A study of over three centuries of business at the Hudson’s Bay Company (HBC) – the longest-surviving commercial company in the world – reveals that the evolution of management accounting supports a company’s survival strategy.
Administrative studies Professor Gary Spraakman is the author of Management Accounting at the Hudson’s Bay Company: From Quill Pen to Digitization (2015), the 17th book in Emerald’s Studies in the Development of Accounting Thought. His book looks at the development of management accounting at HBC from 1670 to 2005, including the evolution of double-entry bookkeeping for managing companies in the English-speaking Americas.
This expansive study of 335 years at HBC was possible because the company kept virtually all relevant documents.
“HBC has the best archive in the world,” says Spraakman, who is also associate dean, students, in the Faculty of Liberal Arts & Professional Studies. “Management accounting does not change very often, but when it does, it is really important for strategic or survival reasons. The main thing is that it changes very slowly. When the firm is in serious trouble, then management accounting has to change. Good senior managers see the need for the change.”
HBC’s George Simpson was one such manager.
“In the period of 1821 to 1860, they had a very good management accounting system, which gave them a competitive advantage over all other firms. They were able to grow and prosper,” says Spraakman. “Simpson used management accounting to get trade goods to where they were needed at the right time in the right amount. In 1821, there wasn’t much in Canada: no roads, and trade goods came from London, England. The mode of transportation was the canoe and the crude York boat.”
HBC transported goods from London to trade for furs with Aboriginal peoples across Canada, and then sent the furs to London to sell at auction, he adds.
Spraakman’s book also warns that without astute managers, management accounting practices that outlived their usefulness continue to persist.
“To the detriment of the organization,” HBC kept their paper-based management accounting system for far too long, he says. “Until 2001, they avoided computerized systems that would order and manage the inventory from supplier to store shelves. They should have done that 15 years earlier.”
Spraakman’s advice to avoid the institutionalization of practices is to every now and again stand back and ask “what’s the best way of doing things? Management accounting should be challenged more often, rather than waiting until you are in big trouble.”