With apologies for any semantic confusion, it is instructive to see how Integrated Thinking, the concept developed by Roger Martin and Jennifer Riel at the Rotman School of Management in the early 2000s, has been adopted as a central tenet of Integrated Reporting—the emerging form or holistic corporate communication that aims to replace or supplement traditional narrowly focused financial reports with reporting into broader aspects of an organization’s performance and outlook.
Integrated Thinking, as defined on the website of the University of Toronto’s Rotman School of Management, is "the ability to constructively face the tensions of opposing models, and instead of choosing one at the expense of the other, generating a creative resolution of the tension in the form of a new model that contains elements of the individual models, but is superior to each."
Defined by the IFRS Foundation, the body responsible for the Integrated Reporting Framework, an Integrated Report communicates “how an organization's strategy, governance, performance and prospects, in the context of its external environment, lead to the creation, preservation or erosion of value over the short, medium and long term.”
The Integrated Reporting movement was born of a desire to move away from the short-termism prevalent in business and thought to be fostered by traditional financial reporting. Reports written to keep investors happy quarter-by-quarter were not conducive to long-term strategic thinking or to providing a sense of sound corporate purpose. While of value to investors chasing quick profits, short-term narrow reporting was detrimental to an organization’s long-term sustainable success and ultimately to the economy.
The movement understood that an organization’s sustained success really depended on multiple sources of value, resources, and relationships. “The resources and relationships are the stored value of an organization and the inputs to its business model and are increased, decreased or transformed through the organization’s business activities and outputs. The capitals are categorized in the Integrated Reporting Framework as financial, manufactured, intellectual, human, social and relationship, and natural.”
Integrated reports aim to communicate a wider range of in-depth information to a wider stakeholder audience. They offer greater transparency and accountability, and provide a level of information beyond purely financial that can be instrumental in setting an organization’s long-term strategic trajectory.
The IFRS Foundation website mentions the need for a “multi-capital lens.” This sits very well with Roger Martin’s ideas and the concept of integrative thinking to resolve the tensions of opposing models through the creation of a new better model that contains elements of each.
This month the IFRS Foundation has launched a new six-part blog series: Integrated Thinking in Action, in which several companies share their experiences of applying integrated thinking to help them plan, manage and report on their business in a comprehensive way—"adopting a more holistic, cross-functional approach to creating and preserving value over time." The first blog in the series takes an in-depth look at the first integrative thinking principle: Purpose
READ THE IFRS FOUNDATION BLOG HERE
In this blog you will learn:
- Considerations for organizations when applying this principle
- How Snam, an energy infrastructure operator, grounds its strategy in its purpose
- How NN Group, an international financial services organization, redefined its purpose through integrated thinking.