Why integrated thinking?

Presentation to Lenmed’s Board of DirectorsBy Clive Lotter

Why integrated reporting?

Financial reporting tells only a part of an organisation’s story and value creation.

Integrated reporting places an organisation’s performance and strategy within the context of its social and environmental issues.

An INTEGRATED REPORT is a concise communication about how an organisation's strategy, governance, performance and prospects lead to the creation of value

over the short, medium and long term.

Why integrated thinking?

• Today’s businesses operate in a fast changing and complex world

• Internal and external factors, interdependencies and trade-offs must be

considered when making decisions.

• The board and management need holistic data to make informed

decisions within this reality.

• What is needed is integrated thinking.

INTEGRATED THINKING promotes a more holistic assessment to grow better businesses

and better societies.

Why integrated thinking?

Lenmed is now into the second year of the journey to bring its annual integrated report into line with current best reporting practices.

The 2016 report should be a management tool for introducing “integrated thinking” throughout Lenmed.Integrated thinking will enable Lenmed to:• evaluate risks and opportunities realistically • respond quickly to changing trends or situations.

Some key drivers of integrated thinking

• the complexity of business• changing business circumstances that require a nimble strategy• a need to enhance risk management• enlightened leadership, board and/or executive management• Meaningful communication with stakeholders

The benefits of integrated thinking

• Improves risk identification and management• Raises the quality of information presented to boards, investors and

stakeholders• Supports strategising and resource allocation for short, medium and

long term objectives• Improves internal cohesion and cooperation• Enables KPIs to be developed for goal setting and efficiency drives.

The benefits of integrated thinking

• Material and concise information (Better, not more, reporting)• Breaking down internal silos• Trust gained from investors and stakeholders through transparent reporting• Breakthroughs in understanding value creation• Robust monitoring of issues and trends• Improving what is measured• Enhanced information available for decision-making

The ideal integrated reporting cycle

Materiality – knowing what countsBusiness success depends on understanding, responding to and shaping the competitive environment.

Businesses need to be attuned to diverse social, environmental, competitive and regulatory pressures. Yet, they must also differentiate what is material from what is ‘noise’.

Material issues are those things that could make a major difference to an organisation’s performance

Materiality – the hidden hand

A key aspect of integrated reporting is to identify and prioritise the company’s material issues.

Materiality can be used to uncover and evaluate business opportunities well before competitors or disruptors.

Materiality facilitates:

• A 360 degree perspective on your business

• Understanding the breadth and depth of stakeholder opinion

• Identifying relevant issues and challenges

• Evaluating the importance of issues between different stakeholder groups, such as patients

and employees

• Weighing different issues against one another and breaking down issues into detail

• Developing an evidence trail to support decision making.

Materiality – the benefitsThe endpoint of the materiality determination process is a heat map of issues that should drive business strategy.

It illuminates not only what a business should report on, but also where strategy needs to be responsive to changing social and environmental circumstances.

It also provides a useful framework for stakeholder engagement efforts.

A materiality matrix will show which issues an organisation should prioritise

The six capitals

An important element of integrated thinking is the recognition and management of the key capitals, or resources and relationships, that the business depends on.

These capitals include:

Financial capital Social and Relationship capital

Manufactured capital Intellectual capital

Human capital Natural capital

The more that integrated thinking is embedded into an organisation’s activities, the more naturally will the connectivity of information flow into management

reporting, analysis and decision-making.

The six capitals

Financial capital – The pool of funds that is: • available to an organisation for producing goods or for

providing services • obtained through financing (such as debt, equity or grants), or

generated through operations or investments

The more that integrated thinking is embedded into an organisation’s activities, the more naturally will the connectivity of information flow into management

reporting, analysis and decision-making.

The six capitals

Manufactured capital – Manufactured physical objects used in producing goods or providing services. These may be: • buildings • equipment • infrastructure

The more that integrated thinking is embedded into an organisation’s activities, the more naturally will the connectivity of information flow into management

reporting, analysis and decision-making.

The six capitals

Intellectual capital – Organisational, knowledge-based intangibles, including: • intellectual property, such as patents, copyrights, software,

rights and licences • “organisational capital” such as tacit knowledge, systems,

procedures and protocols

The more that integrated thinking is embedded into an organisation’s activities, the more naturally will the connectivity of information flow into management

reporting, analysis and decision-making.

The six capitals

Human capital – People’s competencies, capabilities and experience, and their motivations to innovate, including their: • alignment with an organisation’s governance framework, risk

management approach, and ethical values • ability to understand, develop and implement an organisation’s

strategy • loyalties and motivations for improving processes, goods and

services, ability to lead, manage and collaborate

The more that integrated thinking is embedded into an organisation’s activities, the more naturally will the connectivity of information flow into management

reporting, analysis and decision-making.

The six capitalsSocial and relationship capital – The institutions and the relationships within and between communities, groups of stakeholders and other networks, and the ability to share information to enhance individual and collective well-being. Social and relationship capital includes: • shared norms, values and behaviours with key stakeholders • willing engagements with external stakeholders • intangibles associated with the brand and reputation • an organisation’s social licence to operate

The more that integrated thinking is embedded into an organisation’s activities, the more naturally will the connectivity of information flow into management

reporting, analysis and decision-making.

The six capitals

Natural capital – All renewable and non-renewable environmental resources and processes that provide goods or services. It includes: • air, water, land, minerals and forests • biodiversity and eco-system health

The more that integrated thinking is embedded into an organisation’s activities, the more naturally will the connectivity of information flow into management

reporting, analysis and decision-making.

The six capitals

• The capitals have an influence on each other. • At times the organisation needs to trade-off between capitals.

For example, an investment in staff training could deplete financial capital but enhance the human capital available to the business.

Not all capitals are equally relevant or applicable to all organisations.

The integrated business model

A graphic showing the various factors (both internal and external) involved in the value creation process of an organisation.

The business model

• Shows the various business inputs in the form of relevant capitals.

• Shows the outputs generated by the business, which may be products or services.

• Includes outcomes in the form of the effects on the capitals. These can be positive or

negative.

Business model reporting is an opportunity to demonstrate an understanding of the organisation, its dependencies,

and how it might need to adapt in the future.

The business model

Considering inputs, outputs and outcomes helps to clarify the company’s positive and negative impacts, while also deepening its understanding of how it creates value.

If offers insight into how the business can respond to input or external environmental changes.

Business model reporting is an opportunity to demonstrate an understanding of the organisation, its dependencies,

and how it might need to adapt in the future.

Beyond compliance – The value of integrated reportingAn integrated report should be a powerful strategic tool that helps a company to:

• articulate its vision, targets and achievements • refocus its efforts and activities• connect departments and broaden perspectives• provide enhanced information for decision-making• engage with relevant stakeholders only.