An Introduction To Global Business Services (GBS) For Medical Device Manufacturers

By Victoria Phelan, KPMG LLP 

Medical device makers have lagged behind other industries — such as pharmaceuticals, consumer products, high technology and financial services — in the realm of improving global sourcing capabilities and managing global back-office functions. 

Global business services (GBS) is a service delivery framework that requires executives to think differently about their businesses, operating more effectively through a combination of outsourcing and automation to enhance customer and stakeholder satisfaction. The top performing GBS users drive more efficiency and value from finance, procurement, human resources, sales and marketing, and a variety of business models (e.g., outsourcing, shared services, cloud, captive offshore, etc.).  

Each organization’s approach must be customized to match the capabilities and service needs of that organization: Outsourcing may work best for one company, while offshoring a capability may work best for another. This mindset can require functional managers to relinquish control of certain activities. But, as processes become standardized internationally, it creates outsourcing/offshoring opportunities that can improve profitability, and empowers managers to better engage customers, employees, and other stakeholders.

Driving factors that have slowed the medical device industry’s adoption of GBS include narrower functional focus, regional marketing focus, less M&A than pharma, and less complex back-office functions that alleviate pressure to outsource. However, the reimbursement climate is changing throughout healthcare, and payers are looking for greater value from their healthcare spending — value that GBS can facilitate.

Medical device makers have the advantage of learning from other industries how to improve GBS, allowing medtech organizations to achieve more technologically proficient and more efficient operations, in a much shorter time, than industries that have had to depend on trial and error. Also, this approach enables organizations to adopt a more strategic role for their back-office operations.

The most effective users of GBS can dramatically curtail cost growth in selling, general, and administrative (SG&A), cutting overhead in finance, procurement, human resources, and IT. The idea is to reach additional economies beyond those of scale, but of process. For example, is a global medical device maker really capitalizing upon savings opportunities if it has 20 different ways to procure a printer? Or even 20 different printers that have their own set of servicing needs?

4 Strategies For Medical Device Makers To Improve Efficiency Through GBS 

1. End-to-end, multifunctional business processes and operating models that deliver a unified and cross-functional approach to outsourcing and offshoring, improving efficiency and capabilities.
2. Integrated and standardized IT applications that can automate or use cloud technology to support desired service delivery models in finance, accounting, HR, and other functions.  Coordinating these functions on one platform improves efficiency and can lower overall IT costs.
3. Defined oversight that leads to standards for process design and performance, which can drive superior performance globally.
4. Enterprise-wide governance across shared services, and outsourcing with a full deployment of management platforms, to more fully address roles, forums, and responsibilities for in-house and outsourced services.

On a more tactical level, the factors to be considered when choosing locations include labor costs, labor availability, economic stability, language requirements, the time zone in relation to where business is conducted, and whether the organization had a previous presence. Rising labor costs are the biggest concern when it comes to operating global business services in-house, followed by labor attrition, talent saturation, and language skills, according to a survey of large medical device and pharmaceutical companies with a global footprint.

With pharmaceutical and medical device companies, there is a heightened level of complexity for outsourcing and automation. Transactional business processes can be readily automated. However, processes that are client-facing and have clinical elements require a labor force with more complex skillsets than, for example, traditional call centers or other patient and provider touch points, given the degree of government regulation.

In the midst of this complexity, healthcare executives have a mandate in the market to maximize value. This has driven M&A and strategic divestitures to determine which product portfolio plays to an organization’s strengths. 

Case Study: Global Life Sciences Firm Benefits From GBS

In 1996, a global life sciences company was struggling with decentralized and duplicative functions, and exercised little central control over business support services. Cost savings and improved service delivery were the company’s main objectives.

The company started by creating individual shared services and outsourcing some transactional processes, by function (F&A, HR), across their major geographies. This was a typical step that many companies took at that time. An increasing number of shared services were introduced throughout the back office — namely procurement and the supply chain — leading to a multifunctional GBS organization by 2008. However, business model realities and pressures intervened.

Maintaining a global GBS organization became challenging because of a regionally oriented business model that dealt with local regulations. Ultimately, the company disbanded its multifunctional shared services center. Still driven by a mandate from senior management to cut overhead related to operating unit costs, the company continued aggressive outsourcing by individual function. There was also the understanding that moving back to a functionally oriented delivery model would save on service delivery costs by eliminating the management and overhead associated with a GBS organization. Dissolution of GBS stemmed from the lack of a strong governance model linking functional and GBS management to a core set of operational and financial outcomes.

But the lure of GBS didn’t go away. New executive leadership realized the need for greater integration across processes and geographies to accomplish more than just transactional cost reductions. In 2012, the company reevaluated its approach and elevated GBS to a top priority. It now manages shared services globally, including many SG&A functions and such cross-functional activities as data analytics.

The company strengthened its global governance structure to sustain the new model, and it has expanded its objectives beyond pure cost savings to support broader-based growth and control strategies. Those strategies include a platform to accelerate M&A benefits like product development acceleration and sales force integration, leading to stronger results and better strategic positioning.

Making The Most Of M&A

Mergers and spinoffs are disruptive to an organization in the short term, but they create an immense opportunity to redraw organizational tables and to remove redundant processes, creating a more efficient organization. Shared services for back-office functions can help generate synergies promised to investors in fairly short time, which is crucial for executives to maintain credibility with the investing public. While these changes can be wrenching for an organization, it is imperative to illustrate clear objectives and a vision for how those objectives achieve value. 

Many mergers fail because the acquiring company paid too high a price, botched integration, and/or failed to take customer needs into account. On top of those considerations, medical device makers have to think about regulatory compliance and getting experimental devices approved. Failure to address those two points can disrupt the rationale for making a deal in the first place.

Medtech's Complex Landscape Demands A GBS Approach

Although the medical device industry hasn’t historically felt the strongest push to explore GBS, remember that most large companies are only one deal away from a whole new business model, especially in a healthcare industry that is facing a high degree of convergence among payers, providers, drug and device makers, and new healthcare industry entrants. Taking a proactive approach to implementing GBS can prepare a company, operationally, for the possibility of a major merger or acquisition.

Companies have shaved over a year off integration activities by having a GBS organization firmly in place to handle finance, HR, and IT services on a global and end-to-end basis. We have seen this quite often in the high-tech industry, which is closely aligned to medical devices. Indeed, there have been cases where an acquisition wouldn’t have been attempted were it not for GBS being in place, creating more opportunities to boost stakeholder value immediately.

Over the past few years, the business case for greater investment in GBS has become more compelling in the medical device industry for a variety of reasons:

• Medical device organizations are expanding into new markets and taking advantage of market adjacencies to drive new growth.
• Competition is heating up, even as regulations place limitations on operations in both the United States and around the world.
• Supply chain processes are becoming more complicated.
• Talent is becoming increasingly scarce.

In this environment, medical device organizations have little choice but to improve their business models. By learning from the experiences of others, medical device organizations can enjoy the benefits of being slightly late to the game  and “leapfrog” over the competition to bring their GBS organizations to maturity. In doing so, they stand to gain significant competitive advantages, increased flexibility, and a higher return on their investment.

About The Author

Victoria Phelan is a managing director at KPMG LLP’s Shared Services and Outsourcing Practice. She specializes in the life sciences and pharmaceutical industries.