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Italian public
Integrated reporting and sector
integrated thinking in Italian organisations

public sector organisations

James Guthrie 553
Accounting and Corporate Governance, Macquarie University, Sydney, Australia
Francesca Manes-Rossi
University of Salerno, Fisciano, Italy, and
Rebecca Levy Orelli
Department of Management, University of Bologna, Bologna, Italy

Abstract
Purpose – This paper aims to explore the linkages between integrated reporting (IR) and organisations'
internal processes, specifically focusing on investigating the internal mechanisms of change that can lead
organisations to adopt IR disclosure and how this impacts on integrated thinking internally.
Design/methodology/approach – The paper draws upon previous analysis and insights provided in
the IR academic literature, as well as analysing several directives, policy and framework pronouncements.
The study also draws on the management accounting change literature, using it as a lens to observe early
adopters’ practice. In addition, it provides detailed case studies considering the internal processes of change in
five early adopters of the integrated reporting framework (<IRF>) and whether the adoption leads to internal
“integrated thinking”. Five Italian public sector organisations are analysed, and the authors make use of
official documents, press releases and in-depth semi-structured interviews with the major internal actors.
Findings – The research highlights that the processes of change in organisations adopting IR is their
adoption of a way of thinking, that is, integrated thinking, as a result of the process of internalisation.
Research limitations/implications – Given the short history of IR, this sample is small due to the
small number of early adopters.
Originality/value – The paper provides academics and policymakers with insights into the process of
change to be considered while adopting the <IRF> and responds to calls in the IR literature for further field-
based studies on IR’s impact on internal processes. Also, the paper highlights that the European Directive on
the disclosure of non-financial and diversity information (2014/95/EU) has the potential to increase
environmental, social and governance disclosures amongst European companies.
Keywords Public sector, Integrated reporting, IIRC, Sustainability reporting,
Non-financial information, Management accounting change
Paper type Research paper

1. Introduction
Our paper is motivated by the call for this special issue of Meditari Accountancy Research on
integrated reporting (IR), which asks for papers considering IR’s linkages with
organisations' internal processes. The call observes that, given the short history of IR, there
is much to learn and understand, especially around the internal processes and systems Meditari Accountancy Research
needed to measure and manage relevant information. Vol. 25 No. 4, 2017
pp. 553-573
The integrated reporting framework (<IRF>) is viewed as a platform for organisations © Emerald Publishing Limited
2049-372X
to disclose financial and non-financial information. The IIRC (2016) states in its website that: DOI 10.1108/MEDAR-06-2017-0155
MEDAR Organizations are using <IRF> to communicate a clear, concise, integrated story that explains
how all of their resources are creating value. <IRF> is helping businesses to think holistically
25,4 about their strategy and plans, make informed decisions and manage key risks to build investor
and stakeholder confidence and improve future performance.
However, the <IRF> is not just about disclosure. Its potential is in its ability to consider a
different way of thinking, that is, an integrated understanding of organisational strategy
554 and policy (IIRC, 2013). Although with a focus on external reporting practice, the <IRF>
also connects to the internal mechanisms of organisations via the concept of integrated
thinking. This is underexplored in the accounting research (Stubbs and Higgins, 2014, 2015).
The IIRC (2013, p. 2) defines “integrated thinking” as the main internal process resulting
from applying the <IRF>:
Integrated thinking is the active consideration by an organization of the relationships between its
various operating and functional units and the capitals that the organization uses or affects.
Integrated thinking leads to integrated decision-making and actions that consider the creation of
value over the short, medium and long term. Integrated thinking takes into account the
connectivity and interdependencies between the range of factors that affect an organization’s
ability to create value over time . . .
Accordingly, the adoption of <IRF> should imply a range of internal changes aimed at
producing an integrated report and using this information for making internal decisions. de
Villiers et al. (2014, pp. 1059-1061) highlight the need for further exploration in the research
literature of the internal aspects of <IRF>, including management accounting systems and
processes, the effects of <IRF> on the engagement of senior executives in internal processes
and on management orientation and decision-making.
Dumay et al. (2016) review the IR literature, finding various studies that explore: IR as a
concept (Adams, 2015; Flower, 2015); IR’s potential in terms of integrating sustainability
into the strategic process (Eccles and Saltzman, 2011; Steyn, 2014); the extent of the adoption
of IR in relation to contextual factors (Dragu and Tiron-Tudor, 2013; Frías-Aceituno et al.,
2013); the ability of IR in answering increasing demands for non-financial disclosure (Stubbs
and Higgins, 2015); and, from an empirical perspective, a critical examination of why and
how IR has been adopted and to what extent it has been institutionalised (de Villiers et al.,
2014; Stubbs and Higgins, 2014; de Villiers et al., 2016).
A further stream of research focuses on the management accounting changes taking
place in organisations adoption of IR, using institutional theory (Lounsbury, 2008),
Laughlin’s (1991) model of organisational change, and the literature on management
accounting change (Burns and Scapens, 2000; Lapsley and Wright, 2004; Miller and Power,
2013) to explore whether the adoption of IR results in strategic thinking. The present
research intends to contribute to this stream of the literature by drawing on the management
accounting change literature, using it as a lens to observe early adopters’ practices. We
analyse five Italian public sector organisations, using official documents, press releases and
in-depth semi-structured interviews with the major internal actors to answer our research
question, which is: are there internal mechanisms of change that can lead organisations
adopting IR disclosure to pursue integrated thinking in practice?
The paper argues that IR and integrated thinking in practice are stimulated by internal
mechanisms of change. In exploring different organisations’ use of such internal
mechanisms, we contribute to an understanding of how early adoption of the <IRF> has
fostered strategic change in terms of “integrated thinking”. The five Italian public sector
organisations have previously produced sustainability reports and are now adopting the
<IRF>. We explore the nature of change experienced by these agencies through the
implementation of the <IRF> and through the lens of management accounting change to Italian public
examine how this fosters integrated thinking. In doing so, we attempt to answer a question sector
raised by de Villiers et al. (2014) about the possibility of IR as the basis of continuous
internal strategic processes. In addressing this aim, the paper draws upon prior IR academic
organisations
research, specifically Dumay et al. (2016) and Stubbs and Higgins (2014).
The paper is organised as follows. Section two provides a review of the relevant
academic literature on IR. Section 3 provides an overview of the management accounting
change literature. Section 4 discusses the research methods and, in particular, the case 555
studies, official documents, press releases and in-depth semi-structured interviews with the
major actors in five Italian public sector organisations. In Section 5 the findings are
presented and discussed in light of the theoretical frameworks. The final section concludes
by considering the possible consequences for managers, policymakers and academics.

2. Integrated reporting: an emerging literature

Interest in providing information about the “value creation process” of an organisation is not
new. In 1991 the American Institute of Certified Public Accountants (AICPA) formed a
committee on financial reporting (Jenkins Committee), which recommended the use of non-
financial information (AICPA, 1994). Subsequently, standard setters and international
organisations have provided guidelines on how to improve corporate disclosure (FASB,
2001; IASB, 2010), particularly in relation to intellectual capital (IC) (OECD, 1999;
MERITUM, 2002).
In more recent times, an opportunity for non-financial information disclosure was offered
by the European Union (EU). The European Directive on the disclosure of non-financial and
diversity information (2014/95/EU) will come into effect for about 6,000 large companies in
the 2017 financial year, with the first reports expected in early 2018. Frank Bold (2017) states
that:
The objective of the Directive is to lay the foundation for a new model of corporate reporting that
complements financial transparency with environmental and social information necessary to
understand a company’s development, performance and position, as well as the impacts of its
activities on society.
Many different terms have been used over the past 50 years to refer to the reporting of social
and environmental information, ranging from social accounting, social and environmental
reporting and sustainability reporting, to corporate social responsibility or IR (Guthrie et al.,
2017). Thus, researchers have relied on a wide set of definitions to conduct studies over time
(Fifka, 2012, pp. 46–47), such as corporate disclosure practice, embedding sustainability and
environmental and social information (Bowman, 1973; Belkaoui and Karpik, 1989; Gray et
al., 1996; Elkington, 1997). These studies have been critical of the capability of traditional
financial reporting to satisfy the information needs of a broad range of stakeholders and
recent decades have seen studies focusing on different forms of reporting for accountability
(Gray et al., 1988; Bebbington et al., 2014) and legitimacy (Deegan et al., 2002; Beddewela and
Fairbrass, 2015) and to support and promote stakeholder engagement (O’Riordan and
Fairbrass, 2008, 2014).
Academic research into IR, according to Eccles et al. (2015), can be traced back to the
early 2000s, with much of the focus on South Africa (King Report, 1994; King Report (‘King
II’), 2002; King Report (‘King III’), 2009; King Report (‘King IV’), 2016). The Johannesburg
Stock Exchange requires an IR based on the principle of “apply or explain” and more
recently, with the King IV, “apply and explain”. Several studies (Druckman and Fries, 2010;
Eccles and Saltzman, 2011; Abeysekera, 2013; Atkins and Maroun, 2015) have emphasised
MEDAR the ability of IR to bring together financial and non-financial information in one report, as
25,4 well as its capacity to provide forward-looking information (Adams and Simnett, 2011).
According to Abeysekera (2013, p. 232): “Integrated reporting brings governance, financial
capital, intellectual capital, social capital, and environmental capital onto a common
platform. The various dimensions of organisational performance are unified under the
organisational vision and organisation’s values”. Moreover, IR’s potential as an instrument
556 to highlight how organisations can create sustainable value and reduce reputational risk
while facilitating better decision making has been explored in the literature (Abeysekera,
2013; Watson, 2013; Stent and Dowler, 2015). Also, Feng et al. (2017) explores the use of IR as
a tool to promote so-called “integrated thinking”, defined as “the active consideration by an
organisation of the relationships between its various operating and functional units and the
[six] capitals that the organisation uses or affects” (IIRC 2013, p. 33).
However, more critical voices have emerged. Despite its original stated aim to address
the concerns of social and environmental stakeholders, the <IRF> has been criticised as too
focused on the needs of capital providers (Brown and Dillard, 2014; Flower, 2015, Beck et al.,
2017, Dumay et al., 2017). In a similar manner, Reuter and Messner (2015) argue that there is
more rhetoric than substance in standard-setters’ reference to “user needs”. It has also been
criticised because of a perceived risk of pressures exercised by lobby groups and larger
players in the industry (Lodhia, 2015), as well as the possibility that IR has been captured by
investors and accountants (van Bommel, 2014; Strong, 2015). Concerns have been raised
about the assurance of IR (Cheng et al., 2014), whereas Beattie and Smith (2013) claim that
while an <IRF> has the ability to clarify an organisation’s business model, more research is
needed on antecedents and consequences of business model reporting.
There have been several papers exploring the implementation of IR in practice, with a
focus on change in organisational thinking (Stubbs and Higgins, 2014; Adams, 2015). In
particular, Higgins et al. (2014), through interviews with early adopters, explore the sense-
making process using institutional theory. Also, Stubbs and Higgins (2014), using
Laughlin’s (1991) model of organisational change, and incorporating the literature on the
internal mechanisms developed in relation to sustainability reporting, investigate changes
inside 15 Australian companies in relationship to integrated thinking.
Our research intends to explore – through analysis of five case studies – whether <IRF>
leads to the development of “integrated thinking”. In doing so, it locates itself in an emerging
academic literature in the IR field – the need to investigate the way in which management
accounting changes take place with the adoption of an <IRF>.
The present research focuses on public sector organisations, as the public sector is
underexplored in previous IR studies (Dumay et al., 2016). The public sector is a specific
context, deserving of specific investigation. Lapsley and Pettigrew (1994) state that the
adoption of accounting tools in the public domain requires specific research to understand to
what extent these technologies are transferable from private to public sector organisations.
Moreover, they claim that traditional management accounting fails in capturing the
complexity of public sector organisations, in defining the crucial factors for change.
Government public entities are complex social systems, which have developed
accounting, auditing and accountability regimes differently from departments (Guthrie,
1993, 1998). Thus, in-depth research in public sector organisations helps to understand if the
adoption of IR is able to promote management accounting change and to what extent. There
have been no specific guidelines issued by public sector entities in regard to the adoption of
the <IRF> although a directive on non-financial and diversity information was released in
Europe in 2014 (EU, 2014). The EU directives appear to favour several international
guidelines, including the <IRF>, as the directive requires disclosure of a business model
and policies as well as strategies related to environmental, employee, social, human rights Italian public
and anti-corruption issues. There are other non-financial disclosures required by Regulation sector
in the EU (e.g. Carbon Reduction Commitment, Energy Savings Opportunity Scheme, EU
Emissions Trading Scheme, mandatory GHG reporting, Modern Slavery Act, Gender Pay
organisations
Gap, etc.) (Molloy, 2017; Frank Bold, 2017).

3. Management accounting change as a lens

This section explores the management accounting change literature via three parts. Part one
557
explores Laughlin’s (1991) model of organisational change. Part two explores several
concepts associated with changes in management accounting practices and part three
explores changes to other internal mechanisms.

3.1 Laughlin’s model of organisational change

According to Laughlin (1991), the dynamics of organisational change can be explored by
considering two kinds of changes that may or may not affect the interpretative scheme (i.e.
beliefs, values, mission, paradigms and more generally elements related to the culture of an
organisation), the design archetype (i.e. organisational structure and management processes
and systems) and the sub-system (i.e. tangible organisational elements) of the organisation.
More specifically, first-order changes (also defined as morphostatic changes) occur when, as
an effect of an environmental disturbance, things look different while remaining basically
the same. In the case of IR, this suggests that shifts in the sub-systems’ elements can occur,
but the interpretative scheme on which strategies depend is not modified. Second-order
changes (also defined as morphogenetic changes) are those stemming from an environmental
disturbance that penetrates the organisation’s constituents so that a new model emerges.
According to Laughlin (1991), four different pathways of change can occur. Rebuttal and
reorientation will bring just first-order changes, whereas colonisation and evolution affect
the central core of the organisation, leading to second-order change. The adoption of an
<IRF> may take both forms of changes, with the latter able to modify both interpretative
schemes and design archetypes, resulting not only in the production of a report but also, and
of utmost importance, in integrated thinking.

3.2 Management accounting – changes to practice

This section will explore changes in management accounting practices and the role of
accounting systems (Lapsley and Pettigrew, 1994) or the diffusion of new management
accounting techniques (Lapsley and Wright, 2004). More specifically, Lapsley and Pettigrew
(1994) discuss the transfer of ideas and practices from the private to the public sector and the
role that strategic management accounting plays in addressing the change agenda. In doing
so, they emphasise the need to link operational and strategic changes and the pivotal role
played by strategic management accounting in delivering sustainable, successful change in
public sector organisations. They also suggest that a number of initiatives in public sector
management accounting “have not been implemented successfully largely because of the
inability/unwillingness to focus on strategies for achieving change” (Lapsley and Pettigrew,
1994, p. 91).
Moreover, Lapsley and Wright (2004), emphasising the idea that accounting innovations
are not an end in themselves but a means for innovation in public sector organisations,
discuss the diffusion of innovative accounting practices. They find that accountants
generally manage the development of new accounting techniques, often prompted by
governments, even if in several cases non-financial managers contribute to the elaboration
of the new accounting technology.
MEDAR When analysing change inside an organisation, the concept of resistance and routines
25,4 should be investigated. Kotter and Schlesinger (1979) criticise a “one size fits all” approach to
change and discuss how managers should deal with employees’ fear of change, identifying
five fundamental methods for managing resistance: education, explaining the reason for
change to persuade people; participation, involving potential resisters in implementing the
change to enhance commitment; facilitation, providing training and support; negotiation,
558 offering incentives for making the change; and coercion, threatening loss of jobs, or transfer
of those still resistant to change. Hodgson (2008, p. 19) states “routines are not behaviour;
they are stored capacities or capabilities”. Burns and Scapens (2000) consider routines as a
source of change as well as stability, being a key mechanism for institutional transformation.
Institutions themselves develop through a process of routinisation of human activities. While
scholars have already discussed the institutionalisation of sustainability reporting (Higgins
et al., 2015) only a few studies have explored changes related to the adoption of integrated
thinking (Stubbs and Higgins, 2014).

3.3 Changes to internal mechanisms

Prior studies (Moll et al., 2006; Wickramasinghe and Alawattege, 2007) have explored the
way in which a management accounting change can be adopted as a lens to understand how
adopting an accounting tool – namely, <IRF> – can shape the internal process within an
organisation.
However, few studies have examined the internal mechanism used while adopting
sustainability reporting (Adams and Frost, 2008; Adams and McNicholas, 2007), concluding
that changes are limited to structures, processes and systems but have not yet provoked a
change in beliefs and norms by senior managers inside organisations. Other scholars
(Schaltegger and Wagner, 2006; Burritt and Schaltegger, 2010) have identified two
approaches for sustainability reporting: “outside-in” and “inside-out”. The “outside-in”
approach includes stakeholder dialogue, reports and communication with the interested
parties, as well as management and measurement activities to fulfil expectations of
information by external parties. Under this perspective, standard setters (e.g. the global
reporting initiative (GRI)) can provide guidelines to support the preparation of reports. The
“inside-out” approach, conversely, occurs when managers require information to support
decisions about sustainability. Thus, sustainability accounting is a set of tools providing
systematic, effective and timely information associated with a managerial path towards
organisational sustainability (Bebbington and Larrinaga-Gonzales, 2008; Burritt and
Schaltegger, 2010; Higgins et al., 2015). Under this approach, reporting is the result of
strategically managing sustainability issues. A third approach (Burritt and Schaltegger,
2010; Henri and Journeault, 2010) combines the two, incorporating both an external and an
internal dimension to sustainability information. A fourth approach, according to
Schaltegger (2012), is where sustainability reporting is a “satellite activity”, separate from
business strategies, appearing just as window dressing. A management change can be
recognised only when sustainability issues are able to shape strategies, aligning values and
norms inside the organisation with external sustainability reporting.
Stubbs and Higgins (2014) investigate if and how internal structures and processes
change due to the adoption of an <IRF>. Drawing on Laughlin’s (1991) study they assume
that organisational changes occur in response to external environmental jolts and set up an
exploratory study to ascertain whether IR can drive morphogenetic change in organisations,
thus promoting more sustainable outcomes. In doing so, Stubbs and Higgins (2014) build on
previous studies examining the interaction between environmental accounting and
organisational change, identifying several specific mechanisms adopted within the
examined organisations. They take into account the kind of approach followed, the use of Italian public
cross-functional teams and stakeholder engagement, the use of a sustainability committee, sector
the ownership of IR, materiality and integrated measurement systems and metrics. In
particular, they assess if and how existing internal structures and processes may change due
organisations
to IR. They observe a “push approach” (which occurs when organisations use IR to drive
change) and a “pull approach” (which occurs when IR is seen as the results of an integrated
business) while investigating 15 Australian companies. In particular, they underline that
when IR becomes part of the organisation, but the interpretative scheme is not touched by
559
any change, the architecture and subsystems are not affected by changes in their DNA.
Moreover, in five organisations, Stubbs and Higgins (2014) find that cross-functional teams
are a key mechanism for implementing an IR approach (e.g. strategy, finance, accounting,
sustainability, HR, legal, risk, investor relations) and these teams need to work together on
daily activities. To obtain lasting and fundamental change – Laughlin’s (1991) second-order
change – there is a need for the support of powerful people. Stubbs and Higgins (2014)
discuss the ownership of IR as a mechanism to facilitate change. They find that, in general,
people from accounting departments seem more reluctant to participate in IR.
Stubbs and Higgins (2014) find that the organisations involved in their study are critical
of the GRI for its “one size fits all” approach. Several of the organisations identify a need for
measurement systems and metrics specifically devoted to integrated thinking and reporting.
Stubbs and Higgins (2014, p. 1074) pose several questions examining the process of the
adoption of an <IRF>:
[. . .] are integrated reports utilising sustainability committees, internal stakeholder engagement
and separate sustainability teams or using other approaches?; is the integrated report owned by
communications or CSR groups or has it moved into the mainstream business?; are accounting/
finance people driving integrated reporting, or is it the sustainability team?; are there any
indications of new reporting mechanisms that are driving second order change (colonisation or
evolution)?
The issue of the capability of <IRF> to drive second-order change is still under-explored,
and the question remains as to whether the process of adoption of an <IRF> leads to
integrated thinking.
In the present study, we consider integrated thinking not only as a process that
leads to the incorporation in an organisation’s strategy of the different perspectives
relating to financial, environmental, sustainability and governance issues but also
organisational habits of managers and managers from various areas/departments. By
incorporating these elements, managers are conscious of strategy and actively
involved in its operationalisation, supporting the translation of strategy into practice.
Thus, the present research – grounded on the approaches discussed above – intends
to discover if processes towards integrated thinking are in play. To this end this
paper undertakes a qualitative analysis of the Italian organisations to examine the
changes experienced as a result of the application of the <IRF> and whether if in
these organisations “integrated thinking” is achieved rather than just “window
dressing” (Watson, 2013).
Therefore, the main argument of the paper is that <IRF> and integrated thinking
are stimulated by specific internal mechanisms of change. Knowing the kind of internal
mechanisms that may foster IR and integrated thinking may define a path for
prospective adopters, both managers and policymakers. At present, research on public
sector organisations’ internal mechanisms for fostering integrated thinking is under
developed.
MEDAR 4. Research method
25,4 As IR in public sector organisations is a new phenomenon with a limited number of adopters
the study uses an explorative and in-depth qualitative approach context (Yin, 2003). The
Italian public sector organisations were chosen because of previous sustainability practices
(Adams and Kuasirikun, 2000; Kolk, 2005) and the involvement of several Italian public
sector organisations in pilot studies for IR. Moreover, social reports have played a
560 significant role in Italian public sector organisations for decades (Marcuccio and Steccolini,
2005; Farneti et al., 2011).
Our study had access to key people committed to implementing IR inside the
participating organisations. Semi-structured interviews were undertaken with these key
people and the interviews were supplemented with analysis of organisations’ reports and
websites to help understand how the organisations were managing their IR processes
(Cortini, 2014). The analysis was developed by comparing the various sources to assess
accuracy and internal consistency (Eisenhardt and Graebner, 2007). In practice, this means
that when an interviewee states that there is a specific committee, composition of board,
system of incentives for the people participating in training programme and so on, the IR
disclosures were checked against each element. Triangulating data sources enhances
reliability (Guba and Lincoln, 2005) and helps contextualise the data, making it possible to
analyse actors’ justifications and attempts at compromises.
Data collection was managed in two stages. In the first stage, integrated reporters were
identified from several sources. Public sector organisations practising IR were identified
using Thomson Reuters ASSET4, which specialises in providing environmental, social and
governance (ESG) information. Potential candidates were also found from research
undertaken in the IR databases, and from referrals made by others. Ten Italian public sector
organisations were identifed and five agreed to participate. Four groups of people were
targeted to interview, with the first three categories chosen according to Stubbs and
Higgins’ (2014) study, that is sustainability managers, financial managers and
communications managers; a fourth category was added, i.e. risk managers (Table I). People
involved in the interviews were part of the IR team in their organisation. In total, 13 people
from the five organisations agreed to be interviewed. Face-to-face interviews or phone
interviews, depending on individual’s availability, were conducted during April to July 2016.
The length of the interviews was 70-95 min. Interviews were tape recorded and transcribed
or (in the case of nine) extensive notes taken (the interviewees preferred not to be tape

Organisation Industry Size Interviewees

A Utility Employees 50,000-100,000 Sustainability Manager (A SM)

Revenue (e) > 1 billion
B Oil and gas Employees 50,000-100,000
Revenue (e) > 1 billion
C Utility Employees 5,000-10,000
Revenue (e) 100-500 million
D Industrial Employees 50,000-100,000
Table I. Revenue (e) 10-100 million
Semi-structured
interview E Utility Employees 5,000-10,000
participants Revenue (e) 500 million-1 billion
Communication Manager (A CM)
Sustainability Manager (B SM)
Risk Manager (B RM)
Sustainability Manager (C SM)
Financial Manager (C FM)
Risk Manager (C RM)
Communication Manager (C CM)
Sustainability Manager (D SM)
Financial Manager (D FM)
Communication Manager (D CM)
Sustainability Manager (E SM)
Financial Manager (E FM)
recorded). To assure an accurate collection of information, without bias or omissions, we Italian public
sent back the notes to interviewees for their checking. The interviews were undertaken and sector
analysed in Italian, and relevant excerpts were translated into English.
The semi-structured interview questions sought to understand the significance of IR for
organisations
the organisation, its practical implementation and the extent to which the adopting of IR led
to changes in internal processes, systems and structures. Table II provides further detail.
In the second stage, interview data were combined with data from other sources,
including Italian newspaper articles, government reports, professional service firms’
561
publications, academic publications and the integrated reports of public sector
organisations. These provided context and insights for the semi-structured interviews. Even
if organisations under investigation cannot be compared as each of them is unique and
operates in a different context, the analysis can draw similarities in the management
accounting changes undertaken. Also, strategic priorities change from period to period, and
this affects the internal take-up of integrated thinking.
To analyse internal change we used the approach of Stubbs and Higgins (2014) based on
Laughlin’s (1991) theoretical model of change.

5. Findings and discussion

Drawing on Stubbs and Higgins (2014), the specific processes used by the Italian
organisations in adopting <IRF> and how these contributed to integrated thinking are
considered. These can be grouped into four main elements: strategy, engagement, time and
materiality (Stubbs and Higgins, 2014). The interviewees identified several specific
processes used by the organisations to facilitate the adoption of an <IRF>. The focus is on
the changes in the analysed organisations’ internal structures and processes due to the
introduction of the <IRF>. In other words, integrated thinking represents a fundamental
element that helps to understand internal management accounting changes.

5.1 Strategy
Strategy relies on the communication of the organisations’ activities and policies as a means
to relieve the tensions arising from the story telling of the organisation and the way it meets

Organisation Industry <IRF> ESG information

A Utility Yes A has a long history in terms of ESG information. It started to

B Oil and gas Yes
C Utility No
D Industrials Yes
E Utility No (partially) E is a recent adopter of ESG disclosure, nonetheless, in a few
disclose sustainability with GRI framework and then
integrated reporting, with IRF. In the Italian utility sector,
almost all the companies disclose ESG to some extent
B is part of an industry that required it to disclose ESG reports
like others in the same industry worldwide. It has a very long
history in environmental disclosure, more recently with social
disclosure (GRI standards adopted) and <IRF>
C has recent growth in the financial results, paired with an
increased ESG reporting. It is adopting GRI for sustainability
disclosure but not <IRF>
Table II.
D has a very long history in ESG reporting and adopted GRI
for sustainability and recently <IRF> ESG Reporting and
IRF of the
years, it has been able to provide both sustainability and interviewed
integrated reporting, following GRI and, partially, the <IRF> organisations
MEDAR stakeholders’ expectations (Higgins et al., 2014). Strategy is represented by two aspects
25,4 (Stubbs and Higgins, 2014): the “push approach”, when an <IRF> is adopted to drive
changes, or the “pull approach” when IR is seen as a result of an integrated business.
Further, the sustainability committee has a major role to play in strategy. The five
organisations examined have followed different paths. In Organisation A, the sustainability
team explicitly used the adoption of an <IRF> to drive organisational change to integrate
562 sustainability into the core activity of the organisation (push approach):
We decided to drive sustainability inside our organisation. The integrated reporting requires [. . .]
an opinion on sustainability, on strategy, on materiality, and to start using new tools and metrics
to take into account of all these aspects. It is the fastest way to set sustainability (Sustainability
Manager A).
Laughlin (1991, p. 213) stated that “inertia” is overcome when the environmental
disturbance is an “uncontrollable jolt”, and staff are required to “shift inert characteristics of
organisational life”. The push approach produced by internal pressures is a weaker form of
organisational change than a jolt from external stakeholders or regulatory pressures
(Larrinaga-Gonzalez and Bebbington, 2001).
Organisation D considered that change was being driven by sustainability staff inside
the organisation using a push approach. There is no presence of an uncontrollable jolt
forcing change (Laughlin, 1991) rather a desire to integrate sustainability management into
the organisation. The interviews provided evidence that a “positive inner colonisation”
(Laughlin, 1991, p. 220) was taking place, with a small group of people forcing changes to
the management systems and processes. This indicates first-order change, but there is no
evidence of the push approach leading to second-order change. It is consistent with Kotter
and Schlesinger’s (1979) concept that to deal with resistance to change in the case of the push
approach, an implicit or explicit coercion takes place in the first instance. This method, while
quick, is highly risky. The push strategy requires an internal high quality and coherent
policy (Lapsley and Pettigrew, 1994) towards integrated thinking to maintain the sense of
urgency (Kotter, 1995) that requires the explicit coercion in <IRF> logic.
In another two organisations (B and C), there was a “pull approach”, and IR was
considered a reflection of integrated business activities by the interviewees. To help the
integrated thinking approach, in both organisations there was a strong commitment to
formative activities for employees, including exposure to workshops and seminars in which
the organisation was requested to “tell the story” of their experiences to other organisations
(public and private). The pull approach appears to be aligned with an inside-out
sustainability reporting process, where reporting is the “disclosing statement resulting from
the process of managing strategically relevant issues” (Schaltegger, 2012, p. 10):
Our job is to integrate strategy and sustainability. We started more than 10 years ago with this
process without using an integrated report. Then we decided to represent such integration with
one report, a representation that we considered to fit our organisation (Sustainability Manager B).
In the two organisations making use of the pull approach, change has taken place in the
design architecture (e.g. structures, decision processes, communication systems), which
gives “direction, meaning, significance” to the organisation (Laughlin, 1991, p. 211).
Moreover, the pull approach follows the re-orientation change pathway, as an <IRF> logic
is internalised into the organisation, affecting the interpretive schemes of the organisation to
a certain extent (Laughlin, 1991, p. 217), making secondary order change. In this context,
facilitation deals with potential resistance to change. It implies being supportive, including
providing training in new skills, giving employees time off after a difficult period, simply
listening and providing emotional support (Kotter and Schlesinger, 1979). It requires
effective relations between managers and the presence of a co-operative organisational Italian public
network to be supportive (Lapsley and Pettigrew, 1994). This can be developed through the sector
participation of groups exposed to the <IRF>, for instance, the IIRC pilot group for public
organisations as well as other groups, which could be international, national or local. Taking
organisations
part in these external networks can create the sense of urgency that animates the <IRF>
initiative within the organisation, whilst having the opportunity to communicate the
organisation’s vision on IR to others, and having the opportunity to consolidate
improvements (Kotter, 1995) and to achieve the institutionalisation of change. 563
In the last public sector organisation (E), the approach to the <IRF> is a “push/pull
process” rather than one or the other, being at the same time able to drive change as well as
an outcome of the organisations’ strategy. The sustainability committee had a major role. In
our study, all the organisations have some form of sustainability committee that provided
strategic direction and may sign off the report, as happens in two organisations. However,
not all the managers agreed on the need for a sustainability committee:
The integrated reporting does not necessarily need a sustainability committee to exist. It can help,
but before or after, I think we will discharge it (Sustainability Manager B).
The committees include the CEO or the CEO’s direct reports with representation from across
the organisation, and this was consistent with the findings of Stubbs and Higgins (2014).
Two of the five organisations have finance people on their committees, whereas another two
have representation from the strategy group, and yet another two have risk management
people on their committees:
The board of directors decided to put me in the [sustainability] committee. I was not convinced at
the beginning, and I asked to have a trial period. Then I accepted because I understood the
potential of such work (Risk Manager C).
In three of the organisations (A, B, C), the board, rather than the sustainability team, signed
off the integrated report. This change permitted the board to approve the process. Previous
studies have found that sustainability committees are able to “quarantine” the production of
reports (Larrinaga-Gonzalez and Bebbington, 2001; Stubbs and Higgins, 2014), and our
research highlights the silos in which sustainability issues are confined. The reshaping of
the sustainability committee is consistent with Laughlin’s (1991) first-order changes to the
design archetype (structures and processes), whereas the move to the board signing off on
the integrated report represents a powerful guiding coalition supporting modification in the
archetype of the organisation, leading to secondary order or fundamental changes
(Laughlin, 1991). To deal with resistance to change in the case of a sustainability committee,
coercion or a co-optation strategy played a central role (Kotter and Schlesinger, 1979) in
these organisations. In two cases, it required the stipulation of a change agenda at a local
level (Lapsley and Pettigrew, 1994) to define the extent of managers’ involvement in the
committee, or the strategy of planning and creating short-term wins as all members of the
sustainability committees were involved.

5.2 Engagement
The second process used in the adoption of an <IRF> is engagement. This is about material
practices represented by engagement with stakeholders and committees to overcome
complexity and problems of consistency related to applying the <IRF>. Stubbs and
Higgins (2014) identify cross-functional teams as a key practice.
In all the five organisations interviewed, cross-functional teams were a key mechanism
for implementing the <IRF>. The delivery of a standalone sustainability report mainly
MEDAR involves the sustainability group (typically the owner of the report) that gathers data from
25,4 the other owners of the data to produce the report. However, an IR requires earlier planning
and co-ordination across different areas, facilitated by the presence of cross-functional teams
to align the <IRF> with the strategic plan, including finance, strategy, investor relations,
legal, risk, accounting and sustainability people:
We started meeting once per month to discuss defined items, and now we meet every time we
564 need, also twice per week, at the time of report preparation. At the beginning, there were fewer
members. Now there are people from finance, risk management, accounting, and strategy
(Sustainability Manager C).
In three organisations (B, C, D), the role of the meetings changed over time not only in terms
of frequency (from one per month to whenever it was needed) but also in their formal
engagement. In Organisation A, initially, it was up to the sustainability group to decide the
date and prepare the agenda of the meeting. Other members (e.g. sustainability, risk, legal,
etc.) were free to join the meeting. This perspective suggests that meetings became routine,
consistent with Burns and Scapens (2000) and represented an institutionalised change in the
organisation:
We have a variety of perspectives [. . .] and that helps not only the integrated reporting process
preparation but also offers advice to the other areas (Financial Manager A).
In Organisation E, the IR process was initiated by the sustainability team (also the owner of
the organisation’s planning strategy) working with the risk management group. In three
organisations (A, B, C), the structures that supported the cross-functional approach
presented a lack of co-ordination, as noted by Stubbs and Higgins (2014). Nonetheless, this
was not viewed as a negative as it allowed people to catch up with each other whenever they
felt it necessary. In two organisations (D, E), the IR is reviewed and ratified by a
sustainability committee, with members drawn from different functional areas; in the other
three, it is ratified by the top management of the organisations.
The lack of experience and knowledge of people involved in the IR process, and the need
for people to gain a common understanding of reporting practices and data/performance
indicators, can produce a resistance to change. In all the organisations in our study, the
sustainability groups facilitated, or even co-ordinated, the cross-functional teams to generate
an IR management information system. In terms of change, previous research suggests that
when environmental accounting is used to steer change, traditional accountants may try to
resist, inhibiting the change (Larrinaga-Gonzalez and Bebbington, 2001, p. 286). The present
study’s results are consistent with previous research, detecting first-order change only
(Laughlin, 1991).
To deal with resistance to change, internal engagement through participation and
education, particularly for groups traditionally not engaged with the sustainability
reporting process, was crucial (Kotter and Schlesinger, 1979). All the organisations
developed education and participation strategies to make people “feel closer” to each other.
This happened with meetings focused on both shared knowledge on process issues and also
facilitated the understanding of the different perspectives of the areas involved and their
specific aim, as well as attempts to integrate them:
Participating in the meeting, I started to understand the broad view and to find a way to
cooperate with the other members effectively (Risk Manager B).
Education, being a comprehensive strategy based on communication, requires time and a
strong supportive organisational culture, which can be developed through meetings. These
meetings can lead to an increased involvement and participation (Kotter and Schlesinger,
1979) in the processes and are a mechanism that helps to create an enlarged powerful Italian public
coalition to lead the change (Lapsley and Pettigrew, 1994). sector
organisations
5.3 Time
Time can be represented by two elements defined by Stubbs and Higgins (2014). The first
element is the ownership of the IR process, and the second is the integrated measurement
systems and metrics. Ownership refers to who initiated or owned any previous 565
environmental reporting initiatives. The previous research discusses whether management
supported environmental accounting initiatives or the accounting department initiated or
owned the initiatives (Larrinaga-Gonzalez and Bebbington, 2001) and how this affected the
ability of environmental accounting to drive substantive organisational change (Stubbs and
Higgins, 2014). In all five organisations analysed, we found that, in the beginning, the
accounting department did not initiate or own the environmental accounting initiatives.
Nonetheless, in all the organisations the adoption of IR moved beyond the sustainability
department over time. Report ownership can be seen as a mechanism used by two
organisations to manage the shift from sustainability reporting to IR. One organisation
moved its IR under the finance director, whereas no organisation moved the sustainability
team and IR to the communications division, suggesting that <IRF> is not perceived just as
a window dressing mechanism. In three organisations, IR remained in the sustainability
group, and the sustainability team work closely with the communications and finance
groups:
When I started as head of the sustainability group, our report was for [. . .] internal
communication. Then when the board of directors decided to approve the sustainability report
and to publish on the web site, I became the head of the corporate social responsibility division,
with a strong connection with the accounting department. It was needed because we are in charge
of the integration between strategy and sustainability, as well as the delivery of integrated
reporting (Sustainability Manager C).
A finance person referred to the need for coordination of finance and sustainability people
because the adoption of <IRF> requires systems, processes and other internal mechanisms
that must be jointly developed. The changes in structures can be considered changes to the
design archetype (Laughlin, 1991) and confirm the nature of transitional change described
by Stubbs and Higgins (2014).
When the board of directors place IR under a specific owner (e.g. communication or
accounting group), this can be defined as explicit coercion (Kotter and Schlesinger, 1979).
This coercion takes place after a period of inclusive facilitation, in which managers support
the IR team in developing stronger links with accounting with the aim of overcoming
various transitional problems. These agents of change are strongly related to the creation of
a powerful guiding coalition, and to the maintenance of it over time, which may empower
others to act towards the institutionalisation of these approaches. This suggests a second-
order change that would lead to a fundamental shift of institutionalisation of internal
mechanisms that lead to integrated thinking in the organisations.
All our organisations recognised that the area of integrated measurement systems and
metrics required substantial change to develop tools, performance indicators and processes
able to capture and represent the various elements in the IR. Some organisations needed
more time to implement integrated metrics than others. Organisations A, B and C had
previous experience with sustainability reporting practices and had a longer track record of
producing sustainability reports. In these cases, to introduce an <IRF> measurement
system was easier than in the other two organisations:
MEDAR The big challenge was the introduction of sustainability indicators, according to GRI G3, at the
first instance. Then it was the time to turn into GRI G4, another big effort. Then it was the time of
25,4 integrated reporting. It was the last but not the most difficult or longest step. Probably due to our
previous successful experiences, we were confident, so that we did not think too much of the
difficulties. We knew it was something different, but it followed the same direction as our
previous effort, and we would be able to complete them (Sustainability Manager A).

566 Management accounting techniques played a pivotal role in the links between financial and
non-financial data in all five organisation. In four organisations, the need for management
accounting data was driven by sustainability and/or integrated issues. In one organisation
(C), it was the other way round, managing sustainability reporting and the <IRF> with a
management accounting tool already in use, the Balanced Scorecard, which was considered
extremely helpful in managing the change:
The Balanced Scorecard played a central role [. . .] We were in the habit of taking important staff
under control with the Balanced Scorecard, and when it came the time of sustainability we had
the Balanced Scorecard to help, and the same happened with the integrated reporting, which
gathered financial and non-financial staff together (Financial Manager C).
In the case of the other two organisations, D and E, work was done on developing new
measurement systems because they had fewer years of producing sustainability reports.
Nonetheless, in all of the five organisations, the analysis indicated a situation of incremental
change that can be seen as transitional changes (Laughlin, 1991). To facilitate the
introduction of change, two inclusive strategies were put in place, education and
participation.
Education was particularly appropriate due to a lack of information on the value and
principles of sustainability and IR at different levels of the organisation:
We decided to start a training course aimed at introducing the entire corporate body to the
organisation’s values, principles and rules of the code of ethics, of sustainability and integrated
reporting, involving all employees (Financial Manager C).
The participation strategy also played a central role and determined an extensive
involvement at different levels inside all five organisations. Staff invited to participate felt
more committed to implementing change and any relevant information they had could be
integrated into the transition plan. Both the strategies of education and participation helped
to empower others to act in line with the main goals of the organisation and contributed to
creating long-term environmental pressure (Lapsley and Pettigrew, 1994) in relation to IR,
which in turn helped to consolidate improvements, making possible the institutionalisation
of the new approach represented by the <IRF>.

5.4 Materiality
Materiality is a step in the adoption of the <IRF> (Stubbs and Higgins, 2014). All the
organisations in our study have a set of processes to identify material issues. The
organisations issuing IR are attempting to align the materiality process with business
strategy, focusing on fewer, more strategic and material issues. A financial manager
criticised his organisation’s IR, as it was too long and not focused enough on the material
issues:
There is too much information; you lose the meaning of the document. You should be able to find
what you are looking for easily, but it is our second attempt with integrated reporting, we will be
more concise the next time (Financial Manager E).
All of the interviewees have been using the GRI sustainability reporting guidelines to Italian public
manage their sustainability reporting content and process, and all the sustainability sector
managers believe that the GRI G4 is less problematic than GRI G3 in moving from
sustainability reporting to IR. One organisation felt that the GRI G4 guidelines are relevant
organisations
for IR and because they are less standardised than the previous guidelines, the result are
helpful in developing IR. This is consistent with Stubbs and Higgins (2014), who stated that
the GRI G4 guidelines would better address IR:
567
With the new guidelines [GRI G4] for the first time we have the opportunity to be better focused
on materiality. That’s a benefit for the integrating reporting process as well as for sustainability.
A materiality issue cannot change because of the standard or the guideline, and now it is easier to
align the materiality issue between sustainability and strategy (Sustainability Manager F).
Again, this is consistent with Stubbs and Higgins (2014), who found a lack of comparability
for the organisations that made use of the previous GRI G3 guidelines. All five organisations
in our study had made the transition to the GRI G4 guidelines, and in four cases, the cost
required for training on the new guidelines was substantial.
Two sustainability managers (A, D) highlighted that the materiality issue in the public
sector was linked to the public value that public sector organisations have to consider
(Guthrie et al., 2014). In summary, evidence of some minor first-order changes to the
adopters’ materiality processes have been detected, which can be considered as changes to
the design archetype (Laughlin, 1991), confirming the nature of transitional change
described by Stubbs and Higgins (2014). The strategy of change in the case of materiality
was a mix between coercion and facilitation as the boards of directors decided to adopt the
GRI G4 guidelines for reporting, but at the same time, managers supported the
sustainability team spending money on in-house education and training with the aim of
resolving various problems.
All five organisations clarified that the materiality issues required a strong reflection and
commitment. In this process, a central role was played by the introduction of management
accounting processes or, at least, a strong reorientation of existing mechanisms for
materiality purposes. One organisation (A) implemented management accounting processes
to align and perform analysis on materiality, whereas in two organisations (D and E)
significant changes to the management accounting tools already in use were needed to
achieve the same aim:
To prepare a materiality matrix is neither banal nor neutral. As we took it in a serious way, we
build up the matrix with all the needed information. In some cases we needed to revise the use we
made of some accounting tools to obtain the right information, sometimes we had to introduce
new metrics (Sustainability Manager A).
The last two organisations (B and C) considered the management accounting metrics
already in use facilitated the introduction of the materiality analysis more broadly:
Our accounting systems enormously helped to prepare the materiality analysis, facilitated the
introduction of one of the main elements of IR and, in turn, the consciousness of what we were
doing and for whom (Communication Manager C).
Management accounting played a role in the introduction, reshaping and reorientation of
materiality. This can lead to first-order changes to the design archetype (structures and
processes), consistent with Laughlin (1991), as occurred in two organisations (B and C), or IR
can be routinised (Burns and Scapens, 2000) and internalised into the organisation, affecting
the interpretive schemes of the organisation to a certain extent (Laughlin, 1991, p. 217),
making second-order change (A, D and E). Management accounting facilitated the
MEDAR materiality process and the IR logic and also resulted in a key element to deal with potential
25,4 resistance to change (Kotter, 1995). Existing or new management accounting tools
empowered others to act in line with the main goals of IR and helped to create a stable
response, or in Kotter’s (1995) terms “consolidated improvements”.

6. Conclusion
568 The rationale of this study is based on the idea that IR and integrated thinking in practice
can be stimulated by specific internal mechanisms of change. The identification of similar
internal mechanisms of change in different organisations shed light on the path towards the
introduction of <IRF> for public sector organisations. Our research analyses the adoption
of an <IRF> within five Italian organisations.
We found that all organisations have adopted or are in the process of adopting the
<IRF> based on the work of their sustainability committees. Also, the antecedent of IR
plays a key role in the IR path. In three organisations, a push strategy was adopted using IR
to drive change in the organisation explicitly. This strategy provoked changes in processes,
but there is no suggestion that it also led to fundamental changes. In the last two cases, IR
was the result of an integrated activity that can be defined as a pull strategy. In these cases,
IR was internalised into the organisation through a reorientation change pathway, making
clear second-order changes. In these last two organisations, a mix of mechanisms of
management accounting change was adopted, resulting in fundamental changes on the
design archetypes, sub-systems and, in turn, in their interpretative scheme. The five public
organisations embraced integrated thinking as a fundamental, persistent change to their
strategy, which can be described as a pull strategy.
A further mechanism playing a critical role in moving towards IR and integrated
thinking is engagement. In the path towards integrated thinking, cross-functional teams in
all five public organisations were fundamental to driving change, consistent with Lapsley
and Pettigrew’s (1994) notion of a powerful guiding coalition inside the organisation. The
present research demonstrated that the latter relates to the ownership mechanism. In three
cases, the board of the public organisation had oversight of IR, making clear how joint
ownership and sustainability committees acted, first, to lead second-order changes and,
second, to institutionalise integrated thinking in the organisation. Moreover, the
involvement of staff external to the sustainability team and the “routinisation” of IR
internally further demonstrated the process of institutionalisation of the new practice. The
process of appropriation (ownership) of IR practices, made by cross-functional teams, seems
to be central to achieving integrated thinking.
The approaches and internal mechanisms used by the five public sector organisations in
our study provide a useful lesson to other organisations. Despite starting the IR journey
from a foundation of sustainability reporting, the experiences of these organisations suggest
that IR is closer to strategy and value creation in the way that adoption of the <IRF> has
led to integrated thinking. This is evidenced by the involvement of financial directors and
risk management directors in the preparation of the IR, broadening the activity of reporting
non-financial information beyond the sustainability committee. This shows how the
adoption of an <IRF> penetrates deep into the organisation. The results are somewhat
consistent with Stubbs and Higgins’ (2014) finding that IR can be considered more as an
incremental phase in sustainability reporting rather than a ground-breaking transformation
of the existing financial and sustainability reporting approaches already mature in the
organisations. However, changes progressively introduced can modify the archetype of the
organisation (Laughlin, 1991) at the level of resources and structures, but even more
profoundly, following a kind of holistic engagement between internal stakeholders. In two of
the studied organisations, the study also highlights some revolutionary transformation as Italian public
second-order change (Laughlin, 1991), in contrast with Stubbs and Higgins (2014). In these sector
cases, IR is not seen as an incremental transformation of sustainability reporting, as
organisations
sustainability and integrated thinking are considered two connected but independent paths.
The transformation here is revolutionary.
Importantly, in three of the organisations studied the board took responsibility for
signing off on the integrated report; moreover, finance people were engaged in the process of 569
preparing the reports, demonstrating that integrated thinking has moved into the
mainstream of the business, representing a second-order change. This is in contrast to the
results of Stubbs and Higgins (2014), who found high resistance by members of financial
departments to IR. A further difference is the materiality issue: this is something peculiar to
the public sector because these organisations have to consider public value. Materiality
revolves around management accounting in all the studied organisations, so that the
adoption of IR has challenged the underlying DNA of the organisation (Laughlin, 1991),
provoking second-order change in the evolution from sustainability reporting to an <IRF>
and integrated thinking. The results of our study suggest that in adopting an <IRF>, these
public sector organisations have also adopted new management accounting tools, decision-
making processes or integrated thinking.
The study has some limitations. The number of organisations analysed is small and the
focus is on only one country. Further research can compare experiences and organisational
changes in a significant number of early adopters. A multi-country approach would also be
beneficial in establishing the extent to which contextual factors related to the political,
economic and social context may affect the development of IR processes.
Avenues for future research into IR include critical studies that seek to understand the
organisational and accounting mechanisms that promote integrated thinking, as well as
examining IR in practice.

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Corresponding author
James Guthrie can be contacted at: james.guthrie@mq.edu.au

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