Can't Escape Outsourcing Anywhere
By Louis Garguilo, Chief Editor, Outsourced Pharma
A recent day trip to Manhattan was for a little R&R. The (J.P.) Morgan Library & Museum had Italian artwork from the 1400s and thousands of beautifully bound books, including centuries-old tomes on medicine and health. I couldn’t help wondering how much outsourcing they did and what they called it back then. Next, the stores lining both sides of a vibrant 5th Ave were full of clothes made fashionable from global outsourcing arrangements. In the evening, I picked up a copy of Fortune to read on the train home. Before we were out of Penn Station, I was already deep into a section titled “Outsourcing for GOOD.” So much for getting away from it all.
The Fortune piece lists “The 2014 Global Outsourcing 100.” Aided by the dim overhead light on Amtrak, I discern the list is mostly made up of companies providing information technology/communications infrastructure or human resources services. While pharma and biotechs may use some of these companies, the list is not directly related to our CRO/CMO industry. The top five are ISS, Accenture, CBRE, Kelly Outsourcing and Consulting Group, and Colliers International.
Intriguing, and what prevented me from turning to other articles (although later I did read one titled “Is Apple Too Complicated?”), is the dialectic of this outsourcing world outside of ours. This 12-page spread in Fortune is a “special advertising section,” which means it offers a clear idea of how outsourcing providers in other industries think about themselves and market their services. Would they have a different tact than service providers for drug discovery, development and manufacturing?
The answer is mostly no, with some noteworthy caveats. Actually, at points the article reads like an independent validation of strategy and endorsement of the direction both big pharma sponsors and providers say they want to take our industry. For example, the sub-heading for this special section is “Dynamic relations with suppliers are boosting margins and leading to innovative ways of doing business.”
Perhaps a slight nuance of emphasis here that differs from our CRO/CMO parlance is the clearer enunciation of margin gains accruing to the sponsor as a benefit of outsourcing. Addressing sponsors’ overall margins turns the “outsourcing as a cost-center” calculus around to an “outsourcing as a profit-center” consideration. Maybe a lesson in syntax for our industry?
Still, the general emphasis of moving the discussion from the costs of providers to the savings gained by sponsors, and the more fundamental shifting of the conversation away from pricing completely and towards other benefits, is certainly not unfamiliar to us. Here are three quotes from Fortune we could have found in recent articles at Outsourced Pharma or in a multitude of other media devoted to our industry:
- “Holding down costs is just one of its (outsourcing’s) many benefits. Industry leaders are now strategically leveraging relationships with service providers to help companies become not only more profitable, but also more strategic, innovative, flexible, and socially responsible in the long run.”
- “Yet as outsourcing evolves, even those familiar with the practice are surprised to find that the dynamics are shifting and opportunities are expanding. Outsourcing, it turns out, delivers more value than even its boosters realized.”
- “Outsourcing also keeps the ambitious nimble. With well-structured contracts in place, companies are gaining marketplace agility that’s worth far more than what they pay to outsource services.”
A survey cited in the Fortune article draws out the statements above, i.e., saving money is important but so are other value-added objectives, even if they are harder to measure. The International Association of Outsourcing Professionals survey of 120,000 of its members and affiliates returns the following data support:
“About 50% of those surveyed by IAOP said one of their main reasons for outsourcing is to save on costs, either immediately or over the long term. But larger percentages identified other objectives as their main goals for outsourcing: Some 60% said outsourcing supports their plans for growth, and 56% said they do it to increase flexibility.”
Growth and flexibility trumping cost in a survey is a point Outsourced Pharma has addressed in the past. Sometimes, the “ghost in the survey,” as we might say, can mask the real emphasis on pure cost when final decisions are made as to which providers ultimately win contracts with sponsors. Nonetheless, the high accord with which growth, flexibility, and even innovation and corporate strategy, are held provide valuable input and insight.
Additionally, the same survey says, “In 2013 some 55% of companies that outsource services reported that they had expanded contracts to take advantage of unplanned opportunities.” This echoes the big pharma mantra for deeper relationships and more mutual and long-term partnerships with providers. However, the Fortune piece advises that smaller companies provide the real opportunities for suppliers for future revenue growth.
According to the article, outsourcing “curries particular appeal with growing companies. To maximize returns on investment, they channel resources into core competency areas or into research and development, then let their partners handle basic business operations while they focus on what they do best.” Jagdish Dalal, Certified Outsourcing Professional®, chief advisor of thought leadership for IAOP, is quoted in the article as saying, “Companies are looking to use outsourcing as a driver for their growth and transformation.”
Corporate Social Responsibility: An Argument for “Impact Sourcing”
Still today opponents of outsourcing rail against the industry for being a driver of downsizing workers and exerting downward pressure on global wages. As a counter-argument, the Fortune article devoted a significant amount of space to an area not often heard in our industry. “(O)utsourcing is increasingly being viewed very differently—as an important component of corporate social responsibility programs,” says the article. Appreciating how outsourcing can improve workers lives is a concept both industry and social welfare organizations have embraced, the article says. For example, it cites New York City-based Rockefeller Foundation as seeing outsourcing as key to its new anti-poverty initiatives.
Fortune mentions that experts predict more companies will soon outsource to Africa “to advance their corporate responsibility goals, while also enhancing their bottom lines.” According to the article, one niche gaining momentum, “rural sourcing,” involves working with resource centers in underdeveloped locations, such as Native American reservations in the U.S., or remote parts of India.” The article goes on to say, “When these types of measurable social goals figure prominently in an outsourcing program, the practice qualifies as “impact sourcing,” which can help companies achieve their goals of being good corporate citizens on a global scale.”
Will “impact sourcing” join the realm of near sourcing, in-sourcing and other strategies within the pharmaceutical outsourcing industry? It remains to be seen. One thing is certain for me personally, though. The next time I take a day to get away from it all, I better find a desert island. Our industry, and the larger world within which we operate professionally and privately, is permeated with the stuff of suppliers and providers, buyers and sponsors, and the lubricant of outsourcing. After all, it's a benefit of a free and global marketplace; it really shouldn’t be anything we want to get away from.