1. Advanced Management Control and Sustainable Development
Lecture 10: LEADING PRACTICES in INTEGRATED REPORTING
Prof. Angelo Riccaboni
University of Siena
Department of Business and Law

2. Agenda Competitiveness and Sustainable Growth
IIRC Integrated Framework
Value Creation and Company Business Model
Ingredients of IR : Content Elements and Guiding Principles
Lawson INC : connecting Business and Society
Eni: Mediating across Capitals and Stakeholders
SAP: Connecting the Dots
Opportunities for Management Accounts within IR

3. Competitiveness and Sustainable Growth
Are two fundamental goals that contemporary organizations and societies must achieve in the short-medium-long terms
Can businesses and societies succeed in striking a balance between the need for competitiveness and sustainable growth?
How can value be defined, managed and measured over time?
From what and for whom do businesses create or destroy value?

4. From a macroeconomic and political perspective :
Some people maintain that GDP ignores social costs, environmental impacts and income inequalities
Therefore, the world needs a better understanding of what sustainable well-being means, how to measure it, and how to achieve it.

5. The solution:
Combination of IR and Integrated Thinking (IT), which offers a pragmatic solution to the existing concerns and needs
IT marks a charge in the way in which companies envisage, design and run their businesses
IR provides an opportunity and question the business holistically

6. IIRC Integrated Framework
IR results in a periodic, concise integrated report about how an organization’s strategy, governance, performance, and prospects- lead to the creation of value in the short, medium and long term.
Key objectives of IR:
Enhance accountability and stewardship with respect to the broad base of tangible and intangible capitals
Promote understanding of their interdependencies

7. Value Creation and Company BM
Fundamental concepts of the IR are represented by :
The capitals that an organization uses and affects
The process of creating value over time
The value is embodied in the capitals- referring as resources and relationship

8. There are 6 different capitals which become inputs to the organization’s Business Model
Value is created and destroyed through the capitals within a company’s BM, which represents the chosen system of inputs, business activities, outputs and outcomes that aims to create short, medium and long term value.
Capitals and value change over time as they are increased, decreased or transformed through activities into outputs.
Outcomes are the final results of the outputs.

9. Ingredients of IR : Content Elements and Guiding Principles
An IR is built around 7 elements that determine its content and communicate the organization’s unique value creation story:
Organization’s overview and external environment
Governance
Risks and opportunities
Strategy and Resource allocation
Business model
Performance
Future outlook

10. IR is principles based rather than rules based
IR doesn’t focus on rules for measurement, disclosure of individual matters or even on the identification of specific key performance indicators (KPIs)
IR Framework is driven by IT, which will lead to integrated decision making and execution toward the creation of value
Business organizations are stimulated to focus on the connectivity and interdependencies among a range of factors that have a material effect on their ability to create value over time.

11. Lawson INC : connecting Business and Society
Is a convenience-store franchise chain based in Japan
First IR combines both :
Annual report to integrate financial and
Corporate citizenship report non-financial information

13. Key challenges: Challenges connected to changes in society:
Gender balance
Aging population
Few jobs for young people
Escalation of national medical costs
Increase in lifestyle-related diseases
Global environmental changes:
Power shortage
Climate change
Increasing waste
Long-term depletion of natural resources

14. Eni: Mediating across Capitals and Stakeholders
In the 6-th largest world company by market value
It boasts a strong position in the oil-and-gas value chain from the hydrocarbon exploration phase
2010- realization of environmental report and sustainable report
They found many irrelevant data disclosed
The missing issue: the broader process of analysis and communication, putting performance in context and to represent the strategic leverages the company was using to build and maintain its ability to produce value in the long term.
There was the start of producing IR

15. Sustainability- represents a business approach and is a lever to support long-term value creation while managing political, operational and financial risks
This aspect was included from the beginning of the company, when the competitiveness was based :
On international relations between oil companies and producing countries based on long-term cooperation
On the transfer of knowledge and skills
On mutual development

16. IT starts from planning and integrated risk management
Business opportunities take in to account:
The multiple capitals
The risks, considering all possible impacts
IR highlights the innovations in terms of capitals involved, resources, and relationships that are part of the company’s value creation
The main capitals Eni uses are: financial, manufacture, intellectual, natural, human, social and relationship
They represent the stock and their value is increased, decreased or transformed
Each capital is associated with the main actions that creates value

17. Natural capital includes : oil and gas reserves, water, biodiversity and ecosystems, air and soil
Main action related to this capital include:
investments in new businesses such as:
Biorefinery
Green chemistry
Investments in technological and process upgrades
Investments in remediation activities

18. Most sustainable results from Eni’s activities are:
Growth of hydrocarbon reserves
Reduction in operational expenses
Mitigation of operational risk
License to operate
Stakeholder’s recognition
Impact on external stakeholders:
Reduction of gas flares
Reduction of oil spills and blowout
Preservation of biodiversity
Containment of water consumption and energy efficiency

19. Eni’s Goal : to continue refining its IT and IR by capturing and highlighting the connections among the multiple capitals

20. SAP: Connecting the Dots
Is a German multinational software corporation that produces enterprise resource planning applications to manage operations and customer relations.
The IR presented the connections between financial and non- financial performance of the company
Purpose of the report – to illustrate the features of SAP integrated strategy by offering a holistic picture of all possible impacts
IR explores the cause-and-effect relationship between the financial and non-financial indicators

21. 4 global corporate goals:
Two focus on the company financial performance (revenues and margins)
Two focus on non-financial performance (customer loyalty and employee engagement)
The inclusion of economic – social – environmental measures are essential but not sufficient
IR represents a platform that connects the dots across the company’s business model and offers a space to explore the company’s ability to create value over time

22. IR presents a map of the specific activities SAP has undertaken to:
Change employee behaviour
Impact company’s performance
Influence financial results
SAP goal:
To estimate the impact of non-financial drivers of the business on corporate objectives and financial results

23. IR 2014 – SAP introduced 2 new non-financial performance indicators related to :
Innovation
Productivity

24. Opportunities for Management Accounts within IR
IR and IT starts at the core of any organization: its Business Model
Resources, activities, outputs and outcomes are the foundations of any business
Strategy formulation, action planning, governance, risk management put the company’s model for value creation into action.
There is a need to connect the multiple drivers of the value chain and Management accountants are put at the forefront of value creation

25. Management accountants - best know the company’s business model and they drive the IR
Management accountants know the strengths, weaknesses and have a complete vision of the company
Management accountants act as:
Designers: because IT and IR represent an open platform
Leaders: because this process needs direction since it requires mediating the connections and trade-offs between different drivers of value creation