The Main Causes of the Problems Experienced by Ferrari - Assignment Example

Before answering the questions a small introduction about the three major companies in discussion is essential. Ferrari Ferrari holds a special place in the history of Formula One. It has been racing since the very beginning and is the oldest Grand Prix team that is still racing. Its heritage has put it right at the top in the world of motorsports. Ferrari was founded by Enzo Ferrari who was an ex-driver himself. Ferrari, unlike most of its competitors at the time, has always manufactured all of its major components. The cars were built from components manufactured in-house. The technical team at Ferrari has always been the best. And also it has been very particular about the look of their cars. All Ferrari cars are red in colour representing Italy’s national colour. The factory at Maranello is a state of the art infrastructure and is an up-to-date facility. Ferrari cars have always been low on displaying their sponsors logo and names. Being one of the oldest companies in the business Ferrari has had its share of ups and downs. The journey has not been a smooth one for Ferrari. McLaren New Zealander Bruce McLaren, who was a F1 driver himself, founded by McLaren in 1966. McLaren registered its first victory in 1968 but the true dominance of McLaren was in the late 1980s and early 1990s. The domination was such that McLaren won 15 out of the 16 races in a year in the period. Williams Williams was founded by Frank Williams and again Frank too was a driver. Williams lead the technological development in F1 that was triggered in the early 1990s. William dominated F1 from 1992 – 1994. 1. Identify and critically evaluate the strategies pursued by Ferrari between 1975 – 1978. 1975 – 1978 was a great time for Ferrari as it dominated F1. Ferrari bagged both drivers and constructors world championship in 1975 and followed it up with the constructors championship in 1976. The tragic accident of Lauda which kept him away from action for nearly 6 weeks was the reason that Ferrari could not get the drivers’ championship in 1976. Ferrari won both drivers and constructors championship in 1977, and the drivers’ championship in 1978. During this period Ferrari made few changes to its structure. Montezemolo was promoted to head the entire motorsport operations of Fiat, while Danielle Audetto was made Ferrari’s sporting Director. The strategy here was to replicate the success of Ferrari with Fiat. This strategy backfired as Audetto was not able to fill in the shoes of Montezemolo. He failed to develop a strong relationship with the lead driver and the design team. This eventually led to Lauda moving out of Ferrari. Also during this time, Ferrari became complacent and adopted a short-termed focused strategy wherein it tried to develop their current engine with short term goals. But the need of the hour was to come up with a new and better engine before the competitors caught up with the 12-cylinder engine. This coupled with poor management by Audetto would lead to its downfall in the future. 2. Outline what you believe to be the main causes of the problems experienced by Ferrari in the early 1970s and how they overcame them. Ferrari had a great run in the 1950s and early 1960 when it dominated Formula One along with Alfa and Romeo and Maserati. But the mid 1960s saw a decline in the performance of the Ferrari and the issue aggravated in the 1970s. In the early 1970s Ferrari had a very fast engine but was not at all reliable. The reliability factor was so bad that the cars failed to finish the races in 1972 and 1973, and rarely earned any points. The engine in the Ferrari cars failed to meet the standards set by other competitors and the team could not come up with a new and better engine. The years 1971, 1972 and 1973 was the worst with respect to performance. Ferrari was no way close to its dominance in the earlier decades. The last F1 championship that Ferrari had won was way back in 1964. One of the main causes of the problems experiences by Ferrari in the early 1970s was lack of able leadership. Enzo Ferrari had been suffering from poor health and was not able to lead the team ably as he had done in the past. This was coupled with the inability of the team to take initiative and turn things on. Ferrari always had the quality human resources needed to innovate but in the absence of proper guidance the teams failed to achieve their complete potential. The lack of able leadership meant that the huge resources (result of merger with Fiat) at the team’s disposal were of no use. Apart from the resources the merger also meant extreme pressure to deliver which the team could not live up to. Another important cause of the problem is the increased competiveness of other players in the market. The main reason behind the increased competitiveness in the market can be attributed to the introduction and the consequent domination of F1 by the Ford DFV engine. The DFV engine, funded by Ford Motor Company and built by Cosworth Engineering, was the first purpose built-engine. This was inexpensive which made it accessible to the competitors and also was superior (technical and superior) when compared to the Ferrari engine. It was lighter and more powerful. This adoption of the DFV engine along with existent specialised chassis design by the competitors made them highly competitive. The domination was such that every grand prix in 1971 and 1973 was won by the car running on a DFV engine. But Ferrari had failed to innovate and come with an engine that could compete with the DFV. Ferrari did overcome these problems which lead to its renaissance in the mid-1970s. There were a number of changes made to the structure and management. The very first change and the one that proved to be a master stroke was the recalling of Mauro Forghieri to be technical director. Forghieri was instrumental in creating some of the most successful Ferraris in the 1960s. Forghieri came up with creative ideas to find a solution and an answer to the much advanced and superior DFV engines. Also Luca di Montezemolo was appointed as the new team lead. Appointment of Montezemolo proved to be decisive as he made some major changes to the management style. Enzo had adopted an autocratic management style. In an autocratic style of management, emphasis is more on directions and orders, and less on interaction between the team members (Lussier, 2008). Enzo had a divide and rule policy which had lead to confusion and unwanted competition within the team. All the major decisions were taken by Enzo. But this changed as Montezemolo introduced a democratic style of management. Unlike the autocratic management style, in a democratic style power is equally distributed (Needham & Dransfield, 1994). Different technical teams were formed and the responsibility of each team and its member was well defined. The different technical teams were to work only on their components (area) and they would be completely held for their area. Niki Lauda was recruited as the lead driver and he along with design team ran numerous testing and development programmes. Lauda’s skills of visioning and developing a car along with his ability to communicate and build relationships with design team proved to be crucial for Ferrari. This is because, with Lauda on board the design team at Ferrari was able to use the practical and driving senses of Lauda and convert into technical solutions. Forghieri’s creative idea along with Lauda’s skills, the design team was able to design a new and much powerful engine than DFV engine. This triggered Ferrari’s domination over the next few years. 3. What are the key elements of a successful F1 team? The key elements of a successful F1 team are: Advanced technology and designs leading to a superior car Driver who is not just competent enough to win the title but also contribute towards developing and building of the car Leadership at the top that can motivate the team and make winning strategies Infrastructure needed to design, develop and test the car Financial backing needed to run the company without any issues Quality human resources that can turn the vision of the company into a reality Strategy: A well defined strategy which will include the vision, mission, values, etc and form the blueprint of the growth 4. Identify the main elements of the strategic policies followed by each of the three teams which led to their success and ultimately failure. Following are the main elements of the strategic policies followed by each of the three teams which lead to their success and ultimately failure: Ferrari Merger strategy (merger with Fiat) was initially a success but later lead turned out to be a failure. It was rectified when the control was completed handed over to Ferrari Primary focus on the development of the engine Strategy of using newly developed in-house technology only Autocratic style of management (Enzo Ferrari had the final say) McLaren Strategy of hiring two lead drivers Dependency on Honda for supply of engines Williams Primary focus on the development of the car and the engine, little focus on the driver Dependency on Honda for supply of engines Association with Renault 5. What issues facing each team were strategically flawed and how would you have overcome them? Ferrari Numerous issues that Ferrari faced were due to the fact that its strategies that were flawed. One of the primary issues, that were a result of flawed strategy, was the confusion, unwanted competition and lack of able leaders in the team. This was due to the autocratic management style of the company. Enzo Ferrari made most of the decisions and everybody else just followed the orders. This led to a lot of problems for Ferrari in the mid 1970’s. This could have been overcome by building a company with democratic style of management from the very beginning. Another issue was the primary focus on the engine. Ferrari believed that the engine was the most important component which was responsible for the overall performance of the car and would help in winning grand prix. But this focus on engine led to a stage when even with a superior engine, Ferrari could not dominate due to development on other areas such as aerodynamics. This could have overcome by having a broad focus and building a superior car rather than just a superior engine. It is ultimately the car and not the engine or chassis or the aero package that wins the race. McLaren One of the main issues that McLaren faced was the bitter feud between their two drivers, Alain Prost and Ayrton Senna. This put the management in very tough spot. The main reason for this is that the strategy adopted was flawed. Two lead drivers in the same team meant that there would always be trouble with ego clashes and unnecessary competition. This could have been overcome by going with the traditional and more logical strategy of a lead driver and a support driver with less experience. Another main issue that ended McLaren’s dominance in the early 1990s was the unavailability of the Honda engine. McLaren was over dependent on Honda for supplying the engine and had no alternate plans or strategies. Once Honda pulled out of F1 McLaren had no choice but to go for a “off-the-shelf” engines. This issue could have been avoided by having an alternate strategy for engine. McLaren could have even reacted and acted fast when Honda communicated that it would pull out. Williams One of the issues that McLaren faced in 1990 was the lack of driver talent. The reason for this is that McLaren’s primary focus was on building the machine and drivers were only second focus. This could have been tackled by focusing on both the development of the car and also getting talented driver who just does not add value on circuit but also can contributing to the design and development of the car. Another issue that made a serious impact to was the use of Renault’s engines by Benetton. This was an issue because William success was dependent on the engine supplied by Renault. This issue could have been overcome by having an exclusivity agreement with Renault. 6. What were the strategies that provided each team with success at various times and why did these ultimately fail? Ferrari Over the years Ferrari has adopted numerous strategies that have provided success at various times but ultimately failed. In 1969, Ferrari adopted a merger strategy. A merger strategy is one where two companies integrate their operations in order to achieve competitive advantage (Hoskisson et al., 2008). Ferrari merged with Fiat in 1969. The merger gave Ferrari access to increased resources. But along with the increased resources there was also increased pressure to perform. The merger did help Ferrari to succeed as it gave Enzo the freedom to concentrate solely on F1 and not worry about the road car segment. But the real impact of the merger was felt when the Fiat started interfering in the operations after the death of Enzo. This interference led to Ferrari’s downfall in the late 1980s and early 1990s. Ferrari again tasted success only after the control was completely handed over to Ferrari and there was no inference from Fiat. Another important strategy that resulted in tremendous success initially but ultimately led to failure was Ferrari’s strategy to focus on engine to gain competitive edge. Enzo believed that it was the engine that was responsible for the performance of the car and hence induced the same ideology into the company’s strategy. With this strategy, Ferrari tasted tremendous success as they were able to design and develop superior engines which boosted the performance of the car as well as the team in championships. Another factor that contributed to the success of this strategy is that Ferrari manufactured its own engine. But this strategy backfired in the mid 1980s as developments in aerodynamics and use of composite materials helped competitors to compensate for the flaws in the engine by making up for it in enhanced grip due to superior aerodynamics and chassis rigidity. This means that Ferrari lost its competitive advantage of greater engine power. The strategy of using designs and innovations that were completely developed in-house gave Ferrari a competitive edge over others in the market for nearly 3 decades. Also Ferrari had stuck to strategy of establishing itself as a true Italian company with no employee in the top brass of the company was a non-Italian. This strategy differentiated Ferrari from the rest and lead to its success in the initial decades. But due to technological development, in the 1980s Ferrari’s competitors were able to use the available advanced technology to them in the market and came up great cars. But Ferrari was not able to match the technological development and could not come up with cars that could beat the competition. It was not until 1984 that Ferrari let this strategy and go hired their first non-Italian director. And also in 1986 it also started to imitate the technologies of British constructors, rather than innovating in-house. McLaren A strategy that McLaren adopted in 1988 that was a runaway success initially but later turned out to be a debacle was the hiring of the two lead drivers Ayrton Senna and Alain Prost. This was a strategy that was alien to F1 so far. Each team had a lead driver and a second driver who was less experienced or skilful who supported the lead driver. But McLaren went on with a strategy of 2 lead drivers which initially lead to success as McLaren won 15 out of the 16 races in a year. But competition became intense and the relationship fell apart between the two leaders. There was no team work in McLaren team and Alain Prost then moved out of McLaren. The strategy of one lead driver and another support driver would have worked great. Another strategy of McLaren’s that was instrumental in its dominance in 1988-1991. During this period McLaren started using Honda engines which was way superior to the competition. But McLaren was overly dependent on Honda for engines and this proved to be costly. When Honda pulled out of F1 and McLaren did not have any engine alternatives. This marked the end of McLaren’s dominance. Even though Honda had communicated its views of pulling out from F1, McLaren did not take it very seriously and had to pay the price. The overdependence was the main reason for McLaren’s downfall in 1994. Williams One of the strategies that Williams adopted from early on was that the development the car was of prime importance and then the driver. That is, their primary objective was to win the constructor’s championship and the drivers’ championship was the secondary objective. Williams had a masculine attitude towards drivers. This attitude got them initial success but none of the divers lost for a very long time which did affect Williams in a long run. Williams missed the opportunity to use the practical experience of the drivers and convert it into developing a better vehicle. Another strategy was, like McLaren, the dependence on Honda for supplying engine. This helped them initially but when Honda went on to supply for McLaren Williams were left with an “off-the-shelf” engine with which they could not achieve much. 7. What are the essential elements of a successful F1 team and how should the management structure be constructed? The essential elements of a successful F1 team have already been addressed in question 3 and will be briefed again here: Quality top level management: The management must be competent enough to make the crucial decisions and strategies keeping in mind the best interests of the company. Organizational Strategy: A well defined strategy that will define the vision, mission, values, and implementation plans of the company. Also the strategy must have a proper direction, consistency and flexibility. Access advanced technology and infrastructure: This is important in order to build a technologically superior car Competent Driver: A competent driver who can contribute both on and off the track Financial Resources: Financial resources to keep the system running. Quality human resources: quality technical and managerial human resources is essential in order for the company to meet it strategic objectives and plans The management structure must be a democratic one where in power is equally distributed and a participatory management model must be adopted. In a participatory management model, there is a continuous interaction between the employees and management, and the views of the employees are taken into account while decision making. There must be head under who will be 2 directors: technical director and managerial director. Each director will have numerous teams under them with a leader who will have well defined responsibilities. Each team must be completely accountable to their area of expertise. There must be continuous coordination among the teams to come up with a superior project. 8. What are the identified team funding sources given in the case study and what effect did these have on the team performance? What recommendations would you make to revise this structure? The identified team funding sources given in the case study are sponsorship, merger and prize money. Each of these funding sources will have different effect on the team. With a merger, there is increased pressure on the team to deliver and with sponsors it is necessary to promote the brand of the sponsor. Prize money will motivate the team to perform better. Following recommendations will be made to revise this structure: There must be an increase in the prize money. As of now the average funds raised is only 1/5th of the total funds needed. This has to be increased. The facilities can be rented or used for manufacturing of commercial automobiles. Also the testing centres and major equipment can be rented. References Hoskisson, R.E., Hitt, M.A. & Ireland, R.D. (2008). Competing for advantage. OH: Cengage Learning Lussier, R.N. (2008). Management Fundamentals: Concepts, Applications, Skill Development. OH: Cengage Learning. Needham, D. & Dransfield, R. (1994). Business studies. Cheltenham: Stanley Thornes (Publishers) Ltd. Read More