Overseas Outsourcing: The Advantages of IT Offshoring

Life sciences firms haven't exactly been jumping on the offshore outsourcing bandwagon. But faced with unprecedented cost constraints, competitive pressures, and regulatory scrutiny, the industry needs new solutions to its business problems. Some experts think information technology (IT) "offshoring" offers a solid alternative; others question the idea. This interview with Drew Wright, senior vice president of global resources at Ness Technologies, a global IT services provider specializing in the development and integration of end-to-end software solutions, explores how offshoring may enable new business models and opportunities for life sciences firms. Wright, an expert in offshore outsourcing issues, has held senior IT management positions at Pfizer Pharmaceuticals, Exxon Research and Engineering, and Singer-Kearfott.

Drew Wright

The Basics of IT Offshoring

Q: First, what is IT offshoring, how is it different from outsourcing, and which is better?

Wright: Outsourcing uses external resources to supplement or replace inhouse IT personnel. It is done to utilize experts in certain business solution areas or technologies, access pre-existing intellectual property, keep IT services costs variable instead of fixed, manage risk, and avoid distractions. Offshoring, which is a type of outsourcing, utilizes skilled technical staff in lower-wage countries to supplement or replace inhouse IT operations. The primary drivers for offshoring are cost reduction, quality improvement, and availability of a 24-hour work cycle. It is far better to use a vendor with significant domain experience and fully local staff. But cost is a significant consideration. Hence a third concept, SmartSourcing, which combines deep local domain expertise with highly technical offshore resources. SmartSourcing uses local resources for tasks such as diagnosing the problem, conceptualizing the solution, designing the system, and managing the engagement; lower-cost offshore resources for activities like system construction and unit testing; and local or offshore resources, as appropriate, for other tasks.

Q: What's driving the interest in offshoring?

Wright: The foremost factor is cost. With today's economic and competitive pressures, life sciences organizations are looking to reduce costs. Savvy firms want their limited IT dollars to work harder and need to focus more of that work on improving the bottom line. That means offloading routine operations and support to lower-cost resources and redirecting key inhouse and local vendor personnel to envisioning and designing new initiatives that will shorten time-to-market for new regulated products.

Q: What IT services do companies offshore?

Wright: The range is broad, from application development to system integration, ongoing maintenance, testing, operational support, and help desk services. By using highly certified vendors with well-educated and highly trained employees, extremely complex projects can be handled successfully offshore. In the pharmaceutical product lifecycle (see "Pharmaceutical Lifecycle") every activity, from R&D to clinical trials, manufacturing, sales and marketing, and product planning is supported by IT. Offshoring opportunities exist in all these areas and cover a range of systems: product planning portals, data warehousing and business intelligence systems, supply chain management, customer relationship management, and enterprise application integration.

Q: How long does it take to set up an offshoring system?

Wright: Actually, it's pretty quick, if the vendor has a proven model and existing offshore facilities. Depending on the size of the project or engagement, companies should allow one to three months for knowledge transfer and completion of system requirements and design on-site. During this time the offshore team is constituted and trained. Following that, the hybrid on-site/offshore team begins working as a single, effective development team.

Q: How is training managed?

Wright: Typically, training on the client's business situation and on the system itself occurs through a formal knowledge transfer process on-site with key project personnel from offshore. This group takes the knowledge back to the larger offshore team, which they train and manage. A vendor should provide technical resources with significant education, work experience, and training—not new university graduates. Additionally, a vendor should have a process for training and educating employees on an ongoing basis.

Pharmaceutical Lifecycle

The Advantages

Q: Why should life sciences firms consider IT outsourcing and offshoring?

Wright: Today's pharmaceutical, biotech, biopharma, and medical device companies are in a situation they've never been in before. On one hand, tremendous pressure on market share and product revenue is forcing companies to accelerate product lifecycles. At the same time, huge pressure on the bottom line is creating the need for tighter controls over expenses. This puts life sciences companies in a bind: do they spend more to get products to market faster, or do they focus on cutting costs? They have to do both. Outsourcing and offshoring can help firms develop innovative IT solutions that can drive up revenue and, at the same time, keep costs down.

Q: Can you give us an example of how IT outsourcing or offshoring can help?

Wright: Today, IT is a critical part of a life sciences company's business. It's often an innovator of business process improvements and technical solutions that can reduce time-to-market by shortening R&D cycles, speeding up clinical trials, and facilitating regulatory approval. However, IT can't innovate if 50 to 85% of its budget is spent on maintaining and operating existing applications. By outsourcing these kinds of tasks, IT organizations can apply a greater portion of their budgets and key internal staff members toward innovative solutions.

Q: What savings can companies expect?

Wright: That depends on the level and length of engagement and on the outsourcing model chosen. For a simple offshore software development project of three to nine months, a firm could save 20 to 30% of overall costs, all told. A full lifecycle project spanning several years (from conceptualization and design through development, testing, validation, deployment, support and maintenance), could mean much larger savings: up to 40 to 50% over time. Further savings can be achieved by taking advantage of a vendor's build-operate-transfer model (if offered) and transferring ownership of an offshore facility to the company after a few years of operation.

Risks, Best Practices, and Compliance

Q: Isn't it risky for companies to turn over their IT operations to an offshore company?

Wright: Outsourcing isn't inherently risky. According to DataMonitor, the pharma Big 11 outsourced 57% of IT services in 2003. As for offshore, it's worth noting that life sciences companies are already offshoring tasks like manufacturing, packaging, and clinical trials. Handing over IT support is a natural transition. More importantly, to not seize this competitive advantage now could be the more risky choice. Regarding security, good offshore vendors have stringent policies to protect intellectual property, prevent electronic data access, and control physical access to facilities. Buyers should select US-incorporated vendors to guarantee enforceability of contractual protections. To further minimize risk and ensure a successful offshore engagement, quality offshore providers impose strong methodologies and prepare companies for issues like cultural differences, communications, and employee role changes.

Q: Are there special capabilities life sciences companies should look for in outsourcing vendors?

Wright: First and foremost, does the vendor have real depth of relevant business experience? Does it have technical expertise in the types of software applications that the buyer's solution requires? Does it have the global presence needed to support the buyer's employees and customers around the world? Does it adhere to good business practices?

Q: What are good business practices for outsourcing?

Wright: Best practices for an offshore outsourcing engagement include:

• Addressing intellectual property issues up front
• Defining clear service-level agreements
• Implementing non-disclosure agreements
• Identifying on-site and offshore project owners, process champions, and quality owners
• Recommending organizational changes, if needed
• Planning for employee issues
• Anticipating cultural differences
• Implementing good vendor governance processes
• Planning for disaster recovery and business continuity
• Doing up-front risk assessment
• Implementing robust change management
• Assuring physical and network security.

Q: What about existing IT employees?

Wright: Planning for employee issues is a key priority of any outsourcing engagement. While there isn't enough space to address this issue here, up-front planning is necessary to minimize the impact of outsourcing on existing employees.

Q: What do regulatory agencies say about outsourcing?

Wright: This is probably the area of greatest concern for life sciences firms, but there really are no regulatory restrictions to using offshore facilities. If a company's validated system development and testing procedures meet FDA requirements, it really doesn't matter where the work is done as long as the correct procedures are rigorously followed.

Q: What about compliance with 21 CFR Part 11?

Wright: For IT solutions requiring 21 CFR Part 11 compliance, it's important to partner with an outsourcing provider with significant life sciences experience who has up-to-date regulatory experience and high-level certified processes. The vendor should not only know how to implement compliant systems but should be qualified to advise on the regulations. The same consideration applies to HIPAA and Sarbanes-Oxley regulations.

Q: Do you recommend that life sciences companies use IT offshoring?

Wright: Yes! And those who move first will achieve a significant competitive advantage. But vendor selection is critical. The key to success is local vendor staff with substantial domain experience. They should remain engaged in the project throughout and should be coupled with highly qualified offshore technical resources to lower the project cost.