Organizational Exploration, Exploitation, and Performance Differential : A Simulation Model of Formula 1 Competition 1970-2013

Technological innovation can disrupt the competitive landscape of an industry and the performance differential of incumbents and their challengers. The challenge for both is to adapt to their changing competitive conditions and environmental dynamics. Adaptation necessitates timely responses, rapid and flexible product innovation, and ambidexterity i.e. managing over time the tension between exploitation for short term gains and exploration for long term improvement in performance. This paper develops a model of innovation and competition in Formula 1 racing where technology development, new team entry, organizational and supplier changes, and annual regulation changes place a premium on ambidexterity as a dynamic capability for firm adaptation. Simulation results show how firm level and environmental changes such as organizational changes and resource acquisition, influence team capability development and erosion and can alter the intra industry performance differential in favour of incumbents or their challengers