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Anne Kirkeby

Value Creation: Still looking for the full story

Complete 100 coming soon

We are fast approaching the 22nd of June which marks the launch of this year’s Complete 100 titled “The Real Drivers of Value: Lost and Found”. Currently in its 12th year, the Complete 100 is Black Sun’s flagship research which analyses the entirety of the FTSE 100’s annual reports. Conducted by the Insights team at Black Sun, the report offers a unique view on emerging trends and best practice in the corporate reporting landscape in the UK.

Every Friday leading up to the launch we will be posting teasers on three of its chapters: Value Creation, Long-term Thinking and Stakeholders Expectations.

In focus: Value Creation

The annual report is an opportunity to tell an engaging story of how your organisation creates value for your wider stakeholders that goes beyond merely the financials. In light of the diminishing levels of corporate trust, a broader definition of value is increasingly in focus among stakeholders, regulators and standard-setters.

What we are seeing…

The value creation story is an opportunity to demonstrate how a company employs its resources and relationships to take advantage of market drivers and describe what sets it apart in doing so.

A well-executed business model is an important starting point for setting out the value creation story, as it introduces and ideally links all the elements that together enable the company to produce its outputs and outcomes. Now more than ever we are seeing the FTSE 100 take a value creation approach to business models (63%), setting out the resources and relationships it depends on to produce its outputs, and the outcomes that generates for its stakeholders.

This year also represents a shift in the number of companies that are integrating pre-financial information (value that does not show on the balance sheet) throughout the Annual Report, especially in the strategy section.

Other encouraging signs is the substantial increase in the number of reports that set out their “purpose”. With 60% of the FTSE100 now outlining their “reason to exist” might suggest that companies are increasingly using this as a lens to identify priorities and how they operate as an organisation.

…and what we are not

Presenting a holistic picture of how the company creates value entails providing meaningful links between key elements in the report. Fundamental to telling the value creation story is also how a company plots a strategic vision that proactively responds to market drivers. This side of the narrative does, however, seem to let the story down.

We believe the underlying obstacle here is that many companies present generic strategic visions and priorities. Such vagueness makes it difficult for companies not to achieve their strategy as it is difficult to ascertain what the end goal is. “Be the best at what we do” and “invest in people” does not provide a clear roadmap with a specific end goal. Ultimately, omissions like these reduces the level of accountability in the report.

These practices make companies appear more reactive than proactive. And whilst we are seeing companies more prominently feature their stakeholder engagement activities in their report, we are often left wondering: How does this information feed in to strategy?

In search of connectivity

It is clear that reporters are continuing to make progress on articulating their value creation stories, section by section.  With the building blocks coming in to place, now is the time to start connecting the dots. And for that, your strategy is a good place to start.

Opportunities to improve

  • Stronger use, and communication, of corporate purpose as the lens through which to consider how to prioritise and operate as an organisation.
  • Improved overarching strategies that more clearly evidence the benefit of stakeholder engagement and alignment with corporate purpose.
  • Better articulation of strategic response to each of the identified market drivers.
  • More proactive strategies that are sufficiently detailed to provide a convincing case for how they are formulated specifically to respond to drivers of value and provide a road map.

 

If you are interested in attending the event, or want a copy of the Complete 100, contact Sarah Myles