AI’s Financial Results Paradox

There’s no doubt that generative AI affects business, but companies find it challenging to justify investments without clear metrics. This makes cautious adoption the norm, even though there is pressure from competitors.

Most people today concur that generative AI will significantly impact business, and those who don’t adapt will soon become obsolete. As companies learn more about AI, they want proof, or real business metrics, that show how it is helping them make more money and run their businesses better.

They shouldn’t, and they can’t just believe what the vendor says. Still, it’s not simple to find a direct link between something like Microsoft Copilot and how well a business does overall.

After that, should CIOs just believe it? Jamin Ball, an investor, says in this week’s Clouded Judgement newsletter that most businesses might not have a choice. He believed they might not see the results for a while, making their purchase decision difficult.

The world is changing right now. AI is a huge change in platforms. Failure to use or invest in it could cost you market share and importance. Because your competitors are investing in AI, you must do the same.

At the end of the day, these investments may not immediately lead to better business outcomes i.e. more money, but they do make things better for end users. Additionally, it could potentially result in improved metrics such as retention or churn. If your competitors are making better experiences for end users while you’re not, you could be in trouble soon or in the middle term, Ball wrote.

But that isn’t enough for CIOs to leap into an expensive new technology without thinking it through first. They want more information.

When it comes to justifying costs, they and the company CFO have to deal with the present moment. If they are spending a lot of money, when can they reasonably expect to see a return on their investment?

Embracing AI Like the Shift from Steam to Electricity

At the same time, people who compare AI to electricity might think that this is AI’s electricity moment, like when factories switched from steam to electricity in the late 18th century.

It was there, but you could ignore it and keep going with steam. Steamrolling was inevitable.

Maybe the answer lies with a smart startup. More likely, though, companies of a certain size will hire Deloitte, McKinsey, and Accenture and pay them a lot of money to help them figure it out. Interestingly, this will only increase the cost and delay the valuation process.

Garcia of the Grateful Dead once sang in “The Wheel,” “You can’t go back and you can’t stand still.” “If the thunder doesn’t kill you, the lightning will.”

As they try to figure out what to do next, CIOs must decide if they are moving their companies steadily toward the future or wasting money on things that won’t work.