Coming to Terms with Outsourcing

According to Carey, there is a “do I or don’t I point at every company.” But device firms are usually asking this question when they are under pressure and challenged—either when a project is about to start, or even worse, when they are behind. The key is to know what, when, and how to outsource and whom to outsource to. Further, Carey said organizations must make peace with outsourcing.

He outlined the six steps that a company must perform to ensure that the outcome of outsourcing is successful.

Step 1: Perform a Core Competency Analysis
This is an essential step to selecting outsource partners. Such analysis determines what should remain in-house and what is best suited for outsourcing. Keep in mind that this step can affect the culture of your organization and should be approached with caution, Carey advised. He said management and a wide range of stakeholder buy in is key.

Step 2: Perform Knowledge Gap Assessments
As part of the core competency analysis, Carey said that a knowledge gap analysis can inform the evaluation. Companies may decide that a knowledge area that displays considerable gaps may still be a candidate for designation as a core competency. They might also decide to invest in closing a knowledge gap in order to develop a core competency. Conversely, the knowledge gap could lead a company to designate the knowledge area as noncore and a good candidate for outsourcing. “Identifying noncore areas should be accomplished as early in the process as possible,” he explained. 

Step 3: Protect IP
Carey advised that firms should identify true intellectual property (IP) but avoid the tendency to expand the definition. For example, “software plays a role in a lot of medical products, but there is a difference between the core algorithm development at the foundation of a product and the application software that gets developed around it,” Carey said. “It’s not unusual for companies to decide that the algorithm is the IP, and the rest of the development is noncore.” Understanding where a company’s true IP is helps them discover and avoid overspending in noncore areas.

Step 4: Decide How Much to Outsource
Once core competencies are settled, decisions can be made on how much to outsource. Guidance should come from the outcomes of the assessments. In general, core competencies stay in house and noncore competencies will be outsourced. Carey said this plan can be controversial because employees associated with non-core areas develop concerns about their future role in the company. Firms should anticipate this outcome, identify which employees are likely to develop concerns, and take measures to proactively address the issue.

Step 5: Decide When to Outsource
There are specific times in a company’s life when it will decide to outsource. And often by the time a firm decides to outsource, it is because they are under pressure, Carey said. “That is not a good time to start the process,” he says. Examples include when the firm is making a technology shift or when it is facing a short time to market for a product. A company might also decide to look into outsourcing when the bandwidth of the company begins to influence product development. Increased regulatory pressures might also help a company think that outsourcing might make sense. Expanding to a new market, where price points might come into play. “And they are, generally, just trying to remain competitive,” Carey said. However, the key to successful outsourcing is to look at these needs before they become a problem. 

Step 6: Select Whom to Work With
The most important qualifier for a potential partner is domain experience, Carey said. Partners must come with an understanding of the processes, tools and technologies of their domain. Among qualifications, Carey advised companies to ask about an outsourcer’s  certifications (e.g., ISO 9001, 13485, and 62304) and adherence to common industry standards (e.g., HL7, DICOM, IHE). It is valuable to look for a service provider that develops products in the same class as a firm’s FDA-regulated devices. Evaluating a contractor’s past performance and current competencies can help avoid expensive and possibly disastrous training curves

Partners should meet the OEMs’ minimum standards and ideally be willing to contribute to continuous improvement. “A good partner can give critical insight into your own development process,” he said.

Selecting the right partner, and understanding the best methods can be tricky, Carey acknowledged. “Don’t forget to communicate,” he said.