Formula 1 racing, frequently called Grand Prix, is the top class of single-seater car racing motor sports around the globe. It was sanctioned by the Fédération Internationale de l’Automobile (FIA) in 1950 and most often it's shortened as F1 racing. The title Formula One lable indicates the rules, or "formula" that cars and participants in Formula 1 have to fulfil. These strict guidelines probably make the Formula 1 the most competitive and prestigious of all motorsports. Formula 1 has become a very popular and a frequently seen TV event all over the world. There have been between 10 – 14 car manufacturer or constructors competing in F1 for annual championships. Besides huge financial rewards, F1 brings the chance to strengthen the reputation for all competing teams and sponsors. As a result, the following assignment will first focus on how teams are able to succeed due to a competitive advantage. It will further analyse the success of McLaren in the late 1980s and show why the team was unable to sustain their success. Finally the assignment will show which team had the best source of competitive advantage.
2. Gaining competitive advantage in the Formula 1
At the moment, there are two highly distinguishing theories in the literature to explain why some firms perform in a superior manner and are associated with higher value. The first theory is based on industrial organizational economics, and takes an external market orientation to address this issue. This perspective is called the market-based view of the firm (MBV). The marked-based view typically stresses privileged end product market positions as a basis for above-normal future returns and thus higher current firm value (Porter, 1979). In this perspective, competitive advantage is due to barriers to competition arising from the structure of the market. In contrast is the resource based view of the firm (RBV), which focuses introvert on the firm’s resources and capabilities to explain a company’s profitability and value (Barney, 1986). The MBV as well as the RBV perspectives clearly point to different sources of competitive advantage of firms.
Resources, capabilities and attributes which are needed for gaining success in the Formula 1 can be found in a number of dimensions taking consideration into the unique and fast paced context of this sport. It is a highly competitive industry and based in a rapidly changing environment, which has been defined by Porter’s Five Forces. “Porter’s five forces framework helps identify the attractiveness of an industry in terms of five competitive forces: the threat of entry, the threat of substitutes, the power of buyers, the power of suppliers and the extent of rivalry between competitors” (Johnson, Whittington and Scholes, 2011, p.54). For the Formula 1 industry the RBV seems to be a much more important factor than the MBV. Grant (1991) highlights that key resources are both tangible and intangible and can be classified as financial, physical, technological, organisational and human. The start-up and running costs require enormous financial resources. As a basis for being competitive a medium sized constructor, for example, has to invest up to 50$ million capital investment. In most cases the majority of team finance is generated through sponsorship. A profitable sponsorship deal can help a team to improve their level of performance and is the only possibility for smaller teams to compete at all. The car and its components, like engine and chassis are essential resources. Physical resources are also required in forms of own testing and development equipment such as wind channels, test tracks and other equipment. All the teams and members need to work as a cohesive unit and there is also constantly need to change strategies to counter strategies of other race teams. The technological advancement and knowledge determines the ability to win races. Primarily most of Formula 1 teams were managed by the founders...