Some Knowledge Leader companies are born in a moment of disruptive innovation. From the start, they exist under pressure to change their industry or die. Such is the case with Swatch Group, a company scraped together from the remaining ashes of a dying Swiss watch industry in the early 1980s. Swatch Group not only lived to become world’s largest watch company today, the company’s consistent and long-running investments in R&D, brand development and organizational capital have resulted in the accumulation of rich stores of knowledge, a key marker for Knowledge Leader status in our investment process.
In the early 1980s, Swiss luxury watchmakers, comfortable for over a century as the leading watchmakers in the world, were surprised and displaced by an onslaught of inexpensive imports. Japanese watchmakers had been quick to adopt a new technology called “quartz,” which, like a microprocessor, kept time electronically using a battery and an electric pulse from a tiny crystal. Quartz watches – as opposed to traditional mechanically wound watches with gears regulated by a moving balance wheel – were not only drastically cheaper, they were said to be at least an order of magnitude more accurate.
Ironically, the Swiss watchmakers helped to develop the new quartz technology which nearly led to their near demise. In the late 70s, in response to watch technology innovations in Japan, a consortium of Swiss engineers got together to develop the “Delirium Tremens,” named after the “shakes” experienced during withdrawal from alcohol for the frenetic pressure to deliver a breakthrough innovation and fend off the Japanese. The thinnest watch in the world at the time at 1.98mm, Delirium featured a new simple design: instead of the standard 3-layer assembly that was then set into the watch compartment, Delirium’s parts were assembled directly into the bottom plate. Instead of 91 parts, the new design had 51.
Unfortunately, Swiss watchmakers then declined to adopt the new technology, betting instead on the time-tested mechanically wound watch. Japanese watchmakers suffered no such qualms, and brands like Citizen and Seiko quickly overtook the watch segment. As a result, the Swiss watchmaking industry plunged into a depression known today at the “quartz crisis.” At the lowest point of the crisis, Swiss watchmakers cut jobs by over two-thirds.
It was about this time in Swiss watch history that would-be Swatch Founder Nicolas G. Hayek was hired to oversee the liquidation of a collection of Swiss watchmakers and industry groups. Instead of doing the job he was hired to do, he pooled resources from the remaining bits and pieces of the community and mounted an attempt to rescue the Swiss watch industry. Hayek’s strategy was, for the first time in Swiss watchmaking history, to compete directly with the inexpensive quartz watches. He called his scrappy venture Societe Suisse de Microelectronique et d’Horlogerie, which eventually became Swatch.
In 1983, the company introduced the first Swatch. The BG101 combined an affordable price and an aggressive consumer marketing campaign. Anyone who was alive in the 80s knows the rest of the story. From a simple black and white watch with a plastic band, Swatch watches evolved into fashion statements. Swatch believed one should not have just one watch, and consumers agreed. The firm launched special artist edition watches, even accessories for your Swatch.
Since then, Swatch Group has grown to become the world’s largest watch company, acquiring the top brands in the world, with a presence at every segment of the market. At the luxury range, it owns Breguet, Harry Winston, Blacpain, Glashütte-Original, Léon Hatot, Jaquet-Droz, Omega, Longines, Rado and Union Glashütte; in the mid-range Tissot, Calvin Klein, Certina, Mido, Hamilton and Balmain. Today, the flagship Swatch brand still offers inexpensive, customizable watches ranging from $50-240. Ordering this year’s special artist edition Swatch — “Follow the Dots” — will activate your annual Swatch Premium club membership. At the very low end is Flik Flak, watches for children ages 3-9 in gender and thematic styles, most for around $40-50.
Perhaps most interesting for those of us who hunt for innovation, Swatch Group has never forgotten its roots: the firm continues in its long-standing tradition of embracing change. The company now produces nearly all the components to build the watches sold under its 18 watch brands, retail labels and most of the Swiss watchmaking industry. The firm invests heavily in R&D, not only in watches, but with additional focus on development in microelectronics and micromechanics. Swatch Group has about 1,800 existing patent families, representing more than 10,000 national patents.
Looking forward, Swatch Group is engaged in R&D to develop solutions for wireless access, telecommunications, medical applications, automotive, electronics and e-commerce. This Knowledge Leader employs about 36,000 people in 50 countries.