UK_YCORP_Mobility

This article was first published in the March 2016 UK edition of Accounting and Business magazine.

Despite the ever increasing use of international assignments to address business needs, most organisations have little direct evidence as to whether these are sensible investments. This presents an opportunity for finance and HR professionals, working together, to deliver value – putting a stop to wasteful assignments and expanding those that generate clear business benefits.

The belief that international assignments are core to building global businesses and to developing leaders continues to grow. A shortage of global talent is regularly cited as an obstacle for businesses looking to grow. The big accountancy firms, such as KPMG and PwC, require candidates for partnership to have an overseas assignment under their belt.

Surprisingly, most organisations do not appear to realise the value of international assignments. According to the 2015 Worldwide Survey of International Assignment Policies and Practices by consultancy Mercer, 90% of organisations do not use any metrics to track their international assignment programmes. 

The key to changing this is for finance business partners and HR professionals everywhere to work together to develop clear processes, with a common language and a joint understanding of what is a useful metric, or metrics, by which success can be evaluated.

The principles are straightforward. Indeed, there is arguably little new involved. Rather, it’s about challenging the myriad myths that cause people to doubt whether they can determine the return on investment (ROI) of an international assignment. The divide between finance and HR needs to be crossed to improve business outcomes.

Cost over value

Often the business decides it wants to send an individual to an overseas location before involving HR. So actions are driven by specific and immediate business operational needs, with little consideration of strategic issues or career development. Surprisingly, possibly because HR colleagues are the operational experts in this instance, businesses tend not to create a business case assessment including the long-term objectives of all the parties involved: they have decided that ‘sending Sarah’ is the solution, and that HR and finance just need to arrange for her to get there.

Patrick Hepplewhite, head of global mobility at HSBC, acknowledges that despite an excellent reputation for successful international assignments, HSBC has been able to gather relevant global data to assess their impact only in the last few months. This, though, has put a positive spotlight on them. However, even here, the data is mostly cost-based and the HSBC ROI measures are aspirational, although they are at least clearly identified as measures: completion of the international assignment objectives, assignee retention over the medium term, assignee performance ratings and appropriate succession planning.

Unfortunately, while HR and global mobility colleagues generally want to have a discussion about value, they are asked only for cost information. As this is much easier to identify and predict when compared with value parameters, and given that the business appears to have made its decision already, parties continue to talk cost instead of value. This reinforces the perception held by many that the value side of the equation is intangible and too difficult to calculate. People are often heard to say that you cannot calculate the ROI on an international assignment. Finance and HR together need to change this.

Return journey

The term ROI seems to trip many people up. It is perceived as meaning a single number – often a concept based on net present value (NPV). But there are numerous ways to determine ROI, with no single winner-beats-all definition. In a purely financial investment, we would expect to assess various measures such as NPV, cash and payback periods, yet all with a clear understanding of the risk parameters. This approach enables the assessment of intangible items – for example, the political risk in a different country and how it might affect the calculations. In exactly the same way, the ROI of an international assignment should be thought of as a package of metrics referencing the wider context.

In finance any business case evaluation requires expert opinion. After all, basic accountancy teaches that several different values could be put on an office chair, and all would be reasonable. In any business case evaluation, judgments need to be made, and the facts recorded that have led to these, both for audit purposes and to improve future assessments. When implementing new software, for example, a judgment has to be made on how much to spend on training people to make best use of the software. Finance business partners work with colleagues using their experience and challenging questions to find answers to such potentially intangible questions and put a value on them. The same principles apply to international assignments. If part of an international assignment business case is to improve José’s leadership skills, there is a need to record which skills, by when, how they will be assessed and what value this will be judged to have for the organisation.

Expert opinion applies to the cost side too. It is easy to assume that the costs of an international assignment are straightforward. This is not the case given the impact of time, context and intended outcomes. A range of potentially uncertain issues has to be considered, including tax implications (accidentally creating a local domicile for a company is not desirable), cross-cultural training, family support, security and travel risks, and repatriation costs. All involve estimates based on HR’s expert opinion. All should be assessed in relation to the value created by the international assignment.

Tri-party value

So what might the value be? The answers are derived by identifying the objectives of the exercise. This is hardly new, yet it consistently fails to happen in practice. In particular, businesses fail to capture the objectives of all three parties involved – the home business (sending the individual), the individual and the host business (receiving the individual). Once objectives are clarified, owners and accountability can be assigned to determine the overall business case – and track its success.

At its simplest, the value could be revenue and profit generated by a business development manager, or the costs avoided in sending an operations expert to ensure a technical department operates smoothly. In all cases, the value has to be assessed in comparison with the alternative, if there is one, such as hiring a local person. We are in the realm of using expert opinion. This is what finance business partners bring to the game naturally. Working together with HR will do so for international assignments.

Of course, designing metrics that do not relate to the organisation’s broader values does not work for international assignments in the same way as for other investments. Tracking employee retention is not sensible if it is not an organisational driver. Consider the intangible issues, such as greater global process consistency, and then identify tangible or financial proxies for the goals to enable measurement – for example, savings achieved.

The potential to be gained from effective international assignments is huge. While some parties will only ever see the significant costs of international assignment and refuse to support it, positive changes can still be made. The solution lies in the hands of HR and finance professionals coming together to share their expertise to agree their organisation’s specific ROI metrics and the mechanisms through which to capture the relevant data. Establish a process, use shared language and track the outcomes.

International assignments are no different from general business investments. By investing time in discussions, a template for the ROI analysis can be created to guide future calculations. The ROI from the investment of that time ought to be clear.

Phil Renshaw is a research fellow at ifs University College and doctoral researcher specialising in the value and impact of international assignments