Behind Dennis J. Kuester's desk at Marshall & Ilsley Corp. hangs a framed motivational poster with the words "Do It Now" printed in bold beneath a photo of an ocean wave.

The sentiment seems to fit Mr. Kuester, who is chairman and chief executive of M&I Data Services Inc., the Milwaukee bank's outsourcing and software arm. He's a no-nonsense guy at a no-nonsense company.

"They are very much results-oriented people," said Marty McDevitt, an analyst with Cleary, Gull, Reiland & McDevitt Inc., Milwaukee. "M&I is a very conservatively managed and run institution. . . . And the job they have done with Data Services is nothing short of outstanding."

"Their reputation is as a very conservatively run organization," said Kay C. Lister, an analyst with Keefe, Bruyette & Woods Inc. in New York. "Their attitude is let the numbers speak for themselves."

While both the bank and its outsourcing unit maintain a low profile - few analysts, apparently, have ever met James B. Wigdale, the chairman and CEO of the holding company - the numbers do speak loudly.

M&I Data Services Inc. has consistently posted revenue growth well into the double digits. In 1994, revenues, excluding processing the subsidiary does for M&I's 31 banking affiliates, was up 17% over year-earlier results. Including internal business, the increase was 30%.

While the banking company does not post profits for subsidiaries, analysts estimated that M&I Data Services' pretax operating margin was in the 12% range in 1993. It's also a significant contributor to the holding company's bottom line. Analysts estimated that in 1993 the unit contributed 12% of Marshall & Ilsley's net income. But following the acquisition of Valley Bancorp., which boosted the bank's assets from $7.8 billion to $12 billion, the share has fallen to about 9% or 10%

But looking ahead, the only remaining bank-owned outsourcer of any note faces new challenges as the banking landscape changes. In the face of consolidation, M&I Data Services can expect to make fewer outsourcing deals. Still, company executives and analysts agree it can continue to post the kind of solid growth that has made it a standout.

"Some of the dynamics of the industry itself have changed," said Mr. Kuester, who is also president of Marshall & Ilsley Corp. But he added that "we probably can move forward at that? rate for some period of time."

Last year, for example, the company entered into a deal with Wisconsin Electric Power Co., the first of what it hopes will be several major processing contracts with public utilities. Also last year, M&I Data Services increased its stake in Software Alliance from X% to 100% - a deal it expects will provide better access to world markets for its software products.

And despite the consolidation that is reducing the number of banks, executives also see opportunity in the core outsourcing business.

"It depends on if you look at the glass as half full or half empty. And certainly a lot of people would say, boy, this is a half-full glass," said Joseph Delgadillo, M&I Data Services' president and chief operating officer. "The number of deals are smaller because it is consolidating. (Yet) the fact that it is consolidating is forcing a lot of banks to reevaluate their technology. How do they merge institutions together? How do they develop a platform to attract retail customers? There is a huge appetite for good software, for good processing solutions. But the key is the deals are fewer."

Mr. Delgadillo said that M&I Data Services is well positioned to assist large banks in converting acquisitions, to sell them software, and to handle data processing for all or part of their back-office operations.

Further, the bank has been investing heavily on research and development. Between 1992 and 1993, its capital expenditure budget swelled more than 80%, from $23.7 million to $43.7 million. Many of the extra dollars went to new hardware and doubling the size of the Brown Deer, Wis., data center. But investments in technology and R&D are expected to continue at a high rate. Last year's $21.1 million R&D investment represented more than 9% of the unit's total revenue.

But now that the Valley Bancorp. acquisition has been absorbed, there is renewed speculation that Marshall & Ilsley will take some portion of the subsidiary public.

Mr. Kuester, who came to the company from International Business Machines Corp. in 1976 as a systems and programming manager, said that is "something everybody always debates."

The advantage of spinning off part of the company would be better recognition in the market. Ms. Lister of Keefe Bruyette noted that outsourcers like Bisys Group and hometown competitor Fiserv have substantially higher price-to-earnings ratios. She compared the situation to that of Synovus Financial Corp., Columbus, Ga., which owns a four-fifths stake of credit card processor Total System Services.

"The market definitely values Synovus at a much higher multiple than a plain-vanilla bank " because Total System stock sells at such a high price- to-earnings ratio.

Indeed, Ms. Lister said a partial spinoff may not be far off. "My feeling had been that they wanted to focus all of their energies on assimilating Valley," she said. "And now that that's done and complete, it may, in terms of order of priorities, gravitate towards the top."

While acknowledging the speculation, Mr. McDevitt, the Cleary Gull analyst, said, "I won't believe that until there is an announcement."

Whatever the fate of its ownership structure, M&I Data Services is moving ahead with its plans.

While the company has lost customers through consolidation, officials noted that they have attracted new business in handling data processing for out-of-state operations of major banks like BankAmerica Corp. and Chase Manhattan Corp. They noted that the unit's systems - which include the Integrated Banking System, its core processing software, and a statement- formatting tool - can handle small banks as well as large ones.

The fact that the unit is owned by a bank, unlike its competitors in the outsourcing business, is also very helpful in marketing, said executives. "When (M&I Data Services) puts forth a solution, it's one not developed in a theoretical sense," said Mr. Delgadillo.

In each of the last two years, the company posted a net gain of more than 20 bank customers. Today, it boasts 590.

Further, M&I Data Services sees greater opportunities to sell its software products directly to banks. Indeed, the unit expects that future software sales will represent a bigger portion of overall revenues. Today, the mix is about 85% outsourcing and 15% software.

And a big area of opportunity, executives say, is handling data processing for public utilities, an industry that is expected to face increased competition as regulations are loosened.

"Companies that are interested in this solution are companies like Wisconsin Electric Power that are thinking about deregulation and thinking about how they have to compete years from now," said Mr. Delgadillo.

The opportunity for M&I, he said, is for a small number of very big deals. Executives are looking for utility customers with more than 1 million accounts.

According to Mr. Kuester, the company's offerings, including its customer information and statement printing software, were readily applicable to Wisconsin Electric. The outsourcer is scheduled to take over the utility's mainframe in May and, ultimately, move operations to M&I's data center.

"It was a nice match in that regard," he said. "That became the basis, then, of our outsourcing proposal, along with some other functions they performed in-house - proof operation and lockbox and stuff that we do as a matter of course."

The opportunity to handle nonbank data processing is a result of regulatory changes, including a recent Federal Reserve rule that allows companies like M&I to offer tie-in deals to customers that use the processor's affiliated banks.

"We think this is consistent with what regulations allow," Mr. Kuester said. "It's a matter of getting approval on some of these things that look a little bit different from the norm. But this doesn't entail getting new legislation or breaking new ground."

The company has developed a list of prospects and hopes to announce another deal in 1995.

"If they told you that, I'd almost say you could etch it in stone that there will one or maybe two more accounts that will be brought on," said Mr. McDevitt, the analyst. "They are not given to exaggeration or flamboyance."

M&I Data Services is also devoting extensive resources toward new- product development. "If we are going to be a competitive provider five years from now, we have to have many new products that we don't have today," said Mr. Delgadillo.

In its expanded Brown Deer facility, for example, M&I installed a two- room "usability lab" to improve the product development process. Customers and prospective customers can sit at a personal computer in one room to define what they want in a system or to test software in early stages of development. As customers try to navigate a system, M&I employees can watch through one-way glass in the next room to see how user-friendly the software is. The sessions can be videotaped for later review.

"It's a vehicle to road-test the product concept before you actually build the product, and to work out a lot of the bugs," said Mr. Delgadillo.

While such an approach is used by a number of major software developers, experts say it is extremely rare for a bank of M&I's size.

"I visited that site and was very impressed," said Keefe Bruyette's Kay Lister. She contrasted the culture at the subsidiary with the more traditional atmosphere at the bank. "The people in that shop reminded me of my image of what Microsoft is like. Lots of young, energetic people."

One new software initiative is a so-called data warehouse, which will allow bank customers to "mine" data to generate reports, track profitability, and generally provide more complete information about customers, products, and lines of business.

"We're right now in the throes of defining the name of that product line because it's going to have a lot of central host storage capability," said Mr. Delgadillo. "But it's going to work in a Unix-based client/server environment."

"What's truly unique about this is its going to take data from the host computer and actually expand that (information) through computation and trend analysis and create a library," he continued.

Thus far, M&I Data Services has made the core of the data warehouse available, as well as a number of report-generation tools.

"Many of the deliverables are here and most will be here shortly," said Mr. Kuester, who spends about a third of his time on? the outsourcing subsidiary.

But unlike competitors Electronic Data Systems Corp. and Bisys, M&I has not introduced a home banking option for its bank customers.

"It has never been a case of technical capability," said Mr. Kuester. "If you don't think we could put together a system that will be accessible by your PC at home, you're kidding yourself. We could do that tomorrow morning."

Rather, Mr. Kuester said, M&I has avoided offering home banking via PC because there is little market demand. "As a stand-alone product, it has no appeal to the normal person and certainly no appeal if you have to pay me for it."

He's equally skeptical of the special screen phones that a number of large banks are offering customers. "To me, it's a go-away product," said Mr. Kuester. "If I am going to be able to do this on my TV in three years, tell me again why I want this screen phone?"

Indeed, Mr. Kuester expects interactive television to be the most obvious avenue for home banking delivery. As he sees it, home banking will be just one among many services - calling up stock quotes and movies on demand, for example - that will be available through television. Only then, he reasons, will large number of customers be willing to pay for the service.

The bank is a member of the Interactive Television Association. Mr. Kuester also noted that Ameritech, the Chicago-based regional Bell company, is installing interactive cable in a number of test sites in the Midwest, including southeastern Wisconsin.

"We're talking to all parties as to how we will provide products and services to plug in," he said.

And while this technology is still at least a couple of years away, Mr. Kuester said it will likely leap-frog over all other channels. "It's the more ultimate product right now," he said. "One reason is it transcends age groups . . . because older people are conversant with surfing with their remote" but not, for the most part, with PCs.

Mr. Delgadillo added, "We have a fairly good sense of timing to bring things to market when in fact there is a demand for it, and we can make money and, more important, invest back in the product."

Despite the changes in the industry, M&I Data Services does not expect to expand into facilities management arrangements, in which outsourcers operate on-site data centers for bank customers.

"The economics clearly dictate that a service bureau environment, remote, is still the most cost effective," said Mr. Kuester.

Mr. Delgadillo added, "Our value add is on the software side. And that really leads to the choice we made many years ago - in fact when Dennis joined the company - and that is to attract customers onto a common set of products and services and grow our customer base one customer at a time.

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