The business model

An organisation’s business model sits at the heart of its business strategy, and at the centre of the business model sits people. Valuing your Talent is about ensuring that all organisations measure, understand and communicate how effectively they are making the most of the knowledge and skills of their workforce.

The relationship between business model and value

At an organisational level, business leaders and their stakeholders need to understand how the business uses the resources available to it to create value. It is the ability of organisations to create value that generates financial returns to the providers of financial capital, and provides security to the enterprise to continue to generate further value in the future.

The business model articulates what value the organisation provides, how that value is created and what resources and activities are required to deliver that value.

The business model demonstrates to business leaders, investors and other stakeholders how the knowledge, skills and experience of an organisation’s people are the foundation of this value-creation and growth over the short, medium and long term. 

Understanding the business model, therefore, is integral to understanding and achieving business success.

Integrated reporting and integrated thinking

The increased importance of human capital within organisations, as well as its links to the other organisational resources that drive business value, is reflected through the Integrated Reporting initiative. The International Integrated Reporting Council (IIRC) is a global coalition of regulators, investors, companies, standard setters, the accounting profession, academia and NGOs.

Integrated thinking - the active consideration by an organization of the relationships between its various operating and functional units and the capitals that the organization uses or affects. Integrated thinking leads to integrated decision-making and actions that consider the creation, preservation or erosion of value over the short, medium and long term.

Integrated reporting - a process founded on integrated thinking that results in a periodic integrated repor t by an organization about value creation, preservation or erosion over time and related communications regarding aspects of value creation, preservation or erosion.

Together, IIRC coalition shares the view that communication about value creation, preservation or erosion is the next step in the evolution of corporate reporting. The International Framework was developed to meet this need and provide a foundation for the future.

The International Integrated Reporting Framework defines an organisation’s business model as its:

Business model - system of transforming inputs, through its business activities, into outputs and outcomes that aim to fulfil the organization’s strategic priorities and create value over the short, medium, and long term.

It shows how a firm defines, creates, delivers and captures value for, with and to its key stakeholders. It is important to consider the stages in the business model, which can be defined as shown in Table.

InputsInputs are the resources, relationships and other forms of capital that the organisation depends upon or which provide a source of differentiation.

Integrated reporting describes those inputs that are key to understanding the strength of the organisation’s business model.

Human capital – people and their interactions, skills and experience – is a fundamental component of any organisation’s business model.
ActivitiesCentral to the business model is understanding how inputs are converted into outputs through business activities.

These activities may include the planning, design and manufacture of products or the deployment of specialised skills and knowledge in the provision of services.

Business activities are what the organisation does to create value for itself and its stakeholders (including society).
OutputsAn organisation’s outputs can be identified as its key products and services, as well as any by-products, waste or emissions that require discussion, based on how important they are in understanding the robustness of the organisation’s business model.
OutcomesActually producing something or making a service available does not necessarily create long-term value. What is crucial is the internal and external consequences that occur as a result of the organisation’s business activities and outputs – their business outcomes.

Do customers purchase the output? Do they make repeat purchases or recommendations to other potential customers? And does the output generate brand loyalty?

Outcomes can be both internal (employee satisfaction and engagement, revenue) and external (customer satisfaction, tax payments) as well as either positive or negative.

It is this need to identify and describe outcomes, particularly external outcomes, which drives an organisation to consider the kinds of capital it uses beyond just those that it owns or controls.

The integrated reporting approach illustrates the way in which the business model creates value from the six capitals. Of central importance to the business model process is the role of people management and the people development process, as part of the HR or people function.

Integrated reporting provides a format for organisations to report on how their strategy, performance and prospects enable their business to create value in the short, medium and long term. It promotes a more cohesive and efficient approach to corporate reporting by providing a broader range of higher-quality information to providers of financial capital.

"IR" aims to highlight the complex inter-relationship between human capital and other forms of capital, such as financial or manufactured, and how these relationships create value within organisations. Although "IR" is primarily used by those providing funding, an integrated report will be of benefit to a wide range of stakeholders, including employees, customers, suppliers, local communities and policy-makers.

The capitals

An integrated report aims to provide insight about the resources and relationships that are used and affected by an organisation in the course of its business activities – these are collectively referred to as the "capitals". The capitals most commonly reported on by organisations are financial and manufactured, but takes a broader view by also considering intellectual, social and relationship, and human capitals (all of which are linked to the activities of people), and natural capital (which provides the environment in which the other capitals exist).

  • Financial - the funds available to an organisation.
  • Manufactured - physical objects that organisations can use in the production of goods or the provision of services such as buildings, equipment or infrastructure.
  • Intellectual - organisational knowledge-based intangibles such as copyrights, patents, tacit knowledge and procedures.
  • Human - people’s competencies, experience and motivation to innovate.
  • Social and relationship - the relationships, networks and ability to share information, including common values, brand reputation and key stakeholder relationships.
  • Natural - renewable and non-renewable environmental resources.

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