The ROI of AI: Measuring and Maximizing the Value of AI Investments

Organizations worldwide are making significant investments in the race to harness the power of artificial intelligence (AI). But as with any major business initiative, the crucial question remains: What's the return on investment (ROI)? The ServiceNow Enterprise AI Maturity Index 2024 report sheds light on this critical aspect of AI adoption, offering valuable insights into how companies measure and maximize their AI investments' value.

The Current State of AI Investment

The report reveals that organizations are allocating substantial resources to AI initiatives. On average, companies dedicate 9% of their overall revenue to technology efforts, with 15% allocated to AI capabilities. This translates to an average AI investment of $8.7 million for companies with around $645 million in revenues.

This commitment to AI is not a fleeting trend. Nearly four out of five organizations (79%) increased their AI investment since 2023, an average increase of 8.7%. Looking ahead, 81% plan to increase this spending over the next year at a similar rate. Even more striking, 22% of organizations expect to increase their AI budget by over 15% in the coming fiscal year.

Measuring AI ROI: A Mixed Picture

Despite these significant investments, the ROI picture is mixed. While about two-thirds of survey respondents (65%) report achieving positive ROI from their AI initiatives, only 23% say this ROI has been significant (over 15%). Moreover, over a quarter (27%) of organizations are merely breaking even, and a small percentage (7%) are losing money on their AI investments.

These figures highlight a critical challenge in the AI landscape: the difficulty of accurately measuring and realizing substantial returns on AI investments. Inconsistent measurement practices across organizations further complicate this challenge.

The Pacesetter Advantage

The report identifies a group of AI leaders, termed "Pacesetters," who significantly outperform their peers in realizing value from AI investments. These Pacesetters stand out in several key areas:

1. Clear Metrics: Nearly two-thirds of Pacesetters (62%) strongly agree they have a defined set of metrics in place to measure the impact and return of AI transformation, compared to only 28% of other organizations.
2. Higher ROI: Pacesetters are more likely to report positive ROI across various business outcomes. For instance, 84% of Pacesetters report positive ROI in increased efficiency and productivity, compared to 65% of other organizations.
3. Broader Impact: Pacesetters are seeing returns across a wider range of business areas, including innovation speed, cost reduction, risk management, and improved customer and employee experiences.

Key Business Outcomes Driven by AI

Organizations are targeting several important business outcomes through their AI investments:

1. Increased efficiency and productivity (81% rate as very or extremely important)
2. Improved customer experience (79%)
3. Revenue growth (78%)
4. Risk management (75%)
5. Cost reduction (75%)

While many organizations are seeing moderate returns in these areas, the full transformative potential of AI is yet to be realized, even among Pacesetters.

Maximizing AI ROI: Lessons from Pacesetters

To maximize the ROI of AI investments, organizations can learn from the strategies employed by Pacesetters:

1. Establish Clear Metrics: Develop a robust set of KPIs to measure the impact of AI initiatives across the organization consistently.
2. Integrate AI into Workflows: Pacesetters are more likely to have invented workflows where human and AI collaboration make work more efficient (54% vs. 12% of others).
3. Break Down Silos: Connect data and remove operational silos to unlock the full predictive power of AI.
4. Invest in Talent: Pacesetters are more aggressive in hiring for key AI roles and upskilling their existing workforce.
5. Implement Strong Governance: Address potential risks and challenges associated with AI implementation, including cybersecurity, regulatory compliance, and data privacy.
6. Leadership Commitment: Ensure active engagement from the C-suite in AI transformation efforts.

Looking Ahead: The Evolving ROI of AI

As Michael Park, Head of AI Go-to-Market at ServiceNow, points out, "Unlike other technologies we've employed in the past, AI is a learning algorithm. When it runs, it gets better and better." This unique characteristic of AI suggests that ROI calculations may need to evolve to capture AI investments' long-term, compounding value.

While many organizations are still in the early stages of realizing significant returns on their AI investments, they are building a solid foundation for future growth. As AI capabilities mature and new use cases emerge, organizations that have laid the groundwork – through strategic investments, clear metrics, and thoughtful integration – will be best positioned to capitalize on the transformative potential of AI.

Conclusion

In conclusion, while measuring and maximizing the ROI of AI investments remains a challenge, organizations that follow the lead of Pacesetters – focusing on clear metrics, strategic integration, and continuous improvement – are likely to see the greatest returns on their AI initiatives in the years to come.