Not long ago, people bought watches the way they purchased dinnerware - one for everyday use and one for formal occasions. Swatch changed all that by revolutionizing the reason we wear watches. Much more than a timepiece, a Swatch is an inexpensive fashion accessory that we can change according to our mood and activities.

Swatch was born out of necessity. In the 1970s, the Swiss watchmaking industry was plunged into a deep crisis. After centuries of dominating the watch business, the Swiss were jolted out of complacency by Asian manufacturers who were carving deep inroads into traditional markets with the introduction of low-cost, good-quality quartz watches. Swiss watches, which a few years earlier had accounted for about 50% of the market, plummeted to about 12%. Hong Kong and Japan had pushed Switzerland into third place, and Taiwan, China and South Korea were quickly catching up. Jobs in the Swiss watchmaking industry were in a free fall, dropping from over 90,000 jobs to less than 40,000. Something had to be done.

With the country's two largest watchmakers - ASUAG and SSIH - nearly insolvent, Swiss banks turned to Zurich-based Hayek Engineering, headed by Nicholas G. Hayek, to conduct an analysis. Hayek reported that the largest market and most growth potential was in the low-price segment - not at the luxury level, of which the Swiss owned 97% market share - and recommended that Swiss watchmakers take the offensive, competing head-on with Asian manufacturers by producing high-quality, low-cost plastic analog watches. What's more, Hayek emphasized radical changes were necessary if the Swiss watch industry was to survive.

"We could retreat no longer. We had to have a broad market presence," says Hayek, who became the CEO and the major stakeholder of SMH, a company formed by the merger of ASUAG and SSIH.

What followed was one of the 20th century's most spectacular industrial comebacks. Throwing off entrenched traditions, Swatch (Swiss + watch) completely reinvented the industry - from the technology to public perception of what watches were all about.

Recognizing that manufacturing processes used by Swiss watchmakers for over 200 years would not solve the problem, the original Swatch project team of technicians, designers and marketing specialists abandoned conventional methods and searched for a completely new, integrated solution based on meeting defined marketing objectives - namely, to maintain the high-quality standards associated with Swiss brands; arrive at a retail price competitive with Asian manufacturers; produce a product adaptable to a wide range of models; and incorporate features desirable for everyday use. Hayek had one other major goal - to build the watches in Switzerland. "We must build where we live," he says. "When a country loses the know-how and expertise to manufacture things, it loses its capacity to create wealth - its financial independence. When it loses its financial independence, it starts to lose political sovereignty."

Challenged to think and act innovatively, Swatch design engineers looked for inspiration in things like children's Lego blocks (for the injection molding and die-casting) and disposable plastic lighters (for the ultrasonic welding). The final design was an accurate quartz analog product that required only 51 parts, compared to the typical 90 to 150 parts found in conventional watches. Not only did this dramatically cut production costs and allow automated assembly, it enhanced performance reliability.

Had Swatch simply stopped with cost-cutting, however, it wouldn't be the phenomenal success it is today. To entice consumers to buy three, four, 15, 20, an entire collection of Swatches, the company determined that it had to position its product as an affordable lifestyle accessory.

"We are selling an emotional product," Hayek says. "You wear a watch on your wrist, right against your skin. You have it there for 12 hours a day, maybe 24 hours a day. It can be an important part of your self-image.... We are not just offering people a style. We are offering them a message. This is an absolutely critical point. Fashion is about image. Emotional products are about message - a strong, exciting, distinct, authentic message that tells people who you are and why you do what you do."

That message is being conveyed through design and marketing savvy. The company attributes its success largely "to the communications specialists - advertising consultants, art directors, PR and promotion specialists - who have devised one original idea after another to put Swatch in the spotlight."

At Swatch design labs in Milan and New York, an ever-changing cadre of graphic artists, architects and industrial designers from a wide range of countries create about 140 different styles annually. Collections introduced twice a year address five basic Swatch lines: formal, active sports, casual leisure, fashion and art. Each model is part of a collection, and each has its own name. The company never uses one-off designs for a single watch, but develops seasonal lines around theme concepts to gain greater promotional and sales presence. In every category, Swatch claims to stand for "provocation, joie de vivre and unlimited imagination."

Carlo Giordanetti, director of Swatch Creative Services, says, "I like to think of Swatch as a product you can approach on two levels. The first reading is purely aesthetic and functional. The second reading is when someone says `I like your watch' and you can show it has a meaning and a story to tell. Swatch always conveys something very personal. It's not about nice color or fitting properly with your outfit. It says something about the personality of the wearer."

Swatch also prides itself on being streetwise. "The art form we are really into is graffiti," the company claims. "For the collection that is now going out we have a strong asphalt theme," reports Giordanetti. "We had never approached the hard side of the city, so we provided this as input to the designers, and then gave them total freedom to see what comes out in that direction."

Since 1985, some of the world's best known modern artists have also created Swatch Art Specials, including Yoko Ono, Studio Azzurro, Micha Klein, Victor Vasarely, Kiki Picasso, Keith Haring, Irit Batsry and Pedro Almodovar. As with other Swatch lines, the Art Special collection, featuring six styles annually, revolves around specific themes. "We look for artists with a non-traditional way of approaching art," Giordanetti says, adding that one practical consideration in the selection of artists is the need for three black-and-white and three color watch designs in each collection.

Swatch has also expanded its offerings through technical innovations that now include scuba, solar, chrono, musical alarm, and electronic access wristwatches. Recently it launched a successful solid steel-case line, called Irony, produced by metal injection molding instead of mechanical machining, to offer significant cost advantages.

Swatch's zeal for the youthful, irreverent and provocative drives its communications campaign worldwide. "Swatch belongs on the streets" is the company's motto. "Swatch isn't all about gentility and reserve. Swatch gets in there with the people, wants to be part of the action, wherever it is. And more: Swatch is the action," the company proclaims.

Swatch manifests its philosophy by sponsoring action events like the European Swatch Beach Volleyball Circuit, Australian Balloon Spectacular and London's first freestyle snowboard competition in Covent Garden, and staging outrageous yet fun media events like sending seven of its Swatch Access models into outer space with the Columbia astronauts, and proving the water-resistant accuracy of its AquaChrono by submerging it 200 meters down into Loch Ness.

As the Official Timekeeper at the Atlanta Olympic Games, Swatch made the most of its association by selling one numbered Swatch Perfect Timing Chronometer daily for 250 days leading up to the Opening Ceremony and commissioning artists to create 20-foot-high clock towers in 12 different cities around the world. It also issued four special Olympic watch collections, including one entitled Olympic Legends, featuring past Olympic champions.

Remarkably, Swatch has managed to keep the price point of its basic plastic Swatch model at $40, set when the company was launched in 1983, with other models kept within relatively affordable range. It has also tried to maintain a consistent international price positioning, so travelers to other countries won't encounter an entirely different price point. Key to keeping prices down is Swatch's proprietary mass production technologies, which also have enabled the company to produce more than 200 million watches to date.

While Swatch's "approachable" price has appealed to typical consumers, its quality design and craftsmanship have helped it to become a great investment. Today Swatch watches command high prices at auctions and are exhibited in fine arts museums. Still, the company claims, "No Swatch has ever deliberately been designed to become a classic. A Swatch for a season, not a watch for all seasons, is our modest objective."

Meanwhile, the company isn't ignoring the legions who feel otherwise. "Swatch the Club," a collectors' fan club with more than 100,000 members worldwide, allows members to buy limited edition styles not available in stores, receive catalogs and newsletters, and attend special Swatch promotional events.

While by any measure Swatch can be judged an astonishing success, the company isn't for a moment resting on its laurels. Swatch is opening its first flagship store in Manhattan this fall and is continually expanding into new markets, including sunglasses, telecommunications and cars. The much-anticipated Swatch Car features a concept by Mercedes-Benz.

What started out in the '70s as a last ditch effort to save the besieged Swiss watch industry has become a model for turning around traditional businesses. "Swatch is a symbol of our willingness to find a positive answer to the economic challenges of our time," says Hayek.