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The Watch Industry, Part 2
Re-inventing the industry
As you might expect from this dramatic collapse of the Swiss Watch industry many companies went bankrupt or closed their doors.
Those that remained were faced with two basic choices. Either ignore the new developments and continue building expensive analogue watches in a declining market or take on the digital challenge and compete in the new and expanding watch market.
The Outsider
One company that was determined to take on the digital challenge was ETA, the parts-making arm of the country’s biggest watch manufacturer SMH.
After not having worked in the watch industry for 20 years, Ernst Thomke was surprised to receive a call from his former boss at ETA who was now the company president asking him to rejoin his team to help turn around the company.
Thomke took the job as the Japanese became poised to enter the high-end watch market, the last bastion of Swiss watchmaking supremacy.
(It is worth noting the Joel Barker, elsewhere in his book 'Paradigms', notes the importance of outsiders in creating paradigms shifts in industry.)
The Design Challenge
Thomke created a challenge for his engineers, to design a high-priced analogue watch thinner than 2 millimetres within six months. His intention was to stimulate the thinking of his team, have them re-think their thoughts about watchmaking and send a statement to the industry about Swiss ingenuity.
In six months they came back with a watch that was one millimetre thick. To reach this goal they had completely redesigned the watch. Instead of separate components and case, the components were built directly into the watch. This eliminated thickness and a number of steps in the manufacturing and assembly process which allowed further cost savings. This new design was rushed to market and sold over 5000 units at US$4700 each.
The Second Design Challenge
Thomke then came up with a new challenge: to beat the digital watchmakers at their own game by designing an analogue watch that would cost less than 10 Swiss francs, (around US$6.65) to produce.
After two weeks they came back to him to say that it couldn't be done. The watch mechanism itself would cost 25 Swiss francs, let alone the case and strap. Whilst almost all the engineers rejected the challenge as an impossible one, two engineers (Muller and Mock) volunteered to undertake the challenge.
They reduced the moving parts from 90 to 51. They saved over 40% of the traditional cost through designing a plastic case that also served as the watch's mounting plate. They also redesigned the assembly process so that all the components could be assembled from the top, previously the watch was turned over several times as items were added to the top and bottom face of the watch. They also developed a new way to seal the watch face and in doing so made the watch impossible to repair AND made all the watches waterproof to 100 feet. They also designed a factory based upon automation to further save costs (not simply a design of a product, a design of a process - after all the total cost is the important figure)
In 1980, a watch was completed that met the 10 franc limit. The name of the watch became the 'Swatch', a contraction of 'Swiss watch'. Despite skeptism from bankers and suppliers who refused to sell parts based upon a belief that this watch would ruin the industry (even further?), the team continued.
Unforeseen Spinoffs
As the product was further developed in line with potential markets, the plastic case was recognized as allowing a great deal of flexibility in design and colour, allowing a playful, whimsical approach to its design. This was considered a major bonus to sell to the teenage and young adult market where the Swatch ultimately flourished. At the price that it was offered and with the array of styles and colours, consumers were encouraged to buy a watch to match wardrobes, moods, activities etc. Ultimately consumers were encouraged to own more than one watch which caused a major breakthrough in watch sales.
The watch was released for US$40 in 1983 and the price remained constant for over 10 years. Each year 140 designs are released with occasional limited edition pressings. Over 100 million Swatches have now been sold. There are even groups of people who specialize in buying and selling Swatches as collectors items. The average owner has 3 Swatches.
The key to success of the Swatch was the revolutionary challenge set Thomke and the willingness by his engineers to re-invent the watch and their industry. A lesson in the power of design thinking.
Sources
This story is the result of rewriting the following references into a single article:
Joel Arthur Barker; Paradigms: The Business of Discovering the Future; Harper Business, New York; 1992; Pages 15-17.
Jack Mingo; "How Swatch Saved the Swiss Watch Industry", How the Cadillac got its fins; Harper Business; New York; 1994; Pages 205-210.
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