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Volume 40, Issue 2
Eight lessons to drive better outsourcing decisions.
Eight lessons to drive better outsourcing decisions
Outsourcing in the pharmaceutical industry has become increasingly prevalent in the last 10 years. Grand View Research estimates the global market for business process outsourcing (BPO) was valued at $195.2 billion in 2017 and is expected to exhibit a CAGR of 7.4%. By 2025, this market could well reach over $340 billion.
According to the new TMR report, the global life sciences BPO market will register robust growth driven by a CAGR of 8.9% during 2015-2023. The market was valued at $127.4 billion in 2014. It is expected to touch $286.3 billion by 2023. Focus on core business, relentless pressures on cost, and the growing competency of R&D outsource providers will drive further growth, though this will surely tail off at some point as the outsourced market peaks.
Until the mid-2020s, we expect outsourcing to provide a critical contribution in a sector where only the biggest players can invest in the diverse range of discovery, development, and commercial platforms necessary to shepherd a molecule from laboratory bench to commercial success. We can’t claim to have thought of everything, though organizations adopting the following eight experience-based lessons can increase the chances of business success rather than a frustrating deal that doesn’t deliver value.
1. Prioritize opportunities to increase quality over cost
Experience from other sectors suggests a desperate need to reduce the cost base, although it doesn’t always take account of the true costs of outsourcing, which can impact customer experience. Low rates for service often correlate with poor quality. Don’t compromise on customer experience to save a few dollars.
2. Failure to understand/mitigate business risk
It’s generally accepted that first-generation outsourcing carries risks to supplier and customer. In an immature market, it’s easy to under-quantify risk to supply chains and service functions. But experience shows it’s also possible to do so in subsequent generations of outsourcing. Operational rehearsal and/or pilot programs to test proofs of concept and continuity plans are essential to understand operational risk and minimize reputational fallout.
3. Build on strengths, rather than compensate for weakness
In addition to cost reduction, “we can’t do it/we don’t want to do it” may provide valid reason to outsource, but there is little point in outsourcing in response to failure to manage internal capability. Outsource service vendors are established to manage consistent, repeatable processes at optimal costs, not compensate for management deficit in the outsourcer’s business. Another trap outsourcers fall into is to use contract research organizations (CROs) to supplement scarce in-house resources, but unwittingly duplicate in-house activity (and increase costs). Pharmaceutical companies must still provide clear direction, influence internal opinions, overcome internal resistance, and make key decisions. They will need to retain and reward experienced staff with the knowledge and skills necessary to manage their own business and outsource partners.
4. Build genuine engagement
It’s a fatal error to establish adversarial relationships based on a tyranny of key performance indicators, which can have unintended consequences. Common hallmarks of “challenging” partnerships include a tendency for intrusive micro-management of outsourcing partners-perhaps unsurprising if this also represents prevailing culture in the pharmaceutical partner. Let’s not be in denial about this-organizations pre-disposed toward control are all too common, but they’re not well suited to the more agile, boundaryless ecosystems that will prevail in the future.
Successful partnerships involve outsourced vendors in building a shared strategic intent-this means co-creation of a rich picture of success, why it’s important, and how the relationship will be developed. We facilitated an example with practical benefits where a clinical trials vendor was regularly invited to key leadership team offsites to discuss strategic priorities, align objectives, integrate activity, and build relationships. As a result, they readily engaged in collaborative problem-solving outside the transactional framework. If techniques work well to engage your own staff, think about how you can apply them to external vendors.
5. Aim for a good cultural match
Most outsource deals take full account of scientific and operational capabilities during the sourcing process. More need to take account of subjective factors like cultural fit, ways of working, and the potential for strong complementary relationships. Understanding the cultural fit between your business and the outsource vendor is critical. Outsourcers often expect the vendor to adopt their business culture, but you need to recognize they have their own culture too. It’s a two-way street. Both parties need to value, embrace, and adapt to each other’s culture, investing time to build effective relationships.
6. Start with a collaborative mindset
Companies sometimes outsource business processes with an unhelpful mindset. It’s tempting to regard outsourced (often offshored) partners as employees, which they are not, or as a fully expendable resource to be stretched or eliminated at will. When selecting outsource partners, a good match of values and an emphasis on building open, productive, and collaborative relationships will help lead to success.
Successful partnerships need close acquaintance with respective company cultures and ways of working. In our experience, this doesn’t happen by chance. Active intervention is necessary to build trust and respect-without effort, a more adversarial mindset can result (them and us). Early engagement is always best to co-develop vision and goals, build positive relationships, clarity about accountabilities, and how success will be measured and delivered. It’s self-evident this is easier when long-term strategic partnerships are in place.
7. Build on effective communication and oversight
Improving communication and oversight is commonly cited as a challenge in our organizational development work. Time zones, language, and culture play a role, and do not always help. It’s tough enough with organizational boundaries and geographically dispersed in-house teams, but when you throw in a different company, there is plenty of potential for misunderstanding and error. Getting work done with outsourced vendors is a team sport. It requires frequent exchange of concepts and ideas and appropriate, though not over intrusive, governance. Social interaction, building trust, and a willingness to engage in productive conflict is essential to developing cohesive teams.
Put the best people on it. Too often, managers used for oversight of in-house teams are reassigned to manage outsourcing relationships, but they lack experience in doing so and this can weaken relationships due to overlap or duplication in roles and responsibilities.
A risk-sharing approach is preferable in many cases, but we’ve seen outsourcing deals where the company attempts to outsource the risk without taking adequate account of the service provider’s capability or inherent project challenges; this approach is based on denial. We like to see greater emphasis on realistic, jointly developed, performance targets and incentivization for exceeding them.
8. Lack of commitment
Many business process outsourcing deals tend to be of five-years duration, providing opportunities to reassess and change vendors. In the case of outsourced pharmaceutical R&D activities, changing course mid-contract will inevitably be a painful process with implications for delivery milestones. Hence, you need to ensure organizational commitment, a supportive executive coalition, and thorough stakeholder engagement before the deal is agreed and maintain a healthy relationship throughout the project or deal life cycle. This will include robust processes for performance review and planned service improvement.
While cost-efficiency remains a vital driver of outsourcing decisions, building scalable capacity, improving service delivery, and freeing up resources to focus on high-value activities provides significant untapped potential to make organizations more effective and agile.
Mark Bouch is managing director, Leading Change