There was a time when you could buy a watch only in a Jewelry store because watches were jewelry items. Up to late 1960s, watches were mechanical pieces of equipment with over 100 small parts to keep time. It required skilled artisans to make a watch that could keep time.
Swiss watch makers ruled the industry with a majority market share. Their competition came from cheaper and inferior mechanical watches from USA and Japan. Watches from these places were inferior as they were less accurate. Most of the watches made in Switzerland were exported. Times were good, margins were much more than 50%. The key competitive advantage of the Swiss watch makers was their artisanship that was hard to copy because of centuries of apprenticeship and accumulated wisdom in watch making.
Then came an innovation that changed everything – the quartz watch. Swiss watch makers had created a consortium in 1960s to look at an emerging technology in the form of an electrical watch. They had come up with quartz watch as a response but never commercialized it. Quartz watch didn’t need specialized artisanship to keep accurate time. Furthermore, a quartz crystal tells time as accurately as the best Swiss watches did.
Had the Swiss watch makers embraced the innovation, they would have destroyed their own profits. This was so because they would lose a key competitive advantage (artisanship) and invite more competition that would lower margins. If they ignored the innovation, they may have been driven out of business when (if) Quartz became the dominant technology. Quartz watch was a classic rogue innovation. Sometimes, firms develop a rogue innovation themselves and then not do anything about it.
As American and Japanese watchmakers embraced the technology and started selling cheap and low margin watches, Swiss watch makers stood still. They ceded lower end of the market to the Japanese and American firms. It made no sense for them to embrace the rogue innovation because they would have lost most of their profits by doing so. Slowly, they ceded mid market and finally a large part of top end of the market to quartz watches. This didn’t happen in a year or two but over more than 10 years. They watched a slow motion train wreck and did nothing!
If you have been following my blog, you can tie this choice set and the reaction to what I have written about rogue innovations. Eventually, 66% of Swiss watch firms disappeared, and it led to a major crisis in Switzerland.
Sometimes, firms have a hard time realizing that an innovation in their pipeline could be a rogue innovation. By the time they realize it is a rogue innovation they have already spent significant resources on it.
Two things become clear from this.
1. The impact of rogue innovations on organizations, industries, economies, and societies can be devastating. This makes it an imperative that firms understand rogue innovations and how to deal with them.
2. Could it be that you have a rogue innovation in your innovation pipeline and you are not aware of it?
Stay tuned for more.
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