Strategic analysis of tag heuer and smarTwatch Industries

Presented to Dr.Konstantinos Pitsakis

Strategic Decision MakingStudent Name Pragnya Sahoo

Date of Submission -22/03/2015KU ID- K1359395

ContentsExecutive Summary.................................................................................................................1Introduction..............................................................................................................................1The Attractiveness of the Smartwatch Industry.........................................................................1The Critical Success factors in smartwatch industry.................................................................3Scenario Planning:...................................................................................................................3

Scenario-1 -lack of Nutrition:................................................................................................3Scenario-2 -World War –III...................................................................................................3Scenario- 3 – Low sexual compatibility ratio.........................................................................3Scenario -4 BLUE OCEAN STRATEGY.................................................................................3

The Cultural, operational and strategic fit of Google and Tag Heuer................................3Will this alliance be a successful one?....................................................................................3Other Alternatives for Tag Heuer to enter into smartwatch industry................................3Defining TAG HEUER in smartwatch Industries................................................................3

Mission statement...................................................................................................................3Vision-.....................................................................................................................................3Objective.................................................................................................................................3Goal:.......................................................................................................................................3

H. Mintzberg’s classification of strategy................................................................................3Conclusions...............................................................................................................................3Work Cited...............................................................................................................................3Appendices................................................................................................................................3

Appendix-1.............................................................................................................................3Appendix-2- McKinsey 7S framework..................................................................................3Appendix -3 Stakeholder groups and their expectations........................................................3Appendix-4.............................................................................................................................3Appendix-5.............................................................................................................................3Appendix-6.............................................................................................................................3Appendix-7.............................................................................................................................3Appendix-8.............................................................................................................................3

Executive SummaryI have developed this report to focus on the strategic analysis of the future of smartwatch industry and the Swiss watchmaker Tag Heuer. The report discusses the following major areas:

Describes the attractiveness of the smartwatch industries using the Porter’s five forces model and the future KPIs of Tag Heuer to contribute in this industry.

The fictional future scenarios planning to stress test the existing structure of the organization.

Discusses thee cultural and operational strategic for between google and Tag Heuer using McKinsey 7S framework.

Developed alternative ways to enable Tag Heuer enter the smartwatch Industry by understanding the market segment of both the industries

Discusses and analysis of the H. Mintzberg’s classification of strategy to this alliance.

The report ends with recommendations and conclusion from the analysis.

IntroductionTag Heuer, founded in 1860 in Switzerland, is a leading Swiss watch manufacturing company. The company describes their watches absolutely emotional and incredibly fashionable.. The technical companies are not the best one to figure that. So the alliance between the software giant google and the high-end leading watchmaker, Tag Heuer would give fast-forward generation an essence of emotions and technology.(The Guardian ,2015).

To frame the discussion further, an analysis of the alliance is taken into consideration by applying theories and various frameworks.

The Attractiveness of the Smartwatch IndustryThe attractiveness of the smartwatch industries is analyzed using the Porter’s five forces framework. Figure 1.1 demonstrates the various elements of the five forces with respect to the smartwatch industry.

Figure1.1 Porter’s five forces.THREAT OF NEW ENTRYSThe threat of new entrants in this industry could be LOW. Because of the following reasons:• The technology investment needed to compete in this fast

and innovative industry is vast.• This market requires high technology capabilities that

makes it difficult for the new comers to participate.• The newcomers require a long time and high cost

especially in research and development to compete.• Protection through patented technology makes it difficult

to start business in these markets.• The exiting leaders in this field are aggressively

competing with each other like apple, Motorola, Samsung, pebble, google.

THREATS OF SUBSTITUTES- The threat of substitutes could be explained as follows:

• UNIQUENESS: - LOW THREAT –To create a wearable device is very challenging and highly innovative. It is easily accessible and visible to the user.

• FASHIONALABLE TREND- HIGH THREAT-The smartwatch being wearable device is fashionable and smart but could be outdated in the future.

• SMARTER SMARTPHONES?- HIGH THREAT-the smartwatch is companion device to the smart phones. It is not independent. The continuous R&D and innovation to create better smart phones could weak the smartwatch industry.

BARGAINING POWER OF THE SUPPLIERS:• KEY SUPPLIERS-MEDIUM THREAT -The Big branded

companies reply on their key suppliers for the quality components at competitive prices.

• LIMITED SUPPLIERS: HIGH THREAT-The microchip suppliers are quite low there by giving more power to the suppliers to control the prices. There rea limited number of suppliers for dedicated smartwatch processors like TEXAS INSTRUMENTS, STMicroelectronics,NXP Semiconductors are the key players.

• SWITHCING COST-HIGH THREAT- switching from one technology to another needs adaptation to different suppliers this increases the cost.

• OPEN SOURCE OS-LOW THREAT- companies use their self-developed software like android OS which reduces the dependency on the suppliers.

BUYERS POWER- MEDIUM• Smartwatch industry is market driven and attractive

market. It has taught its customers a new lifestyle of using smart devices.

• With wide variety of smartwatches available in market. Customers have major brand choices and don’t mind paying for a smartwatch which has value for money.

• The consumers are technically aware and are educate with the latest trend in market. They hold a power to compare brands and the features offered by them.

The Critical Success factors in smartwatch industry. A wearable technology matching the latest trend in fashion could be marketing driving. A smartwatch being companion device, I would analyze the major critical success factors as follows:High on Fashion trends and style: Style is one of the major critical Success factors in the smartwatch Industry. Watches are not only a part of our personality but a way to stay modern. Smartwatch could be one of the leading fashion accessory in the future.2014 saw a hype on smartwatches. Could smartwatch really bring a revolution in the technology wearables? Well, the future lies in innovation. Continuous Innovation is one of the CSF which would lead the smartwatch industry ahead than other wearables. Large investments in R&D can contribute in better innovation of smartwatch industries.This is the technological era, where consumers are closely connected and are dependent on various devices for the daily activities. But as of now, I see the smartwatch as companion device more than being independent. Let’s not forget the iPad was also a companion device at its early stage but now it is

very independent. Similarly, the smartwatches could replace the smartphones in the coming years which can be a real revolution. Instead of carrying a phone, we can just wear a watch. A smartwatch should also replace other wearable devices like fitness bands. An improvisation the voice recognition methods and other user interface techniques can make major advances in this industry. As watches are unobtrusive, I could predict the future smartwatch would know what its consumer is doing. It could be used to know the health status, ongoing and upcoming activities, and emotional state, help in tracking time and fitness.A decade from now, the smartwatch industries will be flooded with varieties giving a blow to prices. It would have a competitive and affordable price matching the consumer demand.

Tag Heuer is a passionate mechanical watchmaker which is very accurate even in measuring the one hundredth of a second. The brand is known for accuracy, reliability, technology and performance. The future performance key indicators could be derived from their passion to be the leading brand and working with the right talent. The following describes the future KPIs.To be a leader in smartwatches, the company needs to be highly adaptability to the growing technical environment. Adopting new technologies like Android which is an open sources could help them to develop their own expertise.They would hire and work with the right talent to innovate. They have high craftsmanship and skills. But they need to hire the skilled engineers who could help them to develop new range of watches for different customer segments and penetrate into the smartwatch industries. The company needs to develop software skills to understand he software and lessen

the dependency on other firms. Other KPI is to form alliances with other industries like fashion and fitness. This could give the company a chance to enter new markets by making itself more visible to wide audience. It could launch its smartwatches in the ramp shows as well as a fashion accessory.

Scenario Planning:The following section analyses the four fictional futuristic scenarios that is developed to help Tag Heuer improve their business strategy and create a competitive advantage. An analysis of the factors affecting the future scenarios is discussed to generate the suitable scenarios Figure 1.2.

Figure1.2 Factors affecting the industry

Few factors we selected from the above and were plotted in the graph to estimate the likeliness and its impact on the business. The following diagram shows the factor selection grid. Figure 1.3

Figure 1.3 Factors Selection grid The top two impactful and uncertain factors formed the axis on the quadrangle providing set of influences such as brand value and innovation in which the scenarios were designed. Figure 1.4

Figure 1.4 Scenario Analysis

Scenario-1 -lack of Nutrition:Scenario- The world witnesses a decline in the nutrition rate which would lead to an increase in physically challenged population.Tag Heuer strategic move – The company should see this as an opportunity to enter the field of medical science. The best feature of smartwatch is it contact with wrist. This capability gives an added advantage to read the pulse rate. It could be also designed to be a companion o the physically challenged people. Like for the blind people, it could send voice commands about the surrounding activities. A smartwatch configured with the wheelchair could give directions and avoid traffic to the disabled. This enhances the CSR of the brand.LVMH contribution: The LHVM could help to create CSR for Tag Heuer. It could help in conducting training programs and workshop to teach people how to use their smartwatches effectively.

Scenario-2 -World War –IIIScenario- The world war-III creates a demand of sophisticated weapons and devices. The watch manufacturers during the First World War had huge profits, explained Military historian, Peter Doyle. Tag Heuer strategic move might be- It should identify the new requirements and strategically align and design its smartwatches to enter the defense industry. No one is ever a winner in a war. Though the profits would be less with more investments, to would enjoy a big brand reputation in a sophisticated and critical industry. The competitive advantage would be the critical features that would help the military troops in the war front like spy cameras, radar system, wireless communication, satellite calls and incoming threats from intruders.LVMH contribution: The LHVM could provide the TAG Heuer with financial and technological investments in R&D. The parent company could help in setting up labs and establishing relationships with defense industry.

Scenario- 3 – Low sexual compatibility ratio.Scenario- Low sexual compatibility is a threat to healthy lifestyle and also relationships. In the coming years, the sex life would be more complicated than what it is of today. Effect on Tag Heuer: As a brand, it does not have any effect of low sexual computability of individuals. So, the question would arises, if there is no effect on Tag Heuer then why would it react? A smart business is the one that identifies the market and penetrates into it. A smartwatch is a very personal and emotional device says the general manager of Tag Heuer. This could be a chance to be create a smartwatch with features that could help improving lifestyle and health. It creates customer loyalty and increases the brand value. The magic is the emotional touch.

Tag Heuer strategic move might be- Identify various medical issues impacting the lifestyle and health of individuals and create features that could control problems like abortions, menstrual cycles and find sexual compatibility ratios by reading the pulse rate.LVMH contribution: The parent company could help in the marketing strategy by forming partnerships with condom companies to create awareness.

Scenario -4 BLUE OCEAN STRATEGYScenario- Apple creates a disruptive technology with its brand and high quality features. Tag Heuer strategic move might be- Tag Heuer being a high luxury brand invests huge capital in its R&D. It should closely work with software giants to develop the competitive software for the smartwatches. It should create its own market by developing its presence in critical industries such as defense and Aeronautical. LVMH contribution: The parents company could participate in decision making and forming the right team by providing the right resources and skills whenever and wherever needed.

The Cultural, operational and strategic fit of Google and Tag Heuer.

The cultural and operational fit of both the organizations was carried out by using the McKinsey 7-S frameworks Figure 4. This framework helped in generating the areas where both the companies are culturally aligned and basing on the discussions, I could come up with few recommendations towards the end of this report.

Figure -4 Mckinsey 7S framework The shared values of tag Heuer is very high. They believe in being the top performers and so do Google. They both excel in their respective fields and are very passionate about their products. But Tag Heuer carries an old heritage of values which has been passed on by generations and Google operates on being innovative. Google culture is very diverse. So the shared value is not really aligned.Tag Heuer defines its Strategy to be the leaders by creating high brand affinity. Its marketing strategy is quite high and the celebrity index is the most attractive strategy. They endorse their brand with big celebrities like Leonardo DiCaprio, Shah Rukh Khan and Cameron Diaz. On the other hand, Google’s strategy is to be as innovative as possible and create a brand value. It doesn’t invest in advertisements. From the strategy point of view, both the companies are unfit.

To get brilliant with the defined strategies, the companies work with the value equations to find the right skills for the companies. They both are highly passionate and innovative.

They mode of operations are strategically different. One being leading watch Maker Company and the other is IT giant. The former operates on highly critical environments with lot of time bounded activities whereas the former is loosely coupled with time.

The structure of Tag Heuer could be described as a pyramid. Its highly structured organization with lots of power distance. Even google shares the same structure but the environment in google is very flexible and casual. They have different ways of interacting with staffs. Google creates a friendly environment where the working culture is flexible. Employees have options to work remotely. But in manufacturing organizations like tag Heuer, this work environment doesn’t fit.

Will this alliance be a successful one?

Even though there are differences in the culture and operational behavior, both the companies stand firmly on their passion for being innovative leaders. This passion to lead could be one key element in the successful alliance. They respect each other in their capabilities and the trust can be another key factor to strengthen their relationship. I being a technically person, could predict this venture as a very competitive advantage to both the companies. Google enters the world of luxury watches and tag Heuer gets a hold on android OS and enters the smartwatch industries. Both of them are very matured and professional organization and I believe they create a win-win situation for each other and lead the path of innovation with style, technology and emotions.

Other Alternatives for Tag Heuer to enter into smartwatch industry.Tag Heuer is known to be a brand leading in the field of luxury watches. They accept they lack the technology, skills and infrastructure to develop smartwatches. In such a scenario, the following are few alternatives that I could derive.

Form joint venture with Micromax. It is one of the leading private companies which holds a promising future in the field of smart phones and technological wearables.

Android being open source could be accessed easily from any high end computers and could be used to develop software. Tag Heuer could even start its own software company by hiring the best people from market. It could look like a ploy. But is business. Instead of being insecure about the ventures, it can hire the resources with the matching skill set with high salary.

Another option is, it could outsource the development work to cheap labor countries like India to develop the software and they can assemble it in TAG Heuer manufacturing unit.

It can also form alliances with Samsung, Motorola who are high on smartwatches and are already the leaders in delivering best technology wearables.

Defining TAG HEUER in smartwatch Industries.Mission statement- Emerge as a global leader in creating style and passion with emotions and technology, delivering the smart way to live and experience beyond imagination.

Vision- To be the leading smartwatch manufacturer with high competitive advantage, giving its customers the best latest technology at their wrist.

Objective: To create a market with wide ranges of luxury smartwatches in every aspect of human interaction.

Goal: Be innovative and develop smartwatches by closely working with software firms that could create magnificent user experience and features in smartwatches.

H. Mintzberg’s classification of strategyAccording to H. Mintzberg’s classification, this endeavor could be more suited as strategy of position and ploy. The company was leading manufacturer in luxury sport watch .In 2014, the luxury watch industry saw a decline of 25% in its sales. Tag Heuer has repositioned itself after running a market loss, says Jean-Christophe Babin, CEO of Tag Heuer. This repositioning strategy gave them a chance to analyze the industry better and collaborate with software giant google and Intel. Though the move looks a win- win situation for Tag Heuer and Google, it could be quite strategic. The Tag Heuer is lavish and works with high profile celebrities to create a market impact. On the other hand google is only innovation and high in values. The alliance looks as a strategy of PLOY to me. Tag Heuer could destroy google watches completely and could dominate the market. It could replicate the work of google internally to its employees. It could buy the resources from google by offering high salaries and develop its own software. It’s good to be bad, says Dr.Konstantinos Pitsakis, Module lead of Strategic Decision making, Kingston University.

ConclusionsThe above analysis has provided Tag Heuer to focus it market positioning and strengthening its future strategy. Though it has lot of scope to expand its market, it needs to focus in developing the strategy to be a market driving in the field of smartwatches. The following are few points to be considered.

It should create a strong corporate culture of adapting to new technologies in the smartwatch industries thereby reducing its dependencies on other firms

It must invest and expand in the critical and demanding industries such as defense and medical science.

It must keep a watch on its competitors like Apple who not being into watch industry has given a challenge to the existing leading players.

Tag Heuer being a luxury watch should breakdown itself in order to come up with designs and prices that would fit in its competitive advantage.

Work Cited

Tag Heur losing market in 2013 [online]. Available at http://www.swissstyle.com/tag-heuer-takes-on-the-crisis/Tag Heur Organization structure [Online]. Available athttps://shop-us.tagheuer.com/en/tagheuer/about

Tag Heur in the world of luxury watches [Online]. Available athttp://www.theguardian.com/technology/2015/mar/19/tag-heurer-release-first-luxury-android-smartwatch

Porter, M.E, 1990. Competitive Advantage of Nation. New York. Free press

Porter M.E, January 2008. The Five Competitive Forces that shape strategy: Harvard Business Review

Kim,C.W . & Mauborgne, R.,2004. Blue Ocean Strategy. Harvard Business Review

AppendicesAppendix-1

Appendix-2- McKinsey 7S framework

Appendix -3 Stakeholder groups and their expectations.

Stakeholders Expectationsshareholders A fair return on their

investments.

Employees and Staff Industry standard pay, bonus, good and healthy working environment , training

Customers Stylish smartwatches with latest technology.

Partners, alliances Healthy business attitude, legal contracts, abide by regulations

Suupliers Fair and ontime paymentsGovernment Adherence to legislations,

regulations taxationCompetitors Fair competition

Appendix-4

Appendix-5

Appendix-6

Appendix-7

Appendix-8