What Formula 1 Drivers Can Teach Business Leaders

Strategy

In motor racing, a key piece of advice for new drivers is to look well beyond the immediate corner. At any speed, this is counter-intuitive. The instinct is to focus on what is just in front of you and react accordingly. Most drivers only look 10 to 20 metres ahead.

But the fact is that the further ahead you look, the faster you will go. 

This is analogous to strategic thinking. By raising our sights beyond the present day, or even the next 90 days, we are naturally better prepared to take advantage of opportunities and to control for risks. 

In racing, “low eyes” means you are operating on old information. At 100 kph you are travelling at 28 metres per second; at 350 kph, Formula 1 cars are going at almost 100 metres per second. Those seconds tick by quickly if the driver is not ready for the next move. Looking ahead allows time to prepare for what’s ahead and, interestingly, the perception from the driver’s seat is that time slows down.

In management, the day-to-day, week-to-week and month-to-month pressures act as a constant force in shortening the field of vision until even medium-term perspectives can be lost. 

A short-term focus means managers can also be operating on old information, putting them in a position where they are reacting rather than actively preparing and shaping the environment for success. Senior management and board attention should be directed towards the strategic issues and drivers of long-term performance. This must be framed in the context of agreed targets and a common understanding of future operating conditions.

Investment markets have historically hindered the long view with their expectations of quarterly reporting and earnings guidance.

How Wesfarmers broke the mould

One company that broke the quarterly guidance regime many years ago is Wesfarmers Ltd. In an interview1 in 2008 with then finance director Gene Tilbrook, he said: “Quarterly forecasting takes you into the realm of providing lots of short-term information.” He made the point that simple business fluctuations such as moving a shipment from one month to another can impact the results for a quarter. “We would rather have people understand the drivers of our business,” he said.

How can a board and management team make strategic decisions that are in the long-term interests of shareholders if their sights are lowered to 90 days? This is hardly “over the horizon”, yet true strategy is all about over-the-horizon matters.

While it is necessary to monitor operating performance, boards and executive teams should be diligent in avoiding the temptation to lower their gaze. “Low eyes” means you will be operating on out-dated information, reducing your strategic effectiveness and limiting the growth velocity required to sustain success.

And if you are hurtling into the future at high velocity, you absolutely need to be looking well into the distance, because everything will be rushing up at you so much faster. 

  • John Barrington is a leading strategy and governance expert, and founder of Barrington Consulting Group. For more information, email john.barrington@barrington.com.au.
 

[1] http://www.companydirectors.com.au/director-resource-centre/publications/company-director-magazine/2000-to-2009-back-editions/2008/march/earnings-guidance

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