The effervescent flanker has shone in an Edinburgh side swamped by malaise.
And Watson proved one of the stars of Scotland's best Six Nations since 2006.
"If you're a score down in a Test with 15 minutes to go and need to inject something different, a player like him might work for you," Smith said.
"Someone a bit more dynamic, with a huge work-rate, hugely athletic and fast, and could probably play in most positions in the backs and make a reasonable fist of it.
"He doesn't fit the mould of a standard back-row. He's not physically massive, but he punches above his weight.
"Every time he gets the ball, he does something interesting and he's very good over the ball.
"It probably goes to your philosophy when you play New Zealand - how are you going to play? Are you going to play all-out attack or are you going to try and stop them from scoring tries?
"Defence is obviously going to be important, but I think we're going to have focus on scoring tries, which I think would probably work in Hamish's favour."
Former prop Smith, 45, toured with the storied Lions of 1997, starting all three Tests as the visitors overcame then world champions South Africa.
He repeated that feat four years later, cementing his status as the first-choice loose-head when Graham Henry's Lions were beaten 2-1 by Australia.
Not since Smith in 2001 has Scotland contributed a starting Test Lion and no more than three Scots have been selected for the initial touring party in two decades.
Head coach Warren Gatland will name his squad on Wednesday.
"If we got five, I'd be pretty happy," Smith told BBC Scotland. "I think Stuart Hogg's a certainty, he's pencilled in by a lot of people to start the Tests and I think, if he keeps playing the way he has been, there's a good chance that will happen.
"I think Jonny Gray is the sort of player that will develop and really come on in a tour and environment like that.
"Unfortunately, second-row is such a competitive area this year, but I'd certainly have my fingers crossed for him, brother Richie, or both.
"Tommy Seymour's a really good player who week in, week out delivers high-quality performances.
"Finn Russell, again, it's a really, really tough position, but you just hope he might squeeze on and be given the chance to show what he's got.
"Our back-three is as good as any in the championship with Hogg, Seymour and Sean Maitland, who has worked with Gatland before - there's a mutual respect there and he's playing for one of the top sides in Europe, which I think will help him."
Scotland earned home victories over Ireland, Wales and Italy in this year's Six Nations - the first time they have won three championship fixtures in 11 years.
Although Vern Cotter's side were dealt a shellacking by England, Smith, who won 61 international caps, hopes their performances this season can swell the Scottish contingent in Gatland's squad.
"Sometimes it doesn't add up," he said. "You'd think three wins out of five, beating Wales and Ireland, you'd potentially hope to have more players than those countries, but I think it's highly unlikely that we will.
"It's difficult. You almost have to step away from the national divisions and go position by position, look at every single player in every single league.
"There are an awful lot of good players out there and it is tough.
"I think Scotland have punched above their weight this year and hopefully that will be reflected in the selection. I'm hopeful more so than optimistic.
"But I would hope there's enough experience and knowledge on the selection committee, certainly those people will have known and watched the Scottish players.
"Glasgow winning at Leicester and getting through to the quarter-finals of the European Champions Cup must count for something."
The Lions, led by Clive Woodward, were trounced 3-0 on their last visit to New Zealand 12 years ago.
Smith insists there is sufficient quality across the home nations to win a series there for the first time since 1971 but warns that tackling the world's best team on their own patch will present huge and unique challenges.
"The difference with New Zealand is they'll try and knock the tour over before the Tests," he said.
"When I toured Australia and South Africa, they pulled the Test players from a lot of the provincial games, so you get a relatively easy ride through to the Test matches.
"You can build up a head of steam, you're winning most if not all of your games, then you get to the Test matches with fewer injuries, your squad in better shape and everyone's had a good run-out.
"New Zealand, on the other hand, even if they pull their All Blacks, the provinces are really strong. The Maoris are a huge test - pretty close to the All Blacks - and every single side will want to be the side that knocks you over.
"It's getting your best players through to that first Test in good nick and with some wins under their belts.
"You don't get away with a bad day in New Zealand - in Australia and South Africa you can have a bad day and still win a provincial game.
"In New Zealand, it's different, such is the depth and intensity there."
Tom Smith, the last Scot to start a British and Irish Lions Test, believes Hamish Watson could provide key and unique attributes on this year's tour of New Zealand.