John Campbell, Campbell Alliance
It’s no secret that the pharmaceutical and biotech industries are facing challenging times. What’s also obvious is that some companies are responding creatively to the pressure. They are adapting by doing things that they might not have considered before—entering R&D collaborations with Indian pharmaceutical firms; acquiring smaller companies, but leaving their management structures in place; and forming new types of partnering relationships with CROs and other outsourcing partners.
A key trend here is that companies are looking outside themselves to deliver on higher-value-added tasks. While it makes sense to be careful in this process, the overall trend is irreversible. As fully integrated manufacturers learned 50 years ago, a company can be dealt a fatal blow when others create—through deep and well-orchestrated relationships with partners—a more flexible and responsive competitor. Today, the infrastructure of most fully integrated pharma (and even some biotech) companies is not well suited to the current dynamic environment.
But there’s a problem: The internal resource pool, while still large, does not contain the same level of specialized expertise it once did—nor should it. After all, why should a company that’s under significant cost pressure increase its staffing to address every potential need with in-house resources? Outsourcing certain tasks to consultants and others makes more sense than ever. It allows the company to be flexible, using specialized, third party resources when they are needed, without having to carry the fixed costs when they’re not.
While this may sound like the classic explanation of the value of outsourcing, it is more complicated than it used to be. In the recent past, large pharmaceutical companies were able to maintain extensive infrastructures, even when the need was variable. The use of consultants, while extensive in many cases, was tightly controlled. Consultants were generally subjected to a rigorous sourcing process that measured and rewarded activities (primarily billable hours) rather than outcomes. Little talk occurred about the fundamental nature of the business challenge. And there was no talk about the consultant being paid for completing the work on time and meeting the sponsor’s business objectives with measurable client satisfaction.
The result: Key suppliers to the industry were being sourced very much like light bulbs or paper clips.
A new model
More importantly, companies will come to look at their relationships with specialized consultants as strategic relationships. Instead of asking how little they can outsource by breaking things down into smaller pieces, they will strive to work with partners in a more integrated way. In addition—in terms of key aspects of licensing, new product planning, pricing and contracting, monitoring, and improving sales force effectiveness—the consultant will be delivering large, high-quality components of clients’ plans rather than small inputs to the process. Breadth and depth of expertise will be important. Consultants will be more highly accountable for the success of the fully integrated components they deliver. The reward is that consulting firms will become more embedded as strategic partners with their clients, making the entire enterprise more flexible, more efficient, and more competitive.
Today’s business environment, however, demands more cost-effective approaches. Certainly, this company will build strong internal capabilities, but for the most part it will rely on external sources for the expertise and staff to tackle specialized challenges (or even non-specialized challenges that are variable in nature).
For the company, this means a leaner, more streamlined infrastructure focused on executing its core competencies with in-house resources. Along with a lean infrastructure will be a small group of consultants and service providers who are able to tackle highly specialized or infrequent challenges. These external parties will truly be partners in the company’s business, working collaboratively to help the company meet its objectives.
Flexibility and strength
The quality of the analyses and project work overall stands to improve, as consultants are held more accountable for achieving specified results. The company looks at its consulting supplier as a key partner in spreading business risk and achieving critical business objectives. The consulting partner, for its part, has changed its business model to be able to commit the resources needed to deliver “just in time” to meet critical business milestones.
Opportunity and responsibility. All of these changes are already well underway. They represent a departure from old ways of doing business. They mean that pharma and biotech companies—small, midsize, and large—will re-evaluate and streamline their internal infrastructures. They also will give specialized consulting firms increasing opportunities to play a critical role as an integrated and strategic partner.
John Campbell is CEO of Campbell Alliance. He can be reached at jcampbell@ campbellalliance.com
Supply Chain Strategy: Managing risk and opportunity in a changing global landscape