Pressure test 30012 PDF

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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 doublespaced 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 30 th, 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.” [email protected] 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)

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)

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)?

30012 Business Strategy

Pressure Test – April 28, 2020

PART 2: Multiple choice questions: Choose one option that represents the best answer to the question. (20 points: 4 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...