On the list of recognizable acronyms in bank technology, IBM and EDS are tops, but if Thomas Madison has anything to say about it, CSC will rank there soon.
As president of Computer Sciences Corp.'s two-month-old financial services group, Mr. Madison has a sturdy base from which to launch a campaign for prominence.
His company had $5.6 billion of revenues last year-at least 17% of which already came from financial services. In addition, CSC owns one of the most respected developers of core banking software, Hogan Systems.
But of utmost importance to CSC's profile is its role as lead vendor in one the decade's most influential bank outsourcing deals-J.P. Morgan & Co.'s seven-year, $2 billion Pinnacle Alliance.
This alliance, formed in May 1996, brings together Computer Sciences, Andersen Consulting, AT&T Solutions, and Bell Atlantic Network Integration to manage large swathes of the banking company's technology operations.
Analysts said Pinnacle is the type of megadeal that can solidify or wreck a company's reputation.
"Computer Sciences has put a lot of effort into this one because it is such a hallmark account," said Gregory M. Gould, analyst at Goldman, Sachs & Co., New York.
Mr. Madison, who is 50, said all signs point to success so far.
"The alliance concept is working much better than even we thought it would," he said. "It's exceeding expectations."
Morgan executives echoed Mr. Madison's assessment of the alliance's progress.
In a conference call set up to mark one year's worth of work under Pinnacle, the banking company's officials said the alliance so far had generated operating-cost savings of $28 million.
"The strategy we put into place is sound," said Peter A. Miller, chief information officer at New York-based Morgan. "I think we are exactly where we thought we would be at this stage."
Morgan expects to save about 15% in total technology costs over the course of the seven-year contract. It currently spends $1 billion annually. The contract will bring Computer Sciences about $1.2 billion of revenue over seven years.
The vendors in Pinnacle manage several data centers and provide a variety of other technology services, including desktop support and network management.
Stephen G. Racioppo, managing partner of financial markets at Andersen Consulting, called Pinnacle a "trend setter."
"Strategic alliances are the way of the future," he said, "and I think we've proven that over the last year. A lot of firms are looking with great interest at the success we can achieve."
Goldman's Mr. Gould said Computer Sciences views the Pinnacle account as a way to demonstrate to the banking community its ability to manage large- scale projects.
Computer Sciences "looks at this as the platform from which it can win other financial services work," he said.
He added that Pinnacle may already be generating profits for alliance members. The quick payoff is the result of good margins resulting from the companies' discounted purchases of hardware from outsourcing customers.
Yet despite this good news, and despite record growth in bank spending on technology services, Computer Sciences still faces significant obstacles in the financial services market.
Competition for outsourcing deals is as intense as it has ever been; vendors eager to sustain revenue growth are scratching and clawing for blockbuster deals in the consolidating banking market.
Meanwhile, as bankers grow more aware of their leverage, margins are shrinking on many types of technology services deals.
But Mr. Madison, who spent 15 years at IBM and several more in consulting before joining Computer Sciences in 1994, nonetheless smells opportunity.
"We see a lot of dramatic changes in this market associated with all the convergence and consolidation going on," he said.
More than ever, banks and other financial services firms need to devote full attention to core businesses, and that spells opportunity for those who provide third-party technology services.
Computer Sciences has a long history of providing such services. But historically it has focused on contracts with the government.
The company's decision to chase financial services raised some eyebrows last year. But most doubts about the company's intentions toward the market have been erased in recent months.
Though important, the outsourcing market is not the only area of financial services that Computer Sciences hopes will produce revenues.
In buying Continuum Co. last year for $1.5 billion of stock, Computer Sciences also acquired its Hogan Software unit, which is bouncing back from some tough years in the early 1990s.
Hogan, one of the best-known vendors of core banking systems for mainframe computers, a few years ago had earned a reputation for failing to keep its system current.
But in the last two years it has completely rewritten its main software system, and consultants said banks using the revamped package are happy with it.
Should developments like these continue, Mr. Madison should be able to improve financial services' contribution to Computer Sciences' bottom line.
Analysts said financial services may soon be generating as much as 26% of the company's revenues. The financial services group is expected to have revenues of $1.5 billion in fiscal 1998.
Mr. Madison also said revenues would grow more than 20% each year, and the company's business model calls for at least a 10% increase in its labor force next year.
"We decided to make a strategic commitment to the financial services," he said. "We see tremendous opportunity."
