of financial institutions to turn to outsourcing for more than just managing computing power. Increasingly, outsourcing relationships are defined not merely by technological capabilities designed to save money, but also by strategic business goals, including cutting costs and increasing revenue. This trend - including the emergence of a new term of technical jargon, "cosourcing" - has shifted the tenor of outsourcing relationships from those that emphasized a buyer and a vendor to those that embrace an array of consulting, reengineering, and technology services. In turn, technology providers are being asked to shoulder a greater share of risk in return for a reward that is in some cases linked to the financial institutions' success. "In the past five to ten years, as the outsourcing market has become increasingly competitive, the price/performance mixture has moved steadily in the customer's favor," said Peter Bendor-Samuel, president of the Dallas-based consulting firm Everest Group. "Customers are getting more value out of the transactions." "There is a big push on the part of suppliers to become more relevant, and cosourcing is an attempt to move up the value chain by connecting what they do with business results," said Mr. Bendor-Samuel, who is also managing editor of Infoserver.com, a Web-based publication about outsourcing. More-established market participants - including the outsourcing pioneers Electronic Data Systems Corp., International Business Machines Corp.'s services division, and Alltel Corp.'s information services unit - are particularly eager to differentiate themselves from their competition by emphasizing long-term strategic relationships. "People like ACS (Affiliated Computer Services Inc.), Fiserv, and M&I (Data Services) have taken the margin out of it for the big guys," said Mr. Bendor-Samuel. "Now big suppliers are looking to find a way out of the commodity trap by looking for ways to increase their profitability and coupling business process and consulting capabilities with infrastructure." Whereas traditional outsourcing contracts often had their origins with technology officials at a financial institution, these newer relationships bring a variety of business officials besides the chief information officer into the contract's approval and implementation. "In the early days, vendors were primarily selected on the basis of price and by a technology manager," said Jeffrey M. Lynn, global consulting executive for the banking, financial, and securities industry for IBM. "Today partnerships are selected on a more strategic basis, with more links to business managers, and more than just the top technology officials," Mr. Lynn said. He sees cosourcing as an extension of the original concept of outsourcing - namely, deciding between the areas that are a company's core competency and those less strategic areas that they can afford to turn over to outside providers and gain the benefit of their additional expertise. "The next logical level in strategic partner relationships is to tie measures of mutual success together," Mr. Lynn said. That would transform a relationship in which savings by one party might lead to a loss by the other into a situation where "we are going to win together, or lose together." Together with the consulting company A.T. Kearney Inc., which it acquired in 1996, EDS has attempted to stake its claim in the field. Although the Dallas-based company's service mark on the word CoSourcing hasn't stopped rivals from seeking to impart their own definition to the term, EDS has gone further than most in tying measurable achievements by its partners to its own bottom line. It sees cosourcing as one of four quadrants on a matrix whose axes are the ability to influence outcomes (high or low), and the scope of change (broad or narrow). To William J. Jeffery, vice president of the Chicago- based A.T. Kearney, cosourcing requires both a broad mandate and a high ability to influence the outcome at the client partner. Outsourcing, by contrast, has more traditionally been narrow in scope, with a limited ability to effect outcome like revenues. While broader in mission, reengineering likewise has not been expected to directly contribute to the bottom line. "Because clients are looking for EDS to be more than just a service provider, these are true partnerships with a shared vision, common objectives, and joint implementation teams," Mr. Jeffery said. Spanning a wide variety of industries, including a widely noted contract that joined EDS' fortune to that of Rolls Royce's aerospace Group, EDS' cosourcing relationships in financial services include agreements with Mellon Bank Corp., Sage Group of South Africa, and Commonwealth Bank of Australia. Common to each of these situations was the desire by the client institution to take advantage of EDS' experience in developing systems for other financial institutions - frequently in other lines of business and in other parts of the world. Mellon Bank hired EDS to help create a new software engineering group that could boost the bank's software code-writing efficiency. The bank created a new organization by integrating Mellon's development teams in business lines including banking, investment management, mutual funds, and institutional trust services. "In the case of Mellon, they had the belief that the system engineering product management processes were broken," said John A. Meyer, corporate vice president and head of EDS' financial services division. One year into a 40-month contract with EDS, the bank "should be getting greater productivity out of their existing staff to develop more systems they could sell to their existing client base," said Mr. Meyer. A 20-person project office, staffed equally by Mellon and EDS personnel, has responsibility for planning and implementing new products. EDS' compensation is partly determined by how well the bank ranks in the Software Engineering Institute's capability maturity model, an assessment standard developed and measured by Carnegie Mellon University. "Part of our payout is to get them from a CMM Level 1 to Level 2, or a 400% improvement in productivity," said Mr. Meyer. "Our risk and reward is tied to teaching them the processes they need" in order to improve the specific business objective - better software development - originally identified by Mellon. Leveraging knowledge from EDS experience in other markets was a prime consideration in the case of Sage Life Ltd., a $2.2 billion-asset member the Sage Group of Johannesburg, a diversified financial services company including insurance and mutual funds. Having hired Andersen Consulting to conduct a business reengineering study in the early 1990s, officials at Sage began to see that its legacy mainframe computers were holding it back against larger competitors in the South African marketplace. "We realized we needed to move into newer technology to get new products to market better," said Janssen Davies, managing director of Sage. Attending a seminar for top executive officers from around the world at Stanford University in 1995, Mr. Davies participated in a case study examining EDS' business philosophy of close client cooperation and long- term business engagements. Before he returned to South Africa, however, he paid a visit to EDS' headquarters in Dallas to discuss his company's business needs. Thus began a negotiation process that culminated in the signing of a 10-year contract in June 1997. The cosourcing agreement combines aspects of both consulting - in which clients are generally billed for the time and materials of the consultants - and more traditional outsourcing arrangements that set fixed fees for particular levels of transactions. What is unusual about the arrangement is that EDS' entire fee - a potential $88 million, EDS officials estimate - is tied to the number of