Strategy – Formula 1 – Most Important

This post uses a specific industry, Formula 1 (F1) car racing, as an example of how to articulate strategy; specifically, the critical aspect of strategy dealing with identifying the most important issues, which, once agreed, should remain an ongoing focus of leadership in any enterprise.

F1 is an intriguing enterprise to study because many challenges are well known, plus a new owner in 2017, Liberty, has stated a commitment to addressing those challenges. So F1 is quite obviously at an important cross-road. Over time, it will be possible to track Liberty’s actions against well acknowledged challenges and/or Liberty’s own view of what the most important issues are.

Introduction

Strategy occurs across three different time frames:

  • The past (what can you learn from it – without getting stuck in it)
  • The present (what is the state of the world today – without getting limited by it)
  • The future (what potential futures to plan against – without getting confused by it)

In this post, we will focus mostly on the present.

Strategy should consider both opportunities/strengths and threats/weaknesses. Few enterprises find themselves, for long, in a context of pure opportunity/strength or pure threat/weakness. The universe is not a static model; change is a constant.

F1s Opportunities/strengths

  • One of sports great brands
  • It is a going concern
    • 1.8B in revenue
    • 500M worldwide fans / 350M unique viewers on television
    • 4.1M attendees at races / 77,000 per event
  • Technology showpiece
    • Excellence in engineering
    • 3GB of data generated by a car in each race
    • 120 sensors on each car

Any F1 strategy has a great deal to build on. By many measures, F1 is a top ten sport globally, with 1.8B in revenue, 500M worldwide fans, 4.1M attendees at races, and a rich history. F1 has historically provided thrills, spills, great rivalries, and legendary drivers. Driving on the edge, in the best cars that people and 3D printers can build.

In terms of followers, F1 is no football (soccer) of course, but what is! Typically, you would have to work pretty hard to ruin something this good or be hit with some pretty powerful disruptive forces. Arguably, F1 has suffered a little of both. Nonetheless, a solid foundation to build on.

Perhaps the greatest strength of F1 is its engineering excellence. Liberty Media has already indicated this will be one of the centerpieces of the go-forward digital strategy.

In addition to the excellence in design, construction, and racetime crews, when you think about the 3GB of data generated by each car in each race, and the 120 sensors in each car, the potential for innovation is tremendous. F1TV viewers already can experience team radio, on-car cameras, timing data, and driver tracker maps. With initiatives like Roborace promising to up the game on fan engagement, and Formula E already adding fan boost, we are going to see some cool innovation in the coming years. The data and the sensors already part of the F1 package, provide a great foundation for competing and innovating in this area – this is an area where F1 should be looking to drop the hammer on.

F1s Threats / Weaknesses

  • Thriving in a world of regulatory & cultural penalties for fossil fuel-based activities
  • Growing the number of highly-engaged countries without losing roots
  • How to concurrently incentivize innovation and competition
  • How to concurrently manage safety and spectacle

The great pendulum of things has to also be considered. Some of what are seen as negatives today, are F1s reactions to what were seen as negatives in prior eras: “…creating exotic, wildly expensive parts that are used just once and then discarded, prioritizing spectacle over safety, extravagance over efficiency.”

Thriving in a world of regulatory & cultural penalties for fossil fuel-based activities

The tide is rising on the era of the EV, with almost every major manufacturer having released or in development of an offering. Regulation is encouraging design elements of all cars, production is ramping on EVs, and younger generations are increasingly concerned about global warming. Against this backdrop, F1s engines get criticized from all directions – they are neither the raucous, full-throated V8/V10s of years gone by, nor are they on the bleeding edge of EV. This might be an example of what strategists refer to as a straddle – neither one thing nor the other.

In an era of growing EV interest, growing regulation, and cultural shifts away from all things oil-based, declining viewership puts a spotlight on the question of whether F1 is losing its relevance.

Total viewership has been declining for many years, though there are differences within the major viewing countries. How to count the numbers is a game in and of itself. The shift of content behind pay walls provides F1 with large sums of guaranteed money, but also a) makes it harder to count viewership, and b) by its nature, probably restricts access to live viewing – though F1TV is seeking to lower this barrier with monthly packages starting at $2.99. The cost to go to an actual event is itself prohibitive for many people, though attendance is good at 77,000 per event.

Image result for formula 1 declining viewership

The FIA is promoting Formula E. The speeds are lower, the tracks are tighter, and it is still not as big as F1, but it could be the future. On the horizon we also have the specter of Robocar, and what ever follows it. Formula E have found a way to engage viewers with Fanboost, and the organizers of Robocar are suggesting they will find additional ways to engage. A new era of fan engagement for electric race cars could be the formula that turns on the young to a new generation of motor racing. Environmentally friendly, and digital strategy driven.

Oil-based motor-racing is going to face unique public relations and regulatory issues in the modern era. In trying to fit in to that envelope, the questions of both relevance and leadership emerges, especially as consumer focused EVs make claims of faster speeds (acceleration and top speed). Consider that in 2005, the Ferrari F1 engine was rated at 940 bhp, while the 2015+ Ferrari F1 engine is rated at 600 bhp. While EVs are on a power ramp, F1 has been on a power decline, in an effort to be more fuel-efficient and to improve safety.

F1 will have to decide whether to continue along the current path, return to the era of V8/V10s, or go all in on EV. This is arguably the most important decision F1 will make. Whatever direction F1 goes, it is probably going to want to make it clear that all that money that is being spent, is resulting in the best thing on four wheels; a battle that will play out both on the physical track, but also on the digital track.

[9/14/18 – Subsequent to this blog being published, Forbes reported that the head of Formula E and the President of the FIA have both said or implied that Formula 1 could not go EV even if it wanted to, because of the agreement with Formula E. This means not only is F1 in a strategy straddle, it is a structural one they are going to have a hard time getting out of. They may not be able to go EV, and they may not want to incur the social wrath, especially in Europe, that would come from going back to V8/V10s. So they are stuck in the middle with high-performance, turbo-charged, hybrid, 1.6 liter engines. Hopefully they are giving strong consideration to how they break the structural limitations so they have real strategic choices – that might be job#1 – and of course, maybe that is why they started the conversation in the first place].

Growing the number of highly-engaged countries without losing roots

There has been some criticism of F1 straying from the historic venues / tracks that made it great. The story line usually goes something like, F1 started charging exorbitant fees for hosting races, and that led to a shift to new tracks.

Every sport dreams of expanding its audience, often initial attempts deliver unease to historical fans who had become accustomed and familiar with a certain structure. Compounding F1 expansion has been criticisms of tracks, fan experience at events, and the removal of some historical tracks. How F1 goes about developing great venues, great fan experiences, and great driver experiences in new venues, is an important strategic issue.

How to concurrently incentivize innovation and competition

One of the recurring themes in F1 racing is the gap between those companies that make the largest investments, and do most of the winning, versus the rest, and thus, the lack of meaningful competition. Some would even say boring championships is one consequence, if not boring races themselves. This sentiment is accentuated by the view that some teams get a disproportionate distribution of prize money and other incentives. The other side of this argument is the view that only unfettered investment capacity can lead to innovation maximization. This issue was put into a little bit of context recently with the observation of the ever increasing costs experienced by Force India, and its consequential financial challenges.

Source: Forbes, Christian Sylt (Formulamoney), Sep 6, 2018

How to concurrently manage safety and spectacle

There are few other sports in the world that have as much tension between safety and spectacle as motor racing, which is to be expected when traveling in a thin shell at 200+ Mph / 300+ Kmh. F1 needs to be exciting to watch, which is a function of great tracks, opportunities to overtake, and a sense that the outcome is more decided by the skill of the driver than who has the best car. The latter is important to feed the fantasies of all us that imagine ourselves to be F1 drivers in our family cars – something Liberty believes they can address by further specifications that bring the performance of cars closer together; a specter, that by all reports, the top teams are not doing backflips over.

Under new ownership

New owners Liberty Media understand the need to feed the brand, and revitalize it. Pouring money into marketing and a digital strategy is the low hanging fruit that many owners of new enterprise often go for. Sadly, it is sometimes necessary, but rarely sufficient. The real test of the new ownership will be how they deal with the other opportunities and challenges. Liberty Media is saying all the right things: every event should be like a Super Bowl, a mission statement of unleashing the greatest racing spectacle on earth, video content distribution, games, virtual reality experiences, equitable revenue distribution to teams, cost caps, approaches to reducing grid penalties, simplified governance structure, putting the fans and the drivers at the heart of the sport. Some of these are tough nuts to crack. Telling F1’s story much better is essential, so a digital strategy is welcome. It will take more, it will take new ownership, willing to take on some of the tough strategic issues, providing clarity, and then providing sustained focus, over a long period of time.

Conclusion

F1 has great assets, but is also faced with great shifts in technology, regulation, and cultural sentiments. Those are the kinds of conditions under which strategy becomes important – because doing the same thing is going to result in declining returns. How F1 leverages its incredible brand, how it leans in with technology, how it tells the story of that technology, how it positions itself in a world that has become more attracted to EVs, how it balances safety and spectacle, how it balances innovation and competition, how it executes on a digital strategy including all dimensions of fan engagement…these are some of the most important things to any F1 strategy, at least with respect to the world as we know it today. As is the case with any strategy, a vision of the future, that goes beyond the challenges of today, and brings fans a new and compelling experience – a vision of something completely new, that is compelling to consumers/buyers, is never a bad thing. Those that just focus on the problems that are in clear focus today, are just focusing on the same things everyone else is focusing on – it’s a strategy, but it may not produce a break away strategy.

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