Partnering For Profit

The value of the stock just kept falling. A share of Unisys stock traded for about $24 in September of 1989 and one year later the multibillion dollar computer company's stock was worth $2 per share. It was the lowest point Unisys stock had reached since Burroughs and Sperry Corporations merged to form Unisys in 1986. This dramatic decrease in stock value was, at a minimum, disconcerting to Information Technology, Inc. (ITI), which is Unisys' largest reseller. As a banking software VAR, virtually 100% of ITI sales are directly linked to Unisys hardware.

"This was definitely the time of most concern for us in terms of our relationship with Unisys," states Dave Kowalke, vice president of marketing at ITI. "Our clients knew that we were tied to Unisys and they couldn't help but take notice of the declining stock value. It made us think about our future relationship."

Forming The Partnership
Donald F. Dillon and Dale Jensen left the National Bank of Commerce (NBC) in Lincoln, NE, to form ITI in 1976. Both principals had computer programming knowledge on the Burroughs hardware systems which were in place at NBC at that time. Because of its familiarity with the Burroughs architecture, the two-man company chose to develop banking software for this platform. ITI develops all of the core accounting software modules which are needed to run a bank. These modules include applications for deposits, withdrawals, loans, and electronic banking. ITI also develops software for other Unisys computerized systems. These include online automatic teller machines (ATMs), and document processing equipment.

During the five years after ITI's founding, it became clear to Burroughs that banks which wanted to purchase its computers, wanted ITI software to run the system. By 1982, Burroughs was looking to expand to a national level and wanted a more formalized reseller arrangement with ITI. "The contract was such that ITI got money by receiving a percentage of the hardware sales used in the installations and Burroughs benefited by expanding sales with their software," states Charlie Deffenbaugh, marketing director for Unisys. From ITI's perspective, the agreement enhanced its position financially and formalized its position as a partner with Burroughs. "Until we signed a contract, the relationship was that of a customer-vendor. We were selling our software which used the Burroughs systems. We were not compensated for any of the hardware sales as is the case with a classic VAR relationship," explains Kowalke.

Acting As One
The formalized relationship between ITI and Unisys allows the companies to present a united front when selling to a client. "Our goal is to have the customer perceive the sale as a joint Unisys/ITI proposal," states Deffenbaugh.

A recent installation for a Midwestern bank is typical of how the two companies partner to make a sale. The bank was first contacted by a Unisys salesperson responsible for that geographic region. When the customer showed an interest in the new system, ITI marketing officials were called upon to present and demonstrate the software and answer any questions. "After the bank decided to purchase the system, the customer signed off on an ITI purchase order for the equipment. As part of the installation, ITI used its software and ordered all of the other components from Unisys," states Deffenbaugh. Some of these components included Unisys' NT network servers. Other products, like Cygnet's CD jukeboxes, were procured by Unisys from other vendors.

Unisys performed the hardware installation in about two weeks. After Unisys technicians had the hardware running, ITI installed the software and convertsed current customer data to the ITI system. ITI's portion of the installation took about six months. Following the installation, both companies remain in contact with the client. Unisys provides technical support for all hardware-related problems such as a malfunctioning server. ITI responds to any software difficulties and, as part of the sale, updates the software to meet ever-changing federal regulations and market needs. "Because we work so closely from the very beginning, there is no finger pointing in terms of who is responsible for what," states Deffenbaugh. "We are two separate companies, but we strive for the customer to see us as one."

"A Bump In The Road"
Every business relationship has its ups and downs and the Unisys/ITI partnership is no different, according to ITI's Kowalke. One of those valleys came after the Burroughs and Sperry merger. The newly-formed Unisys decided to enter into relationships with other financial software providers that were in direct competition with ITI. Even though these competitors were not developing the same products as ITI, the decision by Unisys was not well received by ITI and it caused confusion among customers and potential clients. "We were very disappointed. When you develop your own software, you have to choose an equipment vendor's platform on which to run it," states Kowalke. "ITI chose Unisys as its platform, but there are other options like NCR and IBM that we could have chosen."

Both Kowalke and Deffenbaugh describe Unisys' decision to work with other software developers as a "bump in the road" in their 21-year relationship. "As it turned out, this action by Unisys did not significantly impact our bottom line," states Kowalke. According to Deffenbaugh, ITI software is used by more U.S. banks than any other software. Kowalke says there are 11,500 banks in the U.S. (referring to bank charters, not total branches). For example, a community bank might have one main office and five branch locations. Of the 11,500 banks in the U.S., this particular bank would count as one. Of the total, he says that about 3,500 banks are currently using ITI software. Under the Unisys/VAR relationship, ITI ordered $80 million in hardware from Unisys in 1996 and is projected to surpass the $100 million mark in hardware sales in 1997. Under the agreement, ITI receives a percentage of each hardware sale to an end user.

"When you look at the volume of the sales that ITI has in proportion to the other VAR relationships that Unisys has, it would be difficult to imagine anyone coming close to us," states Kowalke. "This is certainly the case in the financial arena." Even with this security, Kowalke admits that Unisys could still choose another VAR to replace ITI. "From our perspective, Unisys always has that option and we monitor that situation and have contingency plans, which could even be to port our software to another platform. Our relationship with Unisys was always a business decision and not a technical decision."

Keeping In Contact
ITI's value to Unisys is reflected by the number of Unisys personnel assigned to the account. Unisys originally placed one employee at ITI more than a decade ago. Unisys now has five employees with offices at ITI headquarters with roles ranging from presale to technical support to marketing. The goal is to maintain daily communication between the VAR and the vendor. "When there is a marketing or development issue, it is much easier to spend a few minutes in the hallway discussing it. If we were both at remote locations, we would have to schedule a meeting," explains Deffenbaugh.

The two companies also come together in a formal setting at least one time each year for a technology update session. This past year, senior management from ITI was invited to Unisys' corporate headquarters in Blue Bell, PA. The meeting focused on the direction that Unisys and ITI would take regarding client/server and enterprise server development. "This meeting's purpose was to review where each company stood in terms of development and to make sure we were both on the same page," states Kowalke.

Why Has The Partnership Worked?
The relationship between Unisys and ITI has lasted 21 years. The duration of this partnership in the banking industry is unheard of, according to Kowalke. "VAR/vendor relationships are not uncommon in the financial industry, but no two other companies have reached the level that we have attained," states ITI's Kowalke.

According to Kowalke, the proliferation of PCs has created opportunities for numerous VARs to provide niche solutions. Some of these solutions in the financial market include voice response software or document imaging systems. Unisys and ITI have always developed a total solution for banks. "We realize that most banks do not have the technology officers who can scour the market and build these products themselves. Our advantage is that we recognize that banks prefer to buy an integrated solution and we can deliver it," states Kowalke.

The Right Decision
As Unisys stock sat at $2 per share, ITI pondered the long-term future of the relationship. Burroughs bought Sperry for about $6 billion and this huge debt load had caught up to the newly-formed Unisys. In an effort to stabilize the company's finances, Unisys cut personnel and closed several plants. "The Unisys division which sells to banks was lucky in that we were able to keep our sales and hardware development as well as manufacturing in place during this time," states Deffenbaugh.

Unisys has now reduced its debt to about $2 billion and plans to cut that number in half by the Year 2000. Stock value has risen. In fact, Unisys stock doubled from $7 per share to about $15 per share in a two month span in the fall of 1997. A financial disaster seems to have been averted and Unisys and ITI are again going about the business of being partners.

"Our relationship with Unisys has been mostly positive," states Kowalke. He adds, "A business relationship is no different than any other relationship. Over the course of 21 years, you have to expect some peaks and valleys."