University of Twente Student Theses


Integrated reporting and performance management : how to report about the relationship performance and the value creation in terms of natural capital and social & relationship capital

Steenwoerd, A.H. (2015) Integrated reporting and performance management : how to report about the relationship performance and the value creation in terms of natural capital and social & relationship capital.

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Abstract:Integrated Reporting <IR> is a promising new standard for external corporate reporting that provides shareholders a better explanation of how a company creates value. An integrated report is “a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term” (The IIRC, 2013). An organization benefits from <IR> by getting an improved holistic view of the organization and a better understanding of how the company creates value. Currently, <IR> is in the ‘breakthrough’ phase of adoption of the International <IR> Framework. This thesis contributes to the adoption of <IR>, by studying how business performance leads to value creation. Yearly research on the progress of Integrated Reporting in the Netherlands shows that Dutch companies have real difficulties with operationalizing <IR> and that especially reporting about non-financial performance in challenging (Deloitte, 2014). Therefore, the research question of the graduation project is: How can companies show in an integrated report how their performance leads to value creation in terms of natural capital and social & relationship capital? The research shows that reporting about business performance is not just putting a standardized list of performance indicators in the report. An integrated report should contain qualitative and quantitative reporting about how their performance leads to value creation. The quantitative part mainly consists of performance indicators and the qualitative part should contain an explanation about the performance indicators, the measurement methods and their relevancy for the organization. Performance indicators have to be presented for multiple consecutive years, against peer groups, and it should be linked to previously reported targets and future targets. This enables benchmarking, comparability and showing trends. Literature research has yielded specific guidelines about individual KPIs and about structuring them. Performance indicators have to be measurable and controllable by the company. Moreover, they have to be consistent, reliable, relevant and in line with the strategy of the company. This last aspect is important because the strategy determines how the company aims to create value. The International <IR> framework does not provide any specific measurement methods or performance indicators though. Nowadays, annual reports or sustainability reports often show a quite standardized list of performance indicators, and the question is if these are actually related to value creation in their business. A statistical analysis was performed during this project, on historical performance data of Dutch listed companies, that are related to social & relationship capital and natural capital. This analysis is based on the value creation figure from the International <IR> Framework, that shows that a company owns six types of capital: financial, manufactured, intellectual, human, social & relationship and natural capital. The analysis showed that there are no KPIs that are in general significantly explanatory for value creation. This means that organizations should not all report the same standardized list of KPIs, but they have to select individually what KPIs are relevant for their value creation process and strategy. To accomplish that, an organization should align their internal performance management with what they want to report externally, and structure the KPIs by the six capitals.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Industrial Engineering and Management MSc (60029)
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