Stop Chasing the ROI! Focus on ROIC: Evaluating the potential impact of your AI-based automation PoC for going live

“Folks, I really do not see any benefit of going ahead with this AI PoC. You guys have done a successful PoC, which is a good thing. But, I do not see any significant ROI if this is put into production. The potential for productivity improvement is only 5%. I do not wish to be the executive sponsor for this engagement.” – The VP of Technology, at a major financial services firm, concluded his meeting with the Cognitive Solutions Manager of AI service provider by saying these lines.

The Cognitively Solutions Manager, curiously asked: “I suggest an alternate way of framing this issue. By investing in AI, are you investing in a new technology or capability? How do we know if this AI investment is not going to increase the value of your firm?”

The VP responded: “What’s this thing called Value? What are you talking about? Doesn’t ROI measure Value?”

The Cognitively Solutions Manager replied: “Unfortunately, NO! Value is not captured by ROI. Value means this: what is the return your firm can generate on every dollar invested? Let me explain to you, how this works in the context of our AI PoC”.

Having listened to this explanation, the VP responded: "Hmmm…now, I see where you are coming from. As an executive sponsor for this AI project, my mandate is to invest in projects that involves innovative long-term capability building. This AI solution is an innovation-based project and helps the firm to build long-term Value. So, let me compute the ROIC and see if I can invest. If this is greater than the cost of capital, I will proceed with the investment in AI solution by convincing my boss and the shareholders. Thanks mate, for clarifying this!”

To understand what happened, please read the Mphasis white paper: https://lnkd.in/fTjFiAF

Comments/suggestions are welcome :)