Delphi Automotive Owes Its Current Success To….Medical Devices?

6/13/11Follow @xconomy

Somewhere lost in the Groupon/tech IPO bubble, er…I mean, resurgence, was Delphi Automotive Systems’ recent announcement that it is seeking to raise $100 million through its own IPO.

A successful return to Wall Street would cap an impressive turnaround for the Troy, MI-based maker of auto parts, whose reliance on General Motors drove its previous incarnation into Chapter 11 bankruptcy in 2009.

But the seeds for Delphi’s turnaround were arguably planted in 2003 when the company recruited a Baxter International executive to start a medical device unit.

Encouraged by state officials, Delphi had hoped to diversify away from automobiles into new industries. Medical devices made sense, given the auto industry’s expertise in engineering and manufacturing, says Christophe Sevrain, tapped at the time to lead Delphi Medical Systems.

“We thought it would be pretty straight forward,” Sevrain told Xconomy. “We were very, very good at manufacturing. We felt autos had a lot to bring to the medical industry.”

The truth, of course, was bit more complicated. Delphi Medical, which made home infusion devices, spinal surgery products, and 3D eye mapping technology, had the technology thing down. Convincing other people to buy it was another matter, Sevrain says.

“My concern was not the technology but rather how are we going to market ourselves, especially when no one knows you,” he says. “We didn’t know what to say to our customers.”

It didn’t help when Delphi, in the early days of the medical device foray, kept using automotive lingo instead of medical terms. Also, while auto makers stressed costs above all else, medical device customers valued devices that could be implemented quickly into the busy workflow of a hospital.

But the biggest challenge to Delphi came from within, Sevrain says.

“Delphi was a poster child for [inflexibility],” he says. “It was a very rigid company. A lot of people did not want to change. There was a tremendous amount of resistance [to making medical devices]. People liked to stick to what they knew the best.”

Remarkably, Delphi overcame these obstacles. It helped that Sevrain, the managing director of Delphi Medical, reported directly to the vice chairman of the company. In just three years, the unit generated over $100 million in revenue.

Despite its success, Delphi ultimately sold its medical device business to several buyers during bankruptcy, preferring instead to focus on its core auto parts operations. But Sevrain believes Delphi’s culture changed for the best.

Delphi Medical “changed the status quo,” he says. “The company was now more willing to change and adapt.”

Case in point: Delphi’s recent partnership with WiTricity, a startup based in Watertown, MA, to develop wireless charging stations for electric vehicles.

At the Society of Automotive Engineers’ annual conference in Detroit, Delphi chief technologist Andrew Brown told me the relationship reflected the company’s new mindset: that working with outside parties helped boost innovation and speed products to market. Such a collaboration would’ve been unthinkable just a few years ago, given Delphi’s conservative and insular culture.

Our attitude was ‘if it wasn’t invented here, it was not worth very much,’” Brown says. “In today’s world, you don’t have to do it yourself. Not all of the smart people work for you.”

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