Outsourcing Insights has been a platform for Nice Insight to share some simple strategies on how to get the best results from an outsourcing relationship, whether that relationship is tactical, with a preferred vendor or strategic partnership. Each of these different types outsourcing relationships has its merits, and, not surprisingly, most sponsor organizations engage CROs that fall into each category — only 5% of respondents stated all of the CROs they work with are strategic partners.
The results from a recent strategic partnering survey indicated that approximately one-third of total outsourcing expenditure on early stage development is spent with each type of CRO alliance. This is both interesting and important because for the past several years, the talk of the industry has been directed primarily at a “strategic partnership model.” So much so, that the investment firm Morningstar has reported that “this type of partnership model has been key to CRO success and growth” (referring to an 11.1% increase in CRO revenue in 2011). However, if a CRO focuses solely on engaging in strategic partnership modeled relationships, the company may be inadvertently missing out on the bulk of sponsors’ financial outlay. Overall, sponsors indicated they spend more than two-thirds of their expenditure with tactical providers (37%) and preferred vendors (34%). As a contract service provider, the key is to know when to position the business as each type of provider, and how to win business slated for each provider category.
Similar to building an investment portfolio that will maximize profits while limiting risks, diversity is essential. Diversity in outsourcing alliances — from both the sponsor side and the contractor side—protects each party from the old cliché of putting all of ones eggs in a single basket and enables tiered benefits from the different relationships. For the same reason a financial advisor should steer an investor away from putting all of her money into one type stock, it’s not a good idea to put all business development efforts into forming strategic partnerships. Likewise, from a sponsor prospective, there will be times when the benefit of engaging a CRO on a tactical level outweighs the benefit of using a preferred provider or strategic partner for the same job.
Each time Nice Insight has asked the sponsor audience about their interest in forming strategic partnerships (defined as a long-term, win-win commitment that maximizes the effectiveness of both participants resources), the results come out in strong favor—fewer than 10% of respondents were neutral or uninterested. However, when these same respondents move on to a series of questions that help to establish their rationale behind outsourcing, the results frequently point towards tactical motivations. This is a fundamental challenge to the strategic partnership model because the reasoning used by these decision makers doesn’t always contribute to the results they say they want. Affirming an interest in strategic partnerships, yet placing a heavy emphasis on “process” over “outcome” or “access to capacity” over “access to best in class performance” speaks to the complexity of outsourcing motivations. The graph on the following page shows the characteristics respondents selected that best coincide with their business’s operating model when working with outsourcing partners. Understanding and applying this information will help CROs to refine their approach by speaking to the underlying factors that prompted the sponsor to outsource the services. It may also help sponsors better understand their own outsourcing motivations, and identify opportunities to maximize the benefits of outsourcing to a diverse assortment of CROs.
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