Integrated thinking and how to develop it

Associate professor at Australia’s Monash Business School and chartered accountant Nick McGuigan, Ph.D., describes ways management accountants can develop integrated thinking — including through “social bubble hopping”.

What you’ll learn from this episode:

• Why integrated thinking is important at both the corporate and individual levels.
• The characteristics of integrated thinkers: empathetic, autonomous, and purpose-driven.
• How you can learn to think in an integrated way.
• The role of “social bubble hopping” to better understand others and yourself.
• Why businesses need to manage and integrate internal and external relationships.

Play the episode below or read the edited transcript:

To comment on this podcast or to suggest an idea for another podcast, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.

Transcript:

Oliver Rowe: Welcome, Nick.

Nick McGuigan: Thanks very much, Oliver, and thanks for having me.

Rowe: Interest in integrated reporting continues to surge. A KPMG survey, for example, found that over 70% of Australia's largest organisations are using at least some of its principles. Would you agree, Nick, we're reaching a critical mass?

McGuigan: Yes. It's really interesting. I think we're now seeing organisations begin to understand the real importance of managing the different capitals that they use to create and add value. Understanding that value is added in multiple ways and not just through the financial capital is critical to the long-term viability of any organisation.

So, this is especially the case in a technologically dominated and driven world of artificial intelligence, automation, and global connectivity. We're now seeing a shift away from a solely reductionist approach in organisations; that is, trying to break up different departments and organising units with a deep dive analysis. While of course that's important, organisations are also starting to see that of equal importance is where they fit within the larger business ecosystem and the very real need to manage this accordingly.

There are global pressures on organisations from multiple perspectives. We now see Modern Slavery Acts, for example, in the UK and Australia. We see employee and consumer pressures on businesses that are creating equality, diversity, and social inclusion opportunities. The very real financial and business risk that natural disasters like our recent Australian bushfires have proven to kind of show in our local businesses in Australia. Investors are also really interested in this information and they're showing an increased demand for it.

Rowe: How does integrated thinking work at the business level? Does that have a role in company success?

McGuigan: Yes. I think if an organisation is able to think in an integrative way, then they have a deep understanding of the various capitals, those capitals being the financial, the natural, the human, intellectual, manufacturing, and social relationship capitals. It's important for the organisation to understand how they are used and managed through the business model to create the value for the organisation in the short, medium, and long term. It just makes good business sense.

An integrated approach means that these capitals are viewed quite holistically as a type of system, that an impact on one capital is going to affect the impact on another. And that needs to be managed accordingly. There's going to be compromise and contradictions between the different capitals we're using.

These need to be carefully thought through and designed in a way that creates successful outcomes. Of course, management accountants play a very real and critical role because we're the ones that are able to connect this information right across the business.

I think the practical issue here then becomes how is that information connected and how is it collected, and in what language and languages is it communicated to others of interest? So are the financials, the numbers, the only way to report this information and how can we get an integrated balance between the quantitative and the qualitative data that we're bringing and collecting?

And I think that's where us as management accountants may need to develop further our own expertise perhaps for now but also definitely into our futures.

Rowe: Integrated thinking starts at the individual level, you've suggested. So, for management accountants, is that how you see it?

McGuigan: In general, yes. Granted, of course we're influenced by the social context around us and the way we operate within our own businesses, but the actual thought process, it must occur in the minds of individuals before it can ever really be achieved at an organisational level.

I've spoken with the ex-chair of the International Integrated Reporting Council [IIRC] and global corporate governance expert, Mervyn King, quite a bit about this. Mervyn was instrumental in creating the King reports for global governance. And I've had many conversations in this regard with him.

Where I see the majority of the work, it's concentrated at the organisational level. So what's coming out of our professional bodies, what's coming out of the International Integrated Reporting Council, often thinks about integrated thinking at the organisational level. And of course, that makes sense. To create an integrated report, we need the organisation to think in an integrated way.

But ultimately, what I think we're forgetting about is the individual that is coming to have those conversations also needs to have an ability to think in an integrative way. So for me, the answer lies in the ability for individuals within the organisation to think in more integrative ways.

This, of course, is developmental and it's not at all that easy to achieve as it means really developing the ability to structure complex reasoning and appreciating that there are multiple paths to create that integrated account. I often see accountants looking for examples to the IIRC for guidance on the development of integrated reporting. In other words, a way of producing such a report.

But what we sort of not necessarily or we're failing to appreciate is the unique context in which our organisation operates. We have to be able to connect our business to those capitals in a way that's unique to the organisation. And so, often there might not be a standard approach to be able to do that, which means we have to be able to think more integratively and perhaps even more creatively too.

Rowe: And how do people change to think in this way?

McGuigan: That's a very interesting question. Psychologists in the '60s were working on a — they were doing a lot of work around conceptual integrative thought. They found that there were certain characteristics that assist in developing more integrative thought within professionals.

Those characteristics include complexity, first of all. That is an ability to understand and be comfortable with complexity. This means we're able as management accountants to recognise complex relationships. We're able to start to visualise them and we can appreciate the ambiguity, the contradictory nature, of some of the information as well as that it's not always complete.

The second characteristic we need to be thinking about is the idea of adaptability. We approach problems in new ways, and we can start to recognise that new approaches are needed. We have to be comfortable with change and the change process and know exactly when we need to adapt for different situations.

And then the last principle they described was this idea of open-mindedness, a willingness to see another viewpoint, thereby showing openness to interpretations different from our own.

So when we start to really analyse integrative thinking, we start to see that professionals with high degrees of empathy, that are autonomous in nature, and that are guided by internalised principles — that is, having a very strong sense of business purpose — are the strongest and most developed integrative thinkers, critical to achieving integrated thinking, of course, at the organisational level.

So there are practical things that we can start to be doing to try and achieve more integrative thought, both in ourselves as management accountants, also flowing through to the organisation. And sometimes some of these things we can be doing practically aren't always necessarily what we might think of within our professional trainings.

For example, what we've been working on with professionals back in Australia as well as our students and graduates at the universities for developing the professionals of the future is we're trying to think about doing something which makes us really uncomfortable. So putting ourselves in uncomfortable situations on purpose and trying to learn from those experiences.

For example, if we're used to order and structure in our daily environments, in heading to a creative art class over the weekend, it might make us feel a little bit more uncomfortable. It could be foreign to our ways of thinking, but in doing so we have the opportunity to learn from others we may not have contact with before, and we can start to see how we are reacting to an unfamiliar situation. Of course, that tells us a great deal about ourselves, but it also tells us more about our ways of handling situations and adapting accordingly.

A second thing we're starting to think about is this idea of gaining new insights and new perspectives and how we might go about doing that. A colleague of mine in Stockholm describes that process as a type of “social bubble hopping”. And so in bubble hopping, we start to hop across different communities or social bubbles to understand ourselves but also other perspectives in a clearer way.

For example, I might be used to heading to a baseball game in the weekend and that's the bubble I'm most familiar with. It's the context in which I enjoy and operate within the weekends. So I decided to then head to a scientific talk on evolution at the Museum of Natural Sciences or I might go and head out with a group of rock climbers on a Sunday afternoon for a different type of exposure and experience.

Trying to get exposed to different perspectives, which are then building our own ability to create an open mind, to be adaptable, and to think in complex ways. Of course, bubble hopping can be applied and operationalised within the organisation as an opening up of different experiences — bubble hopping to different locations, of course, bubble hopping to different departments, different experiences that you might gain in the professional context.

And then the last thing I think we can start to think about is looking for opportunities that are not the ordinary. I always like to think of that process as a type of developing one's own curiosity, looking for opportunities that may surprise us, that thinking about alternative ways to develop our own types of empathetic reasoning.

One of the best things to give a practical example, I was very interested when I was a young professional to try to develop my communication ability. And I wanted to think about something that wasn't thought of before, so I enrolled in an alternatives-to-violence course, which is often designed more for prisoners rather than the general business professional, if you like.

What was really fascinating about that course is it was all intensive experience learning. There was no ability to learn through notes or any of that type of process. We had to experience the type of communication process. In doing so, I was able to try to transition myself into the viewpoints of other individuals given the case context in which we were exposed to.

That intensive experiential course designed as a way of putting ourselves in the shoes of others, understanding alternative perspectives to our own, and starting to develop an ability to empathise with others. It's not something that I'd come across before in my business training, but it was something that's been so critically effective to my role as an accountant.

Rowe: Thank you, Nick. And today, what would be the top three takeaways for management accountants from our conversation?

McGuigan: I think first of all, number one, I think we really do need to appreciate the need for both an internal and a systems view of organisations. I think as management accountants, we need to be thinking of course across our organisation and across the business, but we cannot forget about where the business sits within its — more of a business ecosystem or environment approach. It's going to be increasingly critical into our future how we manage both those internal and external relationships and how we integrate them together.

The second thing, I think, is really that in order for an organisation to think in an integrative way, we as business professionals, we as management accountants, we're going to have to be able to think in more integrative ways. And developing our own ways of integrative thinking will be crucial into the future.

And then the last point I think to take away from the talk around integrated thinking is that we can actively work on our own levels of integrative thinking. It relies on an understanding and awareness of complexity and ability to remain adaptable and flexible to new situations and an ability to develop an open mind. All of these things we can actively be working on through both our professional and also our personal lives in a way that will start to link and add value to our professional careers.

Rowe: It's been a fascinating conversation, Nick. Thank you very much indeed.

McGuigan: Thank you very much for having me, Oliver. Greatly appreciated.