BUSI 103 - Introduction to Business (Chapter 8)
August 3, 2026
You know how to run an NPV - but what about an investment whose benefits you cannot see, cannot guarantee, and will not collect for years?
Read time ~8 min - ~1,224 words - problems ~35 min
Why this matters. The investments most likely to transform a business - training, process improvement, R&D - are exactly the ones that fight the toolkit you just learned. Managers who cannot justify them do the easy things instead, and their firms stagnate.
What you’ll be able to do.
The big ideas.
Key terms. challenging investment, invisibility of impact, chain of evidence, proxy measure, pilot, staged commitment.
Here is a problem from my own work as a management consultant. Consulting fees can be very high, and they are up front - and it is very difficult to get clients to believe in a future state that is going to be great. You see the transformation the client needs: expensive now, uncertain, paying off far in the future. You get to propose one first project. What do you lead with? Hold that question.
Some of the most important investments a business can make are the hardest ones to put in a spreadsheet.
We talked about investment decisions with the framework of NPV and payback and break-even. But there is also a class of challenging investment decisions. Transformative investments - getting our employees more skilled, improving a process, research and development - some of these are the most important things, and they are the hardest to justify, because it is really difficult to count where all the benefits and costs are going to be. When it is long-term and uncertain, it is difficult for people who spend too much time in their spreadsheets to justify whether or not we should do this - and firms chronically under-invest in things that they can’t measure, because they are just so focused on the short term. The question is: how do we do all of this in an uncertain world, rationally but also with confidence?
You cannot see the benefit, cannot guarantee it, and will not collect it for years.
First, invisibility of impact. The benefits show up, but later and indirectly - fewer errors, lower turnover of employees, a better experience for a customer. A very classic thing: companies invest in onboarding and mentoring of their own employees. Half a year later, we find that turnover of employees is down. Is it because of training, or is it because of something else?
Second, uncertainty of outcome. We do R&D. It’s uncertain what we’ll discover, and therefore it’s uncertain what we will learn and be able to do that’s going to augment the business. It’s not a promise. Pharmaceutical companies spend millions on a potential drug. It might be worth zero. It might be worth a lot.
Third, delay in payoff. The costs are certain right now, and we incur those costs. We may not see the benefits until much later.
Exploration balances execution - a firm that only optimizes today eventually stagnates.
Training boosts morale and our capabilities. Process improvements help us do whatever it is we’re doing better. R&D is going to be the future of our business. If we don’t do a little bit of exploring - only executing what we’re good at right now - firms will stagnate and eventually lose their competitive advantage.
Build a chain of evidence from the intangible effect to a hard metric.
Intangible investments don’t show up very clearly in revenue or profit, so we need to create a clear chain of evidence from the intangible effects to hard metrics - proxy measures that point to the real outcomes, translating things that we don’t see into things that we can. If we have lower turnover, we need fewer hires, and fewer hires means lower recruiting costs. Being able to translate that into a metric helps us justify these investments.
A pilot lowers the stakes - if it is designed to rule out competing explanations.
Nothing is more convincing about doing something than doing it. Uncertainty makes managers reluctant to commit - they don’t want to make mistakes - so let’s lower the stakes. Instead of making a big decision, do a test, what you call a pilot: a small, fast, low-cost test that says, this is so small we have nothing to lose - let’s just learn something. A strong pilot has a very clear story of “if we do this, then this happens,” instead of a lot of confounding factors. A new checkout technology in two stores, 25% faster transactions and higher customer satisfaction compared to a baseline - that’s compelling evidence. Creating good pilots is like being a good scientist: design experiments to rule out competing explanations.
Stage the benefits so something tangible shows up early.
If the payouts are gonna be delayed, what can you do to accelerate them? Try to get something tangible early - a quick win, even a partial capture of the gains, up front. That’s gonna make people more excited and build more momentum to stay in it for the long haul. If a process redesign will see its full benefits take a year, can we show already some traction in a month? Best Buy’s turnaround is the famous version: in 2012 the retailer was struggling, and CEO Hubert Joly bet on people and process - stores restructured into specialty areas, employees trained and empowered. They had to experiment along the way, try different things, and show successes in stores, so people could more believe in the vision.
You cannot justify these like a delivery truck - but you cannot escape scrutiny.
We can’t just bet on a dream and say something wonderful is gonna happen. We have to get really rigorous. Use analytics, and be creative about how we can bring that discipline: if you say this is going to work, track it - track traction, get immediate signals, so we don’t have to wait until some day to see whether or not this works out. This is the language of experimentation: define what we’re trying to learn and why it’s important for the business; set immediate indicators; and do things at small scale upfront - a staged commitment - so we can be more certain when we make decisions. What’s really the issue here is not necessarily whether or not there’s the case, but how certain we are of the business case, and how do we build more certainty and support for it.
Analytical thinking, creativity, communication - leadership work.
You’ve got to be good at analytical thinking, but you also have to be creative. You have to be able to imagine what could be right, and mechanically how would that work. What are the things that we could do right now that would make us more confident in this possibility? And what are the things that we could do right now that would make us more comfortable dropping this as a potential idea? And you have to be able to communicate, explaining risks and progress in simple, compelling, stepwise ways. That’s what leadership is for: taking big bets.
So what does the consultant lead with? Not the transformation itself. It’s easier to start off with building some credibility that you can make the impact that you’re talking about, and get some quick wins up front - then use those wins to fund initiatives for future things that are in greater uncertainty. Some of the clearest impact with the fastest speed is around optimizing purchase spend and re-evaluating where we have opportunity to raise prices: the wins are very clear and they come very quick. Had we started with the riskier, bigger things, it might just be something that they never want to adopt.
Each scenario below is a proposed investment. For each: (a) design a quick, low-cost pilot that would support a go or no-go decision - the best pilots can support either decision, but only one of them; (b) anticipate challenges to your conclusions - in particular, what else could explain your results - and refine the design; (c) name the key measures you would collect and how; (d) tie your measures to business success. Start with the ideal setup, then refine it into something doable that preserves the key insights.
8-1 The Professor’s Phone Call. [LO2, LO3] A college believes that direct contact from a professor can convert admitted students to enroll.
8-2 The Student Advisors. [LO3, LO4] A department believes that student “advisors” providing early advising to new students declaring the major would help them understand what they want to do - and stay.
8-3 The Mentorship Program. [LO1, LO2, LO3] A company believes that assigning new employees mentors at the start of their employment will enhance retention. (Careful: this is the exact setting where the invisibility problem bites.)
© 2026 Eric Lin. All rights reserved. This chapter is provided for students in BUSI 103 - please do not repost or redistribute without permission.