Three reasons why internal and external reporting will merge into one
Internal and external reporting are both highly important for an organisation. Internal reporting informs internal stakeholders about the organisation’s financial and non-financial performance. It often forms the basis of decision-making at different levels and for different topics. The same is true of external reporting, albeit it directed at external stakeholders.
I believe that internal and external reporting will eventually merge into one. In this article, I first discuss three reasons for this development. Then I outline the benefits of this. In conclusion, I give a tip for an effective approach.
The most well-known form of external reporting is the annual report. Every year, organisations present their financial accounts to shareholders and other external stakeholders. As well as the financial information, these stakeholders are increasingly interested in non-financial information, so it is becoming more and more common for an ‘integrated annual report’ to be published. Besides looking back on the financial side of things, an integrated annual report also looks to the future from a strategic perspective. It is a coherent account of objectives, strategy and results. Basically, it is an account about creating value in the short, medium and long term.
However, annual reports have a big drawback as far as external stakeholders are concerned — they provide old news. External stakeholders need up-to-date information about the strategy and performance of organisations. And they want ‘continuous reporting’, as this gives them up-to-date information and helps them make better decisions.
The key thing about internal reports, in contrast with the majority of external reports, is that they are up to date. Employees, managers and directors have access to a range of dashboards and reporting systems that contain real-time (or near real-time) information about performance.
This timely access to information gives internal stakeholders a big advantage and helps them make better decisions. Internal stakeholders, however, believe there is room for further improvement, as internal information about strategy and performance is often fragmented. The strategy is somewhere in an office drawer, the business model is hanging on the business controller’s door, and each department has its own dashboard. There is no overall coherent account of the mission, vision, organisational objectives, performance and, in particular, activities. In other words, the account that is presented to external stakeholders. A common complaint among employees is that they have no idea why they are doing what they are doing. They are unclear as to why particular decisions are being made in the organisation. This uncertainty ultimately weakens support and, as a result, the commitment felt by employees when organisational objectives are achieved.
Not all information available internally can be made available externally at the same time. On the one hand, there may be no legal basis for doing so, e.g. the auditor must approve the figures first. On the other hand, many organisations do not wish to do this, because too much transparency can have a negative effect — too much information can result in a loss of relevance. But commercial reasons are also a reason why the majority of organisations are not in favour of complete transparency.
The fact is, however, that internal and external reporting largely use the same sources of information: financial systems, ERP systems and relevant internal and external sources such as research data. And the underlying strategic account is no different internally to externally. Can things be done in a smarter way?
I believe so. Technology lets us combine information and use levels of authorisation to share it securely through different channels. In other words, it is possible to communicate with both internal and external stakeholders using a single publication environment.
This kind of central publication platform is not intended as a replacement for the existing reporting systems; it acts as a ‘layer’ over them. A layer which presents a clear and target group-based account of strategy, including up-to-date performance information and associated explanations. This account can be tailored to the needs and privileges of users, and published through different channels such as the corporate website, the intranet, an app or a PDF.
The creation of a multi-channel publication platform for communicating strategy and performance will benefit both the authors and the end users of reports:
the report publication process becomes more efficient and secure. There is a single version of the report and the process involves fewer human operations (e.g. cutting and pasting).
version management simplifies the guarantee of an ‘audit trail’. This happens in the most logical place, i.e. where all the information is gathered and where people work together producing and publishing it.
For end users:
the benefits of internal and external reporting are combined. Internal stakeholders are given better insight into the coherent account. External stakeholders are given access to up-to-date information wherever possible.
the information becomes more user-friendly. Reports, or parts of reports, are published from the central platform on different channels, and in a variety of formats, including interactive ones.
If your organisation wants to move in this direction and make reporting more efficient and effective, you should start by defining a reporting strategy. Outline the goals you want to achieve and how you plan to do this. Also, make a list of what you need in order to achieve the goals, and who you want to involve in this.
Treat the strategy as a living document. Develop the solution in small steps, or iterations, and learn from each step. Regularly ask authors and end users for feedback and adjust the next step accordingly. After all, as Winston Churchill once said: “However beautiful the strategy, you should occasionally look at the results.”