Modern business now places a heavy reliance on the concept of outsourcing. Strategists across all sectors have recognised the potential for third-party organisations to manage key business functions, find efficiencies and drive growth. The pharmaceutical industry has been an active participant in the trend towards outsourcing services – not least in the key areas of sales and marketing. Pf’s Iain Bate looks at the global phenomenon of outsourcing.
The concept of outsourcing is not a modern ideology. The approach first came to prominence in the 1950s when specialist functions, such as advertising and legal services, were outsourced to third-parties by organisations large and small. From little acorns… In today’s business environment, as companies assess their core competencies, anything from research and development, manufacturing and marketing services to IT, Human Resourcing, accounting and supply chain activities are considered fair game to be outsourced.
Lift-off came during the 1990s, when rapid technological change and an increased sense of competitiveness saw companies take note of the flexibility, cost-saving potential and reduced risk in operations that contract organisations could offer. This quickly led to outsourcing services becoming widespread in developed economies.
The pharmaceutical industry has contributed heavily to the growth of outsourcing – in particular in the areas of Contract Research and Contract Sales. Contract Sales Organisations (CSOs) are now a major player within pharma. They manage a growing proportion of sales in the sector and, according to research by the Kalorama Information, the CSO market has been forecast to exceed $5bn by the end of the year. Of course it’s not just in pharma where CSOs have become popular, but without the pharma sector as a whole, it could be argued that the global market for contract sales would be nowhere near as significant as it is today.
Leading the way
It was largely the pharmaceutical industry which pioneered the use of CSOs and began outsourcing tactical sales effort. The provision of flexible and, in many cases, short-term resource to augment the efforts of the in-house sales force proved popular among many pharmaceutical companies. Since then a growth in the principle of outsourcing sales has seen CSOs develop their portfolios to offer a wide range of services beyond the tactical ‘share of voice’ model.
Beth Rogers, Principal Lecturer of Sales Management at Portsmouth University – and the former Chair of the UK National Sales Board and Research Director of the Institute of Sales and Marketing Management – says it was, and still is, this variety of services and the opportunity to trim costs which makes CSOs appealing.
But, certainly in a cold economy where finding efficiencies and delivering return on investment have become imperative, perhaps the biggest draw is flexibility.
“From my research, flexibility has been heavily emphasised by people I’ve been talking to who use CSOs – both providers and users,” says Beth. “It’s about effective sales resourcing as well as being efficient. Contract sales absorb some of the risk when you’re trying to be speedy to market with something which may have a relatively short life span. I think for pharma companies, it’s not so much that they’re gaining on operational costs, they’re certainly avoiding fixed costs, and that’s a factor.”
Modern day CSOs now get called upon for a variety of projects. Product launches are a common area in which they are used, but beyond this they are increasingly being asked to provide more specialist expertise for longer periods of time; clinical audits, nurse advisor programmes, Key Account Management, healthcare development and payer engagement are all areas where CSOs are being used to provide services. In some companies, contract resource is the only sales resource deployed. This represents a much more sophisticated use of contract sales than in many other sectors. “In some industries, CSOs are used for part of the sales process,” said Beth. “For example, it might make sense to have CSOs focused up to a certain point, until a degree of in-house expertise is needed to be applied. So you can get a hand-over from a contractor to a permanent employee once a lead has been developed.”
But despite the efficient and cost effective services CSOs are known to offer there still seems to be a reputation they have found difficult to shake off in some quarters. A study by Health Strategies Group in the US reported that contracted representatives had more difficulty accessing health professionals – doctors in particular. The study showed that in-house reps had more than a third (33%) more ‘sit-down’ visits than their contracted counterparts. But Beth believes that any former interpretations of CSOs that may still linger today are eroding, if they haven’t already.
“It may be a hangover from history – the kind of rent-a-rep image,” she added. “In fact, a lot of doctors are looking at e-detailing or telephone-detailing, so they’ve probably got a lot of choices on how they receive details. So, when they do want to see somebody personally, maybe they have got to a stage of knowledge where they want to see somebody with in-house expertise. I think CSOs are so widely accepted in the sector that there’s no real acute difference anymore. Ultimately there’s CSOs reps who have worked in pharma and vice-versa, so it’s probably a bit of a hangover from history which is on a downward trend.”
But not all companies have bought into the CSO model. Why is this? “I suppose it’s probably a cultural differentiation,” explains Beth. “Obviously some pharma companies have a very long history and perhaps were founded by philanthropists who had a paternal approach to staff and that remains today. That’s one possible reason. Another may be that a specialised firm with a particular medical specialisation might feel that, with the amount of training that staff would need, they would prefer to have them on a long-term contract.
“Beyond pharma, what tends to make the difference between high and low levels of outsourcing is to do with ‘cultural difference’. Differences in products/service and also sometimes variations in who in the customer organisation you are dealing with is, or whether you’re dealing with multiple people. Wherever selling has a high proportion of non-selling activity it could be a case of, ‘this could be a long sales cycle and it’s difficult to predict’, and therefore a permanent employment arrangement seems to have more advantages.”
The next generation
Yet there can be no mistake that the future is a bright one for CSOs. As the economy continues to bite and more business look to trim their wage bills, Beth believes that it won’t be just pharma that will come to rely on their flexible friends more often – especially with the potential, and promise in some cases – of new multiple models.
“I think for most sales managers in the sector it might be unpleasant. For many years there seemed to be a clear correlation between market share and feet on the street – particularly if you look at the past information from the US,” she said. “The reason that’s changing is partly because Government policy is creating some ups-and-downs in the market in terms of listing. There’s also general economic uncertainty, which means that shareholders are jumping up and down, and so, consequently, depending on history and specialisation, and decision makers that you’re working with, it’s probably more important than ever for sales managers to have choices and perhaps mix-and-match the way they use employed and contract staff.
“As it is there’s syndicated, dedicated, short-term and long-term contract models and that’s also happening in other industry sectors as well. I think we can trace the disintegration of the ‘feet-on-the-street’ equals market share model to about 2005/06. That was when it really started to look like we were going to have to do something differently. Now, five years later, the industry is testing out new models which are going to suit new circumstances. That’s where CSOs have an advantage being able to upscale and downscale quickly.”
CSOs are by no means an easy fix to problem solving. There is a risk and companies should study the history of outsourcing core and noncore function if they are to avoid making mistakes. But with convenient, flexible and adaptable teams of experienced staff able to transform performance it would seem CSOs look set to continue their close association with industries across the globe.