Lotus Development Corp., the company largely responsible for transforming the personal computer from hobbyist toy to business tool, is working hard to remain indispensable to banks.

After persuading bankers in the early 1980s to replace their electronic calculators with PC spreadsheets, Lotus has joined the next technology crusade, promising to help financial institution employees do their jobs more efficiently than ever.

Cambridge, Mass.-based Lotus is trying to carve out territory on a new battlefield, where networks of PCs are expected to take on a more dominant role in banks, in many cases replacing the mainframe computers that have been relied on for decades.

But unlike software rivals Microsoft Corp. and Novell Inc., which are focusing on the operating systems that will manage the basic functions of PC networks, Lotus has opted to become a leader in a closely related field called "groupware."

Groupware has been described as an advanced form of electronic mail, letting a number of workers organize and deliver memos, quickly revise documents produced by committees, or even distribute pictures of new employees.

Information is stored in digital "folders," and the software controls who can open them and who cannot.

A raft of banks - among them Chase Manhattan Corp., J.P. Morgan & Co., Citicorp, and Chemical Banking Corp. - have seized on the groupware concept with Lotus' Notes program as a way to promote so-called relationship management among their staff, where teamwork to service clients is paramount. "Banks are rethinking their basic processes - wringing out costs. reducing brick and mortar. and rethinking the systems strategies that were put in place in the 1980s. when banks organized around products," said Jim P. Manzi. the 41-year-old chairman and chief executive of Lotus. "Now they are trying to organize around customers."

The recent success of Notes has breathed new life into Lotus, which in recent years struggled with declining revenues and sagging stock price as the market for spreadsheet software has matured.

Lotus announced Thursday second-quarter revenues of $235 million, up 6.8% from the previous year's period, near the high end of analysts' expectations.

Two-Track Success

The company said its second-quarter operating results benefited from strong early demand for the latest release of its 1-2-3 spreadsheet program, and "significant growth" in its communications business, particularly in sales volume for Notes.

Notes' success is also a personal success for Mr. Manzi, whom company observers credit with the company's shift in strategy away from single-user software to programs that can be used across networks. Mr. Manzi is said to have kept the Notes project alive, and to have earmarked some $50 million toward Notes development since 1989.

However, spreadsheet sales still contribute the lion's share of Lotus' revenues, representing about 80% of the company's 1992 sales, according to Gartner Group, a research and consulting firm based in Stamford, Conn.

But the firm also expects the installed base of Notes to rise dramatically, from 350,000 users today to more than a million by the end of 1994. The software "is the future of the company," says Michael Anderson, program director of office information systems for Gartner Group.

Race to Stay Ahead

But Lotus will not long be alone in the workgroup market: Microsoft is reportedly developing a similar document-sharing system.

Industry observers say Lotus has at least a year's head start.

"There's no product that does all of what Notes does," says Michael A. Mandelbaum, a vice president at Chase Manhattan Bank and Notes specialist.

"We want to establish Notes as a standard environment for workgroup computing," said Mr. Manzi. "That way, we're more likely to connect [banks'] customers."

A Bridge to Customers

Establishing communications links with customers using Notes is just what many banks are contemplating.

At J.P. Morgan, between 2,500 and 3,000 employees worldwide use Notes. Sources say that Morgan is working with Lotus to use Notes for linking the bank with its customers.

"The problem we have is we are doing business globally with different technologies, with people [working] in a taxi, some in a hotel room," said Jean-Louis Bravard, managing director at Morgan. "With this product, people can work together irrespective of location, irrespective of time zone."

Craig Goldman, chief information officer at Chase, was one of Notes' earliest proponents. Chase began testing the software in 1989, and now about 3,500 employees on both the retail and wholesale sides of the bank using it. By the end of the year, Chase expects to have 6,000 Notes users, Chase officials said.

Notes has enabled Chase to do more cross-selling in corporate finance and in cash management, Mr. Mandelbaum said. "Now we can see what is really going on with that customer," he said.

Marketing to Banks

Ultimately, Chase would like to provide a link to customers using Notes, allowing them to view information, send messages, and share documents with their bankers. "We believe Notes is a very strategic tool for us, and we'll continue to roll it out worldwide," says Mr. Goldman.

Although in general Lotus sells through third-party resellers, the company has set up its own marketing arm for bigger banks. Mr. Manzi said he personally handles some of Lotus' biggest bank clients, including Morgan and Citicorp.

Mr. Manzi has developed some longtime relationships with bankers - before joining Lotus in 1983, he was a management consultant at McKinsey & Co.'s Manhattan office, where he worked on operational studies for banks.

Today, Chase's Mr. Goldman and J.P. Morgan's Mr. Bravard are members of Lotus' executive council, a group of 20 corporate customers from a variety of industries that meet periodically to tell Lotus what their problems are and what standards they see emerging.

The key with money center bankers "is they want to make sure they have a strategic relationship with Lotus," said Robert Wyler, senior vice president of North American sales, marketing, support.

Rough Edges

But it has not been all smooth sailing for Lotus, as it makes its shift in emphasis to groupware. The company's fortunes were built on the popular 1-2-3 program, which is still widely used in banks, although there have been inroads by Microsoft's Excel spreadsheet.

But while 1-2-3 was designed to run on a single PC, Notes has the additional technical complexity of running on networks of computers, and as such is more difficult to troubleshoot when system glitches arise.

Early purchasers of Notes complained about Lotus' technical support, which was still geared to the less complicated problems of the individual spreadsheet user.

"Lotus as a company is learning that Notes needs to be supported differently than 1-2-3." said Chase's Mr. Mandelbaum. Notes is "more of an environment, that's, built and maintained by, systems professionals, and so it needs to be supported differently."

Some bankers say that it still can take a long time to get questions answered, and to get to the right person to answer a question, particularly if it is a particularly technical one.

Joining Forces

Crucial to Lotus' goal of becoming the standard for workgroup computing in banks is its ability to sign up other technology firms to develop software specifically for banking.

For example, Lotus has teamed with Eastman Kodak Co., Rochester, N.Y., to develop a system that captures and stores the images of documents with Notes. Bankers Trust New York Corp. and Chemical are using the system in their securities custody business.

Chemical is using the system intially to improve customer service on private placement issues where documents must be periodically reviewed.

On another technology front of interest to banks, Lotus decided to abandon discussions with Philips NV to develop software for a computerized telephone. One of the applications could have been for home banking.

Lotus decided not to pursue the discussions with Philips, because there already was too much competition in the market to produce these new telephones, Mr. Wyler said.

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