Outsourcing: Transition from Business Process Outsourcing to Knowledge Process Outsourcing

May 01, 2007
By BioPharm International Editors
Volume 20, Issue 5

Hazel Aranha, PhD
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.

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.


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).

Quick Recap
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

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