<IR> Banking Network Chairman, Mikkel Larsen delves into integrated thinking

13 April, 2015

According to the International Integrated Reporting Framework, the IIRC’s long-term vision is: “a world in which integrated thinking is embedded within mainstream business practice in the public and private sectors, facilitated by Integrated Reporting (<IR>) as the corporate reporting norm.”  

The vision thus goes beyond preparing an ‘integrated report’. Its premise is that to create an integrated report a corporation must have ‘integrated thinking’ or it will not be able to articulate clearly the value it creates in the long term.

In practice most focus so far has been on the ‘integrated report’ (the “product”). Organizations use the integrated report as leverage to achieve integrated thinking or perhaps more sinisterly the report is prepared without the pursuit of integrated thinking.

The questions then are – what is ‘integrated thinking’, what are the benefits and how to achieve it? This is where system and holonomic thinking may have roles to play.

Why integrated thinking?
The <IR> Framework articulates the concept and the benefits of integrated thinking as: “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.”

Put simply, the Framework proposes that if a corporation does not know what impact its activities will have on its resources how can it know if it is viable?

System thinking in theory
‘System Thinking’ (“ST”) can be defined as: “an approach to problem solving, by viewing “problems” as parts of an overall system, rather than reacting to specific part, outcomes or events and potentially contributing to further development of unintended consequences.”

In a background paper to <IR>, the IIRC envisions the use of ST to create <IR>.  Some academics hold that business units can simultaneously improve their performance whilst reducing overall shareholder value.  Anecdotal evidence is not hard to come by. Think of consultancy firms where one part of the organization pitches aggressively for work with a client without understanding the benefits other business units may bring. At worst this leads to a sub-optimal solution damaging long-term relationships.

Holonomic thinking (“HT”)
The book ‘Holonomics: Business Where People and Planet Matter’ coins the term ‘Holonomic thinking’ (“HT”) as a way where each person is seen as an expression of the organisation as a whole.

This could imply two enhancements to the tools used in ST:

1. HT engages employees at a more fundamental level enabling a deeper and wider understanding of the value creation throughout the organization.
2. ST focuses on the surrounding environment’s impact on the organization’s strategy. HT is also outbound in terms of the organization’s impact on the environment through its “outcomes”.

System and holistic thinking and <IR> in practice 
Organizations like Starbucks, Puma, Aviva and Scottish Power have been reported to apply ST and/or HT in redesigning business processes. Whilst only Puma prepares an integrated report, all have features of good reporting that may reflect the clarity around strategy which ST/HT may have brought about.

Aviva produces a ‘Strategic Report‘ and an ‘Our wider impact Report’. They offer innovative features like “strategic thesis” and a clear articulation of the KPIs and materiality.

Scottish Power has a dedicated website for ‘Reputation & Sustainability‘ where one can find its Codes of Ethics and Sustainability Policy and disclosure on how it is a responsible tax payer. Starbucks prepares a well developed Global Responsibility Report.

Puma’s 2014 integrated report features detailed and clear sections on “stakeholder outreach” and “material matters”. It also has an ‘Environmental Profit and Loss Account’.

The Crown Estate is a pioneer in defining and measuring “Total Contribution” to express its contribution to the UK beyond its direct “profit”. It introduces a ‘triple bottom line’ (economic, environmental and social).

The above is at best anecdotal evidence of the links between ST/HT. However it is a thesis worth exploring further as it seems that such thinking leads to the ability, and possibly willingness, to communicate externally more value added information.

This blog is extracted from a longer article available here.