The document discusses when outsourcing stops making sense based on a case study of EMD Serono outsourcing biostatistics and programming work to Cytel. While outsourcing can provide cost savings and access to specialized skills, outsourcing for cost alone is risky. The case study shows how EMD Serono and Cytel worked together to thoughtfully plan and adaptively implement the outsourcing arrangement to ensure quality delivery and flexibility. This allowed EMD Serono to gain cost savings without compromising standards.
When Outsourcing Stops Making Sense: A Case Study on EMD Serono's Offshore Biostats and Programming
1. When Outsourcing Stops Making
Sense
A Case Study To Help You Consider Your Options
29 January, 2014
Michael Weitz
Global Marketing Director, Cytel Inc.
3. What You Will Learn
Outsourcing is a fact of life as it offers important benefits:
1. Cost savings, 2. Labor flexibility, 3. Access to specialized skills
Outsourcing for cost alone is risky – short-run benefits are reversed
quicker than it takes to realize meaningful gains
Simple ROI calculations and auction-style bidding – to reduce costs –
don’t provide an adequate picture nor a good way to choose your
outsourcing partner
Outsourcing – domestic and offshore – works in many situations when
thoughtfully planned and adaptively implemented
3
4. Since 1987…
Our mission: improving biopharma and device development success rates.
We do this by improving our client’s clinical trials primarily through innovative
application of statistical science, process and data management technologies.
Cytel 2014
5. 1. Reduced costs (53%)
2. Improved quality (43%)
3. Improved efficiency in use of internal staff (43%)
4. Access to operational expertise (43%)
5. Process improvement (30%)1
5
Why do sponsors say they outsource?
1 Avoca: Strategic Partnerships Under Scrutiny: Are They Working and How Long Does It Take?
Executive Summary of The Avoca Group’s 2012 Industry Survey Research
http://www2.theavocagroup.com/content/documents/files/Executive_Summary_-_2012_Industry_Survey.pdf
6. 5
Does it work most of the time?
1 Avoca Consortium of Quality, Quality Summit Report, 2012, http://www2.theavocagroup.com/the-avoca-
quality-consortium/consortium-news-and-updates/the-avoca-2012-quality-summit-report
59% of sponsors said after 3yrs they were getting
worse quality than in-house 1
7. 7
Maybe we have it backwards?
Ranking outsourcing benefits compare to internal hiring
1. Access to highly specialized capabilities1
2. Increase core competency focus - delegate non-core activities
3. Better workload peaks & troughs flexibility
4. Near-term gross margin incentives
5. Speed - faster implementation time with a “ready team”
6. Reduced tax, energy, collateral costs
7. Lower cost of labor
1 Clinical support functions requiring advanced skills/services including PK/PD analysis, biostatistics,
SAS programming, medical writing, data management, DMC/DSMB experience, clinicians, site
selectors/monitors, patient recruiters.
9. • Outsource for increased workload flexibility
• Outsource to gain skills you do not have
• Outsource to increase home-team’s focus on work you cannot outsource
• Set expectations appropriately:
– Plan start-up time realistically
– Expect significant cultural, communication issues, plan to recognize and train
– Selectively transfer your home and offshore staff
• Consider partners not only reputable, but demonstrable experience in your
field
• Together, establish detailed governance, define– success AND failure,
contingencies
• Closely Adjust – conduct interim analyses – early and often
10
Avoid the Problems & Reap the Benefits
DO
10. • Outsource for short-term cost savings
• Select your partner on price alone
• Outsource if it would result in depletion of core competencies
• Expect immediate, dramatic gains
• Leap competencies - Don’t expect your IT provider to do statistical
programming
• Expect outsourcing to solve your workflow or underlying process problems
10
Avoid the Problems & Reap the Benefits
DON’T
11. Reduced constraints on movement of capital and goods
– Reduced banking regulations, increasingly global flow of electronic funds
– Increased ease, decreased costs of transportation
Radically decreasing communication costs
– These act to reduce geographic concentration of industrial development
– And lower the cost to spread ideas & practice which results in improved
coordination and efficiency within corporations across countries
Increased technology enables more tasks efficiently offshored
– A SAS program written in Massachusetts can run trial analysis in India
Wage convergence is probably not an issue yet
– monetary policy and politics could change that quickly
Increased educational investment & social incentives technical & scientific capability –
but recognize gaps between education and experience
Evolving regulatory labor flow constraints: H1B fluxuations
10
Be Aware of the Trends - and Changing Trends
Global forces are driving outsourcing … Not tactical decisions
12. 12
Less regulation on movement of capital & goods, radical
decrease communications costs, massive increase in
available compute power …
Moore’s Law: Graphic courtesy Intel
…spread ideas & practices, improve coordination and
efficiency within corporations & across countries
…creating new competitive opportunities
13. 15
Immigration Reforms
1. Current USA Immigration Reform proposals1 will affect
offshore business
2. Restrictions on the placement H-1B employees at the client’s
location increases costs & puts offshore model at risk
3. Indian outsourcing providers evaluate options such as
acquisitions and larger presence in smaller US cities
1 “This bill negatively affects many of the largest companies in the US who
use our services because of the shortage of science, technology, engineering,
maths graduates in the USA,” said R Chandrasekaran, group chief executive at
Cognizant
Publication: The Economic Times Mumbai; Date: May 13, 2013
14. Labor Arbitrage & Communications Trends
Morgan Stanley Chief Economist, Stephen Roach believes labor
arbitrage occurs when barriers to international trade are lowered.
Barriers to the trade of intellectual work - essentially,
work performed on a computer – are greatly reduced
by:
• the advent of high speed/capacity internet
• much lower costs of telecommunications
• secure and near-instantaneous document transfer
There’s no turning back – we’re in an age of
distributed accomplishment…
But… to be effective, worthwhile the effort must be
inline with the underlying forces, truly collaborative,
transparent
15. 14
Economics: Wage Convergence
… wiping out the benefit of labor arbitrage-based outsourcing and with
it the competitiveness and industrial base of the developed economies
17. 16
Boosting EMD Serono’s Biostatistics &
Programming with a Cytel “Extension Arm”
Sponsor’s Challenge
EMD Serono is conducting clinical studies
in multiple therapeutic areas, including
oncology and multiple sclerosis.
The company seeks a flexible, scalable
resourcing model to meet additional R&D
demands without raising head-count.
To increase their biostats and programming
capacity, EMD Serono turns to Cytel.
The Cytel-staffed “extension arm”must:
• lower costs, yet deliver qualified clinical
stats and SAS and R talent
• adhere to EMD Serono standards
• limit start-up disruptions
18. 17
Creating the External Arm
Team-building for EMD Serono
Co-develop start-up strategy – together,
construct a plan addressing typical
outsourcing challenges – especially
requisite skill level fulfillment and
synchronizing distributed work centers.
Monitor and adapt - progress and
quality of the extension team’s work is
carefully monitored both by both Cytel
and EMD Serono managers.
Responses
Assemble qualified team - Cytel
assembles a team of qualified
biostatisticians and SAS and R
programmers from our Indian offices.
21. 20
Outsourcing Outcome
Flexible Stats & Programming Capacity
Outcomes
The extension team is now
functionally integrated with EMD
Serono’s own biostatisticians and
statistical programmers in Europe
and the US.
The additional resources also can
flexibly scale to cope with future or
resource bottlenecks anticipated or
unforeseen.
The EMD Serono project is a great example of
setting expectations realistically and
managing the delivery carefully …
… with the result that cost savings are a
consequence of the decision without
compromising the quality and flexibility
Serono demanded.
Ajay Sathe
Chief Executive, Indian Operations
Cytel Inc.
22. 21
Summary
The offshore/outsourcing model brings benefits that are here to stay:
1. Cost savings, 2. Greater labor flexibility, 3. Access to specialized skills
Don’t outsource for cost benefit alone…the short-run benefits may be reversed by
economic or political challenges quicker than it takes to realize true gains
Elementary ROI calculations alone won’t reveal the truth…
Start-up costs realities, bridging the experience chasm, effective managerial overhead,
large relative regional productivity differences, rework or non-tangible drawbacks such
progressive relationships, staff turn-over, cultural barriers
…are much more nuanced, meaningful
Use a common-sense approach between outsourcing and offshoring tuned for your
unique situation – not a cookie-cutter that may have worked for someone else
23. Thank you.
Your comments or questions?
29 January, 2014
Michael Weitz
Global Marketing Director, Cytel Inc.
25. 13
Technology enables more tasks to be
offshored
Chief Economist with Morgan Stanley, Stephen Roach:
“The internet has forever changed the competitive
climate for most white-collar knowledge workers.
Courtesy of near-ubiquitous connectivity, the
output of the knowledge-worker can now be
emailed to a desktop anywhere in the world.
That brings low-cost, well-trained, highly-
educated workers in Bangalore, Shanghai, and
Eastern and Central Europe into the global
knowledge-worker pool.”