What is integrated thinking (IR)?
The business world has changed substantially over the past few decades. As the consequences of enormous inequality and widespread poverty blight the promise held out by modern capitalism, it has become clear that the economic landscape requires a reset. Although business has lifted millions out of poverty, it has often done so at the expense of the welfare of both people and the planet – workers have been exploited and the use of fossil fuels has caused climate change.
In recent years, the terms ‘stakeholder capitalism’ and ‘conscious capitalism’ have gained currency as companies rethink their fundamental purpose. To move beyond profit at the expense of other considerations, they have to take corporate social responsibility seriously and adopt a values-based approach to business.
Integrated thinking is a strategy that has been developed within the context of our current crisis. It is essentially a framework for integrating a company’s purpose with its business model. The term was first used by the International Integrated Reporting Council (IIRC), which stated that companies need to align their operations and processes with broader value creation. The reason why they need to do so is clear: the financial and manufactured assets of a business can account for as little as 20% of market value in the current economic landscape. There are effectively six ‘capitals’ that a company can employ to achieve its goals – financial, manufactured, intellectual, human, social, relationship and natural capital. The ability to manage these capitals is at the heart of integrated thinking, which is “the engine that drives value creation” within an organisation. It is a holistic process that should be embedded within mainstream business practice.
The International Integrated Reporting <IR> Framework asserts: “The cycle of integrated thinking and reporting, resulting in efficient and productive capital allocation, will act as a force for financial stability and sustainability.” It does not give a clear indication as to how integrated thinking can be applied, however, leaving companies with the misguided impression that integrated reporting equates to integrated thinking. This is not the case – for example, a superficial integrated report will imply a degree of integrated thinking in a company but be unable to specify how it has managed the ‘six capitals’ in an effective way.
Companies should therefore consider how to embed integrated thinking within their organisations (at board, management, and employee level) between reporting cycles, so that year-on-year tangible gains can be demonstrated. It will make these reports more robust, authentic, and value driven. Unless internal practices are advanced, progress in reporting will be constrained. Furthermore, preparers of reports will continue to be frustrated in their effort to locate and extract information in accordance with the principles and elements of integrated reporting.