30012 Business Strategy
Pressure Test – April 28, 2020
This article and the following questions comprise the pressure test for the class BS 30012 for
Spring 2020. We expect you to follow the honor code while completing this assignment. Be
advised that reading the article and answering the 7 questions that follow should take no more
than 60 minutes overall. There is a 2-page limit for completing this assignment (1 page for PART 1, 1
page for PART 2). Answers can be bullet points. Use size 11 Times New Roman font, and single- or
double-spaced formatting. Do not change the margins. Feel free to use scratch paper to plan your
answers. Be advised that we will conduct a number of plagiarism checks on the answers to the short
questions. This pressure test must be submitted online by 5:00 pm on April 30th, 2020.
Smartwatches call time on the Swiss industry
(Based on an article by John Thornhill, Feburary 17 2020, Financial Times’ Opinion Technology sector)
The watch industry has always displayed a strong streak of economic irrationality. After all, you can buy a Casio
digital watch for £5 that will tell the time more reliably than a mechanical Patek Philippe Grand Complications
costing 40,000 times as much.
As the advertising slogan goes, every watch tells a story. And the story the watch industry tells is that millions of
people will pay a massive premium for style over function. Or, as Ralph Lauren put it rather more poetically, a
fine watch, like a well-designed car, is best appreciated as “moving art”.
Still, economic irrationality has its limits. And the Apple Watch has been mercilessly exposing them by offering
a radically different type of functionality and a very different kind of style.
According to research firm Strategy Analytics, the Apple Watch, launched less than five years ago, now outsells
the entire Swiss industry, which has been manufacturing wristwatches for 152 years. During the last century, this
industry has had many firms with very few being the dominant over significant period, i.e. it has been an
industry with many active players. Customers can switch across products relatively easily although this might
change as more digital products enter the industry. Last year, Apple increased sales by 36 per cent to almost 31m
watches while the Swiss industry shipped about 21m in total, a 13 per cent decline.
The one solace for Swiss watchmakers is that they generate more revenue: $21bn to Apple’s $11bn. But on
current trends Apple will overtake the Swiss on that measure, too, by 2023. Of course, it would be a mistake to
think of the Apple Watch as just a watch. The success of smartwatches follows the increasingly clichéd storyline
of software eating hardware, as we have seen with cameras, calculators and DVDs. Not only does a smartwatch
tell the time, it operates as a wearable computer. Connected to an app store, a smartwatch can perform hundreds
of other functions, from sending and receiving messages to monitoring heart rates, menstrual cycles and glucose
levels, from tracking open-water swims to checking whether excessive noise is damaging your hearing.
Increasingly, Apple sees its smartwatch’s prime function as a multifunctional health, home and life device.
According to Sumbul Desai, Apple’s vice-president of health, the watch is an “incredible platform” that
empowers users by giving them actionable information about their health. It even offers an electrocardiogram
app, which can provide data for clinicians.
Several lessons can be drawn from the rise of the smartwatch. First, it is hard now for any traditional industry to
predict where their deadliest rivals will emerge, given the mutability of competition. Who would have thought in
1984, when Steve Jobs launched the first Macintosh personal computer, that Apple would put such a dent in the
Swiss horological universe a few decades later?
Second, a smart product is likely to outsell a dumb one. A consumer’s ability to connect their device to their own
personalised suite of applications provides a compelling reason to stick with the same networked provider.
30012 Business Strategy
Pressure Test – April 28, 2020
Third, a big generational shift is under way as younger consumers increasingly live their lives online. Sales of
traditional watches to the young have dropped particularly sharply, with the sleek designs and functions of a
smartwatch appealing more to the digital generation.
For the moment, Apple dominates the smartwatch business with an estimated 50 per cent market share. But
rivals such as Google, which enables Android smartwatches and recently acquired Fitbit, and Garmin, the US
wearable technology company, are aggressively targeting this market, too. Some Swiss watchmakers, such as
Tag Heuer, have launched their own smartwatches, although Tissot’s plans to develop its own operating system
seem wildly ambitious. Overall, many players plan to join in and fight for a piece of the pie.
The obvious conclusion is that Swiss watchmakers are doomed to decline, like horsewhip makers in the age of
the motor car. Yet all is far from lost for the industry.
René Weber, a luxury analyst at Bank Vontobel in Zurich, highlights the sharp contrast in performance between
the low and high-end watch segments. Since 2000, Swiss watches costing less than $1,000 have seen their unit
sales halve, while watches costing more than $5,000 have seen volumes triple. Mr Weber says sales of the most
prestigious watches made by Rolex, Patek Philippe and Audemars Piguet have been unaffected by the
smartwatch revolution. Indeed, there are waiting lists for some of their top-end products because of capacity
constraints in manufacturing complex mechanical watches. While the manufacturing processes of the high-end
segments are not so different from the low-end, branding and other intangible aspects of the business are
different.
“You buy these Swiss watches for eternity, whereas you throw away a smartwatch after two to three years,” he
says. “It is a different kind of watch, a different kind of experience.”
john.thornhill@ft.com Follow John Thornhill with myFT
30012 Business Strategy
Pressure Test – April 28, 2020
PART 1: Essay questions (10 points: 5 points each)
1. With the limited information in the case, conduct a 5 forces analysis of the watch industry and answer the
following questions.
a. Which are the three most relevant forces in the industry? Why? (3 points)
Answers: assume smartwatches are a part of the watch industry: most important forces: 1) buyer power
 buyers seem to switch between products; 2) current competition Apple and Swiss watches are
actively competing; 3) future competition/ barriers to entry  case talks about many new players
contemplating entry.
We know nothing about suppliers  assume it’s less important. Substitutes are not many  note that by
focusing on the watch industry there are limited substitutes (phones, computers) in terms of time keeping
devices. Complements  internet, phones, only apply for the smartwatch niche not the whole industry.
b. What are the two main variables you would consider when drawing a Strategic Groups analysis of
this industry (2 points). Why? (Note that you do not need to submit a strategic map)
Answers: digital vs. price; or any measure of functionality/ technology
2. Assuming Apple and the Swiss Watch Industry are the only players in the Smartwatch industry, what stage
is this industry in (1 point)? Please explain how you arrived at this particular stage of the industry: use all the
qualitative and quantitative data at your disposal (3 point). What types of innovation would you expect to see
from firms in this stage (1 point)?
Answer: Growth stage. Apple’s growth increased by 36% while the Swiss watch industry shrunk by 12%.
However, overall, based on the number of units (Apple went from 22.8m to 31m, and Swiss watches went from
24.1m to 21m suggests that the industry overall went from 46.9m to 52m, indicating net growth).
Some firms may still be investing in product innovation, but many will move to improving production processes.
30012 Business Strategy
Pressure Test – April 28, 2020
PART 2: Multiple choice questions: Choose one option that represents the best answer to the question. (12
points: 2 points each)
1. Based on the case, which factors matter the most for the success of the Apple watch in particular?
 Lower cost as compared to the Swiss watches
 Presence of niches within the industry
 Functionality as a health device
 All of the above
2. Historically, the Swiss watch industry has been:
 Highly concentrated
 Not concentrated at all
 All of the above
 Not enough information to say
3. What type of competitive advantage is most likely to be the dominant advantage for Swiss watch makers?
 Tangible Differentiation
 Intangible Differentiation
 Tangible and Intangible Differentiation
 Cost Advantage
4. Assuming similar costs, in a comparison between Apple and Swiss watch manufacturers, who is likely to be
better at value capture?
 Apple
 Swiss watch manufacturers
 Neither – they are only good at value creation
 Google
5. If a Swiss watch company bought a watch battery maker (a component inside the watch), what type of a
growth strategy would this be?
 Diversification
 Internalization
 Differentiation
 Vertical Integration