How to Reap the Benefits of Insourcing Contract Staff While Minimizing the Risks

April 2, 2010
Iain Jessup
Volume 2010 Supplement, Issue 4

Insourcing is new outsourcing. Here's how to do it right.

Abstract

Insourcing contract staff allows pharmaceutical companies to reduce fixed headcount expenses while ensuring sufficient staff are on hand to get the work done. This flexibility is particularly useful in processes that have natural peaks and troughs. It also allows the company to retain greater control than if the work is outsourced. Before insourcing personnel, however, managers should consider the potential pitfalls and how to avoid them.

In most industries, outsourcing non-core functions has long been the norm, and the pharmaceutical industry is no exception. Outsourcing makes effective use of limited funds and helps retain key expertise in-house.

Tom Merton, Getty Images

There are times, however, when the remaining in-house resources are not sufficient to complete critical tasks, especially in processes for which resourcing demands vary throughout the lifecycle of a project. Clinical research is one such area, where activity at the start of a trial is higher, lower during post-patient recruitment and monitoring, then followed by a flurry of activity toward close-out as data are managed and reports are generated. Similarly, demands for in-house analytical scientists can vary as candidate drugs reach different stages of development.

A growing trend is to turn to outside providers to fill these gaps by "insourcing" skilled staff. In some cases, just a few staff members are brought in, while in others, an entire job function can be handed off to suppliers in either a managed team or functional service arrangement.

In insourcing arrangements, the insourced staff are not employees of the pharmaceutical company. A third-party supplier retains responsibility as the employer of the insourced staff, while the pharmaceutical customer is responsible for their day-to-day supervision during the project.

The Benefits of Insourcing

The benefits of these types of arrangement are numerous. Reducing fixed headcount expenses is the most obvious. Such arrangements offer excellent flexibility, because early termination clauses allow the client to easily "switch off" the additional resource should the demand be reduced suddenly, for example, if a clinical study closes early or if development on a drug candidate ends because of unfavorable clinical results. In such cases, there may be a need to quickly reduce headcount to save costs. Insourcing staff also can be used to fill short-term resource gaps caused by planned absences such as maternity leave.

Another benefit of insourcing staff that often motivates large companies is that it allows the client company to retain tighter control of the work involved than if the work were contracted out.

A further benefit of working with insourced staff is that not only does the hiring manager get the pick of the best available qualified staff from across many sources, but the time a contract staffer spends on site also can serve as an extended interview. When headcount positions become available, contract employees often apply, removing a large degree of uncertainty for the hiring manager. In addition, should these insourced employees have worked with the client for a considerable time, there may be minimal take-on fees, thus making this a very cost-effective recruitment solution.

In the clinical trials arena, insourcing experienced staff also has an advantage over contracting out a study when the product is close to commercialization: The insourced staff represent the pharmaceutical company with key opinion leaders and investigators, thus retaining relationships with future potential prescribers.

Pitfalls to Avoid

When considering personnel insourcing, there are several pitfalls and a few simple rules to consider.

Contractor retention may be a concern, because insourced staff do not have the same degree of loyalty to the company and can, in theory, leave at any time. This concern can be mitigated, however, by clauses in the insourced staff's contract with the staffing supplier. For example, insourced staffers, as employees of the supplier with associated company benefits, have notice periods and are subject to the supplier's human resources (HR) processes.

Another concern raised by pharmaceutical customers is that integrating insourced staff into the company's regular business meetings and required project training, and offering career development opportunities could create an employer–employee relationship with insourced staff, which can have legal ramifications, particularly in the EU and Australia, where employment legislation is tight.

Pharmaceutical companies often wish to integrate contract employees as much as possible into their operations, to ensure the staff are properly trained and have all the information they need to do their jobs effectively. Likewise, all staff want career development and it is natural for a manager to want to aid and develop the best and brightest. However, when these people are not your employees, providing too much integration or development assistance may mean that the "employer–employee" line will be deemed to have been crossed.

Therefore, the pharmaceutical company should evaluate carefully whether it is necessary and appropriate to include insourced employees in any meeting or event that is not project related. The pharmaceutical company's legal counsel may wish to weigh in on this.

These risks also can be mitigated by working with a supplier who fully employs, manages, trains, and supports the staff on contract to you. Insourced staff should have career development discussions with the supplier's industry-experienced line manager. Supervisors at the pharmaceutical company should provide input into performance appraisals and career development plans through the supplier manager of the insourced personnel, but not hold these meetings directly with the insourced personnel.

The assigned supplier manager not only has responsibility for the staff's career development, but also for ensuring that client needs and timelines are met. Therefore, you also should work closely with the assigned supplier manager to set meaningful project-related objectives that are timed to coincide with the insourced personnel's probationary periods.

If you work with a company that does not fully employ the contract staff but instead provides access to a freelance network, you should verify that these freelancers are set up as limited companies and not "sole-traders," to mitigate the risk of co-employment.

Key Questions to Ask

When choosing a supplier of contract staff, there are some basic questions that all hiring managers should ask about the supplier's corporate stability, pricing, track record, and ability to resource for the specific roles in question. Other important questions include:

  • How long is the average time to provide appropriate resumes once a job requisition has been received?

  • How quickly can candidate interviews be arranged?

  • When will the candidates be available to work? (Bear in mind that notice periods of up to three months may apply).

The customer also should ascertain how the contract staff will be supported by the supplying company. Key questions include:

  • Does an established and appropriate line management system exist?

  • Are there HR processes and procedures that support both the insourced employee and the sponsor company?

  • Is the customer involved in setting objectives for the insourced employee?

  • Is there a probationary period that protects the customer?

  • Are the company benefits offered to the insourced employee competitive enough to aid retention during the project?

  • How is good behavior encouraged and outstanding performance recognized?

  • Should there be a need, does an early release clause enable you to downsize in a short time without major financial penalties?

As companies get comfortable with working with contract staff, complacency can set in. Just as we see "project creep"' when running a study, so there has been "employment creep" over the past few years when working with contract staff, as companies often start including contract staff in non-project-related activities and begin to cross the employer–employee line. This can be avoided by ensuring you have a positive answer to the above questions. Another way to avoid employment creep is to contract an entire function to a trusted supplier, thus accomplishing all project goals while driving down fixed costs.

Summary

In summary, insourcing contract staff offers pharmaceutical companies an alternative to outsourcing work when volume demands exceed internal capacity, and allows the company to maintain greater control than if the work were outsourced. Insourcing also provides excellent flexibility to expand and contract staff quickly as needed.

A few risks are associated with insourcing, but they can be mitigated easily by ensuring the employer–employee line is not crossed, working closely with the supplier to manage staff performance and development, and ensuring the contract contains key clauses to protect the client. By following these guidelines, pharmaceutical companies can gain significant benefits from insourcing with minimal risk.

Iain Jessup is the vice president of i3 Pharma Resourcing, London, UK, +44 07812 148086, iain.jessup@i3pr.com