As the complexity of the global R&D environment has grown over the last several decades, biopharma companies have found it increasingly difficult to accomplish scalable growth with their in-house team alone. This has led to the practice of outsourcing of laboratory informatics projects to become more commonplace as a way to reduce costs and gain efficiencies.
In the accounting and consultancy firm Deloitte’s comprehensive 2014 Global Outsourcing and Insourcing Survey, 53% of respondents indicated that they were currently outsourcing part of their IT function, while 26% indicated that they planned to in the future. Over 30% of organizations participating in the Deloitte 2016 Global Outsourcing Survey indicated that they planned to do more outsourcing in the future.
Clearly, the practice of outsourcing is on the rise, largely driven by technological advancements and the promise of higher efficiency at a lower cost. Outsourcing these days, however, is often far more than just a cost-reduction strategy. Increasingly, companies are using outsourcing as a way to drive innovation and maintain competitive advantage. There are a number of significant benefits accrued by companies that use outsourcing as part of their business strategy:
- Cost-reduction – Outsourcing allows companies to take advantage of less expensive labor markets available elsewhere. Outsourcing can also improve efficiency in business processes, thereby reducing costs.
- Improved flexibility and agility – You can sign (or cancel) a temporary or long-term contract with one or multiple partners, depending on your needs. Companies can also easily ramp their labor force up or down as the business condition or situation changes.
- Increased focus on core business – Outsourcing peripheral projects and services allows you to avoid the time and involved in expanding your in-house team, and instead increase your focus on and improvement of core competencies.
- Enhanced innovation – Outsourcing allows you to engage with highly skilled, specialized professionals and/or transformative technologies and services when you need them to move the needle forward on your innovation efforts.
- Increased speed of delivery – Depending on your business, outsourcing to other time zones may allow round-the-clock productivity, speeding delivery of products and services. Additionally, outsourcing can quickly increase the volume and/or skill of your workforce to speed business processes.
- Scalable growth – Efficiencies that flow from the benefits described above allow companies to maintain or even improve profitability as they grow.
Life science R&D have relied on external CROs for many years, but outsourcing models for laboratory informatics are just beginning to emerge. While these potential benefits are compelling, outsourcing a laboratory informatics project is not without its challenges and risks, especially when outsourcing to a foreign country. Outsourcing lab IT projects to domestic contractors is a more established model, yet there can be significant cost-savings realized by hiring a foreign contractor. Generally speaking, when the required skills can’t be found domestically at a price that is conducive to scalable growth, companies have two options to consider for outsourcing to foreign countries – nearshoring or offshoring. Let’s explore what each of these models has to offer and the strategic implications.
Defining the Terms
Outsourcing is a general term that refers to contracting work done by either foreign or domestic third-party firms, while offshoring and nearshoring refer to contracting work done by foreign firms specifically.
Nearshoring refers to a company contracting a part of its workload to an external company located across national borders, but generally within its own region. It includes neighboring countries with similar time zones, which may even possess a similar culture as the outsourcing client. Common nearshoring locations for U.S.-based companies include Canada and Mexico, as well as many other countries in the Caribbean and Central and South America – Costa Rica, Argentina, Brazil, El Salvador, Dominican Republic and the U.S. Virgin Islands.
Offshoring, on the other hand, is the relocation of a business process by a company to a more distant location. China, India and the Philippines are the quintessential examples of offshoring locations for U.S.-based companies. In this case, the partner is located physically far enough from the home company to be operating in a totally different economic environment, time zone and legal field, plus likely with significant cultural and language differences.
Offshoring began in earnest in the United States as a corporate strategy back in the late 1970’s. At that time, the practice was mainly confined to the manufacturing sector, as companies sought to increase profits by moving their manufacturing operations overseas to areas with less expensive labor pools. By the 1990’s, with the birth of the internet, the practice started to move into the white-collar sector as well, as businesses now had access to highly educated workers all over the world.
Offshoring highly technical work like laboratory informatics, can present a number of challenges that may affect the value you realize from your project, such as language barriers, time zones and cultural differences. Effectively coordinating informatics teams across multiple locations and time zones is not easy. When half your team is wide awake and working hard, while the other half is still asleep halfway around the world, effective management and communications can be extremely difficult, potentially leading to cost increases and project time delays.
This time lag situation often leads to your domestic employees working late or early in the morning in order to facilitate a communication window with the extended team, which of course can contribute to stress, burnout and/or job dissatisfaction. Even if you shift the time differential burden to the offshore team by requiring them to work off hours, quality and productivity can suffer. In addition, you run the risk of increasing turnover in the offshore team causing significant project time and cost overruns.
Communication challenges can be especially problematic if the offshore contractor doesn’t speak the language of your domestic team well, or has a strong accent that is difficult for your domestic team to understand – misunderstandings may occur that could cause errors or require a project rework. Cultural differences can also contribute to communication challenges. In a 2006 survey of 200 U.S. business executives whose companies had outsourced business processes, for example, two-thirds said that miscommunication due to cultural differences had caused problems.
Another potential offshoring issue is that the offshoring team, while highly educated and skilled, may lack significant practical experience in the laboratory informatics domain, especially in your region/country with its unique regulations and best practices. It is critical that your informatics consultant at least has practical experience with the platform being implemented in the type of laboratory you are running (i.e., R&D, QC/QA, etc.). Often, foreign consultants lack this kind of crucial experience.
Finally, in the case where your laboratory handles proprietary company information, you may be putting your companies’ intellectual property (IP) at risk by consulting with an offshore provider, especially if the culture and/or region where the contractor resides do not enforce IP laws strictly. Data security can sometimes be improved dramatically by choosing alternative nearshoring options.
While offshoring can certainly generate significant cost-savings for your organization if done right, the above-described issues have contributed to many examples of offshoring failures. A 2005 survey of over 5,000 corporate executives around the globe by Ventoro, an outsourcing consulting and market research company, found that one-third of companies involved with offshoring projects had to shift some or all of the off-shored operation back on-shore – at significant cost and risk to project success.
Given the challenges with offshoring, a nearshoring model has recently emerged that addresses many of these issues, while also providing cost-saving benefits. How? Nearshoring is very similar to offshoring, except that the company has transferred a business process to a location within its own region, as opposed to an offshore country. The close proximity (or at least similar time zone) of the nearshoring partner eliminates much of the stress and communication issues inherent in offshoring. The similar time zone advantage and more cultural similarities provides both parties with an opportunity to align work schedules, have ad hoc calls and generally reach a level of integration not possible in the offshoring model.
The closer proximity of the parties involved in nearshoring also makes it possible to exchange visits more often, ensuring a smoother workflow and better project coordination and management. Face-to-face meetings help mitigate unexpected management costs and setbacks that are directly related to project confusion. This is especially important for complex, multi-team laboratory informatics projects that need to be discussed in great detail to ensure a successful on-time delivery.
Making the Decision
So how do you choose the right outsourcing partner for your laboratory informatics project? If price is a significant issue, you should certainly consider nearshoring or offshoring. In general, nearshoring can provide a solid partner support structure, without many of issues associated with offshoring models That said, there are usually a lot more offshoring options to choose from. Regardless of which model you decide to go with, a trustworthy partner should:
- Be able to provide several references that demonstrate quality work done for other companies in your country.
- Speak your language fluently and be culturally compatible with your company.
- Have practical, hands-on experience with laboratory informatics in the type of lab that you are operating. Scientific domain knowledge is also important.
- Be financially stable. You don’t want to be abandoned in the middle of your project.
- Have the appropriate technology and infrastructure in-house that is necessary to generate quality services.
- Understand your business objectives, and make sure the project accomplishes them.
- Be able to support and work with you throughout the full project lifecycle – assessment, requirements, design, implementation, follow-up and support.
- Have the ability to task the same team members on your project from start to finish.
Obviously, it is crucial that you do due diligence when evaluating potential foreign contractors. The consequences of making the wrong decision can be disastrous to your companies’ bottom line.
Digitizing your laboratory environment is a key to maintaining efficiency and driving innovation. Yet, laboratory informatics projects require a high level of skill, knowledge and experience in order to deliver the results you need on time and on budget. Often, you cannot go it alone and need to find the right partner with the appropriate expertise to drive the project forward.
If a partner with the required skills can’t be found domestically at a price that is conducive to scalable growth, outsourcing to foreign countries is an option, but due diligence must be done in order to make sure a good partner is chosen. Of the two options available, nearshoring has the potential to offer the operational efficiencies of a domestic partner, but with cost savings comparable to offshoring. Nearshoring with a leading domestic partner like Astrix offers these cost savings, combined with the peace of mind of knowing that your nearshoring team is part of a trusted domestic laboratory informatics company with over 20 years of successful project experience.
 “Off-Shoring: An Elusive Phenomenon,” National Academy of Public Administration, Jan. 2006. Available at: https://www.bea.gov/papers/pdf/NAPAOff-ShoringJan06.pdf
About the Author
|Dale Curtis Jr. is the President of Astrix Technology Group. For over 18 years, Mr. Curtis has built an impressive track record of leadership and success in high technology/scientific enterprise software sales, business development and service delivery. He has proven talent for driving innovative operational and marketing strategies, building successful teams, and rapidly developing new markets for start-up companies as well as multimillion-dollar global technology enterprises. Mr. Curtis holds a B.S. in Chemical Engineering from the University of Virginia and an M.B.A. from the Drexel University LeBow College of Business.|