Are You Outsourcing Your Future?

By Louis Garguilo, Chief Editor, Outsourced Pharma

In the beginning, there was the work.

Contracts for “pairs of hands,” and specific, more mundane development and manufacturing activities and operations. Pharma would never let “IP or trade secrets” outside the walls of its garden.

Eons passed. Evolution took hold. Biotechnology emerged from the primordial pharmaceutical soup.

Today drug development and manufacturing outsourcing is a ubiquitous business-enabling activity to gain entrée to advanced technologies and capabilities.

Those same capabilities upon which your programs and overall organization are centered.

Are you, then, outsourcing your future?

Resources, Processes, Priorities  

Most readers are familiar with Clayton M. Christensen’s (now classic) “Innovator” series of books, starting with the seminal, “The Innovator’s Dilemma.”

Perhaps fewer of you have read an earlier work of his, “How Will You Measure Your Life?”

Within that book published in 2011, Christensen devotes some time to the theme of understanding your capabilities, and, surprisingly, specifically to the subject of outsourcing.

He writes that first you need to understand the actual concept of capabilities, and then which will be critical to your own future, so that you know which are “important to keep in-house and those that matter less.”

How do you make these determinations?

Christensen says “the factors that determine what a company can and cannot do – its capabilities – fall into one of three buckets: resources, processes, and priorities.”

These capabilities are actually “dynamic and built over time,” but the most tangible of the three is resources.

Resources include “people, equipment, technology, product designs, brands, information, cash, and relationships with suppliers, distributors, and customers.” (emphasis mine.)

Organizations create value as employees “transform these resources into products and services of greater worth.”

The ways in which your employees “interact, coordinate, communicate, and make decisions are known as processes,” and this of course includes the ways that products are developed and made.

However, unlike resources, Christensen points out, “processes can’t be seen on a balance sheet,” yet they drive the future successes of your entire organization.

Finally, the capability he deems most important, is an organization’s priorities.

“This set of factors,” he says of priorities in the collective, “defines how a company makes decisions,” and to some degree, “employees at every level make prioritization decisions.”

How well the priorities are disseminated, how clear they are, and how well understood determine whether individual priorities of employees are in sync with the overall organization’s.

We Outsource All Three

Certainly true of many industries – think no further than semiconductors for a recent prime example – in biopharma we “outsource” all three of our capabilities to what a few years ago would be to an unimaginable level.

Including priorities, which if not conveyed to CDMOs, for example, can end up with costly miscommunications and wasted time.

In fact, increasingly we strive for “true partnerships,” “close relationships,” and thoughts of CDMOs as “uninterrupted extensions of our company.”

What do those terms effectuate?

They further drive (or enable) the virtual model.

All of this, much more so than when Christensen first pointed this out a decade ago, is encouraged by “financiers, consultants, and academics – they see how quickly and easily they can reap the benefits of outsourcing.”

What is not measured, though, is “the cost of losing the capabilities that they forgo in doing so.”

The effect can be chilling:

You end up outsourcing to start your organization and quickly get your drug or therapy concepts into actual play, but end up beholden to that activity because in a theoretical sense you don’t own those capabilities.

“In theory,” some readers may be thinking.

That’s correct, and as Christensen points out, this theory of capabilities gives you and excellent framework to further determine when and what outsourcing makes sense, and when it does not.

CDMO Competition?

Christensen ends by describing what he believes are the two most important considerations here:

First, take a dynamic view of your suppliers’ capabilities.

Assume they will change. Focus not on current capabilities, but what they are striving to become.

Next, figure out what capabilities you will absolutely need to succeed in your future. These, Christensen believes, “must stay in-house.” (Emphasis his.)

Which brings us to the main point in all this for Christensen.

First, as the supplier – in our case your CDMO – generates the capacities to handle your new technologies, it can also use them to serve your competitors.

But even more so, as seen in other industries, the supplier can become your competitor.

Christensen cites the example of the former Dell computer company, once the leading PC seller in the world.

Dell eventually outsourced all components of its PCs to a main service provider that decided it had acquired all the capabilities, and thus started building its on PCs. These competed directly with, and undercut, Dell’s own sales – to the point Dell exited the business.

Perhaps that scenario sounds farfetched in our industry.

In fact, reading this editorial in Outsourced Pharma might sound a bit surreal. (The editor does feel a bit out of place at this creation.)

Nonetheless, all sides must be considered in order to accurately consider any one side.

Could you, in fact, outsource so much you lose your main assets – your unique platform; advancing knowledgebase; competitive edge; new-product development chemistry (or biology) that makes yours an organization that can compete and win in the future?

Is it possible to outsource so much, but maintain enough at the same time?

To date, we’ve decades of positive proof you can.

Outsourcing has positively driven the biopharma industry – and long ago even brought Big Pharma into the realm.

It is our business model.

Yet, take another moment or two: Are you outsourcing your future?

Certainly worth considering.