By 2025 nearly a third of generative AI (GenAI) initiatives could be scrapped after the proof-of-concept stage, analyst firm Gartner predicted at its Data and Analytics Summit in Sydney that kicked off on Monday.
The research firm cited poor data quality, inadequate risk controls, escalating costs, and unclear business value as key reasons for the potential 30 per cent abandonment rate.
Rita Sallam, vice president analyst at Gartner, highlighted the growing impatience among executives for returns on GenAI investments.
"Organisations are struggling to prove and realise value," she said.
"As initiatives expand, the financial burden of developing and deploying GenAI models is increasingly felt," Sallam said.
One major hurdle is justifying the substantial investment required for productivity enhancement, which can be difficult to translate directly into financial benefits.
While many organisations leverage GenAI to transform business models and create new opportunities, these approaches come with significant costs, ranging from US$5 million to US$20 million.
Sallam noted the unpredictable nature of GenAI costs compared to other technologies.
"What you spend, the use cases you invest in, and the deployment approaches you take all determine the costs," she explained.
The research suggests GenAI requires a higher tolerance for indirect, future financial investment criteria versus immediate return on investment (ROI).
This approach has historically made many CFOs uncomfortable, potentially skewing investment allocation towards tactical rather than strategic outcomes.
Despite these challenges, early adopters across various industries are reporting business improvements.
A recent Gartner survey of 822 business leaders conducted in late 2023 found average increases of 15.8 per cent in revenue, 15.2 per cent in cost savings, and 22.6 per cent in productivity improvement.
However, Sallam cautioned that these benefits are highly specific to individual companies, use cases, roles, and workforce compositions.
"Often, the impact may not be immediately evident and may materialise over time," she said.
To make informed investment decisions, Gartner recommends organisations analyse both the business value and total costs of GenAI business model innovation.
This approach can help determine whether to expand investments by scaling GenAI innovation across a broader user base or to explore alternative innovation scenarios.
As the GenAI landscape continues to evolve, organisations face the dual challenge of managing costs while striving to realise tangible benefits.
The coming years will likely see a more nuanced approach to GenAI adoption, with successful implementations hinging on careful planning, realistic expectations, and a clear understanding of potential business impact.
“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 organisations strategically allocate resources and determine the most effective path forward," she added.
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