When thinking about naval combat we started out with the Hearts of Iron 2 system as our base. Things like range and positioning worked very well as a concept and we used this as our base, however we felt it could be improved.
The first change we made was that each ship determines itís own position. No longer will destroyers simply sit around doing nothing while the big ships, instead they will close in themselves. Seek to engage the enemy screens and should they be eliminated they will start engaging bigger ships. Secondly with ships positioning themselves separately naval units can be positioned into combat separately. Thus each unit will roll its search value separately and then be positioned according to how well it fails or succeeds in this. With one additional proviso Capital ships will have a smaller deviation. Although this sounds a bit weird we are working with the following logic. A naval task force will actually be in a fairly widely dispersed formation with the smaller ships screening the larger ships, meaning that you are more likely to find a light ship on the far side of the formation (and thus needing longer to close). While heavy ships like Battleships and Battlecruisers are more likely to be concentrated together in the centre of the formation (thus their smaller positioning error). The upshot of this is a fleet made up of destroyers and light cruisers meets a mixed battle fleet they are more likely to get picked off piecemeal by the concentrated fire power of the heavy surface units.
When it comes to combat itself we have reworked the interface so each individual shipís displayed with itís own positioning so you can see at a glance which fleet units are engaged, plus the enemy ships as well. However just because you can quickly see how your combat is doing doesnít mean you can simply leave it. Instead once a retreat is ordered it will take time for the ships to disengage. This is influenced by weather, if it is at night and how long the combat has lasted to determine if the units can escape. In addition there is also a chance that the two fleets will simply lose contact with each other during the fight, again modified by the same factors. Thus two fleets can simply just lose each other in the confusion of combat, especially in a fight at night and in bad weather. Not in the case of breaking combat neither fleet actually retreats and will start to search for each other again. Leading to the possibility of a running combat happening at night as various ships find each other and then lose each other again in the dark. As radar increases spotting, radar-equipped ships should quickly find the enemy again.
I suppose we should end with a note about carriers. Yes carriers not longer fight in Naval combat (well ok they do just very very badly), instead the CAG is now a separate air unit that can be used as an air unit. Thus you can bomb enemy air bases and support naval landings with it. However the actual effectiveness of the CAG unit is modified by a carrier tech value called hangar. This is essentially the amount of physical space on the carrier for air units. We also have a separate tech for armour. A rather neat consequence of this is we can model the differences between the design philosophies of the British carriers as compared to the American and Japanese ones quite neatly inside the tech system.