A closer step towards understanding ROI: Introduction of a recent framework

One of my last year’s posts referred to the lack in financial metrics for assessing the value of international assignments as a current trend. About 6 months later I believe that the label ‘current trend’ is still relevant and global organizations continue to lack an understanding of and face challenges with expatriate return on investment (ROI). Although not much has changed in corporate practice, something has been said and done by scholars.

A recent article by Australian scholars McNulty and De Cieri (2011) contribute to our limited knowledge by presenting a framework of expatriate ROI from the perspective of long-term assignments. The framework is not intended to solve all global staffing problems; neither does it give a precise formula for calculating a specific value for ROI. However, the authors question whether ‘measuring expatriate ROI may be less relevant overall than to instead strategically manage ROI’ (p. 914), thus proposing the framework as a way to think about and act upon the value of international assignments.

The framework proposed in the article is based on three main factors that comprise the multidimensional structure of expatriate ROI; namely external factors, expatriate management system and expatriate ROI outcomes. The theory behind the framework suggests that external factors influence the expatriate management system, which in turn impacts the ROI outcome that finally provides input for further changes in the expatriate management system. Thus, all three elements of the system are interrelated.

Given this interrelation, there are several implications. First of all, given the importance of external factors such as host-location characteristics or external shocks it becomes clear that an accurate assessment of ROI is only possible when performance outcomes are linked to the context in which an international assignment takes place. For instance, shocks to the global supply chain after Japan’s Tsunami or currency devaluations demand firms to respond to environmental changes that are less controllable.
The expatriate management system
refers to organizational activities, policies, practices, and strategies that are directed at influencing the outcome of expatriation. In their framework, the authors break down the management system into the following components and interrelationships: the global staffing strategy determines the purpose of the international assignment, which in turn determines organizational factors (the design of different international HRM practices) and individual factors (family, career orientation, etc.).

Second, given important interrelations among factors within the expatriate management system and with regard to external factors, the management system needs to be flexible. The authors argue that ‘the anticipation of ‘reactive’ changes in strategic planning is necessary in order to allow factor configurations to change as and when required to meet situational needs on an ongoing basis’ (p. 905).

Finally, when speaking about expatriate ROI outcomes, it is important to note that ROI does not refer only to the relationship between financial costs and benefits of expatriation, but should also include the non-financial variables, with the latter probably being the most difficult to measure. Moreover, the authors propose that although measuring ROI from the organization’s perspective is more common, a cost-benefit analysis is valuable for both the organization and the individual.

The scholars state that an important feature of their framework is the relationship of ROI back to the expatriate management system, which is seen as feedback aimed at impacting and improving future global staffing strategies. This is an example as to how strategy may be developed in response to practical experience. In addition, it emphasizes the idea that improvement in global staffing practices can be gained only when strategy and practice are sufficiently aligned.

Overall, in terms of the practical implications of the framework, the authors acknowledge that assessing ROI outcomes is paramount for organizations to justify costly global international assignments. Because there is no universal formula for calculating ROI, they argue that the unique context of each international assignment (e.g. purpose, location and length) requires the organization to determine a set of appropriate ROI measures prior to the assignment, and be ready to re-evaluate and change the measures during the assignment if needed. As previously mentioned, the authors also highlight the importance of management of ROI, which implies understanding its multidimensional and dynamic structure and acting on it accordingly. The authors conclude, ‘when ROI is managed more so than simply measured, it is likely to better account for the “softer” issues and benefits that are an inherent part of long-term assignments (e.g., cultural intelligence, developing an international cadre, career advancement), many of which represent the strategic benefits expected from international assignments’ (p. 915).

Further reading:

McNulty, Y. and De Cieri, H. (2011). ‘Global Mobility in the 21st Century: Conceptualising Expatriate Return on Investment in Global Firms’. Management International Review, 51, 6, 897-919.

2 thoughts on “A closer step towards understanding ROI: Introduction of a recent framework

  1. I believe that this is such a good thing to get more knowledge on. We are moving forward as companies and many times we have people that travel and work in other areas, this is something that I do not think will be lessened but most probably be happening more and more often. Great article and reference to the article.

  2. The three factors are all essential aspects of any business. It’s important that we assess, assess, assess our business because change is inevitable. This is an informative post! I hope others get to read this and learn from it.

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