Feature

India and China: Outsourcing Beyond the Comfort Zone (continued)

Getting results Because of the complexity and risk associated with offshoring, not all companies realize significant advantages. Still, by looking at how other companies manage outsourcing risks and tap into the opportunities, pharmaceutical companies can draw their own roadmap for success. Companies at the forefront of the outsourcing trend succeed by taking a methodical approach to planning and implementing their outsourcing strategy. Plan the outsourcing strategy. Organizations typically have good intentions to approach outsourcing in a strategic fashion but end up outsourcing on an ad hoc basis, according to a recent report from CAPS Research, A.T. Kearney, and Arizona State University (3). Best-practice organizations, on the other hand, begin with a big-picture view of the challenges they are wrestling with and the goals they want to achieve. Cost-cutting is an important consideration but also the easiest one for rivals to copy. Companies should consider whether they need to speed up the development process or gain access to innovative technology. Leading companies also look explicitly at each activity to decide whether to send it offshore. If the decision is made to offshore the activity, the companies then determine which geographic markets are best suited to the function (see sidebar, "What to move? It depends" for a comparison of pharma companies' current approaches) Of course, the answers to these questions will evolve over time. It is also important that companies assess the most appropriate business model such as one that reflects the organization's risk and return profile. A captive model established and run by the parent organization offers maximum control, process consistency, and intellectual property protection. But at the same time, companies reduce the savings potential, lay out more capital, and take more time to start up operations when compared with outsourcing. Captive models work best for processes that require more control. Selected examples may include functions such as discovery and bioprocess R&D and clinical development. Each company's specific circumstances, however, will determine whether one particular model is more appropriate than another. A joint venture model has lower levels of business risk and investment than a captive model. Joint ventures enable companies to retain a great deal of control over processes and to accelerate time to market. Among the drawbacks, though, are the capital investment required, the management and contractual complexities, and the risks of transferring skills to partners. Selected examples of joint ventures could include clinical trials, formulation development, and manufacturing process development. Contract manufacturing and outsourcing offer significant cost savings, maximum speed to market (which accelerates benefits), increased flexibility, and low capital investment. But there are also risks, including less control of processes and output, the risk of public reaction to job loss, and less protection of intellectual property. Business processes such as information technology, accounts receivables and payables, and payroll are examples of areas in which this approach has been successful. In addition, contract manufacturing is increasingly being considered for outsourcing. Regardless of the business model chosen, top global outsourcing companies begin their strategies with a solid fact base rather than a reliance on perceptions. A solid business case should be built, supported by baseline performance metrics, to guide implementation of the outsourcing strategy. Top outsourcing companies also involve senior management from departments that will be affected by outsourcing strategies such as those in R&D, engineering, manufacturing, and logistics. They contemplate what-if scenarios to determine how these scenarios could affect resources and results. Finally, top companies make better outsourcing decisions when the choices are integrated with a longer-term vision and plan, instead of making decisions as short-term tactical responses. Focusing on the near-term makes it difficult for suppliers to gauge future demand, which in turn can lead to capacity issues in the future. (continued)