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AstraZeneca’s IT department is saving $350m (£243m) a year through an IT insourcing project which also stopped IT being the company’s “whipping boy”.
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After deciding to insource in 2013, the pharmaceuticals giant began a three-year project in January 2014 that has seen it replace seven major IT suppliers with in-house resources. It also created global delivery hubs in India, Mexico and China.
The company’s vice-president of IT strategy and performance, Chris Day, was tasked to head up the project by AstraZeneca CIO David Smoley. Day said that despite spending $1.35bn on IT each year, the company was not getting value and its IT was underperforming.
At the time, AstraZeneca outsourced about 70% of its IT. It originally had a big contract with IBM as sole service provider, but in 2011 switched its strategy to source from seven specialist suppliers – HCL, Wipro, BT, Computacenter, Cognizant, Infosys and Accenture.
But Day said IT was underperforming and had become “the whipping boy of the organisation”.
“We were really underperforming as an IT organisation,” he said. “We were very slow, very inflexible, had terrible issues with quality, as well as a high level of dissatisfaction with IT in the business.”
The IT department had also become “very expensive”, said Day. “We were demonstrably more expensive than our peers in the pharma industry,” he added.
In the pharmaceuticals industry, average spend on IT as a proportion of revenue is about 3.3%, said Day, but AstraZeneca’s IT spend was about 5.4% at the time. It set a target of saving $300m from its annual IT spend, and has already exceeded that by saving $350m.
Day does not put the blame for the overspend on suppliers, but on the operational model at the time. He said the suppliers were best of breed, but AstraZeneca had not got the supplier management and service integration right.
“We had to regain control of IT to fix this,” he said.
The problem was that the supplier management overhead was huge, said Day. Creating and running a project took a lot of effort for internal teams to co-ordinate.
And the company could no longer act on its own intuition. “We had become good at supplier management, but lost the individuals who really understood technology, could make informed choices and get quality work done quickly,” he said.
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At the time, the IT workforce supporting AstraZeneca comprised about 1,900 internal staff and 5,000 supplier staff.
The company decided to rebuild its operating model and reskill its legacy IT staff. Day said that over the years, the IT staff had morphed into service managers. “Many of those legacy staff had become supplier service managers as opposed to technology delivery professionals,” he added.
AstraZeneca decided to reduce the number of IT staff, including those from suppliers, slightly and re-skill legacy staff. This involved recruiting 250 extra IT staff in the UK and the US.
Further employees were recruited when it opened technology delivery centres in Chennai, India; Dalian, China; and Guadalajara, Mexico.
The company is now able to scale quickly in areas rich with IT talent, said Day. The Chennai centre, opened in September 2014, will be the main centre supported by satellites in Dalian and Guadalajara. The company is considering opening operations in Eastern Europe, he said.
AstraZenca now has about 4,500 internal IT staff, compared to 1,900 when the project started. Some 5,000 supplier staff have gone, replaced largely by tech skills in the offshore development centres.
Global delivery centres
When AstraZeneca was planning its global delivery centres, it was careful to avoid captive centres run by suppliers – a common model used by businesses. All the staff in the centres are employed by AstraZeneca directly and report to it, said Day.
This way, employees feel part of the team rather than being employed by a supplier and this was one way of countering the often high attrition rates in IT hubs such as Chennai, said Day. “Our attrition rate in Chennai is low at about 2.5% a year, which is unheard of today,” he added.
“We are investing a lot of time in employee engagement and people have a connection.”
The Chennai hub now hosts about 1,500 people, after having one person and an empty building in the middle of 2014. It will have more than 2,000 workers by the end of this year.
The centre carries out a wide range of services, such as infrastructure, end-user computing and application management, and is also working on emerging technologies. “This is not a standard commodity services operation,” said Day.
Look for new staff
The company decided from the start not to just recruit from suppliers, but to look for new staff to ensure that it got people “who really wanted to work for AstraZeneca”, he said.
The Chennai hub has a high volume of experienced staff, said Day. “These are not junior people – many have five to 10 years’ experience.”
He added that the company will begin to bring more graduates in now that the centre is established.
Because the company’s internal workforce has increased in developing countries, where wages are lower, the total cost of staff has remained broadly flat, said Day.
In Mexico, AstraZeneca is just starting out, but the hub will have 300 staff by the end of the year, he said. The Guadalajara centre will provide services that need to be closer to the Americas.
The Dalian centre, where a couple of hundred people are working, will be a subset of the Chennai centre but focused on China, Japan and South Korea. Day said the company will make a decision on Eastern Europe next year. A centre there would probably have 100-150 staff.
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Despite an IT budget exceeding $1bn over the years, large-scale outsourcing had resulted in AstraZeneca falling behind, said Day.
But this is changing. For example, the company has gone from being what Day described as “a laggard in terms of cloud take-up” in 2013 to rolling out multiple cloud systems, including Salesforce, Workday, Box, Office 365 and ServiceNow in the past two years, and Concur is being deployed currently.
“Before this project, email was run in-house on an antiquated server estate supported by third parties before we moved to 365, which took only seven months,” he said. “We have adopted all the leading cloud services and gone from lagging in terms of cloud technology to leading in certain areas, and we are evaluating all the time.”
Now that business targets such as cost-cutting, flexibility and user satisfaction have been met, the organisation wants innovation, said Day. To support this, AstraZeneca has recruited a CTO and a team of 20 in San Francisco to look at new technology.
Onwards and upwards
Day said the company is ahead of schedule on the outsourcing project and he expects to have 70% of IT to be insourced when it is complete. But this is not a fixed target. “We are always looking, but I don’t think it can go much further than that,” he said.
Day said the project has “raced along” and there has been little time to take in the challenges the company has been through – but they were major.
“We have moved so quickly that it is easy for me to gloss over some of the challenges,” he said. “But it is a big move going from being effectively a supplier management organisation to an IT operation that designs, builds and runs solutions itself.
Chris Day, AstraZeneca
“We found that, emotionally and culturally, that is a big journey to make. We have done this by bringing some great new people in and reskilling existing folk.”
Bringing work back in-house has re-energised and motivated the IT organisation, said Day. “People can see we are in control of technology and we own it, which has been a major fillip for our onshore organisation and they enjoy working with Chennai because they own and drive technology and make key decisions.”
On the supplier front, Day said he expected a level of resistance. “But they have been really collaborative,” he said. “They know there is always a role for the supplier ecosystem.“
Day said suppliers have been supportive. “They have worked closely with us, transitioning the services to in-house. Last year we had about 70 transition projects running simultaneously at times and we did not have a single disruption to the business.”
The 30% of AstraZeneca’s IT that is outsourced includes specialist services such as network services and a service desk, and the company is still outsourcing quite a lot of application development.