The decision by the European Parliament to allow public health providers to default on their payment dates by 60 days without compensation has been strongly criticised by the medtech industry.

The Committee on Internal Market and Consumer Protection (IMCO) of the European Parliament, voting on the recast of the Late Payment Directive, set a payment time for public authorities of 30 days - but gave public health providers a general exemption of 60 days.

The IMCO decision also deleted the lump sum compensation proposed by the European Commission in its draft of the recast. Creditors will only be entitled to a compensation for recovery costs of €40.

The unpaid invoices due to medical device companies across Europe currently amount to €11 billion.

Eucomed, the European medical devices industry association, expressed disappointment with the revised legislation. According to John Wilkinson, Eucomed's Chief Executive, the IMCO's version "steers clear of addressing the real issue of many public authorities ignoring the terms of contracts that they have signed."

"If the Council of Ministers confirms these changes we fear that the €11 billion of overdue payments will continue to enlarge, and this will starve the industry of the resources needed to bring innovative treatments to patients," he added.

EDMA, the European Diagnostic Manufacturers Association, noted that the exception might lead to 60-day payment delays becoming the norm for public health providers. It also expressed regret that the lump-sum compensation proposal had been deleted.

"The MEPs have clearly missed an opportunity to set the grounds for a culture of prompt payment, which we would like to see," EDMA Director General Christine Tarrajat commented.

The adoption of the final Parliament Report is scheduled for May. If agreement is reached in first reading, the Recast of the Directive will be published before the end of 2010.

 
John Wilkinson

GE Healthcare and 10 other medical device companies have committed to reducing the energy consumption of their new ultrasound products by 25% (relative to 2005 levels) over the next two years.

With support from the EU Commission, 11 members of the European Coordination Committee of the Radiological, Electromedical and Healthcare IT industry (COCIR) have agreed to adopt more energy-efficient designs in their ultrasound imaging equipment.

Ultrasound is the first product area to see the EU Commission's Energy Related Products (ErP) Directive being implemented. Additional modalities will become subject to self-regulation each year.

"We're excited to work together with COCIR to make a difference in medical devices," said Reinaldo Garcia, President and CEO of GE Healthcare for EMEA. "The new generation of medical devices can help save impressive power consumption throughout the industry."

The ErP Directive establishes standards for resource efficiency, focusing on the product platform and life cycle. COCIR's commitment to self-regulation means that strict requirements will have to be met and improvements achieved before new products are commercialised.

"COCIR and the member companies fully support the ErP Directive to proactively reduce and optimise energy consumption, and is seen as the leader in the field of environment and at the forefront of green initiatives with intelligent EcoDesign solutions," said Nicole Denjoy, COCIR Secretary General.

An implantable wireless nerve stimulator that corrects 'drop foot' by restoring control of the ankle joint has been launched in the UK.

The ActiGait system from Otto Bock Healthcare could improve the mobility and independence of many stroke sufferers.

The implant stimulates motor nerves in response to movement of the foot, restoring a steadier and more natural walking pattern.

Drop foot, the inability to raise the foot due to muscle weakness or paralysis, is a common result of nervous damage following a stroke.

ActiGait is implanted beneath the skin of the thigh, with the control unit worn on a belt. It is less cumbersome and more user-friendly than wired devices with external electrodes.

Studies carried out with 15 patients in Denmark showed that Actigait increased the speed and distance of independent walking in patients suffering from drop foot, and improved their confidence.

The implant has several components. A wireless heel switch registers the lifting and placement of the foot and triggers signals from a control unit via a lightweight antenna on the thigh. The signals pass through the skin to an implanted cuff electrode around the motor nerve that activates the muscles of the front and lower leg.

Dr. Salim Ghoussayni, Business Development Manager for Neurostimulation at Otto Bock Healthcare, said: "Feedback from patient studies in Europe has revealed that ActiGait enables stroke patients to walk longer distances at an increased speed and with improved confidence. As it is implantable, it also offers a more cosmetic and practical user-friendly alternative for individuals who cannot use a surface device due to skin reactions, for example."

Otto Bock is a supplier of assistive technologies that restore mobility and support independence.

 
ActiGait

The world's first light-emitting sticking plaster for treatment of skin cancer has been launched in the UK ahead of Sun Awareness Week (3-9 May).

The Ambulight PDT from Ambicare Health Ltd will be distributed to the NHS and private clinics by Schuco, a specialist supplier of skin care technologies whose team of product specialists cover the UK from regional sites.

The plaster is used in conjunction with a prescribed drug to treat non-melanoma skin cancer, delivering photodynamic therapy (PDT) directly to the skin lesion site.

Current PDT treatment normally involves a day patient appointment at a hospital where a large static PDT light source is used. Ambulight PDT enables patients to continue with their normal activities while undergoing treatment.

Ian Muirhead, CEO of Ambicare Health, said the company hoped that Ambulight PDT would become "the gold standard treatment method for non-melanoma skin cancer, not only providing better more comfortable and convenient treatment for patients than existing methods but also reducing costs for the healthcare provider".

He added: "Our exclusive UK distributor, Schuco, has a key understanding and enthusiasm for the device which will be invaluable in progressing its widespread adoption.

"Sun Awareness Week is a great initiative to help raise an understanding of the risks of excessive or unprotected sun exposure, promoting important messages of skin cancer prevention and sun safety advice."

Anthony Hubbard, MD of Schuco, said: "With the Ambulight PDT, Schuco can now provide the means for non-invasive screening, detection and treatment of skin cancer, thus leaving far fewer scars on the skin and the NHS's financial resources."

Ambicare Health specialises in ambulatory light sources for healthcare applications.

 
Ambulight PDT

Doctors.net.uk has called on the healthcare industry to respond to the challenge of engaging with its customers online, following a record year for the website in 2009.

Statistics on the use of the site have revealed that doctors are increasingly turning to the internet as a regular source of information and a way to interact with colleagues.

Surges in activity were reported across the network’s clinical discussion forums and news pages during the outbreak of swine flu in April 2009, and when bad weather left doctors and patients snow-bound in February 2009.

The findings also indicate greater usage of multimedia content by doctors. There was a near five-fold increase since 2007 in doctors accessing medical conference highlights, coupled with a growing interest in podcasts.

There was also evidence of a trend towards greater levels of interaction, including the immediate peer discussion offered by the website’s forum.

Dr Tim Ringrose, Medical Director at Doctors.net.uk, said: “With doctors becoming more and more online savvy, the onus is now on the healthcare sector – whether pharmaceutical, medical devices, public sector or otherwise – to tune in and respond to the new challenges and opportunities presented by online engagement.

“The leap in usage of learning modules, conference highlights and podcasts is illustrative of opportunities that can be harnessed by the sector. As trust grows, more and more doctors are turning to such services for relevant updates or to gain insights from thought leaders – an opportunity that, due to time constraints, would otherwise pass them by.”

AstraZeneca has been forced to pay $520 million to settle a lawsuit filed by a former employee about unlawful marketing of the company’s antipsychotic Seroquel in the US.

The representative in question received $45 million for his role in the investigation. This was his second big pharma payout following a similar case against his previous employer Eli Lilly.

AstraZeneca was accused of marketing Seroquel for off-label uses, including insomnia and psychiatric conditions outside its licensed use for schizophrenia and bipolar disorder.

The company has denied the allegations. The company’s US general counsel Glenn Engelmann said: “The company is committed to meeting the expectations and obligations of a leading biopharmaceutical company, while continuing to provide valuable medicines to millions of patients.”

The federal government claimed that AZ paid doctors to write favourably about Seroquel in unlicensed uses, as well as paying for doctors to travel to resort locations to advise on the off-label promotion of the drug.

AZ also faces more than 25,000 product liability lawsuits over Seroquel, which some patients claim has caused their diabetes.

Tarceva (erlotinib) will soon be available to more EU patients with advanced non-small cell lung cancer (NSCLC), following its approval as a first-line maintenance treatment in this setting.

The European Commission has extended the indication of the drug to include monotherapy maintenance treatment in NSCLC patients whose disease remains largely unchanged (stable disease) after platinum-based initial chemotherapy.

Although manufactured by US-based OSI Pharmaceuticals, the drug is marketed in the EU by Roche.

Colin Goddard, Chief Executive Officer of OSI Pharmaceuticals, said: “We are pleased that the European health authorities recognise Tarceva as a valuable option for lung cancer patients and their physicians when used in the first-line maintenance setting.

“We look forward to working with our partner, Roche, to advance the robust Tarceva lifecycle program, which includes evaluating Tarceva in the adjuvant setting and as a first-line treatment for advanced NSCLC patients with an activating EGFR mutation as well as branching into other disease settings including liver cancer.”

Tarceva was also approved by the FDA as a maintenance treatment for patients with locally advanced or metastatic NSCLC whose disease has not progressed after four cycles of platinum-based first-line chemotherapy earlier this month.

Lung cancer is the most common cancer worldwide. NSCLC accounts for almost 85% of all lung cancers and progresses rapidly – less than 5% of advanced NSCLC patients survive for five years.

Dr S has been a practicing GP for over a decade. As an increasing number of doctors close their surgery doors to medical representatives, she remains one of pharma’s more accessible customers. But perhaps that’s not surprising. Having worked as a drug rep for five years in the late 1980s, Dr S has an empathy with the modern sales professional. Pf spoke to her to uncover her unique perspective on our profession.

The past few years have witnessed an avalanche of media coverage detailing how the changing NHS and healthcare landscape is impacting the role of the medical sales representative. Maintaining and improving relationships with a growing number of influential healthcare professionals and NHS institutions has challenged the pharmaceutical industry to adapt its commercial model and move away from traditional methodology. Indeed, if you were to believe last year’s Pharma 2020 report from PricewaterhouseCoopers, you might arrive at the assumption that the death of the medical representative is nigh. This overly pessimistic view is, of course, too simplistic to be taken at face value. Whilst the skill sets required to be a good representative clearly need to be refined and developed to align with the evolving NHS environment, pharmaceutical companies will still need to launch products using sales forces as their key source of 1:1 customer interaction. Sales roles will be (and in many cases already have been) redefined, but the core principles of selling will remain.

The impact of change is already being felt. The number of representatives in the field has reduced significantly in recent years and it seems likely that this trend will continue in the short term. So too will the identity of the customers they call upon. But, as true account management cements itself into the foundations of pharma’s commercial infrastructure, it will be important to ensure that the industry’s core traditional customer – the doctor – remains at the heart of the interaction. Amid talk of newer influencers and the increasing importance of non-clinical customer groups, it would be easy for pharma to marginalise the role of the GP and focus attention elsewhere. This would be a mistake. Gaining access to GPs is getting harder but, despite rhetoric to the contrary, the GP-rep interaction is still highly valued. PwC’s 2020 report claims that one in five doctors refuse to see sales representatives. By definition, this means that four out of five still do and, as such, value what they can offer. And nowadays, that offering is much more than simple product detailing – it is supporting medical education and providing value-added services to develop better health outcomes and true partnership working for the benefit of patients.

These are the benefits which pharma can offer to GPs – but do GPs in turn recognise their value? Anecdotal evidence may suggest that the role of the representative is not often appreciated, but this is not necessarily the case. Doctor S has been a GP since the late 1990s. Prior to this she worked as a medical representative promoting asthma and anti-allergy treatments in Wales and SW England. As the stereotypical poacher-turned-gamekeeper, she is uniquely positioned to offer a perspective from both sides of the GP-rep interaction. So, more than a decade after qualifying to practice and approaching twenty years since ‘carrying the bag’, what value does she place on granting an interview to a medical representative following a busy surgery? Reassuringly, she is very positive. “I have always enjoyed the chance to face-to-face chat about new products. It’s much more fulfilling than trying to find time to read journals – and I’ve always found that I can access up-to-date literature from representatives, as well as discuss it with them,” she says. “I also believe that pharma plays a crucial role in organising KOL meetings and facilitating GPs’ CPD. Meetings have always been an invaluable resource – a GP can lead a very solitary existence and it’s often easy to feel isolated in your practice. A source of peer-to-peer support cannot be overrated.”

Currently, Dr S will see a handful of representatives in an average week. “As a practice, we see around 3 a week, usually at lunch time. Time constraints have made speculative calls difficult, but we will all try to see our ‘favourite’ representatives on spec whenever we can.” This throwaway revelation emphasises the importance of building enduring trustworthy relationships, and maintaining a continuity of service, interaction and understanding. It’s a powerful argument for consistency and, in an era of key account management, highlights the value of long-term human-to-human interaction.

On a personal note, Dr S says she likes to be told the ‘pertinent facts about any new drug’ but admits two major ‘pet hates’. “I’m not keen on graphs and, moreover, I’m really not impressed by the overly ‘interrogative-style’ approach some of the newer representatives seem to have adopted – it reminds me of my medical school viva!!”

So, in a seemingly ever-changing NHS, does the GP still have an important role to play in the delivery of healthcare? Is the industry’s determination to switch focus onto newer customer-groups, many from a non-clinical background, the right approach? Dr S is unequivocal. “Whilst PCOs and pharmaceutical advisers increasingly try to take control of prescribing, GPs are the last truly independent practitioners,” she says. “Despite often being under quite a lot of pressure, we will insist on prescribing what we consider to be the most clinically appropriate and beneficial treatment for our patients. My view – shared by my partners and my Practice Manager – is that the judgement of the individual prescriber, the GP or Nurse Practitioner, is more important than that of those in managerial/budgetary roles.”

Despite these pressures and, of course, the challenges of working as a family GP in a busy 3-site practice in a deprived area of the UK, Dr S is clearly passionate about her role. But does she miss repping? “I loved my time as a rep, and learned a lot from it that I still find useful today. My background in pharma, in particular the exposure of dealing with GPs and hospital consultants, really helped me in my medical training. Also, my communication skills were really well developed. I’m now a GP trainer and teach year 5 medical students, as well as, more recently, GP registrars. My pharma training has proved really invaluable in this, particularly in terms of assertiveness and presentational skills.

“I also enjoyed the social side of being a rep, feeling part of a large organisation and working within a team. On the other hand, I enjoyed the freedom I had to plan my daily activity and the flexibility in my working hours – depending on how many customers I’d seen. Despite the recent industry travails, I would still recommend a career in the pharmaceutical industry to anyone. But in the current environment, the only caveat I would add is that a good product portfolio and an accessible territory would be vital considerations.”

Mike Sobanja, Chief Executive, NHS Alliance and Richard Gray, Commercial Director, Cegedim Dendrite, explain the importance of building a long term strategy that reflects the new, international drivers in health provision.

The NHS needs to achieve a productivity saving of £15-20 billion over the next three years and, as organisations embark on 2011 budget plans, it is the Quality, Innovation, Productivity and Prevention (QIPP) agenda that is determining direction.

But how does QIPP affect pharmaceutical sales and marketing activity? Is existing messaging now irrelevant? How should activity be focused as Strategic Health Authorities (SHAs) and Primary Care Trusts (PCTs) transition to QIPP at different speeds and with varying levels of commitment?

Single target

As PCTs and SHAs embark on the next round of budgeting for the three years starting 2011, there is no doubt that the objectives of the QIPP agenda will be a primary consideration. As the QIPP work streams are defined and objectives and expectations refined, it is clear that a fundamental shift in attitude is occurring across the NHS. Pharmaceutical companies cannot stand by and watch; this will affect every aspect of the business from research and development through to marketing messages and sales tactics.

But this is not a complete revolution. Pharmaceutical companies have been tracking the NHS evolution towards greater innovation and productivity for some years. Whilst the speed of change has undoubtedly been fuelled by the dire financial situation facing the public sector for the foreseeable future, the Darzi review led calls for improvements in quality, whilst the focus on prevention can be tracked back to a speech made by the Prime Minister in early 2008.

As a result, there is no need for pharmaceutical companies to immediately disregard the messaging that has been successful to date. In many ways, QIPP actually clarifies the position: if a company has a product that simply will not meet any of the quality, improvement, productivity or prevention requirements, it offers little long-term commercial value. For the first time, pharmaceutical companies have a really clear target to aim for: be part of the QIPP agenda – or be excluded from it and become nothing more than costs to be managed.

Speed of change

Indeed, whilst QIPP is not a revolution, one of the significant changes is the urgency with which senior NHS personnel are hoping to entrench the new agenda in policy making. For years there has been talk about innovation, but suddenly the health service has recognised that innovation will be the key to its long-term survival.

As a result, drugs are likely to rapidly fall into two categories: bulk products with little clinical differentiation will become commodities that compete only on price, and truly innovative products that will differentiate predominantly in specialist areas where there will be some price consideration, but the value message will be critical.

Pharmaceutical companies, therefore, need to make some quick and perhaps tough positions about market position. Will the business be a commodity supplier or can it deliver health solutions? If the latter, the question is how to create ‘products plus’ and evolve into the service providers that will increasingly dominate the market in the future.

Value proposition

To determine ongoing strategy and messaging, companies need to understand the impact of QIPP on specific market and product areas, the implications on commissioning pathways – both on a national and local level, and identify the new market threats and opportunities.

A primary objective is the need to create new product value propositions that reflect the quality, innovation, productivity and prevention requirements. While it will, of course, be a rare product that can address all four, any company that cannot represent a product value proposition that relates to the QIPP agenda will have a troubled future ahead.

A weight loss product, for example, clearly needs to link into the prevention agenda, with the benefits of reduced Type II Diabetes, for example. Whilst the value proposition of Low Molecular Weight Heparins (LMWH) would need earlier discharge and a reduction in hospital re-admissions as a result of fewer embolisms to support the productivity agenda.

Local messaging

Creating a QIPP focused message for each product is just the start. Every part of the NHS will respond at different speeds and with different priorities, despite the unifying objective of QIPP. Local personalities and finances will continue to have a huge influence on policy.

This will be reflected in very different priorities. Take long-term conditions as an example of one of the 13 QIPP work streams; in one PCT the decision might be to focus on reviewing the commissioning and pathways for diabetes; another might opt for Cardiovascular Disease. Similarly with Medicines Use and Procurement, the prescribing strategy for one PCT might be based around the use of blood glucose testing kits; another may take a different route.

Without understanding these emerging countrywide differences, pharmaceutical companies will not be able to effectively focus activity. The industry has already taken great steps forward to move beyond a ‘one size fits all’ message: local knowledge will be even more key to gaining traction in the NHS in the era of QIPP.

Conclusion

While the initial talk is of a three-year focus on cost savings, make no mistake, the NHS is facing a tough ten years. And it is not alone; the objectives of saving money through improvements in productivity, innovation, prevention and quality are being played out in health services across the developed world.

There will undoubtedly be more consolidation in the pharmaceutical industry as organisations struggle to support the type and size of activity that has been sustainable to date and price pressures will become acute, especially in commodity products.

Pharmaceutical companies need to develop smart strategies today; from creating innovative new products that the NHS will want to invest in to improve health and meet the objectives of the health agenda, to evolving towards a service-oriented product delivery model. The industry requires a radical change of thinking: sustained success will demand an emphasis on investment, not cost, and a true adoption of the QIPP agenda to reflect new global attitudes to health provision.

Richard Gray is Commercial Director (CCI) for Cegedim Dendrite, responsible for their segmentation and targeting services and KOL / stakeholder mapping.

Mike Sobanja is Chief Executive of the NHS Alliance – the only organisation that brings together PCTs with GP practices, clinicians with managers and board members, and NHS primary care with its patients.

Outsourcing certain business functions is one way pharma companies can cut costs. Dr Ilan Oshri, Associate Fellow at Warwick Business School and Associate Professor at Rotterdam School of Management, explains a step-by-step approach to effective outsourcing measurement.

These days, firms are, more than ever, pressed to demonstrate returns on their investment in outsourcing. While the initial returns can always be associated with one-off cost cutting, outsourcing arrangements are complex, often involving inter-related high-value activities, which makes the realisation of long-term benefits from outsourcing ever more challenging. Executives in client firms are no longer satisfied with the same level of service delivery through the outsourcing lifecycle. They seek to achieve business transformation and innovation in their present and future services, beyond satisfying service level agreements (SLAs).

Clearly the business world is facing a new challenge: an outsourcing delivery system of high-value activities that demonstrates value over time and across business functions. However, despite such expectations, many client firms are in the dark when trying to measure and quantify the return on outsourcing investments. Results of research that we conducted with Cognizant in 2009 show that less than half of all CIOs and CFOs (43%) have attempted to calculate the financial impact of outsourcing to their bottom line, indicating that the financial benefits are difficult to quantify (51%).

There is no doubt that client firms need to improve their ability to measure the benefits of outsourcing. These benefits go beyond the one-time cost saving. They strongly relate to the firm’s competitive advantage and therefore often represent the key success factors (KSFs) in a particular industry. Our research has led us to identify seven lessons that will guide executives to achieve better results from their outsourcing engagements. 

Lesson 1: The context of the outsourcing activity

A good starting point is to understand why the firm would like to outsource a service and what resources are available to successfully carry out an outsourcing project. We observed a couple of common mistakes in this regard: a bandwagon effect in which firms outsource because the competition does so (also known as ‘me too’ strategy) or firms outsource ‘a problem’. These are the wrong reasons to outsource a service, and the consequences can be dire. Instead, firms should follow a systematic approach to analysing the context of the outsourcing activity. There are several criteria that a firm should examine, including the overall goal, how critical the service is to competitive advantage, how dependent the service is on other inputs from the firm, how work will be codified and monitored (and the precision of the metrics) and how mature the firm is in managing outsourcing arrangements.

Exploring these areas should deliver a clear understanding of the drivers to outsource, internal resources and expectations. Realising the benefits of an embedded service that is difficult to codify could be challenging as it increases operational risks. Likewise, outsourcing processes that are difficult to monitor (e.g. R&D, supply chain coordination) is not recommended, particularly when the firm does not have precise metrics to evaluate quality. In these cases, the firm should examine its maturity level in outsourcing. A high degree of outsourcing maturity and sophistication will allow the firm to devise methods that overcome certain challenges and help to mitigate some operational and structural risks.

Lesson 2: The outsourcing strategy

The outsourcing strategy will dictate the complexity of the outsourcing arrangement and therefore the ability to realise benefits. My advice is simple: choose an outsourcing strategy that the firm’s resources and capabilities can cope with. By doing so, you will be able to assess and realise the benefits gained from your outsourcing arrangements.

Surprisingly, many firms experiment with sourcing models that are beyond their organisational capabilities. For example, in recent years many firms experimented with multi-vendor sourcing arrangements, but few firms can actually realise the benefits offered by the multi-vendor model. It takes advanced sourcing capabilities to effectively manage a single vendor in a particular business function, let alone multiple vendors that coordinate several transformation programs across several business functions. Another example is the outsourcing of a range of services within a particular business function (e.g. HR) to a single vendor. While the client might perceive this as a straightforward arrangement in which the benefits should be easily realised as there is only one vendor involved, the client will in fact need to develop sophisticated outsourcing capabilities that will allow the benefits from synergies between outsourced services to be achieved. We have learned that most clients have failed to realise this promise.

Lesson 3: The benchmark

Many firms rely on Service Level Agreements (SLAs) as the main means through which value from an outsourcing arrangement can be realised. SLAs are critical in any outsourcing arrangement, however, they don’t give the entire picture and in some cases can be misleading. Firms that rely on SLAs to realise the benefits from outsourcing arrangements are essentially monitoring service performance, which can be meeting the service provision, but offers little transformation.

The challenge for firms is to realise the impact of outsourcing on the business and not on the service performance. For this reason, firms must figure out the benchmark to use when measuring real benefits, usually a key success factor (KSF) in that industry – for example, time to market of a new product or quality. Once a benchmark has been identified, SLAs can be drafted to correspond with the provisions that generate a competitive edge. This ensures that the aim of the client and the vendor is to improve the firm’s competitive advantage through business transformation that is monitored through a set of SLAs.

Lesson 4: Changes in value

Value is a dynamic concept. The desired value to be delivered from an outsourcing arrangement set by the client and vendor at the beginning of the project is destined to change over time. Few firms are aware of this and even fewer take steps to mitigate this risk. Clearly, by not sensing the changes in value over the outsourcing project life, disagreements are likely to emerge between the parties, which will eventually erode the project’s benefits. At the same time, the dynamic nature of value does not mean that clients are entitled to redefine their expectations every week. There should be a joint approach to address this challenge.

The first step is to develop sensing mechanisms for changes in value. Sensing mechanisms are best supported through shared learning between the client and the vendor. The more shared learning opportunities created between the client and vendor teams, the more likely that value as a dynamic concept will be monitored. Our research found that value is best sensed when the outsourcing arrangement is based on relational value. Under such circumstances, efforts are put into the development of the supply network relationships by responding to the changing nature of value.

Lesson 5: Make your CIO a strategist

Many CIOs do not ‘speak’ the ‘business language’. Most of them are not executive board members. Several have emerged from the IT ranks and have often had little exposure to and involvement in shaping the firm’s business strategy. In recent years, some have argued that the role of the CIO is now less strategic, mainly because IT can no longer be considered as a source of competitive advantage. However, in the last fifteen years, the CIO has led outsourcing projects and transformed the way services are designed and delivered. The boundaries of the firms have been redefined and sources of innovations have been reconsidered. Nowadays, CIOs are, if anything, more strategic than ever and their role within firms is destined to grow. However, to cope with such changes, CIOs need to learn. They need to learn the ‘business language’ spoken at the executive board. They need to learn to design and argue a strong business case for an outsourcing arrangement at the strategic, operational and financial level. They need to learn to focus on business improvement processes rather than service improvement processes and on business transformation rather than IT improvements. Their role within the organisation should be more central, with a direct influence on decisions made at board level. A CIO then should become a central figure and a driving force in implementing the other lessons.          

Lesson 6: Build the retained organisation

The CIO alone will not be able to transform the firm and deliver value from outsourcing arrangements; however, the CIO can and should build the retained organisation to act as a change agent that monitors value delivery. Most firms consider the retained organisation as the minimum resource needed to support IT function continuity. The mistake in this approach is the focus on IT function continuity. Instead, the retained organisation should be perceived as the resource that drives a firm’s transformation and innovation. For example, in many outsourcing arrangements the client transfers staff to the vendor. A common mistake is for firms to keep bright and talented staff in house, rather than transfer them across to the vendor in those areas that the vendor is expected to take leadership, for example application development. At the same time, the CIO should build new expertise within the IT function to ensure that its focus is on continuity, transformation and innovation. But the retained organisation includes other capabilities, such as relationship building, which concern the wider communication between business and IT communities. It involves helping users understand the potential of IT for the creation of value, helping users and IT experts collaborate, and ensuring users’ ownership and satisfaction. For most firms this is a major challenge simply because of the tremendous difference in culture between “techies” and “users”. Role holders with this capability have to facilitate a shared purpose and constructive communication among people engaged in the business and the IT function. Without this capability, the retained organisation will enable IT function continuity, but will fail to demonstrate the benefits of business transformation.

Lesson 7: Invest in outsourcing learning capabilities

One of the most critical capabilities that outsourcing clients need to develop is learning.  And still, clients tend to take a narrow approach to learning by focusing on learnt lessons from a single outsourcing arrangement and often paying little attention to building a learning capability across multiple outsourcing arrangements. Furthermore, clients often apply all their resources to ensure that vendors meet the service provisions while ignoring opportunities to learn from them. Consider the vast experience acquired by a vendor over time in a particular industry. Also consider the growing specialisation of vendors in a particular industry or technology achieved through the knowledge acquired by centres of excellence (CoEs). Experts from these CoEs have dealt with multiple outsourcing arrangements, reviewed numerous contracts, negotiated benchmark and SLAs metrics and worked together with various clients to achieve success. Furthermore, some leading vendors have perfected their knowledge management systems to ensure that their learning capability supports multiple engagements in an efficient manner (e.g. reuse of concepts). And yet, clients refrain from consulting with these experts. It is still the notion of ‘us’ and ‘them’ that inhibits learning between clients and vendors.

Removing these learning barriers requires vision and courage. If a firm is to become a sophisticated outsourcing player, it has to learn from its vendor; firstly, to avoid the mistakes we have seen made again and again by inexperienced clients and, secondly, to improve the benefits that can be gained from an outsourcing arrangement.

Any firm would like to clearly present the benefits from its outsourcing arrangements. However, many firms will eventually realise that they don’t know what exactly they have gained and at what price. The simple reason for that is: the journey to realising your benefits from outsourcing arrangements cannot allow any shortcuts. Being in a position to realise the real benefits from outsourcing requires a step by step approach, as has been outlined above. By following the lessons, firms can take better control of outsourcing contracts and ensure they are achieving their intended, specified goals.

BOX

To read the full report Realising the Real Benefits of Outsourcing, by Dr Ilan Oshri, Associate Fellow at Warwick Business School, and Dr. Julia Kotlarsky, Associate Professor at Warwick Business School, in association with Cognizant, please visit www.quantifyingoutsourcingbenefits.com.