Recent developments in integrated
thinking aim to strengthen the emphasis on the unique qualities of an
organisation. Business strategies containing merely a standard set of social,
environmental and economic aspects fail to add real value. The International
Integrated Reporting Council (IIRC) and the Global Reporting Initiative (GRI)
nudge organisations to include aspects which are material and have an actual
impact on the organisation. Besides including material aspects in the strategy
and report, it is important to establish the actual added value of your
organisation.
Integration is key
When it comes to sustainability the
focus is often put on the (integrated) report. Although the report is an
excellent tool to communicate to your stakeholders, it is merely a tool and not
the goal. As the IIRC explains, the purpose of integrated reporting is “to
explain to financial capital providers how an organisation creates value over
time”[1].
In order to actually reap the benefits of integrated reporting and creating
actual value, an integrated strategy is required. Organisations should be able
to clearly answer the following questions: how does your organisation
distinguishes itself, how does it add value to your stakeholders, and how will
your business model sustain in the future.
Answering these questions and defining the value creation process can help your
stakeholders to understand your value proposition, legitimises your business
and smoothens the process of strategy setting.
The struggle continues
Many organisations however struggle
with the value creation process. A common practice is to solely add a visual of
the value chain in the report. Unfortunately, this approach fails to fully
capitalise the value creation process into an integrated, profitable long-term
strategy. Not to mention that it ignores to provide stakeholders with the ‘bigger
picture’. In the end, the current practice might have the opposite effect of
what was intended to be a helpful tool to strengthen businesses.
As the struggle continues this
raises the question, how to integrate the process of value creation optimally? Below
we describe a couple of important actions which are helpful in creating and integrating
the process of value creation in the decision making process of an organisation:
·
If you reflect on the inputs,…
Which inputs are
essential to your organisation, what do you need to keep your organisation running?
Financial instruments are the first aspects that come to mind, but usually
these are only a small fraction of the total inputs. A financial institution
such as ING, depends most on human and
financial assets. A chemical manufacturer such as AkzoNobel, on the other hand, dependents utmost
on natural resources and innovation. Most organisations employ several assets simultaneously
(both tangible and intangible). By further specifying and, if possible, quantifying
these inputs (e.g. the number of employees, the financial investments or the
amount of materials bought), the organisation will be able to internalise the first
step of the process of value creation.
·
…describe the business activities
and the unique properties of your organisation,…
Once established which
inputs are needed to keep your business going, it is time to reflect on the business
model. The aim is to describe the business model by identifying what
distinguishes your organisation from its competitors. In order to do so, one should
be able to reflect on the unique properties of the organisation. In other
words: what makes your organisation unique? ROCKWOOL for example uses product
differentiation by providing a high quality product with better results than
competing products, namely non-flammable stone wool as isolation material. Another
example is Interface, it differentiates itself by its
Mission Zero, which sets out that Interface is to be the first company that is
fully sustainable. Interface aims to achieve its mission through innovative
thinking such as producing sustainable yarn, using methods to recycle yarn and
reinventing its service by also leasing carpets.
·
…the outputs and outcomes follow
naturally.
Essentially,
what goes in, must come out. Thus explaining the outputs i.e. key products and services provided by your organisation. The assets as described in the first (input)
stage are retrieved and translated into outputs. Subsequently, these outputs
should be converted into outcomes. Outcomes describe the actual (positive and
negative) impact the organisation has on its surroundings. This also includes
internal and external consequences, and preferably outcomes which are
quantified or even monetised. Both TenCate (page
20-21) and Avalex (page 12) provide valuable examples
of a translation into (qualitative) outcomes in their latest annual reporting.
· Integrating these insights increases the potential of an organisation
As described above the
process of value creation and the corresponding value chain should be
internalised and custom made to your organisation. The aim is to specify what
distinguishes your organisation from its competitors, and how your business
adds value to both its stakeholders and yourself. By focusing on the unique strengths
and areas in which your organisation has the most important impact, it can
improve its decision making process. Namely, the organisation is better
informed on the relevant financial and non-financial indicators. Moreover, being
fully aware of the value your organisation creates, will help to create a
competitive advantage, may improve the resilience of your organisation as it
improves the awareness of its strength and weaknesses, potentially increases
sales, and boosts your reputation because now you have a coherent and clear
story to tell.
Nick de Ruiter is a partner at Sustainalize and
has produced several integrated reports. He is also a specialist in CSR
strategy setting and performance monitoring.
Alissa Daurer is consultant at Sustainalize and
is a specialist in value creation, the assessment of materiality and GRI G4.
Sustainalize (www.sustainalize.nl) is a global CSR
consulting firm that specializes in CSR, CSR reporting, CSR strategy,
performance monitoring and external AA1000 assurance. Sustainalize’s client
base consists of larger corporations across all sectors.
[1] Source: The IIRC. (2015). “Get to grips with the six capitals”.
Retrieved from: http://integratedreporting.org/what-the-tool-for-better-reporting/get-to-grips-with-the-six-capitals/
