Insight to F1 on the Thomson Reuters Business Forum

Transcript of Thomson Reuters on-line forum session, 30th May 2013

Q&A with Mark Gallagher, Formula One Speaker on “Lessons from the fast lane” and how businesses can learn about risk management from the high-speed world of Formula One.

10:01:50 AM Spriha Srivastava, Thomson Reuters
Joining us now in the forum is Mark Gallagher (ex- Jordan, Jaguar, Red Bull, Cosworth), Formula One speaker to share his experiences from the fast lane. Welcome to the forum Mark.

MG; Hi Spriha and thanks for inviting me to join today

Spriha; You are welcome Mark. So to start with, what are some of the lessons from the fast lane that businesses can learn?

MG Well Spriha, the point is that Formula One is a business like any other and the teams which compete have to face very similar challenges to any one else. There is a ‘glamorous’ veneer to F1, of course, but beneath that the teams are engineering businesses producing a product, taking it to market, selling it and facing the same issues that any company in the manufacturing or services sector has to face up to in the global market place.

Spriha; So how can businesses use examples from Formula One to build their brand?

MG; If you look at the brands which have used Formula One to achieve global prominence…. examples being brands such as Ferrari, Marlboro, Red Bull…the way they have gone about achieving their position of dominance has lessons for all brand marketeers. One of the common attributes of both Ferrari and Red Bull, for example, is that they did not follow the traditional routes of advertising and marketing to brand- build…
instead they used direct promotion of their product at events – whether in Formula One exclusively, as in the case of Ferrari, or across a wide range of extreme sports as demonstrated by Red Bull. Red Bull created ‘high energy’ events from their foundation in Austria in the late- 1980’s, and what you see in Formula One today is the ultimate form of that approach. Instead of merely sponsoring a team they actually went and bought one – Jaguar Racing – rebranded it and, today, are not only multiple World Champions but now funded by third-party sponsors such as Infiniti cars.

Spriha; Interesting example there. Now you have spoken about seven-times world champion Michael Schumacher as someone who demonstrated great internal leadership. What according to you makes him such a successful leader and is that something business leaders can learn?

MG; Michael was an inspirational ‘team leader’ because of his complete focus on the job in hand, his ability to deliver results and his recognition that it was only by having the whole team support him that he could begin to achieve the kind of success he did. He always thanked ‘the team back at the factory’ when he won his 91 Grands Prix. That wasn’t PR-speak, he helped invest in those factory-based staff who design, build and develop the F1 cars he was driving, and that recognition showed good leadership.

Forum Member; Is it correct to say then F1 is the rare sport where the leader has to be the most capable/talented although it is a team game in terms of support and strategy

MG The most successful teams in F1 tend to be quite hierarchical with a clear overall boss and then team leaders at each level cascading down through the organisation. We need very direct, clear leadership in F1 because we work to immovable, unforgiving deadlines – we cannot turn up with the best car in the world on Monday morning…the race was yesterday… This means we have a very focused culture and that has to apply to everyone in the team, and by team I mean up to 600 full time employees and perhaps 40-50 key suppliers.

Spriha; Now Mark, in terms of risk, what are the similarities between businesses and Formula One? And how do you mitigate it? I remember you gave some very interesting examples during your talk at the CASS business school. Would you like to share some here?

MG; Risk management comes hand-in-glove with trying to achieve great performance in F1. We learned that the hard way. Between the World Championship starting in 1950 and 1st May 1994 we killed 32 drivers…at Grand Prix events, and six during test sessions. All told, well over 40 drivers have been killed driving Formula One cars, and when I started working in F1 in 1983 I used to meet ex-Grand Prix drivers in wheelchairs and with various disabilities caused by serious accidents. The great Champion Niki Lauda still bears the scars from his accident in Germany in 1976 for example…
So from a Risk Management point of view what Formula One has achieved, which is hugely impressive and a lesson for many other sectors, is to eliminate fatal accidents and manage risk in a totally new way. Thanks to the vision of the President of theFIA at that time in 1994, Max Mosley, a target was set of eliminating fatal accidents. It was a major statement from Max, but when we applied our brain power and altered our culture to put safety at the centre of what we did, we stopped these fatalities occurring. Ayrton Senna’s death in the San Marino Grand Prix on 1 May 1994 therefore remains that last fatality. our biggest enemy now is complacency because so many young drivers have no understanding of what we used to face.

Forum Member; Hi Mark – you say Formula One is a business like another – but surely it’s a bit of an odd business. Because the primary objective of many teams in Formula One is to sell cars or drinks rather than win races. So isn’t it like a big promotional show rather than the actual business?

MG; It’s certainly not an odd business. When I ran the commercial side at Jordan Grand Prix I sat on the management board of an engineering business that first of all had to produce a very high-end product – a complex F1 car – and then sell our global marketing services to commercial sponsors. I don’t see that as any different from any other business. Football is big business, golf is big business; where F1 differs is that the sporting competition also requires you to be in the low volume prototype manufacturing sector. The primary objective is actually to make a profit from our racing activities, whether we win or lose.


Spriha; Thanks Mark. Now time for a fun question – If you were managing your own Grand Prix, how would you equate it with the state of the global economy at present? And which central bankers will be part of your pit lane?

MG; Oh, thanks for that one…..Well its pretty clear that the economy in Europe has had a pretty big accident and everyone has been trying to find the right people to blame…meanwhile the other economic ‘teams’ such as in Asia, haven’t had the same crash – they just got a little delayed in the traffic jam it caused (taking the analogy for a ride here….!)

Spriha; Haha interesting…

MG; But ultimately I think it comes back to risk, because for example in my home country, Ireland, everyone raced ahead as fast as possible without thinking of the consequences, and when they finally hit the wall…it was tears.

Forum Member; So the world economy needs it’s own Max Mosley to try and eliminate fatal accidents. I guess Ben Bernanke has the job at the moment.

MG Ha ha, having a good leader like Max is right.

Forum Member; OK thanks Mark – I get that for Jordan (re F1 being a proper business), but is the same true for Ferrari?

MG I think Ferrari is a fantastic example of how F1-meets- business because in 2012, in the grip of the worst downturn in Italian fortunes with the car sector -40%, Ferrari posted its best ever figures with revenues of €2.4 Billion and record car sales of over 7100 units and a fast growing market in China. F1 is Ferrari’s marketing – they don’t advertise – and when we started racing F1 in China in 2004 there was 1 Ferrari dealership in China. They are now rolling out 17 dealership and it’s their 2nd largest market, with – I think I am right – 700 units sold in China in 2012, 25% of which were bought by women. Profits are good, business is good, and the F1 team is the trigger for building the Ferrari brand into what is now the most recognised automotive brand in the world.

Forum Member; Mark how do you see the sport picking up in India how has your experience been with the Indian Grand Prix?

MG; I think F1 has really benefitted from the move into India… …however it has not really thought through the right strategy…I think we missed a huge opportunity by not cultivating the two Indian drivers further, Narain Karthikeyan and Karun Chandhok, because they were not given competitive cars and so the Indian media and fans rather regarded them as poor drivers.

Forum Member; Yes somehow the attraction was built on having a indian team owner but really drivers carry the passion for the sport further

MG; Karthikeyan had significant backing from Tata Group, and I really wish someone in F1 had done more with that. Narain is fast – but he was not given the chance to show it, and now we have no Indian drivers at precisely the time when we need it. It is also a real shame that Vijay Mallya and his Force India team could not have worked with one of those Indian drivers – they were wrong to think there was no potential in them to succeed. Yes, the drivers generate the fan following more than the teams (with the exception of Ferrari…)

Forum Member; Hi mark what do u think of the environment impact of the sport – the fuel used and the carbon footprint involved in transporting teams and equipments across the globe every fortnight

MG; Sustainability is the first word sponsors mention when we talk about F1. There have been some major initiatives to address these issues. We take fewer technical staff to races, we use sea freight more than we used to, the team factories are increasingly carbon neutral e.g. McLaren and most importantly in 2014 we have a new power-train which is fully hybrid, achieving the same power and ultimate performance with a 35% reduction in use of fossil fuel. The technologies in this regard are highly innovative.

Forum Member; So will we see cars racing on green fuel any time soon?

MG; We don’t think that ‘green fuel’ is the right solution – especially given the impact on food production if we divert land resource to growing fuel – we believe that making existing supplies of fossil fuel last much monger through technological breakthrough is a better course. And ultimately to reduce fossil fuel use to as little as possible. F1 has big gains to offer.

Forum Member; The thing I do appreciate about the sport is that how quickly the innovations done in Formula1 is transplanted in the vehicles used by normal public

MG; I think in Europe the biggest innovation from F1 to road cars is that the European New Car Approval Programme – Euro NCAP – which gives crash test ratings to all new cars, was developed from F1 under the presidency of Mosley.

Spriha; One last question from me before we let you go Mark. If I may ask, you said love the fast lane but I read somewhere that your favourite mode of transport is not a fast vehicle. Would you like to tell us about it?

MG; Yes, my favourite mode of transport is my Dutch motor yacht which I bought when I quit Cosworth in 2011. It does a magnificent 8kts, about 10mph, which suits me fine for taking in the sights and sounds of European coasts and waterways!

Spriha; Haha That’s an interesting mode of transport! Well, thanks a lot for joining us this morning and sharing your wonderful thoughts. It was a pleasure to have you in the forum and we hope you enjoyed it too.

MG; Thank you very much, and thanks for the questions too. Have a good day.

thomsonreuters.com Thanks Mark and thank you GMF for those lovely questions and for your time.