Dive Brief:

• CFOs are slow to recognize the prospect of extraordinarily rapid growth from artificial intelligence and need to seize on the emerging technology by channeling a sizable chunk of annual spending to technological exploration that is open to failure, according to Protiviti Managing Director Dan Stummer.
• CFOs and their C-suite colleagues need to overcome an “expectations mismatch” between their usual forecasts of the payoff from emerging technologies and the big leap forward offered by AI, Stummer said in an interview at the recent Money20/20 fintech conference in Las Vegas.
• “That expectations mismatch creates a big challenge” when a CFO, accustomed to linear growth, needs to measure the return on investment from AI, he said. “The critical thing is to recognize that the organization is on an exponential curve and you’re using linear methods — like planning and hierarchies — to measure what is effectively exponential.”

Dive Insight:

While CFOs have spent $30 billion to $40 billion on generative AI, 95% of organizations are generating no return from the technology, according to a survey by the Massachusetts Institute of Technology.

“Just 5% of integrated AI pilots are extracting millions in value, while the vast majority remain stuck with no measurable P&L impact,” according to the MIT study.

Indeed, CFOs have heard a clarion call for rapid change for so long that they have grown numb to that imperative, Stummer said.

“One of the things that’s very, very difficult is that CFOs have transformation fatigue,” he said. “It’s like, ‘Oh, we’re gonna do another road map, we’re going to bring in another consulting firm and all of those things.’”

Yet the likely long-term gains from AI are so profound, the pace of innovation so rapid and the competitive stakes so high, that CFOs need to promote experimentation and embrace the notion that success hinges on a willingness to repeatedly fail, Stummer said.

When considering a pilot project, “don’t tell me what the success criteria are, tell me the failure criteria and when you meet it, no regrets — kill it,” he said.

CFOs can more easily tolerate a high degree of failure by setting aside a portion of spending on an “exploratory portfolio” that runs separately from a “run-and-exploit portfolio” focused on existing profitable operations, Stummer said.

“The key thing is really understanding that you run these two portfolios very distinctly and that what you're looking for — your business case — is very different,” he said. “What you want to do is figure out how you get experiments into viable growth — how do I scale?”

CFOs will either need to discover AI apps that payoff through their own efforts, or through acquisition, Stummer said. The alternative outcome for their companies is decline.

“Rather than transformation fatigue, you have to embrace change, have excitement about change,” he said. “That’s hard to accept.”

Otherwise, “you’re going to pay in falling cash flows,” Stummer said.