Very Rapid Response

By Thomas K. Grose / Woking

When the caution flag comes out in Formula One (F1) racing, crews typically use the opportunity to bring their cars in for a pit stop. But when yellow came out in the 25th lap of last year's Monaco Grand Prix, Team McLaren Mercedes made the counterintuitive decision to keep driver Kimi Raikkonen on the track. The ploy worked; Raikkonen won. But the decision wasn't made at trackside. It came from team leaders based at the McLaren Technology Center in leafy Woking, south of London, who were using prediction software they had developed to help them make split-second tactical decisions in a sport in which speed is king.

All F1 teams have their own versions of software that analyzes thousands of variables--from weather and road conditions to fuel levels and competitors' probable actions--and how they may interact to affect a car's performance, before and during a race. The program spits out possible options and assesses the chances of success. Now that racetrack technology is coming to the equally fast-paced world of business.

McLaren and its partner, British software company SmithBayes Ltd., are launching a business version of the team's "decision-engine" software, designed to help companies that face countless variables and constant volatility. "Businesses make a lot of strategic decisions that involve uncertainties this software can track," says Simon Williams, ceo of SmithBayes.

Companies can use the software to measure the risks and rewards of moving into new markets and products or making capital investments. Myriad data and assumptions can be plugged in: competing technologies, changes in government regulations, what rivals may do. The one constant most businesses can count on is churn. "If you know something to be true, it's already history," Williams says. Prediction software, he argues, makes it easier for executives to "accept uncertainty and move on."

It also helps companies practice "strategic agility," a popular management theory endorsed by Donald Sull, a management expert at the London Business School. He argues that chaotic working environments frequently harbor hidden opportunities. "You successfully compete by consistently identifying opportunities and threats and reacting before your rivals," Sull explains. Team McLaren, for example, had just 10 seconds to make its decision.

One major European aerospace company has tested the software. That's an industry whose products take years to develop and remain in the market for decades but are loaded with electronic components that have the life span of gnats. The company has used the software to trim costs by figuring out the best time to replace many components across several product lines while also introducing product upgrades. "Offering options over time is pretty unique to these guys," a company executive tells Time.

SmithBayes put its own software to use when it picked a subscription-based business model instead of licensing the technology or setting up a consultancy. Most clients start with an initial yearly package costing around $200,000. That's not cheap, but Williams calls it good value considering it helps clients place strategic bets worth millions. Sectors constantly affected by uncertainty and flux may find it most useful: think telecoms, oil companies, traders, insurers and betting companies. Firms that toil in steady environments may be less interested, but, as Williams points out, "there seem to be fewer and fewer of those around."