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FORMULA 1 Case - FORMULA ONE SUSTAINING A COMPETITIVE...

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FORMULA ONE: SUSTAINING A COMPETITIVE ADVANTAGE IN A HIGHLY COMPETITIVE TECHNOLOGICAL CONTEXT This case explores the stories of three contrasting companies: Ferrari, McLaren and Williams in terms of how they both created and lost the basis for sustained competitive advantage. You are asked to analyze the basis of competitive advantage in Formula One (F1) motor sport, which is the pinnacle of automotive technology and brings huge financial and reputational reward if teams are successful. After a brief overview of Formula One history and the rules of competition, we describe the stories of the three above-mentioned F1 constructors companies. You are asked to identify the nature of resources and capabilities each company possess and explain the reasons for their successes and failures. Overview of Formula One In 1904, the Federation Internationale de l’Automobile (FIA) 1 was created as the governing body of world motorsport in the absence of uniform rules governing international racing. The FIA regulated and supervised different forms of racing, which came to include Formula One, Formula 3000, and Rally Cars, among others. Created in 1950, the Formula One World Championship was the oldest FIA championship. The title “Grand Prix” was generally reserved for events counting toward this championship. The first world championship was won by Giuseppe Farina of Italy, driving an Alfa Romeo. At that time Alfa dominated racing along with the other Italian brands of Ferrari and Maserati. By the mid sixties Formula One had moved from being a basis for car manufacturers to promote and test their products to a highly specialized business where purpose built cars were developed through leading edge technology to win a TV sporting event enjoying the third highest TV audience in the world, surpassed only by the Olympics and World Cup Soccer. There have been between 10-14 racecar manufacturers or constructors competing in Formula One at any time. The constructors themselves can be grouped into a number of different categories. In 2002 the top three teams were Ferrari, Williams and McLaren, all medium sized business turning over between $250 and $350 million per annum. Today it is estimated that it takes between $30 and $50 million capital investment in research facilities to set up the minimum basis for being competitive. For the first three years of their entry into F1 in 2002 Toyota is estimated to have committed $1 billion in capital and running costs of which only one fifth came from sponsorship. The top teams would typically have their own testing and 1 1 As is the case with football's FIFA, the FIA is generally known by its French name and acronym, even in English-speaking countries, but is occasionally rendered as International Automobile Federation. It was created on June 20 th 1904 in Paris where it has its headquarters to date.
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development equipment, which would include wind-tunnels and other facilities. The larger teams employ between 450 and 650 people in their Formula One operations, a quarter of
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