CAN THE SWISS WATCHMAKERS SURVIVE DISRUPTION 2.0?

Can the Swiss watchmakers survive disruption 2.0? This is a question making the rounds among the industry participants as well as industry observers. Back in the 1970s the Swiss watch industry faced massive losses in its global position due to quartz technology; will the smart watches do the same to what is left of the wrist watch industry? Should the watchmakers adopt an intelligent watch technology or deal with this threat in some other way? This question merits a longer answer than a simple prescriptive answer. This is also an opportunity for the industry leaders to think back about the lessons from the disruptive wave in the industry back in the 1970s.

Swiss Watch Disruption 1.0

The Swiss watch industry faced the dark side of innovation in the 1970s when the quartz technology decimated the industry in a short span of 10 years. Over half the firms in the industry disappeared, and more than half the employees lost their jobs during that time. The problem back then was not that the Swiss watch industry faced a disruptive force in quartz technology; the problem was how the Swiss watchmakers reacted to that disruptive force.  I have written a longer narrative on this historical event in my book ‘the dark side of innovation’ for those who are inclined to get a better picture of the events back in the 1970s.

How Swatch Beat Disruption 1.0 in Switzerland

In the midst of that carnage, a single firm (Swatch) demonstrated how firms can overcome massive disruptive forces with a creative strategy. The lessons from Swatch are still pertinent, and the global watch industry needs to heed those lessons at this time. Swatch redefined what a watch was and therein lay the secret to its strong response. Watchmakers need to go down a similar path rather than just think of whether to adopt smart watches or avoid the technology altogether.

The Secret to disruption management: Reconceptualization

Let’s ask the question as to what is a watch? Obviously,  it is a time keeping device, but there is more to it. In the beginning, pocket watches used to be the time keeping devices and wristwatches appeared much later; eventually wrist watches became the dominant design of a watch. Watch moved from being just a timekeeping device to being a piece of jewelry. Along with this change, the watch as a time keeping device appropriated the wrist real estate. The quartz revolution only solidified the wrist as the natural real estate for watches. However, with the advent of cell phones, the timekeeping function moved from the wrist to a mobile device that was often kept in a pocket; the timekeeping device moved back to the pocket. Although this led to a large expanse of wrist real estate becoming vacant, wristwatches remained the natural heirs of the wrist real estate. In essence, the watch is a natural owner of the wrist real estate and that is the critical asset of wrist watchmakers.

The quartz revolution only solidified the wrist as the natural real estate for watches. However, with the advent of cellphones, the time keeping function moved from the wrist to a mobile device that was often kept in a pocket; the timekeeping device moved back to the pocket. Although this led to a large expanse of wrist real estate becoming vacant, wristwatches still remained the natural heirs of the wrist real estate. In essence, the watch is a natural owner of the wrist real estate and that is the critical asset of wrist watchmakers.

 

The Battle of the Wrist

Since the advent of health devices such as fitbit and smart watches such as Apple Watch, there is a battle for the wrist real estate going on. Obviously, the smartwatches and health monitoring devices are in no way comparable to watches; they are still perceived as somewhat related to a wrist watch due to their design and the real estate they are trying to occupy (the wrist).

In essence, the fight between the wrist watchmakers and the smart watch makers is not about technology or branding or benefits – it is a battle of the wrist real estate. In one scenario, the smart watch could abandon the wrist and move to the real estate naturally occupied by glasses (like Google glass). While watchmakers may pray for this outcome to appear, as of today the real estate eyed by the smart devices is the wrist. As a result, the watchmakers need a response and they need it fast.

The fact that this is a battle of the wrist going on between the watch makers and the smart watch makers points to a novel insight. From one perspective, watchmakers are under threat from smart watch makers; the threat is that smart watches will usurp the natural real estate of watch makers. At the same time, this also appears to be an opportunity to occupy a greater share of the wrist real estate. The wrist can be seen as a pivot point by watchmakers. It is a beachhead that broadens their arena.

Luxury Watches versus Health Monitors

Watchmakers are known for their aesthetics, design, brands and their ability to make their customers feel great with a beautiful piece of jewelry. Smartwatch makers are known for their software and extensive functionality in a mobile device. When viewed from the smart watch makers’ perspective, they lack some of the critical capabilities that traditional watchmakers possess; the same applies to the traditional watchmakers who know almost nothing about software and operating system platforms. The threat to watchmakers is that if they totally adopt the smart watch core into their watches, their competitive advantage may be significantly eroded. On the other hand, a direct battle with devices may be a losing battle for the traditional watchmakers.

The threat to watchmakers is that if they totally adopt the smart watch core into their watches, their competitive advantage may be significantly eroded. On the other hand, a direct battle with devices may be a losing battle for the traditional watchmakers.

The key to winning over Disruption 2.0

The key to a robust response will be how to provide smart watch features along with that the traditional watches provide – the million dollar feeling of wearing a great piece of jewelry. There are many solutions and depending on the exact capabilities and resources of a watchmaker they need to create a personalized strategic response to this existential threat. 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.

A Caveat

Lest it appears that all that is needed is to add a smart watch core to a traditional watch, one should not forget that Sony tried to do exactly this and the outcome was not pretty. Sony was a conventional hardware company that faced competition from new devices that incorporated software as a critical core. Sony created software division to provide software in devices. However, the glorious history of hardware success made it the software engineers get the short end of the stick at Sony. As a result, in spite of significant resources expended on software, the launches were mired with problems. The cause of the problem for Sony was that it thought adding a software division is all that it needed – there was a lot more that was needed to transform a hardware company to a software based hardware company.

The cause of the problem for Sony was that it thought adding a software division is all that it needed – there was a lot more that was needed to transform a hardware company to a software based hardware company.

Key Lesson

The next Swatch company for the Swiss watchmakers will be the company that not only figures out the product solution but also figures out how to organize to deliver such a product. Such a company will indeed be a master of disruption management.