Next time your mom gives you a hard time, ask her if she does triathlons and brokers mega-outsourcing deals for big pharma giants. Oh, and that’s while putting two girls through college, one of whom is a Varsity pole-vaulter. And apparently she has dinner on the table every night too…
OK, I made up that last part, but meet Vicki Phelan, one of the sourcing industry’s leading advisors in the pharmaceutical and life sciences industry. These days, Vicki plies her trade with KPMG’s Shared Services and Outsourcing Advisory group, having come across with the 2011 EquaTerra acquisition, having earned her stripes in the pharmaceutical, chemicals and life sciences industry with IBM during her earlier career.
So, let’s hear more about what’s happening in the sector…
Phil Fersht (HfS Research): Hi Vicki, we’d love to learn more about your background and how you’ve come around to doing what you are doing today
Vicki Phelan (KPMG): Hi Phil – I feel as if I was born and raised in, and certainly live and breathe, the life sciences and pharma industry. I started my career on the service provider side, working in IBM’s pharmaceutical and chemicals practice. After many years there, I went to a start-up focused on ITO advisory services, primarily for healthcare organizations. I joined sourcing advisory firm EquaTerra pretty much at its inception to establish and grow its pharma and life sciences practice. When KPMG’s shared services and outsourcing advisory group acquired EquaTerra, I was named its life sciences practice leader. In that role, I focus on everything life sciences, with the exception of the provider and payor segments. I am also married to a pharmaceutical company executive, so I’m surrounded by pharma all day, everyday, and that helps me gain different perspectives of the marketplace.
Phil: One of the most fascinating things about pharma is that it was one of the industries, decades ago, to outsource major elements of its core business (contract bio-tech, clinical trials, research, etc.), but has also been one of the laggards to move administrative functions to shared services / outsourcing. Why do you think that has been the case and do you see this shifting now?
Vicki: From an evolutionary standpoint, per a study we conducted a few years ago on which firms outsourced what and when, the path was pretty clear – it started with IT, and then expanded into different aspects of the SG&A processes, driven by the need to address patent expirations, M&A, cost reductions, downsizing, and rightsizing issues. All of those events have increased the outsourcing footprint.
There are different flavors of how to achieve business goals, and many pharma companies are now starting with financial shared services. If that works, then they are willing to expand to a larger scope of multi-functional activities.
One of the most progressive pharma companies started outsourcing aggressively, and it was also one of the first firms in the space to establish a shared services organization. After a change of leadership and company strategy 10 years ago, it disbanded its shared services organization, but it’s now looking to build it up again. It’s aggressively trying to optimize and gain efficiencies across its functions. What’s interesting is that it’s looking beyond SG&A to marketing, legal, data analytics, and some R&D.
Phil: In your view, Vicki, what makes sense for pharma companies to keep in house vs. externalize – and how should they base those decisions moving forward?
Vicki: The sacred cows that should never be outsourced remain strategy and aspects of the R&D function relating to drug development. But over the past five or six years, the thinking has changed, and pharma companies are increasingly interested in outsourcing clinical data management, pharmacovigilance, and some of the regulatory affairs-related activities. And they’re not only looking at outsourcing domestically, but also to emerging markets such as China, India, and Poland. Their outsourcing appetite has increased, and their willingness to mitigate and manage their risk is becoming far more aggressive than it has been in the past.
When it comes to building a shared services organization, I’ve determined pharma companies are looking for seven common things: alignment of their operating model for efficiency/effectiveness, optimization of their global footprint, a redefinition of the business model for greater integration, improved collaboration across teams, active mining of data to drive greater insight, a drive for growth in emerging markets, and protection of their brand through delivery of a common customer experience.
Phil: When we look at shared services vs. outsourcing, or even a hybrid of both for these businesses, what do you see becoming more dominant in the future? How far do you see pharma looking to go, in regard to outsourcing, and what role do you see shared services playing in the future as pharma companies look at their different options?
Vicki: Traditionally, pharma companies have viewed outsourcing as the be-all end-all, and shared services was off to the side. But I see outsourcing as an execution method for shared services, and pharma firms need to strategically design and structure their shared services to address the sticking points I mentioned earlier. The issues boil down to what type of model can be employed to get the most productivity and cost savings, while optimizing the scope and delivering the best customer solution experience. I believe shared services can be a good way to balance the different objectives that pharma is pursuing.
There are obviously many ways to approach this, including: outsource part of a function and keep the other parts as a shared service, utilize a provider to implement the shared service, utilize a provider to run the shared service in its own footprint, region, etc.
For example, one global pharma firm utilizes a hybrid model in which IT is 70 percent externalized (outsourced or via staff augmentation). It uses shared services for some components of finance, IT and HR. And it is in constant evaluation mode to determine the right combination to optimize the user experience. Another had a multitude of outsourced functional relationships in IT, HR, finance and procurement, brought all of the transactional activity into shared services, retained many of its outsourced relationships, but kept the higher value activities in the functions.
There is no one-size-fits-all approach…the “best” or most suitable hybrid solution depends on multiple company-specific variables.
Phil: If you could peer into a crystal ball and envisage what the perfect future pharma organization would look like, what functions do you see sitting in-house at pharma companies vs. those being managed by providers?
Vicki: In the back office, I think that most of IT will be outsourced, as that’s typically the most cost effective way to deliver IT. I can see parts of finance and accounting being outsourced, but depending on how a company designs its hybrid model, that could instead land in shared services. A lot of HR has gone out, but that’s been a very tentative play, as companies need to discover the right stay/go balance.
In the front office, I think a large portion of sales forces will be contracted out, yet some will be retained given the need in certain situations for face-to-face interaction. An increasing amount of sales will be done via social media and the cloud, meaning that companies won’t need the same level of headcount as in the past.
Some organizations have stated they would like to retain some of their regulatory functions, but things like regulatory affairs are being outsourced including much of document management and medical writing. I also think there is a good opportunity for a big piece of legal to be outsourced.
The bottom line is that outsourcing is a powerful method of execution, and a shared services umbrella can cover what is not in outsourcing scope.
Phil: We have seen the blockbuster drug model slowing down in recent years, and the increased use of generics; is this something you see continuing or do you think we are going to see a comeback with some new blockbuster drugs coming out – and what impact does that ultimately have on sourcing strategy?
Vicki: I hope that new blockbusters are found. They are critical to the health of the world’s population, but they are increasingly hard to come by. The regulatory approvals are far more difficult than they used to be. Part of the challenge is that there are multiple regulatory agencies globally, and all of them have their finger in the pie to some extent, which makes the process lengthier and more cumbersome. My crystal ball theory is that there will be a lot more collaboration, more emphasis on partnering between big and small pharma companies, mergers to buy pipeline, and acquisition of start-ups that have developed some really great molecules.
Phil: I think the wondrous thing about pharma is its global nature, you’ve got manufacturing and biotech work going on in places such as Singapore, China, India and Australia and we are seeing a lot of manufacturing in Africa now as well. How should pharma best govern global operations with such a complex and diverse array of opportunities and partners – and how do you advise your clients in that respect?
Vicki: Pharma companies must take into account a wide range of concerns and considerations, including political and geopolitical stability, safety, leadership, tax, and IP, when picking a manufacturing location. And it doesn’t matter whether they are outsourcing manufacturing or doing it themselves, as they are ultimately responsible for the outcome. So there are most certainly many places where the savings does not outweigh the risk or the hassle of relocating.
Many pharma companies that are engaged in multi-continent location selection activities actually have internal oversight organizations that focus not only on the service delivery that comes out of potential locations, but also regularly monitor what is going on from labor pool, monetary, political, leadership and other standpoints. And KPMG has a software product offering that provides clients with weekly updates on multiple factors that may impact proper manufacturing and success.
When it comes to outsourcing, we have always said companies must consider governance from the moment they think about going the third-party route. And this includes both internal governance for their own organization, as well as for their external providers, to make sure there is end-to-end performance measurement.
Phil: You’re 18 again – you can start all over again and do things differently… what would you be doing today?
Vicki: It’s a great question, because you ultimately come to realize that a combination of luck, skill and being in the right place at the right time comes into play in leading you to the job you love.
My major in college was environmental science, I have a master’s degree in environmental management and environmental law, and I was recruited to IBM because they loved my analytical skills. At the same time, if you told me when I was 18 years old that I would be doing what I am doing today, I would have told you to go jump off a bridge.
But I’ve been very fortunate. The pharmaceutical marketplace has always been very interesting to me. I had the benefit of working for a huge corporation where I got fantastic training, of working for two terrific start-ups where I learned a whole different aspect of the business, and the opportunity to then roll all of that into the KPMG system. And I met my husband through being in the pharma space.
Truthfully, I wouldn’t change a thing.
Phil: Vicki, it’s been a pleasure getting to spend time with you today – am sure our readers will enjoy hearing your views.
Vicki Phelan (pictured right) is Director for Life Sciences Advisory at KPMG’s Shared Services and Outsourcing Advisory group.