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Disruptive Innovation and the Swiss watch industry


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How the Swiss watch industry survived the digital disruption.

Published in: Business, Lifestyle

Disruptive Innovation and the Swiss watch industry

  1. James Bond and how Swiss watches survived
  2. In the late 1960s the first digital watches were produced in Japan.
  3. From 1970 to 1985, more than 1000 Swiss watch manufacturers went out of business. Over this time, the amount of employees went from 90 000 to 30 000.
  4. Today, the industry employs about 40 000.
  5. In unit, the Swiss watches sum to about 1 percent of global sales. In economic value – more than 40 percent!
  6. This is a great disruption! And a remarkable turnaround! How did all this happen? Let’s look further into this story…
  7. South of Germany, East of France, West of Austria and North of Italy, there’s a small country called Switzerland.
  8. A very mountainous country…
  9. …The Swiss watch industry is not as old as the Alps…
  10. …but almost…
  11. … Back in 1541, Calvin abolished jewlery in Switzerland.
  12. Legislation often has unintended consequences…
  13. Since watches were not considered as jewlery, jewels could be attached to watches and thereby satisfy the human demand for luxury.
  14. Over the centuries Swiss watches became famous. In 1790, Geneva exported about 60 000 watches.
  15. With a long tradition of knowledge in precise mechanics, Switzerland became a dominant player in the watch industry…
  16. But maybe more importantly, the Swiss had been into clever marketing for a long time…
  17. The Omega Speedmaster
  18. In 1953, Sir Edmund Hillary became the first man ever to climb Mount Everest. On his arm, there was a Rolex Explorer.
  19. In In ’Dr.No’ from 1962 James Bond wore a Rolex Submariner.
  20. The quartz watch (digital technology) was originally developed by a Swiss institution.
  21. But it was never commercialized in Switzerland. Instead it was the Japanese firm Seiko which pioneered quartz watches in 1969.
  22. In “Live and Let Die” from 1973, the British agent wore a Hamilton Pulsar 'P2 2900' LED Digital Watch. It had no gadgets, but the watch was the latest technology, and that’s what appealed to Mr.Bond.
  23. In the movies ”The Spy Who Loved me” (1974) and ”Octopussy” (1983), Mr. Bond wears Digital watches from Seiko.
  24. This must have been the ultimate confirmation of the disruption of Swiss watches.
  25. The first digital wrist watch, Pulsar, was launched in 1972 and cost 2000 USD.
  26. In 1976, Texas Instruments launched a digital watch that cost 20 dollars! A 99 percent price reduction in 4 years!
  27. This dramatic decrease of prices implied that all of a sudden, everyone bought digital watches…
  28. … And those watches were not Swiss…
  29. … They were Japanese, Seiko and Casio flooded the market with digital watches in the 70’s and 80’s.
  30. Digital watches were cheaper, looked good and had sufficient performance.
  31. Seiko and Citizen together sold 1.8 million watches in 1974. In 1978 they sold 19.7 million units!
  32. During the 70’s and 80’s more than 1000 Swiss watch manufacturers went out of business.
  33. In 1984 the business press observed that: quot;The Swiss watch industry has been in decline ever since it delayed switching over to electronic watches in the early seventies.quot;
  34. But that’s only one part of the truth…
  35. … Many watch manufacturers went bankrupt simply because people bought digital watches instead…
  36. Other firms like Oris instead focused on mechanical technology and the beauty of these watches.
  37. Tag Heuer invested extensively in marketing and succeeded in creating a ‘sporty’ appeal around the product.
  38. Rolex never went into digital, instead the firm focused increasingly on positioning the watch as jewelry.
  39. When Rolex was embraced by the Yuppie movement in the 80’s it had established a strong position in the luxury segment.
  40. Omega, probably the main competitor of Rolex decided to be both digital and mechanical. As a consequence, the brand was diluted, the firm went bankrupt in the 80’s. The brand lived on, but had lost much of its market share to Rolex.
  41. The main reason for this is that Omega failed to recognize what a watch was really about. It wasn’t about function. It was about beauty, luxury and status.
  42. In the 1980’s the market for digital watches became over- populated and the appearance and status of mechanical watches turned out to be more appealing to many customers.
  43. Under the leadership of Nicolas Hayek, SMH (formerly known as ASUAG-SSIH) introduced the Swatch fashion watch in the mid 80’s.
  44. In 1995 the Swiss once again took over the lead in world watch production with 38 million units shipped versus 30 million for Japan.
  45. When GoldenEye was launched in 1995, Mr.Bond was again wearing a mechanical watch.
  46. Omega is nowadays the Bond watch and the Swiss watch industry is more successful than ever.
  47. It was accomplished through clever marketing, re- positioning the mechanical watch as jewlery.
  48. quot;It's the only piece of jewelry many men will allow themselves to wear,quot; // Ilona Zimmer
  49. Patek Philippe's Star Caliber 2000 pocket watch has 21 functions. It keeps track of the sunrise and sunset, the moon phases and changes of the night sky. The watch contains of 1,118 parts, including 135 wheels, 336 screws, and 292 pins. It is sold in sets of four watches for about $10 million.
  50. quot;People buy these watches like others buy Picassosquot; //Nicolas Hayek, chairman of the Swatch Group.
  51. quot;You don't buy these watches to know what time it is.quot; //Nicolas Hayek
  52. The value of total exports of Swiss watches is five times higher today than in 1970.
  53. Given that the industry employs less people today, the value produced per employee has increased by 25 times since 1970!
  54. A watch used to be a watch. Today it can cost between 1 dollar and 1 million dollars.
  55. Swiss watches prospered in the 16th century as luxury goods. They survived the digital disruption by increasingly going back to these roots.
  56. Image attributions
  57. Thanks to the following sources: Jörnmark, J. and Ramberg, L. Globala förkastningar 2004 Ekstedt, M., He, C. and Stheen, K. (2004) Schweizisk klockindustri – en tid av omställning. _ed3_.php chives0097
  58. Christian Sandström