The Influence of Integrated Reporting on Management Control Systems: A Case Study

Abstract

The purpose of this paper is to investigate how Integrated Reporting can influence Management Control Systems (MCSs). To this aim, the paper presents a case study of a company which designed and implemented an Integrated Report (IR) that was used as a tool for communicating the company performance to the entrepreneur and as a tool for enriching the company MCS to visualize and measure the overall company performance. The case analysis shows that Integrated Reporting improves the measurement focus of the MCS thanks to the role played by the company's Business Model (BM) throughout the IR development and to the process adopted to map the BM itself. The BM mapping process was highly iterative and allowed for a better understanding of the items affecting the value creation process and of their interconnections, thus directing the MCS to what really deserved to be measured. Strategic discussion around the BM also entailed an evolution of the control system, which became a strategic control system, able to support the discussion and the creation of new strategies. Moreover, the BM ensured a high level of integration and consistency between departmental reports and the company IR, on the one hand, and among the departmental reports themselves, on the other hand. In addition, the case analysis shows that financial indicators risk becoming "phagocytized" by non-financial ones and that the implementation process of the IR can lead to a heavier workload for the Management Control Department to provide for the non-financial aspects of performance. Finally, the case analysis shows that the Integrated Reporting visual representation and its underlying logic may not work if the tool is used for managerial decision making. While the guiding principles of Integrated Reporting were accepted by the company's actors, the Integrated Reporting representation model based on the logic inputs-BM-outputs-outcomes was criticized as it was considered too complex and not able to represent the company's integrated performance, reflecting instead a series of disconnected and disjointed individual performances. The critiques of this model were so sharp that they resulted in a change to its logic and the adoption of a different model, namely that of cause-and-effect relationships.

Appreciations, criticisms, determinants, and effects of integrated reporting: A systematic literature review

“…Using a sample of South African companies and relying on several measures of integrated report quality, researchers have highlighted how better quality leads to positive market reactions (Barth, Cahan, Chen, & Venter, 2017;Lee & Yeo, 2016;Martinez, 2016). Moreover, the business model plays a central role here as it is the fulcrum of the definition of the performance measurement system and of the identification of the performance measures most able to represent the relevant aspects (Chiucchi, Montemari, & Gatti, 2018). Moreover, the business model plays a central role here as it is the fulcrum of the definition of the performance measurement system and of the identification of the performance measures most able to represent the relevant aspects (Chiucchi, Montemari, & Gatti, 2018).…”

“…In this sense, a first significant effect refers to the ability to better understand the process of value creation and, consequently, performance measurement systems (Burke & Clark, 2016;Mio, Fasan, & Pauluzzo, 2016;Stubbs & Higgins, 2014). Moreover, the business model plays a central role here as it is the fulcrum of the definition of the performance measurement system and of the identification of the performance measures most able to represent the relevant aspects (Chiucchi, Montemari, & Gatti, 2018). The role of nonmonetary indicators in the business model is also emphasized (Beck, Dumay, & Frost, 2017;Mio et al, 2016) as they are often able to capture the strategic dynamics underlying the financial results and to represent appropriately the intangible nature of some capital (social, human, and intellectual) included in the integrated report (Beck et al, 2017;Mio et al, 2016;.…”

Every Cloud Has a Silver Lining: A History of Barriers to Intellectual Capital Measurement

“…Another way to design and transmit IC indicators is through business models (Montemari & Chiucchi, 2017;Chiucchi et al, 2018). The business model is the framework through which companies execute their strategy (McGrath, 2010;Nielsen & Montemari, 2012;Lambert & Montemari, 2017) and it clarifies how value is actually created and captured (Osterwalder & Pigneur, 2010;Arend, 2013).…”

“…Nevertheless, while the role that narratives can play to support the management of IC has been extensively explored (Mouritsen et al, 2001;Cuganesan et al, 2007;Dumay & Rooney, 2011;Dumay & Roslender, 2013), the role of IC indicators deserves additional attention (Catasús et al, 2007;Mouritsen, 2009). Literature, in fact, has emphasized that their adoption can be problematic because of several factors that can affect their actual use for managerial purposes (Vaivio, 2004;Catasús & Gröjer, 2006;Demartini & Paoloni, 2013;Chiucchi et al, 2018). In many cases, the research (and case study analysis, as well) has been aimed at exploring how barriers to their adoption can lead to a failure of the IC measurement project within companies (Chiucchi & Montemari, 2016;Giuliani et al, 2016;Schaper, 2016;Nielsen et al, 2017).…”

Management Control Systems and Integrated Reporting: Which Relationships? The Case of the Azienda Ospedaliero Universitaria Ospedali Riuniti Ancona

“…This role manifests itself in two different perspectives: at a technical and an organizational level. From a technical point of view, what is requested of management accountants and management control systems with regard to the preparation of an IR seems to primarily concern the production of the necessary information and the calculation of the indicators relating to the six capitals (Chiucchi, Montemari, & Gatti, 2018;Jinga & Dumitru, 2014). However, the design and the preparation of an IR appears to be an activity that falls somewhere in between the two and represents, in reality, a critical and complex activity (Busco, Frigo, Quattrone, & Riccaboni, 2014).…”