What can UK businesses learn about Spend Management from Martin Brundle?
The first Formula One World Championship race was held at Silverstone in 1950. Since then the numbers in terms of sponsorship, team employees, audience figures (there was a global television audience of 425 million people during the course of the 2014 season for instance) and driver stardom have all spiralled.
Formula One is a successful business model then....... Or is it?
On Sunday 26th November 2017 Sky Sports aired a brilliant insight, by Martin Brundle, into the costs and cost management issues within Formula One. And why ultimately, if the costs aren't managed more effectively in the future, it could all come tumbling down. Just like millions of businesses have folded.
With the cost of designing and building just mid-grid cars being around $120 million, it's not a cheap exercise lining up to compete. Especially when this carbon fibre spectacle, can be wiped out at the first corner. And whilst Formula One's economic effect and creation of jobs are significant (the latter especially so, within the UK) it's becoming clear that concerns about fan engagement and fan accessibility is going to force huge changes. And with it, spend management will need to be on the agenda.
How does this relate to business I can hear you say?
Firstly, you need to think of Formula One fans as being your customers. After all, without them, you have no business (just like F1 would cease to exist).
You all know exactly what your customers want and need. Without this awareness and acumen, you wouldn't have a business. And yet F1 regulations have moved so far away, in the last 10 years, from what fans actually want it's phenomenal that it's continued to grow in the way that it has. Would your business be able to survive for a decade without giving your customers what they want? It's unlikely.
You also know what your customers are prepared to pay for your products or services too and how much it costs you to produce/ deliver your commodities. Again, without this grasp of the market you wouldn't be able to sustain your edge against your competitors.
Martin Brundle explained, "Between 700 thousand people, plus the engine department to make 2 racing cars for 21 races is simply unsustainable in the long term. Controlled budgets and a chance to win will attract more manufacturers and teams, to absorb those highly skilled people. Millions of dollars are spent making totally unique cars which are obsolete every few months. This forces regulations to save money [ultimately] keeping cars off the track or giving them grid penalties. And then hundreds of millions more are spent making highly secretive simulation tools."
Spending beyond your means, or not sourcing products at the right price, will land you in financial difficulty. But knowing exactly where a business is neglecting cost avoidance or cost reduction (when you don't have regulation keeping you within financial parameters) isn't always easy to identify.
Even as a successful, growing business, with great profits, never lose sight of your costs and cost management.
And what of the fate of the still successful F1 (it's just been bought for $4.4 billion after all)? Brundle vehemently concluded, "Slash the unnecessary costs, whilst still rewarding technical creativity. Make cars radical, super-fast and spine tingling. And use some of the colossal savings, to make grand stand seats more accessible for the fans and their families. Utopia? Not at all. Just using the tools and money already in the system. The teams need some tough love and protecting from themselves and to remember, that over 150 teams before them have gone out of business."
There comes a point whereby even successful, seemingly invincible businesses need to take a close look at their spend management and the departments and people responsible. That's not to say that the teams responsible aren't on top of things. But as processes, technology and ideas develop, it can only help to speak with an outsourced spend management team to provide new ideas and a fresh set of suggestions.
Colossal or not, what would you do with your savings?
"Spending beyond your means, or not sourcing products at the right price, will land you in financial difficulty. But knowing exactly where a business is neglecting cost avoidance or cost reduction (when you don't have regulation keeping you within financial parameters) isn't always easy to identify."