Today, pharmaceutical companies have few blockbusters in the pipeline, and trends such as personalised medicine mean that there could well be fewer in the future as the market becomes more fragmented. Many existing patents, too, are approaching expiry, and competition in the generic market is increasing. At the same time, customers are looking for improved service levels, regulators for tighter compliance and shareholders for lower operating expenses.
Is sourcing the answer?
Organisations in all areas of the healthcare sector are looking to new sourcing arrangements – such as outsourcing, offshoring and shared services – as ways of responding to these pressures. A range of sourcing approaches that are already established in manufacturing areas are starting to be more widely adopted, and applied to services as well as manufacturing operations.
To date, however, many healthcare firms have been disappointed with the results of their sourcing initiatives. Given that the average duration of a sourcing arrangement is three to five years while a CEO’s average tenure is much less, it should perhaps be no surprise that many sourcing initiatives are associated with value leakage and failure to realise business benefits. Typically, the executive who made the deal has moved on before it hits trouble.
Boardroom challenges and their sourcing solutions
Healthcare organisations need to take a much broader view of sourcing, treating it as a strategic approach to solving business problems, rather than a way of pushing troublesome non-core activities out of sight, as has often been the case up until now. PA has identified several types of boardroom challenge that can be profitably addressed by sourcing.
As well as reducing costs, re-sourcing non-core functions such as IT, HR and procurement allows management to concentrate on addressing more urgent, and value-adding, activities such as improving R&D – invaluable for, for example, pharmaceutical companies seeking to improve their 'pipeline' of new products.
Another specific challenge is the need to reduce costs radically because no new drugs are in the pipeline: regional shared services and outsourcing of specific functions are ways to do this. Healthcare companies must consolidate scope, geography and function to drive out the level of economies required to secure their futures.
See opposite for some examples of how PA has helped healthcare companies address some of these challenges.
For further information, e-mail: healthcare@paconsulting.com
