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Innovation and a company's annual report do not perhaps make easy bedfellows. For many, the annual report remains a bulky document, received by post, and as soon chucked in the bin as actually read. But there are signs that the annual report is actually undergoing something of a radical transformation - as companies warm to the idea of taking their annual reports online.

Just take a look at some of the latest examples - J Sainsbury, the British Library or Land Securities to name a few. The first - created by SAS - builds on Sainsbury's hugely successful launch of Anya Hindmarch's I am not a plastic bag, a £5 unbleached cotton tote which spearheaded the supermarket's campaign to reduce plastic bag usage.

In addition to a traditional printed and HTML version of the annual report for institutional shareholders, the I am not a printed report, is a non-regulated online experience, in which the viewer can flick through an 'online book', open flaps to reveal key messages and watch videos featuring Sainsbury's stories both at home and abroad. The experience is clearly designed to connect the brand more closely with the viewer - not least Sainsbury's efforts to be environmentally friendly, neatly summed up in this online rather than hard-copy experience.

'The Sainsbury's online report was a bold idea to get information across to users in a far more engaging way,' says Gilmar Wendt, creative director at SAS. 'We wanted something state of the art, which reflected the retail experience - for example, including recognised Sainsbury's personalities such as Jamie Oliver.'

The Land Securities' online report - also designed by SAS - is a similarly engaging review of the business, but as Wendt says, the design and tone is more serious, reflecting the nature of a property development business, particularly in these more economically challenging times.

The British Library has also embraced the online annual report as a means to better represent its own move into the digital age. 'We wanted to reflect the overall proposition of the British Library today by taking our report online,' says head of communications Gill Webber. 'The library is increasingly digital - the work and research conducted here is done more and more online. We have innovations too - for example, people can now engage with some of our treasures online, by viewing and even turning the pages of an old manuscript. Sticking to just print reports didn't make sense anymore.'

The British Library annual report includes everything that goes into the print version - but with additional videos, interactive 'your story' elements and case studies, as well as the performance and financial statements required by regulation. The site also takes into account the way in which people access information online - ditching the linear format of a print report to allow users to access information through a variety of easy-to-view tabs, dotted alongside lively images of library users. 'We were required to include everything online that we would put in the print version,' says Webber. 'But the online version requires a different and more direct style of writing and design.' The result looks instantly very different to the annual reports of the past. Apart from the visual impact - it looks more like a website than a report - the online report has enabled the library to more directly connect senior executives to stakeholders, most obviously in allowing the chairman and chief executive to speak to camera, rather than producing the usual 'letter from the chairman' of typical print versions. 'People still like hard copies - and we continue to do both versions - but the online tool has enabled us to bring the report to life,' says Webber.

Indeed, some experts believe that, instinctively, readers are more receptive (and trusting) of a message that is spoken rather than printed. It is one reason given for the public's greater acceptance of a television news item over a newspaper story.

Understanding the shift

The examples above represent a significant break with reporting tradition, and one that is all the more impressive in that the online report is still relatively new. 'The annual report has been around for the past 150 years, so in a comparatively short space of time, online reporting has risen to prominence,' says Barry Dunne, head of online investor relations at Radley Yeldar. The change has been driven partly by recent legislation; the Companies Act 2006 not only allows companies to communicate electronically with shareholders but to assume they are happy with this communication medium - unless they state otherwise. Indeed, Kevin Bruce, director at 85Four, says new research shows that only 20 per cent of investors specifically request printed annual reports. This has made it easier than ever for companies to report their progress via their websites, albeit they must inform shareholders of any information available online by e-mail or post.

'The online world of corporate reporting is still in its infancy but gaining uptake quickly,' says Dunne. 'Back in 2003, 26 per cent of the FTSE100 were producing full HTML reports; by March last year, this number had risen to 53 per cent.'

Apart from legislation, the prospect of cost-efficiencies is no doubt tempting a lot of companies to consider online reporting. 'Online reports not only allow companies to communicate information in a far more fun and engaging way, but you can make big savings in print and mailing costs,' says Wendt. Richard Carpenter, managing partner at Merchant, agrees, particularly in respect of some of the largest companies. 'Some of the utility companies may have as many as 800,000 shareholders. If they can send a full print copy of the report to just 20,000 and get the rest to view it online, that is a huge cost saving.'

Unforeseen consequences?

The rise of the online report has also had an impact on other aspects of company reporting. 'This year, we've seen an increase in the number of companies producing full HTML reports,' says Dunne. 'This seems to have had an impact on the number of companies producing annual reviews and summary financial statements - we've seen the number of these documents fall by almost a third in the FTSE100. We've also seen some companies producing 'super summary' documents. These four to 12-page summaries are being sent to those shareholders deemed to have elected for electronic communications to alert them that the full report is available online.'

While some companies have taken advantage of legislation to cut the number of summary financial statements or reviews, research conducted by Radley Yeldar last year suggests that there has not always been a consequent upgrade in the quality of online reports. 'An online report may be great for the environment and for the budget' says Carpenter. 'But there may also be fears that such reporting will disenfranchise shareholders who are long used to receiving print reports and are no longer receiving the quality information they require. This is particularly

relevant if you haven't worked out your online navigation, so that readers may actually find it more difficult to find the information they are looking for online, compared to using a traditional print version.'

Carpenter also thinks that companies need to remember that a printed report has a comfort factor that should not be too easily dismissed. 'The information in a print report is encapsulated in a nice safe book that can be passed around or discussed at a board meeting. An online version may not have the same known or safe quality.'

Overcoming the obstacles

In dealing with these potential obstacles, some companies are opting to produce both full print and online versions of their annual reports. Obviously, this does not incur cost savings, but as the British Library's Webber argues, it may not require significant added investment. 'Our primary report is the online version, but we still produce all the same information in a print version. This meant we had to look very closely at our budgets and we found we were able to save money - for example, buying new stock for the printed version that wouldn't cost as much but would still ensure high production values,' she explains.

Taking on the additional effort - and potential cost - of producing an online and print version of the annual report also reflects a different driver for certain companies to move to online reporting. 'Companies that have a significant technology or web presence may feel it's important to produce online annual reports to reflect the nature of their businesses. In fact, some smaller cap companies in the technology sector have really gone the whole hog in their online reporting, with interactive features, video content, and electronic bookmarks,' says Carpenter. For the British Library, the rationale was obvious. 'The digital age has become a core part of the business - while the print version is still essential, we felt that we just had to communicate via an online annual report to reflect this shift,' says Webber.

For those companies that neither have a large shareholder register nor underlying business incentive, however, there may be little sense in rushing to produce an online annual report.

'A large number of companies do not have large shareholder

registers - and they produce annual reports for different reasons, often using them in marketing efforts such as giving them to existing or potential clients,' says Carpenter. 'For them, there may be little purpose in producing a printed and online report; if you only have a 3,000 shareholder base, for example, you're not even going to make many savings on your print run by going online. The legislation is there but you don't have to invoke it.'

Getting it right

For those companies that decide to produce an online annual report, there are several recommendations. For Dunne, the process starts with better understanding your stakeholders. 'Companies need to decide what is right for their audience - what is right for a company with institutional investors may be different to those with a large retail shareholder base. I'd suggest companies seek feedback from their stakeholders and be steered by this. Some early adopters of online reporting threw all the bells and whistles into the report because technically they could; they spent a lot of money and were disappointed with the uptake and feedback.'

Niklas Frank, head of research at 85Four, adds: 'Companies who add bells and whistles can lose sight of the strategic purpose of the online report. Wasting money on these can divert readers' attention from the core messages and many companies add these only because they are fulfilling a box ticking exercise.'

Wendt also thinks it's vital to have a positive outlook. 'An online report should not be viewed as a duplication of the print version - the online report is a way to communicate using very different resources,' he says. 'Try not to think of the potential barriers - of course, it's a fairly new technology, so it's easy to think of obstacles. But think about what you want to achieve and then how you might be able to do that. The online medium lives and evolves - and you need to be thinking forwards. Sometimes the annual report can feel like it's in the hands of the IT people - or the accountants - but if you think differently you may be surprised by how much you can achieve.'

But, as Bruce at 85Four adds, while it is important to maintain a consistent message throughout all corporate communications, it is also vital that an annual report, which is a regulatory document, 'is adapted to the online medium'.

He adds: 'Too often, online annual reports are only considered at a later date after the printed version has been written. The whole report needs to be written and created with both media in mind from the outset. You need to help readers with stepping stones throughout the annual report.'

For example, a printed annual report often contains additional notes to explain particular items of financial information. When 85Four created the online annual report for pub group Greene King, it introduced a facility allowing readers to call up these references and view them on the same screen as the information they explain. 'Traditionally, you scroll down with text,' Bruce adds. 'But we have introduced a screen where the annual report spreads across and there is a horizontal scroll, which gives the reader the same relationship as the printed version.' 

Bruce believes that, unlike the printed annual report which has a significant regulatory content, the narrative of online annual reports is of high value and wide interest, and valid for most of the year. Similarly, unlike its printed equivalent, which has a targeted shareholder audience, the online report communicates the corporate brand to a wide range of stakeholders. 'You are getting the message out to a very wide audience,' he adds.

Dunne adds some key points that he thinks sums up the successful online report. 'The best HTML report would have an eye-catching design, interactive features on the home and landing pages to promote key areas of content within the report, intuitive navigation - where reports are very large don't be afraid to use second/third level navigation - use of video to tell the company story, summaries and highlights, shorter more direct writing, good search and print functionality, and the ability to track web usage so you can measure success.' It may sound like quite a list, but as the experiences of Sainsbury's and the British Library attest, such endeavours are well within reach.

For the British Library, its early foray into online reporting is only the start. 'We have won a few awards for our online report, and it's great to get the recognition for all our efforts. But it doesn't stop here - it's onwards and upwards for next year and beyond,' says Webber. Perhaps most significantly, the British Library, along with pub group Greene King, intends to further explore the interactive element of its online report - it may seem brave to invite immediate feedback/comment, and it is certainly a big differentiator between an online and print annual report. But by embracing Web 2.0 applications, Webber sees a key advantage: the ability to get important feedback on what's really working - or otherwise - in their online communication efforts. And for companies that are trying ever harder to get close to their customers, this alone might be an incentive to upgrade. One thing is for sure, however, the online annual report is here to stay.

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