In a world of growing complexities, with multitudes of internal and external factors influencing business, boards of directors and management require processes that empower them to make informed decisions within the organisation’s operating reality. Which approaches best support executives in sound decision-making?

One of these approaches could be integrated thinking – a concept that’s based on ensuring the long-term sustainability of organisations through the sustained creation of value for stakeholders. It promotes a more holistic assessment of how to grow businesses and benefit society.

Integrated thinking is achieved when an organisation considers more than only financial capital in its operations and decision-making as a means of ensuring the longevity of the business.

The International Integrated Reporting Framework (referred to simply as the Framework) was published in December 2013 and defines integrated thinking as ‘the active consideration by an organisation of the relationships between its various operating and functional units and the capitals that the organisation 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’.

Integrated thinking as an approach came about when the users of corporate information became increasingly concerned about the usefulness and effectiveness of corporate reports.

Such criticism reaches a crescendo after corporate failures, especially when preceding corporate reports have given no indication of an impending collapse.

While poor corporate reporting does not cause corporate failures, it often masks the signals that should highlight the risks.

Regulators and standard-setters constantly try to enhance legislation and standards to plug identified regulatory gaps and generally improve reporting quality. However, these initiatives have not been completely successful in a rapidly changing world.

A primary reason for this is that the different aspects of corporate reporting are handled by different standard-setters (e.g. financial and sustainability reporting), and there has been no overall co-ordination of how reports should be presented. Part of the challenge is that corporate reporting and investor attention have been focused strongly on the financial aspects of business, almost to the exclusion of the other forms of capital applied in running the business.

Recently, the South African Institute of Chartered Accountants (SAICA) conducted exploratory research on the impact of integrated reporting on corporate management approaches.

The study focused on establishing whether SA organisations are embracing integrated thinking – and if they consider it to be beneficial.

Based on the research, some of the Top 100 companies listed on the JSE and leading state-owned entities do in fact recognise the benefits of integrated thinking stemming from their integrated reports.

Indeed, it appears that SA executives are becoming leaders rather than followers in terms of integrated thinking.

According to Roy Andersen, chairman of the SAICA Integrated Thinking project group: ‘Over 70% of the executives and non-executive directors who participated in the survey believe that decision-making at board and management level has improved as a result of applying integrated thinking. It has enhanced the quality of information made available in the decision-making process and facilitated a longer term context for decisions.’

Integrated thinking promotes a more holistic assessment of how to grow businesses and benefit society

Other benefits of integrated thinking experienced by companies include better risk management, more focused and succinct internal reporting, and operational efficiencies. The survey showed that 74% of the executives expect to see further benefits of integrated thinking, with 86% of the non-executive directors having the same view.

Some of the participants in the survey were of the strong opinion that organisations that did not introduce integrated thinking would not be sustainable in the long term. This was based on the understanding that organisations rely on more than just financial capital for their success and continued existence.

‘There is no doubt that integrated reporting has been a significant push factor in South African companies applying integrated thinking, with 78% of the executives in the survey acknowledging this,’ says Andersen. ‘However, this is not to say that our companies are fully adept in integrated thinking – many of the survey participants recognise it is a journey and that they have some way to go.

‘It is good to see that the executives and non-executive directors in the survey believe that the last five years they’ve spent on preparing integrated reports have helped improve the way their businesses operate. The investment in leadership time by boards and executives has not been in vain. The results also confirm why the World Economic Forum rates corporate reporting in South Africa so highly.’

As SA has been a global pioneer in integrated reporting, the climate was right to do this survey. Andersen nevertheless believes even more should be done before integrated thinking is fully understood. The objective of integrated thinking is what management and boards have been trying to achieve for decades – a business without ‘silos’.

It evolved from integrated reporting: in the same way that integrated reporting provides a more holistic picture of an organisation’s performance and prospects, so integrated thinking provides the engine that enables the organisation to achieve long-term value creation.

It opens the thought process more widely, and recognises that different issues, factors and capitals all affect one another.

An organisation achieves integrated thinking when it also considers six forms of capital rather than only financial capital in its operations and decision-making as a means of ensuring the longevity of the business.

The capitals (financial, environmental, social and relationship, intellectual, manufactured and human capital) are manifested in the external environment, stakeholder needs, organisational reactivity, organisational responsiveness, organisational use for (and trade-offs of) capacity, and organisational value creation and performance.

Signs that indicate the successful implementation of integrated thinking include the following:

• When there is no longer a separation between non-financial and financial performance of the company and wide acceptance that each affects the other.
• When all functions and divisions share in the company’s strategy and work together to achieve that strategy.
• When decision-making takes a longer-term view on value creation and how decisions impact on the company’s resources and relationships.

Many of the respondents participating in the SAICA survey suggested that implementing integrated reporting and adopting integrated thinking were linked journeys that evolve over time and that the full benefits would materialise only when integrated thinking had become integral to the organisation.

As awareness of its value spreads, organisations will adopt it in the spirit of enlightened self-interest and long-term business sustainability.

Some respondents even suggested that organisations that did not introduce integrated thinking would not be sustainable in the long term.

Some of the other key drivers of integrated thinking mentioned by respondents included:

• Changing business circumstances that required a significant change in strategy.
• Enlightened leadership at board or chief executive officer level.
• Meeting the needs of stakeholders, especially with regard to social and environmental issues.
• The complexity of the business.
• A need to enhance risk management.
• Adoption of matrix organisation structures.
• A remuneration strategy linked to improved integration, coupled with appropriate key performance indicators.

Executive and non-executive director participants in the survey felt confident that organisations would gain definite long-term benefits from integrated thinking. Benefits already realised would be consolidated, and organisations would gain further advantages from improved controls governing non-financial information and from enhanced efficiencies. It was also suggested that integrated thinking creates an environment for innovation.

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