Academic journal article Research-Technology Management

Outsourcing a Core Competency: Pharmaceutical Firms That Outsource Biostatistics Risk Losing Opportunities to Improve Innovation, a Study Shows

Academic journal article Research-Technology Management

Outsourcing a Core Competency: Pharmaceutical Firms That Outsource Biostatistics Risk Losing Opportunities to Improve Innovation, a Study Shows

Article excerpt

OVERVIEW: Data from contract research organizations (CROs) and pharmaceutical companies reveal an increasing amount of outsourcing of biostatistics in clinical trials. However, a surprising number of projects involve practices identified as "'never outsource" and of "key importance to grow and retain "' by the pharmaceutical statistics directors. The sharing and outsourcing of these big pharma "best practices" with the CROs is" an advantage for smaller competitors, particularly as related to analysis methods and protocols that are likely to be accepted by the U.S. Food and Drug Administration. Over time, an accumulation of critical resources and tacit knowledge could allow the CRO to eventually become a new type of independent competitive player in the drug development process.

KEY CONCEPTS: outsourcing, biostatistics, business model innovation, dynamic capability.

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Not so long ago, a company's technical core was believed to be a resource and competency that should be buffered and protected. Today, with the growing complexity of product/process development and new business creation, R&D-intensive companies recognize that they have to collaborate, partner and sometimes contract with outside entities to help with technical development (1-5). However, the task of determining which of multiple functional units represent a core competence that should be retained or enhanced when outsourcing decisions are to be made is a difficult one (6-17).

This article presents a scenario, based on an empirical study, to help managers assess strategic outsourcing plans. Questions addressed are: the level of outsourcing of various functional tasks and whether a core R&D function has the likelihood of being eroded. Simultaneously, we question whether protracted outsourcing of core R&D functions increases the likelihood of stability or greater turbulence in the product development process in the industry as a whole.

Stability and turbulence refer to industry ecosystem stability (18) measured by investigational new drug filings (INDs) for innovative compounds by the top five pharmaceutical companies. Outsourcing core or potentially useful portions of their R&D activities can actually be counter-productive in the long run, as the internal capabilities to recognize and evaluate innovations can be eroded. In this regard, it may be that competitive value is created by methodological approaches to R&D as well as by R&D outcomes. To investigate these dynamics, we selected the most R&D-intensive industry (percentage of sales invested in R&D) in the last 20 years--the pharmaceutical industry.

In the pharmaceutical industry, innovation is recognized as the cornerstone for competitive advantage and is fostered by strong investments in biological discovery, biotechnology or chemistry processes. Cockburn, Henderson and Stern (19) have shown that drug discovery productivity is partly dependent on internal organization of R&D and firm-level expertise in diseases. However, the risky and time-consuming drug discovery process, along with skewed economic returns in maj or firms wherein a few blockbuster drugs dominate the portfolios, makes it difficult to assess the significance of a specific competence on any measurable firm-level outcome such as sales, profitability or market share.

Recent papers on innovation and management in the pharmaceutical industry have identified specific expertise in particular chemical families or drug pathways, as local heterogeneities in capabilities and core competencies for companies in that area (19,20). Anecdotally, Pfizer is recognized as having a competency in marketing, Merck in R&D, Eli Lilly for manufacturing and recently for alliance building, etc. However, within the literature there has been little exploration of resource-based competencies of these pharmaceutical companies for some of the reasons discussed above. …

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