Which Would You Rather Rely On: Sextant, Lead & Line or GPS?

In October 1707, Commander-in-Chief of the British Fleet, Sir Cloudesley Shovell, was leading a flotilla of twenty-one ships back to England after their siege of Toulon during the War of Spanish Succession. The weather during the passage was extremely bad which made it almost impossible to determine the fleet’s location. On October 21st, however, the weather cleared and good readings of latitude were obtained using a sextant. An estimate was made of longitude, which at the time relied on soundings of the ocean depth with lead and line. Taken together these observations suggested the fleet was likely to be near the island of Ushant at the entrance to the English Channel. Unfortunately, it was not. It was 112 miles away near the Isles of Scilly.

Based on the faulty navigational information, the fleet headed toward what they believed was the mouth of the English Channel on the evening of October 22nd. In reality, they headed straight toward the Western Rocks of Scilly. As a consequence, four war ships smashed into the rocks and were lost and between 1,400 and 2,000 sailors lost their lives making it one of the greatest maritime disasters in British naval history. The navigational tools available to sailors in the early eighteenth century were unable to safely guide them home.

Today, sailors have a multitude of advanced navigational tools available to them that keep them informed of not only their own position, but the positions of other ships and obstacles in their neighborhood. Among those are a Global Positioning System (GPS) which monitors a ship’s location with the help of global positioning satellites in the earth’s orbit. 21st Century sailors would be foolish to forego such advanced navigational tools and rely on sextant, lead and line to guide them while at sea.

Management accountants serve as navigators of the organizations they serve. They provide a variety of measurements that are used by management to chart the course of the business. They measure where the organization has been, where it currently stands, and how decisions or actions will impact the organization’s future performance. One might think that management accountants would be anxious to incorporate the latest and most accurate concepts, tools and practices to support their navigational duties, but sadly, this does not appear to be the case.

The 1980s saw the emergence of new, more sophisticated and accurate business navigation tools that took advantage of the new technologies available to support them. Among those tools were more economically sound methods of determining costs; whether it be the cost of products and services, the cost of serving various customers and markets, the impact of planned operating decisions on costs, the cost impact of potential capital investments, or the change in costs resulting from changes in business volume and mix. Yet, management accountants have been slow to embrace these new tools. Surveys sponsored by the Institute of Management Accountants during the first two decades of the 21st Century have shown that although nearly 80% of financial executives believe the cost (navigational) information they provide management is inaccurate, less than 20% plan to do anything about it.

The consequences of using old, outdated, and inaccurate concepts and tools to navigate in business can have the same consequences as those experienced by Sir Cloudesley and his fleet. I’ve personally seen companies go out of business because their marketing, operating and investment decisions were based on “sextant, lead and line-based” navigation. On the other hand, I’ve seen companies go from poor and mediocre financial performance to superior performance after adopting, and effectively using, “GPS-based” navigational tools. Why would any sane navigator refuse to swap his or her sextant, lead and line for a Global Positioning System?

The Profitability Analytics Framework provides a comprehensive framework management accountants can use as a guide in expanding their role, adding value, and securing their future as the master navigators of business. It does not limit itself to costing issues or promote specific methodologies and it is not a “paint by the numbers” solution. Instead, it is a framework that details the areas in which management accountants must focus their attention – revenues, costs and investment – how those areas relate and rely one another, and how accurate models of each can be used to support management in all three phases of strategy – formulation, validation and execution.

The World Economic Forum’s “Future of Jobs Report 2020” report suggested that by 2025 analytical thinking, creativity, and flexibility will be among the most sought-after skills. These skills will be essential for management accountants as they concentrate their focus on addressing the areas highlighted by The Profitability Analytics Framework. Every organization is unique and will need to address its issues differently. Management accountants will need to use analytical thinking, creativity and flexibility to customize solutions that best fit their organizations. Those who refuse to give up their sextant, lead and line will undoubtedly go down with the ship that they personally helped guide onto the rocks.