Crisis Management in Pharmaceutical Outsourcing

Best practices for the worst situations

by Hemant Vora

Pharmaceutical outsourcing has been growing as a business process for more than a decade. It has matured at the micro (operational) level of the process. Micro-procedures for identifying and evaluating outsourcing partners, negotiating and executing appropriate contracts (agreements) and running day-to-day operations have reached a stable level. However, outsourcing has some growing up to do on the macro level. Macro-processes of clarifying objectives and expectations of outsourcing relationships, understanding principles of managing such relations, monitoring partners’ performance and monitoring risks and vulnerability are in their infancy. The pharmaceutical industry has made some progress in these activities, however some critical activities, like understanding and developing tolerance towards philosophical and cultural differences — as well as crisis management — have remained untouched.

The purpose of this article is to introduce those thought processes of crisis management to those who are just initiating or contemplating the development and implementation of a crisis management program. We shall present a definition of crisis, discuss its genesis and categories, and offer one of many possible methods of managing crisis in pharmaceutical outsourcing.

Defining a Crisis

The Institute for Crisis Management (ICM) defines “crisis” as follows:


Crisis resulting from fire, natural disaster, war, terrorism, and personnel behavior are of general type and applicable to any industry. Product development errors, dosage errors, impurities, adverse events, counterfeits, etc. result in crises that are specific to the pharmaceutical industry. Serious regulatory violations, unexpected government restrictions, loss of resources, lesser operational control, and dependence on a contract manufacturer’s resources are some drivers specific to pharmaceutical outsourcing.

Why Manage Crises?

A crisis can have serious negative impacts on an organization’s public relations, integrity, reputation, and stakeholders. Reputation and stakeholders’ confidence in products are two essential elements for a company’s survival. These are more critical for pharmaceutical companies, since their loss can result in regulatory and legal problems. Any event with negative impact on public relations or that erodes end-users’ confidence in products can have an unfavorable effect on market share, revenue, and business. This in turn can shake employees’ morale and investors’ confidence.

Crisis management in any outsourcing operation becomes more complex because of the involvement of multiple organizations separated not only by distance but also by business philosophies and cultures, in the case of overseas outsourcing.

Genesis

Several factors contributing to crises can be classified under two major categories: Controllable and Uncontrollable. Fast pace, judgment errors, human behavior, failures to understand cultural differences and miscommunication are some of the controllable factors that can cause crises. Globalization has weakened “borders” which used to provide protection to businesses. Competition has intensified and “first in market” has gained additional importance. This has accelerated the pace at every stage of the lifecycle of a product, especially from development to launch. This fast pace can have a tiring and eroding effect on people, equipment and processes. Continuous and intense fast pace — especially at the day-to-day operation level — can result in human lethargy, which may lead to a crisis. Questionable or unintentional judgment errors during various developmental stages can create crises at later stage in the form of adverse or life-threatening events.

Uncontrollable factors include natural disasters, political unrest, social upheaval, terrorism and wars. Natural disasters such as earthquake, tsunami and fire, which used to occur rarely, have occurred with accelerated frequency of late. Similarly political unrest and social upheaval have become regular occurrences. These factors have to be considered during preparation of a crisis management plan. Expansion of the operative field due to globalization may be contributing to such increased experiences. Obviously, one cannot resolve the issue of natural disasters, but they can be avoided or their impact reduced. Selecting outsourcing partners located in geographical areas less prone to such disasters can help avoiding them. In addition, having an alternate source approved and ready to access can reduce the damage.

Third-party research or investigations and counterfeits are other examples of uncontrollable factors. Such research and investigations — questionable as they may be — can end in publication of results and findings with disastrous impacts on products of companies, which neither sponsor the research nor participate in any way. The issue of counterfeit drugs is one of the recent happenings and may be a byproduct of globalization. Personnel behavior is another example of uncontrollable factors that can contribute to a crisis. This factor is more serious due to the complexity arising from multiple parties involved in pharmaceutical outsourcing.

Categories of Crisis

There are several methods to categorize crisis. Ease of control and prior knowledge are a couple of criteria. The former can categorize crises as Controllable and Uncontrollable (discussed earlier). Sudden and Smoldering are the categories based on prior knowledge. These are general categories of crisis and can be applied to any business or organization. There are some crises that are specific to pharmaceutical industry or to outsourcing organizations. Crises resulting from impurities (product development), sourcing (regulatory changes drying up resources), supply (disruption of shipping routes), manufacturing (accidents) and unexpected post-marketing adverse events are some examples of pharmaceutical outsourcing-specific crisis.

The Institute of Crisis Management classifies crises as “sudden” or “smoldering” and defines these as follows:

Sudden Crisis


Smoldering Crisis


Crisis Management

Crisis management is as important as, if not more than, recognizing and understanding a crisis. The negative impact of a crisis of any magnitude can be so swift and destructive that very little time is left for managing it. It is one of the occasions when emotions run very high and the strongest brains are ruled by the softest hearts. Reactions — sometimes governed by fear of the unknown or self-interest — rule over actions and common sense gets lost in the confusion. Leaders may not be found anywhere and followers start (with good intentions) leading the crisis management like an amoeba, trying to move multiple appendices in different directions.

The best way to manage a crisis is to be prepared for it well in advance. Since one cannot predict when a crisis will hit, the phrase “well in advance” gains additional importance in crisis management. Being prepared means having a conceptual understanding of possible crises of various types and having an infrastructure to handle them. It means all stakeholders understand their roles and responsibilities and are in a position to step to the plate when needed. This is challenging in pharmaceutical contract manufacturing and outsourcing, where the operation spreads beyond the organizational boundaries and authority.

Teams, goals and objectives, roles and responsibilities, contracts, procedures and networking are building blocks of a verifiably effective crisis management program. Simulation and follow-ups help make such a program sustainable. The following steps help develop, implement, and follow through crisis management.
 

Teams

Managing crises requires teamwork and participation by several individuals representing different functions and operational as well as managerial levels of outsourcing partners. The team should include representatives from at least senior management, legal, public relations, finance, operation (supply chain), sourcing, Quality, compliance, regulatory, safety and environment control. Senior management of both organizations must appoint their representatives to such a team and those representatives should have authority to provide resources required by the team and also for implementation of crisis management program. Such a team must be created very early in the project, should have a clearly defined charter, and should be responsible for developing and implementing the crisis management program. It facilitates implementation of the program if the same team or its sub-team should take charge in times of crisis.

Networking

Successful development of a crisis management program depends to some extent on the breadth of the team and the subject experts it represents. Appropriate and valuable team members can be found by networking with external and internal groups, which can have impact on the outcome of the crisis management scenario. First responders like firefighters, police, environmental protection, and other government agencies providing emergency services are primary examples of such external groups. Non-profit disaster assistance providers like Red Cross and religious institutions like churches and temples are examples of other such groups. It is not necessary to have all of these on the team, but they can be excellent guides in the development and implementation of crisis management programs. The first responders have training programs for such purposes and it helps to invite them at the early stage of development and then ask for their reviews once a crisis management program is developed. Local media, local, state and federal representatives and communities surrounding the manufacturing sites make the third external group that should be included in networking. Inviting them to annual company functions and participating in their occasions develops acquaintance, and that goes a long way in protecting company’s reputation and controlling the damage during a crisis.

Goals and Objectives

Like any other program, success of crisis management depends on — amongst other factors — goals and objectives. Clearly defined and well understood goals lead to attainable and sustainable objectives, which in turn provide guidance and forward path during the confusion of a crisis. Avoiding crises, bringing a situation under control as soon as possible, reducing damage, and protecting integrity and reputation of the organization are some of the principle goals of a crisis management program.

Obviously, the first and foremost goal is to avoid a crisis. While crises resulting from human errors can be avoided, nature-made ones cannot be avoided. All an organization can do for a natural crisis is to determine probability of its occurrence, categorize, assign the priorities, and prepare for it. Clarity of goals is more important in contract manufacturing because of the involvement of more than one organization with different structures, managements, and probably cultures. It is important that all organizations involved have the same principal goals even though each views its goals and objectives from different perspectives. Leadership must develop goals and communicate those through all levels of their organizations. All members of management should have an opportunity to contribute in the development of goals and should support them once they are accepted by the majority. It is also important that the goals are communicated across involved organizations and understood well by all stakeholders.

Another principal goal is to be first; it is critical that the organization facing a crisis is the first to communicate the information about it to the outside world. Being first to accept and announce the news of the crisis reduces the impact of rumors and lessens the damage to the reputation of the organization. The longer an organization takes to go to media, accept, and explain the crisis, the greater the damage inflicted to the organization’s reputation. An example of positive, swift, and decisive action by an organization during a crisis is provided by the case of cyanide-laced Tylenol capsules in 1982. Senior management from the organization went in front of the media within a short time of the first incident, accepted the situation and assured the organization as well as the public that appropriate actions would be taken to resolve the crisis as soon as possible. That leadership behavior reduced the impact and gave required comfort to all stakeholders.

Benchmarking

Benchmarking is a process of studying and understanding best practices of activities of interest. The objective of benchmarking is to identify best practice and tailor it to suit one’s requirements. Any industry in the world that has implemented best practice can be a valuable candidate for benchmarking. Evaluating other organizations within pharmaceutical and other industries that have already developed and implemented crisis management programs can provide valuable information and help jumpstart the program, avoiding some common errors. Reviewing the programs and guidance offered by first responders and the government agencies discussed earlier can be a good starting point.

Identify, Categorize, and Prioritize Crises

One objective of a crisis management program is to utilize resources most efficiently to resolve any crisis as promptly as possible. This requires that one identify all possible crises, evaluate their criticality, and prioritize. The search should encompass smoldering as well as sudden crises. A CMO’s site location in a hurricane-prone area and recurring failures of batches due to impurities are examples of smoldering crisis. Earthquakes and tsunamis are examples of sudden crisis. The type of contracted products or services, geographical location of the CMO site, distance and cultural differences (if it is an overseas operation), help determine the probability of occurrence and thereby define category. The degree of impact determines the severity of a crisis to an organization and is a good tool for categorization. A “disastrous” crisis for one organization can be a “minor” crisis for the other. A supplier in serious financial troubles may represent a “disastrous” crisis in the making to an organization that only uses sole suppliers. The same problem may be a “minor” crisis to an organization that uses multiple approved suppliers. A vertically integrated organization with approved multiple suppliers may represent a source of minor crisis whereas a patent-holding licensor of technology may represent a source of a serious crisis. It is important to brainstorm and identify all possible crises that can occur and categorize them based on severity of damage they may have potential to cause.

Develop Crisis Management Procedures

Clarity of goals and understanding what others have done successfully facilitates the next step of developing crisis management procedure. The procedure should require activation of a crisis management team of subject experts and high performing individuals as soon as a crisis hits. It should define a chain of command and methods of communication. Crisis management is an activity where less democracy betters the results! Everyone and his or her uncle should not go on their own ways to resolve crisis. Team members must be identified as leaders or captains of the crisis management program and assigned critical tasks within the constraints of lines of command. The others should stay ready to assist when and if asked to do so. The procedure must dictate this and clarify who is to do what and when. The crisis management procedure also should provide checklists and guidance documents. Crisis managers can use checklists for training purposes prior to crisis and to account for the damage or impact during and after the crisis is over.

Roles and Responsibilities

This is another critical requirement of crisis management program. High emotions and confusion are standard byproducts of a crisis and make affected people behave irrationally. Honest concerns, fear of the unknown, and selfish intents are the drivers of such behaviors. That is the time when judgment is muted and chaos rules actions. Smart and wise members of the organization who are expected to lead others through the tumultuous times — as well as represent the organization to the world — stumble and fumble coming short of the expectations. Who can forget the day President Reagan was shot? Both the Vice President and the Secretary of State claimed to be in charge and assured the nation that the situation was under control. Such a situation can be avoided by clearly defining roles to be played during a crisis and identifying individuals at appropriate levels of both the customer and the CMOs to play such roles. Individuals selected for this purpose should represent internal as well as external stakeholders. The internal stakeholders may be senior management, legal, marketing, planning, operation, regulatory, quality, etc. and the external stakeholders may be outsourcing customers or service providers, product customers, end-users, etc. Training and simulation can augment these roles and responsibilities.

Since reputation is at stake during a crisis, the role of “spokesperson of the organization” becomes very critical. The spokesperson must be emotionally strong, mature enough to fight the fear of the unknown and keep organizational interests ahead of personal interests. Such a person should be able to tell the truth, accept openly when he has no answers, keep away from the temptation to answer questions only because something must be said and, most importantly, should know when not to answer a question. It is important that the statements prepared for media or public consumption are reviewed and checked by other crisis management team members before they are published. Incomplete, inaccurate, or outright wrong statements made to the outside world during a crisis can hurt more than the crisis itself. A statement made to the public during the mine explosion crisis last year was an example of damaging statement. Twelve miners were trapped in the mine and relatives with friends and other supporters waited for days outside the mine to hear about the condition of their loved ones. Rescuers reached to the trapped miners after excruciating hard work spread over many days. An exuberant spokesperson announced that the rescuers had reached the miners and all 12 were alive. Obviously, all loved ones waiting outside the mine were excited to put mildly. Then the news came that only one miner was alive.

Identifying right individuals to fill these roles is the next critical step. The search should include external as well as internal stakeholders and identify those who are willing and able to fulfill these responsibilities. In addition to being subject experts, these individuals also need to be mature and emotionally stable, as well as having self control. The senior management representative must have finesse to obtain approvals and required resources from the top executives to develop, implement, and sustain a crisis management program.

Communication

The world’s best crisis management program — with well-defined and clear goals, objectives, roles, responsibilities and well-presented procedures — will be of little value if it is not communicated properly to the entire organization. All stakeholders, both external and internal, must be aware of possible crises the organization may face and must understand their categories with severity. They also must be made aware of their roles and responsibilities during a crisis. Importance of a crisis management program can be emphasized by communicating it in group meetings in presence of senior management.

Training

People have less time and ability to think before acting in confusion during a crisis. It is easier to follow practiced and internalized procedures during tense circumstances. Procedures that require one to stop and think are followed poorly in such an environment. A procedure can be internalized by training and practice. It applies to the crisis management procedure. Training and simulation (dry run) repeated over certain period of time helps to internalize the crisis management procedure and results in better performance during the time of need. Conducting dry runs at a CMO’s site may be difficult, especially if it is an overseas operation. However, the benefits outweigh the difficulties one faces in conducting simulations.

Evaluation of Effectiveness

Success of a crisis management program depends to some extent on its effectiveness. Hence, evaluation of such a program is critical. A simulation identifies gaps and weaknesses and gives an opportunity to take corrective actions before a disaster strikes.


Crisis management has received little attention from pharmaceutical outsourcing organizations. Regulatory constrains and legal risks of pharmaceutical industry make it an important activity that needs to be addressed. Globalization and overseas outsourcing add to the criticality of crisis management. Inclusive, participative, and clear objective-driven efforts supported by required resources can result in effective and sustainable crisis management programs in pharmaceutical outsourcing.

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Acknowledgements

The author would like to thank the following sources for providing some of the information included in this article:

Institute of Crisis Management for definition of Crisis

“Tips and Techniques of Crisis Management”, Public Relations Society of America

“Crisis Resource Manual”, Cheri Lovre, M.S of Crisis Management Institute

“Effective First Steps to Counter a Crisis”, Abbe Ruttenberg Serphos, ARB Communications

“An Introduction to Crisis Management”, Beginner’s Guide to Management

Hemant Vora is associate director of Contract Manufacturing at Wyeth Pharmaceuticals. He can be reached at vorah@wyeth.com