Integrated Thinking

"What business are we really in?"

It's a deceptively simple question, but one that many reporting teams discover is harder to answer than they expected.

Most organisations can describe what they do. Fewer can explain, simply and convincingly, how they create value. That's why developing a Value Creation Model is rarely a design exercise. By the time you begin arranging boxes and arrows on the page, most of the important work should already have been done.

The challenge is to understand the essential logic of the organisation, then distil it into a model that readers can quickly understand.

Start by understanding the business

Early discussions often begin with products, services, organisational structure or major operational processes. That's entirely appropriate. For some organisations, particularly those with complex manufacturing, logistics or service delivery, understanding the process is fundamental to understanding how the business works.

The challenge is deciding which parts of that story are central to explaining how value is created.

Financial performance is one outcome, but rarely the whole story. Organisations may also create value through stronger customer relationships, healthier environments, more capable people, valuable intellectual property, safer communities or more resilient infrastructure. They may also create outcomes that erode value or constrain their ability to create it in the future.

A good Value Creation Model helps readers understand how those outcomes arise from the way the organisation operates, rather than simply presenting a collection of positive results.

Put the Business Model at the centre

The Business Model is the heart of the Value Creation Model because it explains how the organisation transforms its most important resources, capabilities and relationships into products, services and ultimately outcomes.

For one organisation, that explanation may centre on a physical process. For another, it may focus on expertise, innovation, trusted relationships or stewardship of important assets. There is no standard formula, nor should there be.

What matters is that the Business Model is authentic, understandable and recognisable to the people who know the organisation best. A useful test is whether someone unfamiliar with the organisation could look at it and come away with a sound understanding of how the business works and why it succeeds.

This is also where strategy matters. The VCM describes how the organisation creates value, while strategy explains how it intends to succeed and strengthen that value creation into the future. The two shouldn't feel like unrelated stories.

See the Value Creation Model in action

Once the Business Model is clear, the mechanics of developing the Value Creation Model become much easier.

Rather than trying to explain all of those mechanics in words, the short video below shows how the elements of a VCM fit together and how they can be used to explain the value-creation system clearly.

▶ Developing a Value Creation Model (13-minute video)

(Consider showing 2 or 3 examples of different VCMs that exemplify some of these characteristics)

Focus on what matters

One of the most common mistakes is trying to include too much.

Every organisation is complex, but a Value Creation Model doesn't need to describe every resource, activity, relationship or outcome. Its job is to reveal the essential logic of how the organisation creates value.

The <IR> capitals can be useful prompts for thinking broadly about the resources and relationships the organisation depends on. But they aren't six boxes that need to be populated simply because the Framework provides them. Use whatever language and groupings best explain the organisation.

That requires editorial judgement. What is genuinely important to value creation? What is distinctive? What can be left to supporting detail elsewhere in the report?

The strongest models are often simpler than their authors first expect.

Distinguish outputs from outcomes

This distinction is easy to blur and important to get right.

Outputs are what the organisation produces or delivers through its Business Model, most commonly products and services.

Outcomes are what changes as a result. They may include financial returns, stronger customer relationships, healthier ecosystems, more capable people, improved customer experiences, intellectual property, community outcomes or changes to the resources and relationships the organisation will depend on in the future.

Outcomes can be positive or negative, and they can feed back into the value-creation system. Strong relationships may increase future capacity to create value. Depleted resources, lost trust or weakened capability may constrain it.

Thinking this way helps prevent activity from being mistaken for progress. It also makes the VCM a more realistic picture of value creation than a simple left-to-right production line.

Show the connections

A VCM is a model, not a collection of labelled boxes.

Readers should be able to see the logic connecting the organisation's important inputs and relationships, its Business Model, what it produces or delivers, and the outcomes that follow.

Those connections don't all need arrows. In fact, too many arrows can make the model harder to understand. But the relationships should be clear enough that readers can follow how value is created and where important dependencies sit.

This is also where trade-offs may become visible. Value isn't necessarily created everywhere at once. An organisation may strengthen one outcome while creating pressure elsewhere, or accept a short-term cost to build longer-term capability. A VCM doesn't need to explain every trade-off, but it shouldn't imply a frictionless system in which everything only gets better.

Use the model to strengthen the report

A strong Value Creation Model shouldn't appear once and then disappear. It can become a useful reference point throughout the report, helping readers connect strategy, material matters, risks, performance and future direction back to the same underlying value-creation system.

That doesn't mean every report should be organised around the VCM, or that every section needs to point back to it. Sometimes another structure will communicate more effectively. But the model and the report should clearly describe the same organisation. If the VCM says one set of things drives value while the strategy, KPIs and risks suggest another, something hasn't joined up.

Insight

If the VCM could belong to any organisation in your sector, it probably isn't finished.

A useful Value Creation Model is selective enough to reveal what is distinctive about your organisation, connected enough to explain how value is created, and simple enough for readers to understand without somebody standing beside it to explain what all the arrows mean.

Next step

Once you've developed your Value Creation Model, use the VCM Quality Review to test whether it clearly explains how your organisation creates value and whether the important connections are visible.

Use the VCM Quality Review Tool to test whether your model clearly explains how the organisation creates value →

A Value Creation Model helps explain how an organisation creates value through the resources, relationships and activities it depends on. But value creation rarely happens without choices.

Invest now or protect current returns. Build capability or maintain cost discipline. Move faster or manage risk. Improve one outcome knowing that doing so may create pressure somewhere else.

Those trade-offs are often particularly visible when developing a VCM because it requires the organisation to look at value creation as a connected system. But the principle extends well beyond the model itself. Important choices and their consequences can run through strategy, performance, investment, risk, sustainability and outlook.

Yet annual reports often present progress as if everything can improve simultaneously, with no competing priorities, constraints or consequences. Real organisations don't work like that.

Acknowledging important trade-offs can make reporting more credible because it helps readers understand not only what the organisation is doing, but the choices behind it.

Trade-offs are part of value creation

Integrated thinking recognises that value can be created, preserved or eroded across the resources and relationships an organisation depends on.

Improving one outcome may require investment or sacrifice somewhere else. Capital expenditure may constrain short-term returns while strengthening future capability. Cost reduction may improve financial performance but place pressure on people or customer experience. Moving faster on decarbonisation may require greater near-term investment. Delaying investment may preserve cash today while increasing future operational or resilience risk.

The <IR> Framework often describes these relationships through the capitals. The terminology is less important than the principle: choices have consequences, and those consequences can play out differently over time.

Focus on the trade-offs that matter

Reporting trade-offs doesn't mean exposing every internal decision or turning the annual report into a record of management debate. Most decisions don't warrant that treatment.

The trade-offs worth making visible are those that help readers understand the organisation's strategy, performance or future prospects. They may explain why a strategic choice was made, why progress has been slower in one area, why investment has increased, why a target has changed, or why management has accepted pressure today to strengthen value creation tomorrow.

For example, investing in automation may improve productivity and efficiency over time, while creating near-term costs and workforce implications. Investing for growth may constrain short-term returns or dividends. If understanding the trade-off helps readers make better sense of the organisation, it's worth making visible.

Explain the thinking, not the debate

Readers don't need to know every option that was considered or every discussion that took place around the Board table. They do need enough context to understand why an important choice makes sense.

Usually that means explaining:

• what the competing priorities or consequences were

• what the organisation chose to prioritise

• why that choice was made

• what consequence or constraint was accepted

• what the choice means over the short, medium or long term.

This doesn't need to become a formula repeated every time a trade-off appears. Often a sentence or two of explanation is enough. The objective is simply to make the decision intelligible.

Don't hide the downside

Trade-offs lose their meaning if reporting describes only the benefit of the choice.

If investment strengthens future capability but depresses near-term returns, both sides matter. If a strategic decision improves efficiency but creates a workforce implication, acknowledging that consequence gives readers a more complete picture. If environmental progress is constrained by technology, economics or security of supply, explaining the constraint is more credible than presenting an ambition without context.

That doesn't mean giving every consequence equal prominence. It means avoiding a version of value creation in which every decision appears to produce only positive outcomes.

Good reporting can acknowledge tension without becoming negative.

Think across time

Many trade-offs only make sense when viewed over different time horizons.

A decision that appears unattractive in the current year may strengthen capability, resilience or competitive advantage over the medium or long term. Conversely, a decision that improves current performance may consume resources, weaken relationships or create risks that emerge later.

Making the time dimension clear helps readers understand what management is optimising for, and why.

This is particularly important when strategy requires significant investment or transformation. Without the longer-term context, today's cost can look like underperformance rather than a deliberate investment in tomorrow's value.

Use the VCM to make trade-offs visible

A Value Creation Model is a particularly useful place to identify and reveal important trade-offs because it brings the organisation's resources, relationships, activities and outcomes together as parts of one system.

It may show, for example, that strengthening one form of value requires greater investment of another, that an activity creates benefits for one stakeholder while creating pressure elsewhere, or that today's use of resources is intended to strengthen value creation over a longer time horizon.

The VCM doesn't need to carry the full explanation. Often its role is simply to make the relationship visible, with the narrative providing the context where the choice itself matters, whether within strategy, performance, investment, risk, sustainability or outlook.

Nor does there need to be a separate Trade-offs section in the annual report. Trade-offs should strengthen the organisation's story, not become another disclosure layer.

What good looks like

Good reporting leaves readers with confidence that leadership understands the consequences of its choices.

They can see that competing priorities have been weighed rather than ignored, that constraints are understood, and that current decisions have been considered in the context of future value.

You don't need to reveal every decision to create that impression. But a report in which strategy progresses smoothly, every KPI improves and every stakeholder benefits equally can feel less credible than one that acknowledges the realities of making choices.

Sometimes the tension is part of the story.

Insight

Good strategy involves choices. Good reporting doesn't pretend otherwise.

Making important trade-offs visible helps readers understand the judgement behind decisions, the constraints the organisation is working within and how leadership is balancing performance today with value creation tomorrow.

Next step

Use the Connectivity Review to test whether important trade-offs and their consequences are visible across the report, rather than explained in isolation.

Use the Connectivity Review Tool to test whether important trade-offs connect logically with strategy, performance, risk and outlook →

Connectivity is one of the defining principles of integrated reporting, but also one of the easiest to agree with and hardest to achieve.

In simple terms, it means helping readers understand how the different parts of the organisation fit together: how strategy shapes priorities, how priorities influence decisions and investment, how those decisions affect performance, and how performance changes risks, opportunities and future direction.

You could call it joining the dots.

The challenge is that the dots often come from different parts of the organisation, are written by different people and appear in different parts of the report. Good connectivity makes the relationships between them visible so readers encounter one organisation, not a collection of reporting subjects.

A connected report tells one story

One of the quickest ways to weaken an annual report is to treat each section as a separate topic.

Strategy sits in one chapter. Performance appears somewhere else. Risks are discussed independently. Sustainability has its own section. Financial results bring up the rear. Each may be perfectly competent, yet the report can still feel fragmented because readers are left to work out how the pieces fit together.

A connected report helps them see the relationships. Strategic priorities flow through to decisions and actions. Performance shows whether those priorities are delivering. Risks and opportunities explain what could affect future progress. Sustainability issues connect where they influence resilience, strategy or value. Financial results provide evidence of how the organisation is performing.

The sections still exist. They just stop behaving as though they have nothing to do with each other.

Think about links, not just sections

Good connectivity is often less about adding content than revealing relationships within content that's already there.

As you review the report, keep asking:

What does this connect to?

If you're explaining a strategic priority, where does the reader see evidence of progress? If you're reporting a KPI, what strategic objective makes it important? If you're discussing a major risk, what part of the strategy or value-creation system could it affect? If sustainability is creating an opportunity, where does that opportunity appear in strategy or investment?

The connections don't all need to be made in the same place. They do need to be findable.

Your Value Creation Model can provide the map

A well-developed Value Creation Model provides a useful foundation for Connectivity because it establishes how the organisation creates value: what it depends on, what it does, what outcomes it creates and how those elements relate.

The rest of the report should reinforce that understanding.

Strategy should make sense in the context of the value-creation system. Performance should provide evidence of how it is working. Risks and opportunities should relate to things that matter to future value. Sustainability should connect where it influences the business, rather than becoming a parallel story.

The VCM doesn't have to become the structure of the report. But if it provides one explanation of how the organisation creates value and the rest of the report provides another, the dots haven't been joined.

See Connectivity in practice

Understanding the principle is straightforward. Applying it across a real report takes more judgement.

The short video below shows practical examples of Connectivity and how relatively small editorial decisions can make the relationships between strategy, performance, risk and future direction much easier to follow.

▶ Making Connectivity Visible (video)

[Embedded video]

Use signposting where the connection isn't obvious

Some connections can be made through the narrative itself. Others need help.

A short cross-reference, direct link, repeated terminology or well-designed navigation can show readers where related information sits without repeating it. In a digital report, a reader should be able to move directly from an important claim to the evidence or explanation that supports it.

Visual cues can do the same job. For example, strategic priorities might each have a consistent icon or other visual identifier that reappears when related initiatives, investments, risks or performance measures are discussed elsewhere in the report. Colour, numbering and other design devices can work in the same way. Used consistently, they create a visual shorthand that helps readers recognise connections without having to be told each time.

The principle is simple: make the reader travel when depth is useful, not because the report has made them hunt for the other half of the story.

This is where Connectivity and communication meet. The thinking establishes the relationship. Editorial structure, design and navigation make it easy to follow.

Don't over-connect

There is a danger in taking Connectivity too literally.

Not every KPI needs a visible line to every strategic priority. Not every risk needs to be cross-referenced from three sections. And adding arrows, icons, colour coding and links everywhere can make a report feel more complicated rather than more connected.

Make the important relationships clear and let the less important ones remain implicit.

Connectivity is successful when readers understand the organisation more easily, not when they can see how hard the reporting team worked to connect everything.

Insight

Readers shouldn't have to join the dots themselves.

Good Connectivity makes the relationships between strategy, decisions, performance, risks and future direction clear enough that readers experience the report as one coherent story, even when that story is told across many sections.

Next step

Use the Connectivity Review to test whether the important relationships across strategy, performance, risk, sustainability and value creation are clear enough for readers to follow.

Use the Connectivity Review Tool to test the line of sight across your report →

The <IR> Framework has influenced corporate reporting around the world for more than a decade. Many of the ideas it helped establish, integrated thinking, value creation, connectivity and future focus, are now widely accepted as good reporting practice.

We think those principles matter more than the Framework itself.

Not every organisation needs to adopt the <IR> Framework, produce an Integrated Report or organise its reporting around <IR> terminology. There are many ways to produce a clear, connected and future-focused annual report.

But the Framework remains a useful source of thinking. Its principles can help reporting teams ask better questions about how value is created, how the different parts of the business connect, what matters most and what today's decisions mean for the future.

The opportunity is to take what is useful and apply it in a way that works for the organisation and its readers.

Take what is useful

The Framework doesn't prescribe what an annual report should look like, and its content elements aren't a suggested contents page.

Instead of adopting it wholesale, use the parts that help you test whether the report gives readers the understanding they need.

Can they understand what the organisation does and the environment in which it operates? How it creates value? Where it is heading? What risks and opportunities could affect that direction? How it has performed? How it is governed? What its prospects are?

Those questions are useful because they focus on understanding rather than structure. How the answers are organised should reflect the organisation, its reporting story and the needs of its readers.

A good report can benefit from the Framework's thinking without setting out to “apply the Framework” at all.

Start with the guiding principles

The Framework's guiding principles are particularly useful because they provide a set of quality tests that can be applied throughout report planning, writing and review.

In plain English, ask:

• Strategic focus and future orientation: Does the report explain where the organisation is heading, not simply where it has been?

• Connectivity of information: Can readers see how strategy, decisions, performance, risks and future direction relate?

• Stakeholder relationships: Does the report reflect the important relationships on which long-term success depends?

• Materiality: Is attention focused on what matters most?

• Conciseness: Is the report selective and clear, rather than comprehensive for its own sake?

• Reliability and completeness: Is the story balanced and supported by appropriate evidence?

• Consistency and comparability: Can readers understand change and track performance meaningfully over time?

You don't need to label these principles in the report. Their value lies in the questions they make the reporting team ask.

Use the content elements as questions

The Framework's content elements can provide another useful lens. They identify broad areas that readers may need to understand if they are to make sense of the organisation and its ability to create value over time.

Rather than treating them as eight sections to populate, turn them into questions:

• Organisational overview and external environment: What do we do, and what is happening around us?

• Governance: How does governance support the organisation's ability to create value?

• Business model: How do we turn our resources, relationships and capabilities into outputs and outcomes?

• Risks and opportunities: What could materially affect our ability to create value?

• Strategy and resource allocation: Where are we heading, and how are we getting there?

• Performance: How well are we progressing, and what does the evidence tell us?

• Outlook: What could affect our ability to deliver from here?

• Basis of preparation and presentation: How did we decide what matters and how to report it?

The report doesn't need to answer them in that order, or use those headings. In many good reports, the answers overlap and reinforce each other.

That's the point.

Don't let the terminology get in the way

Some of the Framework's language is useful shorthand for practitioners but less useful for readers.

The capitals are a good example. Financial, manufactured, intellectual, human, social and relationship, and natural capital provide a disciplined way to think broadly about the resources and relationships an organisation depends on.

But that doesn't mean every organisation needs to present six capitals in its report.

"People and capability", "customer relationships", "physical assets", "technology and knowledge" or "natural resources" may communicate the same thinking more naturally. The language should fit the organisation and help the reader understand it.

The important thing isn't whether you've used the Framework's vocabulary. It's whether you've understood what sits behind it.

Use the capitals to widen the conversation

The capitals are particularly valuable when they reveal dependencies that conventional financial reporting can overlook.

What does the organisation rely on to succeed? Which resources and relationships are being strengthened? Which may be under pressure? Where could today's decisions create value in one area while eroding it somewhere else?

Thinking this way can expose important relationships between people, customers, assets, knowledge, environment and financial performance, and make trade-offs more visible.

Again, the purpose isn't to account for every capital. It is to understand the system through which value is created over time.

Think across time

Short, medium and long-term thinking is another aspect of the Framework that deserves more than passing attention.

A strong current result doesn't necessarily mean the organisation is strengthening its future. Equally, investment that reduces current returns may be building capability, resilience or opportunity that creates value later.

Use different time horizons to test the reporting story. Does the report explain what current decisions mean beyond the current year? Are risks and opportunities considered over appropriate periods? Can readers see how strategy is intended to create value over time?

This is one of the Framework's most useful disciplines because it shifts the annual report from an account of performance towards an explanation of direction.

Don't use the Framework to add content

One of the least useful ways to apply the <IR> Framework is to finish an annual report, compare it with the Framework and start adding whatever appears to be missing.

That usually produces more reporting, not better reporting.

If the Framework reveals a genuine gap in understanding, address it. But first ask whether the information is already present and simply disconnected, over-detailed or difficult to find.

Sometimes the answer is another paragraph. Often it is a clearer relationship between things you've already said.

Use it where it helps

The Framework can be useful at different points in the reporting process, but it doesn't need to sit behind every decision.

Its guiding principles can help test the reporting story and drafts. Its content elements can reveal gaps in understanding. Its capitals can challenge assumptions about value creation and dependencies. If those lenses improve the thinking, use them.

Then put the Framework away and ask a simpler question:

Does this report help readers understand the organisation?

That's ultimately the test that matters.

Insight

The Framework is a means, not an end.

Its real value isn't in producing a report that looks integrated. It's in encouraging better thinking about value creation, connectivity, materiality, trade-offs and the future, then allowing that thinking to shape a report that feels natural to the organisation.

Next step

If the Framework has helped you think differently about value creation and the connections within the organisation, put that thinking to the test. Use the VCM Quality Review to test how clearly your model explains value creation, and the Connectivity Review to test whether the important relationships are visible across the report.

Use the VCM Quality Review Tool to test whether your model clearly explains how the organisation creates value →

Use the Connectivity Review