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Strategic outsourcing

Sponsored research shows common thinking on why pharma is engaging more with CSOs

9 jets flying in formation It seems that the soothsayers have been predicting the demise of the traditional primary care medical sales representative for at least the last 20 years. The initial reasons behind this pessimism related to the reduced access multi-tiered sales teams had to GPs. GPs literally did not have the time to see everyone they might have liked to see. Then it became more an issue of the declining industry reputation, and concerns over the degree of scientific objectivity in the representatives' messages.

Around five years ago, the soothsayers were proved wrong, at least in their predicted timing. While it is fair to say that virtually every company has now engaged in some degree of sales force re-engineering or down-sizing, emboldened, no doubt, by the actions of its competitors, the most dramatic change of sales strategy came, arguably, from an unexpected source: Takeda UK.

Three years ago, faced with enormous competition in its two key markets, Takeda concluded that it could no longer maintain the share of voice that the wisdom of the time suggested it needed to maintain growth of its brands. Instead, after extensive market research, Takeda ripped up the traditional sales model and replaced the 150-strong primary care sales team with a strategic sales force of 45 regional account directors. The plan was that this resource would be supplemented from time to time with further direct sales promotion, but that this resource would be genuinely used in bursts as and when the local and/or national markets were receptive.

Takeda outsourced its sophisticated and highly specialised team to Ashfield In2Focus, leaving the rigorous recruitment process and ongoing co-ordination of the team in the hands of this contract sales organisation (CSO). The rationale behind Takeda's decision was that senior strategic corporate leaders should spend less time dealing with the daily grind of 'issues' and more time planning, meeting customers and truly adding value to the business using the skills and motivations for which they were best suited.

Cementing relations
In her paper, Contract Sales Organisations: Making the transition from tactical resource to strategic partnering, Beth Rogers, programme manager and principal lecturer in sales management at Portsmouth Business School, and a UK expert in healthcare outsourcing, commented on the Takeda and Ashfield In2Focus setup. She said, "Although the terminology of strategic relationships/partnering is often over-used by optimistic suppliers, the long-term nature of this arrangement suggests there is strategic intent in this example."

Since then, CSOs have further cemented their place as partners to the UK pharmaceutical industry, and are increasingly invited by clients to discuss strategies earlier on in the planning cycle. The sophistication of today's CSO means they can deliver a wide range of additional services, including targeting and segmentation, call planning, differential resource planning, training, sales force benchmarking, market research, pharmacovigilance, medical information and even event management.

Yet, despite the degree of sharing and trust invested in CSOs by some pharmaceutical companies, there is a cohort of companies that remain suspicious of the ability of the CSO sector to deliver true value to their businesses. With that in mind, Ashfield In2Focus sponsored Beth Rogers to carry out research into the decision criteria used by senior managers with respect to CSO usage. Beth is currently preparing a paper for publication based on the results, but a report is available via the sponsoring organisation.

Research findings
It was interesting to see, from the sponsor's perspective, just how prepared senior industry figures were to assist in this project. From conversations with a number of them, it was clear that they felt further understanding of the real value to be gained from outsourcing was necessary, and that this research was a step toward such understanding. The dozen individuals who took part represented companies with a combined UK market share of approximately 30 per cent, and, therefore, can be regarded as significant in that sense.

Equally, having been involved in a number of competitive pitches for outsourced projects, Ashfield In2Focus, as the sponsoring company, was very motivated to understand the nuances of some of the key decision criteria.

What came across strongly from the research was the degree of common thinking among the group of interviewees. All of those involved had experience with CSOs, and it was interesting to note that the increasingly varied and flexible sales models and services on offer from CSOs had been utilised by the group.

The reasons for using a CSO were strongly dominated by a group of linked themes. Perhaps unsurprisingly, management of risk, flexibility and speed of response were the predominant replies. Balancing cost to value lay at the heart of a number of the questions, and it was striking that a number of respondents commented that the overriding advantage of outsourcing was not in the cost comparison, but the fact that using CSOs converts much of the fixed cost base of the organisation to a variable cost, making the cost of the resource more controllable.

However, even more interesting is the absence of a real understanding of the true cost of insourcing versus outsourcing. Beth was unable to discover how any company represented in the research actually quantified the financial benefit of the reduction in risk. It appeared, therefore, that this fundamentally important benefit of outsourcing was not being fully taken account of in any financial calculations. Many boardrooms have echoed to the words, "sorry, the service is just too expensive", when in fact it may have been less expensive than the in-house version, depending on how costs have been taken into account. Naturally, in any CSO service there is an element of profit to be earned by the CSO, but increasingly pharmaceutical companies are coming to appreciate a number of factors that balance the perceived cost of the profit element:

• Deploying a CSO resource on a long-term, strategic basis can help to reduce pharma's operational costs if appropriate analysis is done and decisions are taken. The removal of day-to-day operational issues from the senior leadership can liberate them to engage in more value-adding activities with customers. The impact that greater customer understanding can contribute to the strategic plan is highly significant.

• Using a CSO resource transfers the employment risks away from pharma. This has multiple benefits that have financial value, including speed of deployment/redeployment, and the inherent risk of direct and indirect costs arising from employment-related litigation. The time involved in defending such claims can be onerous, and, as we all know, time is money.

• CSOs can deliver a number of services, such as training, at least as effectively, and often more flexibly, than headcount teams. Getting sales people ready and on the road swiftly has real value.

• Economies of scale and facilities that exist in the largest CSOs can offer financial benefits to pharma, for example, sourcing of cars, use of sophisticated training facilities, utilisation of travel services.

So, perhaps the whole pharma-CSO relationship is entering a new paradigm.

• What some pharma companies see as core skills, other companies appear willing to outsource.

• In recent months, there have been large-scale transfers of resource from pharma headcount to CSO headcount, reversing the usual trend. Such a scenario would have been unthinkable until recently.

• Increasingly, even large companies are concluding that it is folly to expand sales resource on headcount in the current environment, preferring to manage the risk of a new product launch by utilising the skills of a CSO.

Beth Rogers comments that within Europe, the UK is the riskiest market in which to operate, with the NHS as the one dominant customer. She is clear that a flexible resource, such as that provided by CSOs, is essential to maximising commercial opportunities at acceptable risk. She suggests that CSOs, therefore, contribute to the overall profitability of the UK pharmaceutical sector.

Barrie Haigh's original ground-breaking idea has resulted in over 35 years' experience of CSO delivery in the UK. The evolution of companies operating in the sector has been profound. The trust invested in CSOs is increasing, and the roles for which CSOs are now recruiting teams are more complex and sophisticated. Some CSOs are taking this evolution to a new level and have begun diversifying into service delivery areas that complement the core. The thinking behind this expansion is as much pragmatic as strategic. As the number of absolute sales heads in-market decline, there may come a day when the CSO's field headcount – it's core business – will decline too.

The relationship between the CSO and the industry is symbiotic; we certainly need each other.

Defining the future
Undoubtedly, this is a fascinating time. My view is that many senior executives accept the logic and value, even necessity, of outsourcing. They are, however, still wrestling with the emotional aspect of the cultural and operational implications that extensive outsourcing implies, and they are having to consider what is core, and what is non-core. As this process continues, it is a brave person who would confidently bet on what shape the industry will take in the next five years.

The Author
Andy Holgate is business unit director at Ashfield In2Focus
To comment on this article, email pm@pmlive.com

31st March 2009

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