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Implementation
The implementation of integrating of integrating
reporting <IR> in SMEs reporting

Insights from a pioneering experience in Italy

Mara Del Baldo 505
Economics, Society and Politics, University of Urbino, Urbino, Italy

Abstract
Purpose – This paper aims to discuss the most critical aspects relative to the “usability” of the International
Integrated Reporting Council (IIRC) Framework faced by small and medium-sized enterprises (SMEs) in
releasing the integrated report and adapting the Integrated Reporting (IR) principles (i.e. materiality,
integrated thinking and connectivity) to their needs and features. Only recently the relevance of IR for SMEs
has been internationally acknowledged.
Design/methodology/approach – The study is based on both a deductive and inductive approach. The
first one is founded on a literature and technical review aimed at tracing the theoretical background and
the framework on integrating reporting in SMEs. The second one is empirically constructed and follows the
action research approach because it involves the analysis of a single case-study relative to a company – Costa
Edutainment Spa that released its pioneering integrated report in 2014 – belonging to the Italian Network on
Business Reporting, a working group which has been involved in the pivotal drafting process of a Guidance
for IR in SMEs.
Findings – Results emphasise the main criticalities faced by an SME in the IR process, namely, the need for
the following: clearly defining the relationship between sustainability and integrated reporting; adapting the
main IR concepts (such us materiality, integrated thinking and connectivity) and fully understanding the
benefits deriving from the implementation of IR. Moreover, results shed light on the usefulness of a simplified
and operative guidance for releasing the integrated report within SMEs the effectiveness deriving from the
direct involvement in the NIBR working group and the provision of practical examples and suggestions.
Research limitations/implications – The main limitations are due to the fact that the empirical
analysis is related to a single case study, and it is explorative in nature. Consequently, results are not
generalisable. However, the work contributes to nourish the debate on the benefits and critical issues relative
to the diffusion of IR among SMEs in a research field which has not been adequately investigated and to
develop reflections on the benefits of the diffusion of the IR among SMEs, pointing out the opportunity to
follow an evolutionary path which drives the evolution of the entrepreneurial and organisational culture
towards monitoring, assessing and reporting the company’s value process creation.
Practical implications – The work contributes to triggering the debate on the diffusion of IR among
SMEs which represents a research field that remains still under investigated. It points out a fundamental gap
on how to implement IR in SMEs and operationalise the IIRC concepts and principles. It develops reflections
on the critical issues and benefits of the diffusion of the IR among SMEs. Drawing from a pioneering
experience, the work contributes to supporting entrepreneurs by emphasising the possible benefits
deriving from the implementation of the IR process. It suggests an evolutionary path through different steps
(starting from the business model definition) which are necessary to drive the entrepreneurial and
organisational culture towards monitoring, assessing and reporting the SMEs’ value process creation.
Originality/value – The work contributes to devoting the attention of both scholars and practitioners to
an underestimated research field – the “feasibility of IR in the SMEs context – which has not been yet
adequately investigated. Moreover, being empirically based, it helps in supporting the diffusion of the IR

The authors would like to thank the following for their invaluable collaboration, sensitivity and help Meditari Accountancy Research
Vol. 25 No. 4, 2017
in providing them with the material necessary to develop the analysis of the case and share their pp. 505-532
reflections: Dr Isabella Cristina (Mixura Srl), Dr Simona Bondanza, CSR Officer and external relations © Emerald Publishing Limited
2049-372X
manager and Dr Beppe Costa, President and CEO of Costa Edutainment. DOI 10.1108/MEDAR-11-2016-0094
MEDAR framework among SMEs, practitioners and consultants by providing insights aimed to improve the IR
Guidance for SMEs and sensitise entrepreneurs by emphasising that a possible step-by-step “IR journey” is
25,4 possible.
Keywords Materiality, Integrated reporting, Guidelines,
Small and medium-sized enterprises, connectivity, Italian network on business reporting
Paper type Research paper
506
1. Introduction
The International Integrated Reporting Council (IIRC) defines integrated reporting (IR) as “a
process founded on integrated thinking that results in a periodic integrated report by an
organization about value creation over time and related communications regarding aspects
of value creation” (IIRC, 2013d, p. 7, 33). IR represents the latest development in a long line of
proposed reporting innovations aimed at reforming financial accounting and company
reports taking into account corporate social and environmental responsibility (Eccles and
Serafeim, 2011; Higgins et al., 2014; Gray, 2001; Gray et al., 1996, 2014; Mathews, 1993, 1997;
Rowbottom and Locke, 2013; Lai et al., 2013) and driving organisational change towards
more sustainable outcomes (Eccles and Krzus, 2010, 2015a, 2015b). Being based on the
integration of financial and non-financial information, IR facilitates the connection between
the management of several types of resources – financial, physical and intangible assets,
such as social and intellectual capital and Environmental, Social and Governance
parameters, key quantitative and qualitative performance and risk indicators (KPIs and
KRIs), the business strategy and performance (De Villiers et al., 2014; Higgins et al., 2014;
Stubbs and Higgins, 2014).
The final draft of the IIRC (IIRC, December 2013) states that IR principles are applicable
regardless of size. However, although the IR approach promises to be “holistic, strategic,
responsive, material and relevant across multiple time frames” (Adams and Simnett, 2011,
p. 292), IR seems to be mainly targeted at large, publicly listed companies, excluding small
to medium-sized organisations and those in the governmental and non-governmental
sectors (Burritt, 2012). Despite their generally recognised role in the socio-economic context
(Smallbone and Wyer, 2000; Dobbs and Hamilton, 2007; Amorós et al., 2013) until a few
years ago, small and medium-sized enterprises (SMEs[1]) were not considered as potential
users of this new emerging model of corporate reporting.
Recently, the relevance of IR for SMEs – in particular for allowing SMEs better access to
finance – has been recognised by the Chartered Institute of Management Accountants
(CIMA) within the SME & Entrepreneurship Taskforce of B20/G20[2]. The document,
Integrated Reporting for SMEs – Helping Business Grow – Case studies, provides practical
examples concerning SMEs that are using IR to improve relations with stakeholders
(including the financial community), strengthen reputation and promote company growth
by creating lasting and sustainable value (CIMA, 2015). Policymakers have also expressed
interest, e.g. the World SMEs Forum has been set up to provide recommendations and assist
SMEs to overcome hurdles in the IR process. Moreover, both the practical IFAC
(International Federation of Accountants) handbook drawn up in January 2013 (IFAC
International Good Practice Guidance Principles for Effective Business Reporting Process)
and a specific GRI (Global Reporting Initiative) (GRI, Ready for the report? Introduction to
sustainability reporting for SMEs, 2014) provide SMEs concrete cases of sustainability
reporting implementation. In addition, in November 2015, the GRI and the IFAC SMP
Committee started to implement a guidance on Integrated Reporting for Small and Medium
Entities, to disseminate the knowledge of IR in the context of SMEs, where this practice is Implementation
still not significantly widespread. of integrating
Accordingly, the IIRC has become the promoter of SMEs’ need to develop a more holistic
and integrated approach to accountability, which emphasises the way value is created. A
reporting
new section will be included within the Example Database of the IIRC entitled <IR>
Reporters, incorporating the best practices of integrated reports released by SMEs.
Furthermore, within the IIRC and the NIBR (Italian Network Business Reporting), a specific
working group was created in 2013 (<IR> and SMEs, Working Group of NIBR), aimed at 507
developing specific Guidelines for the implementation of IR in SMEs (NIBR, 2016b). The
NIRB – started up in December 2010 – represents the World Intellectual Capital Initiative
(WICI) in Italy, an international global network aimed at improving business reporting and,
since 2012, IR[3].
This paper responds to various calls for robust academic research to guide developments
in policy and practice (Dumay, 2010), such as on the concept of materiality, the
“reconciliation” between sustainability reporting standard – GRI and IR (De Villiers et al.,
2014) – and the call for more research that critiques the practice of IR (Dumay et al., 2016),
contributing to a deeper understanding of IR adoption by SMEs and adapting the IIRC
principles to their needs. This is particularly timely, given the fact that SMEs is not the focus
of much of the IR literature. Specifically, the main critical aspects related to the “usability” of
the IR Framework for SMEs (IIRC, 2013d) will be addressed, by providing replies to the
following research questions:
RQ1. Are the IR guidelines effective for SMEs?

RQ2. “How should the guidelines be simplified, shortened and “operationalised” to be

user-friendly for SMEs?”
In this respect, the analysis will be particularly focused on the following: the principle of
connectivity (RQ2a: How should the principle of connectivity be adapted?); the principle of
materiality (RQ2b: How should the principles of materiality be revised to reduce the
complexity of the materiality determination process?) and on the principle of integrated
thinking (RQ2c: Is the integrated thinking “too far” from SMEs or rather is it intrinsically
connected to their strategic management process?).
The study follows both deductive and inductive approaches. First, a literature and
technical review examines the theoretical background and the IIRC Framework for SMEs.
Next, an empirical, action research approach is used (Benbasat et al., 1987; Bryman, 2008;
Contrafatto, 2011; Correa and Larrinaga, 2015), involving the analysis of a single case-study
company – Costa Edutainment Spa that released its pioneering integrated report in 2014 –
belonging to the Italian Network on Business Reporting, a working group which has been
involved in drafting a Guidance for IR in SMEs.
The findings emphasise the issues faced by an SME in the IR process:
 the need to clearly define the concept of IR and its relationship with sustainability
reporting;
 the need to adapt and simplify the main concepts (such us materiality, integrated
thinking and connectivity); and
 to fully understand the benefits deriving from the IR process and the adoption of the
integrated report.

Moreover, the results shed light on the usefulness of the multi-stakeholders approach
adopted by the NIBR group in drafting a simplified and operative Guidance for
MEDAR implementing the integrated report within SMEs and the effectiveness for the selected pilot
25,4 company deriving from its direct involvement in the same working group as well as the
provision of practical examples and recommendations from best practices.
The remainder of the paper is structured as follows. Sections 2 and 3 introduce the
literature review and suggest a theoretical framework on IR in (and for) SMEs addressing
attention to the benefits and obstacles in the diffusion of IR within SMEs. Subsequently, a
508 description of the methodological approach is provided (Section 4), followed by Sections 5
and 6 which present and discuss the Costa Edutainment Spa case-study, focusing on the
main difficulties faced and the benefits achieved by the company in implementing IR. The
final section summarises and concludes.

2. Literature review
IR has gained considerable prominence since the formation in 2010 of the International
Integrated Reporting Committee - IIRC (IIRC, 2011, 2013a, 2013b, 2013c, 2013d) and both
public policy and organisational practices in this area have grown rapidly (Zambon, 2003,
2011; Zambon and Guenther, 2011). IR has also attracted a great deal of academic attention,
as we can read: “From an academic perspective, there is a growing interest in <IR> and
numerous research papers are appearing at leading accounting conferences” (Dumay et al.,
2016, p. 166). However, there are still many critical issues to solve which claim for (and
should open paths to) many areas for further research (Dumay et al., 2016; De Villiers et al.,
2014; Cheng et al., 2014; Adams, 2015) because IR is currently in an experimental phase and
approaches to it lack homogeneity (KPMG, 2013b).
In this regard, a recent meta-analysis performed by Dumay et al. (2016), based on a
structured critical review, proposes a critical evaluation of how IR research has been
developing until now and points out several interesting ongoing concerns relative to IR
approaches, the role of Academics, practitioners and consultants, the IR frameworks and
models, the research methods criterion, the focus of IR literature, the country of research and
the organisational focus. In particular, the authors found that most published IR research
presents normative arguments for IR, while there is minimal research examining IR practice.
As they highlight “even if there is a growing trend for examining <IR> empirically, the
normative approach prevails overall” (Dumay et al., 2016, p. 174). Moreover, articles are
mainly written by academics and “only a limited number are co-written by academics and
practitioners who contribute little to the IR research debate” (Dumay et al., 2016, p. 175).
Among the current research strand which addresses the “why” (the rationale) of IR,
attention has been devoted to examining the determinants that affect the decision to issue an
IR by using institutional and stakeholder theories.
On the one hand, institutional theory focuses on the influence of political, social and
economic systems on company behaviour. At the organisational level, three types of
institutionalisation mechanisms – coercive, normative and mimetic – have been identified
(DiMaggio and Powell, 1983; Larrinaga-Gonzalez, 2007; Larrinaga-Gonzalez and
Bebbington, 2001; Larrinaga-Gonzalez et al., 2001). The existence of regulation affecting the
issuing of IRs in South Africa – where integrated reports have been mandatory for
companies listed on the Johannesburg Stock exchange since 2010 – is an example of a
coercive mechanism, while normative mechanisms are based on non-imposed values and
norms. In the case of mimetic mechanisms, companies imitate fellow companies that they
perceive to be successful (Vaz et al., 2016, p. 579).
Using institutional theory, Jensen and Berg (2012) empirically analyse the external and
internal determinants that explain the decision to implement an IR. They found that
companies in market-based economies are more likely to produce IRs because of higher Implementation
stakeholder pressure and a positive association between IR and economic development. of integrating
The same theoretical framework was applied by Frìas-Aceituno et al. (2013) to 750 non-
financial companies in 20 countries. They noted that companies located in Civil law
reporting
countries with strong law enforcement mechanisms were more interested in disclosing IRs.
Vaz et al. (2016) empirically demonstrate that the choice to implement the IR must be
explained through determinants (or drivers) at a country-level (i.e. political systems and
legal enforcement mechanisms; economic development; and cultural characteristics) and at a 509
company-level (i.e. size, profitability or industry). They found that companies adopting IRs
were more frequent in countries with a “comply or explain” IR regulation and operating in
less individualistic countries (with a higher collectivism dimension). Moreover, they found
that both coercive and normative institutional mechanisms exert pressure to present IRs.
On the other hand, stakeholder theory (Freeman, 1984) has been used to analyse value
creation at a firm level (Haller and van Staden, 2014; Dumitru et al., 2015). Stakeholder
theory addresses the expectations of specific groups within society and considers the effect
of stakeholders’ expectations on informative disclosure (Gray et al., 1996). Drawing from this
theoretical framework, Frìas-Aceituno et al. (2013) analysed the impact of board
characteristics on IR and concluded that size and gender diversity are positively correlated
with IR. Moreover, they found that large companies with high growth opportunities produce
more IRs. Profitable companies are more likely to produce an IR (Frìas-Aceituno et al., 2013,
2014), while companies with monopolistic power are less likely to publish integrated reports
to preserve their abnormal profits (Frìas-Aceituno et al., 2014, p. 68). Accordingly, Garcìa-
Sànchez et al. (2013) analysed other internal determinants (such as company size) and
reported that larger, more profitable and lower growth opportunity companies are more
likely to present IRs. They discovered a significant association between IR and assured
sustainability report, company size and industry supplemental reports.
Whilst studies on the reasons behind IR have provided some interesting insights,
research on “how” the early adopters of IR are managing this new approach to corporate
reporting is still less developed, as pointed out by Dumay et al. (2016), De Villiers et al.
(2014), James (2013b), Kolk (2010) and Havlováa (2015).
Among the pioneering contributions, one can mention the work of Stubbs and Higgins
(2014) who empirically investigated through a qualitative-based approach, the internal
mechanisms employed by early adopters of IR in Australia to manage their reporting
process. The exploratory study (based on 23 people across 15 organisations) was aimed at
understanding whether IR is stimulating innovative disclosure mechanisms. Findings
revealed that IR was in an embryonic stage and companies were grappling with how best to
implement IR. Moreover, drawing from Laughlin’s (1991) model of organisational change,
they found that while the ones that were producing some form of integrated report were
changing their processes and structures, or at least talking about it, the adoption of IR did
not necessarily stimulate innovations in disclosure mechanisms. In other words, it did not
uncover radical, transformative change to reporting processes, but rather incremental
changes to processes and structures that previously supported sustainability reporting.
These findings mirror a critical issue relative to the relationship between IR and
sustainability reporting and their respective “capability” to drive changes and lead
companies towards sustainability. In this regard, the interpretative positions are divergent.
Adams and Frost (2008) and Adams and McNicholas (2007) found that sustainability
reporting can be a catalyst for change. In contrast, Frostenson et al. (2012) state that IR is
used as an explicit tool to drive change, as in setting the internal and external expectations
to produce an integrated report, the business strategy is revisited in light of negotiating the
MEDAR integrated “story”. Accordingly, Higgins et al. (2014) highlight that, in contrast to
25,4 sustainability reporting, IR is oriented towards the future and seeks to capture
interconnections between the financial and non-financial drivers of performance, thus
representing a fundamental shift in how managers think about strategy and value creation –
and also what and how they communicate with stakeholders. In addition, they remark that,
as IR is not yet institutionalised, professional and business associations are particularly
510 influential because they span organisations and industries bringing together like-minded
managers who develop a shared experience that shapes norms about how others in similar
situations think and act. In this regard, they point out the IIRC role in bringing together an
influential group of business organisations, regulators, standard setting bodies, and other
entities that are collectively shaping the cognitive base for IR (Rowbottom and Locke, 2013;
Collins et al., 2007; Greenwood et al., 2002).
However, IR has been strongly criticised for several reasons. First, it is criticised for its
focus on financial capital providers to the detriment of the information demands and needs
of other key stakeholders (Cheng et al., 2014; Frìas-Aceituno et al., 2014). Second, it has been
noted that companies have to face many difficulties in “following” the Framework and
adopting certain key concepts, such as the “capitals” or “integrated thinking”. In this regard,
Cheng et al. (2014) observe that it is hard for many organisations to explain some of their
capitals beyond insubstantial narratives. More recently, Dumay and Dai (2016) empirically
verify that integrated thinking clashes with the existing organisational culture rather than
driving a new organisational culture. Finally, questions have been raised on the assurance
aspects of IR (Burritt, 2012; Cheng et al., 2014) and on whether the IIRC Framework provides
suitable criteria and appropriate subject matter for reports to be assured. Accordingly, the
authors wonder whether the “mass implementation of integrated reporting is likely to
eventuate” (Burritt, 2012, p. 391).
In summary, several questions have yet to be answered and the debate is only at a
preliminary stage. The rapid development of IR policy, and early developments of practice,
present theoretical and empirical challenges because of the different ways in which IR is
understood and enacted within institutions (Owen, 2013). At the same time, the debate
represents a fertile ground for future academic research. Taking into consideration the
current issues and perspectives from the accounting and accountability research into this
rapidly emerging field, De Villiers et al. (2014) proposed a comprehensive agenda and
highlighted many areas where further robust academic research is needed to guide
developments in policy and practice, such as on the concept of materiality, the reconciliation
between sustainability reporting standard and IR, the need to incorporate compliance
methodologies into performance and assurance frameworks and for regulatory bodies to
change their auditing standards (KPMG, 2013a). According to Dumay et al. (2016), the
current IR project is in a stage where there needs to be a debate about the possibility of
harmonisation and “further research should be undertaken into the theoretical and empirical
underpinnings of these to gauge if it is possible to have one meta-integrated reporting
framework” (Dumay et al., 2016, p. 179).

3. An attempt to draft a theoretical framework on integrating reporting in (and

for) small and medium-sized enterprises
Drawing from the previous literature-based section, one can note that it does involve nor
explicitly refer to SMEs. Among the area for research that has been suggested, no explicit
mention has been made to the need to inquire and analyse the opportunities and difficulties
faced by SMEs with regard to IR (De Villiers et al., 2014). Nor has mention been made to both
the opportunity and need to provide specific adjustments to the IR framework to facilitate Implementation
the IR implementation in the context of SMEs. of integrating
If literature on IR is taking over initials steps, with reference to SMEs, it is still in an
infant or start-up stage. There is in fact a scarce literature on this topic and empirical
reporting
research is only now beginning. Dumay et al. (2016) observe that IR research is emerging
from the first stage, focused on creating a discourse and triggering engagement on the topic.
Coherently, they make a clear call for more research that critiques IR’s rhetoric and practice.
At the same time, it is equally clear that research on IR in SMEs is lacking. In fact, Dumay 511
et al.’s analysis of IR articles with regard to the criterion “organisational focus” (consisting of
six attributes: publicly listed, private-SMEs, private-others, public sector, not-for-profit and
general) revealed that of 56 published papers, none addressed private-SMEs.
This scarcity can be first attributable to the fact that only in the last years have SMEs
started to approach the IR. In this regard, recently, a first best practice relative to an Italian
SME (Dellas Spa) – that implemented the IR process and adopted the integrated report – has
been diffused, having a specific chapter in Eccles and Krzus (2015b) book dedicated to it
(Chapter 3). It should be noted that this company (such as Costa Edutainment, whose
experience is presented in the following sections) belongs to the pilot group of Italian
companies involved in the NIBR working group.
Second, the gap could be due to the absence of guidelines “able to speak to” SMEs, which
are easily adoptable by their consultants (particularly by chartered accountants) who still
encounter difficulties in operationalising the IR principles. SMEs’ specificities are mainly
related to the different governance (often family-based) and organisational structures
(usually simplified and not formalised), the strategic approach (the logic of the strategic
management process is usually incremental-based and process-driven and does not follow
an object-driven logic, nor is it formalised) and the limited provision of managerial and
financial resources, which mirrors a weak culture of management control and reporting
(Marchini, 2005; Giovannoni and Maraghini, 2013; Gnan et al., 2015). These features drive
the hypothesis that, in the context of SMEs, the IR approach needs to be consistent with the
entrepreneur’s attitudes and purposes, the entrepreneurial culture, the limited financial and
managerial resources as well as the company’s local operating environment and rootedness.
This hypothesis is partially confirmed by the fact that IIRC and other international
organisations (such as IFAC and GRI, as mentioned in the previous section) are interested in
releasing specific frameworks/guidelines addressed to SMEs.
Only recently have a few pioneering contributions provided first insights into the
opportunities that arise for small and mid-size entities considering an IR approach (James,
2013a, 2013b; Eccles and Krzus, 2015a, 2015b) and the difficulties to overcome. These
studies have mainly pointed out the possible benefits SMEs can acquire, while less attention
has been devoted to the factors that hinder the implementation of IR or render it difficult
(Del Baldo, 2015).
Stressing that IR principles are applicable regardless of size (being the framework
principles-based) James (2013a) point out that IR cannot only be considered an opportunity
for giant entities (such as Microsoft or Volkswagen). Although primarily aimed at investors,
it is beneficial to other categories of stakeholders (employees, customer and local
community) who are significantly affected by the SMEs’ activities and can positively
influence SME’s success in the long run because IR improves the strategic decision-making
process and the risk management; enhances brand value and reputation, as well as
employee loyalty and trust from funders; and favours a lower cost of capital (James, 2013b).
Moreover, SMEs are likely to have a greater degree of integrated thinking than their
large counterparts (James, 2013a). Their distinctive attributes (i.e. dynamicity and flexibility,
MEDAR creativity and a low organisational complexity) can render the application of IR principles,
25,4 such as connectivity, easier than in large companies. Likewise, the integrated thinking
principle, rather than being considered “too remote” from SMEs, can be considered
intrinsically linked to SMEs’ strategic management process, which merges the strategic and
operational perspectives and involves a strict connection among input, outputs and
outcomes. The problem, however, rests on its formalisation that requires specific
512 managerial, financial and technological/informative resources (Del Baldo, 2015, 2017). For
instance, the prevailing informal approach may hinder the capability to render the
integrated thinking explicit, as it often remains “imprisoned” in the mind of the entrepreneur
in the absence of formalised tools, procedures and management control systems. In many
cases, the entrepreneur’s background is not robust enough to understand and adopt the
whole philosophy starting from the integrated thinking principle.
In this regard, the NIBR working group involved in releasing the IR Guidelines for SMEs
points out the need “to unmask” this process (NIBR, 2016b). Notably, it marks some key
aspects for the IR journey feasibility:
 the need to understand how entrepreneurs can be sensitised and supported in this
journey;
 the need to stress the benefits SMEs could obtain through implementing the IR; and
 the need to understand what are the best channels to communicate with
entrepreneurs.

Accordingly, the entrepreneur must first identify the relevant issues and stakeholders and
subsequently involve a leading group in the process with the aim to formulate and perform
an action plan, involving the decision-makers who, in turn, manage the allocation of
corporate resources (Figure 1).
With reference to the key motivations for implementing the IR in SMEs, a survey of
pioneers who decided to embark on the IR journey, initially drafting a social balance or/and
a sustainability report, demonstrates that a main motive was to overcome the limits of
financial reporting in fully explaining and communicating the SME’s values and the links
among the strategy, performance and business objectives (Eccles and Krzus, 2015a, 2015b,
pp. 87-112).
Taking into consideration that SMEs typically adopt a strategic approach that is
incremental-based driven, one can hypothesis that SMEs can gradually implement the IR to

Figure 1.
Integrated reporting
journey
move away from the outside-in approach, such as the GRI (Schaltegger, 2012) to an inside- Implementation
out (strategy led) or the twin approach (Higgins et al., 2014). The adoption of IR should thus of integrating
be conceived as a transitional, rather than radical, initiative involving the “transformation”
of other forms of reporting (Del Baldo, 2015). In a medium and long-term perspective, this
reporting
step-by-step path can trigger the evolution of the SMEs’ entrepreneurial and managerial
culture (Adams and Frost, 2008; Adams and McNicholas, 2007). However, there is a need to
clearly define the IR relationship with sustainability reporting (Frìas-Aceituno et al., 2014),
as well as to better understand how IR principles can be simplified and rendered more 513
suitable to SMEs. These considerations are partly confirmed by the following analysis
relative to the experiences of Costa Edutainment Spa whose approach to the IR’s journey is
presented and discussed in the following Sections 4 and 5, after the description of the
methodological approach.

4. Methodology
As mentioned, the aim of the empirical study is to provide insights on the most critical
aspects faced by SMEs in implementing and adapting the IR to their features, as
summarised by the following research questions:
RQ1. Are the IR guidelines effective for SMEs?

RQ2. “How should the guidelines be simplified, shortened and “operationalised” to be

user-friendly for SMEs?”
In this respect, the analysis will be particularly focused on the following: the principle of
connectivity (RQ2a: How should the principle of connectivity be adapted?); the principle of
materiality (RQ2b: How should the principles of materiality be revised to reduce the
complexity of the materiality determination process?); and on the principle of integrated
thinking (RQ2c: Is the integrated thinking “too far” from SMEs or rather is it intrinsically
connected to their strategic management process?).
To investigate these aspects, the empirical study has been performed using a qualitative
approach and a case-study method (Eisenhardt, 1989; Eisenhardt and Graebner, 2007;
Patton, 2002; Naumes and Naumes, 2006). The case-study approach allows to undertake an
in-depth investigation of a phenomenon in its real-life context and answer “how” or “why”
questions about contemporary events (Yin, 2009) and offers the possibility to understand
management accounting in practice (Scapens, 1990; Dumay et al., 2016).
The case is relative to Costa Edutainment Spa. The company has been selected being the
smallest one included among the three pilot Italian SMEs that, within the NIRB working
group, has started the IR implementation and released its first integrated report in 2014.
Costa has 106 employees and a turnover of e25 million (2014) and belongs to the category of
medium-sized company[4].
Within the emerging research field on IR, attention has been focused on the need to
investigate through in-depth qualitative analysis (adopting semi-structured interviews
within organisations in varying stages of implementing IR) of the internal mechanisms
employed by early adopters of IR to explore how they are managing their reporting process
(Stubbs and Higgins, 2014; Havlováa, 2015). In this regard, the case method constitutes a
valuable instrument for utilising the results to attain cognitive aims and normative
substance, indicating best practices and suggesting criteria for further action (Craig, 2003).
The study of this explorative case follows the action research approach which is
considered particularly useful to improve knowledge in the field of social and environmental
accounting research (Spence and Gray, 2008; Bebbington et al., 2009; Contrafatto, 2011;
MEDAR Brown and Dillard, 2014; Correa and Larrinaga, 2015)[5] by addressing attention to
25,4 corporate characteristics (size, industry, profit or financial performance), contextual factors
(i.e. country of origin) and internal organisational factors (i.e. company chair and board of
directors’ orientation and stakeholder involvement) which influence managers’ decisions to
adopt sustainability strategies and reporting (Adams, 2002). The action researcher does not
stand as an independent observer; being part of the NIBR working group he/she becomes a
514 participant. Accordingly, the process of change becomes the object of research (Benbasat
et al., 1987). This circumstance is particularly useful in the construction of theory in complex
situations (Westbrook, 1995) such us the business contexts (Argyris, 1985; Sankaran and
Sing, 2002; Sankaran and Tay, 2003) and the organisational change (Kotnour, 2001).
To examine the phenomenon in the context in which it occurs (Crane, 1999; Brown and
Dillard, 2014), the exploratory research study adopted an interpretive mode of inquiry based
on qualitative data. The study directly engaged with “insiders”: the three pilot companies –
including Costa Edutainment Spa – and the members of the NIBR working group –
represented by scholars and practitioners, such as IIRC representatives, chartered
accountants, banks officers, consultants, representative of business associations, managers
and entrepreneurs – respectively involved in issuing the integrated report and drafting the
Guidance for the implementation of IR in SMEs. Accordingly, we used in-depth, semi-
structured interviews addressed to company’s interlocutors involved in the IR process as
well as informal discussions and conversations performed during focus groups, meetings,
round tables and technical workshops. The interviews were supplemented with reports
issued by the NIBR working group and data drawn from the company websites, to help
understand how the selected company was (and is) managing the IR process. All interviews
were recorded, transcribed and validated.
In particular, the analysis was developed across a multi-year period, beginning in 2013
and continuing today. Information was acquired through different methods and sources to
grasp data: three in-depth, semi-structured interviews addressed to the Costa Edutainment
corporate and social responsibility (CSR) Officer, the President and the external consultants
(a content analysis of the interviews was undertaken using qualitative coding techniques),
preceded by an e-mail questionnaires (two were face-to-face, and one was performed by
telephone; each interview lasted about one hour); several informal conversations with the
members belonging to the NIBR working group, direct observation during the round tables,
multi-stakeholders forums, workshops and NIBR general meetings (in total ten meetings,
each lasting half a day); and on the analysis of documentary sources (IIRC and NIBR
documents and drafts, corporate reports, and other relevant information and releases posted
on the company website, the NIBR and the IIRC internet sites). In addition, participant
observation – typical of the action research approach (Adams and McNicholas, 2007) – has
been used, involving the Costa’s management and entrepreneurial team and the NIBR
working group in the technical meetings and seminars aimed at investigating and
discussing the factors that impact the development of the IR process and the implementation
of the integrated report within SMEs. Triangulating data sources enhances trustworthiness
(Lincoln and Guba, 1985) and contextualises the data (Yin, 2009; Van Bommel, 2014).
The analytical approach based on narrative analysis and on qualitative data collection
draws on an interpretivist approach (Crane, 1999; Currie et al., 2009; Fraser, 2004) which is
considered appropriate for studying evolving organisational practices (Higgins et al., 2014)
and new reporting practice (Stubbs and Higgins, 2014). Notably, this approach was used to
understand:
 the conditions under which Costa Edutainment’s engagement with IR was enacted
and evolved during the years (the Costa’s IR “journey”);
  the drivers and challenges emerging from this process; Implementation
 the difficulties encountered in producing the integrated report and adopting the IR of integrating
framework and the ways used to face them; and reporting
 the benefits and the future perspectives.

After introducing the company, the following section describes and discusses the main
findings drawn from the analysis. 515
5. Costa Edutainment Spa’s journey towards integrated reporting
5.1. Brief company profile
Costa Edutainment Spa is the Italian leader in the management of public and private
structures (12 main parks and facilities at national and international level, including Genoa
Aquarium, the largest aquarium in Europe and the Mediterranean Marine Park in Malta)
dedicated to recreational, cultural, educational activities, study and scientific research. By 31
October 2014, it had 106 employees, a turnover of about e25 million[6] and more than 2.5
million visitors.
Edutainment is a fusion of education and entertainment and sums up the company’s
mission: to respond to the growing demand in the qualitative use of free time by blending
culture, education, events, emotion and fun into a meaningful experience. The
entrepreneurial spirit (triggered by the founder and current President), the strong
educational mission and the close ties to the territory render Costa Edutainment a unique
group in Italy able to guarantee strong local involvement and economic impact in the
operative area. During its growth from 1997 to the present, one of Costa Edutainment’s key
points has been the awareness of the value of CSR.

5.2. Origin and steps of the Costa Edutainment’s integrated reporting journey
The initial idea which lead Costa Edutainment to consider publishing an integrated report,
arose from the need to systematise different corporate actions and results, which had never
previously been accounted for consistently, to manage, interpret and communicate the real
and overall economic, social and environmental value created for all stakeholders in the short,
medium and long term. The chance to be part of the NIBR working group as an SME allowed
the IR project to start in accordance with the IIRC standard (IIRC Framework, 2013d):
The identity of the company which operates primarily in the scientific and cultural sector
followed by the tourism sector, has developed since the beginning on the basis of values of
responsibility towards people, the environment and society. Consequently, the opportunity to take
part as an SME in the experimentation of the new reporting model, namely the IR, within the
NIBR working group gave rise to the project in mid-2013 which resulted in the first Integrated
Report in 2014 (CSR Officer and external relations manager, April, 2016).
As declared by the President in presenting the Costa integrated report, the decision to
implement the IR process should be attributed to the will to clearly position Costa
Edutainment as a company that can integrate the economic, social and environmental
impacts of the activity into its strategy and actions:
Those who know me know I often call myself “a man of numbers”: I have always considered
numbers and measures faithful allies in my entrepreneurship carrier and a fundamental support
to a successful decision making. But there is a part of me, tied to my family roots, which orients
my decisions drawing from different values, and in particular derived from the awareness of the
corporate responsibility towards the community. Is this an impossible object or a contradiction?
Today I can say no. The integrated reporting path, of which this integrated report represents the
MEDAR first tangible result, applies in a systemic way the different aspects of our business life that up to
now were not very interconnected, within a strategic framework concerned with creating a
25,4 balanced value (economic, social and environmental value) in the short, medium and long term.
The balanced value is as a necessity and not simply the result of the entrepreneurial will or his
personal choice (Chairman and Chief Executive Officer [CEO], Costa Edutainment, 2014, p. 5).
Costa Edutainment introduced the integrated report in 2014 in accordance with the IIRC
516 standard (IIRC Framework, 2013d) with the support of an external consultant agency (Mixura)
that took part to same NIBR working group and experimented it as an innovative process
which is still under development accordingly to the new industrial 2015-2020 plan. The 2014
integrated report is evidence of Costa Edutainment’s first IR approach and represents a
starting point of an evolving path aimed to enhancing disclosure and increasing the sharing of
strategic issues with its stakeholders. Starting from more than a year before issuing the
integrated report, the journey was based on three steps: “preparing the journey”, “making the
journey” and “talking about the journey”. Such fundamental steps led the company to reflect
on the business model, create an ad hoc mixed working group (made up of the owners, the CRS
officer, internal key manager and external consultants) and prepare the action plan (Figure 2).
The roadmap to reach the IR has been structured around three pillars:
(1) Materiality Analysis: the definition of the areas where the organisation can create
more value and, at the same time, can potentially risk the greatest value loss.
(2) Value Creation: the way in which the organisation uses its capital (input) to create
value (outcomes) for stakeholders.
(3) Impact Evaluation: the measurement of relevant indicators and definition of the
objectives to be achieved to ensure the value creation.

5.2 Implementing the integrated reporting: operationalising connectivity, integrated

thinking and materiality principles
In Costa Edutainment, the principle of connectivity has been referred to the four main
dimensions of the business model: input capital/resources; organisational processes;
stakeholders; and output capital (results) (Figure 3).

Tell the journey

Prepare the journey Make the journey

“MATERIALITY ANALYSIS” “IMPACT EVALUATION” “VALUE CREATION”

STEP:
• Definition of
relevant/material issues
Identification of
internal/external
stakeholders
• Stakeholder Engagement
on material/relevant
issues
OUTPUT:
• Materiality matrix set up
• Map of relevant issues
for stakeholders
Figure 2.
Costa Edutainment’s
road map
Source: NIBR (2016b, p. 54)
STEP:
KPI’s Measuremnt (dashboard)
Assessment of the objectives
achievement and set-up of
subsequent goals (future
perspectives)
Integrated performance rewarding
OUTPUT:
Implementation of Integrated Report
STEP:
Prioritization of the 6 capital for the
company
Crossing relevant t/capitals
Identification of risks/opportunities for
each relevant issue /topic
Action plan
Choice of financial and non financial
KPI’s for each relevant issue/topic
OUTPUT:
Building of the integrated dashboard
 OUTPUT CAPITAL (RESULTS)
Implementation
of integrating
reporting
STAKEHOLDER

517
ORGANISATIONAL PROCESS

INPUT CAPITAL (RESOURCES)

Figure 3.
Source: Costa Edutainment Costa Edutainment’s
business dimensions
Integrated Report (2014, p. 10)

To clearly express the fundamental strategic direction of the company, a strategic map has
been inspired by the balanced scorecard model (Kaplan and Norton, 1996), integrated with
the stakeholder-oriented approach and the six capitals model proposed by the IIRC
Framework. Accordingly, the strategic map (Table I) is made up of four interconnected
dimensions which articulate the principle of integrated thinking applied to the company’s:
input; objectives and organisational processes; the stakeholders; and the performance.
The map presents a medium to long-term vision of corporate strategy (2014-2016) and
the annual and mid-term objectives co-defined by the managers responsible for the
company’s functions who have contributed to identifying targets, responsibilities and time
frames. The company’s models of value creation (Figure 4) highlight for each area – briefly
analysed in the section below – the optimal development of those processes (IR, corporate
citizenship, the supply chain, energy efficiency and so on) through which the company
transforms resources (divided into six input capitals) into value (output capitals).
To define and monitor the action plan, Costa Edutainment introduced a specific web
technology (QuickScore®), initially created to manage the balanced scorecard accessible
through the browser or appropriate profiling and user licences. The traditional balanced

Dimensions Content

Input The resources available to the company to carry out strategic objectives
(financial, productive, organisational, human, relational, social and natural
resources)
Objectives/organisational Improvement goals related to the processes have been grouped together into
processes four areas of value creation: governance and transparency, relations with
key stakeholders, economic and financial sustainability and environmental
protection
Stakeholders The main users of corporate objectives are not just clients, as in a
traditional perspective, but an extended series of interlocutors
Performance Corporate results referring to capital typologies Table I.
The strategic map of
Source: Costa Edutainment Integrated Report (2014, p. 37) Costa Edutainment
MEDAR Input Capitals Areas of value creation and macro objectives Output Capitals
25,4 Organizational Capital
Economic and Financial Capital
Governance and transparency
Releasing the integrated reporting
Organizational Capital
Economic and Financial Capital
Human Capital Developing the integrated management Human Capital
system

Relational and Social Capital

Economic and Financial Capital Relations with the key stakeholders
518 Human Capital Improvement of customers’ relationship
Commitment to corporate citizenship
Relational and Social Capital
Economic and Financial Capital
Human Capital
Improvement of the working environment

Economic and financial sustainability

Organizational Capital Recovey of financial resources Organizational Capital
Human Capital Supply chain optimization increase in Human Capital
revenues for diversification offered

Figure 4. Natural Capital

Economic and Financial Capital
Environmental Protection
Energy efficiency
Natural Capital
Economic and Financial Capital
The model of value Human Capital Scientific research Human Capital
Promotion of bioethics
creations and
connections with
capitals
Source: Costa Edutainment Integrated Report (2014, p. 38)

scorecard dimensions have been reconsidered to bring them closer to IIRC requirements in
relation to the value creation for six capitals and the principle of the connectivity:
 Governance and transparency: the company is aware that the consolidation of a
clear positioning, as responsible company necessarily requires a strengthening of
disclosure processes towards stakeholders to be performed through a gradual
evolution of the company culture. In particular, the definition and monitoring of
economic, financial, social and environmental objectives presuppose the growth of
the business reporting ability to stimulate information, sharing and collaboration.
 Relations with the key stakeholders: the valuing of relations with clients,
collaborators and local institutions is an integral part of the history of values of the
Costa family and its company. Currently, the relational system with key
stakeholders is not yet homogenous. Whilst the centrality of the client and local
institutions is in fact clear, the relationship with employees could be further
improved (e.g. through increasing individual motivation, talent and team work), as
well as relationships with customers (i.e. improving co-planned demand). Finally,
Costa intends to consolidate relations with institutions to share its value with the
local territory.
 Economic and financial sustainability: Costa Edutainment is committed to improving
its profitability both through the optimisation of existing processes (i.e. the
redefinition of outsourcing contracts) and development of new sources of revenue.
The Industrial Plan (2015-2017) is oriented to monitoring rating models proposed by
ethical finance, attentive to valuing commitment and social and environmental
performance.
 Environmental Protection: the company has been continuously improving
environmental protection (through the minimisation of the structures’ product
impact on the environment and the promotion of bioethical standards for sheltered
 animals) and indirect protection (awareness-raising and environmental education Implementation
address to public). of integrating
A summary of the main KPIs which have been identified, assessed and monitored is reporting
presented below (Table II).
Finally, with reference to the principle of materiality, the IR process based on the
involvement of first-level managers has contributed to identifying 14 macro-categories of
stakeholders[7], of which three are of particular relevance. Namely, Costa Edutainment has 519
strengthened the processes of listening and dialogue with the following:
 employees, collaborators and external personnel that carry out services within the
structures;
 clients (especially schools, addressing specific didactic projects, often co-planned
with the teachers); and
 local public authorities that are among the main actors of territorial governance.

The company has been consolidating the stakeholder mapping process inspired by the AA
1000 SES international standard and materiality matrix to meet the needs of stakeholders
with company priorities and establish future processes of listening and involvement.
In the following section, the main aspects relative to the IR implementation and the
operationalisation of IIRC principles will be analysed.

6. Discussion
This section discusses the main challenges in the application of IR principles in Costa
Edutainment and the main critical issues and perceived benefits.
First, a relevant challenge in the initial phase of IR is attributable to the weakness of the
“culture of non-financial information”, such as transparency and the clarity about governance
information, data collection or comparability between different “silos” (Dumay and Dai, 2016).
These deficiencies, as well as the reworking of data, have sometimes unexpectedly held up and

Capitals KPIs

Financial capital The savings rate from service optimisation outsourcing, turnover, profits, cash flow,
average turnover per employee, average cost per employee, distribution of added
value
Productive capital Completion of cetacean stand, new exhibits, restoration of National Antartic Museum
Organisational Web platform for integrated reporting, Reorganisation of aquarium sector,
capital establishment 2014-2018 Industrial Plan, corporate management system
Human capital Number and type of tables for collaborative processes: total hours of training, average
hours of training, percentage of employees that have done training courses, turnover,
total number of employees, average age, schooling, number of women, number of
work accidents, seniority, application of second-level contract
Relational/social Euro number of projects sustained for cultural and social purposes, activity
capital “Aquarium friends”, Customer Satisfaction Index, feedback from social network,
complaints management; press office, educational efficacy, results of school project,
presence in national and foreign trade fairs, percentage of visitors to the structures
Natural capital Number and type of scientific research project, energy consumption (water, electricity
Table II.
and gas), biodiversity, bioethics Costa Edutainment’s
KPIs and results on
Source: Costa Edutainment Integrated Report (2014, p. 40) the capitals
MEDAR slowed down the reporting process which had to face the resistances derived from the
25,4 dominant culture. In the first stage, such a culture has not been able to fully understand the IR
framework guidelines which have not been easily “digested”. This situation is typical of the
majority of SMEs that are generally affected by a weak culture of accountability and a lack of
management and performance control systems (Silvi and Bertolini, 2011). This typical
characteristic of SMEs which renders the evolution towards more sophisticated forms of
520 reporting – such as multidimensional reporting – difficult, appears in contrast with the findings
of Vaz et al.’s study (2016) which demonstrates that the company size is not significant and
does not hinder the implementation of the IR.
However, in Costa Edutainment, the difficulty has been overcome owing to the following:
 the strong and authentic commitment of the board (Adams and McNicholas, 2007;
Cormier et al., 2004; Maharaj and Herremans, 2008);
 the creation of a coordination manager (CSR Manager) responsible for dealing with
critical aspects concerning both the operative and relational profiles of
sustainability and internal/external corporate responsibility;
 the use of external consultancy; and
 the direct involvement in the NIBR working group as a pilot company:

A strange phenomenon has occurred which has slowed down the publication of the report: once
the first drafts were out there was a belated “rush to be there” on the part of various managers
who seized the potential of the product – the integrated report – having only seeing it (I. Cristina,
Mixura Srl and S. Bondanza, CSR Officer, April 2016).
Notably, the entrepreneurial and family-based governance tied to a system of shared values
(as mentioned by the Costa’s President) and the commitment towards responsible and
sustainable strategies based on stakeholder engagement (particularly addressed to the
employees and the local community) have facilitated the implementation of IR. In this regard,
the stakeholder theory perspective contributes to explaining the choice to start the IR journey
(Haller and van Staden, 2014; Dumitru et al., 2015; Frìas-Aceituno et al., 2013, 2014). At the
same time, one can identify institutional normative mechanism (DiMaggio and Powell, 1983;
Larrinaga-Gonzalez, 2007; Vaz et al., 2016; Frìas-Aceituno et al., 2013), based on non-imposed
values and norms (such us the family values and the rootedness to the local community) that
affected the decision to implement IR. In contrast, other institutional mechanisms (namely,
coercive and mimetic mechanisms) do not help in interpreting the “why” of IR. This is
because the decision was issued autonomously when Costa Edutainment was not merged
with Costa Park (which, in turn, belongs to the large Costa Group) that had not yet adopted
the integrated report, nor was there a legal obligation for companies in the same sector to
adopt integrated forms of reporting. In Italy, the Directive 2014/95/EU on non-financial and
diversity information was introduced through the Decree n. 254 on 30 December 2016 and
will be applied to public entities and large groups (with more than 500 employees and over
e40 million of total assets or e20 million of turnover) in 2017.
Second, an obstacle encountered in the first phase of implementing the principles of
integrated thinking and connectivity has been the difficulty to identify a supportive
information system to identify, monitor and account for the value drivers. In addition, Costa
Edutainment faced difficulties in clearly defining the areas where the company can create
more value and where it risks greater loss of value. To develop this analysis, it was essential
to engage internal and external stakeholders in identifying relevant objectives and
significant impact and build a materiality matrix through graphic synthesis:
 The idea that ‘if you don’t think integrated you can’t report integrated’ is something we Implementation
completely agree with: we believe that IT has been the result of IR, but it is a remarkably
facilitating element the year after (I. Cristina, Mixura Srl & S. Bondanza, CSR Officer, April 2016). of integrating
reporting
Third, to operationalise the IR principles (such as materiality) and to adapt the IIRC
framework to its specific context, Costa has adopted a gradual process, by developing IR
over the course of several years. The first year was necessary for establishing information
technology tools. The road map traced the main stages of the evolving process because it 521
was not possible otherwise, in terms of resources and time, to introduce an integrated
decision-making process and align in the short time the materiality process with the
business strategy (Stubbs and Higgins, 2014). Such a gradual process allowed the company
to carry out the materiality analysis and include it in the report. The following relevant
issues were raised by Costa:
 setting up an efficient work group involving also external practitioners; and
 integrating the materiality analysis envisaged by the GRI guidelines (GRI, 2013,
2014) with the application of the connectivity principle and integrated thinking:

To reach the formulation of a materiality matrix, we started the first year with stakeholder
mapping (2014), then moved on to the definition of relevant issues according to the internal
managerial perspective (2015). The 2016 programme envisages stakeholder engagement aimed at
forming a Matrix (I. Cristina, Mixura Srl & S. Bondanza, CSR Officer, April 2016).
The materiality analysis was the outcome of an internal and external collaborative process.
The working group involved an internal project manager (CSR Manager) and first-level
managers (the Chief financial officer, the marketing and human resources managers, the
internal audit staff manager and the Scientific Director), as well as an external consultant
(Mixura Srl) belonging to the Italian Network (NIBR) working group committed to releasing
the IR Guidelines for SMEs. In this regard, both the importance of setting up a cross-
functional team (Adams and McNicholas, 2007; Stubbs and Higgins, 2014) extended to
external partners and the adoption of specific software solutions emerge as significant
issues. Incremental changes were observed in the broadening of people involved in the
process through cross-functional teams to move away from siloed thinking and structures.
The IR process can thus be interpreted as a combination of a “push” strategy, used to
explicitly drive change in the organisation and a “pull” logic (Stubbs and Higgins, 2014), as
it represents the result of a business characterised by a “genetic” orientation towards
economic, social, environmental and ethical performance.
Among the perceived weaknesses and strengths in its journey towards the integrated
report, Table III summarises the main criticalities, discussed and shared with the companies
and the other members of the NIBR working group, faced in implementing the IIRC
Framework, in comparison with perceived obstacles encountered by large-sized companies.
A further relevant aspect drawn from the study is tied to the analysis of the benefits and
obstacles perceived by the company internal working group and shared with the members
of the NIBR working group (included the other pilot SMEs) during the drafting process of
the IR Guidelines for SMEs (Table IV).
Specifically, the analysis of the benefit derived from the implementation of the IR process
in Costa Edutainment raised both internal and external benefits. The internal benefits
include an assessment of intangibles (Lev, 2001, 2004; Goodridge et al., 2014; WICI, 2014;
Zambon and Guenther, 2011) that would otherwise remain hidden (i.e. specific technical and
organisational skills, product quality, excellent relations with clients, employees, suppliers
and the local community). They also include a strengthening in the cohesion of the company
MEDAR culture owing to a stratification at all organisational levels of a clear knowledge of the
25,4 company, its strategies and results, previously communicated in a fragmented way or not
totally communicated (internal and external disclosure).
The following feedback has emerged from the interviews:
 the IR journey contributes to improving the internal decision-making process,
develops the capacity for strategic sharing with collaborators (internal engagement);
522
(Medium-sized companies)
Guiding Principles Costa Edutainment Large-sized companies

Completeness and No/Yes Yes

Reliability Yes Yes
Consistency Yes Yes
Clearnessa and comparability Yes Yes
Strategic focus and future orientation Yes Yes
Table III. Connectivity of Information No Yes
Easiness (yes) and Stakeholders relationships Yes Yes
Materiality No/Yes Yes
difficulty (no) in
Conciseness Yes Yes
applying IR
fundamental Note: aThe principle of clearness has been added by the NIBR working group. The IIRC Framework
principles considers jointly consistency and comparability

Internal benefits External benefits

Creation of an accountability culture and corporate
management control which implies the capability to
collect, monitor and analyse different information
Simple, concise and intuitive survey of financial and
non-financial performance
Awareness-raising of how the company creates
values over time
Improved awareness about the quality and quantity
of data
Possibility to highlight operating efficiency with
diverse and more articulated measurement
procedures
Growth of respect, esteem and trust within and for
the company and increase in talent attractiveness
Identification of priorities of intervention
Possibility of implementing a management by
objectives/projects and monitoring the degree of
progress
Improvement of internal decision-making process
Table IV.
Highlighting of the contribution of immaterial
Assessed and resources to creating distinctive features of the
perceived integrated company
report benefits for an Description of how capitals are allocated, used and
SME transformed and the results of their use
Documentation of the company’s method of creating
short and long-term value
Description of strategies and how they are
implemented
Complete and transparent presentation of the
adopted business model
Presentation of distinctive features, competitiveness,
monitoring capacity and risk management
Presentation of the relationship between
performance and management remuneration policy
Governance and control systems transparency
Expresses evaluation of financial and non-financial
interest areas
Accountability of social and environmental
sustainability aspects
Improvement of image, visibility and corporate
reputation
Highlighting of the contribution of immaterial
resources to creating distinctive features of the
company and to improve competitiveness
Description of how capitals are allocated, used and
transformed and the results of their use
  improves stakeholder engagement; raises awareness about medium- and long-term Implementation
risks; improves relations with banks (owing to the amelioration of creditworthiness); and of integrating
 consolidates the mutual trust between the company and its stakeholders, reporting
strengthens corporate reputation and produces a growth in the visibility of the
management team and entrepreneurial leadership.

Integrated thinking has raised the awareness that Costa can build its future on solid
foundations only if it produces economic, social, ethical and environmental value (James,
523
2013a, 2013b). In other words, the IR process has contributed (and contributes) to
transforming corporate processes (Phillips et al., 2011) by breaking down operational and
reporting silos, improving systems and processes (Roberts, 2011) and resource allocation
decision-making (Frìas-Aceituno et al., 2013). Integrated thinking has raised the awareness
that Costa can build its future on solid foundations only if it produces economic, social,
ethical and environmental value:
We have succeeded in creating an orderly and structured value system of some intangibles (in
particular those concerning relational capital) which previously had not been correctly placed
within the values creation model and were seen as corporate choices, sometimes “erratically”
made (I. Cristina, Mixura Srl & S. Bondanza, CSR Officer, April 2016).
The main external benefits include an improvement in the company’s visibility in financial,
academic and institutional national and international contexts (Eccles and Armbrester,
2011, Eccles and Krzus, 2010; Hampton, 2012; Watson, 2013), as the integrated report has
become the main communication tool for all stakeholders:
The integrated reporting path has been proven as an effective tool able to concretely contribute to
the development of the whole organization and in particular to the growth in the awareness of
each individual contribution to the construction of an “enlarged” management control system
(Costa Edutainment integrated report, 2014, p. 7).
The overall picture that emerges from the narratives and the judgments of the interlocutors
seems thus extremely positive, although the stages of the process are not over. The company
is aware of being “only halfway through its journey”. The short-term future objectives
include in fact the formation of a materiality matrix in line with IR and (partially) GRI
principles focused on fewer strategic issues (Stubbs and Higgins, 2014). Long-term primary
goals mark two areas of improvement:
(1) Integrated thinking must permeate the overall company culture and decision-making.
(2) Key performance indicators must increasingly represent value creation for the six
capitals.

In conclusion, the pioneering company Costa Edutainment performed a highly satisfying

experience in terms of process undertaken, thus providing a positive response to the basic
issue regarding the possibility to implement the IR in SMEs (James, 2013a, 2013b). In the
meantime, it does not conceal the fact that there are many difficulties that can be solved only
through an ongoing process, which is necessary to develop a gradual growth of the
corporate culture, constantly sustained by the company heads and both internal and
external qualified practitioners (Stubbs and Higgins, 2014).

7. Final remarks and conclusion

The paper addresses IR implementation and diffusion within SMEs. Among the emerging
literature focused on IR, both theoretical arguments and empirical research related to SMEs
MEDAR are almost entirely absent. This study provides insights into the most critical aspects faced
25,4 in operationalising IR in SMEs by way of an action-research case study of an SME that is
part of the Italian companies included in a working group (NIBR) aimed at producing
Guidance to support SMEs in adopting IR.
Starting from the awareness that SMEs constitute to the backbone of the socio-economic
fabric around the world, the “usability” of the IIRC Framework for SMEs has been
524 addressed (RQ1). To date, there are no international IR guidelines for SMEs. In this respect,
the practical tool Guidelines for implement the IR in SMEs issued by the NIBR helps to fill
this gap, supporting IR in SMEs by disseminating knowledge. Indeed, the IR framework
must be “tailored” to SMEs, in terms of a “process-driven” and incremental-based logic
(Marchini, 2005). The early adopters (such as Costa Edutainment) exhibit a holistic approach
and significant engagement between internal and external stakeholders, but the lack of
standards for SMEs may be inhibiting the widespread adoption of IR. Therefore, the
findings stress the need for producing a simplified IR implementation guide for SMEs. The
study emphasises the need to clearly define the concept of IR and its relationship with
sustainability reporting; understand how the concept of investor changes for SMEs
(investors do not represent the main stakeholder group, while employees, customers and
local community play a key role); and adapt and simplify the main concepts (materiality,
integrated thinking and connectivity) by providing practical examples and suggesting best
practices.
Second, the findings shed light on the benefits for the case company deriving from its
involvement in the working group engaged in drafting the IR Guidance for SMEs. SMEs are
challenged by the tension between entrepreneurial and management control cultures. Basic
steps include the involvement of the entrepreneurial team and the internal staff engagement
process, aimed to gain a common understanding of the reporting process and data/
performance indicators (Adams and McNicholas, 2007) and the creation of cross-functional
teams which act as key mechanism for implementing the IR process (Stubbs and Higgins,
2014). In this respect, the empirical findings stress the importance of creating a specific
working group, developing an adequate information and technology systems, and setting
up external partnerships (such as with the NIBR working group) including consultants,
chartered accountants and business associations. The integrated report represents an
instrument of corporate reporting which involves different and heterogeneous skills and
competences. SMEs practitioners (such as chartered accountants or consultants) play a key
role in explaining the advantages and potential downsides arising from the adoption of IR
(Parker, 2005). In SMEs, professional accountants often fulfil several of the roles and
responsibilities in the reporting process. They usually serve as an integral part of the
entrepreneurial/managerial team, they are familiar with the specific attributes of SMEs (i.e.
the family governance system and the entrepreneurial culture) and are engaged in
maintaining investor or creditor relations, monitoring compliance with the legal or
regulatory reporting aspects of business reporting, and evaluating and improving the
organisation management reporting systems, including the related internal controls
(Greenwood et al., 2002; IFAC, 2008a, 2008b; Kolk, 2010; Havlováa, 2015). In addition, in the
SMEs, relationships are fundamental, both from an operations and a strategic point of view,
as the limitation of internal resources can often be overcome only through utilising external
capabilities (Marchini, 2005; Gnan et al., 2015), such as those Costa Edutainment were able to
access through their involvement in the NIBR working group.
Regarding RQ2, both the NIBR’s experience in drafting the Guidance and the approach
followed by Costa Edutainment Spa in adopting IR demonstrated that the IIRC Framework
should be simplified, shortened and “operationalised” to be user-friendly for SMEs,
including examples aimed at highlighting the most critical aspects, such as the Implementation
implementation of the principles of connectivity, materiality and integrated thinking. of integrating
Particularly, materiality should be limited to a small number of aspects and stakeholders, as
well as capitals, KPIs and KRIs. Following a process-logic and taking into consideration the
reporting
existing information system, it is necessary to start from the identification of objectives, the
definition of what must be measured, to then select what can be measured in an SME.
Subsequently, data can be collected, analysed and then presented in the integrated report
(De Villiers et al., 2014; Higgins et al., 2014). Moreover, the integrated thinking principle, 525
rather than being considered “too far” from SMEs, can be linked to the strategic
management process, based on the connection among input, outputs and outcomes. The
empirical analysis suggests that IR should be conceived as a transitional – rather than a
radical – initiative that drives an evolution of the entrepreneurial and managerial culture of
SMEs.
Finally, the case study points out the main benefits deriving from IR implementation:
enhance reputation among stakeholders; build trust and improve employee loyalty and
motivation; strengthen the internal/external dissemination of values and vision; and
improve the communication strategy and the disposition to measure the performance in a
medium- to long-term perspective. The empirical analysis shows that these benefits are a
consequence of the direct involvement of the company in the pilot project (of the NIBR) that
allowed the sharing of perceptions and insights among the participants of a multi-
stakeholder working group involved in critically and constructively evaluating the IR
process and the IIRC framework. Accordingly, we agree with Dumay et al. (2016, p. 176) that
while case studies of organisations implementing IR might prove insightful, merely
observing practice does not lead to change. The need for more performative and
interventionist research (Dumay, 2010) should drive academics to directly assist
organisations understand whether and how IR concepts could be applied to contribute to
both theory and practice. This is particularly necessary in SMEs. Therefore, action research
represents an effective way to promote change within an organisation (influencing practice)
and to change the IR framework to assist SMEs. The findings suggest that IR
implementation in SMEs requires a contingent-based application of the IIRC Framework.
This study has certain limitations that are common to all case study research and that
could be addressed in future research. For example, the single case study approach
precludes generalisation. Nevertheless, this study contributes to the debate on the benefits
and critical issues related to the diffusion of IR among SMEs, which has not been adequately
investigated. This study also contributes to supporting the diffusion of IR among SMEs and
practitioners by providing reflections aimed at operationalising the IR Framework for SMEs
and driving the entrepreneurial culture towards monitoring, assessing and reporting the
value creation process through the adoption of IR.

Notes
1. In Italy there are more than 4.3 million SMEs which correspond to 96 per cent of the productive
fabric and 69 per cent of the total turnover. More than 4.1 million companies are micro-sized,
while 200,000 are small-sized, and only a minority (about 22,000 companies) is medium-sized
(Cerved, 2015).
2. The IIRC’s Chief Executive is a member of the SMEs Development Taskforce of the B20 (“Task
Force SMEs” of the business forum that advises G20).
3. See: www.nibr.it. The World Intellectual Capital Initiative (WICI) (www.wici-global.com; www.
theiirc.org) consists of national (WICI Japan, WICI USA, WICI France, WICI Italy and WICI
MEDAR Germany) and regional chapters (WICI Europe). In June 2013, a protocol of intentions was signed
among the WICI and the IIRC, followed by a formal agreement of collaboration and recognition
25,4 signed between the NIBR and IIRC (on 6 July 2015) that marked a significant step forward in the
development of IR in Italy.
4. The definition of medium-sized company is drawn from the European Recommendation 2003/
361/EC of 6 May 2003 that updated the criteria according to which a company can be defined as
an SME. These criteria are based on the number of employees and turnover or total assets.
526 Namely, the European classification distinguishes among: medium enterprise (number of
employees fewer than 250, annual turnover not exceeding e50 million or total assets of the
balance sheet fewer than e43 million); small business (fewer than 50 employees and annual sales/
or total assets not exceeding e10 million); and microenterprise (fewer than 10 employees and
annual sales/or total assets not exceeding e2 million).
5. “A wide range of methods, tools, reports, metrics, frameworks and engagement processes can be
used in evaluating sustainability issues. Which approaches are adopted and how they are
operationalised have a significant impact on which sociopolitical perspectives and potential
sustainability pathways are rendered (in)visible” (Brown and Dillard, 2014, p. 1123).
6. In 2015, Costa Edutainment (www.costaedutainment.it) became a large enterprise because of the
merger with “Costa Parchi”; the Costa Edutainment reporting was consolidated by the Costa
Edutainment Group”.
7. Stakeholders categories include: clients, employees, local bodies, shareholders, financers,
suppliers, trade unionists, the environment, animals, the scientific community, NGOs, pressure
groups, citizens, local communities, national and international institutions, business partners and
competitors.

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Corresponding author
Mara Del Baldo can be contacted at: mara.delbaldo@uniurb.it

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