Disruptive Strategies Final Paper, 28 / 07 / 2021 The innovation that saved the Swiss watchmaking industry

Roula Eid Division Lead F&B IMEA ECOLAB United Arab Emirates Preamble

This is an educational paper only, not intended for any other purpose.

It is solely based on public resources, and a personal analysis of the watch market under the lenses of the Disruptive Strategy Theories.

Neither Swatch, nor any other company mentioned in this study have been consulted for this paper.

Roula Eid July 28, 2021 Description of the Company

SWATCH is a subsidiary of the SWATCH group. SWATCH is a subsidiary of the SWATCH group. The Swatch Group Ltd is a Swiss manufacturer the product line was developed in 1983 by of watches and jewelries. Previously known as Ernst Thomke, Elmar Mock and Jacque Muller SMH the company was founded in 1983 by as a response to the quartz crisis. SWATCH was Nicolas Hayek with the merger of the financially an extraordinary successful story of SWATCH troubled Swiss watchmakers ASUAG and SSIH Group. Since its birth, hundreds of millions have disrupted at that time by the quartz crisis. been sold and has become one of the world’s most widely recognized consumer brand In watchmaking, the quartz crisis was caused names. by the advent of the quartz watches in the 1970s and early 1980s that largely replaced The scope of the paper is to tell the story of the mechanical watches around the world and SWATCH innovation that disrupted the watch greatly affected the traditional Swiss making market, saved the swatch group and watchmaking industry. the Swiss watch making industry.

Mr. Hayek led the firm to recovery from severe crisis with his innovative strategies that also served as important models for the Swiss watchmaking industry as a whole and played a key role in the revival of the industry. Today the swatch group is the worldwide number one manufacturer of finished watches in the world. It has 18 watch brands such as Omega, Longines, Rado, Tissot, Hamilton, Swatch ….

Roula Eid July 28, 2021 Characterization of the Situation/Relevant Theories

Swatch Disrupting the watch making industry SMH (SWATCH group) in 1983 responded to Traditional Swiss watchmaking was about disruption by the launch of SWATCH. history, craft, and strong links to luxury. SWATCH embraced the existing quartz watches were expensive pieces, often seen technology and evolved it by adding further as financial investments, and it was usual to technological innovations. it also packaged pass them on from one generation to the technology with an artistic face. Within five next. Swiss watchmakers were specialized in years, the SMH Group (SWATCH group) was assembling complex mechanical movements to become the most valuable watchmaker in and sold their watches in upscale department the world. stores. There was a world-wide consensus that Swiss-made watches are the only high- quality watches.

Swiss watches industry was disrupted in the 1950s by the introduction of the disposable watches in the American market with very low prices. They were disrupted again in the 1970s by Japanese watch market introducing watches with quartz movement, as opposed to mechanical. Their automated production lines dropped their costs of production, so their watches were more affordable for buyers, and they still came with silver or gold- tone designs, resembling the luxurious Swiss watches. Characterization of the Situation/Relevant Theories Aligning with innovation and disruption

SWATCH was both a low end and new market disruptor of the watch making industry. PERFORMANCE SWATCH was a low-end disruption innovation – SURPLUS Watch SMH strategy was to regain lower market share by making the product available to the thousands of people. The product was designed to have low cost, to be good enough and priced at the low end. It was not intended to compete with the premium and luxury Swiss watch but rather to target the low-end market.

SWATCH was also a new market innovation – Swatch Colorful, happy, loud, and shrill, SWATCH was intended to connect their target customers to imagination and fantasy rather than luxury. It was unisex and the main target audience was young people who hadn't shown any interest in watches PERFORMANCE THAT before. It also targeted customers that did not have PERFORMANCE CUSTOMERS CAN LOW END UTILIZE OR ABSORB financial capabilities to own a good quality and a well-designed watch. PERFORMANCE GAP

Roula Eid TIME 1983 July 28, 2021 Characterization of the Situation/Relevant Theories Discovering the Job to be Done

Originally, SWATCH was strategically positioned to watch. The watch was casual, had different models The Brand name Swatch is a contraction of be the "Second watch” in the sense of customers for different styles, for different outfits, different "second watch" and some associated it with Swiss owning multiple watches. It was Quartz-operated, seasons, and even different days; Swatch also watch. affordable, Swiss-made, and most importantly, a extended the experience to include a concept of watch with a message. revolution, innovation, emotion, and unconventional ๏ The intended functional job to be done was which was very suitable with the 80s culture. “help me afford a second Swiss watch”. Purpose ๏ When launched in the market, Swatch served SWATCH main attraction point was its versatility. Brand several other jobs that customers hired it for The watches themselves came in a staggering among which: number of colorways and the bands could be ๏ Social job to be done: “Help me look trendy and interchanged to allow for as many pattern stylish”. combinations as possible. The unconventional Integration ๏ Emotional job to be done: “Help me express concept was reflected in the artistic designs myself and my culture” including both abstract designs and artist ๏ Emotional job to be done: “Help me embrace the collaborations. The exclusive swatch retail store fantasy and imagination of my childhood and special designs, the nontraditional point of sales youth” (vegetable markets for the Veggie Swatch line) Experience connected very well with SWATCH message. The The main success of swatch came because they watches were genuinely well designed and of high conveyed an emotion and a feeling imparted by the quality; SWATCH changed collections twice a year, brand. each collection included 70 different models of watches. The watch was very affordable (around SWATCH created different experiences around the $20). Job To Be Done watch encouraging people to want to buy another Roula Eid July 28, 2021 Characterization of the Situation/Relevant Theories Organizing for Innovation

SWATCH was a successful disruptive innovation between manufacturing output and real-time Two years later SWATCH started to outsource because it properly organized the resources, market demand. designs by collaborating with countless artists to processes and profit formula needed to win. bring fresh, relevant feel to their watches. The original strategy of SWATCH was to gain share Today the group operates in a specialized approach The innovation was set under a different business in low end market, their profit formula relied rather but with all modular entities under the SWATCH unit or subsidiary of the SMH group. It had a on low prices ($20) linked with high volumes. The group umbrella. It is today the world’s largest specialized brand name connected to the job to be production optimization however allowed them to watchmaking group with 18 watch brands under 18 done (later the group was named after it because of have also profitable Gross margin. different subsidiaries. It supplies nearly all the the huge success). SWATCH had an independent components required for the watches sold by the marketing and sales departments. SWATCH had 18 individual brands and others. The SWATCH dedicated retail stores to take the product to Maintaining a group production companies supply movements market. SWATCH used the consolidated production and components to third-party watchmakers in facilities of the SMH group allowing to leverage Disruptive Scope Switzerland and around the world. SWATCH group economy of scale and to reduce cost. Upon launching, Hayek believed strongly in vertical is today a key player in the manufacturing and sale integration to maintain autonomy. SWATCH owned of electronic systems used in watchmaking and With a consolidated and fully automated production the centralized production facility in Switzerland, other industries. line they decreased labor costs and optimized the owned their retail stores and owned the knowledge. number of individual parts. Consolidating the So even when the Japanese offered to sell him process eliminated production overruns. One of the integrated circuits at half price, they refused to keep most important control processes was the flow of the capacity of developing new circuits alive in the information and timely response. Sales figures were company. Swatch watches were exclusively available on the 6th of each month, and profit and distributed through the parent company Swatch loss statements became available 10 to 15 days Group retail outlets. later. Hayek leveraged this process to close the gap Roula Eid July 28, 2021 Characterization of the Situation/Relevant Theories Managing the Strategy Development Process

The saga of the swatch started at the end of 1979. The initiative was triggered by an unlikely encounter of Ernst Thomke (CEO) and 2 young Swiss engineers Elmar Mock and Jacques Muller. The SWATCH was never planned, and it was not a result of a deliberate innovation strategy.

From conception to commercialization SWATCH followed an emergent strategy for both design and marketing processes. They followed the principle of learn and try again. They followed the concept- knowledge theory for their design process that involved a back-and-forth movement. A concept is created and challenged from which knowledge is produced, which is then used to challenge and create new concept.

Once their job to be done became clear to them, SWATCH became more deliberate in their market strategy introducing the different new products, jewelries, targeting sports teams, building communities, designing your own watch and several initiatives built around their defined job to be done. Roula Eid July 28, 2021 Recommendations

Since 1983, SWATCH has evolved greatly and watches especially Apple watch nailed the the SWATCH GROUP that today seems to flee the witnessed great success. They introduced a lot of functional, social and emotional job to be done low-end market and concentrates more on sustaining innovation, new products, jewelries and better than SWATCH. premium and high-end products. Although the built different concepts around their brands. premium brands still have their place in the watch May 19, 2021 - SWATCH introduces the new Bio SWATCH brand is already in disruption by smart making world, Apple alone sold more watches than ceramic watch. the model is two parts ceramic and watches. Close to 42 million smartwatches were the entire Swiss watch industry in 2020. Not to one part bio-sourced plastic. This innovation shipped in the first half of 2020 vs 3.1M units of forget that the smart watch customer of today will focused on improving the quality of the watch to be Swatch models reported over all 2020. be the premium customer of tomorrow and his / her more resilient and more flexible explains the Smart watches are also showing signs of disruption expectations from the premium offering will different innovation mindset of Swatch brand of “Sustaining threats for the SWISS watch making industry and than today’s expectations. innovation”. They are still positioning their new product around their original job to be done.

However there seems to happen meanwhile other innovations who are better nailing the job to be done than SWATCH. Smart watches especially Apple Watch with their digital style, connectivity features, changeable bands, high quality watches are of great success within the youth segment. furthermore, Smart watches are marketing their watches as health devices as 53% of Millennials say health and wellness are the most important pursuits in life. Millennials and Gen-Z, who are already more digitally savvy than their older counterparts, drove the growth of smart Watches in the same way they did for SWATCH in the 80s. By combining health, connectivity, style, quality and time-reading, smart Roula Eid July 28, 2021 Recommendations

To respond to disruption, SWATCH group can knowledge and hardware and software to replicate the same Strategy Development Process introduce connectivity to their watches. they followed in 1980s to come up with the winning strategy: Hence an acquisition of an electronic ๏The Swatch group to dispatch a small team of manufacturer or expert combined with the talented entrepreneurial individuals tasked to SWATCH brand and innovation (the main scope of look for innovative solutions. this paper) can bring to life a new good enough ๏The swatch group to invest GOOD money in SMART SWATCH, intelligent (with focus on this endeavor either through acquisition or wellness), cultural, stylish, trendy, sustainable building an R&D from scratch. (environmentally friendly), and very affordable ๏The project to be be led with an emergent targeting the young segment. strategy approach until the right job to done is defined and the profit formula is clear. SMART SWATCH should be all integrated with the ๏Considering the modularity of the SWATH technology under one division of the swatch GROUP, it should be flexible to introduce a new group. Later in time when the SMART WATCH module into the umbrella. nails the profit formula with the right resources and processes, the technology arm can be An example would be to leverage the exiting disintegrated to service and supply the different digital/electronic technology capabilities of a 3rd brands of the group. party and combine it with the aesthetics, artistic, culture, and the Swiss watchmaking expertise of the SWATCH group to develop a low-end innovation disrupting the smart watch market. The electronic manufacturers lack to a big extent the affinity and delicacy of watch making while the watch makers need a long way to catch up the Roula Eid July 28, 2021 Conclusion

The global market of smart wearables is projected to reach shipments of 776.23 million units by 2026. And, despite the pandemic, 2020 saw 266.5 million units of wearables being shipped out to customers.

The boom in the wearable market has been largely linked to its demand by highly connected consumers today and may be used for so many different yet undefined jobs to be done including health, medical and many others.

SWATCH group is in need for another “1983 swatch company”. This would require not just new skills but a new thinking and new ways of looking at the world and organizing for the new world. ¥ References

https://www.swatchgroup.com/ CAN THE SWISS WATCHMAKERS SURVIVE DISRUPTION 2.0? (ankushchopra.com) https://www.swatch.com/ Management lessons from Swatch (management-issues.com) https://vintageradar.com/blogs/vintage-magazine-vintage-watches-jewelry-and- fashion-blog/the-story-of-the-swatch-brand-how-swatch-watches-became-a- Are smartwatches the future of wearable devices? - Tech Wire Asia thing The future of Fitbit, Apple Watch and other wearables: Talking Tech How Swatch Started a Revolution: History of Fashion Watches - Bloomberg (usatoday.com) The Most Complete History of Watchmaker Swatch You'll Ever Need (highsnobiety.com)

Swatch Strategic Analysis | Case Study Template (acasestudy.com)

The Deloitte Swiss Watch Industry Study 2020

How Apple Killed The Swiss Watch Industry (forbes.com)

Covid-19 brings Swiss watchmaking to a standstill - SWI swissinfo.ch

Smartwatches: a ticking timebomb for watchmakers? - SWI swissinfo.ch

Swatch introduces the new Bioceramic | The Week UK

Roula Eid July 28, 2021