StreetTalk: Have Business, Will Travel: Outsourcing in the Global Commerce Age - Fully understanding the pros and cons of outsourcing specific job functions can help determine if it's the right strate

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StreetTalk: Have Business, Will Travel: Outsourcing in the Global Commerce Age
Fully understanding the pros and cons of outsourcing specific job functions can help determine if it's the right strategy for your company


BioPharm International


OUTSOURCING IN THE BIOPHARM INDUSTRY

Remember, those are theoretical benefits associated with global outsourcing.

A closer look — this time at the biotech and pharmaceutical sectors — reveals that outsourcing has resulted in some of those benefits, but not all.

A thorough — and thoroughly engaging — September, 2004 report on outsourcing in the life sciences sector by Boston-based CFO Research Services involving companies like Bristol-Myers Squibb, Genentech, MedImmune, Genzyme Corp, Endo Pharmaceuticals, and others, indicated that biopharm companies are increasingly bullish on global outsourcing.

"Increasingly pharma and biotech firms are examining the effectiveness of outsourcing as they search for new drivers of revenue and profit growth," the report states. Revealingly, the reports cites upcoming patent expirations ($30 billion of US drug sales at top US pharma companies are at risk from patent expirations by 2007, says CFO Research); pricing pressures (pricing strains will cut $9 billion from top pharma firms by 2007); slowing drug pipelines; and increasingly high costs for research and development as major drivers of outsourcing growth in the life sciences sector.

"Many pharma and biotech firms are more willing to outsource due to increased pressure for profits," the report continues. "They hope to achieve cost savings, revenue growth, and a boost in productivity. Smaller firms seek to stretch limited resources." The CFO study adds that IT, payroll, manufacturing, and clinical-trial data management are key areas for growth in biopharm outsourcing efforts.

On the downside, fear of error by outsourcing providers "in an industry that cannot tolerate mistakes" is a primary roadblock to increased interest in industry outsourcing. Farming key company areas to far off bourses like India, South Korea, or China was cited as another key barrier to growth.

One firm cited in the report that has enjoyed a great deal of success in the outsourcing field was pharmaceutical giant Wyeth, which has outsourced significant portions of its operations including clinical-trials; data management, information technology, finance and accounting, benefits, manufacturing, and payroll. And it might not be done yet.

"As we continue to grow and look for ways to do things better, outsourcing will continue to be an alternative that is considered," Wyeth CEO Kenneth Martin told study researchers. Martins says that, when it comes to outsourcing, Wyeth prefers the piecemeal approach. "We're a company that's been growing and there is a lot that is in constant flux. So we think long and hard before we outsource. Because there are some things that are easier to outsource, we outsource pockets of what we do."

While not as bullish as Wyeth, Bristol-Myers Squibb is considering climbing aboard the outsourcing bandwagon in a big way, too. It's spent the last year searching for a service provider for its information management and financial shared services operations. "What will make us go ahead is getting good, obvious cost-savings with manageable implementation risk," says Andrew Bonfield, CFO of the company. Squibb also prefers to keep things local. Bonfield told CFO Research that due to political and risk management issues, direct offshoring was not in the cards for the company at this time.

COST COULD BE WORTH THE EFFORT

Whether your company decides to outsource or not, the general consensus reached by the CFO Research report and others in the field suggests that cost savings of 20 percent are indeed realistic. That alone should give CFOs reason to weigh outsourcing risks.

And as long as your CFO and other company decision-makers have a clear understanding of how the outsourcing process works; can choose service partners carefully, with financial stability as a key factor; deploy solid management oversight processes; and let service providers know up front what your goals are and what you will and will not accept, outsourcing might be just the ticket for your company.

But know this. Outsourcing partnerships are a lot like marriages. They have the best of intentions beforehand, but they are excruciatingly painful to undo if things go sour.

Realize that going into the relationship, and your chances of success will rise significantly.

Celebrity author and business/finance commentator for CNN and Fox News, Brian O'Connell has written for The Wall Street Journal and Newsweek, 79 Radcliffe Drive, Doylestown, PA 18901, 267.880.3144, fax 267.880.1939,


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