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McLaren blames reversing results on innovation

NEWS STORY
17/09/2014

McLaren hasn't had the best of seasons over the past two years. It currently lies in fifth place and its only podium finish so far in 2014 was in March at the Australian Grand Prix. Last year it finished fifth overall and didn't visit the podium at all. In contrast, it ended 2012 on a high with victories at the last two races. The reason for its reversal of fortune has at last become clear as McLaren has revealed that it was due to its decision to experiment with new updates which backfired according to an article in American motoring magazine Autoweek by Christian Sylt.

The Strategic Report of McLaren's 2013 accounts claims; "our 2013 car featured significant revision to the prior year as it was felt that the 2012 car had reached the end of its development cycle and a new platform would provide greater scope for advancement. Ultimately it was this ambition that prevented us from challenging more strongly for the championship against competitors who evolved their 2012 cars."

Although McLaren's performance on-track stalled last year, its revenue accelerated by 26.1m to 191.8m leaving the team with a net profit of 15.1m. This was largely thanks to a new commercial deal with F1's rights-holder, the F1 Group, which began in 2013. It insulates McLaren from dips in performance as the team receives a minimum of 20.3m from the F1 Group every year in addition to sharing in the prize fund which is split between all the teams.

The prize fund comprises 47.5% of the F1 Group's underlying profits and in addition, McLaren gets a share of what is known as the Constructors' Championship Bonus (CCB) fund. This is a dedicated prize pot of at least 61.5m which is split between the top three teams based on races won in the four seasons prior to 2012. McLaren is second on the list and, according to the prospectus for the planned flotation of F1 on the Singapore stock exchange, the reward is that it gets at least 20.3m every year.

Overall, F1 paid 490.4m of prize money to the teams in 2013 which was an increase of 6% on the previous year and it explains the upswing in McLaren's revenue.

"McLaren's strong underlying business results in 2013 have been somewhat tarnished by the uncharacteristic under-performance of our Formula 1 racing team," says chief executive Ron Dennis in the accounts. "However, our long term track record in this area speaks for itself, and underpins our confidence in the measures being taken to re-build our processes and resources, in order to return to the dominance enjoyed at various times in the team's proud history. Our racing team has a simple goal - to win every race in which it competes - and we will take all steps necessary in order to achieve this."

McLaren currently lies behind arch rivals, Ferrari, Red Bull Racing, championship-leaders Mercedes and even Williams, which has far less funding. Nevertheless, Murnane says that "McLaren remains fiercely competitive and we aim to win races in 2014."

McLaren had little choice but to innovate this year thanks to a seismic change in the F1 regulations which has seen the engines switched from 2.4 litre V8s to more environmentally-friendly 1.6-litre V6 turbos. Next year McLaren will switch its engine partner from Mercedes to Honda and, according to recent research, it could boost its chance of success by making incremental technological updates to its car rather than introducing a new platform as it did in 2013.

The research was led by the expert Dr Paolo Aversa, lecturer in strategy at London City University's Cass Business School, and his team included Dr Alessandro Marino from Luiss University in Rome, Dr Luiz Mesquita from Arizona State University and Dr Jay Anand from Ohio State University. They statistically examined all the strategic factors influencing F1 races between 1981 and 2010 and concluded that when the regulations change dramatically a focus on incrementally improving existing technology, rather than radically trying to invent the next best thing, is shown to yield greater success.

"Managers often display a bias towards action, so they overwhelmingly tend to believe in an ever-increasing positive relationship between innovation and performance gains," says Dr Aversa. "Our theory and findings, however, point to a possible inflection in the increasing value of innovation due to shifts in the environment, after which firms may find it detrimental to their performance to improve beyond what the environment currently demands."

It precisely describes the hurdle that McLaren faced in 2013 when it experimented with new developments even though there was no need to do so. Dr Aversa adds that "experimenting is not always the most profitable choice when the continuous turbulence in the competitive environment makes it hard to foresee future scenarios. In such cases firms should focus on the knowledge assets they already possess, and exploit their current technology to best of the possibilities, trying to make it fit to what the competitive environment requires."

Dr Aversa says the reason for this is that exploring new technological solutions can push the already high level of complexity beyond the teams' expertise thus reducing the effectiveness and reliability of the innovation. He adds "the results show that when teams are forced to implement major changes, incrementally adapting car technology is more beneficial than exploring radical new solutions." Time will tell whether McLaren takes heed of this next year.

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READERS COMMENTS

 

1. Posted by SideGlance, 19/09/2014 5:25

"I forgot to say, Ron is an arrogant putz, and he has spoiled several drivers reputations, ran Lewis and Alonso away, now will likely throw Button away too. Me thinks Ron thinks very highly of himself & his decisions!"

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2. Posted by SideGlance, 19/09/2014 5:22

"Great to see them finally admit their decisions were at fault. I find it hard to believe that ANY car is not able to be developed more, so even now they say the 2012 was not up to being developed more but oddly I bet it would have been, they knew the likely weaknesses and tweaking would have been better than what they did, they should have reverted back to 2012 car like many of us thought in they should in 2913 but infinite wisdom........"

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3. Posted by RodSalazar, 18/09/2014 4:01

"So, after all it was no fault on Sergio Perez's driving. But in the process, McLaren damaged Sergio's reputation and jeopardized his career as F1 Driver. Ron Dennis is an idiot. That's why Fernando Alonso left the team. And poor Magnussen; so young, so in danger to be burned by McLaren experiments"

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4. Posted by nmbrown, 17/09/2014 8:58

"This isn't news. We knew McLaren went down a different route which ultimately failed more than a year ago."

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