Why Company Success Relies on Integrated Thinking

Fotolia

Why Company Success Relies on Integrated Thinking.

Susanne leads Novo Nordisk’s efforts to be a sustainable business, charged with management of corporate sustainability-driven programs, the integrated Annual Report, stakeholder engagements and communication on the value of the company’s Triple Bottom Line (TBL) business principle. She is member of the International Integrated Reporting Council, member of the Board of the Access to Nutrition Foundation and member of the Board of the Global Initiative for Sustainability Ratings. She is adjunct professor of Corporate Sustainability at the Copenhagen Business School and a Berkeley Social Impact Fellow at UC Berkeley-Haas School of Business.


Christopher P. Skroupa: What visible differences would there be in a company that thinks about its business in an integrated way?

Susanne Stormer: First of all, it would appear from the behaviors of its management and its employees. Do they show consideration for the impacts to people, communities and the environment in their words and deeds? It would be manifest in the way its factories are located and the environment around them, in the way offices are laid out, even in the way guests are welcomed. In essence, it will eschew an atmosphere of welcoming, of having a human dimension, and being a place where people thrive.

When you enter, you will listen to how people speak to one another, and how decisions are made. They will factor in the outside-in perspective; they will listen respectfully to arguments and counter-arguments; they will seek to gather facts—and then they will make decisions in a balanced way.

When you read written corporate materials such as their annual report, it will provide a well-thought, concise and compelling picture of what the company is about—its purpose and its business model—as well we how it creates value over time and how it accounts for performance on multiple dimensions in a 360-degree perspective. Its corporate website will carry similar messages, and so will its marketing proposition and investor presentations. The ultimate proof point is that employee communication through social media and in their professional and personal interactions is fully consistent with the essence of the corporate messaging.  

 

Skroupa: How would you sell integrated thinking to a non-integrated thinking company?

Stormer: I would liken it with what I know well: Novo Nordisk offers treatment for people with diabetes, a chronic condition that will be part of their life for the rest of their lives. Integrated reporting is the same: It is chronic, it is progressive, and it is irreversible. But when you put it to good use, you will find new qualities and have a full, healthy life, likely even healthier than before.

Integrated reporting is not a quick fix, and it’s not just something you try out. It requires a dedicated effort and a long-term perspective for where you want to go. It’s a bit of a cliché to talk about a journey, but it really is. You start, and then you proceed, finding new and interesting perspectives just around the corner that incite you to carry on.

The beauty of reporting requirements, though, is that it really can be a force for good. It can help drive change internally. As you see performance on financial, social and environmental dimensions in context, patterns emerge and you realize how for instance efforts to save energy are also reflected as savings in your operational costs. So in essence you will move your way from integrated reporting to integrated thinking. And the value you will derive is that it will enable better decision-making, leading to better and more competitive business performance.

Skroupa: Novo Nordisk has taken an integrated thinking approach to measuring performance for more than a decade. How have your internal processes and structures changed to accommodate?

Stormer:  There are two main changes that we have implemented. First, to prepare an integrated annual report, you need to ensure that there is consensus on what goes into the report beyond the compliance-driven contents. We have set up an “editorial board,” consisting of representatives from key functions such as R&D, finance, internal audit, sustainability management, investor relations, legal and communications. Across that table, decisions are made as to what to include in the narrative management report, how to present performance of the year and outlook, and how to incorporate expectations of external stakeholders. We challenge each other and bring different perspectives. And so, there is a natural calibration that helps ensure a balanced perspective.

Second, we have put a lot of effort behind upgrading the quality of the social and environmental data that go into the statements. The logic is that if we wanted to present social and environmental performance data next to financial data that are subject to extremely rigid standards for internal controls and data quality, then these disclosures would have to be as robust. The challenge here is that there were no standards for social and environmental data, so we had to devise a structured process to ensure the data quality.

The solution was to use the same methodology that applies to determination of materiality for financial data, and to apply the very same standards for internal controls as we have, as per Sarbanes-Oxley requirements for financial data. This process has been overseen by the Audit Committee, so the anchoring has been at the very top from the beginning. That has helped drive the process with internal data providers.  

 

Skroupa: What are some examples of where integrated thinking has led to positive outcomes, either for Novo Nordisk or your stakeholders, that otherwise wouldn’t have been realized?

Stormer:  Report users get a more holistic picture of the company’s performance. We know of financial analysts, who look to the environmental statements and compare them with the financial P&L to see where climate action initiatives will lead to a competitive advantage over time. Our intent was to enable report users to better evaluate the company’s performance, and based on feedback from major institutional investors, that is precisely why they value the integrated reporting format.

Internally, integrated reporting has helped further the process of integrated thinking. As mentioned, we bring senior people from different functions together to prepare a common product: the Annual Report. Not only does that create a sense of co-ownership. It also means that when they leave a meeting to discuss the Annual Report, they take with them some new perspectives that they can bring to bear in their job back in their respective functions.     

 

Skroupa: Can you give some examples of dilemmas/trade-offs that you sometimes encounter when applying integrated thinking to your business?

Stormer:  One of the first tradeoffs we encountered was that when you decide to go for integrated reporting, something’s got to give. In order to pick up a ball, you have to let go of what you already have at hand. In our case, it meant that we gave up producing a stand-alone sustainability report that was considered of very high quality by those external stakeholders who would seek this kind of information. Instead, what we do now is convey the most material information related to sustainability performance in the integrated report, though we still provide a more detailed account in our complementary reporting, the Communication on Progress to the UN Global Compact, which is a voluntary commitment. We also gave up reporting according to the GRI Guidelines for sustainability reporting.

In terms of integrated thinking, I have a hard time thinking of trade-offs, but I can talk about numerous dilemmas. Integrated thinking is, in fact, all about dilemmas: how you resolve them, by looking at the issue at hand from a kaleidoscope. To me, that is precisely the benefit of integrated thinking: It brings dilemmas into the open so that you can deal with them, in an informed way.

An example: We want to help more people live better lives. We also want to sell more products that can do just that. We can’t give away our products, but we can’t sell them everyone at market price. The solution was to set an ambitious target to double the number of patients we reach, communicate progress in our integrated annual report, and then devise new ways of enhancing access to our products via differential pricing models, new distribution channels and new business models. As a result, we can drive performance, and account for performance. That, in my view, is the biggest benefit of integrated thinking.

 

Christopher P. Skroupa is the founder and CEO of Skytop Strategies, a global organizer of conferences.