Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
•      Cognizant 20-20 InsightsNumbers that Make Sense: VirtualizingFinance and Accounting in Life Sciences   Executive Su...
As well as being a natural starting point for               Third party services similarly may range fromvirtualizing busi...
work, yet the skilled analysts required to provide        While most ERP systems require users to log into adata consolida...
companies are beginning to outsource end-to-end         incorporate these into process design. The service          servic...
Virtualized F&A in ActionTop life sciences and biopharma companies              Leading Pharmaceutical Companyaround the w...
Measuring F&A the success of F&A on Efficiency & Effectiveness alone   Measuring Outsourcing Success   is insufficient    ...
Krishnan Rajagopalan, Ph. D., Global Head of Life Sciences BPO at Cognizant. Krishnan has over fifteenyears of experience ...
Upcoming SlideShare
Loading in …5

Numbers that Make Sense: Virtualizing Finance and Accounting in Life Sciences


Published on

Learn about Virtualization and how it can help Life Sciences companies overcome their business challenges like: reducing costs, increasing flexibility and efficiency, and increasing competition position and innovation.

Published in: Business
  • Be the first to comment

  • Be the first to like this

Numbers that Make Sense: Virtualizing Finance and Accounting in Life Sciences

  1. 1. • Cognizant 20-20 InsightsNumbers that Make Sense: VirtualizingFinance and Accounting in Life Sciences Executive Summary the benefits of a variabilized cost structure for increasing revenue and strengthening their The numbers — trending down from double digit competitive position and innovation. Given these revenue growth over the last decade to less than objectives, the logical outcome for many of 5% in 2011 — signal the challenges the pharma these forward-thinking companies is to virtualize and life sciences industry is confronting: expiring selected aspects of their business model. patents on former blockbuster drugs; long drug and therapy development cycles combined with By virtualization, we simply mean taking a business falling returns on R&D expenses; an uncertain function outside the company, that is, moving the international regulatory environment; and function from an in-house function to a variable increasing pricing pressures and reimbursement cost function performed by a third party that cuts. can be scaled up or down as needed. Almost any life sciences business function is a virtualization To overcome these challenges, the leading candidate, ranging from commercial operations, life sciences enterprises are reducing costs, clinical data management, pharmacovigilance increasing flexibility and efficiency, and leveraging processes, and finance and accounting (F&A). The Decline industry Sciences Returns on Equity Life-sciences of Life returns on equity are declining Pharma Industry ROE Pharma Industry ROE 25% 20% 18.1% 21.1% 21.2% 18% 20.6% 20% 16% 14% 15% 14.2% 11.4% 13.6% 12% 11.4% 10% 10% 8% 6% 5% 4% 2% 0% 0% 2006 2007 2008 2009 2010 Current FY Average (FY2006-FY2010) Current FY Source: Based on results reported by Abbott Laboratories; Allergan, Inc.; Amgen Inc.; Biogen Idec Inc.; Bristol-Myers Squibb; Celgene Corporation; Forest Laboratories Inc.; Johnson & Johnson; Eli Lilly and Company; Merck & Co., Inc.; Mylan Laboratories Inc; Pfizer Inc.; Watson Pharmaceuticals, Inc. Figure 1 20-20 Insights | November 2011
  2. 2. As well as being a natural starting point for Third party services similarly may range fromvirtualizing business operations, F&A outsourcing transformation consulting to discrete technologyprovides compelling evidence for the life sciences or outsourcing solutions to managing multiplebusiness case for virtualization. Properly processes to completely assuming the client’s F&Aexecuted, virtualized F&A mirrors the industry’s processes and associated systems.efforts to re-engineer the processes used to bringnew therapies and products to market, from R&D How far a life sciences enterprise travels alongthrough clinical trials. That is, outsourcing F&A, this continuum depends on several key factors:even at its most functional level, should offer its view of the risk, compliance and complexity ofmore than simply low-cost solutions. At its best, various F&A functions; outcomes expected fromvirtualized F&A stimulates transformation of all its these functions (e.g., efficiency, effectiveness,related processes, making them leaner and more end customer satisfaction, innovation, etc.); andefficient. That gives the life sciences enterprise how much interaction is associated with thosemore resources to apply to high-value strategic functions.activities that, in their turn, are catalysts for thecreativity and change needed to meet today’s Transactional work, including accounts payable,market challenges. payroll, accounts receivable, general accounting, reconciliations, and fixed asset accounting areA Compelling Continuum: Virtualized typically the first F&A processes outsourcedF&A in Life Sciences because they are deemed low risk, require a low level of interaction with other groups, and haveMost life sciences companies accept that many of been delivered more efficiently by global partnersthe F&A processes are important, even critical, yet at a lower total cost of ownership. Contrastare not core competencies. Improved access to that with budgeting activities, which are rarelyaccurate information, superior analytics, financial outsourced because of their complexity, high levelstrategy, and successful partnering between of ongoing internal interaction, and the view thatbusiness and finance can create competitive it would be a core and competitive advantage toadvantage. But the execution of routine core manage this process internally.accounting processes does not create or sustaincompetitive advantage, making these clear Yet even some complex, strategic F&A activitiescandidates for virtualization. The virtualized F&A have components that can be outsourced to afunctions line a continuum, ranging from very trusted service provider. Analytics and reportingtransactional processes to the more complex. are perceived as more complex than transactional The Virtualization of Finance & Accounting spans everything from point solutions to theVirtualization Continuum entire labor, applications, and infrastructure stack outsourcing of the Point Solu ons Tradi onal Outsourcing BPaaS Outsourcing of Business Process as a Point Solution Outsourcing of an multiple Service: Outsourcing Outsourcing end-to-end process processes the complete process (e.g., (e.g., (e.g., stack for accounting, reconciliations) procure-to-pay) procure-to-pay ERP and hosting and record-to-report) services.The virtualization of F&A spans everything from point solutions to the outsourcing of the entire labor, applicationsand infrastructure stackFigure 2 20-20 Insights 2
  3. 3. work, yet the skilled analysts required to provide While most ERP systems require users to log into adata consolidation, analysis and insight can be specific module, a good workflow and wrapper toolprovided by global partners and service providers. will insulate users from these requirements andIt’s up to the enterprise to set the direction of the offer menus and search features that allow usersanalysis, assess, and act on the analysis provided to easily access data. These tools provide a singleto make the appropriate real-time and critical user interface to the accounting data, insight intodecisions. Enterprises often outsource higher processes such as how many transactions arevalue functions like these in their second wave processed in a given day, and performance data asof outsourcing, after they’ve grown comfortable measured by service level agreement (SLA) andusing a service provider for transactional F&A key performance indicator (KPI) Additional process redesign and productivityComplementing Virtualization with gains on the virtualization continuum come fromRedesigned Processes using business processes as a service (BPaaS). In these implementations, the service provider doesCost reduction is only one aspect of virtualization. more than simply augment the client’s existingToday’s service provider must add value by accounting systems: the service provider replacestransforming processes, by redesigning them the in-house ERP financial modules with cloud-through business and industry domain expertise, hosted applications and assumes responsibilityand by implementing complementary technology for managing the systems. Both client and serviceand tools. provider professionals access the cloud-hosted applications with the same user interface.Service providers draw on their economies ofscale to leverage investments in state-of-the-art At the farthest end of the value continuum, thesystems and a virtualized global infrastructure service provider not only assumes responsibilitythat are cost prohibitive for a single enterprise to for many of the F&A activities but also the hosting,build and maintain, especially in an atmosphere support, maintenance and enhancement of theof “do more with less” and cost control. For full systems portfolio, excepting those consideredexample, automated reconciliation and period- very high risk or that require high levels of internalend close management tools used by a service give-and-take such as budgeting or interpretingprovider typically far exceed those justifiable financial analytics for business one F&A department, even on a global scale.These tools typically leverage and augment a Here it’s worth pointing out that as the lifelife sciences company’s existing systems. Other sciences enterprise grows more comfortable withservice provider investments include best practice virtualization, its definition of “high risk” mayresearch, process reengineering, workflow and change. A close partnership with a trusted serviceOCR tools. provider may eventually encompass some of these functions. Within the health arena, leadingHow BPaaS differs fromFrom service models ModelsHow BPaaS Differs other Other Service In-House BPO SaaS BPaaS Labor In-House Provider In-House Provider Bolt - on Tools In-House Provider Provider Provider ERP In-House In-House Provider Provider Infrastructure In-House In-House Provider Provider HostingFigure 3 20-20 Insights 3
  4. 4. companies are beginning to outsource end-to-end incorporate these into process design. The service services including analytics along with outcome- providers are therefore able to deploy a hub- based service-level requirements (e.g., cycle and-spoke model, leaving only the truly required time reduction, business process re-engineering, local presence and leveraging a regional or global reduced total cost of operations, increased capability for all other support. quality / compliance, etc.). The transformed F&A processes themselves The Value of F&A Virtualization can uncover new potential for savings and effectiveness improvements. These include As life sciences companies pursue global trials improvements in working capital from reduced and newer markets to develop safer and more days sales outstanding (DSO) in accounts specialized products, they need receivable work and enhanced discount capture in accounts payable work. The value of to be more virtualized and nimble in real-time decision- virtualization making. At the transactional end, Some companies equate financial control with increases as virtualization not only reduces having accounts payable clerks, general ledger and report preparation staff in a nearby physical life sciences the cost of those functions but office. Yet a service provider offers true control makes them available on an “asand biopharma needed” basis. The enterprise improvements: better audit trails from increased companies only pays for resources automation; better separation of duties; more comprehensive and up-to-date documentationmove along the consumed, so that operating of processes; disciplined performance level expenses are no longer fixed outsourcing but become variable. This ability monitoring; and improved data integrity by using continuum. to scale up and scale down automation that reduces manual input and the resources with a phone call is opportunity for errors. This improved visibility and especially critical within the life sciences industry accuracy can help identify potential fraudulent as business cycles ebb and flow and as acquisition activity, such as duplicate or fraudulent payments. and divestiture activity increases. While improved productivity on tactical activities Because the enterprise can rely on the strength nets great cost savings, the more strategic, high- of the third-party service provider to offer and value F&A functions offer still greater returns maintain current technology and resources on virtualization. First, the human resources that support this scalability, it avoids capital performing higher value work tend to be the investments in software and hardware systems more expensive resources, such as senior that support noncore functions, giving it more financial analysts. Second, when virtualizing these financial flexibility. This virtualization also has a resources, enterprises can afford more of them virtuous effect on financial ratios such as return at a lower cost, so an enterprise can commission on assets (ROA) and productivity measures: as more high value work for the same or lower companies shed systems and resources, lower budget. costs, and improve margins, both the numerator and denominator of these financial ratios are The goal of the CFO should be twofold: positively impacted. 1) shrink the overall cost of the finance function and 2) shift the mix of work by compressing Similarly, life sciences enterprises increasingly routine operations such as AP and AR and growing are competing and operating on a global scale, high value-add work. With basic functional and yet must meet a variety of local compliance high-value transactions being handled by a service and reporting requirements that can require provider, retained personnel are free to focus expensive local personnel and systems. A third- on strategic issues such as improved controls, party service provider can invest in the language monitoring trends, business analysis, planning translation tools for handling multiple European and business partnering. languages or regional Asian dialects as well as 20-20 Insights 4
  5. 5. Virtualized F&A in ActionTop life sciences and biopharma companies Leading Pharmaceutical Companyaround the world already are embracingF&A virtualization. A sampling of case studies • Challenge: A leading pharmaceuticalincludes: company needed to streamline its purchase order (PO) processing, accounts payableLeading Manufacturer of Laboratory and vendor data management systemsProducts and workflows to improve productivity, vendor relations and reduce costs.• Challenge: A leading manufacturer of laboratory products needed effective • Solution: On-site management by the tracking and routing of all e-mail orders service provider, revised PO handling, received in a group mailbox and scanning and workflow tools have streamlined center. the company’s PO processing functions. Discount rate capture has increased from• Solution: A BPaaS-based document/ 39% to 100%, and vendor relations have image workflowthat automatically creates improved with timely order processing, transactions for every e-mail scanned accurate data and adherence to TAT and file received. The workflow manages standards. Accuracy rates, formerly work allocation, prioritization and work unmeasured, are now at 98%. Through distribution based on business rules. Order reducing the total cost of ownership by entry and invoice processing run on the 70% and increasing discount captures, manufacturer’s systems while transactions virtualization has effectively eliminated are tracked and process metrics captured costs associated with the PO processes. using the service provider’s cloud-based workflow tool.Clarity on F&A Virtualization Our BPaaS offering is built around the best F&A platform offering in the business, a cloud-hostedWe manage F&A services for more than 25 large Oracle PeopleSoft ERP combined with solutioncompanies around the globe. More than 45% of integration tools, supplier and customer portals,our work in these engagements goes beyond the automated workflow, and a state-of-the-arttransactional to higher-value, strategic functions. wrapper tool providing a single user interface.Our approach to F&A virtualization combines IT,deep life sciences industry knowledge, a flexible Beyond tools or technology, we deliver therelationship model, and business process and F&A transformation your business requires to thrive inexpertise to stimulate innovation as well as deliver today’s demanding environment.cost-effective high-quality services. 20-20 Insights 5
  6. 6. Measuring F&A the success of F&A on Efficiency & Effectiveness alone Measuring Outsourcing Success is insufficient Virtualization (Cap-Ex reduction and scalability) Potential Performance Virtualization & Innovation typically Threshold grossly underserved (Revenue enablement & Benchmarking) (Quality of Service & business impact) Effectiveness Innovation Efficiency (Cost Optimization) Traditionally, the health of Finance organizations have been measured on a two dimensional scale: efficiencyTraditionally, the health of finance organizations has been measured on a two-dimensional scale: efficiency and and effectiveness. Using Cognizant’s unique Clarity framework measures the health of Financeeffectiveness. Our unique framework measures the health of finance organizations on a broader four-dimension scale: organizations on a broader four dimension scale: efficiency, effectiveness, innovation, and virtualizationefficiency, effectiveness, innovation, and virtualization.Figure 4About the AuthorsPaul Nowacki, CFA, is the Global Leader of the Finance & Accounting Center of Excellence at Cognizant.In this role, he oversees worldwide F&A service delivery for our existing clients and solution design forprospective clients. Paul also serves as a thought leader in F&A and helps identify market trends andshape new Cognizant offerings accordingly. By combining his industry experience in IT and finance,along with his experience as a transformation consultant, Paul is able to look holistically at finance andaccounting organizations including process, systems, and organizational design perspectives. Paul canbe reached at 20-20 Insights 6
  7. 7. Krishnan Rajagopalan, Ph. D., Global Head of Life Sciences BPO at Cognizant. Krishnan has over fifteenyears of experience in pharmaceutical R & D, especially focused on clinical and safety, business and ITstrategy, strategic sourcing; outsourcing; offshoring using a global delivery model, service managementand governance, business process mapping and reengineering, operations improvement and training. Hehas delivered complex projects and critical transformation outcomes for clients in the pharmaceutical /life sciences, financial services and consumer products industries.Krishnan currently manages Life Sciences BPO Practice globally for Cognizant, providing transformativesolutions across all key areas of the value chain, including clinical, safety and commercial operations,finance and accounting and procurement / strategic sourcing. Previous employers include PA ConsultingGroup, Infosys Technologies and Mitchell Madison Group.Krishnan was a National Cancer Institute Fellow at the Harvard Medical School before pursuinga consulting career.Krishnan can be reached at CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquarteredin Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deepindustry and business process expertise, and a global, collaborative workforce that embodies the future of work.With over 50 delivery centers worldwide and 130,000 employees as of September 30, 2011, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world.Visit us online at for more information. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 207 297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 207 121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.