in São Paulo and November 19-21 in Dubai, will cover a variety of topics, including accelerating business transformation, application modernization, and infrastructure operations.