A prudent person foresees the danger ahead and takes precautions. The simpleton goes blindly on and suffers the consequences. Proverbs 27:12
The Swiss have such a passion for timeliness that it only seemed right they would dominate the world’s watch industry. In the early 70’s the Swiss owned over 43% of the world market share. Time pieces were expensive luxury items which occupied the high end of the social spectrum – life was good.
In the 1970’s, a Swiss man discovered the quartz crystal and timekeeping would forever be changed. Unfortunately for the Swiss, the Japanese were the first to really exploit the quartz watch technology and flooded the market with accurate, inexpensive watches. By the late 1970’s and early 80’s the Swiss watch industry was decimated. Their world market share plummeted to 11% and the over one hundred thousand people directly employed in the Swiss watch making industry dropped to less than ten thousand. Many of the high end Swiss watch brands (which we still recognize today) were in bankruptcy.
In response to this attack the Swiss founded the Corporation for Microelectronics and Watchmaking Industries, SMH. This is the company that developed the Swatch watch – a high quality, slim, plastic watch, with only 51 components. The cost to manufacture the Swatch was (and is still) approximately one Swiss Franc – (90cents US). The Swatch was introduced in 1983 and by the 1990’s had sold over 250 million units – by far the most successful watch ever.
It took a while but the Swiss finally figured out that watches had changed from being a piece of jewelry to a fashion accessory. Once they discovered the shift they moved quickly to establish leadership in the watch fashion market with Swatch. To ensure they weren’t another fashion fad that comes and goes Swatch not only introduced funky designs and patterns but had these designs created by famous artists of the day. The watches became a reproduction medium of famous artists. This strategy moved Swatch from being a fashion trend (and the ups and downs associated with that) to being a fashion icon. Collectors hang these watches on their walls, so don’t throw out your old Swatch – the value of a Swatch watch actually increases over time!
However this newsletter isn’t about Swatch – it’s about business patterns and disruptions in them. In every industry there is a development pattern. These patterns over time become increasingly predictable. One can use these patterns to map the future and see further down the road.
Business patterns are disrupted by two things – competitive missteps (which we won’t discuss here) and game changing technologies. Clearly the quartz technology was a game changing technology (as were cell phones, the internet, microchips etc.) Once the game changing technology is introduced the familiar business patterns reintroduce themselves albeit often with a different set of market leaders and followers.
All game changing technologies are not necessarily successful. Two things typically kill a game changer. Firstly, the incumbent market leader has a vested interest in stalling or eliminating the new technology as they are often ill prepared to meet the challenge. They will try to eliminate or at the very least stall the market to buy time so they can catch up.
Secondly, the owner of the game changing technology sometimes doesn’t recognize what it has. (Remember it was the Swiss that developed the quartz technology.) Happy with the status quo, managers can be blinded to the potential of their new technology. These unrecognized game changing technologies are often starved of needed cash and die in infancy. What we can learn from Swatch:
- Do you recognize and track the business patterns that dominate your industry?
- A new technology can mean a superior way of delivering your product or service – are there technologies that will allow you to further penetrate your market?
- Is the market potential for new projects properly evaluated using Conjoint Analysis and other objective techniques?
- Are products with high market potential adequately funded and managed (especially products and services that fall outside of the “normal” business realm)?
Don’t get caught unaware – be aggressive, investigate and exploit new technologies … it’s time!
For more on the Swatch story see James Clifford. “On Collecting Art and Culture,” from The Predicament of Culture (Harvard University Press, 1988) p 49-73