ARIEL’S ESSAYS: Watchmaking conglomerates have a people problem

No, it isn’t the watch industry’s fault that the COVID-19 pandemic has left it (and much of the rest of the luxury world) on its knees, writes Ariel Adams, founder and editor of aBlogtoWatch. It is, however, important to once again remind industry analysts and stakeholders that the watch industry was not exactly thriving prior to the virus outbreak. As part of my ongoing investigation into reforming many parts of the luxury watch industry (while it is in a compromised state), today I turn my attention to the rarely discussed topic of European luxury watch companies’ hiring practices or, as my colleagues and I describe it, “musical chairs for old men”.

The constant merry-go-round is one of the most serious challenges facing the watch industry: how people are imprecisely used as tools to fix problems when the real problem is with the job position itself. Rather than analyze and tackle failures, brands merely insert a new person into an otherwise ineffective role. And the cycle continues over and over again.

One of the simplest ways to understand the problem inherent in musical chairs at luxury watch brands is to appreciate how it ignores the most powerful asset the watch industry really has, and that is creative ideas and human resources. The unspoken negative side to musical chairs is that too rarely are people who work in the watch industry ever promoted to positions of increased power. The watch industry does not like to promote people. Rather, it would prefer to hire laterally and take in fresh people, who, despite best intentions, simply don’t really understand the particular nuances required to make their role a success. They also don’t have much incentive to effect change or long-term growth because they end up seeing their career trajectory not as one where they are promoted at the same company but rather where they may be lucky to do the same job at another company for a slightly better wage.

Before I proceed to discuss the matter of watch brand hiring practices further, I want to comment on what I believe is one of the root causes of this issue. The heart of the problem is probably the large disconnect between the people who actually operate watch brands and the people who fund those operations. The vast distance between the “investors” and the “directors” means that the people who are ultimately in power only know that they want a return on their investment or for those companies to make a profit. They don’t know how to make that happen when it doesn’t pan out, and they fundamentally err when trying to solve the problem(s). An investor in the watch space is far more likely to hire an outsider to come in and run the company than to promote someone from within. Yes, to a small degree, there is a culture of internal promotion of particular forms of managers at big groups like Swatch, but this is often isolated to within Switzerland and for a vanishingly small number of positions.

Hiring from the outside is an increasingly outdated business school strategy that suggest that lessons learned in other industries may be able to fight endemic issues in another industry. Watch industry investors probably believe that wisdom from the car, cosmetics, shoes, sporting goods, banking, or fashion industries can be applied to the watch industry for material gain. They have tried this over and over again since around the year 2000, and I’m not sure it has led to much success. In fact, progress in the watch industry resulted from opposite behaviors.

The practice of trying to hire laterally from other industries rather than hire from within has caused a big talent flight over the last decade or so. Countless smart and creative people have fled positions at big groups either to leave the watch industry altogether or to set up shop with small companies on their own. This has led to a golden age for independent watchmakers and entrepreneurs who attempt to make sense out of the incredible disorder that constant management and strategy shifts at big groups usher in. In other words, the good people who enter the watch industry and want to make changes that help everyone profit end up being forced to apply their ideas to new or small brands versus the larger and more historic brands that can stand to more immediately benefit.

The recently retired Walter von Kanel of Longines comes to mind as I discuss this. Walter spent the majority of his professional life at Longines, starting from a humble position to eventually becoming its CEO. He was there before the Swatch Group took it over, and he had been there managing the course of a company he had learned in and out over the course of his career. Walter von Kanel understood Longines and what it needed on a daily basis. If Walter had been asked to take the same job at another company, what else would he have done other than simply apply what worked for Longines? Would that work for another company too? Perhaps yes, but probably not.

Walter grew up in a watch industry that does not exist anymore. There are no longer stories of people coming in as watchmakers or marketers and getting promoted to positions of higher power. In fact, for many people working at watch brands (pretty much all positions aside from top-level management), there is a very real glass ceiling that prevents them from being promoted or given more power.

Like Walter von Kanel, many of the watch industry’s recent “greatest hits” managers grew up within the watch industry and were not brought in from the outside. The also-recently retired Jean-Claude Biver has a similar story. Starting his watch industry career in the 1970s, he gained a broad understanding of how the industry and consumers worked, eventually running a few brands himself. No outside career experience could have prepared Mr Biver for how to run the watch industry, given its particular history, culture, relationship with consumers, and marketing challenges. Jean-Claude Biver’s success came as a result of his long time in the watch industry, specifically being mentored by the late Nicolas Hayek (founder of the Swatch Group). You can’t hire people like Walter von Kanel or Jean-Claude Biver, you must develop them from scratch.

Today, watch industry managers who enter from other industries often fail by the time their jobs are less than a year old. Is it their fault? No. I would say that the fault exists in the system that hires them and expects them to perform a task that is not possible. Typically, this task involves vast publicly-traded companies planning in advance how they will spend money to make a brand deliver a profit in a certain number of years.

I don’t think it is a coincidence that all of today’s best-performing watch brands are neither publicly traded nor related to large conglomerates. Luxury watch industry managers often look with jealousy to the performance of Rolex, Patek Philippe, Richard Mille, and Audemars Piguet – all companies that don’t need to listen to detached stakeholders telling them what to do or how to hire. Independence in operation seems to be an important prerequisite to success in today’s watch industry. This is an important lesson that groups like Richemont have no choice but to learn in today’s business environment. Will they?

Richemont has been at the forefront of the very issue I am talking about. While the group has been tripping over its own human resources practices, its brands have been existing in various states of malaise — unable to act, spend, or release new products. Richemont is controlled by a board that exerts absolute power over all the brands within the group’s umbrella. Now that the board itself cannot figure out how to chart a course into the future, all the brands are suffering as a result. The board believes it can solve problems by announcing new members, new leaders, and new energy. We will see how that goes.

Now let me discuss the practice of how watch brands use firing and hiring of top managers as ineffective tool to initiate change. The common story goes like this: “We just injected new life into our company by hiring this guy who did the exact role at another company. Let’s all celebrate and look forward to a brighter future.” This happens with increasing frequency, and yet all of the watch industry’s problems remain, be it at the watchmaker’s bench or the desk of top-level management. What is going on here?

A former Richemont executive said it best to me when discussing how the Richemont board operates, it’s not the people at the top who are the problem, but rather the system itself. Replace those roles with as many new people as you like, he explained, and the same problems will happen over and over again. The best analogy that comes to mind is like a watch movement itself. You can replace a set of gears repeatedly with new parts to your heart’s content to fix a problem. If the watch movement architecture itself is to blame, then simply replacing new parts is never going to fix the problem. How the watch industry keeps getting this problem wrong over and over again is simply a testament to deeper dysfunction.

What does a watch brand manager or employee need for success? A watch industry investor would probably say that they need a good system to work within and measurable parameters for success. Nothing could be less true in 2020. What a good manager needs in 2020 is available money to spend and relatively few restrictions on making decisions. If a brand can’t offer an employee this in 2020, there is a good chance that funneling more and more people into overly restrictive roles will do no good.

Finally, the biggest failure of the established watch industry’s hiring practices is its insular and deeply protective approach to hiring new talent. From watch collectors and retailers to media executives and marketeers, the volume of good people with good ideas being absolutely squandered in the luxury watch space is nearly scandalous. People with established dedication and performance in the watch space are nearly never considered as potential managers or even hires at the very brands to which they have dedicated themselves.

Let’s say there is a particular third-party retailer who has become very skilled at selling Omega watches. Will the company ever think to hire him or her? Probably not. Let’s say there is a public relations or marketing professional who has come up with a brilliant advertising campaign for a brand. Will they be considered as a new in-brand marketing manager? Probably not. Even though this is a global industry the watch industry still hires locals who speak the same languages and who will not disagree with them on material matters. If you are from another country, if you don’t speak French, if you don’t seem like the typical person to hire… you will simply never be considered or given some small carved out role in the corner without any real power or influence. The silver lining for the European luxury watch industry’s biggest brands is that passionate new talent is all around them – and they are simply ignoring it due to their own determined indifference to change.

We should encourage the European luxury watch industry to be mindful of two important facts. First, hiring laterally for key positions at companies is more often than not a terrible idea that has a track record of disappointment. Rather, companies should foster cultures of internal promotion and advancement. People who have been working at a company for long enough are often in the best position to help that company. Watch brands need to reward loyalty and long-term performance with promotions, not just stable jobs that don’t come with increases in power and importance.

Second, the watch industry needs to once again promote a culture of creativity and embrace new ideas outside of just the smallest brands. The typical story is that the brands that are the most open-minded are also those with the least amount of money. The more capital a company has, the more loathe they appear to be when it comes to trying anything new. This is patently dysfunctional because the industry is allowing good ideas to burn up while never capturing the resulting energy. Brands need to keep good people working at their companies, while allowing them to professionally grow within the company. Outside ideas are welcome, but outside people coming into otherwise rigid systems won’t end up solving any problems.

The situation has never been more dire than it is now. The general watch industry is sitting back observing, while its larger corporate pillars are teetering and may fall. Few people have confidence that Richemont, Swatch, and LVMH will miraculously come up with new management systems, hiring practices, and near or long-term strategies before at least some of their business units entirely fall apart. Buckling under the pressure of their own weight, the big groups are hardly the place to seek inspiring innovation until at least 2022 or 2023 at the earliest.

Change needs to begin where it can, with the smaller, more agile brands who can start to encourage a culture of internal career development and acceptance of new ideas (not just outside ideas). If successful, they will create a new generation of Hayek-like mindsets. If unsuccessful, the larger luxury watch industry may experience a prolonged era of hibernation. The choice is in the hands of industry leaders.