Reaching Out

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BY GREG GULYAS

The most powerful rationale that companies use to justify turning the management of their information technology requirements over to an outside supplier is that it enables them to focus on what they do best. Companies can focus exclusively on their core businesses while outsourcing their information technology to an experienced provider. This holds particularly true for companies in the life sciences sector.

Life sciences companies face numerous and immensely complex challenges. The sector’s daily operating environment includes mergers and acquisitions, patent infringement issues, and the day-to-day pressures of a global economy and international competition. A product-development process that can be longer, costlier and more tightly regulated than most other industries further amplifies their challenges.

There are also few sectors that have the opportunity to make such a powerful impact on their business through the use of information technology. Massive database needs, global collaboration efforts, enormous requirements for processing power and potentially crippling document-management issues are just the tip of the iceberg. It does not make sense to ask business managers — who should be focused on commercializing life sciences discoveries — to double as application developers, systems designers and technology managers.

Business managers concluded many years ago that it made more sense to bring in experts to address IT needs. Still, for a long time, outsourcing was more about tasking outside vendors with specific jobs or asking them to manage specific projects within a department of a larger organization. More recently, companies around the globe have realized the full value of outsourcing. They have used it to strategically transform their businesses by outsourcing entire IT operations or business processes, such as human resources, logistics, customer relationship management, or finance.

The Right Fit

Finding a services provider that can assist a life sciences company in outsourcing can be a challenge. The IT provider needs to not only understand IT, but it also needs to understand the stringent standards that apply to life sciences companies. These standards include: GMP (good manufacturing practices), GLP (good lab practices), GCP (good clinical practices) as required by Health Canada, and as defined by 21 CFR Part 11, FDA Act in the U.S., the European Health Authority and the various Asian health authorities. If your potential outsourcer does not provide these services already, it may face numerous and unforeseen challenges. In choosing to outsource a company’s IT environment, life sciences companies can redirect resources to focus on their business and on meeting their customers’ needs. For example, in September, MDS Inc. (Toronto, ON) and IBM Canada Ltd.

(Markham, ON) announced that they had signed a seven-year global technology services outsourcing agreement, valued at $265 million. MDS said that it entered into that agreement to concentrate its resources on its clients and on growth opportunities in its international health-care markets. While well-managed computer networks are central to MDS’s operational abilities, the act of managing those networks is not an expertise that the company needs to retain. MDS is advancing the frontiers of medical testing and therefore needs to focus on developing its relationship with its customers and experts in the life sciences field.

Some might argue that in many fields of the life sciences, technology expertise is fundamental to the business. It is true that so much of what any life sciences firm does is computer-intensive. But there is a difference between knowing how to use a tool that is fundamental to your success, and investing the time in knowing how to invent, build and maintain that tool. At some point, the time investment in managing a tool interferes with your ability to get the job done.

Deciding to Outsource

One needs to take a look at the key issues that are the primary drivers of the outsourcing phenomenon to understand the value of an outsourcing agreement.

Key issues driving outsourcing decisions:

redeploy valuable in-house IT talent
improve service levels
focus on core competencies
enhance IT effectiveness
align IT strategy with business goals
build world-class processes
migrate to new technology platforms
improve overall competitiveness
reduce IT costs
improve shareholder value
share/mitigate risk
These challenges all address business operational issues, and they all create opportunities that enable a life sciences company to deploy its resources more effectively.

It is also helpful to look at a survey on outsourcing conducted online in April 2002 by CIO magazine, the results of which were published in May 2002. Within the survey, respondents were asked to list both the keys to successful outsourcing and the greatest risks of outsourcing.

The outsourcing provider’s reliability was listed most frequently as being a necessary key to achieving successful outsourcing projects. Respondents indicated that outsourcing deals should be fair partnerships in which the objectives, expectations and performance measurements need to be clearly stated. Other issues noted as being essential to outsourcing partnerships were: clear contracts that “spell out service level agreements,” solid project management, partnership management skills, compatible corporate cultures and a commitment to co-operate in order to successfully achieve the project’s end.

One of the greatest risks of outsourcing cited by CIOs — the potential deterioration of service quality — clearly highlighted the overall theme of respondents’ main misgivings regarding outsourcing, which included concerns over in-house knowledge and expertise retention. Loss of control over the project, scope creep, technologies, costs and the company’s IT direction were also listed as outsourcing risks. Additionally, respondents demonstrated unease regarding the issue of business dependence: having to rely on an external provider for services that may be key to the company’s operation, and having to depend on the outsourcing provider’s financial stability and longevity.

With those risks and rewards in mind, what should you look for when outsourcing? What questions should you ask yourself and your potential outsourcing partner?

Defining the Scope

First, it is important to agree on the scope of the contract. Outsourcing is similar to other consulting agreements in this regard. If the scope of work changes after the contract is signed, the timelines and budgets can be severely strained.

It’s equally important to clearly articulate what constitutes success. You should be able to work with your outsourcing partner to identify your goals and expectations. You should have the processes and measurements in place to track your goals and identify issues early.

There also needs to be enough flexibility in the contract and the relationship for each party to easily adapt to change without major conflict or confrontation. A business is a dynamic entity, and management of its processes should reflect that. Build a partnership that anticipates negotiation and communication. If the agreement is well structured, both parties will be highly motivated to succeed, and all processes should be set up from the outset to facilitate success.

It is critical to create a contract that shares goals, risks and rewards. This also creates a framework that will encourage both the firm and its outsourcer to succeed. If you follow these guidelines, you can rely on an outsourcer to help you transform your company into a highly responsive, effective, flexible on-demand business that races ahead of your competitors.

Greg Gulyas is the vice-president of Sales and Marketing for Global Services, IBM Canada Ltd.