Technology Re-Emergence: Creating New Value for Old Innovations
Every once in a while, an old technology rises from the ashes and finds new life. Ryan Raffaelli explains how the Swiss watch industry saved itself by reinventing its identity.
Out with the old, in with the new! That's the natural path of innovation. PCs killed typewriters, for instance. Smartphones superseded telephones, pocket calculators, and point-and-shoot cameras. Every once in a while, though, an old technology rises from the ashes and finds new life: a re-emergence.
"What this research suggests is that it is possible to prolong the life of some technologies, along with the organizations and communities that support them"
Take, for example, the mechanical wristwatch. Swiss watchmakers dominated the industry for centuries until the mid-1970s, when the Japanese introduced low cost production methods to manufacture highly accurate quartz watches. Swiss business historians refer to this as the "Quartz Crisis." Companies like Seiko and Casio seized the quartz market. By 1983, two-thirds of the watch industry jobs in Switzerland had disappeared, and the country was producing only 10 percent of the world's watches. Yet Switzerland has reemerged as the global leader of watch exports (by export value), due to a newfound market demand for old-style mechanical watches.
This curious comeback story has led Ryan Raffaelli to ask how organizations, industries, and technologies re-emerge from the brink of collapse. And while his initial research has focused on the watch industry, his findings also help explain a recent resurgence of independent bookstores, a renaissance of streetcars in numerous urban city centers, and the revival of several seemingly archaic products including the fountain pen and the vinyl record.
"What this research suggests is that it is possible to prolong the life of some technologies, along with the organizations and communities that support them," says Raffaelli, an assistant professor in the Organizational Behavior unit at Harvard Business School.
"Successful companies may be able to reposition a 'dying' technology by redefining its identity and value for the customer."
Raffaelli details his research in the paper Mechanisms of Technology Re-Emergence and Identity Change in a Mature Field: Swiss Watchmaking, 1970-2008. Based on his doctoral thesis, the paper discusses the role of key individuals, organizations, and industry associations in bringing a technology back to life. The paper explains that the successful re-emergence of an old technology relies on several factors: the opportunity to redefine the technology's value; an organization's acceptance of the new definition; an entire industry's buy-in of the same; and a healthy tension between those pushing for innovation and those protecting the technology's legacy.
Redefining a product's value
As their industry hit the skids, Swiss watchmakers realized they could no longer cite time-keeping precision as the main selling point of a handcrafted mechanical watch, Raffaelli explains. Quartz enabled mass-produced accuracy on the cheap. A revival depended on a new reason to embrace the older technology.
The mechanical watchmaking revival began when Nicolas Hayek, a former management consultant, bought up several of the industry's suffering brands and production companies and consolidated them into the Societe Suisse de Microelectronique et d'Horlogerie (SMH). The former CEO of one of those companies, Ernst Tompke, then proposed the idea of a low-cost quartz design that would compete in the market not on precision, but on fashion. SMH pursued the risky idea, but the project's young engineers, Elmar Mock and Jacque Muller, found themselves ostracized by many of their skeptical colleagues.
In 1983, SMH launched its brand of colorful Swatch watches. A portmanteau of "second watch," Swatch essentially introduced the idea of an inexpensive quartz watch as a fashion accessory. The strategy was wildly successful, with sales exceeding 50 million units by 1988. But rather than continue to rely solely on cheap quartz watches, SMH and other Swiss watchmakers used the success as an opportunity to reintroduce mechanical watches to the market. This time they were advertised not simply as precision timepieces, but as carefully crafted luxury items tied to a centuries-old tradition.
Again, the strategy worked. SMH eventually became Swatch Group, which saw sales of more than CHF 8 billion in 2012. In addition to Swatch, the company owns prestige brands such as Breguet, Blancpain, and Omega, whose watches can sell for upwards of $100,000 apiece.
Raffaelli describes this strategy in terms of coupling: an initial strong coupling of product and organizational identity, a temporary de-coupling from both the old technology and original identity, and a subsequent re-coupling with the old technology—but with a new organizational identity.
"The fashion period served as a cleansing of the palate for Swiss watchmaking, like a sorbet served between two large portions of a meal" Raffaelli says. "It was a chance to reset. It bought them enough time to reposition who they were as an industry. Watches have moved from being precision instruments to prestige luxury items. Luxury was always part of the industry, but now it's responsible for much of the growth trajectory."
The guardians and the entrepreneurs
So how did the Swiss watchmakers know when to re-embrace mechanical watches? According to several industry CEOs that Raffaelli interviewed for his research, the industry received a wake-up call from a small but loyal group of purists: mechanical watch collectors.
"When things looked really bad for the mechanical watch industry, when the industry seemed on the verge of collapse, watch collectors started buying mechanical watches at auction at record prices," Raffaelli explains. "This sent a signal to the industry that aha, there may still be latent value in what they thought was a dead technology. And so these collectors become almost like canaries in a coalmine, in a good way. They sent a signal of hope that there might still be value there."
It turned out that some players within the industry had been holding on to the old technology all along, too. Raffaelli recounts the story of Zenith, which, like many Swiss watch companies, decided to throw away all of its mechanical watchmaking moulds in the midst of the quartz crisis. But one veteran employee couldn't stand the idea of scrapping these historical production tools, and took the liberty to hide them in a shed at the back of the factory.
A few years later, mechanical watchmaking was back in vogue. Now under new ownership, Zenith realized the need to revisit the old technology, which, fortunately for the owners, had been hiding in a shed all along.
"At that point this old employee returns and says, 'I preserved all the dies and technical drawings, and I will reintroduce them to you,'" Raffaelli explains. "The lesson for managers is that leadership as a catalyst for re-emergence has to take place not only at the industry level and the organizational level, but right on the factory floors."
Raffaelli describes the watch collectors and the old employee as institutional guardians, who encourage preservation of past technologies and traditions in the face of change. These guardians serve as a counterbalance to institutional entrepreneurs, who push for organizational and industry change at all costs. He maintains that both are necessary for successful re-emergence. The tension between the two creates what he calls identity ambidexterity—holding on to the values and capabilities of the past while at the same time recognizing the need to adapt to the future.
"A lot of companies fail because they cannot do both things simultaneously," he says. "Here we have an example of a whole industry that managed to do both, and to navigate a comeback."
Redefining an industry's value also means redefining the competition, Raffaelli says. And in order for a technology to resurge, the whole industry must do that. In the case of the Swiss, for example, they were no longer competing against the Casios and Seikos of the world, but rather creating a new market for luxury watches.
Another example: fountain pens. The industry sold approximately 45 million units in 1957. Sales then plunged to 7 million units by 1974 due to the rise of the ballpoint pen. But in 2007, annual sales of fountain pens had rebounded to almost 20 million units. The reason: Fountain pens were now marketed not simply as utilitarian writing implements, but also as nostalgic fashion accessories. As such, they were not really in the same competitive market as ballpoint pens anymore.
"The question becomes whether you're competing on the old terms or on a set of new terms," Raffaelli says. "And what I'm finding in industries that successfully re-emerge is that they redefine their competitive set - the group of organizations upon which they want to compete and the value proposition that they send to the consumer."
Lately, Raffaelli has turned his focus toward bookstores. A few years ago, it seemed like mega-chains like Borders Books might squelch independent bookstores. What happened instead was that online booksellers squelched Borders, which had shuttered all 511 of its super-stores by 2011. Meanwhile, the independents are slowly reemerging. In 1995, the American Booksellers Association had a membership of some 5,500 stores. By 2009 that number had plummeted to 1,401. But the number has revived a bit to 1,632 today. While Borders was competing on price, Raffaelli explains, the independents were forging a renewed competitive identity.
"Independent bookstores were founded on the idea of community building," Raffaelli says. "And today they have shifted their sole focus away from the books they sell—Amazon can do that. Rather, they have shifted their attention to build communities for their readers. They've connected with consumers' desire to be with others who are like themselves. The Swiss understood the importance of helping consumers build an emotional connection with their watches. My sense is that the same holds true for the independent bookstores that are getting it right. To survive, they're shifting their organizational identities to create emotional value in their communities."
The lesson for managers is that a new technology is not always the only way to get ahead of the curve when older technologies or industries appear to be reaching the end of their life.
"The value of some products may go beyond pure functionality to embrace non-functional aspects that can influence consumer buying behaviors," Raffaelli says. "Although it is unlikely that such emotional or self-expressive benefits will completely trump function, exploring these other elements can provide organizations with valuable extra time to develop possible adaptation or repositioning strategies."
Note to managers: Ryan Raffaelli continues to investigate how troubled industries and organizations are able to reemerge and thrive. If you think your company would be interested in pursuing a field study about successfully managing an identity change, or if your industry/organization has recently experienced a re-emergence, please see his listing on The Research Exchange.