By the 1930s, companies in the United States offered R&D services to the government on contractual basis. By 1999, R&D Magazine accurately predicted that, “outsourcing may become the next hot technological trend as corporate technology managers look for ways to support their strategic goals.” Then in 2001, it accurately predicted again that the “industry will continue to emphasize various forms of partnering and collaborations, including relationships with other industries, federal laboratories, and international facilities.” These predictions have proven to be quite on the mark since according to Partnering Forum, by the end of 2010 it is projected that over 40% of R&D will be outsourced in pharmaceutical industries alone. Moreover, it is estimated that at present, the United States medical industry alone outsources over $300 million in R&D and that an increasing rate is showing by the year.

1. What Are The Best
Practices In Managing
Outsourced R&D
Projects?
Author: Girish Gaitonde, CEO, Xoriant Corporation
Contact: girish.gaitonde@xoriant.com
© 2007 Xoriant Corporation info@xoriant.com 408.743.4400

2. What Are The Best Practices In Managing Outsourced R&D Projects?
By the 1930s, companies in the United States offered R&D services to the government on contractual
basis. By 1999, R&D Magazine accurately predicted that, “outsourcing may become the next hot
technological trend as corporate technology managers look for ways to support their strategic goals.”
Then in 2001, it accurately predicted again that the “industry will continue to emphasize various forms
of partnering and collaborations, including relationships with other industries, federal laboratories, and
international facilities.” These predictions have proven to be quite on the mark since according to
Partnering Forum, by the end of 2010 it is projected that over 40% of R&D will be outsourced in
pharmaceutical industries alone. Moreover, it is estimated that at present, the United States medical
industry alone outsources over $300 million in R&D and that an increasing rate is showing by the year.
The Engineering Management Conference of 2004 discussed then that the increase in the demand in
R&D outsourcing and constant changes in trends have lead to many problems in the management of
outsourced R&D projects. Further, these problems had serious implications on both the outsourcer
and the outsourcing firms. At present, most companies and analysts have come up with good solutions
and insights on the best practices in managing outsourced projects, particularly for R&D projects.
The Keys to Successful Managing of R&D Projects
According to Don W. Caudy, vice president of innovators’ support services and medical products
division of Battelle, there are several key principles to adhere for an effective management of
outsourced R&D projects. Companies must first establish common objectives. Meaning, as the
company chooses their preferred provider, they must also make themselves the preferred client.
It is also important to build respect and trust. To do this, the company must be fair, open, and honest
throughout the project. By being open and trusting, both parties foster a good relationship. This avoids
any unpleasant surprises, disregard for rules and misinformation, which are common problems in
outsourcing. After which, the company must always communicate in a professional manner. Not only
should the client give clear and precise instructions throughout the project, it is important to document
all things essential for the business to ensure no miscommunication happens in the future.
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3. What Are The Best Practices In Managing Outsourced R&D Projects?
The Basics in Managing Practice
Communication Management is the basic element of a successfully managed outsourced R&D
project. It is best that the company have a specific communication structure that will assist the team in
having a good and open relationship. By having good communication, the team shall be able to face
issues and problems faster and more effectively. Thus, the company must create a structure of
communication that is best suited to the project and the team. For instance, daily communication of
project managers as to the results of the day, weekly communication of operational managers as to the
process of the project and its improvements and monthly communication of business management on
how to address the problems.
Relationship Management is also important since it enables the smooth progress of the project. The
team should communicate to the provider all expectations of the project, including its format,
drawings, documents and details of the project to avoid any misunderstanding and to foster good
working relationship based on trust. Further, both parties should also have uniform software,
information systems and programs to use.
Timing is everything
Another important part of how to manage outsourced R&D projects successfully is to know when to
outsource. A company must be clear in its objectives for outsourcing. Most of the time, companies
experience problems in-house that may lead management to consider outsourcing. The management
must evaluate if outsourcing is indeed the solution for their problem. For instance, if the problem is to
meet the deadline, the company must evaluate if the solution is as simple as designating additional
supervisors or managers for the research.
Caudy gave typical scenarios for management to consider outsourcing:
• Meeting deadlines
• Lack of experience and technology
• Lack of facilities and equipment
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4. What Are The Best Practices In Managing Outsourced R&D Projects?
And what the company should first consider:
• If they have the management skills for R&D outsourcing
• If the workers will be supportive
• If they have enough resources for the management of R&D outsourced projects
Moreover, the company must evaluate if it is ready to do the part of managing an outsourced R&D and
share its secrets and confidential technological information, concepts and strategies.
The Initial Steps
Caudy enumerated five preparatory components that shall eventually constitute a successful
management of outsourcing R&D projects. After having decided that the company definitely needs to
outsource its R&D and that it has the work force and resources for its management, it must now take
the following steps:
• Formulate a strategy. The company must clarify its organizational goals and then identify the
things needed to be achieved from outsourcing its R&D projects. These may be to reduce
cost, to have new IT or to free capital funds. The company’s goals must match the provider.
• Create a Plan. The company must assign a capable outsourcing manager and have him
formulate a plan to be presented to the stakeholders.
• Define the scope of work. The company should list down all activities that will be
outsourced.
• Properly document and define all requirements. After defining the scope of work, the
company should prepare a list of outsourcing requirements and documents needed. This
list may include the problems that needed solving, the evaluation of possible providers,
how to go about outsourcing, planned relationship with the provider and the risks
in outsourcing.
• Choosing the provider. This is the trickiest part because the company must go through the
process of choosing the right and suitable provider to be its partner. The company should
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5. What Are The Best Practices In Managing Outsourced R&D Projects?
perform a thorough evaluation of the candidates, including background, financial and
referral checking. A potential outsourcing company must be evaluated as to how it fares
with its competitors.
Use it as a tool
Lastly, according to Caudy, one of the best practices in managing outsourced R&D is to use it as a tool
for the company’s competitive edge. At present, product innovation is now the major factor in top-line
growth. This is far from traditional practices when R&D was the last to be outsourced. As such,
companies must develop good relationship with their clients because when properly managed, R&D
can help in maximizing the company’s performance.
To use it as a tool, the company must remember that outsourcing companies can help them focus on
their competencies, organizational change for effectiveness, pursue more product pipeline, access
technological innovations and reduce their capital requirements.
To be able to utilize all the afforded functions of outsourced R&D, the company must have a definite
guideline or practice in managing the outsourced R&D. Primarily, the company must have only realistic
expectations. The company should consider its expectations and evaluate if they are realistic or not.
They should understand that providers have certain limits and are not miracle workers. Second, the
company must go through the proper outsourcing process. Planning to outsource projects and hiring a
provider should both be done under rigorous courses of action. It is not as simple as buying something
from the store or procuring an office supply.
Third, good communication must be established, which is usually overlooked and cause R&D
outsourced projects to fail. Both teams must establish good communication, or else the project will
be compromised. Fourth, continue the relationship even after the contract has been signed. Most
companies assume that as soon as they have signed the contract, everything is on the hands of the
provider. In fact, the project’s success lies on the partnership of the buyer and the vendor. Thus, should
the buyer fail its part as a partner, then the project is doomed to fail.
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