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'Creating value is at the heart of the international integrated reporting framework,' said Gillian Fawcett, Head of CIPFA's Governments Faculty, at a recent IIRC/CIPFA pioneer network event.
She sat alongside Mervyn King (IIRC Chairman) and guests from the Crown Estate & Centre for Citizenship Enterprise and Governance (CCEG). With much enthusiasm they debated about what is value and how public sector organisations can report on the value they create. They also discussed the thorny issue of measuring value for complex services with multiple stakeholders involved.
Gillian outlined that the spotlight was on integrated reporting <IR> like never before. There is an increasing desire to focus on long-term financial sustainability that goes well beyond the short-term political cycle together with dealing with issues of transparency and accountability when it comes to spending public money. Integrated thinking and integrated reporting can help to focus on the long-term.
No matter where you are in the world financial data on its own doesn’t tell the whole story of how an organisation creates value. Citizens are demanding to know more about the social and environmental impacts of policy decisions, as well as the fiscal implications. For example, the new millennials are making their employment choices based on whether organisations can demonstrate through their business models that they are positively addressing sustainable development.
Also, public entities are ‘big business’ and as such need to improve overall efficiency and effectiveness. A better understanding of the interrelationships of the <IR> framework’s six capitals (human resource capital, intellectual capital, natural capital, infrastructure capital, financial capital and social and relationship capital) and their contribution to their organisational strategies can help them to deliver value for money.
But we should also be aware of the distinctiveness of the public sector when compared to the private sector before applying the principles of <IR>. Governance and accountability are not homogenous across the public sector and doesn’t always follow the stakeholder model. The role of taxpayers is also different, unlike an investor whom can choose to disinvest when a company’s performance is bad, a taxpayer cannot stop paying taxes when public services are poor. There are also intergenerational issues to consider when financing services where the concepts of ethics and fairness come into play in the public policy space. Also, the value creation process is different and often defined by the complexity of the services delivered, such as health and social care.
Despite these sectoral differences, integrated thinking and reporting can help managers working in the public sector develop a better understanding of how the six capitals outlined in the <IR> framework support joined up decision-making and provide a structured management approach to creating value. The <IR> framework helps to give clarity about what you are trying to achieve and identifies process gaps - it makes a clear distinction between outcomes and the tools needed to achieve goals and most importantly focuses on outcomes. Defining outcomes at the beginning of the process when the strategy is formulated is central to the <IR> framework.
But measuring value can be a tricky business, particularly if you haven’t defined value and how you are going to measure it at the outset. The value of putting a street cleaner on the streets can be defined and interpreted in a number of ways. For example is value achieved when the streets are more aesthetically pleasing than dirty ones or is value created because cleaner streets will prevent a chain of public health consequences, such as the spread of disease? The latter is a more compelling story of creating value, but would an environmental services department ever measure the value of street cleaning it in this way. It is also important to have clarity at the outset and consensus by all appropriate stakeholders about what you are attempting to measure.
The Work Foundation has developed some useful criteria to help public managers measuring value. This includes having clarity about the types and appropriateness of measures and being clear about who is the arbiter of value i.e. the taxpayer, service users, partners etc. It also highlighted that the measures themselves must have integrity and be determined through some democratic process i.e. public involvement and/or negotiation.
In summary, integrated thinking and integrated reporting provides a holistic way of developing business strategy, outcomes and processes. Embedding the <IR> framework can help organisations to demonstrate how value is created and sustained and think about doing business in a different way.