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2016 Brings Waves of Change for Procurement in Pharmaceuticals (and Other Industries)

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by Jon Lightman
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Much like decision makers in other fields, procurement professionals face a challenging landscape. They are under increasing pressure to take on more expansive roles in their enterprises and to be the standard bearers for value creation. Meanwhile, as they look to the future, they know the rate of change will only accelerate and the complexity of their decisions increase.

Last month, I joined procurement professionals and experts at the ProcureCon Pharma event in Philadelphia to take an in-depth look at the future of procurement in the pharmaceutical industry. Here are the Top 5 trends I outlined in my address there (which can apply to your industry as well):

  1. Mergers and acquisitions (and divestitures) are business as usual. Sourcing contracts used to contain an “Extraordinary Events” clause to address unlikely situations such as mergers and acquisitions, but today these events are far from extraordinary. Pharmaceutical companies are splitting off business units; gaining complementary capabilities, diversifying portfolios and stocking their pipelines through acquisitions, while also creating global scale (and taking advantage of tax inversions) through mergers. M&A activity needs to be planned for as part of normal operations.
  2. Meanwhile, robotic automation and advances in technology mean there’s no such thing as business as usual. The idea of aspiring to a “steady state” is passé, as is the notion of running operations to meet static service levels. The prevalence of As-a-Service solutions and enterprise demand for automation call into question whether we will ever see such a thing as a “steady state” again. The logical extrapolation of what has become a constant rate of change is the extinction of best practices. Time no longer allows for them take hold or become proven.
  3. Erosion of the line between the back office and the front office. Traditionally, enterprises had a raft of expensive support functions that contributed only indirectly to revenue generation, with IT, Finance & Accounting, Human Resources, Facilities Management and Legal among them. Over time, it has become increasingly popular to consolidate these back-office functions into shared services or Global Business Services organizations. But this approach of leveraging economies of scale, labor arbitrage and sourcing to minimize costs has left a number of companies wondering if their lack of investment in these functions is hurting their business. Business leaders are taking another look at how technology investments in these areas can improve ROI and advance the overall goals of the organization. Or if an increase in investment has a significant return.
  4. Consumerization and “toolization” of business services bring their own challenges. The people who work for large enterprises are the same people who use Seamless.com to order dinner and Uber to get a taxi. They expect similar solutions to be in place at work – and why shouldn’t they? While these are exciting trends, the downside of a “toolized” approach is that we can be easily distracted by the new, flashy tool itself instead of figuring out how it can achieve the desired business outcome. Research suggests that, once you give people a tool, they work in ways that align with the tool rather than in ways that get the job done. Cars make it easier to get around, for example, but our devotion to them means we’re much less likely to benefit from going “off road.”
  5. Will anyone emerge as the “guardian of value”? In the midst of all this change—with organizational functions growing increasingly specialized to address the complexities of running a global enterprise and its extended ecosystem of third-party support—who will maintain the overarching visibility into how wisely a company’s money is being spent? Which department will champion the real value of enterprise investment? Procurement could be the answer.

ISG helps procurement leaders find answer to these hard questions and define a path for the future. Contact me to discuss further.

About the author

Jon advises enterprises on all aspects of the IT services lifecycle from initial strategy through design and build of governance organizations. As a qualified English attorney, Jon has special insight into transactional activities and still maintains deep subject matter expertise relating to the structure and negotiation of contracts. His experience includes more than 50 ISG engagements in IT, business process and financial services outsourcing. Jon has also assisted companies in developing enterprise vendor management functions, in many cases on a global basis. He has supported clients in more than 10 countries.