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Leadership case. Swiss watch industry downfall. Biver leader...

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Jean-Claude Biver: The Reemergence of the Swiss Watch Industry It was 3:45 a.m. on a snowy Swiss morning in 2000. Jean-Claude Biver had already exercised, dressed, and was actively sending e-mails to employees. Twenty years earlier, he had left a comfortable sales position at a prestigious watch company to buy Blancpain, a watchmaker that had been out of business since 1961 but had once made mechanical watches. At the time, the entire Swiss mechanical watch industry was near collapse after failing to adapt to Japanese competition from battery-powered quartz technology. Biver’s initial $16,000 (22,000 Swiss francs [CHF]) investment in Blancpain in 1982 paid off when he sold the company to Swatch Group Chairman Nicolas G. Hayek for $43 million (CHF60 million) 10 years later. Blancpain became one of the crown jewels of Swatch Group, which included such brands as Omega, Longines, Tissot, as well as the quirky Swatch watches that had taken the world by storm in the mid-1980s and served as the company’s namesake. Following the sale of Blancpain, Biver joined Hayek and led a turnaround of Omega. The brand saw a near-threefold increase in revenue seven years after Biver took the helm. One former employee described his boss’s management style: “Mr. Biver is a paradox with two feet.” Biver had a reputation for being tough on employees, known for boisterous outbursts and impatience with staff who were unable to move at his fast pace. But he could also be extremely generous, inviting employees to his home for dinners, writing them personal thank-you notes, and offering extravagant gifts of appreciation. By 2001, Biver was 52 years old, and the craft of Swiss watchmaking was thriving once again. The mechanical watch had become a symbol of art, ingenuity, and craftsmanship. The Swiss had reemerged as the global leader of the watch industry, based on the total value of their exports. For over a decade, the Swiss had experienced an annual growth rate of approximately 4%, the number of watch companies had increased, and demand for skilled watchmakers was on the rise. Recent events led Biver to question how much longer he should stay at the Swatch Group. For several years, rumors circulated that he could succeed Hayek as head of the $2.5 billion company. But Biver sensed his influence was waning in the Swatch Group, as Hayek seemed to be relying less on his daily counsel. Where would he go after climbing to the top of the largest and most prestigious watch company in Switzerland? He had always considered himself a maverick, but in an industry built on loyalty and personal relationships, did he have the resources or interest to start another chapter?

History of the Swiss Watch Industry For several centuries, watchmaking was considered the premier symbol of technological know-how around the world. Geneva was the first Swiss city to enter the trade in the 16th century when John Calvin, the Protestant reformer who came from France and made Geneva his base, outlawed local goldsmiths from making crucifixes and jewelry. Instead, these tradesmen took up making jeweled watches and clocks. Switzerland’s rise on the world stage, however, came when watchmaking was introduced in the Jura mountain region. This snow-capped mountainous territory of Switzerland sat along a trade route between Germany, France, and Italy, and was populated by peasant cow farmers who were convinced by Geneva industrialists and French Huguenots to use their idle time during the long and cold winters to build watches. Although Parisian watchmakers were considered the leaders in watch innovation, they began to rely on the craftsmanship of watchmakers in Switzerland to produce their most intricate and complicated timepieces. Towns in the Jura, such as La Chaux-de-Fonds, were also home to iron and brass tradesmen who were well positioned to diversify into the craft of watchmaking. Eventually, the region started making its own timepieces, with a focus on offering highly accurate watches to consumers at reasonable prices. The strategy paid off. By the early 19th century, the Swiss had become a serious threat to their French and British rivals. By 1910, Switzerland was the envy of the entire watchmaking industry. By 1940, Swiss exports consisted of 80% of the global industry’s total value. Swiss dominance continued through the 1960s, with a continued focus on building more accurate mechanical watches for worldwide

consumption.

The Quartz Crisis In 1969, a group of Swiss companies working together introduced a prototype for a battery-powered watch using a new form of technology. It included a microchip circuit that allowed a precisely cut quartz crystal in the shape of a tuning fork to oscillate over 30,000 times per second, turning the vibrations into regular electric pulses every second. The watches were initially very expensive to produce, but proved to be 20 times more accurate and used significantly fewer parts than their hand- wound mechanical counterparts. (See Exhibit 1 for a comparison.) While the Swiss invented the first quartz watch, they initially had little interest in retooling their production systems to accommodate its mass production. The technology no longer required the highly skilled craftsmanship of the established Swiss watchmaking community. Swiss mechanical watchmakers did not see the quartz watch as an extension of their craft, and remained largely skeptical of the technology’s ability to replace their centuries-old tradition. As one watchmaker explained, “In the 1980s, watchmakers thought that quartz electronic watches were ‘beneath them.’ Watchmakers wouldn’t work on quartz watches because they weren’t true watches.” However, Japanese companies such as Seiko and Casio perceived the new technology as an opportunity to capture significant market share. Because of large investments in consumer electronics in the years following World War II, the Japanese were able to quickly develop new ways to produce quartz watches more cheaply and faster than their Swiss competitors. In just a few years, they brought the price of a quartz watch down by a factor of 100. Affordable and accurate Japanese quartz watches soon found their way into nearly every convenience and department store around the world, setting a new standard for the industry. Compounding the situation for the Swiss was a global economic crisis. During the 1970s, the U.S. dollar lost 60% of its value on the Swiss franc, rendering Swiss products even more expensive compared to Japanese watches in the United States. Within a decade, over half of all watchmaking companies in Switzerland went bankrupt. The Swiss dropped from holding 55% of the world’s export market (in monetary value) a to roughly 30%. Their export volume decreased from 45% to 10% of watches produced globally. By 1983, two-thirds of all watch industry jobs in Switzerland had vanished. (See Exhibit 2 for the decline, 1973–1983.) Historian David Landes wrote, “Now we bid farewell to the Swiss master craftsmen who have brought us these wonders of the mechanical arts. Their time has come and probably gone.” If the industry was going to survive, it would need a new kind of leader.

Jean-Claude Biver Jean-Claude Biver was born in 1949 in Luxembourg and at age 10 moved with his family to Switzerland, where he went on to study business at the University of Lausanne near the shores of Lake Geneva. After college, Biver moved to the Vallée de Joux to be close to nature, run marathons, and embrace the hippie lifestyle. He took several odd jobs selling vegetables, textiles, toys, skis, and cars. The Vallée also happened to be home to many watch companies, and in 1975 Georges Golay, chairman and CEO of the famous watch brand Audemars Piguet (AP), met Biver through a mutual friend. Golay quickly sensed Biver was an excellent salesperson and offered him a job as head of sales for Europe. At the time, the watch industry was near bankruptcy, and many of his friends questioned why he would take a position in a “dying” trade. (See Exhibit 3 for a timeline of Biver’s career path.) Biver immersed himself in Swiss watchmaking at AP, learning valuable lessons about the craft of manufacturing mechanical watches. Golay worked closely with his young protégé, but after a few years, the 28-year-old Biver decided to leave the company because he wanted more responsibility: “I thought that my influence at AP was too little. I had ideas about production. I had ideas about the product. I could not realize my ideas because I was number five. I could not manage. I had a boss.” Biver’s brother was working at Omega at the time and introduced him to his boss, Fritz Ammann, the Executive Vice President of Marketing and Sales. Ammann was so impressed that he hired Biver on the spot and gave him responsibility for the brand’s gold jewelry collection. Omega was focused on developing watches with quartz technology, and it needed people like Biver to grow the business. Ammann removed all forms of hierarchy and encouraged dissent among team members. Under such conditions, Biver thrived.

As Biver took on more responsibility, he traveled around the globe and began to develop a contrarian view about how to save the ailing Swiss watch industry: “Everyone believed the future was in quartz. They believed that if we reduced the price, we would sell more and more. I disagreed. The strategy was killing Omega.” Biver approached several people in the company with his idea to reposition the mechanical watch as a high-end piece of art. There was no interest. Unexpectedly, in 1980, Omega’s majority owner Ralph Gautier died, creating a great deal of political infighting and unrest within the company. When Ammann was passed over for the top spot, he and the rest of his team, including Biver, left the company in protest. Looking for new employment, Biver realized that most Swiss watch companies were doggedly focused on retooling their workshops to produce quartz watches. He grew even more convinced it was the wrong approach. He said, “The quartz had no soul. I said it’s not a watch. Nobody believed me. Nobody. They said you are an artist, you are a hippy, you are a romantic.”

Blancpain Biver decided to enlist his close friend and watchmaker Jacques Piquet to strike out on their own. In 1982, they scraped together $16,000 to buy Blancpain, a company that had gone out of business 20 years earlier because of poor management. The brand was attractive to Biver because it claimed to be the oldest watch manufacturer in Switzerland, dating back to 1735. Biver’s vision was to reposition Blancpain and its classic mechanical watches as pieces of fine art. Unlike their colleagues who were chasing the new electronic quartz technology, Biver and Piquet were convinced the future of the industry lay in resurrecting its past. Biver recalled his former colleagues saying, “These guys don’t understand. They’re crazy.” Biver’s first challenge was to find watchmakers to work for the company. In the previous decade, over 50,000 watchmakers had lost their jobs, and most had left the region to find work in other industries. After an extensive search, he hired a small group to help restart the manufacturing process. At the time, the Swiss government was offering subsidies to employers who provided work to displaced watchmakers, but Biver’s application was denied because the program only offered assistance for companies that retrained them in new trades like microelectronics. “That’s how little the government believed in the future of watchmaking,” said Biver. Rather than house the company in a conventional factory, they converted an abandoned farmhouse in the Jura Mountains into their production facility. The goal was to help Blancpain employees reconnect with the early farmers who were the first to embrace the craft of Swiss watchmaking. It was all part of a vision to reframe mechanical watchmaking as a form of art, not a dying technology. Biver recalled, “We wanted to reinvent the culture of a watch, the soul of a watch, the art of a watch, the tradition of a watch.” Unlike the Swiss firms that were racing to produce 20,000 quartz watches on a factory line, Biver purposefully kept inventory low so his watches would be seen as unique, rare, and exclusive. Mechanical Blancpains would only be manufactured at the request of each customer. He decided not to release multiple collections, as was the industry norm, but only one model that communicated the brand’s longstanding tradition and heritage. Biver also began visiting CEOs of other brands to seek advice and gain support for his ideas. The industry had been heavily regulated under a cartel system for several decades. Although the restrictions were removed in the early 1970s, the complex web of CEOs, suppliers, distributors, and retailers still worked closely together and shared inside information about the supply of parts and challenges facing companies in the region. To communicate his vision, Biver launched the company’s first advertisement: “Since 1735 there has never been a quartz Blancpain watch. And there never will be.” (See Exhibit 4 for a photo.) At the time, other Swiss brands were doing everything possible to distance themselves from the mechanical watches that had led many into bankruptcy. Aldo Magada, the future CEO of the Zenith watch company, recalled: [To] a young guy in the industry, Blancpain was a miracle. It was the first and only time I’d seen a traditional brand, in terms of product and look, with a young image. Suddenly, young people wanted to wear Blancpain. Biver made it fashionable to have a mechanical watch again. He built a community. Creating community has always been one of Jean-Claude’s greatest strengths.

Within its first year, Blancpain sold 97 watches and collected revenues of $75,000. Five years later, it was selling 3,000 watches per year with $9.4 million in annual revenue. Biver continued to share his ideas with other CEOs and enlist support from key Swiss watch industry associations and employee unions. Displaced watchmakers who had refused to adapt to quartz technology flooded Blancpain with job applications. Taking notice, many other brands like Ebel and Breitling also started to reposition their mechanical watches in a similar fashion.

Biver’s Early Leadership Style As Blancpain expanded, Biver needed to build his team. Philippe Peverelli, an early Blancpain employee, recalled his mother getting an unexpected call from Biver after her son failed to respond to Biver’s informal job offer at a dinner party. “Hello, Ms. Peverelli,” said Biver. “I own a watch company. I made an offer to your son for a job. I don’t know if you have been in charge of the education of Philippe, but I do not want to congratulate you because he’s a very rude and non-educated person.” Embarrassed, Peverelli’s mother demanded her son meet with Biver at the suggested time, 5:00 a.m. the next morning. Within 30 minutes, Biver had convinced Peverelli to abandon his career in the hospitality industry and join Blancpain. “My family and friends thought I was crazy to join a watch company. But it was the beginning of a fantastic experience,” said Peverelli, who later became CEO of Tudor watches. “Biver gave me my passion for the watchmaking industry. He can transmit passion for everything.” To many, Biver’s leadership style was an oxymoron. He could be loud, aggressive, and impatient. His temper could also flare, especially when employees made mistakes or delivered bad news. Once he became so upset with his secretary that he plunged a Montblanc fountain pen into her desk, breaking the pen and covering her with ink. Biver walked back to his office, while she stood there crying. One employee commented, “He was the worst HR manager I had ever met. He must have threatened to fire me 100 times.” Biver himself admitted: When starting Blancpain I felt alone. I didn’t have any confidence, and so I got angry when someone on my team didn’t do the right job. I was traveling between meetings in a Volkswagen camping bus because I could not afford to sleep in a hotel. I would put a dime in the railway station shower to get 3 minutes of water. It didn’t give me much tranquility. And so I would get angry because I had no security. I did not trust myself. On the other hand, Biver regularly invited employees to go running in the mountains with him before work, hosted dinners in his home to celebrate their important life events, and was always the first person to share credit for the company’s success by writing generous bonus checks. By the late 1980s, Blancpain had grown to over 100 people; to thank his employees for their work, Biver arranged for an all-expenses-paid weeklong vacation in Italy for all the watchmakers and their families. When they returned, the employees were so touched by their boss’s generosity that they decided to work five extra Sundays without pay to make up for the lost production time.

A Personal Crisis As Biver reached his late 30s, life seemed to be all he could have imagined. Then suddenly his wife announced she wanted to end their marriage. Biver recalled the disastrous effect it had on him: I believed it was the end of the world. I stopped coming in at 4:00 in the morning. I used my money for excessive parties. I brought girlfriends into the office. I was totally breaking. It was typical behavior for a guy who is not in harmony with himself. Biver’s lawyer, who was also a close personal friend, finally warned Biver that he was destroying Blancpain. Biver recounted the lawyer’s stern advice: “You don’t come to work, or you arrive at 11:00 in a Ferrari. This is very bad, compared to your watchmakers.” The lawyer gave Biver an ultimatum— “You need to change your attitude or sell the company.” Biver weighed his options. Given the success of Blancpain, it would certainly command top dollar if he chose to sell. Recently, Nicolas G. Hayek, the chairman of the Swatch Group, had expressed interest in adding more watch brands to his growing portfolio after the success he had had launching the Swatch watch in 1983. Moreover, demand for mechanical watches appeared to be reemerging. Watch collectors had started buying vintage watches at auction for record prices. Many CEOs took notice and refocused their efforts on reviving their mechanical production lines. Biver decided to sell Blancpain to Hayek in 1992 and was offered a seat on the Swatch Group board.

The company that Biver had paid $16,000 for in 1982 sold for $43 million a decade later.

Seller’s Remorse? Following the sale, Biver jumped on a flight from Switzerland to Hawaii. While sitting on the beach, he began to question his decision, thinking, “Biver, you now have millions, but you are an idiot alone here in Hawaii. You are the poorest rich man in the world.” From his five-star hotel room, Biver called Hayek and said he wanted to work for him. Hayek asked why Biver would possibly want to return after just selling his company. Biver responded, “I realize I just sold my soul. I sold my passion. I sold my people. I treated people like merchandise. One hundred and ten people worked for me and they built Blancpain.” Hayek agreed to let Biver come back to Blancpain, under the condition that he would also be given responsibility to turn Omega around. Biver was relieved. But how could he face his former employees? Would they accept him, especially since they knew how much money he had made on the sale? Also, could he have a boss again? Was he ready to navigate the politics inside such a large organization?

The Swatch Group Hayek, a Lebanese-born management consultant, was hired by several Swiss bankers during the 1970s “Quartz Crisis” to examine several failing watch companies that had become insolvent. He issued a scathing report, with recommendations for massive industry consolidation and new leadership. The banks had no interest in overseeing a lengthy restructuring effort and offered to sell a majority stake to Hayek. He agreed and formed a new holding company, Société de Microélectronique et d’Horlogerie (later renamed “Swatch Group”), which included brands such as Tissot, RADO, Longines, and Omega. Hayek’s vision was to implement a revolutionary new business strategy where production efficiencies could be spread across multi...