Formula E as a strategic platform in the automotive industry

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1 Full Name of Author: Emma Sabina Åkerlund

Student Number: 11245735

Date and Version: 24/03/2017 – Final Version

Qualification: MSc. in Business Administration – International Management Track

First Supervisor: Markus Paukku

Formula E as a Strategic Platform in the

Automotive Industry

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Statement of Originality

This document is written by Student Emma Sabina Åkerlund whom declares to take full responsibility for the content of this document.

I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the content.

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Acknowledgements

First of all I would like to express my gratitude and appreciation for all those whom assisted me with the necessary introductions, above all, George Blake, Jim R Wright, and Roger Hooker.

I want to thank all of those whom set time aside time to participate in my interviews: Ali Russell, Roger Griffits, Thomas Biermaier, Renato Bisignani, Dilbagh Gill, and Alex Tai. I am truly grateful for the time that was set aside for me, without your assistance I would not have been able to produce this paper. I also appreciate all advice that I was given.

Furthermore, I would like to express my sincerest gratitude towards my supervisor, Markus Pakku, whose advice, patience, guidance, and encouragement has been invaluable. I would not have been able to create this paper without his guidance. I would also like to thanks Chris Rowell whom at an early state provided me with very constructive feedback and input.

I want to give a special acknowledgement to Owen Davies for assisting with proofreading the entire document and Machteld van der Does for her excellent advice regarding transcribing.

Last but certainly not least, I would like to thank my family and Maurice Bernards for their support and advice throughout the project.

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Abstract

This paper considers the underlying strategic objectives for participation in the FIA Formula E Championship and its use as a strategic platform for the automotive industry. Formula E is a very recent addition to motorsport and there is currently no research on the topic, which is why it is of interest to explore the strategic objectives from a managerial perspective. Platforms are often discussed, however mostly in relation to technologically based innovation and services. Furthermore, events such as the Formula E Championship are most often observed from a marketing or event perspective and little recognition is given to how these events can be used as strategic platforms.

The phenomenon of Formula E as a strategic platform is observed in a case study from the perspective of several managers and six different managers with high level positions were interviewed using a semi-structured interview process. In the literature review, strategic platforms are first defined before attention is given to strategic management with an in-depth focus on first-mover advantage. The theories are used to analyse and place the statements from the respondents into relevant contexts.

The initial strategic objectives behind the use of Formula E as a strategic platform were mainly for innovative development and exposure through marketing. Formula E needs to prove itself to be an important strategic platform for the automotive industry and current strategic objectives were determined to be the probability of high return on investments, the potential reduction in costs, shared values, and above all else – relevance.

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1 Introduction

Since the end of the nineteenth century the automotive industry has been an important part of both our present and future. At the beginning of the automotive era petrol-driven vehicles were chosen over the electric alternative; a choice that has since remained. It is claimed that the reasoning behind this choice was simply because a petrol-driven car had a longer range and the innovative efforts of the time were therefore directed towards petrol power (Rao, 1994). The initial stages of the automotive era were defined by competing designs and radical innovation, which slowed down after the First World War and turned into more basic development. Since the beginning of the automobile, various strategic platforms have been used, both in the form of exhibitions and sporting events, for example the Paris Motor Show dates back to 1898 (Mondial de L’Automobile, 2016) and Grands Prix have been held since 1895 (Pizzo, 2011). In the twenty first century the use of strategic platforms has reached a new level; whilst a significant importance in terms of strategic objectives and decisions can be assumed, there is still hardly any research on the subject. It is therefore crucial to understand the relationship between the automotive manufacturers and the use of strategic platforms in terms of the managerial implications, given it impacts the organisations involved.

The automotive industry has been innovative when it comes to increasing performance, but not in terms of the basic design and function of the vehicles (Kemp, Schot & Hoogma 1998; Ruff, 2015). However, in the twenty first century a shift has begun and the automotive industry is moving towards more sustainable options and electric vehicles are once again taking centre stage (Wesseling, Niesten, Faber & Hekkert, 2015). Today the automotive industry is not only changing itself, but also the way people interact with and use technology; a greater importance is now given to being 'connected', as well as sharing and using personal information for a more personal experience. This is a major contrast to the idea of the general automotive industry in the 1960's, when electric vehicles were not considered a replacement

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7 for petrol driven vehicles (Ahern, 1968). The concept of development within the slow moving automotive industry has changed. New examples of the automotive industry's progression are appearing at a fast pace, one of the latest being the entrance of Jaguar and Audi into the FIA Formula E Championship (hereafter Formula E) races (O’Kane, 2016: Dobie, 2016), along with the extremely futuristic self-driving concept cars presented by Rolls Royce (Harvey, 2016) and Mercedes-Benz (Hamill, 2015) among others, where the vehicles themselves are used as a platform for other services. The automotive industry, even though moving slowly, is undergoing a period of intense development.

Most studies conducted within the automotive industry concern global and regional strategy, along with resource allocation (Miller, 1994; Schile and Yip, 2000). There is also some research concerning the development of electric vehicles (Aggeri, Elmquist & Pohl, 2009; Wesseling, Niesten, Faber & Hekkert, 2015), however, so far no theoretical material can be found relating to the strategic objective that managers perceive in the use of strategic platforms, even though this medium is used frequently. Furthermore, there is little research concerning the automotive industry and what strategic resources it might gain in engaging in these investments. It has therefore not been established whether the strategic objectives for using strategic platforms are related to a gain in intangible resources, such as reputation and exposure through showcasing or participation, or if this is down to the potential gain of tangible resources as a development of innovative technological capabilities. The concept of strategic platforms draws similarities with the robotics industry in Japan, where the development of robots started off as an opportunity for companies to show off, and technology fairs became a strategic platform where the companies could demonstrate their technological capabilities and creativity, which later on turned into actual profit generating products (Fensom, 2015). The question therefore arises what the benefit of this usage is related to, as for some of the strategic platforms the value gained can be challenging to

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8 identify, Formula E being one example. What can be expected is for the strategic platforms to create various benefits for the companies involved, tying together the separate entities of technology, innovation, and legitimacy demonstrations. Furthermore, additional objectives of combining the movement of strategic platforms still need to be identified and since there is a great lack of research in this area, the potential benefits can therefore only be speculated. This study aims to entangle the relationship between strategic motivated decisions and the use of Formula E as a strategic platform for the automotive industry. This paper will answer the following question: What strategic objectives can be defined for the automotive industry

using Formula E as a strategic platform?

By answering this question, this paper aims to provide insight into the use of Formula E as

a strategic platform for the automotive industry. This study further strives to provide insight into the strategic objectives for the organisations involved, relating to their participation in the Formula E races. The aim is to provide evidence as to why Formula E is a strategic platform for the automotive industry and what value creation it contributes to. The value creation will be considered from a strategic managerial perspective.

Through interviews with managers that are involved with the Formula E races, this study aims to point out the strategic incentives that lead to the use of Formula E as a strategic platform. In total, six managers from the Formula E Championship and participating teams will be included in the study, in order to provide relevant input from several different social actors, both from the perspective of the participants and the platform itself. Before the interviews were conducted, a theoretical framework was constructed. First, the concept of platforms will be discussed in order to establish a definition of strategic platforms, followed by theories of strategic management. Within strategic management the aspect of innovation and organisational learning will be presented, followed by the concept of first-mover advantages.

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2 Theoretical Framework

In order to define the strategic objectives behind the use of Formula E as a strategic platform for the automotive industry, several different topics will be discussed in the literature review. Below follows a literature review that first defines and explains the concepts of different platforms. This section will also state what is suggested by the definition of a 'strategic platform'. The focus on platforms is provided in order to understand how the expression is most often used and what it refers to. It will also highlight the limitations of the current expression and why focus must be put on the definition of strategic platforms.

The section on platforms will be followed by theories of strategic management that outline the history of the topic and most of the current focus groups. Strategic management will assist in defining strategic objectives during the analysis, whilst special attention will be paid to innovation and organisational learning, as well as first-mover advantages, within the topic of strategic management. Innovation and organisational learning will be briefly discussed as they are closely related to strategic management and could offer valuable insight into strategic objectives. The section concerning first-mover advantages is an extension of strategic management and will offer a comprehensive focus on strategic management drivers. The first-mover advantage theories will be considered in relation to general strategic objectives for organisations entering new industries and markets.

2.1 Platforms

In order to comprehend the meaning of a strategic platform, it is first necessary to define the areas where the terminology is most commonly used. As an object, platforms are a horizontal space and they can also be considered a hypothetical stage where information is shared horizontally or displayed for other actors (Meyer & Mugge, 2001). Bresnahan and

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10 Trajtenberg (1995) propose that platforms act as a reconfigurable base which firms can use and share in order to build applications. Cusumano (2010) suggests that platforms were originally defined as the foundation around which related products were built, a so called product platform. In contrast, Tyagi (2015) claims that platforms can be defined as an established strategy for a firm, which would enable it to offer customisation of products, which could be defined as either a product or production platform. According to Kogut (1991), platforms can be related to productivity given their link to other entities related to resources, routines and structure. Building on this assumption of organisational platforms, Ciborra (1996) states that platforms are a form of meta-organisation which moulds both structures and routines and which affects several different aspects of an organisation on a high volatility basis, hierarchy among others. The interesting aspect of platforms is their relation to innovation and strategic incentive from a managerial perspective, if they can potentially generate more disruptive innovation than incremental. In other words, a very broad variation of how to define the term platform can be established, an aspect which has been acknowledged by Mahmoud-Jouini and Leufle (2010). By providing these explanations regarding the concept of platforms, it will facilitate the understanding of the expression's diversity. It will also create a generalised understanding of what platforms can be used for, as they can also be labelled differently in terms of their purpose, for example, product platforms, organisational platforms, marketing platforms, and in the case of this paper, strategic platforms. Later in this section a further explanation of the concept of strategic platforms will be given, after theories on the use of different platforms have been discussed. These theories will be used in order to explain the underlying assumptions of strategic platforms.

Platforms have, for a long time, been used and described almost exclusively with regards to technologically similar contexts. Here, platforms have been considered and used as a tool for structuring and dividing work, opening up communication possibilities, not just within the

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11 organisation, but for the possibility of communication across other sectors, organisations, and actors as well. The purpose of these tech platforms seems to mainly be related to structuring work, especially project management, and enabling managers to gain a direct overview of the work and current situation, as well as analysing them. These kinds of platforms can be considered as tech platforms which potentially could enable the operation of organisational platforms. However, platforms have also been considered the link between the firm and consumer where the products are offered, in order to increase availability and customisation, which can be related to both marketing aspects as well as product and production capabilities (Ciborra, 1996; Gawer & Cusumano, 2002; Mahmoud-Jouini & Leufle, 2010; Barnett, 2011). Furthermore, West (2003) stated that computer-based platforms, which are a form of tech-enabling platform, enable the development of complementary assets thanks to the possibility of integrating between different technical components.

Cusumano (2010) argues that product platforms should be differentiated from industry platforms for two reasons: the industry platform works as a complement, providing a foundation for components of different organisations to be brought together; and also the industry platform is of lesser value to the user if these complementary components are not available. The concept of platforms was developed around the idea of platform thinking, which refers to the process of identifying, and exploiting, the offerings provided by different organisations. This is then used to target specific markets and develop the processes for creating and delivering products from the companies involved (Sawhney, 1998). According to Sawhney (1998), organisations should focus on platform thinking instead of offering different portfolios to the consumer, suggesting that different platforms within the organisation arise from its strategic vision; when these are combined they make up the organisation's core platform. Sawhney (1998) also suggests that for an organisation to engage in platform

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12 thinking, it must first identify all core processes and divisions that are connected to its core platform.

Swaney's argument (1998) can seem somewhat limiting regarding the expression of 'platforms', as he reduces different platform options and limits it to platform thinking. However, neither concept should be disregarded and platform thinking should rather be thought of as an extension of platforms in order to increase their efficiency.

The concept of platforms has generally been described as complex, and therefore the use of platforms demands attention regarding strategy and positioning for the areas where the platform is used and implemented. Platforms have become not just a necessity, but rather a strategic obligation, that must be implemented within the firm or its strategic base (Sawhney, 1998). Gawer and Cusumano (2002) emphasise that managers' focus must go beyond innovation related to what the firm offers on its core platform and also focus on the relationship between the independent stakeholders in order to generate value. Platforms are also bound by network effects and in order to avoid switching costs when entering the platform market, the firms must provide a better opportunity that what previously was available, in order to benefit from a market share (Eisenmann, Parker & Van Alstyne, 2011). The coordination of platforms and innovation related to them is therefore of great strategic importance in order to create competitive advantages, especially when the market is characterised by network relations (Scholten & Scholten, 2012; Zhu & Iansiti, 2012). Ciborra (1996) already claimed that platforms are a stage which enables experimentation and recombination, allowing firms to provide countless and more efficient solutions.

Other authors have also acknowledged the importance of utilising what Sawhney (1998) called platform thinking. In general, it can be determined that the implementation and utilisation of platforms in fact arises from a strategic perspective, which will subsequently prove relevant when stating the definition of strategic platforms. Furthermore,

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Mahmoud-13 Jouini and Leufle (2010) stated that the use of platforms can reduce lead-time and development costs, whilst at the same time allowing mass customisation and increased flexibility for the firm. However, they go on to emphasise that the strategic use of platforms is a balance between commonality and product differentiation. There is additionally a great overlap in terms of business fields when considering platforms, as these can be used within several different business sectors. The use of a platform can in turn overlap with several different areas of expertise, for example strategy and marketing.

A platform cannot be limited to just one specific aspect, rather, platforms are multidimensional and can be used in order to make use of several different purposes simultaneously, which is also what truly defines and sets a strategic platform apart from other forms of platforms. When considering Formula E as a strategic platform, the effects of other platforms can therefore not be overlooked, as a strategic platform can be a marketing platform, tech platform and an innovation platform all at the same time. Another aspect is that the vehicle, the product itself, can be used as a tech platform in order to enable other services, thanks to recent technological advances, for example self-driving vehicles. Many recent concept cars have this feature, especially electric vehicles, many of which were presented at the CES (which is another form of a strategic platform, it is an electronics show rather than an automotive event and the propositions greatly differ), indicating that cars are being constructed more like gadgets, and this occasion can be used to test the potential market possibilities (Warren, 2016; CES, 2016). Recent developments in the same area include the announcement that Formula E has partnered with Kinetik to host a support series to the Formula E races called ROBORACE. These races will take place before all actual Formula E races throughout the 2016-2017 season. The ROBORACE will consist solely of fully self-driving race cars, using artificial intelligence (AI) instead of drivers (FIA Formula E, 2015a),

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14 meaning that yet enough platform will be utilised within the strategic platform of the Formula E races.

What truly sets strategic platforms apart from more traditional platforms, as described in the paragraphs above, is that no product is created or used in the races with the intention of offering it as merchandise. The manufacturers may be able to use the same technology within the vehicles they offer, however, that is considered a next-in-line effect and not the purpose of the race. Strategic platforms are therefore defined in this paper as a dimension where other forms of platforms can be utilised, for example platforms that enable the opportunity of showcasing, demonstrating, and gaining other forms of exposure among others. The concept of strategic platforms will be used in the analysis in order to understand what strategic objectives Formula E races might utilise and enable; it will not be discussed in terms of various platforms as it will be limited to the aspect of strategic objectives. These assumptions will deter from the fact that any aspect could also be perceived as a platform opportunity.

2.2 Strategic Management

For this study, strategic management will be used to understand strategic objectives as they are a result of managerial decisions. An understanding of strategic management will be necessary in order to define the strategic objectives behind the use of Formula E as a strategic platform. The topic of strategy has been of academic importance ever since the concept of efficient labour was introduced by Adam Smith (1776), yet strategic management is a fairly recent subject of research (Boyd, Bergh, Ireland & Ketchen, 2013). Even though the topic is still very young, it has quickly become widespread and can touch upon many, if not all, aspects of a firm, industry, or market. Strategic management is related to the objectives, planning, and the path that a firm is following, among many other internal and external aspects (Porter, 1981; Barny, 1991; Peteraf, 1993; Bowman & Helfat, 2001;

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Casadeus-15 Masanell & Ricart, 2010). According to Casadesus-Masanell and Ricart (2010), strategy is the choice of a business model for the firm, which will be used to compete in the marketplace, whilst the business model is how the firm will generate value.

The topic of strategic management is very broad and a thorough explanation of the topic is therefore required before more specific concepts can be interpreted. One of the underlying understandings of strategic management is that it can be looked at from various research perspectives and subjects. Mintzberg (1990) has suggested that there are ten different schools of strategy, which represent ten different perspectives and thoughts on strategy formulation: entrepreneurial, cognitive, power, design, planning, positioning, learning, cultural, environmental, and configuration. The entrepreneurial school focuses on the conceptualisation of strategy, with strategy formulation that is driven by intuition and creativity. In contrast, the cognitive school is focused on psychological factors, it is bound to rationality and reality is constructed by managers and therefore they influence the cognitive base as well as the strategic choices. Political science is one of the strongest influencers of the power school. Here strategy formation is driven by internal and external political influences and forces. The design school is built around the concept of structuring and demands that a clear strategy is designed before it is implemented, which can make this school of thought rather inflexible. The design school draws similarities to the planning school, which arises from planning and control with a focus on situational analysis. The positioning school considers industry context in order to improve the strategic position, whilst the learning school is focused on an incremental learning process where the development of strategy is a continuous process. The cultural school is focused around social processes where strategy formation is a collective and collaborative procedure. In the environmental school the strategy processes are focused on adaption, in contrast to the configurational school which is focused on the transformation of organisational structure (Mintzberg, 1990). This paper considers strategic objectives in

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16 relation to the topic of business administration, especially in relation to managerial perceptions. The theories that are explained in this paper will therefore mainly originate from economic and behavioural perspectives. Other aspects cannot be excluded, which is why the schools of strategy become relevant as they provide an idea of the underlying theoretical assumptions.

Mauri and Michaels (1998) suggest that two fields have dominated the research of strategic management: the resource-based view and the concept of industrial organisation. One of the most well-known theories regarding strategy is Porter's strategic positioning (1981), which originates from an industrial organisational perspective, which suggests that the effects of the industry have an effect on a firm's strategy from a long term perspective (Bain, 1972). This specific concept has been followed up, acknowledged, criticised, and developed by many scholars (Barney, 1986, 1991; Peteraf, 1993; Teece, Pisano & Shuen, 1997; Kunc & Morecroft, 2010). As a contrast, the resource-based view is focused on generating competitive advantages through a firm's resources (Barney, 1986, 1991; Peteraf, 1993; Teece, Pisano & Shuen, 1997). A similarity between the resource-based view and that of the industrial organisation is that both suggest that strategies related to the technological and marketing differentiation of a firm will have a greater influence on its performance (Dierickx and Cool, 1989). Mauri and Michaels (1998) further suggest that the different perspectives of the resource-based view and the industrial organisation could work to complement each other, as a firm is often influenced and impacted both internally and by the industry. Even though these two theories approach strategic management from different angles they might prove useful for understanding strategic objectives that might exist when firms decide to participate in the Formula E races and use its strategic platform.

For Porter (1981) strategy is related to value creation as well as positioning, two aspects that are correlated in order to generate competitive advantages. Van Cauwenbergh and Cool

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17 (1982) made the claim that strategic management is a critical element for the survival of a firm, especially when the environment is unstable. As Formula E is still a very young venture it can be considered less stable in comparison to other alternatives. Van Cauwenbergh and Cool (1982) consider strategy to be calculated behaviour in unfamiliar situations and strategic management to be the formulation and implementation of certain aspects of a firm, based on calculated behaviour and the future outcome. Strategic management is therefore related to the success and survival of a firm. On the other hand, Casadesus-Masanell and Ricart (2010) emphasise that strategy is the choice behind a certain action, the creation of a system rather than an active system. Therefore, strategy is the choice of a certain business system, though not the activities of using and implementing it (Casadesus-Masanell & Ricart, 2010). Furthermore, in terms of strategy implementation, Van Cauwenbergh and Cool (1982) claim that middle management are the actual managers whose opinions, values, and evaluations affect the strategic formulation and implementation process to a greater extent. Top management are merely observers and monitors of the firm's strategic behaviour, although they are responsible for the firm's survival. However, as Mauri and Michaels (1998) emphasise, once a strategy is chosen, there is a tendency to maintain it over time.

As Porter (1981) expresses, value creation and positioning are important strategic objectives and in order to be able to analyse the respondents' perspectives in this study, it will be necessary to have a fundamental understanding of what factors shape strategic choices and their relation to underlying business plans.

The strategic positioning aspect (Porter, 1981) and transaction cost economics (Williamson, 1985) focus on competitive advantages, just like the resource based view. The transaction cost economics theory focuses on behavioural assumptions, namely that the economic actors involved follow bounded rationality and opportunities. Williamson (1987) refers to bounded rationality as intended rationality which does not refer to irrationality, but to the limits of

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18 cognitive capabilities. No similar assumptions are made for the model of strategic positioning. On the other hand, the theory of strategic positioning does acknowledge that consumers are heterogeneous and that there is not one holistic strategy that can accommodate all consumer demands. Porter (1981) developed a strategic concept in which the firm was responsible for analysing its external environment in order to put itself in the most beneficial position in a specific industry or market, which in turn would generate competitive advantages. In contrast, the transaction cost theory is not focused on market positioning, rather the contractual agreements that a firm makes or is bound to from a symmetrical aspect. It is therefore in the interests of the management to maintain the relationships beyond the contract, in order to generate long-term agreements that can lower transaction costs (Williamson, 1987). However, Williamson (1987) also emphasises that discretion is required from managers to maintain relationships with both external stakeholders and the labour force, in order to generate mutual benefits. The aspect of value creation and positioning in a specific industry would not provide a full picture of strategic objectives. The theories of Williamson (1987) introduce more aspects that might be worth considering, as transaction costs most likely play a big part in the internal structure of a firm and might be dependent on how these relationships are managed. Therefore these theories become of interest when looking at the strategic objectives for using Formula E as a strategic platform. Furthermore, another aspect of strategic management that might be of importance is the focus on culture and values, although some authors argue that the topic has not been given enough acknowledgement in terms of effect and importance (Freeman, Gilber & Hartman, 1988). In more recent years, culture has been acknowledged as one of the greater influencers on the corporate environment, both from an external and internal perspective (Carmeli & Tishler, 2004; Sorge, 1991, 2004; Drogendijk & Slangen, 2006). Culture and other similar resources are considered intangible assets, which make them hard to measure, however, they often have a great impact on the firm. For example, internal

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19 culture can affect how motivated the staff will be and how they will perform (Williamson, 1987), whilst internal culture can also affect the capabilities of the firm to adapt to external cultural influences (Carmeli & Tishler, 2004). Additionally, the relationship between a firm and its various stakeholders can have a great impact on its performance and survival (Harrison, Bosse & Phillips, 2010). A firm's reputation can also be considered a resource and, as other aspects mentioned previously, it can act as a competitive advantage as well (Rao, 1994). Barney (1986) and Peteraf (1993), among others, have also assessed culture to be a source of competitive advantage and it is therefore strategically important for managers to influence these aspects. Bowman and Helfat (2001) also state that most leadership studies have claimed that management and strategy does indeed impact the firm and its performance. Intangible assets and other intangible elements are a necessity in order for a firm to be able to generate higher performance. The aspect of culture and perceived reputation weighs more than any other aspect and is of greater strategic importance (Carmeli & Tishler, 2004).

As mentioned earlier, the transaction cost theory (Williamson, 1987) is related to the relationships between different stakeholders. As this kind of organisational relationship might prove relevant, it should also be of interest to consider network relationships, as they can be perceived as an important strategic objective, as well as an intangible asset (Hoffmann, 2007). Gulati, Nohria and Zaheer (2000) draw attention to an example concerning the American automotive industry and claim that this cannot be analysed properly without taking the strategic networks between the participators into consideration, and hence network relationships can be considered as a competitive advantage. Other important factors contributing to this situation were that the amount of suppliers decreased, it is based on long-term relationships, and also the suppliers were increasingly involved in the design process. Not only has this initiated the use of strategic networks, but it also improved the competitiveness of the organisations involved (Dyer, 1996; Gulati and Lawrence, 1999;

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20 Hoffmann, 2007). Gulati, Nohria and Zaheer (2000) relate these strategic networks to a central position in the understanding of firm strategy and performance, partly due to competitiveness generated from organisations that are active within similar network positions. Another aspect that might affect network relationships is the transaction cost perspective, as it stresses the efficiency benefits from reducing the governance cost of a transaction. From a network relationship perspective, strategic benefits can be optimised within the network, as it might reduce governing costs (Dyer & Nobeoka, 2000). Gulati (1999) claims that the network of an organisation can both create and restrict resources, however, these networks are an important source for creating inimitable value-generating resources. Furthermore, Hoffmann (2007) stated that by building on alliance strategies the firm can optimise their position and improve their financial performance, which is why it is of strategic importance for the management. In other words, network relationships can lead to increased value creation which is why it becomes an important aspect to consider in relation to strategic objectives.

A final aspect of strategic management is strategic niche management, which according to Kemp, Schot & Hoogma (1998) is important in the creation and development of promising technologies, in order to learn about the new technology and also to enhance further development and creation. Strategic niche management can therefore be perceived as a concentrated effort in order to generate development. It is focused on bringing different actors together to increase knowledge and expertise, and also to improve interactive learning and generate institutional adaption. Strategic niche management is focused on the development of new technologies with the important aspect of learning being a major part of the process (Kemp, Schot & Hoogma, 1998). Based on these assumptions, strategic niche management may be closely related to strategic platforms, due to the complex environment that these platforms generate. Strategic niche management may be implemented by both sides, the racing teams involved as well as the organisers of the event.

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21 2.2.1 Innovation and Organisational Learning

Based on the theories presented both in relation to platforms and strategic management it is evident that innovation and technology are important aspects that need to be considered in order to understand any strategic objectives. According to Assink (2006) innovation is the process of creating and developing something new that can add significant value. Innovation is not limited by any boundaries and can be presented in several different forms, each of which can have different levels of impact upon the organisation. It can be everything from stages of functional remodelling to breakthrough discoveries that radically alter the circumstances (Assink, 2006). Even though the automotive industry in itself is a slow moving industry, it is nonetheless characterised by all forms of innovation, constantly developing and breaking new ground. The incentive to innovate is led by the firms' drive to enhance competitiveness and gain market share (Swann, 2009). In other words, the industry is in need of innovative capability to develop, which can be defined as the drive to explore new ideas and concepts in order to access market potential (Assink, 2006).

According to Kemp, Schot and Hoogma (1998) new innovations can be difficult to introduce within an organisation as they often receive less support. This is one reason why, at first, innovations are not used as a direct strategic activity, but they gradually develop into one over time in case funding is put forward. Efforts within the organisation are instead generally put on improving existing products and reducing production costs, which is often the case for the automotive industry (Kemp, Schot & Hoogma 1998). The authors state that, even though the automotive industry is innovative, most vehicles are still being produced in accordance with a highly standardised process. Production is defined by functional manufacturing characteristics due to the fact that vehicles have a very similar appearance and the same functions.

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22 Miller (1994) emphasises that innovation is a strategic decision that needs to be managed accordingly, for example, a concentrated research and development (R&D) department might be favoured over a decentralised alternative based on its environmental and organisational form. For the automotive industry in particular, innovation and production is a complex operation due to its diversity. However, this can also lead to the efficiency of these trades being limited in terms of market transactions, as large parts of automotive development and production tends to come from within the firm and is not outsourced (Miller, 1994). The choice of business model can also affect how technology is developed within the firm and vice versa, which is why this strategic choice becomes of importance when considering innovation (Baden-Fuller & Haefliger, 2013). Child (1972) already concluded that strategic incentives are the motivators behind adoptions of innovation and that these will proactively change the environment of the firm. Subrmanian and Nilakamta (1996) conclude that the relationship between the organisation, strategy, and innovation is very complex, even though each variable affects the others. Innovation will also affect the order of entry into new markets, if a firm has a greater capability and stronger motivation to innovate, they tend to be pioneers and first-movers. Smaller firms with less resources or opportunities in terms of innovation tend to enter markets at a later stage (Wesseling, Niesten, Faber & Hekkert, 2015). From a strategic management perspective, firms which optimise their stakeholders' utility functions, as well as information about them, show higher levels of innovation (Harrison, Bosse & Phillips, 2010). Though, for innovation to take place it is also of importance to consider organisational learning, which is related to how organisations develop. Managers must therefore be aware of how organisational learning can be used in order to initiate innovation and change and which structures must be put in place in order to ensure efficiency and continuity (Trim & Lee, 2007). According to Popadiuk and Choo (2006) innovation and learning, or knowledge creation, are bound together by a strong and complex relationship.

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23 However, Abel (2015) claims that traditional firms are not constructed in a manner that enables learning, and therefore a large amount of knowledge is easily lost. Despite this Abel (2015) goes on to state that in order to manage and survive, traditional firms have adapted to become learning organisations. Organisational learning can be defined and divided into single-loop and double-loop learning. Single-loop learning is a problem solving approach based on existing knowledge, whilst double-loop learning not only focuses on solving the problem, but also the underlying norms for its occurrence (Argyris & Schön, 1996). As this process suggests, single-loop learning is more closely related to incremental innovation as it builds on and develops existing knowledge, for example, it can be related to creating batteries that are more effective in order to reduce the petrol use for hybrid cars. Double-loop learning on the other hand is associated with disruptive innovation (Utterback, 1994), which could be an illustration that, instead of developing energy efficient batteries, a new source of energy is created in order to fulfil the same function, but also to ensure that the same problem is not encountered again. Aggeri, Elmquist and Pohl (2009) point out that the outcome of innovation is always uncertain, which is why it needs to be the focus of learning for managers.

When looking at the use of strategic platforms, it becomes crucial to take both innovation and organisational learning into account for the organisations that participate within these activities. Both innovation and organisational learning can be related to strategic management and should be perceived as an active choice and therefore potential strategic objectives.

2.2.2 First-Mover Advantage

First-mover advantage is part of strategic management and, due to the fact that the Formula E Championship is still a very young event, it could be of interest to understand if any perspective related to pioneer advantages could be determined as strategic objectives for the use of Formula E as a strategic platform. It will therefore be required to provide a solid base

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24 to understand what is implied with first-mover advantages, as well as disadvantages, and the relation these perspectives have to market entry decisions in terms of strategic objectives. According to VanderWerf and Mahon (1997), first-mover advantages have never been denied by any author over the years up to their study (Gal-Or, 1985; Lieberman & Montgomery, 1988; Carpenter & Nakamoto, 1989; Schmalansee, 1982; Golder & Tellis, 1993), nor has any author denied potential first-mover disadvantages (Baldwin & Childs, 1969; Lieberman & Montgomery, 1988; Mueller, 1997). This argument has more recently been strengthened by Markides and Sosa (2013).

First-mover advantages have often been discussed in terms of the effective usage of resources in order to generate firm advantages from the perspective of different underlying theories, mainly economic and behavioural (Baldwin & Childs, 1969; Lieberman & Montgomery, 1988; Carpenter & Nakamoto, 1989; Kerin, Varadarajan & Peterson, 1992; Mascarenhas, 1992). First-mover advantages have also been considered in relation to the effect of introducing new products or when firms enter new industries, for example in high growth markets (Aaker & Day, 1986; Alpert, Kamins & Graham, 1992). Furthermore, one of the most relevant aspects is that first-mover advantages have been considered as an active strategic choice (Robinson, Fornell & Sullivan, 1992; Brown & Lattin, 1994; Short & Payne, 2008) and in relation to political incentives (Frynas, Mellahi & Pigman, 2006), which is why it becomes of interest to consider its link to the use of strategic platforms. As presented in the previous section, the use of platforms as a strategic decision may be linked to the corporation of separate entities, for example demonstration of technology, innovation, and legitimacy among others, which in turn is related to value creation and could therefore be a potential first-mover advantage.

Baldwin and Childs (1969) state that first-mover advantages have been explained by economic theory related to entry barriers, and by behavioural theory in terms of consumer

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25 response. Teece (1977), Porter (1986), and Rumelt (1987) among others support the economic theoretical models. Mascarenhas (1992) considers first-mover advantages from a macro perspective and found support for the theories of Teece (1977) as well as Porter (1986), that global industry leaders are often the ones who first venture into new markets and act as pioneers, though complications can arise due to switching costs and other barriers. However, it is worth noting that Baldwin and Childs (1969) present some of the fundamental assumptions regarding first-mover advantages, which are often static and considered equal for all parties involved, for example, the assumption of equal costs, which Baldwin and Childs (1969) deem unrealistic and suggest that differences in costs might in fact benefit a fast moving second entrant. However, the authors also draw assumptions as to why such costs might be reduced in relation to marketing and development expenses; assumptions that would not necessarily hold true and which have been disregarded in later studies.

From an economic theoretical perspective, first-mover advantages are often portrayed in relation to entry barriers and the effect that these have upon the market, the entrants, and its actors. According to Lieberman and Montgomery (1988), first-mover advantage is achieved via three principal resources: technological leadership, preemption of assets, and buyer switching costs. These advantages are dependent on external sources, firm proficiency, and luck, which in turn are affected by environmental change. All of these aspects can be considered entry barriers. For technological leadership, Lieberman and Montgomery (1988) conclude that two basic mechanisms are being considered, the first when advantages are derived from learning and/or experience, and the second the success of R&D. Technological leadership would enable the actors to stay in front of the competition and other potential late entrants (Lieberman & Montgomery, 1988; Golder & Tellis, 1993). Preemption of scarce assets is a matter of acquiring these assets before other rivals have the opportunity to do so. It may be achieved by input factors, if the first-mover has access to superior knowledge in

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26 comparison to others. This is a purely economical advantage mainly concerning natural resources or locations. Preemptions might also be in terms of geographical and product space; in areas where there is only a limited amount of room for all those that want to enter the market, being a first-mover might then create advantages. Furthermore, it might also result in gaining access to plants and equipment, reducing costs and increasing capacity (Schmalensee, 1978; Fudenberg & Tirole, 1985; Lieberman & Montgomery, 1988).

Switching costs, on the other hand, are related to the effort in terms of time and resources spent to find a new supplier, which might not be desirable, as it may lead to additional costs, as well as being related to buyer uncertainty. Many of the studies regarding switching costs consider it from a behavioural theoretical perspective (Carpenter and Nakamoto, 1989; Barnett, Feng & Luo, 2012). Switching costs can also be transaction costs, occurring when there is a switch from one product and its system to another, or costs arising from contractual swaps (Mascarenhas, 1992; Alpert, Kamins and Graham, 1992). Buyer uncertainty, on the other hand, is related to product quality and brand loyalty, where early establishment might lead to one brand being preferred over other competitors (Wernerfelt, 1987). Carpenter and Nakamoto (1989), as well as Schmalensee (1989), argue that a first entrant might establish an advantage due to consumer awareness; by entering the market first, the product name might be valued more highly by the consumers and therefore become the market standard. This perception has also been supported by Barnett, Feng and Luo (2012). Kerin, Varadajan and Peterson (1992) found that early entrants only benefited from positional advantages in the marketplace, rather than other claimed first-mover advantages. They also concluded that a firm is rarely a pioneer and most often a late entrant. However, Mueller (1997) concluded that first-mover advantages can indeed be the result of set-up and switching costs, network externalities, buyer uncertainty, as well as supply related aspects that would lead to efficiency advantages for the first-mover. In fast growing markets these perceived benefits can, however,

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27 lead to too many firms choosing to enter the market at the same time, causing tough competition, which in turn my slow down the growth rate and lead to failed expectations (Aaker & Day, 1986). The market environment will also influence the market entrants, if the market is characterised by an abrupt pace and technological development, then a later entrant is more likely to be successful than a pioneer (Suarez & Lanzolla, 2007). However, Suarez and Lanzolla (2007) were criticised by Short and Payne (2008) who claim that the authors made inappropriate claims regarding first-mover advantages, suggesting that they limited the influence of strategic choice, resources, and lead-time to a matter of managerial control. Therefore their claim about first-mover advantages could just as well be down to coincidence (Short & Payne, 2008). Suarez and Lanzolla (2008) responded to the critique from Short & Payne (2008) and state that they are misinformed and that they did acknowledge the importance of resources and strategy in order to achieve first-mover advantages.

The perspective of first-mover advantages in relation to entry barriers is one of the most researched topics and also one of the most widely accepted, as the paragraphs above demonstrated. However, first-mover advantages are not limited to those assumptions and when considering first-mover advantages in relation to platforms, technological leadership most likely plays the more important role, along with switching costs for future products, for example concept cars. Other aspects must not be overlooked though, as they might also be of importance; it is not very likely that strategic objectives should be limited to this. Robinson, Fornell and Sullivan (1992) state that managers have to be aware of the market climate and that they need to understand all requirements for both early and late entry. The authors also establish that brand awareness is of importance and that changing the brand name when entering a new market might create benefits, as keeping an already well established name is related to considerably higher risks. The market is described as being accessible through a strategic window which can be opened or closed to a certain extent, and in order to succeed,

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28 either as a first-mover or late entrant, managers must be aware of this factor (Robinson, Fornell & Sullivan, 1992). Brown and Lattin (1994) suggest that pioneers and first-movers have to make strategic choices in order to make use of their time ahead of the market and they further clam that there are rarely any late-mover advantages, whilst first-mover advantages are easily lost and therefore have to be maintained by active strategic decisions (Brown & Lattin, 1994). According to a longitudinal study on first-mover advantages, which covered 105 published papers from 1983 until 2013, time has proven to be a very relevant factor when entering a new market or industry, especially with regards to the suitability for a firm to enter as a first-mover or rather as a later entrant (Zachary, Gianiodis, Payne & Markman, 2014). Dobrev and Gotsopoulos (2010) also suggested that for new firms there is rarely any benefit to entering a new market as a pioneer, however, it can be of some benefit if the market is mature.

The field of first-mover advantages can also be considered from perspectives other than those of an economic theoretical and behavioural theoretical nature. Frynas, Mellahi and Pigman (2006) draw attention to the importance of first-mover advantages in relation to political resources. This aspect becomes important for market entries where government control or regulation is enforced. It can also be where economic gain is influenced by connections to government officials, as this can provide political capital for creating economic advantages. However, the relationship that Frynas, Mellahi and Pigman (2006) identified is complex, one reason being that it can act both ways: advantages can be gained either by political resources that were obtained before entry or by early entry leading to political resources. What must be noted, though, is that the authors' research was limited to three examples in their case study, and therefore these results might not be generally applicable. For the discussion of strategic importance in terms of platforms, their theory could still be of importance considering certain current events, one being the recent report that Norway will

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29 ban the sale of all petrol driven cars as early as 2025, which will most certainly affect the market for electric and other vehicles (Staufenberg, 2016).

Political resources and governmental regulations might very well play a part among the strategic incentives of the organisations, though their relationship to platforms can be questioned. The role that first-mover advantages play in terms of strategic objectives behind the use of strategic platforms is not clear, mainly due to the fact that there is little or no research on the topic. What should be questioned is whether first-mover advantage is more closely related to the main activities of the organisation or to specific activities such as platforms. However, any potential relationship between these two features is of interest from a managerial perspective.

In first-mover advantage theory the perspective of later-mover advantages is also considered. Shankar, Carpenter and Krishnamurthi (1998) claim that there are two possibilities where later entrants can surpass the first-mover: the first option is that the later entrants might have gained superior market knowledge and understanding of consumer preferences in comparison to the first-mover, this may lead to the later entrants overtaking the first-movers market position and outselling them (Shankar, Carpenter & Krishnamurthi 1998); the second option is related to innovation, i.e. how later entrants can take advantage of the innovation created by the first-mover in order to surpass it. Both Mueller (1997) and Shankar, Carpenter and Krishnamurthi (1998) found that innovative late entrants can disturb the market diffusion and spending effectiveness of the mover and hence surpass it, and thus the first-mover advantage would be lost to the latecomers. Lieberman and Montgomery (1988) identified four different factors that might cause first-mover disadvantages: free-rider effects, a shift in technology, a shift in consumer need, and incumbent inertia. Golder and Tellis (1993) further identified that the leading position of a first-mover might be lost due to improper positioning on the market, a change in customer needs, or insufficient funding.

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30 According to Guasch and Weiss (1980) a first-mover could be overtaken due to the late entrants using a more productive labour force. However, Alpert, Kamins and Graham (1992) found that for resellers, pioneers are favoured over later entrants, which potentially could be related to the increased switching costs.

The meta-study conducted by VanderWerf and Mahon (1997) becomes of great interest. They covered 90 statistical test form published papers on first-mover advantages and found that the method of research determined the results of the studies to a great extent. VanderWerf and Mahon (1997) concluded that market share was not highly correlated with other forms of performance for the firms and therefore that any perceived first-mover advantage could be industry-specific. According to VanderWerf and Mahon (1997) first-mover advantage was rather the result of firms with the highest probability of succeeding simply entering a new market spot first, and anything gained was related to performance types, what form of industry, and the type of entrant. This idea has also previously been supported by Robinson, Fornell and Sillivan (1992). More recently, Markides and Sosa (2013) have acknowledged this claim, stating that the choice of business model, which is in line with the assumption of strategy formation according to Casadesus-Masanell and Ricart (2010).

In their study, VanderWerf and Mahon (1997) state that the results of previous studies were strongly impacted by the method used and that the research techniques had significantly restricted the results. If these techniques were not considered, first-mover advantages would be less likely to occur than if the results would have been up to mere chance. This led to two assumptions: either there is a general first-mover disadvantage or, statistical tests that had shown no first-mover advantage suffered from methodological limitations in terms of an underestimation of the relative performance of the early market entrants (VanderWerf & Mahon, 1997).

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31 There are several theories and aspects on first-mover advantages available and for the analysis of this study it will be useful to have all various perceptions available. As this paper uses an exploratory method, the perceptions of the respondents will be weighed against the literature review. All different theoretical perspectives can therefore be used in order to understand and identify any strategic objective that might be relevant for the use for Formula E as a strategic platform. The relation between these different studies and the variables that are important for each one of them might overlap with the data provided by the respondents due to the complex nature of strategic platforms, as presented in the theoretical section on platforms. Several different theories may prove relevant in terms of strategic objectives.

3 Methodology

The different processes for structuring the research design as well as the process of the analysis will be presented below. The complete research process is divided into different layers, in line with recommendations from Saunders and Lewis (2012), with the first layer being the philosophy and approach chosen to conduct research, the following layers being represented by strategy and choice, while the central core is focused on data collection and analysis.

3.1 Research Design

According to Saunders and Lewis (2012) choosing a research philosophy is important in order to understand underlying assumptions that will reinforce the rest of the research conducted. This is because the philosophy will affect the way the researcher will perceive and interpret the material they have to analyse, as it relates to the development of knowledge. This paper will be presented from an interpretative view, as it will study the underlying reasons for

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32 strategic managerial decisions. This philosophical view stresses that the research is conducted among social actors, where the people involved play a part in the social life of the organisation and beyond its boundaries (Saunders & Lewis, 2012). This view also stresses the important factor of how the researcher interprets these social roles as, in accordance with the definition, researchers are also social actors. According to Yin (2014), this perspective remains relevant for studies concerning organisational behaviour, as business situations are complex and the researcher will often be evaluating a unique social phenomenon.

This study will partly be performed as an inductive study, which is an ontological approach and a constructionist viewpoint. This approach refers to an individual's perception of reality and the viewpoint further implies that the content of social reality is created continuously through the interaction of social actors. In other words, this suggests that different understandings are being created by humans in order to interpret reality (Saunders & Lewis, 2012; Bryman & Bell, 2013). The main research in this paper will be reliant upon the subjective perceptions of the respondents that take part. Such an approach can be perceived as interpretation-oriented, which is often a result of a qualitative study, due to the close connection to the inductive approach. This type of research can be criticised for being overly subjective because the interpretations of the subjective respondents directly affect the results of the study, which can lead to bias (Bryman & Bell, 2013). However, as this study strives to understand the underlying strategic objectives of managers within the automotive industry, an inductive study will prove the most suitable method. Furthermore, this study will be conducted as an exploratory study, where the aim is to gain new insights into the chosen field of study (Handfield and Melnyk, 1998).

In line with the suggestions of Lee (1999) and Saunders and Lewis (2012), this paper will present a single case study, a method which is often used for exploratory studies. Case studies are particularly useful as they allow the researcher to gain detailed understanding of the

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33 context within which their research is being conducted. The main idea with a case study is to examine a specific context and several different methods can be applied to do this, as it allows for an in-depth focus. The context of the study will be limited to strategic decisions within the automotive industry in relation to Formula E. This approach has been criticised on the basis that a limited selection cannot lead to relevant and generally applicable findings. However, the approach has also been defended as being a useful tool for exploratory research, given that it can lead to insights that would not be achievable through more descriptive strategies (Lee, 1999; Saunders & Lewis, 2012).

The structure of this paper follows the recommendations of Yin (2014) in order to increase and maintain the validity of the study. The paper has therefore been divided into separate sections, including a thorough literature review where multiple sources and several different perspectives on the theories included are brought forward, which has been one of the most important sources in constructing the validity of the study. As will be described in coming sections, this paper also follows a clear structure in terms of collecting the data, as well as how it will be analysed, in order to ensure the highest possible validity, both internally and externally, and to avoid bias (Yin, 2014).

Based on all of the components, this study will have a limited time frame and will therefore be cross-sectional, meaning that data will only be collected from one moment in time, a snapshot (Saunders & Lewis 2012). The snapshot collection of data will be achieved via individual interviews.

3.2 Data Use

This paper is a case study of the strategic objectives behind the use of Formula E as a strategic platform for the automotive industry. Primary data will be used to interpret existing research on strategic objectives and managerial incentives and apply this to the use of Formula E as a

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34 strategic platform for the automotive industry. The data will also be used to gain an in-depth understanding of the strategic advantages that managers experience in using strategic platforms.

Primary data is, in contrast to secondary data, collected first hand from the research and is therefore fully adapted to the study that is being conducted. Issues concerning secondary data can hence be avoided, for example whether the researcher has complete control over the gathering and processing of the data and is not reliant on someone else's work. However, this does not guarantee that bias is avoided. Instead the researcher can be the reason for bias, depending on the research method and how the material is gathered and interpreted (Yin, 1994; Saunders & Lewis, 2012). Primary data can be collected by using various different methods, however, for this paper seven interviews will be conducted and analysed.

3.3 Data Collection

Based on the research design for this study, individual interviews were determined as being the most efficient approach to gather the primary data, which will be used to understand the context involved. In order to avoid bias, the interviews will be semi-constructed, meaning that the interview will cover certain specified topics that will be relevant to the research, while at the same time providing the respondent with the option of freely formulating their response. Questions can be removed or added based on their relevance (Saunders & Lewis, 2012). Before each interview the respondents were presented with a consent and confidentiality agreement where the purpose of the research was clearly stated, as well as how the data collected from the interview would be used. The respondents were also given different options in terms of confidentially and were given the reassurance that if confidential material was shared, it would be excluded from the study. All interviews were conducted over the phone for convenience, as the respondents were based at various locations across the globe.

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35 This method of interviewing the respondents is preferred as the most appropriate method to collect the data as it is both targeted and allows the researcher to focus directly on the topic of the case study. By conducting interviews, the researcher can gain insight into the topic as the responses will provide both explanations, as well as the respondents' personal views on the topic. However, the method is also flawed as bias can occur for several reasons, for example, the interviewer can present questions in a poor and neglectful manner or the respondent can simply give the answer they believe the interviewer wants to hear. Furthermore, bias can occur as a result of inaccuracies in recording the data, however, this can also be avoided by recording the interviews or using other similar methods (Yin, 2014). The method of conducting semi-structured interviews has also been criticised as the interviewer might end up in a situation where the respondent steers the conversation; a criticism which stresses the importance of performing pilot tests before conducting the actual interviews. Pilot tests are performed in order to detect any issues that might arise, for example, in case the questions asked are too difficult or complicated for the respondents to comprehend (Saunders & Lewis, 2012).

The interview respondents represent a heterogeneous selection from their population and were nominated in accordance with a purposive case sample in combination with snowball sampling (Hennink, Hutter & Bailey, 2010). The purposive sampling was chosen due to the limitation of organisations considered for the research, and also because the population considered had to have certain managerial roles within the organisation. However, due to the very limited access to the organisations and their staff, the necessary respondents had to be identified by earlier sample members, hence the use of snowball sampling. It was necessary to ensure that the sample from the population was relevant for the case study and therefore using purposive sampling was the best option. It had to be complemented with snowball sampling, due to the fact that the first respondents were identified via personal connections and no