The new strategic role of outsourcing: More than just cutting costs
By: George Esgro | April 26, 2016
Outsourcing is an essential strategy for agile-minded drug developers.
Ten years ago, large biopharmaceutical companies viewed outsourcing as a short-term cure for what ailed them. They contacted outside vendors to obtain temporary workers with specialized skills to quickly support a unique product launch or to handle an unforeseen surge in business. How times have changed. These days, many companies rely on outsourcing as an essential, long-term business strategy and enlist a huge cross-section of external partners across commercial, clinical and manufacturing. It’s not uncommon for a Fortune 500 biopharma company to use up to 10,000 external suppliers to meet its business objectives.
Small to midsize organizations are also following this trend – if not driving it. Some of these agile biotechs are, in fact, building their organizations around a new business model that puts outsourcing at the center. According to Contract Pharma’s 2015 Annual Outsourcing Survey, mid-sized life sciences companies continue to lead the pack in terms of seeking service providers (50 percent), followed closely behind by small pharma (38 percent).
The reason for this change can be summed up in one word: pressure. Today’s life sciences companies face relentless pressure to raise productivity and boost sales while also achieving agile and cost-effective processes for product development and commercialization. Companies face the additional challenges of complying with increasingly complex regulatory mandates and satisfying knowledgeable, demanding customers around the world. Outsourcing is more than just a way to cut costs – it’s an essential strategy in the unending battle to accomplish all of these goals.
The Contract Pharma survey also shows that 80 percent of companies surveyed said there is an increasing need to outsource, with 41 percent of firms stating they outsource specific tasks so they can focus on core competencies instead of activities they don’t want to do or don’t have the in-house capability to do. The survey also reported that 60 percent of companies take a long-term, strategic approach to outsourcing rather than using it on a project-by-project basis – further evidence that outsourcing is no longer just a quick-fix but instead serves a much more pivotal role in overall business operations.
As a strategy, outsourcing can deliver a varied assortment of organizational, operational and cultural benefits, including the following:
According to “The Future of Outsourcing” by Datamonitor, companies can achieve added value by using salesforce outsourcing strategically. But success can’t be achieved without a strong understanding of an organization's internal capabilities and future direction. Decisions about outsourcing vital business and research functions are among the most strategic that can be made because they define which type of expertise to cultivate internally and which to purchase. To that end, outsourcing decisions shouldn’t be made solely on the basis of cost as that can cause companies to miss valuable opportunities to leverage the specialized skills of outside partners that might speed and improve the development of life-saving products. To achieve maximum benefits from outsourcing, life sciences companies must accept it as a business strategy and not merely short-term muscle for a product launch. Further, they must adopt a systematic approach, setting specific targets and milestones as part of a three- to five-year plan, with continuous measurement of progress – the same way you would treat any long-term, strategic investment in business.