Dictaphone Healthcare Solutions Business Information, Profile, and History

Company Perspectives

For well over a century, the Dictaphone name has been synonymous with excellence and innovation in business communications equipment. The company can trace its history back to 1881, when Alexander Graham Bell and two associates took on their first team project--finding a practical way of recording sound for the newly invented telephone.

History of Dictaphone Healthcare Solutions

Based in Stratford, Connecticut, Dictaphone Healthcare Solutions is a leading developer of dictation, voice processing, and voice management systems. The company markets both hardware and software related to these three areas. Dictaphone is especially focused on the healthcare industry, and its systems are found in more than half of all U.S. hospitals. In addition, the company also serves clients in other "report intensive" fields such as insurance, legal, and public safety. In addition to its Connecticut headquarters, Dictaphone has offices devoted to marketing, sales, support, and service in locations, throughout the United States, Canada, Europe, and the United Kingdom. In 2006 Dictaphone was acquired by Massachusetts-based Nuance Communications and became Nuance's new Dictaphone Healthcare Division. Nuance retained Dictaphone's management team to head up the operations.

Pioneering Dictation Technology

Dictaphone's roots stretch back to early experiments in human voice recordings at the Volta Laboratory in Washington, D.C., run by Alexander Graham Bell, the famous inventor who developed the microphone and the telephone. These experiments were carried out during the late 1870s by Bell, his cousin Chichester Bell, and scientist/instrument maker Charles Sumner Tainter.

In 1881 these pioneers, who sought to develop a practical means of recording telephone sounds, produced the Dictaphone and placed the new invention in the Smithsonian Institution. According to the company, this breakthrough recording device "used a rotating cylinder on whose wax coating a steel stylus would cut up-and-down grooves." The Dictaphone included a mouthpiece that was somewhat similar to Bell's telephone.

According to the May 1979 issue of Modern Office Procedures, Tainter "gave the new invention its initial test" by reciting a passage from Act 1, Scene V of Hamlet into the Dictaphone's mouthpiece. "As he spoke," the article noted, "he hand-cranked the machine, turning the drum at a speed calculated to properly 'cut' this historic record."

In 1888 Alexander Graham Bell and Tainter established the Volta Graphophone Company. Based in the Connecticut city of Bridgeport, the new business venture was formed to market their invention to businesses. The Dictaphone was trademarked by Columbia after the American Graphophone Company, which ultimately became the Columbia Graphophone Company, bought the patent for the recording machine in 1907.

In the December 1990 issue of The Office, Darryl C. Rehr explained that initial market acceptance of the new devices was slow: "The steep, $150 price tag and difficulty in using the machines--the wax-coated cardboard cylinders had to be changed every four minutes--militated against the Graphophone's quick acceptance. Sales took off only when the phonographs entered the home-entertainment market. Businessmen, familiar with home versions of the machines, began buying them for office work, and by World War I they were in popular use."

For 27 years Dictaphone operated as a division of Columbia Graphophone, which was more focused on producing sound recordings for entertainment purposes than on developing the business dictation market. Financial conditions forced Columbia to sell Dictaphone in 1923, leading to the formation of Dictaphone Corporation.

During the 1920s Dictaphone found success with the introduction of its Telecord system, which combined the telephone with a recording machine that amplified the speaker's voice and captured it for dictation purposes. Dictaphone unveiled the first electronic desk model recording devices in 1939.

Establishing Industry Leadership: 1940-70

Similar to many other U.S. companies, the onset of World War II resulted in wartime production for Dictaphone. In 1942 the company was asked to develop technology that could be used to record enemy communications and help the military with its code-breaking efforts. According to the company this initiative resulted in the development of "voice logging" equipment (used for recording telephone calls and radio transmissions), which was put to commercial and public safety use in 1947.

Following the war, Dictaphone contacted leading plastics companies about the development of a plastic recording belt. When the company was told that such a product would be impossible to develop, Dictaphone's engineers went to work and made it themselves, producing an affordable, lightweight plastic media that could record 15 minutes of sound. Called the DictaBelt, the new recording media was used with Dictaphone's new Time-Master dictation machine, which used the plastic records instead of wax cylinders. This development, followed by the use of transistors shortly thereafter, enabled the company to produce dictation machines that were much smaller than previous models.

In 1953 Lloyd Maledon Powell was named president of Dictaphone. Powell had joined the company in the early 1920s, shortly after graduating from Purdue University with a civil engineering degree. After working as a contracting engineer and salesman at Dictaphone he became general sales manager and then vice-president in 1951. Powell served as Dictaphone's president until 1966, at which time he was named company chairman. Powell retired in 1969, but remained a company director until 1977. In addition to shaping the company throughout his long career, Powell served as an advisor to President Eisenhower in the Office of Economic Opportunity. He also was a consultant to President Johnson, via the National Economic Stabilization Board, during the Vietnam War.

Throughout the 1950s Dictaphone continued to introduce new products. During this time period a variety of professionals, namely physicians and attorneys, accepted dictation as a better and faster method than handwriting and stenography. The company played a large role in promoting the use of dictation systems. This was evident by its sponsorship of the first National Secretaries Week in June 1952. Dictaphone introduced the Dictet in 1957. Weighing only two pounds, it used a magnetic cassette to record sound and was the first portable dictation machine.

Dictaphone continued on a path of steady progress during the 1960s. The company ended the decade by acquiring Vista-Costa Mesa Furniture in January 1969. By mid-year Dictaphone had opened a manufacturing complex in Killwangen, Switzerland, in order to capture some of the European business equipment market, which was expected to reach $7 billion by the mid-1970s.

Merger Mania: 1970-80

Dictaphone continued to introduce new products during the 1970s. A portable battery-powered calculator, priced at $495, was unveiled in 1970. On the dictation front, the company's Thought Tank recorder was introduced in 1972. The device, which included an endless loop of magnetic tape, was unique in that it consolidated both the transcription and dictation functions into one unit. The following year Dictaphone unveiled a minicassette dictation recorder called the Model 1111, as well as its first standard cassette unit, which was named the Model 241.

In 1978 Dictaphone introduced a microcassette dictation/transcription system called Microdictation that employed microprocessor technology, as well as a dozen different units for voice processing. The company also introduced several word management computer systems. In addition, by the late 1970s Dictaphone had established a strong foothold in the automatic telephone answering systems market through its Ansafone product line.

A number of leadership changes took place during the 1970s. In August 1971, E. Lawrence Tabat was named as Dictaphone's president and CEO, succeeding Walter W. Finke. While Finke remained with the organization as a director and consultant, he passed away in February 1972, at the age of 64. In mid-1977 Tabat was succeeded as president by Hobart C. Kreitler, who had been serving as president of Dictaphone's products and systems group. Tabat remained Dictaphone's chairman and CEO until retiring in 1982.

The decade of the 1970s was marked by a flutter of merger activity at Dictaphone. The company avoided several attempted mergers during the first half of the decade. These included proposed takeovers by Gould Inc. in 1971 and Northern Electric Co. in 1974, as well as a failed merger with Sterndent Corporation in 1975.

Merger activity continued during the second half of the decade, beginning with Dictaphone's $21.9 million acquisition of Data Documents Company, an Omaha, Nebraska-based supplier of computer forms and data processing supplies, in 1976. Finally, the decade concluded with Stamford, Connecticut-based Pitney Bowes purchasing Dictaphone for $131 million in cash and stock. Following the acquisition, Dictaphone continued to operate as an autonomous, wholly owned subsidiary of Pitney Bowes.

As Dictaphone headed into the late 1970s, the company was doing quite well financially. Its annual sales, which totaled $132.26 million in 1976, increased to $211.59 million the following year. Net income also increased, from $4.17 million to $5.53 million. In 1977 Dictaphone announced that it would relocate its manufacturing operations from Bridgeport, Connecticut, to Melbourne, Florida, where it planned to invest $2.2 million in the construction of a new facility. Dictaphone's sales increased again in 1978, to $243.83 million, and the company's net income shot up considerably, reaching $11.60 million.

Product Evolution: 1980-90

The 1980s were characterized by a variety of new product rollouts at Dictaphone. Many of the company's new offerings were capable of handling more than one function. For example, in 1980 the company introduced the Dictamation product line. Dictamation units combined dictation-transcription machines with telephone answering machines capable of recording messages up to 30 minutes long.

Dictaphone continued to pursue the emerging electronic word processing market and introduced its Dictaphone Integrated Office System, which included the System 6000 word processor with data retrieval capabilities. The company's Omninet was a local area network that linked the System 6000 to other like terminals, as well as to personal computers. In addition, System 6000 gave users the ability to send e-mail messages to one another.

By 1983 Dictaphone was marketing a tape-based telephone answering system that bank customers could use to request money transfers after hours. The following year the company began offering a variety of digital recording products. By 1986 Dictaphone had developed a desktop system called Connexions that combined IBM-compatible computers with telephony, voice/text messaging, transcription, and dictation. By the decade's end, the company offered products like the Digital Express 7000 System, which allowed up to 22,000 users to access, store, and record hundreds of reports and voice messages at the same time.

1990-2000: Turbulent Times

The 1990s proved to be a pivotal time period for Dictaphone. Early in the decade the company acquired California-based Elite Communications Systems, a sales and service organization that had focused on Sony dictation products until Sony decided to exit the digital dictation products market.

In 1995 Pitney Bowes decided to sell Dictaphone to Stonington Partners, an investment fund, for $462 million in cash. The sale was part of the parent company's strategy of focusing on its paper communications business. An interim company called Dictaphone Acquisition Inc. was formed to facilitate the sale. John H. Duerden--a former Xerox executive who most recently had been serving as Reebok International's president; chief operating officer; and executive vice-president of sales, finance, operations, and production--was named Dictaphone Acquisition's president, chairman, and CEO. He carried those titles over to Dictaphone Corporation when the acquisition was officially completed in August.

In the October 30, 1995, issue of the Fairfield County Business Journal, Duerden remarked: "Our task, now that we're out from under the umbrella of Pitney Bowes, is to chart our own destiny. We're talking about taking a mature company, one that's maybe a little tired, and turning it into something exciting."

Around this time, Dictaphone had annual sales of about $355 million and 3,500 employees. A number of the company's products cost more than $1 million. Duerden sought to cash in on the development of voice-related systems that functioned at the point where fax, voicemail, computers, and other devices were converging.

By 1997 Dictaphone had embarked upon the path that Duerden had previously charted, focusing on systems that recorded digital and verbal images simultaneously. The company was moving away from a hardware focus, and began concentrating more on software.

As part of its strategy, Dictaphone began concentrating more on research and development and forming strategic alliances with other firms to develop new products. In the January 13, 1997, issue of the Fairfield County Business Journal, Don Dzikowski wrote: "One of the first things Duerden said he did was double the company's research and development budget to more than $20 million a year. Next, he began to form a string of strategic alliances with national, smaller companies on top of the desired technology in integrated voice and data management systems. In return, Dictaphone offered its extensive national distribution network."

In 1996 Dictaphone introduced its Enterprise Express digital dictation solution in hospitals throughout the United States. That year, sales totaled $350 million, where they had been for the previous two years, and employees totaled 3,320. By 1997 digital systems accounted for more than 75 percent of Dictaphone's sales. The following year its field sales and service force had grown to more than 1,700 representatives worldwide.

By 1999 Dictaphone had attempted to introduce new products related to voice mail and court reporting, but the efforts were unsuccessful. However, the company was making progress with an Internet-based medical transcription product, as well as its Windows-based Da Vinci monitoring and recording system for large call centers. While Dictaphone's new products offered hope on the financial front, the company remained saddled with $345 million in debt.

The early 2000s arguably were the most turbulent times in Dictaphone's long history. The turbulence began in March of 2000 when Belgium's Lernout & Hauspie (L&H) announced that it planned to acquire Dictaphone from Stonington Partners for $935 million, including approximately $425 million in debt.

The acquisition was completed in May, and by November both Dictaphone Corporation and L&H had filed for Chapter 11 bankruptcy. After L&H acknowledged irregularities and errors in past financial statements, related to one of its divisions in Korea, investigations were launched by Belgian authorities and the U.S. Securities and Exchange Commission. Stonington Partners attempted to sue L&H and sought to rescind the merger, claiming that L&H engaged in fraud by using misleading financial information during the deal. However, the litigation was frozen due to the bankruptcy proceedings.

In June 2001 Rob Schwager, a 23-year Dictaphone employee who also was president of Dictaphone Healthcare Solutions Group--a combined business unit of Dictaphone and L&H--was named president and chief operating officer of Dictaphone Corporation. At this time, L&H President and CEO Philippe Bodson served as Dictaphone's CEO.

By 2001 L&H was quickly selling off business units to raise cash. That August, L&H's creditors agreed in principal to a "debt-for-equity trade." Dictaphone would become an independent company, with the majority of its shares divided amongst various secured creditors and bondholders, and a small number of shares going to unsecured creditors and L&H.

New Beginnings: 2002 and Beyond

In March 2002 Dictaphone emerged from Chapter 11 as a privately held organization when its reorganization plan was approved by the U.S. Bankruptcy Court for the District of Delaware. According to the company, at the time Dictaphone was "one of the five oldest surviving U.S. Brands." The company emerged with 1,500 employees, down from 2,100 in late 2000. While it had lost $27 million in 2000, Dictaphone generated revenues of $15 million in 2001 and lowered its debt to $50 million.

While Dictaphone got a second chance and a fresh start, by mid-2003 the Delaware Chancery Court had ordered L&H founders Jo Lernout and Pol Hauspie to pay $539 million to Stonington Partners, which charged L&H for acquiring Dictaphone under fraudulent terms.

By the mid-2000s Dictaphone had embarked upon a strategy to focus mainly on the market for healthcare information technology, which it expected would exceed $25 million by 2010. As part of this strategy, the company began selling off some of its business units.

In April 2005 Dictaphone sold its Communications Recording Systems unit, which provided recording systems to call centers, financial companies, and 911 centers, to Israel's NICE Systems for $38.5 million. In January 2006 Dictaphone sold its Florida-based Electronic Manufacturing Systems division, which produced circuit boards, to Pennsylvania-based Bulova Technologies LLC.

A major development took place in February 2006 when Burlington, Massachusetts-based Nuance Communications announced that it would acquire Dictaphone in a cash deal worth $357 million. In a news release Nuance Chairman and CEO Paul Ricci commented on the acquisition, which was completed by the end of March, stating: "The combined resources, experience and talents of Nuance and Dictaphone will help accelerate the adoption of speech recognition to eliminate most manual transcription for healthcare in North America this decade, delivering over $5 billion in savings to care facilities and transcription service organizations." Under new parentage, Dictaphone was named a division of Nuance--the Dictaphone Healthcare Solutions division--and Schwager was named its president.

Principal Competitors

Sony Corporation; Harris Corporation

Chronology

• Key Dates
• 1881 Alexander Graham Bell, Chichester Bell, and Charles Sumner Tainter produce the Dictaphone.
• 1888 Alexander Graham Bell and Tainter establish the Volta Graphophone Company.
• 1907 The American Graphophone Company, which ultimately becomes the Columbia Graphophone Company, buys the Dictaphone patent.
• 1923 Dictaphone Corporation is established when Columbia sells the company.
• 1979 Pitney Bowes purchases Dictaphone.
• 1995 Pitney Bowes sells Dictaphone to Stonington Partners.
• 2000 Lernout & Hauspie acquires Dictaphone from Stonington Partners.
• 2006 Nuance Communications acquires Dictaphone.