Technovation 22 (2002) 81–90

www.elsevier.com/locate/technovation

Outsourcing in the pharmaceutical manufacturing process: an

examination of the CRO experience
*
B.S. Piachaud
Aberdeen Business School, The Robert Gordon University, Kepplestone Mansion, Viewfield Road, Aberdeen AB15 7AW, Scotland, UK

Abstract

The pharmaceutical industry is passing through a very challenging period in its evolution with the traditional approaches to drug
development constantly expanding. Successful pharmaceutical organisations have recognised the need to leverage resources, and
as a result, they have come to rely on the wealth of expertise provided by specialist external sources. One such source is the newly
emergent sector comprising Clinical Research Organisations, otherwise known as CROs. This transition to a more integrated
approach to conducting pharmaceutical Research and Development (R&D) has however led to a change in practice within the
traditional working environment of the pharmaceutical sector. Although pharmaceutical manufacturers have identified a number of
advantages and disadvantages as a result of working with these external agents, the potential for enhancing the partnership process
still exists. Given the level of co-dependency amongst operators in the industry, it is therefore necessary that pharmaceutical firms
reach a much deeper understanding of the intricacies of the buyer–supplier relationship in order to facilitate the drug development
process.  2001 Elsevier Science Ltd. All rights reserved.

Keywords: Pharmaceutical industry; Clinical research organisations; Innovation; Strategic alliances; Research and development; Collaboration

1. Introduction consequence, industry structures have also evolved rap-

Over the past few decades the world economy has
experienced change on an unprecedented scale. This
transformation has been the result of the convergence of
several trends, such as “the global proliferation of tech-
nology, the re-organisation of economic boundaries, and
the intensification of global competition, all of which
have profoundly altered traditional notions about the
firm, markets and competition” (Achrol, 1991). The
environmental forces affecting the firm are also numer-
ous and significant. For example, product and process
lifecycles have grown significantly shorter through the
erosion of product-based advantages, thereby forcing
firms to develop continuous streams of innovation
(Bartlett and Ghoshal, 1987). Consumers and organis-
ational buyers have also become increasingly sophisti-
cated in their demand for differentiated and better quality
products. Global competition has become a mainstay in
virtually all industries, while the diffusion of technology
has taken place at an increasingly rapid pace. As a
* Tel.: +44-1224-263114; fax: +44-1224-263100.
E-mail address: bmrbp@mailer.rgu.ac.uk (B.S. Piachaud).
idly, thereby forcing firms to develop new strategies so
as to be able to compete effectively and to survive.
Even in the area of pharmaceuticals, change has been
an important feature of the industry. Since the early
1980s and through the mid-1990s, the pharmaceutical
industry has experienced a period of fluctuation marked
by events such as mergers, acquisitions, internationalis-
ation, consolidation, downsizing and changing regulat-
ory trends (Mitchell, 1997). Although these activities are
not uncommon — particularly as an industry matures,
competition increases, and a shift towards a global mar-
ketplace occurs — the impact of these changes upon the
pharmaceutical industry has been far reaching. Of note-
worthy interest has been the emergence of the ‘niche’
service sector comprising Clinical Research Organis-
ations, otherwise popularly known as CROs.
An interesting outcome of the merging or consoli-
dation of pharmaceutical organisations has been the
ability for the resulting company to downsize its work-
force, thereby enabling the re-allocation of source funds
to discovery and development (Mitchell, 1997). This has
provided managers with the flexibility to look beyond
the boundaries of the organisation for suppliers with the
capabilities to conduct specialist or priority Research and

0166-4972/01/$ - see front matter  2001 Elsevier Science Ltd. All rights reserved.
PII: S 0 1 6 6 - 4 9 7 2 ( 0 1 ) 0 0 0 8 1 - 5
82 B.S. Piachaud / Technovation 22 (2002) 81–90
Development (R&D) projects that would have otherwise
been conducted internally. As managers began to dis-
cover the efficiency of using CROs, it was therefore not
surprising that more and more pharmaceutical compa-
nies began to contract with these firms for all stages of
the drug discovery process, its development and even
manufacture.
In response to the demands of a rapidly evolving mar-
ketplace, the modern pharmaceutical firm today com-
prises a portfolio of core competencies, designed to
exploit the merits of a much more dynamic sector. Since
these competencies are not distributed equally among
firms, global competitiveness thus depends on the
“receptivity, efficiency and absorptive capacity of exter-
nal knowledge and capabilities within the firm” (Hamel,
1991). For that reason, it is natural that many firms,
regardless of size, are involved in novel collaborative
arrangements with competitors, customers, suppliers and
governments in order to seize the opportunity to absorb
new knowledge and to transform their core competencies
(Prahalad and Hamel, 1990).
In reviewing the literature on CROs in relation to the
pharmaceutical industry, it appears that emphasis has
been placed on examining the emergence and evolution
of the CRO industry and its function within the pharma-
ceutical drug development process. However, it appears
that little consideration has been given to examining the
motives for alliance formation between these two types
of firms, as well as the effects such collaboration has
had on the pharmaceutical firm itself. If taken from the
perspective of the large pharmaceutical manufacturer,
the need for further exploration assumes greater signifi-
cance.
The research that underpins this paper involves a
qualitative study of changes in practice within the phar-
maceutical industry, including the outsourcing of R&D
to external agents such as CROs. The study incorporates
the results of a questionnaire survey of multinational
pharmaceutical organisations, which was designed to
explore the most significant advantages and disadvan-
tages experienced by these firms as a result of outsourc-
ing to CROs. The findings presented in this instance
comprise part of a wider study examining the outsourc-
ing of R&D in the pharmaceutical industry and its
impact on conventional thinking about R&D organis-
ation.
2. An overview of the pharmaceutical industry
In order to counteract the growing pressure on prices,
it was not unusual for the pharmaceutical industry to
correspondingly increase its expenditure on R&D, in an
effort to boost profitability through the introduction of
novel treatments. Hence, the cost of conducting R&D
began to double every year, with the average cost of
bringing a new drug to market within the United States
rising to $125 million in 1989, $231 million in 1993,
and $450 million in 1997 (PhRMA, 1998).
Owing to this continued investment in R&D activities,
the pharmaceutical industry has over the years developed
a full-scale capability to carry a plethora of R&D func-
tions, including that of “laboratory discovery, biological
screening, formulation, clinical pharmacology, clinical
trials, new drug application (NDA), and promotional
marketing” (Lee, 1998). Nevertheless, the real world of
pharmaceutical clinical research presents increasingly
ambitious project schedules and objectives, with far
fewer resources available to achieve them. Although
recent advances in genomics, combinatorial chemistry,
and molecular biology have resulted in a wealth of new
targets for therapeutic intervention, the number of candi-
dates approved for marketing has however remained vir-
tually constant (Gabriel, 1997). This implies that the
number of approvals in proportion to the number of
drugs in development is very low. Therefore, in order to
be able to fully succeed in today’s dynamic environment,
it has become crucial that pharmaceutical, biopharma-
ceutical and biotechnology sponsors of research con-
stantly seek ways to leverage these constrained
resources. One such method is through strategic out-
sourcing.
Strategic outsourcing has assumed an increasingly
important role in the operations of established as well
as emerging pharmaceutical companies (Getz, 1997). It
has become a vital component of the R&D process as
large manufacturers consolidate their operations while
simultaneously trying to ease more leads out of the pipe-
line. The convergence of these two opposing forces sug-
gests that more work must be outsourced, which implies
that the trend is forecast to grow in the foreseeable
future. The need for a more efficient use of capital and
resources within the pharmaceutical industry has there-
fore led to outside contracting, partnering and joint ven-
tures as the strategies of choice. More specifically, out-
sourcing using niche service providers has helped to
target that strategy more directly and effectively. Of
those companies comprising the ‘niche’ service market,
the CRO remains most prominent — primarily estab-
lished to meet the new and growing demands of the
pharmaceutical sector.
3. The emergence of the CRO industry
The high incidence of birth defects resulting from the
thalidomide disaster gave rise to the incorporation of the
Kefauvner-Harris Act into the American legal system in
1962 (Colburn et al., 1997). This legislation required
pharmaceutical companies to provide proof of efficacy
for their new drug applications in addition to the already
mandatory proof of safety. The inclusion of this new
 B.S. Piachaud / Technovation 22 (2002) 81–90
requirement necessitated more sophisticated and/or time
consuming clinical endpoints for assessment than did the
evidence of safety, which resulted in significantly more
Phase III testing. The quantity of work required to sup-
port an NDA therefore increased greatly. This prompted
the need for an escalation in contracting, which included
the increased use of CROs in order to manage multicen-
ter programmes. The combined impact of the Kefauver-
Harris Act together with the ensuing surge of research
in the United States aided the transformation of what
was once a cottage industry of consultants and inde-
pendent laboratories into what is now known as the CRO
industry. The presence of CROs in the pharmaceutical
industry is therefore a phenomenon that has been in the
process of development over the past 30 years, and one
that has grown significantly since the 1960s (Speh,
1997).
Today the global CRO market comprises approxi-
mately 1300 companies, of which, Covance, Quintiles
Transnational Corp. and Parexel International Corpor-
ation form the three largest CROs in the world. Of the
entire market, about 20 companies have sales exceeding
$50 million annually, while for some, revenues exceed
$500 million. This makes the R&D departments of some
CROs comparable to or larger than some of their pharm-
aceutical sponsors. In terms of the value of the global
market for CROs, it is estimated to stand at $8.8 billion.
Of this total, clinical work accounts for $5 billion;
research (including biotechnology research alliances)
accounts for $1.5 billion; clinical manufacturing
accounts for another $1.5 billion; and regulatory ser-
vices, pharmacology and toxicology represent a further
$800 million (Naude, 1999).
From this it appears that CROs have become an inte-
gral part of the drug development process as the pharma-
ceutical, biotechnology and devices industries use con-
tract resources to supplement their own capabilities.
Topics of CRO input can range from “manufacturing and
quality control to preclinical pharmacokinetic, pharma-
cology and toxicity studies; from the design, conduct and
analysis of sophisticated Phase I and Phase II
pharmacokinetic/pharmacodynamic (PK/PD) decision
making studies to managed multicenter studies; or from
quality assurance to database management, statistical
analysis and reporting” (Colburn et al., 1997). In some
instances, entire development programmes are being
designed and implemented by CROs in collaboration
with the corporate sponsor (Miller, 1999).
In response to the degree of contracting out, both the
pharmaceutical companies as well as the suppliers of
products and services are seeking solid, long-term
relationships. However, due to the large number of sup-
pliers available, the strength of these alliances has varied
considerably with drug companies being inclined to form
“hierarchies of partners with the ‘most preferred’ tending
83
to be given the biggest and the most regular contracts”
(Milmo, 1998).
The relatively new concept of strategic outsourcing
has enabled the creation of a new channel of supply out-
side the traditional pharmaceutical paradigm, enabling
companies to break outside existing market constraints.
Recent estimates suggest that the future pharmaceutical
company will conduct approximately one third of its
drug development via the utilisation of CROs, with the
remaining two thirds being conducted via in-house staff
(Crouch, 1997). Some companies are seeking even more
aggressive levels of outsourcing with the aim of attaining
a stage of near ‘virtual R&D’, while others prefer to
remain to a greater extent internally staffed. Yet what-
ever the degree of outsourcing employed, it is clear that
the trend towards external sourcing is set to continue
for at least the foreseeable future. For that reason, it is
important to examine the factors that have contributed
to this dramatic growth.
4. Factors driving the use of CROs
According to Griggs (1993), Taafe (1996) and Vogel
and Getz (1997) the following factors are the ones that
most commonly drive the pharmaceutical industry to use
external sources such as CROs.
4.1. Convert fixed costs into variable costs
The outsourcing of R&D activities by pharmaceutical
manufacturers enables firms to ensure that their depart-
ments and associated functions experience as little
‘downtime’ as possible. Service agreements with CROs
do not bind the sponsor to long-term obligations associa-
ted with the hiring, training and maintenance of large
numbers of development staff. Outsourcing therefore
aids the conversion of the fixed costs of maintaining a
department with a particular competence into variable
costs that are incurred when that particular service or
skill is required.
4.2. Reduction in employees
The Pharmaceutical Research and Manufacturers of
America (PhRMA) estimated that in 1995 more than
45,000 jobs were eliminated in the pharmaceutical
industry through downsizing (PhRMA, 1996). As a
result, pharmaceutical companies have come to increas-
ingly rely on outside contractors to perform many of the
activities that were previously conducted in-house.
CROs are just one of the sources available.
4.3. Accelerate speed to market
The collective pressures to reduce pharmaceutical
pricing, the inroads made by competitor and generic pro-
84 B.S. Piachaud / Technovation 22 (2002) 81–90
ducts, together with ever shorter patent life cycles have
combined to make ‘speed to market’ a critical factor in
drug development. The use of an efficient CRO with
experience in a specific therapeutic area can help to
expedite the new product development process.
4.4. Terminate weaker projects
Terminating a project that has been outsourced is
more straightforward than concluding one that has been
conducted in-house. This is because the sponsor will not
have to contend with many of the sunk costs that would
have otherwise been unavoidable.
4.5. Lack of capacity
When outsourcing first emerged, it was primarily
driven by a need to overcome a lack of capacity within
the sponsoring pharmaceutical firm. This meant that in
times of peak activity, much of the excess work would
be turned over to an external contractor. Furthermore,
Phase III trials that often involve more than 10,000
patients have become increasingly commonplace. Since
these trials often exceed the in-house capacity of many
of the pharmaceutical manufacturers, they are contracted
to CROs.
4.6. Global drug development
Today pharmaceutical firms are more likely to con-
duct drug development projects on a global scale. A
CRO with a ‘multinational’ presence can aid the drug
development process through providing a combination
of local knowledge together with project and data man-
agement capabilities worldwide.
4.7. Access to knowledge and skills
An area in which a pharmaceutical firm lacks a com-
petence or presence is often filled through outsourcing.
In most instances, this ‘gap’ relates to an area of inno-
vation or to a specialist expertise in which the company
finds itself to be deficient.
4.8. Access to technology
The decision to use a contract facility must take into
account a number of variables. These include the entry
cost for that technology; the availability of facilities for
installation; the lead time for acquiring, installing and
commissioning the equipment; the question of whether
suitable staff exist in-house to eventually drive the tech-
nology, and the anticipated capacity utilisation.
5. The empirical research
Despite the growing incidence of outsourcing to
CROs, little empirical work has been devoted to examine
the implications of this approach to drug delivery. If we
explore these factors from the standpoint of the pharma-
ceutical industry, then the existing body of work is mini-
mal. Therefore the purpose of this study was to investi-
gate the experiences of pharmaceutical firms as a result
of outsourcing to CROs. Prior to the development and
testing of the pilot questionnaire, a sample population
had to be identified. The parameters for selection com-
prised pharmaceutical organisations that met the follow-
ing criteria:
앫 manufacturers of ethical pharmaceutical products
앫 annual sales exceeding US$ 100 million
앫 extensive R&D capabilities
앫 actively involved in R&D outsourcing alliances and
partnerships
앫 R&D personnel capable of effectively contributing to
the study
앫 located in the United Kingdom and the United States.
Through the use of these selection criteria, a sample
population of 66 companies was identified. Of this total,
a positive response rate of 30% was achieved. This was
considered encouraging given the sensitivity of the infor-
mation probed. Although the overall response rate was
45%, 15% of the population declined to participate in
the study citing restrictive company policy as the prin-
ciple factor.
Respondents were asked to rate (using a five-point
Likert scale) the positive as well as negative aspects of
outsourcing to CROs. In addition, the motives for out-
sourcing to these external agents were also probed. The
areas examined were those that were considered
important to outsourcing strategy as highlighted in the
initial review of the literature. Thus, it was necessary to
discover if the outcomes and motives identified by the
firms surveyed, supported the assumptions cited in the
literature.
6. Perceived advantages
The results of the study indicate that pharmaceutical
firms do find it beneficial to leverage the resources of a
CRO as opposed to hiring, training and organising for
R&D within the organisation. Through the responses
obtained from the questionnaire survey it was observed
that a number of benefits could be accrued from out-
sourcing to CROs (see Fig. 1) and the advantages are
as follows.
 B.S. Piachaud / Technovation 22 (2002) 81–90 85

Fig. 1. Benefits of outsourcing to CROs.

6.1. Obtain greater flexibility
Traditionally, the allocation of resources to R&D pro-
ject managers within large pharmaceutical organisations
is normally determined by the budgets stipulated by
senior management. Of the total budget allocation, up to
90% may be defined by fixed costs, while the portion
that may be allocated to flexible payments for coping
with bottlenecks in R&D projects may comprise a small
proportion of the total amount spent (Cavalla, 1996).
This has the ability of stifling the re-allocation of
resources to more important projects. Consequently, a
‘lack of capacity’ is often cited as the single most
important reason for deciding to outsource a piece of
research. Outsourcing to CROs therefore enables pharm-
aceutical firms to cope with the ‘peaks’ encountered dur-
ing the R&D process, without the need to invest in
additional capacity internally. In addition, outsourcing
enables the sponsor to invest in a number of smaller
research projects with different sources such as CROs,
rather than make a single investment with one company.
This allows for improved flexibility and is especially
important for an industry such as pharmaceuticals where
new avenues for research are widely dispersed.
6.2. Buy in specialised knowledge and skills
Outsourcing to CROs enables the firm to develop new
capabilities, whether it may be in relation to extending
86 B.S. Piachaud / Technovation 22 (2002) 81–90
the knowledge base or in acquiring new skills. It helps
facilitate the re-organisation of the research effort so as
to make it more competitive, as well as to discover a
wider array of research approaches. Furthermore, it
allows the firm to “always focus on the most relevant
capabilities and to learn new types of research with a
view to bringing in-house promising new research”
(Whittaker and Bower, 1994).
6.3. Facilitate the rapid exploitation of technology
Rapid advances made in the field of science and tech-
nology have made it virtually impossible for firms to
keep abreast of such changes independently. Outsourc-
ing through CROs therefore provides a cost effective
means for exploring new technologies without having to
commit resources to recruiting, training and managing
an in-house research team. This enables firms to “experi-
ment on a small scale with major changes in research
direction before implementing them within their own
laboratories” (Henderson and Cockburn, 1996).
6.4. Gain a window on new technologies
The pharmaceutical industry has historically conduc-
ted all, or much, of its R&D work in-house. With the
advancement of science however, the industry has wit-
nessed a broadening of the knowledge base and the
emergence of a number of novel research techniques.
The implications of this are that even the large pharma-
ceutical manufacturers can no longer afford to specialise
in all therapeutic areas, most of which are associated
with specialist expertise. Therefore, by providing a ‘win-
dow on science’, outsourcing allows the firm to exploit
faster and more effectively the results of basic research
conducted in external laboratories, which in turn leads
to efficiency gains for the firm (Tapon and Thong, 1997).
6.5. Freedom to concentrate on core functions
The outsourcing of peripheral or non-core functions
to specialist providers such as CROs enables the pharma-
ceutical firm to concentrate on its core capabilities. This
will allow the firm to continually upgrade its core com-
petencies, thereby enabling it to sustain competitive
advantage over a longer period of time.
6.6. Spread out risk
For the pharmaceutical manufacturer, risk is an
inherent feature of the drug development process.
According to Cavalla (1996), taken from the perspective
of the pharmaceutical industry, risk can be divided into
two elements: the probability of clinical success at each
stage of the drug development process, and the commer-
cial potential of a new drug candidate. In terms of the
first factor, outsourcing permits pharmaceutical firms to
broaden their research base without having to establish
any long-term commitments. It also enables the discon-
tinuation of a project that may be deemed unsatisfactory
without the repercussions that would be endured if the
project were in-house. As for the second factor, out-
sourcing would provide the large pharmaceutical com-
pany with the flexibility to carefully select the project
that promises the greatest potential. This again would
absolve the company from the responsibilities attached
to having a project in-house.
6.7. Reduce costs
Due to efficiency gains that may be secured through
outsourcing, costs may be lowered, as resources are bet-
ter and more economically utilised within the firm.
6.8. Increase time to market
Speed is a crucial element in the drug development
process. CROs that possess the appropriate infrastructure
together with trained personnel do provide an attractive
alternative to pharmaceutical firms since the need to
recruit, train and manage teams in-house can be avoided.
Outsourcing therefore has the potential to expedite
development times, since resources will be on hand as
and when needed, especially at short notice.
7. Perceived disadvantages
Working in collaboration with external agents is a
challenging and often risky process. The results of the
survey indicate that a number of disadvantages are also
associated with the outsourcing process (see Fig. 2). The
key areas of concern are as follows.
7.1. Dependence on the supplier
A pharmaceutical firm that outsources its R&D to an
external agent such as a CRO runs the risk of becoming
increasingly dependent on the supplier. By contracting
out important pieces of research to the same supplier
over a long period of time, the sponsor company may
find itself in an increasingly vulnerable position and may
even lose control of part of its research activities. This
over dependence could result from “purchasers of
research becoming captive to their suppliers of research
since the latter possesses capabilities that are important
to the client, but which the client itself lacks” (Tapon
and Thong, 1999).
7.2. Lack of shared vision and objectives
Hendon (1988) points out that a CRO must not only
be committed to ensuring the success of the project, but
 B.S. Piachaud / Technovation 22 (2002) 81–90 87

Fig. 2. Disadvantages of outsourcing to CROs.

also towards providing the means of achieving it. Often,
clients find that the contractor is unwilling to do what-
ever is necessary in order to ensure a successful out-
come. One of the principle reasons for this ‘conflict of
objectives’ is that most successful CROs serve a number
of different and often competing clients at any one time.
As result, a conflict of priorities may emerge.
7.3. Loss of control over the supplier
All collaborative projects experience a loss of control
to a greater or lesser extent, and in outsourcing arrange-
ments, partial control of a project inevitably passes from
the sponsor to the collaborator. The extent to which the
pharmaceutical firm may effectively control an exter-
nally conducted project will greatly depend on the qual-
ity and quantity of information received, as well as on
the early detection of problems. Since the information
available to the project manager would be less compre-
hensive than it would otherwise be if the project were
conducted in-house, a lack of effective communication
could ensue as a result. This could lead to problems with
quality and to delays, as well as to misunderstandings
and even mistrust. Often such problems are “exacerbated
between partners who do not know one another well and
who have not developed a trusting relationship”
(Cavalla, 1996).
88 B.S. Piachaud / Technovation 22 (2002) 81–90
7.4. Loss of critical skills
Although the use of a CRO could pose a sound short-
term solution, pharmaceutical firms do run the risk of
sacrificing long-term gains for short-term benefits in that
through outsourcing, they could eventually suffer from
a dearth of knowledge or direct experience. One of the
consequences of contracting out is that a “company will
be unable to develop its own contacts, learn new skills
or project its image in a major new therapeutic area if
the relevant expertise is not developed in-house”
(MacArthur, 1994). Therefore when deciding to out-
source, companies must be completely aware of the stra-
tegic nature of the activity intended for external agents.
For what may be classified as “tactical, commodity, or
of low value today, may in fact become strategic, core
or high value tomorrow” (Earl, 1996).
7.5. Problems of evaluating supplier performance
To be able to properly evaluate the functions of a
CRO, pharmaceutical companies must have in place
clear guidelines for appraising vendor outcomes. The rel-
evant human resources must be contained in-house and
an adequate knowledge base must also be maintained.
However most often than not, this is a factor that is fre-
quently overlooked by sponsor firms when entering into
outsourcing arrangements.
7.6. Need for a new management mind set
A crucial factor often overlooked by management
when calculating the potential benefits of an outsourcing
strategy is that by nature, outsourcing substitutes the
problems associated with managing a specific function
for those of managing alliances (Gantz, 1990). The main
managerial adjustments faced by most companies are
those needed for coping with the increased scale and
diversity brought about through outsourcing. These
relate to the need for a much more professional and
highly trained purchasing and contract management
group (Quinn and Hilmer, 1994). As for the pharmaceut-
ical industry, a factor that is more pertinent is the need
for a ‘new management mindset’ in overcoming the ‘not-
invented-here’ syndrome that is common to many in-
house R&D departments of sponsor firms.
7.7. Problems of monitoring supplier performance
Although a company may delegate the responsibility
of managing various infrastructure services to an outside
vendor, it still remains accountable for a number of
important criteria that will help ensure the success of the
partnership (Gantz, 1990). Managing and monitoring a
large portfolio of research collaborations is often a diffi-
cult and complex task. Resources such as time, money
and expertise are required to establish an effective moni-
toring system so as to ensure that the work carried out
by the external agents meets the required standards.
Effective supervision is also an important element if
future ‘organisational learning’ is to be ensured.
7.8. Clash of culture
In most collaborative arrangements, the ambitions and
goals of each party are often quite different, with the
factors that determine the commercial merit of the part-
nership being viewed from essentially different perspec-
tives. Added to this are the differences in management
style and the varying degrees of bureaucracy that exist
within firms. Consideration of these factors is essential
in order to ensure the viability of the collaborative ven-
ture, for they hold important implications for the future
success of the partnership.
8. Conclusions
The evidence obtained from a review of published
literature together with the results of the questionnaire
survey suggests that pharmaceutical firms should be
open to the implications of the partnership arrangement,
since these collaborations have the potential to impact
upon the organisation of the R&D effort. The ramifi-
cations of this form of collaboration are far reaching
given that a number of positive and negative features
can be attributed to this form of co-operation.
With regard to the perceived advantages, the findings
indicate that pharmaceutical firms are progressively
seeking to leverage existing resources so as to secure
superior gains in terms of achieving more efficient and
flexible R&D. There also appears to be a move toward
a greater degree of specialisation within the pharmaceut-
ical drug development process as non-core activities are
being delegated to specialist niche providers such as
CROs. This indicates that a division of labour has taken
place within the pharmaceutical industry. Cost appears
to be of little concern in the quest for excellence in drug
discovery and delivery — the expectation being that the
returns of a truly novel treatment will be significantly
greater than that of initial financial outlays. For this rea-
son, speed is a crucial element in pharmaceutical R&D
process as is reflected in the responses of those surveyed.
Given the rising costs of innovation and the dispersion
of both knowledge and expertise, it can be argued that
the future of pharmaceutical R&D will continue to
depend on these external agents, as there are tangible
benefits involved.
However, it is interesting to note that this growing
reliance on external agents is also perceived to be one
of the most significant drawbacks associated with out-
sourcing to CROs. The evidence also suggests that there
 B.S. Piachaud / Technovation 22 (2002) 81–90
are concerns associated with successfully monitoring
and evaluating supplier performance. This raises two
important questions:
앫 How will managers of pharmaceutical R&D be able
to accurately assess the critical success factors
required for ensuring successful project outcomes?
앫 How will the firm be able to secure ‘leverage’ through
outsourcing, if the knowledge to implement effective
management mechanisms is not fully in place?
These are important considerations given the level of
co-dependency between operators in the pharmaceutical
industry, however, further analysis of the issues will only
serve to detract from the main objectives of this paper.
Nevertheless it is appropriate to say at this stage that
when taken within its wider context, it appears that phar-
maceutical firms face an important learning curve in
relation to managing and understanding the concept of
outsourcing, in its full entirety. Although significant
gains are being made, there are also a number of issues
that need to be addressed if the outsourcing process is
to be more rewarding. In light of this, further research
is needed to understand the dynamics of the outsourcing
process and its application within the environment of
pharmaceutical R&D, so that guidelines for improving
the outsourcing process can be formulated.
The pharmaceutical industry is passing through a very
challenging period in its evolution. As the traditional
approaches to undertaking R&D have evolved, success-
ful pharmaceutical organisations have come to recognise
the need to leverage resources, which includes utilising
the growing base of expertise provided by specialist
external providers such as CROs. Therefore a deeper
understanding of the dynamics between these two types
of firm, as well as the intricacies of the buyer–supplier
relationship is imperative given the level of co-depen-
dency amongst operators in the industry, as well as the
irreversible nature of the drug development process.
The adoption of some degree of ‘virtual’ R&D, even
if applied only selectively, invariably highlights a num-
ber of questions that must be addressed if the approach
is to be adopted successfully. Therefore what can be
assumed with a greater degree of certainty is that the
successful innovative pharmaceutical company will be
the one that develops capabilities across an array of
disciplines. These will include those of “networking and
partnering, project and knowledge management, the
ability to manage across virtual organisations, and most
importantly, the capacity to channel these combined
resources into delivering value to the production process
and the organisation as a whole” (Fairlough, 1996).
These factors combined will comprise the core com-
petencies of the future — those that will drive the indus-
try forward and be the determinants of business success
in the twenty-first century. Inevitably, the adoption of
89
strategic outsourcing tacitly implies capabilities across
all these areas of expertise. Like other fundamental shifts
in management thinking, effective outsourcing requires
the development of new skills, mindsets and corporate
architectures — qualities that are not readily present in
most organisations.
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Bianca S. Piachaud studied for an MA (Hons) degree in Economics and
Management Studies at the University of Aberdeen, and was recently
awarded her PhD in Strategic Management by the Aberdeen Business
School, The Robert Gordon University. Her area of study was the investi-
gation of the outsourcing of research and development in the pharmaceut-
ical industry, and its impact on conventional thinking about R&D organis-
ation. Other areas of interest include the biotechnology industry and the
CRO sector. She is also a freelance contributor to a pharmaceutical indus-
try magazine.