What Boards Must Evaluate Differently
AI, Extended Reality (XR) and Digital Platforms have progressed far beyond the emerging tech stage — and yet, the overwhelming majority of investments in each category fail to achieve scale.
Not because the technologies themselves don’t perform.
Not because there’s a lack of skilled people working on the initiatives.
But rather, the boards and committees that fund these initiatives are evaluating the potential investments using an ineffective framework.
In all four major sectors — health care, defense, manufacturing and enterprise — we see the same cycle:
Successful pilots and demos that generate initial excitement — followed by stalled rollouts and procurement challenges — ultimately leading to abandoned initiatives.
When an initiative fails, the reason given most frequently is execution risk.
However, the actual problem with the initiative was most likely identified long before the rollout failed — at the board level.
Pilot Falsehood
Boards have come to expect approval of pilots. Pilots are low-cost, non-controversial and easy to rationalize as an exploratory innovation initiative. Unfortunately, pilots are also a poor proxy for scalability.
A successful pilot addresses only one question: Does the technology work in a controlled environment?
It does not address:
- Can this technology be integrated with other enterprise systems?
- Will the technology pass through the gauntlet of procurement, security and compliance scrutiny?
- Will the technology be able to scale across multiple sites, regions and teams?
- Will the technology deliver ongoing, sustainable value?
When pilot success is confused with readiness for scale, the downstream risk has merely been delayed — not eliminated.
Where Traditional Technology Due Diligence Falls Down
Traditional technology due diligence is reasonably effective for well-established SaaS products. For investors who need a deeper framework, our AI and XR investment advisory addresses exactly this gap.
However, it is much less effective for AI- and XR-enabled platforms where the value created by the platform depends upon a complex interaction among software, data, hardware, workflow, and human behavior.
Three key areas are consistently underweight during traditional due diligence:
1. Commercialization Readiness
A strong demo is not a business strategy for going to market. Too many platforms lack:
- A clear definition of an enterprise buyer
- Procurement-friendly pricing models
- Sales cycles that account for regulated industries
- Scalable delivery and partnership strategies
Commercialization issues prevent even the best technical solution from achieving widespread adoption.
2. Fit With Enterprise Operations
AI and XR systems do not operate in a vacuum. They impact IT, training, facility management, security and operational teams. If an organization requires its teams to make extraordinary efforts to adopt an AI or XR system, it will not sustain itself after initial excitement has worn off.
3. Data & Governance Reality That Boards Must Understand
Value from AI is directly tied to quality and availability of the underlying data.
Boards must ask:
1. Where does the data originate?
2. Who is responsible for governing the data?
3. How is the data protected?
4. What happens if a change in regulatory requirements impacts the use of the data?
These are questions that too often are ignored until the data governance issues arise as barriers to deploying the platform. Our AI governance advisory is built around making these questions answerable before deployment, not after.
The Hardware Risks Boards Rarely Address
While the software strategy of an AI or XR platform is sound, many of these platforms fail because of another important — but often overlooked — risk factor: hardware volatility and security risks.
Unlike traditional enterprise software, AI and XR platforms rely on physical hardware to operate. Headsets, sensors, edge processors and wearables are not neutral means of delivering software — they affect security posture, deployment costs, the lifecycle of the platform, and user acceptance.
Boards often underestimate the amount of disruption caused by these hardware dependencies.
Security Risks Are Not Abstractions — They’re Physical
AI and XR hardware bring new and previously unseen attack vectors to organizations. Some examples include:
- Always-on cameras and microphones
- Environmental and spatial mapping
- Biometric tracking and telemetry of users
- Edge-based AI processing that occurs outside of central data centers
Regulated industries (healthcare, defense and advanced manufacturing) immediately recognize the implications of these hardware types — including:
- Where is data processed?
- Where is it stored?
- Who controls firmware and operating system updates?
- How frequently does the security model change?
When hardware evolves at a rate that outpaces enterprise security frameworks, security risk builds quietly — until the rate of adoption declines, or deployment comes to a halt.
Instability In Form Factor Creates A Strategic Risk
The XR market is currently evolving rapidly, and major technology companies are testing different approaches to:
- Headset size and ergonomics
- Sensor placement and functionality
- Battery life and heat dissipation
- Input methods and peripherals
All of these are legitimate approaches to innovation — however, they introduce significant risk to organizations that attempt to deploy their platforms over the long term.
When hardware form factors evolve approximately every 12 – 18 months, the consequences for organizations that are attempting to deploy their platforms are severe — including:
- Revalidation of training programs
- Reengineering of software interfaces
- Obsolescence of accessories and peripherals
- Disruption of procurement cycles and misalignment with product roadmaps
As a result, organizations hesitate — not because they are uncertain about the value of the platform, but because the foundation continues to shift.
The Broader Impact On The Ecosystem
Hardware instability causes hesitation in individual deployments — but it also creates broader problems in the overall AI and XR ecosystem.
- Organizations delay commitments to AI and XR platforms.
- Investors reduce their expectations regarding scalability.
- Boards become increasingly skeptical of the long-term viability of AI and XR platforms.
At the same time, major technology companies continue to innovate and demonstrate their platforms publicly — essentially asking the rest of the industry to absorb the risk associated with the rapid evolution of their platforms while they test and refine their direction. The gap between innovation velocity and enterprise readiness grows — not because the vision behind the platforms lacks clarity, but because of the lack of alignment.
What Boards Should Evaluate Instead
The correct question to ask is not “Is this technology innovative?”
Rather, the correct question is “Can this become durable infrastructure?”
Boards should evaluate the following areas when assessing whether an AI or XR initiative depends on specialized hardware:
- Stability of the hardware roadmap
- Governance of firmware and security
- Device lifecycle and obsolescence planning
- Abstraction of software from the hardware
- Exit strategies from vendors and platforms
If any of these areas cannot be clearly described, then the risk profile of the initiative is incomplete — regardless of how exciting the demo may seem.
Why AI and XR Are Typically Misunderstood
AI and XR are typically viewed as:
- Visualization tools
- Training enhancement tools
- Automation features
In reality, when properly deployed, AI and XR are designed to act as operating system-level functionalities. They redefine how decisions are made, how tasks are completed, and how value is created.
Therefore, evaluating AI and XR with the same criteria applied to point-solutions for enterprise software almost inevitably leads to disappointment.
The Cost Of Getting It Wrong
When AI and XR initiatives fail, the costs associated with those failures extend far beyond the financial loss of the capital invested. Failed initiatives also create:
- Enterprise-wide skepticism regarding future innovations
- Leadership fatigue
- Missed opportunities for competitive advantage
- Reputation risk for boards
The opportunity cost associated with failed initiatives often greatly exceeds the written-off investment.
A Different Perspective
Most technology commentary focuses on what is new.
Most pitches focus on what is possible.
Too few focus on what actually survives contact with the realities of enterprise.
Scale is where belief ends and truth begins.
That’s the focus of The Lion’s View.
For Board-level frameworks and strategic resources, visit our Resources page.
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