30% of GenAI projects to be abandoned by 2025 says Gartner
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. This is according to predictions made by Gartner, a global research and advisory firm.
Speaking at the Gartner Data & Analytics Summit in Sydney this week, Rita Sallam, Distinguished Vice President Analyst at Gartner, discussed the increasing impatience among executives who are eager to see returns on their GenAI investments. Sallam stated, "After last year's hype, executives are impatient to see returns on GenAI investments, yet organisations are struggling to prove and realise value. As the scope of initiatives widen, the financial burden of developing and deploying GenAI models is increasingly felt."
A significant barrier for organisations is justifying the substantial investments in GenAI for enhancing productivity. Many organisations are leveraging GenAI to transform their business models and create new opportunities, but these approaches come with significant costs, ranging from USD $5 million to USD $20 million. Sallam elaborated, "Unfortunately, there is no one size fits all with GenAI, and costs aren’t as predictable as other technologies. 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."
Research from Gartner indicates that realising value from GenAI requires a higher tolerance for indirect, future financial investment criteria versus immediate return on investment (ROI). Historically, many Chief Financial Officers (CFOs) have been uncomfortable with investing now for indirect value in the future. This reluctance can skew investment allocation towards tactical rather than strategic outcomes.
Earlier adopters of GenAI across various industries have reported business improvements. According to a Gartner survey conducted between September and November 2023, respondents reported an average of 15.8% revenue increase, 15.2% cost savings, and 22.6% productivity improvement. Sallam remarked, "This data serves as a valuable reference point for assessing the business value derived from GenAI business model innovation. 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 materialise over time. However, this delay doesn’t diminish the potential benefits."
Gartner advises organisations to calculate the business impact of GenAI by analysing both the business value and the total costs associated with GenAI business model innovation. This analysis helps to establish the direct ROI and future value impact, serving as a crucial tool for making informed investment decisions. Sallam noted, "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. However, if they fall short, it may be necessary to explore alternative innovation scenarios. These insights help organisations strategically allocate resources and determine the most effective path forward."
