The Impact of CSOs on ROI

A NGP Executive Interview with Steven K. Budd, President, PDI Global Sales & Marketing Services
September, 2005

With the pharmaceutical industry facing a tougher operational environment in terms of competition and regulation, many companies are looking for strategic opportunities to leverage their investment in sales and marketing to achieve a better ROI. Contract Sales Organizations (CSOs) offer such an opportunity. Steven K. Budd, President of Global Sales and Marketing Services, PDI Inc., reflects on the evolving role of the CSO.

1. As a pioneer and leader in the contract sales space, how has your business model evolved over the years to adapt to changing client needs?
When PDI started out nearly 20 years ago there was the perception that we were a limited short-term resource, basically "rent-a-reps" for supplementing activity or share of voice, but not much more. Right or wrong, that's the way it was. Since then client needs have changed in many ways and, reflecting that, so have we.

Today there's a heightened awareness of eroding returns on fixed sales-force overhead. As a result customers are looking for speed, flexibility and agility to operate more effectively and maximize profitable brand sales. Awareness of those needs drives our model. We are continually refining the way we work with clients, how we hire, how we use technology — everything we do, really — to be responsive and to produce the kind of results that delight the customer and extend our relationship. It nets out that our CSO field forces are equipped equivalently to their client counterparts, and that we work with client companies as a long-term sophisticated resource. Ultimately, this allows our clients to respond quickly as their portfolio needs change while achieving a greater ROI due to our more efficient cost structure.

2. From a sales and marketing perspective, what do you believe are the key business issues the biopharmaceutical marketplace must address to maximize profitable brand growth?
From a strictly sales and marketing point of view, the biggest challenge clients face is maintaining a competitive share of voice at an acceptable return on investment. Here's the problem: More products in the marketplace promoted by a larger number of sales reps and higher advertising spends, equals more clutter. Historically the solution to that has been to deploy even more sales reps supported by a higher spend on communication programs. Essentially, dominance through firepower. This model has been successful for a long-time but it isn’t sustainable in the current environment where the ROI on sales and marketing spend is consistently declining. There is ample data demonstrating that equally equipped contract sales reps can perform at the same level as their client rep counterparts. The ability to maintain a competitive share of voice through the use of a more flexible lower cost alternative validates the CSO concept.

3. When it comes to outsourced commercialization services, how are the needs of emerging pharma companies different from those of mature enterprises? Are companies like PDI equipped to handle these unique scenarios?
Not surprising, the needs of those two types of organizations are very different. Major pharma typically uses a CSO to supplement their own outstanding internal capabilities. They are looking for tactical speed, quality and efficiency, rather than assistance with formulating strategy or outsourcing complete program responsibility. The emerging segment, on the other hand, needs a broader capability — often a full-service CSO to be their commercial arm. In this case the CSO has to be a strategic partner and have the ability to integrate the sales and marketing efforts, including market research, medical education, training, and analytics.

Are CSOs equipped to service and provide real value to customers in both categories? It depends on the CSO, but PDI certainly is. For example, handling a major brand for an established pharmaceutical company requires the ability to ramp up large scale sales teams quickly. The key to this is the ability to attract, select, deploy and manage quality people who can execute the client's plan, in either the primary or specialty care markets. Regardless of the solution, major pharma is most interested in phenomenal execution of their strategy. Now, add to that, the unique needs of emerging companies and you get an idea of the challenge and the opportunity for a company like PDI.

At PDI, we've developed extensive capabilities across the sales and marketing continuum. These competencies are augmented by strategic alliances designed to service pharmaceutical and healthcare companies at every stage in their corporate and brand life cycles. We have the largest field force in the industry, with highly experienced management teams, enabling us to offer a wide array of solutions and sales service models. PDI has a healthcare market research division and an educational communications division, which supports our ability to provide integrated solutions to those companies that have fewer internal resources and can benefit from the efficiencies of an integrated approach. We have partnered with a world wide leader in sales-force automation and created a strategic alliance with one of the most innovative providers of interactive e-communications. Bottom line, PDI understands the differing needs of both emerging and mature pharma companies, and we are firmly positioned to help both meet their objectives.

4. Companies who outsource some or all of their sales effort have to choose between managing that internally or outsourcing that responsibility too. What are the pros and cons of client vs. CSO management?
To begin with, I'm happy to say PDI has had great deal of success operating under both structures. So rather than a question of pros and cons, it may be more productive to think in terms of the relative advantages of the two approaches. Each client has a unique sales problem they need to solve. Once all the parameters of that have been defined, then the appropriate structure can be selected. The important thing to remember is that under either scenario the CSO team will be executing against the brand strategy established and directed by the client.

Let's look at some specifics. If the client plans to eventually convert the team to their internal headcount, then a client managed program (CMP) may make sense. CMP's can be structured where the CSO representatives are reporting to managers or as a hybrid where the client manager manages both their internal and outsourced sales reps. It should be noted however, that the Client managed option requires some level of redundant management which can negatively affect ROI. CSO business liaisons are needed to take the lead in performance management discussions and handle administrative issues related to employment. If handled properly, the additional management can help drive superior results, but it does increase the cost of management in these types of programs.

If the objective is maximum structural flexibility and cost variability, a CSO-managed option is probably the best choice. In this structure, the CSO "owns" the managers, but the client can still have an optimal level of control over the direction and focus of the sales force. For example, the client's senior sales and marketing leaders still set strategy and provide macro level sales direction. They can also be directly involved in hiring the management team and influence the development of the IC plan to ensure it is aligned to the company’s business goals. In addition, when PDI is directly managing the representatives, we are often willing to work in a performance based structure which reduces the fixed cost of the sales force to the client and produces incentives for PDI only as agreed objectives are achieved. This approach ensures complete alignment between PDI, our sales force and our clien; often generating a superior ROI for both parties. Either of these field force deployments can be successful. Ultimately the best choice for a particular client will be determined by the long-term strategies for the team and the anticipated ROI generated by the effort.

5. Manufacturers have multiple options when choosing a partner in the contract sales space, how will they know if they chose the right provider?
Essentially the answer to this question comes down to results. Results will always be first and foremost. If you're meeting your objectives and hitting the targets in your business plan, then you've made the right choice. It sounds simple, but the important thing is to know if your confidence is well placed as you proceed with a contracted relationship. Obviously you don't want to wait for the end-of-year or end-of-program numbers to find out you made the wrong choice. By then it will be too late.

I would tell anyone working with a CSO to look for early "indicators of success." First of all, how easy is the CSO to work with? Is your life getting easier or are they adding to your management workload? The point is, for any CSO to be a superior service partner, they must be able to independently manage critical core competencies with minimal guidance from you. And they should be proactive in their approach to your success.

Your best chance of success is to have a thorough and disciplined selection process to choose the right partner. In choosing a sales solutions provider, the quality of their people is paramount. Do they have legitimate subject matter experts leading the core process areas? Take a look at the hiring process and carefully review their case studies. Were the teams they have staffed hired on time and on profile? What percent of the representatives completed the initial training program? Of course this all ties into the overall quality of program management. Was the launch process managed efficiently and within established timeliness? Talk to their clients and ask probing questions to understand how closely their track record supports their marketing claims.

But going back to what I was saying before, ultimately you are looking for the company who can generate results and produce the greatest ROI. Without an acceptable ROI, the program will not go forward. A great indication of a client's ultimate satisfaction with a CSO is the length of the relationship. Did they add additional projects and did they rehire them for future business after a successful program came to a close or did they work on one project together and then hire another CSO when the next opportunity came along. Duration of the business relationship is often a strong indicator of the quality of the experience and results generated. Other factors to consider include, therapeutic knowledge, an experience base that is relevant to the program you are contemplating and the company’s reputation. Put all that intelligence together and you have pretty good chance of making the right choice.