80% of AI Projects Fail. How Should PE Invest?
New AI initiatives are everywhere. However, research consistently shows that these projects fail between 70 and 85% of the time—more than twice the failure rate of standard IT projects. Companies are beginning to recognize this. According to S&P Global Market Intelligence, the share of businesses scrapping their AI initiatives increased to 42% this year (up from 17% last year).
This failure rate is comparable to that of venture capital investments. Private equity is not in the business of making investments with this sort of risk/reward profile. How can PE take advantage of the AI opportunity without engaging in speculative capital investment?
The data on failed projects point to the answer. The top reported causes of failure are poor data quality and the change management challenge of replacing legacy systems and processes. It is a mistake to launch higher risk, transformative AI projects in businesses that lack a high level of data maturity. And the drive to replace legacy systems is no longer necessary if you adopt a post-ERP architecture.
This is why the transition to the post-ERP world is accelerating, with many larger businesses leading the way. In mid-market PE, it makes less sense to invest in pure business architecture initiatives. Data maturity must be reached incrementally by investing in lower-risk projects that pay for themselves in EBITDA improvement.
Once a business reaches data maturity, it can become fully tractable to AI. This opens up new transformative opportunities that include pricing and promotion management, demand forecasting and inventory management, production and workforce scheduling, quality control automation, and lead scoring and sales outcome prediction.
Plektron helps businesses reach data maturity through projects aimed at measurable EBITDA improvements. Once this is achieved, the business is fully tractable to AI, and can unlock transformative opportunities while dramatically reducing the risk of failure.
Schedule a 25-minute pattern recognition call with one of our Partners to discuss how we can help you drive transformative change for your company.