The influence of integrated reporting on management control systems: compromises, opportunities and challenges

The purpose of this paper is to investigate if and how an Integrated Reporting (IR) can influence Management Control Systems (MCSs). To reach this aim, the paper presents present a case study of a company which designed and implemented an IR, using the IIRC guidelines, which 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 IR improves the measurement focus of the MCS thanks to the role played by the company’s BM throughout the IR development as well as 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 risked to be “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 IR. Finally, the case analysis shows that the IR visual representation and its underlying logic may not work if the tool is used for managerial decision making. While the guiding principles of the IR were accepted by the company’s actors, the IR 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, i.e. reflecting instead a series of disconnected and disjointed individual performances. The critiques to this model were so acute that led to change its logic and to adopt a different model, namely that of cause-and-effect relationships.