Framework in detail Market overview4
Strategy & structure4
Managing for value4
Performance
Competitive Environment Market actors and dynamics that can aect the current or uture business environment, environment, e.g. competitors, market outlook
Regulatory Environment Current or uture agency, agency, or other regulatory actors that impose requirements on the conduct o business activity, activity, e.g. deregulation or privatisation
Macro Environment Current or uture actors that could have a material impact on corporate perormance, e.g. interest rates, demographics and economic outlook. The Market Overview category serves as a logical starting point or assessing and understanding a company’s company’s perormance because the dynamics o the external operating environment typically exert signicant infuence over a company’s strategic options, current perormance, and uture prospects. This Framework category encompasses such elements as a clear denition o the opportunity space in which the company operates, its primary competitors and relative competitive position, prevailing conditions and trends in the macro-economic environment, and any regulatory challenges the company aces. Despite the critical importance o such inormation, our research has shown that Market Overview inormation is oten less well communicated and consequently not understood as clearly as one might expect. Companies oten justiy their silence on on such issues by claiming claiming that those who who need such marketplace marketplace inormation can can glean it rom other sources. Advocates or better disclosure, on the other hand, contend that Market Overview inormation is too critical to an accurate assessment o a company’s perormance to rely on analysts, competitors, or other market commentators to provide it.
Market overview4
Strategy & structure4
Managing for value4
Performance
Goals and Objectives A clear statement o strategic strategic goals and objectives, objectives, including long and short/medium-term targets targets
Governance Commitment to transparency and how governance issues are managed
Risk Framework High-level overview o how risks are managed within a group
Organisational Design Articulation o how how the current current corporate structure and and segmentation supports supports the overall strategy, strategy, including the role role o the corporate centre.
A company should clearly communicate how its strategy and corporate structures enable the company to compete and thrive. In addition, management should support its strategy with quantied medium-term targets and relevant milestones, including a description and rationale or its chosen mix o risk (e.g. the cost o capital) and return (e.g. cash fow) or the enterprise as a whole and or each business segment. Furthermore, management should clearly distinguish the portion o its growth strategy that will be achieved organically compared to the portion that requires acquisitions. Any strategy, o course, should be based on an understanding o the key areas in which a company has competitive advantage. Accordingly, the company’s success in creating value will depend on management’s ability to invest resources in these areas and manage them so that they deliver the nancial perormance investors expect. Inextricably linked to all o this is how well the company’s underlying organisational and governance structures, systems, processes and risk-management rameworks are aligned with strategy.
Market overview4
Strategy & structure4
Managing for value4
Performance
• Financial assets • Physical assets • Customers • People • Innovation • Brands & intellectual assets • Supply chain
Regardless o how well it has dened and explained its Strategy and Structure, management must also bring it to lie by explaining in sucient detail the complex web o assets, relationships, capabilities, and processes it has in place or executing strategy. Although the components o this web may vary in relative importance by industry and company, they include a company’s nancial and physical assets; its ‘people’ assets such as the ability o employees to deliver against strategy, or the interaction and relationships with its customers; how the company protects and enhances the value o its brands and intellectual assets; and the structure and nature o the relationships within the company’s supply chain. Without this inormation, investors oten have to make decisions based on an understanding o how the company actually creates value that is signicantly short o optimal, or seek this inormation rom external sources outside the company’s control. On the other hand, those companies that have learned how to link their disparate value-creating elements to strategy and then manage them eectively are in a position to report to the investment community the kind o inormation it needs to assess both current perormance and uture prospects.
• Economic • Regulatory • Governance Internal and external measures of value creation that stress the importance of cashflow returns above the cose of capital as • Customers determined by the market environment • Risk framework • People • Operating Macro • Organisational Largely non-financial outcomes, for example customer satisfaction • Innovation environment design • Brands & • Environmental, social & ethical Outcomes from managing these risk areas where they are important to intellectual the companies assets strategic objectives • Segmental
• Supply chain
Individual business segment performance whether by geography, business unit or product area, focusing on the internal measures of value creation and operating performance
This category o the Corporate Reporting Framework is a key ocus both internally and externally, and rightly so. It is where the other categories o the Framework meet the bright light o reality. It is the test o whether or not a company has delivered results in line with expectations, and implicitly, o how well management has understood its market, executed its strategy, and managed its value-creating resources and relationships. Whether or not investors and stakeholders understand the impact o the results achieved depends, o course, on how well management can communicate all the inormation in the Corporate Reporting Framework to them. Put another way, it is in this category o the Framework where the elements o risk, return, and growth come together in the orm o perormance outputs. Historically, o course, reporting on perormance has been all about reporting the nancial numbers. The other three elements within the Perormance category have been largely ignored or given little attention. While nancial perormance remains at the heart o corporate reporting, it needs to be expanded. The Corporate Reporting Framework does that by approaching perormance in a more holistic way - adding economic measures to nancial accounting measures and including results o operating perormance: or example, customer satisaction, average revenue per customer, and revenue rom new products. Perormance also includes reporting on how well the company is meeting its commitments to environmental, social, and ethical responsibility (to the extent that they are important to its strategic objectives), as well as reporting on important aspects o perormance by major individual business segments. While the Framework still places great signicance on nancial perormance, it doesn’t make it the exclusive ocus o the reporting model.
