Functional Outsourcing in the Pharmaceutical Industry - a Project Management Perspective

It is estimated that by the end of 2014, pharmaceutical companies will lose approximately $78 billion USD as a result of medications going off patent.¹ Additionally, the industry is facing significant competition and a widening gap between proposed pricing for new medications and what reimbursement structures are willing to pay. To address some of these trends and in an effort to “do more with less,” the pharmaceutical industry has been outsourcing not only its IT and back-office functions, but also parts of its core business for some years, and which led to the emergence and growth of the large contract research organization (CRO).

Some R&D outsourcing on the clinical side of the pharmaceutical industry has been an all-services approach, where entire clinical studies or programs were outsourced to CROs, but also the model of functional outsourcing (i.e., monitoring only, clinical logistic services, central labs) was used. Furthermore, there has been a trend in creating long-term partnerships with outsourcing counterparts rather than program or project-specific alliances.²

If handled well, functional outsourcing creates the potential for greater efficiencies, cost savings, and clearer communication. However, effective functional outsourcing does not simply happen; it is a complex and usually multidisciplinary project that needs careful planning, execution, maintenance, and buy-in from the whole organization. To oversee and coordinate the interfaces between the sponsor and the CRO, a project manager is usually appointed by both partners to lead the project to its goals through the use of project management and other tools. In addition to the usual challenges associated with the planning and execution of clinical trials, the project manager will have to deal with a particularly complex situation in respect to internal stakeholders (ranging from upper management to several peers in other departments); the main challenge being how to reconcile the different views, expectations, and interests about the outsourcing of colleagues across different departments.

The project manager also has to ensure that at project completion the appropriate tools have been considered and established to monitor the successful achievement of the outsourcing strategic goals (i.e., costs savings, higher quality, etc.).

This paper intends to present some considerations on project management applied to outsourcing projects, also providing insights based on a case study in pharmacovigilance functional outsourcing. Finally, the paper provides a short playbook for management of critical steps for such projects within the industry.

Stakeholders, internal team, and planning for success

Outsourcing projects usually involve different functions and departments within a company. For example, outsourcing pharmacovigilance services will require interaction of IT, clinical, pharmacovigilance, marketing, regulatory, and medical, to mention only some of the involved departments. When so many players are involved, it is critical to properly identify each stakeholder as clearly as possible. The external stakeholders can, in an outsourcing project, be individuated mainly in the service providers and the correspondent supply chain; what can be more challenging is the definition of the internal ones. This process needs particular attention in order to avoid actual or perceived project failure. Indeed, research from 2002 established that many outsourcing projects fail^3,4 because of internal resistance, which causes mistrust, lack of information sharing, wrong or miscommunicated work scoping, unattended or unmet expectations, and unmet deliverables, among other issues. To avoid these failures, internal stakeholder analysis needs to be as complete and comprehensive as possible. There are useful tools such as this three-step approach that worked well for our functional outsourcing project based on the PMBOK approach.⁵

• Identify your stakeholders by brainstorming with as many people as possible

• Prioritize your stakeholders based on a classic interest/power grid

• Understand your key stakeholders (what drives them, what information they need, who might be influenced by their opinion, etc.)

In our example, we used a stakeholder registry to make sense of all the information collected as suggested by the PMBOK.⁵ This is probably one of the most important documents for an outsourcing project because it will constitute a roadmap for further defining team’s composition, and also how to drive the project to success.

Another important initial step is to identify the sourcing strategy that the company wants to follow. According to a survey from 2004, more than 50% of companies manage this with average or less-than-average effectiveness.^6,7 The lack of a proper sourcing strategy and methodology can result in several risks for the company and the specific outsourcing project: inconsistency across outsourcing projects and selection criteria, lower quality, higher pricing, loss of purchasing leverage, higher internal resistance, and other risks. Unfortunately, strategic outsourcing is far from being fully mature in the pharmaceutical industry and, therefore, it could be difficult to have available a fully flagged sourcing strategy in your company. Gottfredson et al. (2005) proposed an interesting model, which could help pharmaceutical companies better define their value chain, with upper management’s support.⁸ This analysis should help provide the proper frame for the project and, consequently, better define the stakeholders and the team members to be involved.

As briefly mentioned, team members’ selection is strictly connected to defining stakeholders and outsourcing strategy. Based on these two factors, the project manager will want to select the team members in order to ensure all departments are involved, thus ensuring important strategic decision makers are either represented or have easy access to communication channels. This team should contain all the skills required from planning to draft and the ability to execute comprehensive and effective contracts with suppliers.

One more element for outsourcing needs to be considered: negotiation planning. Indeed, proper negotiation planning carried out together with the team and internal stakeholders will allow better selection, negotiation, and contracting, which are the initial critical phases in outsourcing projects. Furthermore, a negotiation plan^7,9 enables proper consideration of all key objectives, which include price, total cost, risks, business impact, expectations, controlling tools and metrics, requirements, and timelines. Such a negotiation plan also allows teams to focus on the project constraints, which in project management would be the triple constraint of time, cost, and quality. This can be “expanded” when dealing with outsourcing projects to comprehend additional factors influencing the “basic” dimension of the triple constraint (Figure 1 represents the idea of an “expanded triple constraint” for outsourcing projects).

When a comprehensive plan is prepared ahead of negotiations and approved by all stakeholders, the project team will be empowered to conduct the proper negotiations and be set up to achieve outsourcing objectives more successfully.

Risk management and challenges

Risk management is a critical part of successful outsourcing projects. The project manager and the team should dedicate a great deal of time toward planning, and controlling and monitoring risks. There is a large difference between planning and controlling and monitoring, because often project teams spend several hours working on risks analysis in the planning phase, but very little time on controlling and monitoring the risks and, consequently, adapting the plans. Approximately 60% of companies seem to manage risks in outsourcing projects either with average or less than average effectiveness.⁷ Using a generic project management risk model, reproduced also by O’Keeffe et al. (Figure 2^7,10,11), underlines the important factors to take into account while thinking and designing a risk-management plan for outsourcing projects. The principle is to consider the project under continuous evaluation in respect to the original goals and objectives. Wherever a barrier occurs that could block the goal, a proper risk-management strategy should be in place to ensure the strategy is followed. Monitoring the controls and feedback loops provides the chance to identify improvements and refine the risk management plan.

Some of the major risks categories for outsourcing projects are: (1) supplier selection risks; (2) transition risks (when the project is transitioned from business to operations); (3) start-up risks; (4) management and employee risks; (5) contract management risks; and (6) supplier-performance risks. In my experience in outsourcing pharmacovigilance, another major risk is potentially outsourcing a function or process that is potentially broken or non-existent. Many pharmacovigilance requirements have been recently defined but not yet fully absorbed by all companies (for example, how to capture huge amount of data coming from follow-ups of pregnancy exposure during clinical trials). In these cases, it could be challenging to outsource a process that is not yet even defined internally to the company. In such cases, the key to success is to, first, clearly define roles and responsibilities of the different functions internally and to use such potential knowledge to define the requirements with the outsourcing partner.

In terms of risk management, a major challenge with functional outsourcing is to understand hidden risks. Functional outsourcing projects will most likely not only impact one business unit, but, consequently, impact several business processes. This could bring additional risks that might escape the original analysis when the wider organizational perspective is not fully considered. In doing all this, the team should not lose sight of the final and main objectives:

• Is the outsourcing really achieving the end-user satisfaction?

• Is it achieving the promised requirements (i.e., cost savings)?

The proper control processes and metrics will need to be established in order to properly monitor this and the project progression. On the other side, it is important not to become enslaved by such processes and metrics, thus missing the original objectives.

Monitoring and controlling

Once planning is on its way, it is fundamental to define clear monitoring and controlling mechanisms and tools, so that feedback loops can be effective. The first step is to ensure these are properly accounted for and included in the contracts and outsourcing agreements. This requires the project team to critically consider what is really needed, what is not, and what would be a “nice to have.” This is important since no collection and analysis of data comes for free, and this is true in terms of quality, time, and real costs.  

There is no defined set of metrics that will fit all outsourcing projects; however a starting point is the triple constraint in relation to metrics (Figure 3¹²). When seen in this way, we can define the following metrics for an outsourcing project:

• Economy metrics: resources, which can give you a measure of how much resources are needed and indirectly an idea of costs

• Efficiency metrics: productivity, which will measure the number of deliverables/unit of resources applied

• Effectiveness metrics: quality, deliverables, and risk

For all these metrics, we need to clearly define a target, frequency of reporting, and a body to which should be reported during and after the project (they might differ). Finally, we should compare current metrics versus planned in order to keep the project team focused on the outsourcing project and later on to control and monitor to ensure we are really achieving the forecasted results with our outsourcing strategy.

In the pharmacovigilance case mentioned, we used the following metrics: (1) internal resourcing needed to manage the new process vs. old process (economy); (2) the amount of cases which were properly followed-up and closed in respect to the old process (effectiveness); (3) the quality of reports and database entries and the risk of missing one or more cases (and associated regulatory risks) and the total amount of follow-ups collected in the database and used as further basis for other activities, i.e. marketing or label extension (efficiency).

 A good set of metrics, derived from all sides of the triple constraint, can support delivering a successful project and following up the outsourcing project to ensure it fulfills its organization’s goals. However, strict evaluation of what is needed and essential is mandatory. Indeed, each metric comes to a cost, which will ultimately impact quality, cost, and time.

Summary and conclusions

In conclusion, we individuated the following critical and essential points for delivering a successful outsourcing project: individuate the right stakeholders (with particular focus on the internal ones); build, consequently, the right team; plan extensively for your negotiations (and wherever possible build upon and reinforce the overall company’s outsourcing strategy); design and implement proper risk management (with specific attention to control and monitoring cycles); and, finally, implement proper metrics to ensure constant monitoring of the project during and after its completion. This last factor, in particular, should be considered as an opportunity not only to execute the outsourcing project successfully, but also to monitor that the long-term goals hoped for with the outsourcing strategy are eventually reached and maintained.

Based on these critical steps, I drafted a project management playbook for outsourcing projects underlining the following steps (Figure 4):

1. Identify your company’s outsourcing strategy; this is a critical point and usually a difficult one for the pharmaceutical industry, which is more used to a fragmented rather than holistic approach. It will be important to understand the specific strategy and its context within all organization and within the supply chain.

2. Identify and characterize your stakeholders; the most important ones will be the internal ones, these are the ones who can make the difference to success.

3. Create your team based on the two points above; include the right team members from a stakeholder’s and technical knowledge perspective.

4. Address the risks in a risk analysis, and ensure this is an ongoing process; it will need processes and tools for reassessing risks on a constant basis, especially in relationship to the outsourcing partners. These controls and monitoring processes will also need to be included in the contract.

5. Create a proper plan, including a negotiation plan, which will drive you through the negotiation and the preparation of an outsourcing agreement and be the foundation for a successful outsourcing.

6. Use your defined metrics to control and monitor your project progression and the achievement of the original strategic functional outsourcing objectives and goals.

By applying these concepts in a more rigorous way, organizations and project teams can strive for successful functional outsourcing projects and reach those goals and benefits expected by these projects. Furthermore, the consideration of the above factors will allow for evaluation of the specific outsourcing project within the wider organizational context and, therefore, prevent damages to other parts of the organization and, in the long term, foster a better integration and outsourcing strategy.

Yuri Martina, PhD, MBA, PMP, is Managing Project Director, PAREXEL International

References

1. KPMG – “Outsourcing in the Pharmaceutical Industry: 2011 and Beyond”; KPMG (2012).

2. J. Miller, (2007) “Functional Versus Full-Service Outsourcing Models”; white paper, PharmaSource Information Services Inc. (accessed from: http://www.pharmtech.com/pharmtech/article/articleDetail.jsp?id=423553).

3. J. Barthélemy, (2003) “The Seven Deadly Sins of Outsourcing”; Academy of Management Executive; Vol. 17, No. 2, pp. 87-98.

4. N. Hatalkar, “Eight Worst Mistakes in Outsourcing and How to Avoid Them”; white paper, Patni (accessed from: http://www.sourcingfocus.com/uploaded/documents/Patni_-_The_eight_worst_outsourcing_mistakes.pdf).

5. “Project Management Body of Knowledge (PMBOK Guide) – fifth Edition”; Project Management Institute (8 March 2013).

6. D. J. Bryce, et al., (1998) “The Impact of Corporate Outsourcing on Company Value”; European Management Journal; Vol. 16, No. 6, pp 635-643.

7. P. O’Keeffe, et al., (2004) “Managing The Risks of Outsourcing: A Survey of Current Practices and Their Effectiveness”; white paper, Protiviti / APICS (accessed from: http://www.protiviti.co.uk/en-US/Documents/Surveys/ManagingOutsourcingRisks.pdf).

8. M. Gottfredson, et al., (2005) “Strategic Sourcing: From Periphery to the Core”; Harvard Business Review, Feb., pp. 1-9.

9. “The International Negotiations Handbook”; Baker & McKenzie and PILPG (2007).

10. Aprosoft webpage – www.aprosoft.com/processsesPractices_riskManagement.html; last accessed 7 – April - 2014

11. “Risk Modeling, Assessment and Management – Second Edition”; John Wiley & Sons, Inc. (2004); New Jersey.

12. P. Jacklin, (2011) ”Don’t Measure Time and Cost; How to Build Project Metrics that Drive Project Success”; white paper Acando (accessed from: http://www.acando.co.uk/Insight/Orange-Papers/Project-Metrics/).