Outsourcing's Inner Logic

Why is the industry finding outsourcing such a viable strategy as they re-engineer their sales approach? There are a number of reasons, but four factors stand out.

First, many companies are finding that outsourcing increases the flexibility of field promotion to meet changing market dynamics. A company can adjust up or down rapidly to meet brand, season, region, or territory needs without impact on internal morale, and they can do so cost-effectively. Although outsourced sales professionals are hired at market rates, the fact that there is a surplus of talent on the market is tending to drive that rate down.

The result is a 25 to 30 percent reduction in sales force costs. That goes right to the bottom line because as a variable cost, outsourcing will drive top-line revenues while allowing better management of the middle of the P&L, thereby delivering improved ROI. Outsourcing allows the biopharma industry to further manage the middle of their P&L in maintaining strong promotional support for key products and increasing support for promotionally-sensitive but under-promoted products, while reducing fixed field force investments and streamlining related overhead as products begin to near patent expiration.

Third, many outsourcing contracts today offer a risk-share option, which ensures that the financial interests of the outsourced promotional services provider are aligned with the company's. With market and regulatory pressures bearing down, and the need to be more judicious with resources, the industry is more wary than ever of the risk in field deployments, particularly for drugs awaiting FDA approval. By taking on a risk-share assignment, outsourced providers have skin in the game, leading to a more strategic partnership with the biopharmaceutical company versus a simple contract engagement.

Finally, the model itself is evolving, giving companies more options in how they use it. Currently, there are a few dominant deployment strategies of outsourced representatives over the brand's life cycle. They are designed to more directly match the industry's field promotional investment to the most relevant promotional drivers for each product in the portfolio, to test and pilot tactics, and to optimize selling effectiveness without disrupting ongoing promotional efforts. These can be in the form of syndicated/shared, flex-time, dedicated, and embedded teams.

The "embedded deployment" model (positioning outsourced sales representatives within rather than alongside company teams where coverage is needed) has gained momentum because it offers industry a way to balance reduced headcounts while maintaining effective control of field coverage and achieve flexibility by building in a fluid layer within their sales force, thereby acting as a product commercialization risk-mitigation strategy against future unexpected events such as pipeline disappointments, negative FDA action and competitive threats.

As evidenced by SDI's recent report on promotional spending, which showed a 32 percent increase in e-promotion spending by the industry in 2009 as compared to 2007, the use of non-personal outreach tactics is rapidly increasing. In turn, the outsourced promotional services industry has increased their offerings to include many of these tactics including call centers, direct mail and e-promotions, to name a few. And the ability to leverage the overhead costs of these services over multiple contracts makes the outsourced providers a very attractive alternative to the in-house only model.

So where is the relationship going? Simply put, outsourcing is here to stay. With this continuing evolution of services to deliver value to the biopharmaceutical industry and their customers, the outsourced promotional services industry has moved strategically into being a central element of the sales and marketing mix. Relationships are being built for the long haul. Although particular contracts may be in force for one to two years, outsourced providers are finding when the engagement is over their team is being moved to support another initiative within the same company.

Nancy Lurker is CEO of PDI Inc. She can be reached at OfficeOfTheCEO@pdi-inc.com