Honda Pulls Out of F1: What are the Lessons Interviewer: Andrew Kirchner Interviewee: Professor Mark Jenkins 5th December, 2008 AK I am joined today by Professor Mark Jenkins who is the co‐author of the book Performance at the Limit: Business Lessons from Formula One Motor Racing. Mark, what is your reaction to the breaking news overnight that Honda are pulling out of F1 because of the global economic crisis? MJ Well, I think my immediate reaction was one of surprise. Of all the Formula 1 teams you would say that Honda are the most well resourced, the most committed – they have been in Formula 1 for quite some time now, nearly eight years in this phase of their development and so it was a big shock and I am sure it sent shock waves all the way through the Formula 1 community. AK Commentators have been saying that the 2009 Honda car was due to do well. Do you think that because they have got a highly skilled team and a dedicated workforce all of this will be attractive to a prospective buyer? MJ Very much so. I think that was one of the shock elements. Honda have very much written off the 2008 season, they did very badly by their standards in 2008 and have been focusing all their resources and effort on 2009. That makes it all the more surprising that they have pulled the plug at this particular point in time because they can’t therefore get the benefits of all that investment. However, I think it makes it an excellent package for someone who is looking to come into Formula 1, to get a team who have been investing hugely in the new technology – in 2009 the cars will be using kinetic energy recovery systems, or KERS as they are known, and Honda have put a lot of effort into that particular technology. So if someone has the cash and they can come in, they could get a real bargain with Honda Racing. AK If the Honda deal doesn’t go through, could we see a domino effect that another manufacturer might drop out? MJ I think one of the things about Honda is that they don’t supply any of the other teams – in terms of engine supply. So that means that Honda can go out on their own and it won’t have an immediate effect for any of the other teams. Clearly the big issue is the car market. We have seen 25, 30, 40 per cent drops in car sales and that is why Honda have pulled out. Toyota are also exposed to the North American market, as you could argue are BMW. Renault perhaps a bit less so, but the European market still is not doing so well. So, there could well be other manufacturers that are looking at the value for money question and if you are closing a factory, you are mothballing factories, you are laying people off, should you be spending millions on a Formula 1 team? AK So in this tough economic climate we are in, is sponsorship likely to suffer as well? MJ I think sponsorship, like everything, will contract. I think it will become tougher, but I don’t think it will go away. I think companies will still need to build their global profile, they will still need to get the kind of exposure that a sport like Formula 1 offers them. So I don’t see sponsors disappearing – I think sponsors will look for more value, they will ask more searching questions about the benefits and I suspect that it is about teams getting their act in order and getting the costs in line with the potential revenue streams in the future. AK Mark, there are now proposals to significantly reduce costs in Formula 1, possibly introducing standard engines. Is R&D likely to suffer as a result in this resizing environment that we might move into now? MJ I think for me Formula 1 always runs in parallel with other businesses, and I think we are going to see a contracting across the board in all kinds of organisations. So for me R&D will not disappear, R&D will have to be more cost focussed, they will have to do more with less. But the race is still there. The need to develop new innovations, improve performance, won’t go away. So the teams will still be doing that, but not perhaps on the scale which was getting a bit ridiculous that they were operating in currently. AK What key messages can organisations learn from dealing with situations like we are in now? MJ I think the key thing for me from all of this is don’t wait for the dive to happen. Think through your strategy in terms of what is going to happen if we take this kind of hit on our business? Have we got contingency plans in place? Have we thought through how we are going to respond to this? And it is about identifying those parts of the business that are most valuable to get you through this kind of phase. It’s the people who can do that and can develop those and adjust the business accordingly are the ones who are going to succeed because there are opportunities that come out of this kind of situation, as well as some of the sad job losses and other effects – but in the long run people are still going to need to compete and so it’s the people who keep their eye on the ball, resize, but keep focused on delivering value to customers who are the ones who will succeed. AK Mark, thank you very much indeed.