The history of the computer business is replete with stories of once-promising growth companies that ultimately failed or were swallowed up by bigger fish after a few years.
But National Computer Systems' chairman Charles Oswald has spent 24 years, a tenure practically unheard of in the industry, guiding his company carefully through treacherous technological waters.
Mr. Oswald, 66, joined the fledgling company in 1970 when it was mainly a manufacturer of document scanning equipment used for scoring scholastic aptitude tests on which students mark their answers by filling in dots with the required No. 2 pencil.
But despite being an early innovator of document-scanning technology, NCS was "in the deep weeds" when Mr. Oswald became CEO of the firm after leaving class-ring marketer Jostens Inc. "NCS was able to get a public offering out in 1968, but by 1970 the money was gone and the stock was in the tank," he recalled.
Today, Minneapolis-based NCS certainly can be considered free from the undergrowth, in large part because of Mr. Oswald's guidance. In its latest fiscal quarter ended July 31, the company reported earnings of $4.7 million on revenues $80.1 million.
The lion's share of NCS's business still comes from the education market, but about one-sixth of its revenues come from banks, in the form trust accounting software. Mr. Oswald said the reason NCS went into the seemingly unrelated banking technology business was that after joining NCS, he soon realized that selling only scanning hardware to schools was a tough business to grow long term. "As we went through the cycle, we couldn't keep up with the hardware changes," he said. "We wanted to learn software."
To that end, the company acquired a small Huntsville, Ala.-based firm called Trust Automation Consultants in 1977, which at the time was one of the first companies to develop systems for trust departments, an area inside banks that was awash with paper and antiquated methods.
"Our people clearly identified the trust department as small units inside banks that were on the tail end of the service coming out the corporate computer department," he said. "Trust was bearing the full share of the allocated cost of data processing, but they were always underserved and overcharged. They welcomed somebody to come in and be their champion."
He said that although the education and trust markets seem unrelated, both businesses fit into NCS's strengths. "We adopted a strategy that we would be a provider of tools so these institutions could get the service they needed and could adjust their work force as they developed," he noted, adding that both markets have not needed to be in the vanguard of technology development. "We felt the marketplaces we serve don't need to be on the cutting edge of technology as much they needed sound, consistent service and the capability to grow."
As a result, NCS is now one of the top providers of personal- and corporate-trust systems in banks, along with SEI Corp. and Broadway & Seymour Inc.
Mr. Oswald said NCS applies the same management model to developing businesses, whether it is education, financial services, or its newest market: health care. "I believe trust, education, and health care have been fundamentally underserved by the big technology companies," he said.
"My belief is the best way to succeed in these areas is to have small-business teams focus on these niches. That way you get the benefit of concentrated activity against a specific market need."
Mr. Oswald's strategy has not been perfect, however. NCS experienced a major misstep when it joined with Bankers Trust New York Corp. in 1990 to build a global custody system, a type of extremely complex trust accounting software that can track securities in various currencies.
NCS pulled the plug on the project earlier this year, writing off $8.2 million in the fourth quarter of fiscal 1993.
Mr. Oswald declined to go into great detail as to the reasons for the system's demise, but admitted, "We got out ahead of ourselves. I didn't realize it at the time, but we got involved in this derivatives-type market where we got in over our head."
It was also apparent that Mr. Oswald places at least some of the blame on Bankers Trust, which reportedly put $5 million into the project. "Let's just say Bankers Trust did not cover themselves with glory in this instance," he said tersely.
With that painful experience behind the company, NCS is again positioned for growth, Mr. Oswald maintains. Earlier this year he relinquished his CEO title, hiring Russell A. Gullotti, a top executive at Digital Equipment Corp., as his successor. Mr. Oswald said he plans to step down as chairman next spring to complete the transition to Mr. Gullotti.
"Russ has a good mixture of a solid technology background, software development, and project management skills that this company needs to grow," Mr. Oswald said. "His biggest job will be to keep that focus so we don't try to do too many things."
Mr. Gullotti, whose ran Digital Equipment's marketing division for North and South America before joining NCS earlier this month, said he was excited about joining a smaller company with potential. "This company has tremendous knowledge about the end user," he said. "It's all set up to grow. All I have to do is take the skills I developed at Digital and help NCS execute."
Looking to the future, Mr. Oswald and Mr. Gullotti pointed to health care, as well as local government agencies like police and fire departments, as markets that are ripe for the types of scanning and measurement-software technologies NCS has successfully sold in the education market.
In the trust arena, they said opportunities exist for automating bank operations for defined-benefit 401(k) plans. They also revealed that the company will unveil next year a PC-based system for private banking that uses Microsoft Corp.'s Windows operating system.
"We've told Wall Street that we expect to grow this company by 15% a year," Mr. Oswald said, then he turned to Mr. Gullotti and smiled broadly. "Maybe we should have said 30%."
