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smh’s autonomous model for swatch

In the mid-seventies the Swiss watch industry, which had historically dominated the the potential to anchor a larger product line. This forced engineers to entirely rethink
timepiece sector, found itself in deep crisis. Japanese and Hong Kong watch manu- the very idea of a timepiece and its manufacture; they were essentially deprived of the
facturers had dislodged the Swiss from their leadership position with cheap quartz ability to apply their traditional watchmaking knowledge.
watches designed for the low-end market. The Swiss continued to focus on tradi- The result was a watch made with far fewer components. Manufacturing was highly
tional mechanical watches for the mid- and high-end markets, but all the while automated: molding replaced screws, direct labor costs were driven down to less than
Asian competitors threatened to intrude on these segments as well. 10 percent, and the watches were produced in large quantities. Innovative guerrilla
In the early 1980s competitive pressure intensifi ed to the point that most Swiss marketing concepts were used to bring the watch to market under several different
manufacturers, with the exception of a handful of luxury brands, were teetering on designs. Hayek saw the new product communicating a lifestyle message, rather than just
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collapse. Then Nicolas G. Hayek took over the reigns of SMH (later renamed Swatch telling time on the cheap.
Group). He completely restructured a newly formed group cobbled together from com- Thus the Swatch was born: high quality at a low price, for a functional, fashionable
panies with roots in the two biggest ailing Swiss watchmakers. product. The rest is history. Fifty-fi ve million Swatches were sold in fi ve years, and in
Hayek envisioned a strategy whereby SMH would offer healthy, growing brands in 2006 the company celebrated aggregate sales of over 333 million Swatches.
all three market segments: low, mid, and luxury. At the time, Swiss fi rms dominated the SMH’s choice to implement the low end Swatch business model is particularly inter-
luxury watch market with a 97 percent share. But the Swiss owned only 3 percent of esting in light of its potential impact on SMH’s higher end brands. Despite a completely
the middle market and were non-players in the low end, leaving the entire segment of different organizational and brand culture, Swatch was launched under SMH and not as
inexpensive timepieces to Asian rivals. a standalone entity.
Launching a new brand at the bottom end was provocative and risky, and triggered SMH, though, was careful to give Swatch and all its other brands near-complete
fears among investors that the move would cannibalize Tissot, SMH’s middle-market autonomy regarding product and marketing decisions, while centralizing everything else.
brand. From a strategic point of view, Hayek’s vision meant nothing less than combin- Manufacturing, purchasing, and R&D were each regrouped under a single entity serving
ing a high-end luxury business model with a low-cost business model under the same all of SMH’s brands. Today, SMH maintains a strong vertical integration policy in order
roof, with all the attending confl icts and trade-offs. Nevertheless, Hayek insisted on this to achieve scale and defend itself against Asian competitors.
three-tiered strategy, which triggered development of the Swatch, a new type of afford-
able Swiss watch priced starting at around U.S. $40.
The specifi cations for the new watch were demanding: inexpensive enough to
compete with Japanese offers yet providing Swiss quality, plus suffi cient margins and

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