Modeling a Sustainable Value Chain

Modeling a Sustainable Value Chain

by | Sep 30, 2023 | Uncategorized

From Porter to the ISSB

At the recent inaugural IFRS Integrated Thinking and Reporting conference in Frankfurt, ISSB Chair Emmanual Faber gave a short but powerful talk framing the significance of the gathering (sign in to see his comments at 32:00 minutes in the morning video). In his talk, I was thrilled that Faber tied integrated thinking and reporting to the work of Michael Porter.  Faber cited three dates that are/will be critical to the practice of corporate strategy and reporting:

  • 1983 – The publication of Competitive Strategy by Michael Porter where he laid out key concepts of corporate strategy, the five forces of competitive advantage and the internal value chain that explain how a company creates value, risks, returns, and how it fits into its markets.
  • 2013 – The creation of the International Integrated Reporting Council (IRRC) and its use of the multi-capital model, which Faber described as new way of looking at the five forces, recognizing that value creation by a company is dependent on extraction of one type of capital to create another capital. The work of the integrated thinking and reporting movement has highlighted the imperative of preservation/growth of the capitals as critical to continued competitive advantage.
  • 2023 – Finally, Faber posited that 2023 is as significant as the past two dates because the Integrated Reporting Framework is now part of the IFRS standard-setting. By embedding integrated thinking and reporting into S1 and S2, Faber asserts, we now have a language for the capital markets about “how value is created through impacts, through dependencies, through resources, that are deemed to be rooted in the capitals.” In other words, “the value a company creates for itself is inextricably linked to the value of its ecosystem.”

This analysis rang very true to our work at Insights7. Porter’s value chain thinking was an important starting point for us in framing how a company or a team creates value for its users or customers. But Porter’s value chain is not enough because it was created to illustrate value creation for customers. As Faber correctly pointed out, today’s value chain needs to also consider value creation for stakeholders, including the environment. This means that a company and its value creation teams have to think holistically about their internal and external value chains.

How to model a sustainable value chain?  Here’s a simple checklist we use to tease out this expanded view of the internal value chain:

This list is a great starting point for delivery teams from internal value chain links to identify the outcomes customers and stakeholders expect. The list is different depending on whether you work in production, IT, finance, or many other functions.  So it’s great to let teams create their own list as well as their value chain graphic. The graphic at the top of this post is the graphic in our platform for the list above. Having a list and graphic like these helps everyone get on the same page about customer and stakeholder expectations, the work that needs to be done to meet those expectations and the metrics that will ensure you’re generating sustainable value.

As Faber reminded us, it’s about a value chain that considers customers, stakeholders and the environment. Thanks to Faber and the team at the ISSB for continuing to advance the ball.

Want to see more examples of value chain link diagrams (or make your  own)? Let’s talk!

 

Latest in Integrated Thinking

Latest in Integrated Thinking

by | Sep 14, 2023 | Uncategorized

At Insights7, we work to equip companies to operationalize integrated thinking–and we actively participate in the international community of practice for this emerging and important field.  So we want to thank the Good Governance Academy for their recent program on Integrated Thinking. The speakers and discussion were excellent. Thankfully, the exchange has created this helpful page with a concise introduction to the topic with plenty of helpful links, including a video of the meeting.

A few highlights: Jenna Moore talked about member presentations to investors in New York each year that are based on CECP’s integrated long-term planning framework. Nick Rockey shared the a great table (see the graphic above or click to view a video of his explanation) about the continuum of Integrated Thinking and Integrated Reporting (IR-IT). Nick and Jeremy Osborn talked about the fact that this is a journey requiring transformation and change management.  Jeremy also highlighted the case studies (now at the IFRS website) which highlight an important value of integrated thinking coming from the ability to see the connections between strategy and alignment, value creation now and in the future.

These meetings always have a lively chat among the international audience. That’s where I learned about the new article in at Strategic Finance, Integrated Reporting Reflects Integrated Thinking, which draws heavily from the recently defended Ph.D. dissertation of Brigitte de Graaff.  Here’s the reference for the thesis as well as some recent academic studies that were also suggested in the chat:

What I found especially striking in de Graaff’s thesis was her focus on the effect of IR-IT on performance management systems. It’s much more common today to hear people talking about integrated reporting which, while crucial, doesn’t itself lead to change. For that, you need integrated thinking that reaches into the way people do their work and the way organizations structure their internal decision systems for resource allocation and capex/opex decisions.

This ESG Exchange program was a great follow up to the panel we participated in at the IFRS Integrated Thinking and Reporting conference earlier this summer in Frankfurt Germany.  If you are interested in how to operationalize integrated thinking, please download our Insights7 Brief: Operationalizing Integrated Thinking.

Operationalizing Integrated Thinking

Operationalizing Integrated Thinking

by | Jun 6, 2023 | Uncategorized

Insights7 is honored that we have been invited to share our experience in the operationalization of integrated thinking at the IFRS Integrated Thinking and Reporting Conference in Frankfurt. Integrated thinking is an approach to management of organizations with a longer-term, more holistic focus than has been common practice in recent decades.  The movement has been built by diverse experts and organizations from the fields of sustainability, accounting, strategy, intellectual capital and governance.

In an effort to advance the conversations at the conference and beyond, we are releasing a brief describing an exercise Insights7 undertook using the ground-breaking work in the IFRS Integrated Thinking Principles. The Principles outline three levels of maturity. In our exercise, we specifically focused on the highest maturity (Level 3) questions to identify the kind of tools that support integrated thinking. Our goal is to advance the conversation around the hard work of operationalizing this holistic approach to sustainable value management.

The brief provides background on the movement and the moment, the Integrated Thinking Principles and frames the challenges of Level 3 operationalization of the processes and activities that support holistic decision making. Our exercise takes the logical next step and asks what kind of system is needed to facilitate the operationalization of integrated thinking into day-to-day management decisions?

Our analysis identifies seven distinct applications that are needed to operationalize Level 3 including:

  1. Value Mapping
  2. KPI Management
  3. Integrated Data Management
  4. Multi-Capital Toolset
  5. Work-to-Value Mapping
  6. Steady-State Health Management
  7. Value Growth Management

We suggest that these apps should be provided via an enterprise capability, a center of excellence we’re calling “sustainable value management” (SVM). This service provides the system (structure, tools and capabilities) needed for an organization to think and act holistically at all levels.

We’ve started a regular conversation for our clients and consulting partners around SVM best practices. We’d welcome consultants and companies that want to be part of this conversation. And we will support any groups that might form under the integrated thinking umbrella to turbocharge our collective integrated thinking journey.

Please download the brief and let us know what you think!

A Manifesto for the Chief Operating Officer

A Manifesto for the Chief Operating Officer

by | Jun 17, 2021 | Uncategorized

Imagine this scenario: your chief operating officer gets to work on a Monday morning, sits down at her computer, and is able to ascertain at a glance what work is being done across the organization, what resources are being used, what progress is being made and how the work output supports the organization’s desired outcomes.

Later that morning when she meets with the CEO and CFO to discuss proposed investments, she is able to provide an integrated financial and non-financial based business case behind each proposed investment.  These standardized business cases quickly align the three executives to a shared understanding of impact on customers and company value.  The result of the meeting is fast, quality decisions.

In a meeting after lunch, she engages with one of her delivery teams, which is working to address a steady-state KPI that is in danger of dipping below their target performance threshold. This team, like all her delivery teams across the company, is empowered and equipped to determine the best tactics for course correction.  She understands her role is to guide, support and coach as needed – not to command and control. 

She smiles as she watches them expertly apply their training on identifying, prioritizing, and testing improvement opportunities and solutions that will quickly get the KPI back to health and better than before. The team leaves the meeting feeling confident in their abilities to deliver value and they clearly enjoy being members of this high-performing team.

Before she leaves for the day, our COO sits back down with her Value Chain Intelligence dashboards and sees any shifts in work, resources, progress and outcomes that occurred over that day.  It’s clear where she should focus her time tomorrow to once again maximize value across her organization.  She plans her day accordingly before shutting down and leaving work at a reasonable time.

That night, she has a great night’s sleep.

The importance of Value Intelligence

For most COO’s, this kind of day is highly aspirational and highly unlikely. In most organizations, operations lacks the structure to do its most important job: continually deliver value. This limits leaders’ ability to make quality decisions quickly, which opens the door for the competition.

The primary purpose of any company is to deliver meaningful value to customers in a way that also drives value to the company.  Yet there has been no standard structure for companies to manage their value—until now.

Every company has a Value Chain behind their customer-facing products and services.  For most companies, it is almost never explicitly defined end-to-end.  Yet by having a well-defined and managed Value Chain, all systems, activities and decisions can be measured against impact on customer and company value.  Financial and operational performance data is integrated at each link of the Value Chain.  This surfaces insights that provide clarity as to how to proactively maximize the value of your company resources and capital.

Leaders who want to experience the same benefits as our COO require a Value Chain Intelligence system to enable fast, quality decision making.

A Manifesto for the COO

Over my decades of working with nearly all functions of operations across dozens of organizations, I’ve come to believe that operations is hamstrung from doing their most important work—delivering value—because they don’t have access to reliable, defensible value/cost/risk information when the myriad of decision points arrive. I’m incredibly passionate about helping address this challenge to the point of founding Insights7, but also creating a point-by-point argument for what COO’s need to do their job most effectively. It’s become something of a manifesto that I hope all COO’s will embrace:

  • It all starts with company strategy. The most important job of operations is to execute on the strategy.  If there is not a clear and effective strategy, then the COO is set up for failure because delivery teams will have no strategic outcomes to rationalize findings, decisions and activities.  For COOs in this position, it is critical to compel the CEO to lead the senior leadership team in optimizing the strategy to ensure that it clearly outlines desired strategic outcomes along with delivery constraints.

  • Organizations should apply the same or greater level of focus and rigor to value chain management as they do for financial management, organization management and other enterprise systems.
  • Organizations must manage operations as a Value Chain that integrates financial and non-financial metrics.
  • Organizations must give operations a Value Chain view where every finding, decision and activity is tied to customer and company value outcomes.
  • The right information in the right peoples’ hands at the right time translates to value-based insights which increases speed and quality of decisions.

What’s at Stake

For long-term growth and value creation, companies need to focus on more than rearview-mirror financial analysis.

The current value model of focusing strictly on shareholder value and quarterly returns is incomplete. In today’s knowledge economy, organizations must accelerate improvement and focus on outcomes, not output, to maximize their long-term value.

Every function in the organization is responsible for delivering value, so it stands to reason that they should be equipped with the right processes, tools, labor resources and service to be successful.

I founded Insights7 with the mission to simplify the process of accelerating long-term growth for companies by maximizing the value of their decisions and investment of company resources. Over the coming months, I’ll be discussing how companies can manage and improve their value. And I’ll be providing insights that will help companies foster the kind of empowered value culture the COO in my story has at her company.  My hope is that every organizational leader has the opportunity to continually maximize the value of their company’s capital—and make every night a great night’s sleep.

Mike Hogan, founder and CEO of Insights7, has spent the last 25 years helping organizations optimize their operations to facilitate growth and increase organizational value.