To thrive in today’s business world, businesses need more than just a good strategy or product; they also need to have the right people to execute the strategy and a culture that fosters innovation, collaboration, and engagement, writes AICPA & CIMA’s Associate Technical Director, Peter Spence, in his latest column.
Since my last column in December, where I explored the importance of having an engaged workforce and how to develop a performance culture, I have had the opportunity to attend some inspiring IFAC and IFRS meetings in Tokyo.
Inspiring because, despite some recent setbacks on global sustainability efforts and societal wellbeing, in Japan, where Integrated Reporting is not mandatory, over 80% of prime listed businesses voluntarily produce an Integrated Report. Virtue signalling, they are not.
Business leaders in Japan have a deep appreciation of the symbiotic and material relationships between business performance, workforce engagement, nature and the environment, and communities. Listening to their presentations and those of regulators and investors, it is obvious that communities are at the forefront of business performance management thinking.
And since businesses largely rely on engaged workforces to deliver for communities, workforce engagement is at the heart of business thinking in Japan. Business leaders think about their companies as interdependent elements of a wider biosphere. They naturally practice integrated thinking and have been doing so increasingly since the inception of Integrated Reporting in 2010 – more than a decade before the IFRS Foundation produced the Integrated Thinking Principles.
Research shows that while CEOs often believe their strategies to be sound, execution is where they fall short. In reality, 80% of businesses fail to realise the full potential of their strategies. This is hardly surprising since 95% of employees don’t understand their business’s strategy and are therefore not engaged or inspired by them. Indeed, Gallup’s recently published findings show that, globally, employee engagement fell to 21% in 2024, down two percentage points from 2023, only the second recorded decline in global employee engagement since 2009, and its lowest level since 2021. They estimate that this drop has cost the global economy $438 billion in lost productivity and that fully engaged workforces would boost productivity by $9.6 trillion, or 9% of global GDP.
The challenge then, and the single biggest opportunity for businesses, lies in bridging the chasm between strategy creation and execution. Integrated thinking can help executives address this gap by encouraging a holistic approach to strategy, taking in account various, interconnected elements such as financial, human, social, and environmental factors. The Integrated Thinking Principles help managers better understand how their decisions create value by posing key performance questions for governance and management teams, whose answers guide the development of winning strategies.
The key to driving business success? Engaged workforces.
Integrated Performance Management (IPM) offers a unique approach for bridging the strategy-execution gap by engaging workforces with corporate strategies. Engagement goes beyond merely understanding business strategies; it’s about inspiring employees, empowering them to execute, and trusting them to contribute. This is achieved by incorporating their experiences and ideas into strategy refinements, creating a dynamic feedback loop.
Embodying this concept, Sanjay Rughani, CEO of Standard Chartered Bank in Uganda and Chair of the IFAC Professional Accountants in Business Advisory Group, whom I heard speak in Japan, describes himself as the “Chief Enablement Officer.” IPM advocates for balancing enabling controls and coercive controls to instil a performance culture in businesses. Enabling controls promote flexibility and adaptability, fostering a no-blame culture that is more likely to drive performance and innovation than coercive controls. They provide guidance, clarify responsibilities, reduce stress, and help individuals feel more effective compared to environments dominated by comprehensive, top-down, coercive controls with inflexible procedures.
It should therefore come as no surprise that investors are increasingly interested in human capital. They recognise that a business’s prospects are entirely dependent on its ability to continue to develop, market, and make money from products and services.
The key lies in understanding how a business’s existing products and services were conceived, developed, produced, and brought to market. In short, investors want to understand how a business attracts, invests in, and engages its workforce, particularly how it plans to align its human capabilities with its strategies. This is where the Integrated Report comes in, enabling the business to explain how its human capital drives positive outcomes. This, in turn, enhances investors’ decision-making and influence on the business, which then informs human capital decisions within the company. It’s a self-reinforcing cycle.
A successful business relies on more than just having an ambitious vision or an innovative product; it’s the people that bring that vision to life, the people who design and build that product and make that vision a reality, that are vital in delivering success.
Businesses that align performance with purpose and – perhaps most importantly – effectively leverage their people to support their strategy, will be better positioned to achieve sustainable success in a dynamic landscape.
Learn more about Integrated Performance Management on our dedicated resource page and free Primer on Integrated Performance Management course.
