The business climate for the pharmaceutical industry has changed significantly in the last decade. The realities of an increased
emphasis on return on investment (ROI), downward pressures on pricing, and the imperative to provide greater value (higher
quality at lower cost) have led members of the pharmaceutical industry to evaluate and implement technology-driven and business
paradigms to maintain sustainable competitive advantage.
Hazel Aranha, PhD
One approach the industry has taken to "stay ahead of the red" has been to outsource discrete packages of work, especially
when a company lacks in-house capability or cannot complete a task on time. Outsourcing has evolved from a workload capacity
management solution to an increasingly strategic solution. It is now widely recognized in the pharmaceutical industry that
mastering the industry's entire skill range is no longer a viable option— even for large companies. Organizations of all sizes
now realize that specialist companies can, in fact, do things better. Outsourcing may be used to address entire drug development
lifecycle needs (as is the case with virtual companies), or it may be used for a variety of activities along the drug development
continuum. Factors that help determine whether operations can beneficially be outsourced include the following: host company
expertise and capabilities, host company's business model, stage of drug development (Phase 1, 2, or 3), and service provider
experience and expertise.
Business process outsourcing (BPO)—the outsourcing of business activities required for the efficient operation of a company—has
long been the mainstay of several industries, as functions such as accounting, purchasing, and information technology have
been managed by external organizations. In the pharmaceutical industry, discrete packages of work, such as the generation
of clinical supply materials for preclinical or clinical testing and manufacturing, have been outsourced. Outsourced manufacturing-related
activities have typically focused on tactical operations and have included primary and secondary packaging, formulation, active
pharmaceutical ingredient manufacturing, sterilization, and labeling.
WHAT IS KNOWLEDGE PROCESS OUTSOURCING (KPO)?
With the evolution and maturity of outsourcing strategies, and the added comfort level that has come from successful tactical
outsourcing, pharmaceutical companies are moving toward outsourcing high-end processes—and outsourcing them to offshore destinations.
The offshoring of high-end, knowledge-intensive work is termed knowledge process outsourcing (KPO).
KPO takes outsourcing to a higher level. Knowledge-based business processes are outsourced to locations and organizations
that offer domain expertise, technical skills, and cost-effective operational efficiencies. Examples of KPO services include
creating, sharing, maintaining, tracking, and disseminating knowledge across a variety of industry segments; these segments
consist of pharmaceutical and biotech research and development, as well as market research, statistical analysis, financial
services, and legal services.
There has been a surge in KPO in the last few years as companies have recognized that high-end processes can be successfully
outsourced with substantial cost savings. Incidentally, those organizations and locations that offer first-rate BPO services
typically are in the best position to offer high-quality KPO services as well. The global KPO business of nearly $2 billion
is estimated to reach $16 to $17 billion in the next five years. According to Evalueserve, low-end outsourcing services will
grow globally from $7.7 billion in 2003 to $39.8 billion in 2010, implying a cumulative annual growth rate (CAGR) of 26%.
In contrast, the estimated total revenue for the KPO market is expected to grow globally from $1.2 billion in 2003 to $17
billion in 2010, implying a CAGR of 46 percent.1