Innovation vs Regulation

April 12, 2014

Lotus 49 & Ford Cosworth DFV

Lotus 49 & Ford Cosworth DFV

I just came across an interesting blog piece on the Virgin Disruptors Website regarding innovation vs regulation: http://www.virgin.com/disruptors/regulation-v-innovation-five-key-battlegrounds

It outlines a series of cases where regulation, often stimulated by lobbying from the incumbents, attempts to stifle some of the creativity of innovators. Undoubtedly this is sometimes the case, but a question which has interested me has been whether regulation can also stimulate innovation and create game changing opportunities rather than just protecting the profits of some rather comfortable firms who have grown lazy from success and want to avoid new competitors at all costs.
Last year I put in a research bid for some funding from the Leverhulme Foundation which aims to provide two or three years funding for academics who would like to spend some time on researching something they are really passionate about, but due to admin and teaching responsibilities haven’t had the time to do it. I felt I was a good case (but they obviously didn’t as I didn’t get the grant!) and of course my passion was to look more deeply into the world of Formula 1 and in particular the relationship between innovation and regulation. The situation today is a case-in-point, for 2014 we have totally new propulsion system, with V6 turbo-charged 1.6 litre engines combined with sophisticated energy recovery systems which create a further 160kw from mechanical and heat energy recovery. These systems are innovative, but it’s been quite interesting how some of the well-established teams and movers and shakers are unhappy about the changes and the way it has shifted the balance of competitive performance between the teams.

A major regulation change is of course both a threat and an opportunity. Back in 1966 the FIA decided to change the engine regulations and move from a 1.5 litre engine to a 3.0 litre (interesting that we have now gone in the opposite direction). For the British teams such as Cooper and Lotus this was a major threat as their engine supplier – Coventry Climax decided that they could not afford the costs of designing a new, bigger engine and so it looked like well-funded teams with the engine technology, such as Ferrari, would dominate. Colin Chapman at Lotus had a different plan. He sought to persuade Ford to fund the development of a new 3.0 litre F1 engine which would be a technological revolution. The Ford Cosworth DFV was designed as a stressed component of the car which meant that the engine could be simply bolted onto the rear of the chassis with the rear suspension and gearbox fitted onto the rear of the engine. It was powerful, light and cheap (in 1968 an F1 team could buy the engine for £7500, so Ken Tyrrell told me!), it created the many F1 constructors based in ‘Motorsport Valley’ that still remain today with eight out of the eleven F1 teams all based within a fifty mile radius of Oxford. So occasionally regulation does stimulate innovation, and with some pretty spectacular consequences.

On 29 July 2013, the day after the Hungarian Grand Prix, an interesting piece appeared on the Ferrari website entitled ‘A turning point to tackle with a knife between the teeth’. It related the comments of Ferrari President Luca de Montezemolo, who was apparently less than happy about the team’s performance, and also the behaviour of its lead driver, Fernando Alonso. The piece stated baldly that Montezemolo had ‘tweaked his (Alonso’s) ear’ reminding him that “all the great champions who have driven for Ferrari have always been asked to put the interests of the team above their own. This is the moment to stay calm, avoid polemics and show humility and determination in making one’s own contribution, standing alongside the team and its people both at the track and outside it.” Nobody seems entirely sure why Alonso was on the receiving end of Montezemolo’s ire, but one theory is that it was his reply when asked what he would like for his (forthcoming) birthday, his response was ‘a new car’.

The public castigation of Ferrari’s most expensive employee by the President gave me a real sense of déjà vu. Last night I was re-reading one of Niki Lauda’s memoirs ‘For the Record’ written in the late seventies and focusing on his experiences during the season of 1976 when he almost lost his life and did lose (by a very small margin) the World Championship to James Hunt. I had got to the part where he was being criticised in the media by Enzo Ferrari saying that he made a mistake by coming back too early for the Grand Prix at Monza. Enzo Ferrari was renowned for communicating his pleasure or otherwise with the race team, Gestione Sportiva, via the media and it seems that Ferrari’s current President is following a similar line. However, interestingly, Montezemolo started off by saying that “The Ferrari I saw in yesterday’s race doesn’t sit well with me.” If he is following Enzo’s tradition of criticising his drivers through the media, he is not following his other tradition of never criticising his cars, but then I guess they don’t have his name on them.

Luca Marmorini, Ferrari’s Head of Engines, has been quoted in Autosport.com as saying that it is important that Ferrari have a second (ie in addition to Sauber) customer for their 2014 power unit – note the term ‘power unit’ as effectively these are engine + energy recovery systems, so the simple term ‘engine’ no longer seems to do it justice.

The reason for this concern is that their current second customer Toro Rosso have recently announced that they will be shifting to a Renault power unit in 2014, which makes sense organizationally as they are co-owned by Dietrich Mateschitz of Red Bull with Red Bull Racing, so presumably they can share more data during development and racing and therefore improve the performance of both teams. However Toro Rosso’s location in Faenza makes Maranello the ideal partner from a logistical point of view as they are literally a few kilometres down the road. Location matters in F1, otherwise we wouldn’t have Motorsport Valley in the UK, and so the proximity between the power unit supplier and customer cannot be ignored. For this reason, Marmorini hopes that all is not lost with Toro Rosso and that they may review their decision to go to Renault, as he says on the Autosport site:  “I don’t know if Toro Rosso will be with us next year. We are still working very well with them now. They’re an important contribution to Ferrari engine development, but I also think we are giving them a competitive engine.”

A key factor in this is data. Derek Gardner, the now sadly departed designer of the six wheel Tyrrell, told me that a key problem that they had with the six wheeler was the speed of development of the front tyres, which were far smaller than the standard F1 front tyre that Goodyear supplied to all the other teams. As a consequence they were getting far less data on the performance of the tyre – as it was only fitted to two cars and so were unable to develop it as fast as the other which had feedback from twenty four cars (there were 13 teams racing back in 1976). Data therefore is everything if you want to improve performance.

So currently it seems (and things could still move around a fair bit) that if Toro Rosso move to Renault then Renault will be the leading supplier with power units in five teams: Red Bull Racing; Toro Rosso; Lotus; Williams and Caterham. Mercedes will be supplying power units to three teams: their works team plus McLaren and Force India. Ferrari will be supplying two teams – themselves and Sauber. It seems very unlikely that Cosworth, who currently supply Marussia, will be in the frame for 2014 (but never say never) and so who knows, we may see Ferrari supplying the power unit for Marussia, which will make an interesting dynamic in their race with Caterham to tenth place.

So after a great start to the 2012 season the F1 teams have left Melbourne and are on their way to (or have already arrived in) Malaysia. Aside from the racing, which is sometimes more interesting than the politics of F1, is a recent piece on the Autosport website by two well connected F1 journos: Jonathan Noble and Dieter Rencken. The piece is significant as it suggests the underlying reason as to why both Ferrari and Red Bull Racing left the team’s association: FOTA.

One of the perpetual tensions between Bernie Ecclestone’s Formula One Management (FOM) and the F1 teams, is that the teams feel that they are not receiving their rightful proportion of the media/ circuit revenues – as they are a key part of the show – and Mr E points out that they are taking none of the risk in running races and securing media deals and therefore do not deserve a more significant share of the benefits. The indications from the Autosport piece is that this could be the start of a process where some of the teams actually end up taking a stake in the commercial side of F1. They speculate that Ferrari shares could be transferred to provide them with a stake in the sport – you may have seen that the Lehman Brothers $1.5billion stake in F1 is up for sale, so ‘go figure’ as our American cousins like to say.

While the Autosport piece makes no direct reference to Red Bull Racing, or their owner Dietrich Mateschitz, acquiring a stake, they do mention RBR in the same piece with a quote from Christian Horner, so there is a certain amount of implication by association going on. An investment by Red Bull would make a lot of sense as Mateschitz currently owns two teams (RBR and Toro Rosso) and so, you could argue, is more exposed than individual teams and could therefore, like Ferrari, see the sense in acquiring equity in FOM. This provides a rather persuasive explanation for why they left FOTA, as presumably this placed some restriction on their flexibility in dealing with FOM, which could involve a range of issues, including share swops or buying shares for cash. Of course all of this is pure speculation at present, but I suspect the story will unfold simultaneously with the negotiations for the Concorde Agreement. I hope that the politics etc. don’t become more interesting than the racing, because I hope the racing will be fantastic this year, but I suspect that we will have a fascinating sideshow evolving that will certainly bring about some different arrangements than we have seen in the past. Don’t expect more of the same.

The Future of FOTA

December 7, 2011

The news that both Ferrari and Red Bull Racing are planning to withdraw from FOTA has led many to suggest that this is the end of the team’s association. Clearly it is better for the teams to act as one if they wish to get a bigger share of the FOM revenues, but as seems to always happen, self interest is the decider at the end of the day. They are all agreed that they want to reduce costs – doesn’t any organisation? The important question is therefore how do you do it? When you’ve got your own bespoke test track then a ban on testing means you can’t use one of your key assets to improve your performance, so you can see why Ferrari would feel that being in FOTA isn’t in their best interests, RBR are in a different situation where their business model is a very different one to the other teams, so, again it may make better sense for them to go their own way. Of course we also have HRT who were the first to leave FOTA back in January 2011. The other reason rumoured for the departure of Ferrari and Red Bull Racing is the issue of third (or fourth) cars where constructors are allowed to sell/loan their cars to other teams, a practice well used in the 1950 and 60s. Stirling Moss’s legendary victory for Lotus at Monaco in 1960 was not achieved for Lotus Racing, but for Rob Walker’s private team using a Lotus 18. This is an issue which FOTA has been divided on and it could be argued that building more cars would effectively reduce the costs of certain teams such as Ferrari and also for RBR, whose original concept was to provide cars for Scuderia Toro Rosso. It’s just a very different way of achieving the same objective.

However regardless of the reasons for Ferrari and RBR to leave the team’s association, does this spell the end of FOTA? As history has a habit of repeating itself, it is interesting to note that in the controversies around previous Concorde Agreements, there were three teams who were united in refusing to sign up to the fourth agreement which was due to run from 1997 to 2002. They were McLaren, Williams and Tyrrell. In many ways it was this stand that led to the financial demise of the Tyrrell organisation, a team who had dominated F1 in the late sixties/ early seventies. Eventually a revised, fifth, agreement was drawn up which included the three teams and was to run from 1998 to 2007. The current (sixth) agreement is to run until the end of 2012, and this is where the negotiations are focused. The point of history is that the three teams who resisted the fourth Concorde Agreement are very much at the heart of FOTA today, McLaren providing the chairman, Williams a committed participant and the team that was originally Tyrrell Racing has now morphed into Mercedes GP (sorry Mercedes AMG GP!), via spells as British American Racing and Honda, with senior management team Nick Fry and Ross Brawn very much committed to FOTA. So even if FOTA doesn’t represent all the F1 teams, it may represent a significantly powerful voice that can influence the terms of the seventh Concorde Agreement, if it holds together.

There are relatively few examples today of where a single leader imprints their personality on an organisation. A couple from contemporary businesses would be Steve Jobs at Apple (now holding more cash than the USA) and Richard Branson at Virgin. The question will be how long after these individuals have gone will their shadow remain in these organisations? I am reminded of a documentary I watched on the making of the Disney animated film Hercules. The Artistic Director was artist Gerald Scarfe (remember the animation of Pink Floyd’s The Wall? – that was Scarfe). There was one scene where Scarfe had drawn a satyr which showed a certain amount of buttock cleavage, ‘I don’t think Walt would like that’ said one of the Disney animators, who’s Walt I immediately thought, was he one of the producers? He was referring to Walt Disney who died over forty years ago, but clearly his spirit was alive and well throughout the organisation.

I have been very fortunate to have been able to meet and occasionally interview many of the movers and shakers in F1, but if I had to select the one person I would have loved to ask some questions to, above all others, it would have been Enzo Ferrari. Like Walt Disney, Enzo’s presence is still very much in evidence at Ferrari. The term ‘racer’ is often used to describe someone whose very being is driven by the need to race, and win races. If all of the money disappeared from F1 many people would disappear, but the racers would still be there. Enzo was the original racer, he was, at one time, a works driver for Alfa Romeo, he created one of the first motorsport companies: Scuderia Ferrari which provided cars and the support for rich individuals to go racing. His road car operation was there to help raise funding to go racing. Many car manufacturers have tried to emulate the Ferrari mystique by racing to promote their road cars. None of them come close and the reason is Enzo Ferrari, his passion and his values. I recently managed to get a copy of his autobiography ‘My Terrible Joys’, it is one of the best motorsport books I have ever read, it is candid and insightful, it is, of course, his view of the world, but it is all the more engaging for that.

It is now twenty three years since Enzo’s death and Ferrari have just put a piece on their website asking for comments on the great man:  http://www.ferrari.com/English/Formula1/News/Headlines/Pages/110814_In_memory_of_Enzo_Ferrari.aspx

I am certain that Enzo’s shadow will be there for as long as there is a prancing horse on a Ferrari.

So which do you think was the better race – a grand prix that lasted over four hours and where spectators had to endure hours standing in torrential rain, or a sunny, on time race in a beautiful Spanish city? Montreal and Valencia could not have been more different, and the biggest difference was the racing – in Valencia there really wasn’t any.

Winners

Vettel: Sebastian seems to have moved his driving onto a new level, and despite the mistake in Montreal which created Button’s victory, he really is looking untouchable. Hard to see how he can now lose the 2011 title, but stranger things have happened.

Ferrari: Despite a lot of criticism Ferrari seemed to be the only team with the race pace to keep RBR in check. As usual Fernando is the one that is always there to find the sudden opportunity. He could still win this championship.

Lewis’s radio broadcasts. I always enjoy Lewis claiming 100% visibility when it was chucking it down, as he did in Montreal. In the end it didn’t do him any good, but his radio broadcasts are always entertaining, or LOL as my daughter would text. I particularly enjoyed ‘ I can’t go any slower’ when his engineer was asking him to be more careful with the rear tyres, followed by ‘I can’t go any faster’ when it looked like he was dropping back towards Felipe Massa. F1 would be so much duller (yes really!) without Lewis.

Jaime Alguersuari: Alguersuari has come in for some (undeserved in my view) criticism in the last few races. He silenced his detractors in Valencia with a great drive from 18th on the grid to 8th in the race.

Losers

Valencia Circuit: Although it looks great, with the bridge and the old gothic fish market, but since the first grand prix it has only been able to produce mind numbing processional ‘racing’. Given that Bernie has always said there are too many European Grand Prix, it has always been strange to have two Spanish races, if we have to have two can we find a better track?

McLaren: McLaren made some good calls in Montreal, but the race really didn’t work for them in Valencia, perhaps it was the high downforce, or perhaps they don’t go well at boring tracks, let’s see what happens at Silverstone.

Michael Schumacher: Finished 17th, unlike some, I’ve been very reluctant to write Michael off, but as Vettel looks more and more like a champion, Michael looks less and less like one.

The Canadian GP was over four hours long from flag (or rather lights) to flag. It was also quite the most extraordinary race that we’ve seen for some time.

Winners

McLaren: It has to be said that so far this year McLaren do not appear to have really delivered on the promise their car has been showing. But that changed in Montreal, well it certainly changed for one of their drivers and the team must take a fair amount of credit for opting for the high-downforce setting, something that neither driver seemed particularly happy about during qualifying, but it paid off in the race.

Jenson Button: It is perhaps a bit unfair that Jenson’s Championship season was achieved in an outstanding car, and one which most people remember for the rather creative interpretation of the regulations relating to rear diffusers. However it has to be said that on his day Jenson is peerless and this was another one of those days, he showed the kind of controlled aggression that you only associate with the best of Champions. There are still a lot of races to go (although not quite as many as Bernie might have liked) and there is still plenty of time for things to shift in the championship stakes in Jenson’s favour.

Charlie Whiting: Race Director Charlie Whiting often gets a lot of stick over this or that, and particularly from Martin Brundle relating to how long the safety car is out. Of course we don’t want to see safety cars, but we want to see loads of wrecked cars and injured drivers much less. I think he achieved a great balance between anticipating undrivable conditions and keeping the racing alive for the fans. I was convinced the race was going to be called off during the red flag period – not because I wanted to watch Antiques Roadshow - but because I felt that was the lower risk route. But he didn’t and what a race we had. Thanks Charlie.

Sir Stirling Moss: Stirling has retired from racing at 81 years old after giving himself a fright on the Mulsanne straight at Le Mans, the equivalent of what most other 81 year olds might feel batting along the pavement in their mobility scooters. What an absolute winner, never a champion, but one of the most respected drivers of all time, and someone who Enzo Ferrari rated as the closest to Nuvolari he’d seen, you don’t get higher praise than that.

Losers

Lewis Hamilton: Lewis could have won this race, but in the way that Alonso is often ahead of his car, Lewis seems to be ahead of everything, particularly the car in front, before he’s passed it. There seems to be an air of desperation about Lewis’s driving. Let’s hope he’s got things a bit more under control for Valencia.

Ferrari: As in Monaco Ferrari showed great promise for the actual race with Fernando not really being able to mount a serious challenge. Filipe had a rather erratic race, but redeemed himself with a last minute charge to take sixth away from Kobayashi.

Team Lotus: With one HRT and two Virgins ahead of them at the end Team Lotus won’t have been happy with their days work. They need to start making progress if they want to seriously challenge Toro Rosso, Sauber, Williams and Force India.

With Sam Michael and Jon Tomlinson leaving Williams, and the news that Aldo Costa will be standing down from the Technical Director role at Ferrari, it looks like some of the F1 teams are getting into panic mode and believe that a bit of firing is needed. Unfortunately, although such managerial machismo may create the impression of decisiveness from the top, it will only work if these specific individuals are the real source of the problem. Quite often this is not the case, and that means that the problem remains but is now compounded with all the effort and disruption of recruiting or promoting new people and integrating them into their new roles.

When we interviewed Ross Brawn at Ferrari back in 2004 we asked if there was a particular innovation that had created their success, this was his response: “… if we had an innovation here it’s the fact that we combine the engine and the chassis together as one whole, but we apply that principle to all areas of the car with the electronics, the engine, the chassis, the aerodynamics, the structure, it all had to be a whole, there was no point in having one area very strong and the other area weak.” Aldo Costa had replaced Ross in this overarching role focused on ensuring that all the departments worked together to get the best overall result – this role requires not only managerial skill, but also technical knowledge and capability, these ingredients are only found together in a few key individuals, Ross Brawn is one of these and apparently Aldo Costa is not. However Ferrari have now segregated the technical roles into chassis (Pat Fry), engine and electronics (Luca Marmorini) and production (Corrado Lanzone), each reporting into the team principal. This implies that the only person with an overall responsibility and overview is Stefano Domenicali. Stefano is a lovely guy and a great manager, but he doesn’t have the technical insight of a Ross Brawn to knit the whole thing together, that is what Ferrari need now.

John Hogan is a man who has seen it all in Formula 1. As a key part of Phillip Morris’s development of the Marlboro brand in F1 he has been behind the scenes of many of the shifts and changes over the last forty years. Having had the privilege of sharing a platform with him in the past, I know he is also pretty clear as to who the most influential people have been in the history and development of F1. In his view there are three: Enzo Ferrari, Colin Chapman and Bernie Ecclestone. Each has had a profound effect on the sport/business of F1 well beyond their respective organisations. Ferrari in building the world’s most renowned motorsort business, capturing the blend between mystique, glamour and the power of racing; Chapman in driving new technologies and commercial opportunities, providing the basis for today’s focus on aerodynamics and the use of commercial sponsorship; and Ecclestone by creating a global media product out of a series of fragmented commercial arrangements between race organisers and teams, which is today surpassed only by the Olympics and World-Cup Soccer, and they occur every four years. The big question of course is will anyone approach the contribution and impact that these three gargantua have had on the development of Formula 1? I don’t have a ready answer, but I think Tony Fernandes could be on the right track.

One of the biggest challenges for global motorsport today is not finding new F1 races, but building the grass roots enthusiasm that underpins the development of talent and expertise that are needed for the future. With purpose built F1 circuits in places like Malaysia, China, Korea, India and Abu Dhabi the problem they face is that, unlike those in the UK, Italy, USA and Japan there is virtually no grass roots infrastructure of racing to support them. The next big opportunity is therefore to embed motorsport in these areas, in a sense to build the foundations under the house, because without this there will be no sustainable future for these circuits.

In addition we see many of the world sports car manufacturers fighting to go even further upmarket. In a market segment which is already well populated by powerful brands such as Ferrari, Porsche, Mercedes and Aston Martin we now see firms like McLaren and Group Lotus also trying to enter this space. Of course everyone wants high value products which can make massive margins due to their brand strength (just look at the success of Harley Davidson as an example of this), but that’s just the problem everyone wants to be there and so the competition is immense, and this of course puts downward pressure on margins. The big opportunity is not to go for the obvious high value end of the market, but the low value, low price segments which has the potential to grow the market and grow the enthusiasm that is needed to underpin and engage with motorsport in emerging markets. That is exactly where Tony Fernandes seems to be heading by linking his F1 project with the Caterham Car company, I think the opportunities here are immense, and it could be that Fernandes is making a small step on the road to becoming the fourth F1 visionary.

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