Raychem Corporation History

Company History:

Raychem Corporation is one of the world's largest producers of industrial electronics components, serving such industries as aerospace, automotive, construction, consumer electronics, medical, and telecommunications, and generating annual sales in excess of one billion dollars. For many of its products, it is the leading supplier; for some, it is the only supplier. Raychem operates in a global economy, with manufacturing, sales, or research and development facilities in 40 countries, offering thousands of products in some 85 countries. In 1992, more than 60 percent of Raychem's sales and over 50 percent of its employees were outside the United States. Raychem is ranked among the Fortune 500 companies and is one of the top 100 U.S. companies in research and development spending, topping $128 million in 1992. Raychem manufactures over 50,000 different products, each of which is based on some advanced technology likely invented by the company itself.

The Raychem story begins with its founder, Paul Cook, a chemical engineer. A graduate of the Massachusetts Institute of Technology, Cook moved from the East Coast to the San Francisco Bay Area in the early 1950s to work at the Stanford Research Institute. While working at the institute, Cook saw potential in a relatively new branch of science at that time--radiation chemistry--which uses high energy electrons to alter the molecular structure of polymers. The name Raychem derives from this early technology in radiation chemistry that launched the company and still guides most of its research.

Cook used radiation chemistry to create Raychem's first commercial products: lightweight, rugged wire and cable for aircraft, and shortly thereafter, heat-shrinkable tubing. To make heat-shrinkable tubing, crosslinked plastic tubing is heated, then expanded and cooled in the expanded state. When heated again, the crosslinking forces the tubing to shrink to its original size. This phenomenon would prove to have many applications, including sealing splices in electric wiring harnesses and providing protective coatings on metal brake-line tubing. Developing innovative technologies with broad applications became the hallmark of Raychem.

For more than three decades, Raychem grew at an average rate of 25 percent per year, fueled by its reputation as a leading innovator of new technologies. Since the inception of the company, its goals have never wavered. In a 1990 interview with Cook, published in the Harvard Business Review, he discussed the Raychem philosophy&mdashø develop core technologies and interpret them to serve the marketplace. Cook explained, "Then we draw on those core technologies to proliferate thousands of products in which we have a powerful competitive advantage and for which our customers are willing to pay lots of money relative to what it costs us to make them. Think about that. If you can pioneer a technology, use it to make thousands of products, sell those products at high price-to-cost relationships to tens of thousands of customers around the world, none of which individually is that important to you, you wind up with an incredibly strong market position. That philosophy hasn't changed for 33 years."

In that same 1990 interview, Cook said that in the first few years of Raychem, they were just learning what radiation chemistry could do, and within four years, they had generated virtually every idea behind the products they're selling today, including ones the company has been working to develop since that time. "Ten years ago, after we began work on conductive polymers, we identified a market for all the manifestations of the technology that totaled $747 million a year. We made our '747 list' and began working through it. At the time, it was a $5 or $10 million business. Today we're up to $150 million a year. So, we still have a long way to go," said Cook.

However, it is Raychem's philosophy toward competition and its efforts to make its own products obsolete that really sets the company apart from its rivals. Cook's philosophy was that the best way to compete was to avoid competition altogether by developing technologies that rivals couldn't touch&mdash′oducts that were more, not less, complicated to design and manufacture. He wanted products with small annual revenues, but he wanted lots of them. Cook declared in Harvard Business Review that "it takes a lot of confidence to believe that you can master a technology, stay ahead of everybody else in the world, capture markets based on that technology, obtain broad patent coverage, and then end up with a strong profit margin in a protected business." While other companies might develop a technology and then try to find ways to make their products a little better, a little cheaper, or a little more sophisticated, Raychem's approach was to determine if there were whole new ways to solve the problem--ways that might cut costs in half, or triple performance. Approaching the business in this manner, there was always the potential for making its own products obsolete, but inventing new technologies could also circumvent competition.

Pioneering new technologies is exactly what Raychem has succeeded in doing, applying those technologies in a myriad of industries. In the automotive arena, high-performance Raychem components were used in passenger vehicles for harnessing and circuit protection, and heaters produced by Raychem warmed diesel lines in cold weather. Components manufactured by Raychem were also used worldwide by telephone companies and cable television firms to connect, seal and protect copper, fiber optic, and coaxial connections. Water and gas utilities and pipeline companies utilized Raychem's heat-shrinkable products to reduce damage and protect pipeline systems.

In addition Raychem wire and cable interconnection systems could be found in aircraft, military installations, missile systems, and spacecraft, while the company's cable accessories were used extensively by the electrical distribution industry to help provide reliable power distribution by protecting cables from environmental hazards. In the medical arena, Raychem forged an alliance with United States Surgical Corporation, a fast-growing surgical equipment firm, to provide components for surgical instruments utilized in laparoscopic surgery, a minimally invasive technique used in gall bladder removal, hernia repair, and many other procedures.

Raychem was organized into three primary business segments in order to target the various markets in which the company operated and to foster a continuing entrepreneurial spirit, despite the company's size. The electronics business segment was established to provide the aerospace, automobile, computer, defense and medical industries with such products as electronic interconnection systems, heat-shrinkable insulation, circuit protection devices, computer touchscreens, and fiber optic cables. The industrial business segment served such areas of business as electric utility plants and environmental protection systems. The third segment of Raychem's business provided cable products and accessories to the telecommunications industry.

However, it was the fiber optics field that offered Raychem the greatest opportunity to boost it sales. Through the company's Raynet subsidiary, more than ten years of research and development in fiber optics technology, and an investment of over $150 million, has brought Raychem to the brink of becoming a leader in fiber optics applications for the home. In the not so distant future, advances in optics and electronics will create a society where optical fiber can be delivered to the home as cheaply as copper wire--establishing fiber optic highways between homes and businesses that will allow two-way information, entertainment, and electronic distributions, and creating a market potentially worth billions of dollars.

In the late 1970s, Raychem was wildly successful in the telecommunications industry as a supplier of splice closures which protected splices in the copper cables running from local telephone company offices to homes. It was one of the fastest growing segments of Raychem's business. Even then, Raychem management had only a glimmer of the potential of fiber optics, but began experimenting with the technology.

Eventually, Raychem turned its endeavors to local telephone companies and launched a major research effort. The goal was to develop a system for hundreds of residential telephone subscribers to share optics and electronics resources, creating economies of scale and drastically lowering the cost of delivering fiber optics to the home. This would be an entirely new core technology for Raychem. They set about hiring some of the best electrical engineers and physicists in the field and amassed a team that grew from 10 to 350 people in just three years. It was at this time that the Raynet subsidiary was established. An alliance was formed with BellSouth, a regional telephone company that invested $25 million in the fiber optics project. Raynet's efforts paid off with development of the Loop Optical Carrier (LOP) system that delivers fiber from local telephone companies to the home. But getting there was no easy feat for Raychem. While fiber optics had huge potential, research and development required much of Raychem's capital--it took $150 million to get Raynet on its feet. Subsequently, in 1992, Raynet won a $40 million contract from Deutsche Bundespost Telekom to begin commercial deployment of a fiber optic telephone system in Germany's eastern region. Raychem even began to sell to the Chinese telecommunications industry through a joint venture with Shanghai Cable Works. The project marketed products in a country where telephone density was low and opportunities for expansion of infrastructure were vast.

Using technology based on manipulation of the unique properties of chemicals, polymers and metals, Raychem has developed thousands of products affecting our daily lives from behind the scenes. With the company's philosophy and track record for technological innovation, Raychem is positioned to be a strong global competitor in the future.

Principal Subsidiaries: Sigmaform Corporation; Raynet Corporation; Bentley Harris France S.A. (France); Raychem Limited (U.K.); Raychem N.V. (Belgium); Raychem Pontoise S.A. (France); Raychem Canada Ltd. (Canada); Raychem (Australia) Pty, Ltd.; K.K. Raychem (Japan); Raychem A.G. (Switzerland); Raychem DISC, Inc.; Raychem International, Ltd. (Cayman Islands); Raychem International Manufacturing Corp.; Raychem Manufacturing Corp.; Raychem Middle East Intl., E.C. (Bahrain); Raychem S.A.I.C. (Argentina); Raychem GmbH (Germany); Raychem Products, Inc.; Raychem Industries, Inc.; Raychem Productos Irradiados, Ltda. (Brazil); Raychem Gesellschaft m.b.H. (Austria); Raychem Ltd.; Raychem A/S (Denmark); Raychem Aktie Bolag (Sweden); Raychem Inter-America, Inc.; Raychem International Corp.; Raychem S.P.A. (Italy); Raychem Singapore Pte. Ltd. (Singapore); Raychem S.A. (Spain); SHG-Strahlenshemie Holding GmbH (Germany); Walter Rose GmbH & Co. KG (Germany).

Further Reading:

• Corporate Capabilities, Menlo Park, CA: Raychem Corporation.
• Kindel, Stephen, "Sandcastles: Running Raychem Like a Business May be Robert Saldich's Toughest Challenge," Financial World, October 2, 1990, p. 48.
• Raychem Corporation Annual Report, Menlo Park, CA: Raychem Corporation, 1992.
• "Raychem: Taking Stock," San Francisco Business Times, April 30-May 6, 1993, p. 28.
• Taylor, William, "The Business of Innovation: An Interview With Paul Cook," Harvard Business Review, March-April 1990, pp. 96-106.

Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.

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