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Productive Outsourcing in the 2020s


Pharmaceutical Executive

A list of eight points to help pharmaceutical executives focus on the role they need to play to build and maintain robust long-term partnerships.

The future of outsourcing

Outsourcing in the pharmaceutical sector has become increasingly prevalent in the last ten 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%.1 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 2015-2023.2 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.

Why outsource?

More pharmaceutical and biotech businesses seek third-party service vendors, and outsourcing is increasingly embraced by small and large companies alike. Whilst some deals are purely transactional in nature (fee for service), others, with core capabilities outsourced, are intended to be more strategic partnerships.  

The rationale, scope, and structure of outsource partnerships differ widely. Typically, where outsourcing is mature, second- and even third-generation deals are supported by deep experience in both outsourcer and vendor camps but perhaps diminishing scope for significant further cost reduction. In other areas, where outsourcing is relatively immature, there can be imbalances between vendor and outsourcer experience and the potential for downstream complexities and challenges.

Outsourcing and alliance partnerships now make a critical contribution to the strategic objectives of many companies resulting in dependence. However, anecdotal evidence suggests these outsource partnerships do not always deliver their potential, particularly where the partners fail to develop the fundamental building blocks of a successful partnership. How should biopharmaceutical companies structure outsource relationships to unlock the true potential of outsourcing?

Many reasons exist behind decisions to outsource. These include optimizing capacity, management of R&D costs, and improving the productivity of commercial operations. Early attention was focused on Clinical Research Organizations (CROs) providing discovery and development services, like access to advanced scientific technology platforms, specialized research capabilities and delivery of effective high-quality clinical trials. In other areas Contract Manufacturing Organizations (CMOs) allow companies to optimize (or avoid the need to build) manufacturing capacity and Contract Commercial Organizations (CCOs) provide a range of professional services including pure consulting, market access, and launch plus contracted-out sales, medical, and commercial operations. For the purposes of this article we refer to them all as CROs. They provide an effective way to improve productivity, raise quality, and reduce costs.

Upside and downside of strategic outsourcing

Given portfolio attrition in R&D, companies need to manage and reduce the risk of developing expensive in-house capabilities for projects that don’t achieve their clinical goals. And it’s not just small biotechs seeking to minimize high-capital investment and optimize capacity. Big pharma companies increasingly seek to outsource. Whilst they have greater in-house capabilities for R&D activities, some activities are simply more cost-effective delivered by specialist outsourcers, like clinical trials management. We’re also witnessing large pharmaceutical companies becoming more involved in commercial outsourcing, particularly for mature portfolios that still represent a significant proportion of their annual revenue.

  • Traditionally, outsource deals control cost, allow companies to manage capacity at scale, and provide access to new ideas, technologies, and specialisms. The growing trend to outsource brings significant challenges to R&D managers, not least of which is that a focus on cost reduction may not unlock outsourcing's true potential. When ‘mission critical’ R&D activities are outsourced, saving upfront costs may need to be secondary to achieving time and quality goals.

  • Unsuccessful outsourcing often results from unrealistic or poorly aligned pharmaceutical company expectations and insufficient capability to manage partner relationships effectively. When this happens, outsource partners often experience excessive oversight driven by a lack of trust.

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 our eight experience-based lessons will increase the chances of business success rather than a frustrating deal that doesn’t deliver value.

Eight lessons to drive better outsourcing decisions

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. Outsource to build on strengths, rather compensate for weakness, in your own business

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 CROs to supplement scare 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 KPIs, which can have unintended consequences. Common hallmarks of ‘challenging’ partnerships include a tendency for intrusive micro-management of outsource partners-perhaps unsurprising if this also represents prevailing culture in the pharmaceutical partner. Let’s not be in denial about this... organizations pre-disposed towards 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 a great 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 to oversight of in-house teams are re-assigned to manage outsource 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 outsource 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, so

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 lifecycle. This will include robust processes for performance review and planned service improvement.

Conclusion: outsourcing is here to stay

While cost-efficiency remains a vital driver of outsourcing decisions, building scalable capacity, improving service delivery, and freeing up resource to focus on high-value activities provides significant untapped potential to make organizations more effective and agile. This will be increasingly important in a fast-moving and uncertain business world.

The low incidence of blockbuster drugs to pay for large R&D capabilities suggests an ongoing trend to outsource R&D and commercial activities to optimize costs and increase productivity. For the next five years outsource has significant potential to increase portfolio value, and thus overall return of investment, but it needs a focused approach and good practice to ensure goals are delivered for both outsourcer and service delivery partner.

It’s already tough enough to bring new life-changing treatments to the patients needing them. In the future, enterprises of all sizes will be more likely than not to address these challenges by forming multi-company ecosystems incorporating several outsourcers and strategic partners. But successful ecosystems don't happen by chance. Leadership plays (and will continue to play) a vital role in building cohesive networks of teams reaching beyond corporate boundaries.

Executives will increasingly need to re-imagine their organization’s plan to deliver outsourcing value. By following the eight points set out in this article, pharmaceutical executives will focus on the role they need to play to build and maintain robust long-term partnerships founded on cultural compatibility, genuine engagement, and collaboration between decision-makers and third-party vendors. 


1. Grand View Research, Inc. Global BPO Market Report November 2018

2. Transparency Market Research report quoted on Cision PR Newswire Mar 15, 2019


Mark Bouch, managing director, Leading Change

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