David C. Robson, Principal, Robson Advisors04.03.18
Perhaps it is obvious to most readers these days that using outsourced service providers (OSPs) can be a benefit to a client company. Historically, however, it has not been obvious. Back in the 80s and for much of the 90s, the idea of using outside resources to handle critical product design and development tasks was a foreign and somewhat distasteful concept. Internal development teams had a significant “not invented here” disposition and management teams spent exorbitant amounts of money to construct internal capabilities to handle all aspects of the design-to-supply spectrum. Back then, even small, pre-revenue startup companies raised enough money so they could buy or lease a facility and hire the team they needed.
Nowadays, medical device companies, both large and small, regularly and sometimes almost exclusively use OSPs to execute the activities needed to get through the development cycle. There is a sea change in how large multinational device companies are viewing their product development resources and budgets. Rather than valuing design and development as a distinguishing strength, a number of bellwether OEMs have chosen to de-emphasize having large internal development capacity, and instead invest primarily in their clinical research as well as sales and marketing initiatives. The development cycle and the associated team members and infrastructure are being looked at more as an expense that drags downs profit margins rather than as a long-term value generator.
Of course, the pendulum can (and probably will) swing too far at some OEM companies. There will undoubtedly be cases where the internal teams have been gutted so badly that the OEM loses the ability to manage existing products and make generational improvements. There is definitely value in having product design and development experts within the OEM that can guide and oversee OSPs and ensure that they stay on target.
So, with that as a big picture preamble, it is worth recounting some of the many benefits and values to be gained by using OSPs.
Expertise in non-core areas. Client companies both large and small may identify new initiatives for either products or services for which their internal teams are not experienced or capable of handling. For instance, an OEM that concentrates on single-use disposables may not have internal resources to design a device that includes electronics and firmware. Likewise, a traditional device company may not have the ability to create its own cloud-based data center. In many cases, client companies use expert resources from OSPs to help with transient needs in the development cycle such as human factors, industrial design, and usability testing.
In each of these transient need examples, the client company benefits by filling a need without having to bring on permanent resources or invest in expensive equipment that may not be fully utilized. This, in turn, enables them to bring products to the market they couldn’t otherwise develop on their own. Likewise, the OSP can utilize these resources across multiple programs, which enables it to afford having experts on hand when clients call. The cost of using these outsourced services may be higher than using internal resources, but the reduction of long term resource and equipment obligations can make for a very favorable return on investment (ROI).
Client human resources not available for big OEMs. There are many cases, especially in larger scale OEMs, where the talent exists to handle a project in-house, but all of the internal resources are booked on higher priority projects. Rather than putting the project on hold until next quarter or next year, a client company can retain OSP resources to do the work in order to allow the client company to realize sales and profits sooner. Justifying the cost of the OSP is reduced to traditional ROI calculations, which take into account the cost of the external resources versus the income boost of getting the project done sooner. The growth and success of full-service design and development firms seem to be anecdotal evidence that the ROI calculations are generally favorable.
Client human resources not available for small OEMs. On a similar note to the previous section, smaller client companies may have a tough time attracting the resources needed. Even when they can find and retain highly qualified employees, an individual only knows whatever they have learned or experienced—they don’t generally have a larger pool of experiences and recommendations to draw from. The resources from OSPs can typically draw ideas from the general population of their company. In fact, this is one of the major benefits of using an OSP—their collective knowledge and experience. The client company should always be looking to leverage the larger OSP brain trust, and good OSPs will have practices in place to tap the “hive brain” when challenges threaten to derail the core team.
Equipment and infrastructure not available. A client company may outsource injection molding, PCB assembly, fixture building, manufacturing and assembly, sterilization, laboratory testing, and shipping logistics in order to avoid significant capital outlays and certification burdens. Likewise, these days many client companies are choosing to avoid owning manufacturing facilities entirely because of the expense and regulatory burden that is implied. This seems to be especially true for early-stage medical device companies.
Ability to turn resources “on” and “off.” The product design-to-supply process can be very hard to predict and rarely proceeds without unexpected surprises and delays cropping up. When delays and redirections occur, the OSPs can be put on hold more easily than full time, permanent employees.
Cost advantages. There is a case to be made that OSPs cost less than internal resources. This is especially true for client companies that have a particularly expensive “footprint,” either due to the cost of their facilities and/or the cost of their overhead structure. When the cost of office space, employee benefits, IT infrastructure, software licenses, lab facilities, etc., are added up, it doesn’t take long for the “real” cost of an internal resource to match or exceed the cost of an OSP resource. This seems to be a more common situation for larger corporations. But, when one accounts for the cost of maintaining the compliance of a medical device facility—whether for R&D work or manufacturing—the price tag can be daunting.
Specialized system advantages. Most OSPs are set up to concentrate on a particular specialty or service. Many have well-worn methods that enable them to move quickly and efficiently. They have templates and procedures that the client effectively inherits as part of the fees they pay. The OSP team should have a “been there, done that” collection of experiences that enables them to diagnose a client’s need and establish a plan based on similar experiences—not unlike a car mechanic can discover the source of an engine issue just by listening to it run. For instance, a product development firm may develop a dozen new products a year, whereas an OEM startup may be develop one per decade. Likewise, a sterilization service provider will know the best way to plan and conduct a validation study since they are experts in the field.
Schedule compression potential. Time is always of the essence, and traditionally, OSPs tend to work faster than their OEM clients. Generally, OSPs are more willing to work nights and weekends, giving the client team the calendar space it needs. Plus, many—but not all—OSPs have significantly fewer distractions and simpler bureaucratic checks and balances to work through than client companies. This can translate into quicker, more streamlined project execution which ultimately contributes to the ROI justification.
Warning: Vigilance required. As mentioned in last month’s article, when using OSPs, the client team must remember to pay close attention to progress and the details of the work being done. The client should be regularly weighing the benefits of an OSP against the risks to confirm that the reasons to use the OSP are still legitimate and in place. If at any time the benefits are no longer valid or the risks become too great, a client must consider whether it’s time to make a change.
David C. Robson, a principal at Robson Advisors, has spent 30 years concentrating on the development of medical devices. Seventeen of those years were spent working for a full-service product development firm where he interacted with both large and small medical device companies and reviewed statements of work and requests for quotation, wrote proposals, and negotiated hundreds of work agreements. Robson and his partners now offer product development guidance and advocacy to early-stage medical device clients.
Nowadays, medical device companies, both large and small, regularly and sometimes almost exclusively use OSPs to execute the activities needed to get through the development cycle. There is a sea change in how large multinational device companies are viewing their product development resources and budgets. Rather than valuing design and development as a distinguishing strength, a number of bellwether OEMs have chosen to de-emphasize having large internal development capacity, and instead invest primarily in their clinical research as well as sales and marketing initiatives. The development cycle and the associated team members and infrastructure are being looked at more as an expense that drags downs profit margins rather than as a long-term value generator.
Of course, the pendulum can (and probably will) swing too far at some OEM companies. There will undoubtedly be cases where the internal teams have been gutted so badly that the OEM loses the ability to manage existing products and make generational improvements. There is definitely value in having product design and development experts within the OEM that can guide and oversee OSPs and ensure that they stay on target.
So, with that as a big picture preamble, it is worth recounting some of the many benefits and values to be gained by using OSPs.
Expertise in non-core areas. Client companies both large and small may identify new initiatives for either products or services for which their internal teams are not experienced or capable of handling. For instance, an OEM that concentrates on single-use disposables may not have internal resources to design a device that includes electronics and firmware. Likewise, a traditional device company may not have the ability to create its own cloud-based data center. In many cases, client companies use expert resources from OSPs to help with transient needs in the development cycle such as human factors, industrial design, and usability testing.
In each of these transient need examples, the client company benefits by filling a need without having to bring on permanent resources or invest in expensive equipment that may not be fully utilized. This, in turn, enables them to bring products to the market they couldn’t otherwise develop on their own. Likewise, the OSP can utilize these resources across multiple programs, which enables it to afford having experts on hand when clients call. The cost of using these outsourced services may be higher than using internal resources, but the reduction of long term resource and equipment obligations can make for a very favorable return on investment (ROI).
Client human resources not available for big OEMs. There are many cases, especially in larger scale OEMs, where the talent exists to handle a project in-house, but all of the internal resources are booked on higher priority projects. Rather than putting the project on hold until next quarter or next year, a client company can retain OSP resources to do the work in order to allow the client company to realize sales and profits sooner. Justifying the cost of the OSP is reduced to traditional ROI calculations, which take into account the cost of the external resources versus the income boost of getting the project done sooner. The growth and success of full-service design and development firms seem to be anecdotal evidence that the ROI calculations are generally favorable.
Client human resources not available for small OEMs. On a similar note to the previous section, smaller client companies may have a tough time attracting the resources needed. Even when they can find and retain highly qualified employees, an individual only knows whatever they have learned or experienced—they don’t generally have a larger pool of experiences and recommendations to draw from. The resources from OSPs can typically draw ideas from the general population of their company. In fact, this is one of the major benefits of using an OSP—their collective knowledge and experience. The client company should always be looking to leverage the larger OSP brain trust, and good OSPs will have practices in place to tap the “hive brain” when challenges threaten to derail the core team.
Equipment and infrastructure not available. A client company may outsource injection molding, PCB assembly, fixture building, manufacturing and assembly, sterilization, laboratory testing, and shipping logistics in order to avoid significant capital outlays and certification burdens. Likewise, these days many client companies are choosing to avoid owning manufacturing facilities entirely because of the expense and regulatory burden that is implied. This seems to be especially true for early-stage medical device companies.
Ability to turn resources “on” and “off.” The product design-to-supply process can be very hard to predict and rarely proceeds without unexpected surprises and delays cropping up. When delays and redirections occur, the OSPs can be put on hold more easily than full time, permanent employees.
Cost advantages. There is a case to be made that OSPs cost less than internal resources. This is especially true for client companies that have a particularly expensive “footprint,” either due to the cost of their facilities and/or the cost of their overhead structure. When the cost of office space, employee benefits, IT infrastructure, software licenses, lab facilities, etc., are added up, it doesn’t take long for the “real” cost of an internal resource to match or exceed the cost of an OSP resource. This seems to be a more common situation for larger corporations. But, when one accounts for the cost of maintaining the compliance of a medical device facility—whether for R&D work or manufacturing—the price tag can be daunting.
Specialized system advantages. Most OSPs are set up to concentrate on a particular specialty or service. Many have well-worn methods that enable them to move quickly and efficiently. They have templates and procedures that the client effectively inherits as part of the fees they pay. The OSP team should have a “been there, done that” collection of experiences that enables them to diagnose a client’s need and establish a plan based on similar experiences—not unlike a car mechanic can discover the source of an engine issue just by listening to it run. For instance, a product development firm may develop a dozen new products a year, whereas an OEM startup may be develop one per decade. Likewise, a sterilization service provider will know the best way to plan and conduct a validation study since they are experts in the field.
Schedule compression potential. Time is always of the essence, and traditionally, OSPs tend to work faster than their OEM clients. Generally, OSPs are more willing to work nights and weekends, giving the client team the calendar space it needs. Plus, many—but not all—OSPs have significantly fewer distractions and simpler bureaucratic checks and balances to work through than client companies. This can translate into quicker, more streamlined project execution which ultimately contributes to the ROI justification.
Warning: Vigilance required. As mentioned in last month’s article, when using OSPs, the client team must remember to pay close attention to progress and the details of the work being done. The client should be regularly weighing the benefits of an OSP against the risks to confirm that the reasons to use the OSP are still legitimate and in place. If at any time the benefits are no longer valid or the risks become too great, a client must consider whether it’s time to make a change.
David C. Robson, a principal at Robson Advisors, has spent 30 years concentrating on the development of medical devices. Seventeen of those years were spent working for a full-service product development firm where he interacted with both large and small medical device companies and reviewed statements of work and requests for quotation, wrote proposals, and negotiated hundreds of work agreements. Robson and his partners now offer product development guidance and advocacy to early-stage medical device clients.
