When organisations face risks or uncertainties far too big for any one organisation to solve, what can be done? In this episode, Paul Thambar, FCMA, CGMA, Ph.D., from Monash University in Australia, speaks about his recently published research on how Australia’s cotton farmers collaborated to solve an industry-wide pest and environmental problem and how management accountants can drive collaboration in their organisations.
What you’ll learn in this episode:
- Problems that Australia’s cotton farmers faced that no one farmer or organisation could solve.
- How stakeholders in the industry — cotton growers, researchers, consultants, the government — collaborated to tackle the issues.
- Climate change and modern slavery as examples of modern-day problems that will require multi-organisation collaboration.
- As business partners, finance professionals can be drivers of collaboration.
Play the episode below:
To comment on this podcast or to suggest an idea for another podcast, contact Alexis See Tho, an FM magazine associate editor, at Alexis.SeeTho@aicpa-cima.com.
Alexis See Tho: When organisations face risks or uncertainties in their industries, a common response is to hunker down and manage it internally, like cutting costs or making processes more efficient. But what if the problem is too big for any one organisation to solve?
Australia is the third-largest cotton producer in the world today, but a few decades ago, cotton farmers faced a major pest problem that led to more pesticides used, which in turn polluted rivers and affected communities.
In this episode, we look at a recently published research that studied how various stakeholders in the cotton industry collaborated and improved the whole sector, and what are the lessons for management accountants.
I'm Alexis See Tho, an associate editor at FM magazine and we are joined by Dr. Paul Thambar, FCMA, CGMA, one of the researchers of the study and is an educator and researcher at the accounting department at Monash University in Australia. Here’s our conversation.
Paul, welcome to the FM podcast.
Paul Thambar: Thank you, Alex. It’s great to be here.
See Tho: So Paul, can you give us a sense of how the cotton industry in Australia was like back in the 1960s, and what were the challenges that farmers faced?
Thambar: Sure. So the cotton industry in Australia has been around since colonial time. But the modern cotton industry was established in the early part of the 1960s by immigrant American farmers.
Cotton at that point began to be grown on a large scale in and around the northern New South Wales town of Narrabri. And at that time, the cotton grown was natural cotton, which required large quantities of water and the establishment of large, obviously dams, that could provide the water. So like the Keepit Dam, that sort of provided the impetus for cotton growers to start growing cotton on a large scale in this part of Australia. But the challenge for cotton growers in the early years was to really combat the problem of cotton pests.
Australian cotton, national cotton, is subject to a range of cotton pests, which were quite harmful in the impact that they had on the cotton plant.
These cotton pests roamed rather freely, and the only way that pests could be controlled at that time was through the use of very strong and harmful chemical sprays, cotton pesticides. The other big challenge for cotton growing at that time was obviously the large amount of water that it required. The problem with the controlling the cotton pests with cotton pesticides was that it was a vicious circle. The more you sprayed, the more damage you did not just to the cotton plant and the cotton pest but also to the surrounding ecosystem. But more importantly, cotton pests developed biological resistance.
Over time, more resistance meant you had to go to higher levels of stronger pesticides, which then created more damage.
This was the challenge by the late ’70s, early ’80s. The chemicals that were being sprayed on cotton farms were ending up in river systems and waterways and was polluting other agricultural sectors, like the livestock cattle farmers. The communities around cotton farms were getting very uptight about the environmental degradation that they felt and saw, and there was really pressure building on the sector. By the early ’80s there was a lobbying by communities and regional governments to the federal government of forcing the cotton industry to become more environmentally sustainable. And that sort of really brought massive challenge to the future of the cotton industry.
See Tho: So what was the research about? And what were the questions that it was trying to answer?
Thambar: We were provided with another opportunity to put in for a research grant that allowed us to go into the cotton industry to study how they collaborate, how collaboration was enabled in this multi-firm environment. We went in to the sector in the middle of 2012, 2013. This multi-firm collaboration had been happening for over 40, 50 years. With collaboration, there's two parts to it. There is the need to collaborate or the cooperation element getting everyone to cooperate. And then the other element, which is the coordination. How do you get them get multiple organisations to coordinate their actions?
Very often with cooperation, as we saw in the cotton example when you have an existential challenge, when you have a systemic uncertainty like that a challenge posed by the cotton pests, cooperation is almost a given.
Everyone needs to cooperate. They understand that no individual farmer could solve this problem on their own. But having cooperation is only the first step. How do you then coordinate the actions that you need to get not just across one or two farms, but across a whole industry sector with multiple types of stakeholders?
And what we saw in this industry was that they had set up a whole range of what I referred to as hybrid mechanisms. But they're essentially accounting and management control mechanisms that you would normally see in within a single organisation. Here, the sector has set up some of these mechanisms across the whole sector, and they were using it to enable this coordination, which we thought was quite interesting, because we had not seen this in the accounting literature.
See Tho: What about conflicting interests among the farmers and the various stakeholders? Because some of them are actually competitors, right? What made them want to work together, and how was their collaboration structured?
Thambar: The first part is easy to answer. As I said, the need to collaborate is when you have a problem that is bigger than you. When you know that even in on your farm, no matter how effectively you manage your cotton production and keep away the cotton pest, the cotton pests are not necessarily going to stop at your boundary. If your neighbour, if the neighbouring cotton farm is not able to control the cotton pest on their farm, those cotton pests are going to slip over the boundary wall and come into your farm.
So these farmers knew that the only way that they could be successful was if they work together.
So the need for collaboration, the cooperation element was a given because they had this existential problem. This is no different to some of the challenges that we face today in many sectors. For example, you know, we've got challenges around climate change. You know, you cannot, I think manage climate change by individual organisations trying to do something. You really need to get cross organisational collaboration. In a human slavery or the modern slavery as they, as they call it, along the value chain, one organisation, no matter how large or successful they are, will not be able to solve this problem, unless they collaborate with the whole value chain.
And it's not just about the cooperation, but it's also about the coordination, how do you get actions that are coordinated across multiple firms?
While these firms compete with one another, they knew that they had a problem that was bigger than them. And if they took a very short-term view of trying to fix this problem, you know, in a very isolated manner — I mean, they wouldn't be able to, but even if they thought that they could, you know, it would have been disastrous. So that's why they felt that they had that impetus to collaborate.
See Tho: So in this collaboration, was there a company that led the charge, so to speak, and the rest followed along? Or what were their contributions financially or in resources? Was it equally distributed? How did it work?
Thambar: Yeah, so the way it worked, was they, they had this group of pioneers, that they referred to as, theoretically, using this term “boundary spanners”. But these were cotton growers, cotton researchers, cotton policymakers and consultants, of a small group of pioneers, change leaders, if you want to call it, who came together and said, OK, we have a problem. We need to get everyone to collaborate, to resolve this problem of the cotton pests. But equally challenging for them was that they didn't know what had to be done. They knew to get collaboration across this whole sector required a range of mechanisms, collaboration mechanisms. They didn't know what it was. So this group basically started off by saying, OK, let's first start off by setting up some industry firms to get these different groups of stakeholders together so we can organise things, almost like a union organising all the workers in a particular sector.
See Tho: Some sort of a trade association.
Thambar: Yeah. So, for example, they set up an organisation called Cotton Australia, which became like a membership organisation for all the cotton growers. They organised by geography and regional locations. They started to have regular meetings and discussions where these pioneers or the boundary spanners went in and said, look, guys, we have a problem. This is what we think is the problem. We have these cotton pests, we are using pesticides, the pesticides are maybe controlling the cotton pests, but through resistance, and through the adverse effects of the chemicals, we are doing more damage or more harm than solving this problem.
So we need to get work out how better, what else can be done to improve the way we manage this problem. But we don't know how to do it. We need maybe research. So they brought in the researchers. These are ag science researchers who were working on some of these issues, but we're really needed to sort of, you know, engage with the growers to be able to understand, you know, what was the problem? Why do you think a pesticide that you're spraying on your farm ends up in a river 20 kilometres down from your farm? How does it get there?
So they know these things, and before they could even start thinking of the solution, they really had to do research to understand the problem and its effect. And then out of that, they started to develop what they referred to as best practices, basically, information that they put into a practice that said, OK, this is how you should do aerial spraying of chemicals, or this is how you should store your chemical. So basically, policies and procedures that they developed out of the research that they did.
See Tho: So we have the surveys, the research, and later best practices developed. Were there challenges when these farmers try to implement the recommendations?
Thambar: Yeah, so no. The reason they set up the information as a best practice was you can't have a one size fits all, because as you as you, if you're working with multiple firms, they are all different. They have a different way of — their different business model is different. Their strategy is different, but more importantly, the geography and the agricultural context is different.
So if you are on a farm, in Narrabri, and I'm on a farm, you know, ten kilometres down the road, the soil conditions, all the agricultural context that we are working in, is not going to be the same. They're going to be different.
So I cannot have the same procedure that you have, because it just won't work. So what happened was, these best practices were set up, so that each farmer could benchmark their current practices with the best practice and identify any gaps, and then develop an action plan to close that gap. So while they were doing it slightly differently, they were all in a sense, contributing to the same best practice.
So this is a classic way of using benchmarking, which is a key management control. So you look at your practices, you benchmark it to an industry standard, and then you identify gaps, and then you plan how you're going to close that gap. And as every farmer did that, over time, the industry as a whole became better in managing the cotton pest because the cotton production system across the sector was improved.
See Tho: Were there farmers who said, we're not going to do this, this is not in line with what I want to achieve?
Thambar: Well, again, I come back to the original — my point about the need for collaboration was a given, because they had this existential problem. Though, yes, during that period, there were people who went away from cotton farming and went and did other things because they just felt it was too hard to sort of change and improve the cotton production system. But for those who hung on and worked in the sector, they were sold on the idea that they had to change. They had to collaborate. They had to cooperate to solve this problem. The challenge for them was to work out how do we do this? How do we coordinate the action?
And all these mechanisms that I've been talking about were really designed not to get the cooperation, but to actually get the coordination going across multiple firms. So if you come back to the climate change challenge, if you take away the political — I mean, there's a huge political layer around whether climate science is factual or not.
So there's a there's a political angle that you really need to overcome. But if you take that, leave that aside, the challenge of climate change is really again, how do you get the transition happening? How do you get, say, a whole industry or a whole region to coordinate their actions? And I think what our study sort of provides is some insights into how you could set up similar hybrid mechanisms to enable this coordination.
See Tho: So it's been 50 some years since the cotton industry realised that they need to work together. What are some results from then, and how has the cotton industry in Australia changed?
Thambar: Today, if you walk in — and I think in that paper that we published — we have a quote that really captures the whole thing, but I just paraphrase it.
If you walk into a cotton farm, you'll find that that all cotton grown is transgenic. In other words, it's organic cotton. It is more resistant to cotton pests, uses less water. It's also a good example of how they've increased the years using a different type of cotton cultivar, as they call it. So the current cotton plant can produce something like 12 to 14 bulbs on a branch. Each bulb is where you get the cotton lint. Previously with organic, with natural cotton, you would get maybe two or three bulbs on a branch.
So, not only did they develop a cotton technology that was more resistant to cotton pests and use less water. They also created higher yielding cotton plant.
So a good example of where a developed economy like Australia is producing cotton that is, in terms of quality, is probably one or two, and it is competing with low-cost cotton that is grown in places like India, Pakistan, Kazakhstan, Tajikistan. Australian cotton is used with other low-cost cotton to manage the quality, to improve the quality of the cotton bale that goes into the clothes that you and I wear. So that was one thing. The cotton production system, the practices they use, is totally different to what they had before. It is more effective and efficient in the way they grow the cotton, the way they use the water, way they use pesticides. I mean, they still have to use a certain level of pesticides, but it's far less than what it was before. It's more targeted.
The whole industry is far more efficient, in terms of costs. I mean, previously, the cost of producing cotton was high because of the high cost of pesticides. Today, they are much more efficient in the way they grow cotton. So there's a whole sea change in the way cotton is grown and the way the industry is viewed. It is no longer seen as an environmental vandal, as they used to be. I mean, there's still some questions about water because cotton farmers traditionally tend to hold the rights to the water that we have in our big river basin system called the Murray-Darling. And there's a lot of politics around that. But in terms of the efficiency and effectiveness, if you compare the cotton industry today to 40, 50 years ago, it's totally different.
See Tho: Paul, what are specific lessons that you can pinpoint for management accountants today?
Thambar: So CIMA and many other professional associations are pushing this concept of the management accountant being the finance business partner working across business units within an organisation, not just doing the number crunching and the transaction accounting, but also taking that accounting information and helping business units and business managers to make better decisions. What we see within organisations is that very often, the finance business partner is really playing a role in helping collaboration to take place within business units, using the accounting information to get cooperation, and also helping to coordinate the activities that each business unit is doing in terms of helping to meet the strategy of the organisation.
And we use all the standard accounting and management control mechanisms that we have, whether it's planning, whether it's budgeting and variance analysis, whether it's performance measurements, KPIs, etc. I think we have a toolset, and we have the skills to be able to do this across organisations, because today, I don't believe any organisations operate in isolation. Most organisations are part of an ecosystem, whether they realise it or not. Yes, there is competition between organisations, but there's also a lot of collaboration. And as management accountants and finance business partners, we can help organisations in this ecosystem deal with these big challenges because we do face some big challenges.
And some of these challenges are bigger than any single organisation. We mentioned climate change. We mentioned modern slavery, water. If you are working in a sector where water is a key input, you know, that's probably an existential challenge in many parts of the world, because water is scarce. And there are other examples of scarce resources. So I believe that as management accountants and as finance business partners, we have an important role, and we have the toolset and the skills to be able to play a much wider role than just remain within our organisation. And that I believe is the key sort of takeaway for me from having done this work with Australian cotton, and I would encourage all management accountants and finance business partners to be thinking more broadly than just their own organisation.
See Tho: Well, Paul, thank you for speaking to us.
Thambar: Thank you, Alexis.