Archive for February, 2009
Outsourcing in the Pharmaceutical Industry
The pharmaceutical industry is changing rapidly. There is still an ever increasing demand world-wide for new treatments of diseases such as cancer, diabetes, obesity etc. The world-wide pharmaceuticals market is estimated to be $870 B in 2009 and will reach one trillion around the year 2013. At the same time, pharmaceutical companies are working hard to make a business model work, and that relies heavily on their ability to launch block buster drugs. These are products that need to hit the market in time to finance the multi-billion dollar infrastructure necessary to invent, develop, manufacture, distribute and market the new drugs. The top 50 pharmaceuticals share the same business challenges.
1. Rising costs and decreasing productivity
2. A fast growing Generics Industry
3. Litigations
In previous postings about the pharmaceutical industry, in general, and project management in that industry, in particular, those issues were discussed in greater detail. Now more than ever, pharmaceutical companies are trying to improve their operational efficiency. There is an emerging trend to strategically outsource entire segments of the R&D process. For quite some time, R&D work was subcontracted to third parties on a project-by-project basis. Examples of this kind of subcontracting are studies, the management of a clinical trial, data analysis etc. As a result, there are a slew of third party vendors called contract research organizations (CRO) that have taken on the role of an extended work bench. In 2007, this industry was world-wide about $18.7 B in revenue and is now estimated to grow about 15% annually over the next few years. In recent years pharmaceutical companies are taking the outsourcing process to an entire different level. Companies like Wyeth and Eli Lilly have begun to outsource entire functions to CROs.
1. Wyeth outsourced clinical data management to Accenture.
2. AstraZenica outsources major portions of their discovery chemistry work to ChemBridge Research Laboratories.
3. Eli Lilly outsources data management to i3, monitoring of clinical trials to Quintiles and major portions of their tox work to Covance.
Those deals are indicative of a shift in the sponsor-CRO relationship. What we see happening is what other industries have experienced before. Similar relationships between major brand companies and their vendors exist, for example in the semiconductor, banking and automotive space. These relationships can yield significant productivity improvements if managed correctly. R&D projects are not only crossing functional boundaries but also run across multiple businesses. In this world project managers are becoming the new mid level management capable. They need to be capable of dealing with the different stakeholders in various functions and corporate entities.
IT Projects: To be on time or not to be
A recent article in the CIO magazine reminded me again that IT project management is not simple. When people ask, “how difficult it is to manage IT projects?”, I tell them to imagine what it takes to serve a huge pile of jello while sprinting the 100m dash. This wobbly mass can disintegrate at any given moment or slide off the plate. IT project managers have to lead projects in highly dynamic environments. Like everyone else, they have to deal with the magic triangle: scope, cost and time. However, they also face unique issues. The very nature of the technology they are dealing with is highly complex and sensitive. Hardware, software applications, databases and operating systems are all by themselves non-trivial. There are myriads of failure modes because of interoperability and/or security issues making IT projects more volatile in nature. Nobody likes to wait on an IT system to be designed, implemented and tested. There is always time pressure. The Standish Group has estimated that about thirty percent (30%) of all IT projects are being canceled before they are finished. Seventy five percent (75%) of all completed projects are late. The average cost overrun is one hundred eighty nine percent (189%) of the estimated budget and the average time overruns is two hundred twenty two percent (222%) of the initial estimated timeline. So the question is: Why is this the case? And: Is there something we can do to improve this success ratio?
In working with IT organizations, we found that it doesn’t have to be that way. One of our IT customers presented their results last year at the ProChain User Conferences. In summary, they were able to report an “on-time” project performance of ninety percent (90%) or better. This was accomplished while reducing their project cycle times by more than thirty percent (30%). All other variables like scope, and budget including resources, were left unchanged. So, where is this coming from? The most important root cause that leads to these massive overruns can be found at the beginning of the project. A critical success factor for great execution in IT projects is proper planning. If a team is putting together an aggressive but realistic project plan, then many issues that unsuccessful teams face downstream can be dealt with much earlier in the process. In the Critical Chain world project plans enforced through the CCPM software platform, drive day to day what tasks team members focus on. Everyone knows what the key tasks are that need to get done. On a higher level, management provides clear priorities, so that teams working on multiple projects are able to sort through all key tasks, and divert their attention to the most critical ones. Individual team members work tasks in a focused manner until completion. Then they hand over the work to the next person waiting for their input.Planning helps IT organizations to eliminate inefficiencies.
If in current IT organizations, 30% of all projects are being cancelled at some point before they finish, then this number represents a huge waste of time and resources. No question: Teams can run into unexpected situations. Requirements do change and sometimes an idea becomes obsolete, BUT this is not the case for every third project or so. If an organization has learned to plan adequately and knows how to put aggressive but credible time-lines together, management is in a position to assess whether a particular project should even be started. If those projects that are basically dead on arrival can be identified at the very beginning IT organizations will be able to reduce waste dramatically. Sound planning will literally unleash additional capacity to the organization that was untapped before.
It is non-trivial to apply this kind of discipline in a highly volatile business environment like IT. For one, it requires sound project management processes and IT systems to manage the work of potentially thousands of people. It also requires the buy-in and leadership of the most senior executives in an organization. I am with Dave Hanna on this one: “Every organization is perfectly designed to get the results it gets.” If the CIO is not happy with the project management performance of her IT organization then the change starts with her initiative by changing the project management and governance process.
