Why Tech Consultants Face an ROI Crisis for AI

The ROI Reality Check: Why the AI Consulting Honeymoon is Over

Consultants were quick to capitalize on the AI boom. They embraced new LLMs like ChatGPT and Claude, and started selling multi-year digital transformation projects. Their clients, often big corporations who were worried about looking archaic, hastily signed off on six-, sometimes seven-figure contracts.

But the honeymoon period is officially over. CFOs are now under increasing pressure to demonstrate the return on investment. And the consultants who sold these contracts face some very difficult questions.

The AI boom played into consultancies’ hands

How did consultancies get into this situation? Firstly, we must recognize that the explosion of AI has forced businesses to reassess their core operations. The push for automation created a sense of panic in boardrooms. Consultancies sold insurance against being left behind rather than software.

This insurance came at a premium. Companies now dedicate between 21% and 50% of their digital initiative budgets to AI. For a company with $13 billion in revenue, that’s around $700 million.

Accenture has arguably been the biggest winner among all the big consultants. Last year, they worked on over 6,000 advanced AI projects worth around $5.9 billion.

Boards have been ending meetings with “when can you start?” rather than questioning the validity of the claims made by big consultants.

Governments fell for the same pitch. In a bid to ease the burden on public services, firms such as Deloitte, PwC, and Capita have been awarded over $1 billion in AI contracts.

Boards are looking for their returns

But the AI hype has worn off. Even OpenAI’s Sam Altman has warned that investors are overexcited about AI. Now, we’re entering an accountability phase.

Boardrooms have become increasingly skeptical. They’ve transitioned from asking “how can we use AI?” to “where does it increase profit?”

CFOs are on the hunt for answers. Their first line of questioning is for the tech consultants who overpromised and underdelivered.

As they dig deeper into where the money has been spent, the costs snowball. CFOs are being forced to confront the ugly truth. For each AI pilot undertaken, the actual cost is around 30% to 50% higher than the initial quote.

In fairness, no board member wants to hear a lecture on API integration or ETL pipelines when they’ve been promised that ChatGPT will turn their legacy firm into the next Microsoft by Q4.

Boards are furious that millions have been spent on projects that were unable to translate into measurable business outcomes. According to MIT, 95% of GenAI projects that have been rolled out across have failed to deliver a measurable return in the first six months.

The lack of ROI from these projects now threatens the core consultancy business model. Gartner predicts that 60% of all contracts will include clawback clauses, meaning firms will have to return fees if they can’t prove ROI.

Cautious firms will be the real winners

However, there are winners. The consultancies that will survive this cull are those that prioritized delivering ROI for their clients. As boards become more hardline in their questioning of failed AI rollouts, firms that favored quality over hype will pick up a significant market share.

The tide has turned, and there is a growing trend of firms pivoting away from AI rollouts in favor of investment in digital hygiene.

For example, whilst AI is modernizing the IT landscape, Consultancy UK found that 94% of companies are planning to invest in digital technology rather than AI, with fewer than one-fifth of all companies using AI extensively across their business.

The World Economic Forum recently highlighted that ‘digital trust’ is now a more significant predictor of stock price rather than ‘innovation speed’. The consultancies that sell cyber-resilience are seeing retention rates 20% higher than the firms selling AI implementation.

It’s a stark contrast to the initial buy-in. In 2022, it seemed that every town hall and all-hands meeting had AI adoption on the agenda. But companies’ needs have shifted.

Boards are looking to prioritize their spending on creating the security, resilience, and infrastructure needed to roll out AI successfully. The specialist consultancies that saw past the hype and refined their product to fill this niche can expect a payday to rival that of the Big Four.

I’m not saying consultancies should have steered clear of AI – or should in the future. Nor that their customers should. Technology consultants, by their very nature, need to embrace new technologies. It’s how they survive.

But what’s clear to me is that the firms that took a more measured approach will survive the cull. The ones who ensured that AI’s benefits could be measured before going to market.

The AI hype should act as a wake-up call for the consulting industry. We shouldn’t be chasing signing bonuses. We should be creating solutions that make our clients’ businesses perform better.

Consultants’ heads are on the chopping block. But not all of them. The ones that focused on creating ROI for clients are the firms that will not only survive the upcoming cull – but emerge victorious. But more than that, they’ll have a sustainable business model that will win them greater market share.

The next phase of AI adoption won’t be driven by experimentation. It will be driven by accountability. The firms that will win, going forward, will be the ones that can tie every deployment to measurable business success from day one.