Evolving Cost Optimization for the Life Sciences Industry

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As the U.S. Federal Reserve works to engineer a soft landing from our current inflation, there are still growing concerns that a recession is inevitable. And, while Life Sciences companies may have a little more pricing power than companies in other industries when it comes to absorbing inflationary pressures, most senior leaders within these firms are still challenging their lieutenants to investigate and implement pre-emptive cost takeout measures that will position their companies for resiliency through a potential economic downturn.

When it comes to Life Sciences firms, cost takeout must be carefully reconciled with other leading priorities. For example, to stay competitive, Life Sciences enterprises must keep a keen eye on advancing patient engagement at scale. Taking the linear approach of traditional cost takeout will limit the range of effective solutions, as well as inhibit company innovation and ultimately stifle growth and market competitiveness.

We believe in an approach to cost optimization that is better suited for the ever-evolving digital era of today.

Traditional-Cost-Takout-vs-Digital-Era-Cost-Optimization

Figure 1: Traditional Cost Takeout vs. Digital Era Cost Optimization

Comprehensive Cost Optimization Strategy for Life Science Leaders

For Life Science companies, a rigorous, agile approach is useful in three primary areas.

  1. Technology modernization – This is the backbone of digital transformation that enables many aspects of personalized medicine. Cloud, automation, edge computing and analytics are all key components of technological innovations like the digital pill, wearable AI devices and broad-based decentralized clinical trials. For these innovations to manifest, underlying cost structures with cloud hyperscalers matter a great deal. When it comes to technology business management and associated service delivery, it’s increasingly imperative to have pricing methodologies that both lower cost and generate substantial productivity improvements.
  2. Cybersecurity – Here cost optimization may seem counter-intuitive. Tactical cost takeout isn’t necessarily the order of the day with respect to cybersecurity. For Life Sciences companies, this is extraordinarily meaningful. CISOs and other security leaders have to be absolutely on point 100% of the time, while hackers need to be on point only once. A successful cyber breach is exponentially more consequential for Life Sciences organizations. Therefore, cost allocation of capital and operating spend has to be well balanced.
  3. Asset monetization – As companies focus on the core Life Sciences business model, we have seen that several pharmaceutical and medical device organizations are divesting their consumer-based business units and reexamining the efficacy of their shared service (or managed service) operations. They are asking questions like…
    • As I divest consumer health, should I structure a transition services agreement (TSA); or what are my options?
    • Should I continue to own my captive operation or moved to a more variable model?
    • Should I consider acquiring a captive (physical or virtual) to facilitate greater autonomy?
    • How much, if any, of a datacenter do I really need as I migrate more to the cloud?
    • Is my software asset management strategy aligned with my hybrid-cloud environment?

In each of these scenarios, it is important to avoid using the same strategy and execution that has historically left the enterprise with rising costs. Instead, take a dynamic approach to cost optimization that involves agility and collaboration so you can produce a more virtuous result and reinforce the overall business objective.

ISG helps Life Sciences firms develop the most appropriate cost optimization strategy. We also work alongside clients in the implementation phase with practical execution. Contact us to find out how we can help you.

About the author

Michael Fullwood is an ISG Partner with extensive financial planning and analysis experience. His areas of expertise include sourcing assessment and RFP management, contract negotiations and transitions. He has guided major multinational companies in the Americas and Europe through multi-functional outsourcing projects and shared services transformation. Michael has more than 20 years of experience advising clients on strategy and implementation and is an accomplished leader who articulates a compelling point of view for ROI optimization and speed to value. His work enables companies to optimize support services operations, contract for and implement digital/automation, and formalize processes, metrics, governance and reporting.

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