Hewlett-Packard Co. and Microsoft Corp. said last week that they would work jointly to create a common framework for the "middleware" that banks rely on to bridge the gap between old and new computer systems.

The two companies said they would integrate Internet-based systems from Microsoft with a new Hewlett-Packard program for customizing financial applications. But their ambitions go beyond their own cooperation as they hope to influence a key part of the evolution of back-office technology.

Banks have come to rely heavily on middleware to get their older, or legacy, systems to work in concert with the new generation of Internet and client/server software.

If Microsoft and Hewlett-Packard, which have long had a close working relationship, succeed with their plan, Microsoft could move even deeper into banks' back-end systems with its Distributed interNet Applications for Financial Services, known as DNA-FS.

Microsoft's Windows NT operating system is at the core of DNA-FS, which was announced last December at the Bank Administration Institute's Retail Delivery conference. The initiative with Hewlett-Packard, involving the latter's software called Changengine, was announced at a Microsoft- sponsored conference last week.

Microsoft also announced a new version of its Internet tool kit for financial services and an Investor Platform Kit that companies can use to develop Internet-based investment services.

The middleware initiative "will do for application design what data bases did 20 years ago," said Marie Giangrande, a marketing director in Hewlett-Packard's financial services business unit, Palo Alto, Calif. It would give programmers the freedom to write software without worrying about legacy limitations.

By allowing financial institutions to separate business rules-as well as its customer data bases-from their software applications, the technology theoretically will make it much easier for software to be customized. Instead of taking a program off line and manually re-writing it to meet changing business conditions, companies can make their changes automatically and on the fly.

The bank outsourcing unit of Alltel Corp. is using Changengine to automate call-center work-flow techniques and streamline customer relationship management.

"Most of the these work-flow technologies are built around an application," said Keith Henkel, Alltel's managing director for information and service delivery. Changengine is different because Hewlett-Packard built it as a piece of middleware, where components that are part of DNA-FS can be plugged in.

Another Hewlett-Packard client, Sumitomo Life Insurance Co. of Japan, hopes to employ the technology in adjusting to the country's newly deregulated legal framework without having to rewrite software residing in its mainframe computers.

The Changengine approach allows a company like Sumitomo Life "to implement new business rules without having to go in and reengineer," said Radha Basu, general manager of Hewlett-Packard's electronic business software organization.

Whether or not companies employ Changengine, Microsoft officials are hoping that they take advantage of the ability to mix and match software applications in its DNA framework.

Regardless of their choices of individual programs, DNA-FS will enable financial institutions to plug applications together fully expecting that they will work, said Michael S. Dusche, financial services industry manager at Redmond, Wash.-based Microsoft.

He compared the process currently under way with middleware with the ability to mix word processing, spreadsheet, and data base software on personal computers.

"We developed common interfaces with other vendors so that consumers would have the ability to pick their own suite," said Mr. Dusche.

"While I'm glad that you don't use (the Lotus) 1-2-3 spreadsheet," he said, referring to a competitor's product, "I think it is a pretty great thing that you have the opportunity to use it" alongside programs in the Microsoft Office suite.

Microsoft hopes to benefit less from the application software than from setting the standard "plumbing" that financial institutions employ when they link systems together.

"As we have built Windows into a transaction-level platform for Internet banking, one of the things we have learned is the back-end mainframes don't get touched," said Mr. Dusche.

By focusing on the middleware and with development of Internet-based systems, Microsoft may be accumulating the last weapons it needs to attack International Business Machines Corp.'s dominance in back offices.

"It appears that Microsoft is going after this with a vengeance," said Bahram Yusefzadeh, chief executive officer of Phoenix International Ltd. of Maitland, Fla.

Mr. Yusefzadeh sent his company down the Microsoft path five years ago by building client/server systems around Windows instead of IBM's OS/2 operating system.

"IBM has an absolute dominance, but it won't be long before Microsoft has its position as well," he said.

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