The life sciences sector and pharmaceutical companies in particular, is facing increasing pressure – internally and externally – to change. Whether the impetus is healthcare reform, fewer products, aging populations or the increase usage of technology, pharmaceutical companies are tasked with being more lean and agile in their response to change while ensuring they continue to grow their business.
After decades of looking at outsourcing as a means to shift traditional, platform function delivery responsibility away from the pharmaceutical company to an external delivery partner, pharmaceutical companies have begun to leverage outsourcing/contract services more across its entire value chain – R&D functions, Clinical functions, Commercial functions, and Sales Force functions while transforming their platform (e.g. corporate IT, HR, Finance, Procurement, etc.) even further.
While much of the attention continues to focus on the extreme beginning and end of the business model - drug development and customer engagement – companies recognise that changing their internal operations is critical for the necessary agility the market expects. And after decades of looking at outsourcing as a means to shift traditional, platform function delivery responsibility away from the pharmaceutical company to an external delivery partner for cost savings and improved service performance, outsourcing now appears as an ever-increasing option for transformation across the pharmaceutical value chain – R&D, Clinical, Commercial Operations, Sales & Marketing, and Corporate (IT, HR, Finance, Procurement, etc.) functions. Where outsourcing differs from function to function is how it is leveraged – either as a delivery model to contract external capabilities or as a means of transforming the operating models within these functions from a support function to a delivery partner to its internal business customers.
In its basic form, outsourcing played a significant role whereby the transition of delivery responsibility to third parties for onshore or offshore delivery of individual functions generated improvements to delivery performance and costs. This then evolved further to shared services solutions, wherein the functions remained individually managed from a delivery perspective yet were managed by common oversight looking to achieve common objectives and greater operational efficiencies. Over the last decade, these solutions have evolved further into business service organisations wherein the delivery of in-scope functions are shared under common leadership while opting to either retain “independence” at an execution level or into customer facing truly end-to-end services whose execution and accountability span across the in-scope functions.
Pharmaceutical companies are now looking to implement these new models as a means to integrate “back office” operations into single organisations to help drive superior business performance. Business services provides organisations with a single entity that has the ability to leverage best practices, install common standards and processes, and engage both their external delivery partners and their internal business customers in a more service-oriented model focused on the delivery of end-to-end service solutions to achieve business benefits. The resulting combined organisation bring all aspects of service under one group to deliver truly end-to-end services to its business customers through greater access to capabilities, reduced duplication of effort and better alignment to the business demands than their traditional, siloed functional organisations operating independently. Once established, these business services organisation are more strategic in their remit and thereby able to drive greater improvement and innovation across the business while extending opportunities within their own organisation to expand their remit into new areas.
As these back-office functions have realised success through outsourcing and shared services, pharmaceutical companies have leveraged these models to design and implement global delivery platforms, or operation delivery platforms across their Sales and Commercial functions. These shared services solutions consolidate non-corporate functions on a geographically or corporate-wide level across various business units. Their goal is similar to business services in that these differing functions leverage common skills, capabilities and processes to provide a complete service offering to their business customers while leveraging economies of scale to ensure their delivery capability spans the entire organisational footprint. Furthermore, pharmaceutical companies have seen moving to either a global or regional platform or cross-business operation platforms provide standardised services to multiple customer groups while maintaining the ability to customise end delivery when necessary.
Similarly, while corporate, commercial and sales organisations are looking at transforming operations through outsourcing and shared services, Clinical and Research & Development operations are working to establish new operating models for service delivery in a transition away from one-off contractor models and time and material arrangements. New operating models have been installed to move away from either a fully internally delivered service or externally delivered service to a hybrid model of the right mix of internal and external delivered services. Historically, firms saw outsourcing as either an internal or external option; whereas today, companies recognise their inherent knowledge of their internal customers and how/what they deliver may best be delivered internally than what the market is capable of offering as a viable alternative. Pharmaceuticals in particular are keen to exploit competitive advantages, and how and where these functions look for externally sourced solutions reflects they’re view as to what is or is not core to their own business.
What these means for the companies within the pharmaceutical industry or for the industry as a whole still remains to be seen. How these models are designed and implemented will vary, and their successes will vary; however; the prevalence for centres of excellence, global shared services or business services organisations continues to grow as the benefits for greater governance, standardisation and innovation are realised.
Michael Latchford is a sourcing strategy expert at PA Consulting Group
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