Business isn’t Rocket Science; it’s Formula 1
by Rafael Aldon, Director VenturesOne
(Flames erupt from the engine of Stefan Johansson’s Ferrari during the 1985 Monaco grand prix. Photograph: Rainer Schlegelmilch)
The covers are off the cars, the preseason tests complete, and this weekend the 2018 Formula 1 season begins in Melbourne Australia. As a lifetime fan of the sport, the thought alone is revving my engine, but I can forgive you if perhaps your initial reaction is a bit more, well… “meh.”
But it shouldn’t be.
A championship winning F1 team is the sporting pinnacle of teamwork, collaboration and technological innovation. If you are serious about business, then hear me out, and I’ll share a few of the reasons why I’m addicted to getting under the bonnet of the way F1 teams compete and what entrepreneurs and business leaders can learn from them to put their business on pole position.
Here are seven insights you can drive straight from the track to the boardroom to help you pull away from the competition:
1) The Need for Speed
The old rules of business were that the biggest and most established corporations would dominate the smaller ones. But just like the V8 engines (and more recently F1 Grid Girls), those days are over. The new maxim is all about speed. Those that can move the fastest and adapt the quickest will dominate the slower companies regardless of their size.
A quick comparison of the Fortune 500 list of companies from 1955 v 2017 highlights that 88% are gone. More than ever, big brand names that can’t remain relevant are dropping like flies with Toy “R” Us the latest bug on the windshield. Today’s highly profitable, well-run, big brand businesses are tomorrows MBA case studies on myopic business strategy. Perhaps none are more referenced than Blockbuster. It didn’t fail because it was poorly run, by all accounts the leadership had created a well-oiled operational machine. It was just unable to move fast enough when online streaming competition like Netflix (that management had dismissed as ‘highly-niche’ and ‘unprofitable’) suddenly went mainstream.
Let’s park the insanely fast cars for a minute- Formula 1 is of course all about speed, but in ways beyond the obvious:
- Speed in design & manufacture – A typical road car takes five to seven years to get from the drawing board to the road. F1 teams do this in five months.
- Speed in innovation – Formula 1 cars are made up of over 5,000 components that over the course of the season are often redesigned and improved. On average, a design change is made every 20 minutes.
- Speed in Logistics & Supply chain – The 2018 season will consist of 21 races held over five continents with sometimes only a week between races. Teams typically move over 30,000 kilos of gear by air freight alone plus the 60 personnel allowed to travel to each race. All these resources can never miss a deadline, ever.
- Speed in decision making – Team principals have to make the right strategic calls in high pressure and dynamically changing environments often under global media scrutiny. A decision to change tyres made a lap too late can cost a race or even a championship.
F1 Team Tip – If you want to win, you need to be agile, regardless of the size of your organisation. Focusing energy and resources on building a culture of speed can set you ahead of the rest. Building a fast and responsive organisation must be done without sacrificing quality standards needed to maintain customer and partner relationships.
2) Don’t Confuse Being First with Being Fast.
With the speed of technological change accelerating, leaders can feel under pressure to demonstrate how their organisations are more innovative than the next. This can sometimes manifest itself in radical direction changes in business model or product/service offerings often under the guise of obtaining a ‘first mover advantage’
A study, published in Organizational Science in 2015, examined data from 49 Formula One teams over 30 years of racing. The researchers investigated the amount of innovation each team incorporated each year and compared it to their race performance, paying special attention to instances when the FIA (F1’s governing body) made changes to the rules of racing.
The teams who made the most radical changes–disrupting previous norms for race cars–weren’t usually the most successful on the course. “Teams sometimes believed that the more the rules changed, the more they had to change along with them,” Jaideep Anand said. “But we found that small, incremental improvements were often better than big changes.”
So how can you mitigate the risk of failure when making more radical innovation plans?
Mature businesses that are serious about innovation can take a portfolio approach by allocating resources between three main areas- (i) their existing customers and core market, (ii) adjacent services and markets and (iii) new transformative customer offerings.
(Source: Nagji & Tuff, 2012. Harvard Business Review)
Google (Alphabet) is an example of a company that is inherently committed to innovation and applies a 70/20/10 ratio. Most of their innovation resources are engaged in improving what they are currently doing at the core. They aren’t afraid to develop more radical and transformative, longer-term ideas, where failure is less impactful on the bottom line.
F1 Team Tip – Look for incremental gains you can implement quickly. Protect the core while innovating at the edges. Being first to market is not the most significant advantage- it’s first to product-market fit that counts.
3) Big Data Analytics + Machine Learning = Winning Formula
The last 20 years of F1 has been a data-driven sport. The teams collect vast amounts of data over each race weekend. Approximately 243 terabytes of data were collected over the 2014 US Grand Prix alone.
Today’s F1 cars have up to 500 sensors recording real-time parameters from tyre pressure, wind force, brake temperature, fuel burn and countless other metrics. This information is relayed directly from the car whilst it screeches around a track, often to the other side of the world, for the team’s analysts to interpret and use for decisive decision making.
This data is used not only to inform strategy during the race but is crucial for design improvements from one race to another and in developing the cars of future seasons.
“Analytics has consumed the sport in ways like no other. With the ability to harness big data and actionable intelligence, teams can now pass on those trade secrets in industries such as pharmaceuticals and financial, as McLaren has done with GlaxoSmithKline and KPMG. The ingenuities of F1 car technology often filters its way down to the cars you and I drive daily, from fuel efficiency to safety, which shows why the sport is usually in pole position in terms of technology innovation and especially with data.”
(source – the innovation enterprise)
F1 Team Tip – To quote Peter Drucker: “You can’t manage what you don’t measure”. There are huge gains to be made from Big Data Analytics regardless of your industry. Tomorrow’s industry winners are taking big data analytics very seriously today.
4) Strategy – Big Data Drives Big Decisions
The flip side of the Big Data Analytics coin is that the sport is not just about correctly interpreting analytical information but also making the right strategic decisions in real-time race situations.
Beyond the confines of the race track, a small army of support staff are working on simulations to determine what a winning strategy may look like.
(Image: Mercedes AMG Race Support Room on a race day, source).
A model commonly used in F1 (and financial services) is the ‘Monte Carlo Simulation’. This is used to analyse the probability of different outcomes in a process that are hard to predict due to random variables. By running race simulations on supercomputers and changing variables in each race, teams are able to determine what would be the most probable outcome and create the most sound strategy.
During a race, it’s not uncommon to hear the drivers asking questions on strategy over the team radio, often followed by “We are still on Plan A” or “moving to Plan B” or similar responses coming from the garage.
Teams typically run millions of Monte Carlo simulations for each race, they can still be caught out by totally unexpected events. In such cases, there is nothing else to do but to run new simulations while the race is still in progress. As speed is of the essence, the teams at the race venue keep fast data-links open to their engineering HQs, where rooms full of interconnected PCs crunch through the new data. (source – the national)
F1 Team Tip – Big Data is only the starter-motor in building the engine for success. Decision makers need the right insights at the right time in order to make the strategic calls that will win the race. Having a Plan B and C will help teams quickly change course if circumstances dictate a new direction is needed.
5) Innovation Laps Regulation
Formula One has a lot of rules and they are frequently changing. The FIA, the sports independent governing body, police extremely detailed guidelines on every element of the sport from car dimensions and safety standards right through to how much air pressure can be in the tyres and beyond.
This creates a highly regulated, dynamically changing environment that in other industries (like banking for example) would likely be labelled as damaging to innovation. However, in Formula 1 this could not be further from the truth.
If you study the history of F1, it soon becomes apparent that the winning teams have always been those who innovated in their design and in the way they integrate technologies into their product. Take a closer look at the new 2018 Ferrari you can see what looks like a letterbox on the wing mirrors.
This new feature is clearly intended to improve the aerodynamic performance of the car by reducing the air resistance of the wing mirrors as it laps the circuit. The sports rules currently state the cars must have wing mirrors of certain size and position etc but they don’t say that the wing mirrors can’t have windows in them to channel the air flow. Limits lead to invention.
The excellent book A Beautiful Constraint outlines a practical framework to transform limitations into advantages. It brilliantly explains the mindset, method and motivation required to move from the initial victim stage into the transformation stage- where all F1 teams operate.
“It is often argued that regulation and compliance stifle Innovation – In reality, innovators are those who can interrogate the rules and exploit the opportunities regardless of context.” (source: Mark Gallagher, The Business of Winning)
F1 Team Tip – Industry Regulation is often regarded as a necessary evil but it is also an opportunity. Having the right mindset when approaching a problem will likely change the process and the outcome. Entrepreneurs that find the beauty in the constraints can turn a limitation into an advantage.
6) Championship Winning Teamwork
F1 is the ultimate team sport. The drivers may attain superstar status with millions of Twitter followers and private jets etc, but every employee is a critical cog in the overall performance of the team.
“What you see on the racetracks is just the tip of the iceberg. There is such a big structure below it; 90% of the car’s performance is being done in the factory and even the tiniest of jobs is important. Each of us has an opposite number in the other organisations and you shouldn’t forget that. You might be thinking you are just adding a little bit to the car’s performance but if you do your job better than your opposite number in the other team, that brings lap times down. You know, it drives me nuts to see a dirty entrance to the building because I want everyone to come here and say ‘Wow, that’s how I expect a Formula One team to function.” Toto Wolff (Executive Director of Mercedes AMG F1 Team)
Smooth communication between the trackside team and the support staff at HQ is critical and this can also extend to partners such as engine manufacturers and other technical partners assisting the team’s overall race performance. In the heat of competition, it’s faultless execution and teamwork that really wins races and probably none more so than the pit stop.
In this activity more than 20 crew simultaneously work on a car, changing all four tyres, adjusting the front wing angle, cleaning the air ducts etc, and all in typically 2-3 seconds. The Williams team have been consistently topping the charts over the last couple of years, you can watch them clock a stop at an incredible 1.92 seconds below. Blink and you could miss it!
Every team member has a specific duty to perform, knows what they have to deliver and relishes the challenge of being faster than the next team. The quest is more about consistency over out and out speed.
“There are 32 different tasks to perform during a Formula One pit stop, so the crew is performing them simultaneously, with each task choreographed in such a way as to ensure the required performance, consistency and safety. This year Mercedes estimated that they carried out 400 pit stops in training before the season started, and it’s not uncommon for teams to train every day, including at the factory. Red Bull has built a car specifically for pit stop practice so that while the race cars are being rebuilt or transported from race to race, the pit crew can continue training.”
“Ultimately everyone knows what they have to do, and the key point is that everyone must perform to the same level. Both accountability and alignment are critical. For that reason, well-being programmes have become important for the mechanics tasked with carrying out a pit stop. Gone are the days when mechanics lived on burgers and sugary drinks; now it all about having the right amount of sleep, nutrition and physical conditioning.” (source: Mark Gallagher)
F1 Team Tip – When competition is fierce the levels of commitment from every team member is the difference between a podium finish or a DNF (did not finish). Teamwork is about winning and losing together, learning from it and training together to deliver consistently excellent outcomes.
7) Partnerships Fuel Success
Teamwork doesn’t end inside the organisation.
The most successful F1 Teams leverage carefully selected partners that deliver best in class industry expertise to transform performance. Partners become an extension of the team that bring specialist skills or outside insights that can drive competitive advantage. Typically the partners are locked into stringent exclusivity arrangements to ensure secrecy and prevent race competitor teams from having access to the technology partners IP or skillset.
The massive global TV viewing figures for the sport has historically attracted many B2C brands but it’s clear that F1 Teams are increasingly committed to partnerships that offer greater value than money alone. Last month McLaren announced “a multi-faceted, long-term partnership” with Dell Technologies.
“McLaren’s agreement with Dell Technologies expands beyond the traditional sponsorship model. We are like-minded organisations led by the key principles of technical innovation and human progress at the cutting-edge of data-driven technology.”
“Formula 1 is a relentless environment, and partnering with Dell Technologies provides us with class-leading capabilities and support to drive invaluable efficiencies that will enable McLaren to perform at the highest possible level across our entire business operations.” (Zak Brown, McLaren Technology Group)
As the margins between success and failure get ever finer, F1 teams are actively pursuing partnerships with deep technology businesses outside of engineering and manufacturing fields to drive future success.
F1 Team Tip – Don’t expect your team to deliver radically new and improved performance without external insight from expert, highly-focussed partners. Moving beyond traditional supplier relationships to more strategic collaborations could deliver results beyond expectations. F1 Teams look for the best Tech partners out there because winning is everything!
(Giuseppe “Nino” Farina, takes F1s first official chequered flag victory at Silverstone, 1950)
These are just a few of the reasons I find the highly secretive world of Formula 1 Team Management so fascinating. If you would like to share anything on F1 or how innovation, technology and entrepreneurship are driving progress, then I would love to hear from you.