Survey: IT outsourcing to intensify

Information technology is the most outsourced corporate function and more companies are looking to farm out more work.

PriceWaterhouseCoopers interviewed 226 customers and 66 outsourcing service providers. The survey focused on outsourcing across industries and functions, but there were some interesting kernels that are likely to apply to technology management.

Among PwC’s findings:

• 57 percent of respondents said they are outsourcing information technology services and 39 percent said they outsource IT to “a significant extent.” And there’s room for expansion as 55 percent of customers said they will expand IT outsourcing.
• Customers that outsource various functions say they face barriers to making outsourcing deals work. The following responses aren’t specific to IT, but do apply:

45 percent say company values favor using in-house employees;

37 percent say they lack the skills to manage outsourcing pacts;

37 percent say they need to clean up operations before outsourcing them.

• Not surprisingly there’s a bit of a disconnect between suppliers and customers. For instance, 66 percent of customers say near-shoring works best in the real world. Among suppliers, only 24 percent favored near-shoring. Twenty percent of customers say offshore outsourcing works best while 52 percent of suppliers favor offshore work. Given the labor costs that’s not too surprising.

• That disconnect continues when it comes to profit margins. Customers say service providers should expect an after tax profit margin of 5 percent to 12 percent. But more than half of the suppliers wanted a range of 15 percent to 25 percent for profit margins.

Among some notable charts:

This one shows where IT stands in the outsourcing pecking order:

This one addresses what customers say are the most important things to their businesses about outsourcing deals (includes IT and other functions).

Software outsourcing exceeded USUS$1.4 billion last year

At present, the scope of China's software outsourcing service market has reached US$1.43 billion , up by 55.4 percent from the same period last year. The software outsourcing service has become one new growth point of China's software industry. Xiao Hua, director of the Electronic Products Management Department, in the Ministry of Information Industry (MII), pointed this out at the 2007 China (Wuxi) Software Exports (outsourcing) Forum, held in Wuxi, Jiangxi Province.

According to statistics, the annual growth of China's software outsourcing service market reached 52.1 percent from 2001 to 2004. The value of the market increased from US$180 million in 2001 to US$633 million in 2004. It is predicted that China's software outsourcing services market will develop rapidly with an annual growth rate of 48.4 percent from 2005 to 2009. By 2009, the market value of China's software outsourcing services market will reach US$4.56 billion. The rapid growth of China's software outsourcing service market is profiting from the resuscitation of the international outsourcing market and the gradually maturing, local outsourcing market.

By People's Daily Online

Pharmaceutical Outsourcing’s New Frontiers

Pharmacovigilance and Clinical Data Management

By Vicki Tauscher Phelan and Charles Arnold
EquaTerra

As companies in the pharmaceutical industry continue their drive to reduce costs and enhance efficiency by outsourcing various processes, they are increasingly pursuing newer areas, specifically pharmacovigilance and clinical data management.

Compelled by both external market factors and internal pressures to constrain costs and enhance shareholder value, pharmaceutical firms are turning to these two areas as they seek ways to maximize the resources devoted to their core activities, R&D and getting drugs to market. Shifting this type of work to offshore locations helps them meet that goal.

What may be one of the first significant pharmacovigilance and clinical data management outsourcing deals in the industry was the Bristol-Myers Squibb agreement with Accenture, announced in March, in which the work is being done in India.

Both pharmacovigilance and clinical data management are expensive work, yet because they are process-driven, they are strong candidates for alternative delivery models. The work involves highly-skilled individuals, from registered nurses to specialist doctors who are performing relatively clerical functions, such as sifting through data and probing case reports; but despite the clerical nature of the work, it requires such a high level of expertise that a company must pay dearly for it if the work is done domestically.

The requirements, and the stakes, of this kind of work continue to rise. Each new drug is put under great scrutiny, exacerbated by negative news coverage. The volume of events to be reviewed and addressed is going up at an incredible rate, and of course, so is the cost.

BPO vs. CRO

Because pharmacovigilance is a relatively new function in terms of outsourcing, there are not a large number of providers currently able to do the work. Essentially, there are two classes of providers capable of moving strategically, and quickly, into this space:

• The traditional contract research organizations (CROs), those companies focused on drug development and managing trials through their various steps and processes. These companies, such as Quintiles, Covance, and MDS Pharma Services, are well suited to step up and address pharmacovigilance. From a staffing perspective, they have the right ingredients, with doctors on staff who are focused on the relevant processes.

• The more traditional business process outsourcing (BPO) organizations, particularly those based entirely in India. Examples are Cap Gemini, Tata Consultancy Services, Infosys, and Keane.

India is the most obvious choice for offshore outsourcing of these processes. India-based operations have excellent language skills, good education, and a large number of doctors who are looking for higher-dollar work in a related field. This is another instance in which what is considered in India to be expensive, high-dollar work is, by U.S. standards, inexpensive.

While pharmacovigilance and clinical data management processes can be performed in offshore locations other than India, India’s stability makes it the most appealing locale, as evidenced by the Bristol-Myers Squibb deal. The nature of this work makes it a conservative, risk-management function where extreme care and caution are essential.

Why BPOs Have an Edge

The Bristol-Myers Squibb pharmacovigilance and clinical data management outsourcing deal, as well as the recent outsourcing of clinical data management by GlaxoSmithKline to Tata Consultancy Services, both went to well-established BPO organizations. It is these organizations that are actively recruiting the right people to fill both current and future needs. These providers see that while these areas are somewhat of a niche, they still represent a potentially lucrative market space. They are ramping up their hiring not only of practitioners, but also of the skilled individuals to run the operations.

While CRO organizations at this point are better equipped from a technical standpoint, what they lack are some of the things that make large pharmaceutical organizations most comfortable. While they do have the name brand and a record of established stability within the pharmaceutical industry, in most cases they lack the scale that gives clients the impression that they can ramp up to meet the needs of a huge global account. Even in cases where they do possess the scalability, they are having a difficult time convincing huge potential clients of that fact.

CROs bidding for the additional business are doing so with fees roughly comparable to the large BPOs. This takes the cost issue off the table and ends up pitting them against the BPOs on the “soft” questions such as such as scalability, stability, knowledge transfer, and other areas where they can’t compare with the large, familiar BPOs. However, it is important to note that the CROs are working very hard to close that gap and compete at every level for pharmaceutical firms’ business.

Navigating the New Territory

These newer migrations to outsourcing are quite different, from several perspectives, for a pharmaceutical company considering them. From a sourcing process viewpoint, the current pharmacovigilance and clinical data management landscape is similar to the early days of human resources and finance and accounting outsourcing, when the work was not yet commoditized. Because companies, both pharmaceutical firms and service providers, are contracting for an evolving process, it is harder to forge an agreement due to the difficulty of developing a concrete statement of work.

The relationship, by necessity, becomes much more focused on trust and flexibility. Certainly, the agreement can address specific service levels or performance guarantees, but it must also build in other forms of measurement and management, more qualitative than quantitative.

Governing this type of relationship will also be more cooperative between the company and service provider. Often, there will be one or more individuals from the company working on-site in the provider’s facility, on a daily basis. These individuals will serve a two-fold purpose; one is the day-to-day management of the pharmacovigilance or clinical data management function, the other is to serve as a conduit to the company’s governance team.

The qualitative observations of these individuals will form the basis of the company’s evaluation of the service provider. While some baseline comparisons are possible between the performance of the service provider’s teams with what was done in the past by the company itself, they can only be a starting point due to the rapidly evolving nature of the pharmacovigilance and clinical data management processes.

At the point of selection of a service provider, more emphasis must be placed on the levels of training each provides to its people, scalability, and the comparative rates of turnover. These are key areas that affect not only the choice of service provider, but the shape of ongoing governance.

For these reasons, pharmaceutical companies are making much more use of outside resources as they craft agreements with service providers, build their governance organizations, and manage the agreement over time. Outside advisors with expertise in the market, the nature of the work, and the legal aspects of the relationships are being used extensively both by pharmaceutical organizations and service providers.

Some companies first achieve a comfort level in outsourcing (in areas such as IT, human resources, finance and accounting, procurement, etc.) and then deal directly with their existing providers or additional providers to expand agreements or forge new ones. However, pharmaceutical companies, even those who outsource heavily in other areas, still feel they are treading on new ground when it comes to pharmacovigilance and clinical data management outsourcing.

Conclusion

The outsourcing of pharmacovigilance and clinical data management is a trend that is clearly gaining momentum, as pharmaceutical companies reach deeper into their business processes to reduce costs and enhance performance. We should expect significant acceleration now that the trend-setters are falling into place. As the BPO organizations broaden their footprint in these types of deals, and the CROs strive to compete with the BPOs on equal footing, both types of provider organizations will enhance their operations with the right people. As a result, each successive deal becomes that much easier to win.

About the authors:
Vicki Tauscher Phelan is EquaTerra’s pharmaceutical practice lead, guiding clients in service delivery strategies. She has more than 20 years of expertise in IT, consulting, and outsourcing.

Charles Arnold is EquaTerra’s managing director in the pharmaceutical practice. He has more than a dozen years of consulting and financial management experience, with a particular focus on business and IT strategy.

Pharmaceutical Processing
Advantage Business Media

Outsourcing jobs: Why Dalian is so hot right now

By Robert L. Mitchell on Tue, 05/22/2007 - 9:05am

While U.S. workers may lament the loss of IT jobs to New Delhi and other parts of India, workers there could soon be looking over their shoulders - at China.

India's efforts to educate its large potential workforce and to upgrade the infrastructure to facilitate commerce around outsourcing facilities aren't keeping up with demand, which has outpaced supply by 150 to 200 percent, says Wen Xiao, CIO for BT Business, a business unit of British Telecom. When demand exceeds supply, prices go up - and businesess begin looking elsewhere. For BT and other businesses, the costs of offshoring to India have risen at a rate of 15% per year. "A 15% a year jump is quite a burden," Xiao says, noting that BT alone has some 10,000 contracted workers in India and spends between $500 to $700 million a year on IT offshoring services there.

While prices have been rising, companies have had few alternatives. So BT last year began a pilot project to grow its own outsourcing facility in Dalian, China, hiring on a staff of 70 people. The three projects completed in Dalian last year were so successful that BT is in the process of building up its own facility there and hiring on local programmers as employees. "We are setting up our own captive operation...that will have a huge impact," he says.

Dalian gives BT a much-needed second source for IT offshoring services, but Xiao says the operation could give BT much more than a bargaining chip to play with India's powerful offshoring firms. While China represents less than 10% of all offshoring services in Europe today, Xiao expects it to evolve into a major offshoring base in and of itself in the coming years.

Xiao, who is a native of Beijing, believes that China may have another edge over India. While India is struggling to get roads and bridges built, China is moving apace, he says. "We have a much better infrastructure than India because we invest in infrastructure." China's policymakers believe that if they build the infrastructure the revenue to pay for it will come from the additional taxes gained from economic growth, says Xiao, who returned from a trip to China in March. "The biggest problem's government is they're collecting more taxes than they planned. Twenty percent more. That's the problem they're worried about," he says.

Xiao thinks India will need to make substantial infrastructure investments to stay competitive in the long term. There's a saying in China, he adds: "If you don't have the road you will never get rich."

Outsourcing not the job killer once feared: Statistics Canada

Anne Howland, CanWest News Service

Published: Tuesday, May 22, 2007

OTTAWA - The move by Canadian companies to outsource some of their operations to lower-wage countries such as China and India has not had the effect on domestic employment that many feared, a new study suggests.

There is no clear evidence that "occupations potentially subject to service offshoring displayed smaller employment growth than other occupations in recent years," said Statistics Canada in a report Tuesday.

The agency identified industries with a large share of occupations subject to foreign outsourcing of services, or service offshoring, in 1994 and 1995. Then it compared employment trends in these industries to those observed in other industries between two periods: 1987 to 1995 and 1996 to 2006.

"Overall, the findings suggest that if foreign outsourcing of services has indeed had an impact on Canadian employment, this impact is likely to have been modest so far," said the report.

The findings run contrary to fears that began in the early 1980s, when it was argued that many manufacturing jobs in advanced economies were being lost to developing countries, Statistics Canada noted.

"Recently, some observers have argued that employers now use foreign outsourcing not only for manufactured goods, but also for labour services such as engineering, informatics and payroll administration," the agency said. "Concerns have been expressed that employment growth in these occupations might decline or even stop. The study found little evidence consistent with that view."

A PricewaterhouseCoopers survey from November 2005 found that 39 per cent of respondents in information and communications technology thought the impact of globalization of knowledge work on the Canadian labour force would be bad in both the short and the long term. In other industries, 29 per cent agreed with the IT people that offshoring would be bad for Canadian workers.

According to Tuesday's Statistics Canada study, between 2000 and 2006, employment in occupations potentially affected by service offshoring grew 1.8 per cent per year, on average. Employment in other occupations grew at the same rate, it added.

"While employment grew a solid 2.8 per cent per year in professional occupations potentially subject to service offshoring, it was almost stagnant among clerical occupations potentially subject to service offshoring," the agency said. However, other factors besides outsourcing were likely to blame for the decline in job growth for clerical positions, such as automation of tasks previously performed by clerical employees, Statistics Canada added.

In fact, the study suggested, Canada has actually seen a net gain from the outsourcing trend.

In 2004, Canadian firms imported roughly $18 billion of computer, information and other business services. Of these, roughly $1 billion came from non-OECD countries such as India and China, Statistics Canada said.

At the same time, exports of computer, information and other business services totalled roughly $20 billion. Of this, $3.5 billion went to non-OECD countries, the agency added.

"This indicates that while some Canadian firms were increasingly involved in the foreign outsourcing of services, others were also benefiting from foreign insourcing," the report said.