Case Study: Innovation in a competitive sector

The story
For the 2009 Formula One season, a new set of rules on the design of the cars was introduced by motorsport’s world governing body, the FIA (Fédération Internationale de l’Automobile).

The new rules included an option to implement a new energy-efficient technology known as Kers, or “kinetic energy recovery system”. It recovers the energy dissipated during braking; stores it; and makes it available when the driver needs extra power to accelerate. In F1 overall, there was a push to develop fuel-efficient technologies, and the move promised to increase the excitement for spectators because of the potential for a boost when overtaking.

The challenge
Most of the F1 teams recognised the potential of Kers but they also had to weigh several risks. First, the FIA did not specify how the teams should develop their versions of Kers. While free to decide, they were unsure about how to design it, including whether to outsource development of the technology or keep it in-house.

Second, Kers adds to the vehicle’s weight, which would increase wear on the tyres, reduce the ballast for balance optimisation, and mean drivers would have to be small and light. The teams would have to assess the point at which the gain in performance exceeded time and money lost in developing it.

Third, there were reports of the battery overheating, electric shocks to the mechanics, and even fires.

Finally, the teams could not judge how exactly they would use Kers, as the FIA planned to limit its use to certain circumstances.

The strategy
As habitual champions of innovation, many of the leading, wealthier teams – Ferrari, BMW, Renault and McLaren – equipped their cars with Kers. Among their rivals was the Brawn GP team, which was set up by Ross Brawn in 2009 in an 11th-hour management buyout rescue after Honda suddenly pulled out of F1.

A celebrated figure in motorsport, Mr Brawn had to consider the uncertainty around the potential benefits and operation of Kers and the team’s tight finances.

He chose to focus on incorporating the many other FIA-mandated technical updates, which would help Brawn develop “no-frills” but fast-enough and highly reliable cars. As well as budget constraints, his decision was based on the uncertainty surrounding Kers.

During the 2009 season, Brawn GP and Red Bull – both teams were in effect upstarts at that time – avoided Kers. Instead, they improved their cars with, respectively, an aerodynamic underside – a “double-diffuser” – and an improved side pod and exhaust. These “adaptive innovations” were aimed at refining, optimising and redesigning existing components. Mr Brawn says the double-diffuser was “an innovative approach [to] an existing idea”: despite objections from rival teams, it was declared a legal adaptation.

The results
At the end of 2009 season, Brawn GP and Red Bull were the first and second-best performing teams, winning 14 of the 17 races between them.

The four teams that usually garnered most awards spent a great deal of time and effort overcoming issues that arose from adopting Kers. McLaren was ranked third, Ferrari fourth, BMW sixth and Renault eighth.

The best-performing driver was Brawn GP’s Jenson Button. He collected approximately twice the number of points of Lewis Hamilton, the best-performing driver from the big four teams. Red Bull’s Sebastian Vettel, aged just 22, was the season’s second-best driver.

The lessons
Managers may be tempted to believe that investing more in innovation will always result in better performance. But when a highly competitive and uncertain environment makes it hard to gauge the predicted benefits and risks of a planned innovation, strenuously pushing to pioneer the next big thing may not always be the most profitable choice.

In such cases, organisations should consider exploiting as well as they possibly can the knowledge they already have and focus on adapting it to what they require. 

- Financial Times, Apr 08, 2013