Ups and downs in the services market for Accenture, Cognizant
- Summary:
- Two examples of the shifting nature of the enterprise services marketplace for Accenture and Cognisant.
Accenture’s disposing of its airline booking business to travel giant Amadeus and teaming up with it for a next generation digital travel business. Less positively, Cognizant’s attempts to expand its presence in the lucrative healthcare market took a blow.
Starting with the positive, we’ve written a lot of late about how Accenture has been doubling down on digital, most recently noting that the firm no longer uses the term ‘outsourcing’ quite so much these days as it reshapes its business model.
So the news that the firm is selling off its low cost airline booking business Navitaire to rival Amadeus for $830 million seems at first to be a further example of that shifting of approach.
Navitaire currently services over 50 operators worldwide, providing technology services to low-cost and hybrid-carrier industry players. The firm provides solutions including reservation systems, sales, loyalty schemes, revenue management, accounting and business intelligence.
The two firms will be forming an alliance to focus specially on digital travel services. Amadeus has done a lot of work in adapting its own business model over the years, investing a lot in its Altea cloud-based platform. Under the terms of the agreement, around 550 Navitaire employees will be transferred to Amadeus.
Accenture will continue to provide hosting services for current Navitaire clients as well as Amadeus’s future clients that purchase the Navitaire solution. Accenture will also become a strategic partner to Amadeus for management and technology consulting, systems integration, BPO and digital services.
The combined digital travel services initiative will have:
an emphasis on commercial passenger operations in order to provide a more seamless traveler experience from “door to door.”
In the official announcement, Luis Maroto, President and CEO of Amadeus, says:
Bringing Navitaire's experience, industry know-how, client base and strong product portfolio is a significant step for Amadeus in the low-cost and hybrid-carrier segments.
Airlines of all shapes and sizes face an increasingly competitive market for an increasingly demanding traveler, and this transaction will give us the ability to serve all airlines with technology that can enable them to drive new revenues and contain their costs.
David P. Evans, Navitaire CEO, adds it’s a whole new chapter for both firms:
Our customers will benefit from greater access to Amadeus' industry solutions to help support their growth and link with traditional industry partners. At the same time, they will continue to benefit from Accenture's expertise and capabilities as a result of the Accenture-Amadeus alliance.
Unhealthy timing
Less happy were Cognizant executives after insurance firm Centene’s $6.3 billion bid for rival Health Net potentially scuppered a seven-year, $2.7 billion master services agreement between the latter and Cognizant.
That’s going to cost the services firm an unexpected $100 million in the second half of this year - and potentially a lot more.
The firm admits that it expects the master services agreement will not be implemented if the merger is approved, because of overlapping services Centene can offer:Cognizant expects that if the merger of Health Net and Centene is completed, the existing master services agreement will not be implemented as there will likely be overlaps in services and capabilities planned to be provided by Cognizant.
The merger has been approved by the boards of both Centene and Health Net and could be completed by early next year.
Centene said the HealthNet deal will strengthen its presence in the nation's largest Medicaid market - California - and create a combined company with about 6 million Medicaid clients, making it one of the largest in the US.
One crumb of comfort for Cognizant: it has negotiated the right to license certain Health Net intellectual property for incorporation into its healthcare management solutions and as-a-service platforms.
It does also remain a strategic technology and operations partner of Health Net with the two firms current relationship due to be extended through the end of 2020, with a total contract value of approximately $520 million.
My take
Changing days in the services game - and some bumps in the road for some of the major players. This week also saw Tech Mahindra issue a profits warning as pressure mounts on the Indian offshore firms. An interesting space to observe, perhaps less so from the inside…