Today, many pharma and biotech companies are moving away from the traditional “all in” and “all out” staffing models where roles were either fully outsourced or sourced entirely from the company’s internal capabilities. Traditional “all in” models create the risk of stranded or under-utilized resources. An “all out” model solves that problem, but at the expense of losing the internal competence of the role.

To solve for these challenges, many companies are turning to flexed staffing models which maintain some of the internal competence for a role while avoiding the risk of overstaffing internally. A flexed staffing model is one where the resources to satisfy a particular role competence are provided by a blend of customer and supplier resources. For example, 30% of the clinical research associate (CRA) roles at an organization might be staffed by internal employees, while the remaining 70% are supplier-based (non-employee) resources. This ultimately results in a lower cost to deliver the portfolio delivery while at the same time minimizing and mitigating possible co-employment risks.  

One question still remains: What is the right level of internal and external staff?

Consider the flex ratio.

What is a flex ratio?
Historically, pharma companies that went through operating model transformations often considered a role as either 100% internally staffed or 100% outsourced. This was done as a way to create a more flexible workforce and to ensure the co-employment risk was well-managed.

This strategy presents a unique challenge for the customer as they lose all internal access to the particular role that has been outsourced. Because of this, we’ve recently seen companies change their strategy and begin rebuilding some internal capabilities. Now, many companies have a mixed model approach, with a portion of their workforce sourced as employees and the remainder sourced by suppliers. That’s where the flex ratio comes into play.

The flex ratio is simply the proportion of external staff as a percentage of the total. For example, a flex ratio of 80% means that eight out of ten staff are sourced externally and only two are actual customer employees. A variable flex ratio attempts to formulaically determine the right level of internal and external staff for each particular sponsor. Each role is assigned a variable flex ratio based on the key criteria below. The flex ratio percentage determines the percent of staff out (outsourced from a CRO) or in (employees). This moves the sponsor from a staff augmentation model to a resource management model and begins to include some provisioning of infrastructure support from the supplier.

What is the right level of internal and external staff?
Based on five general principles, we can derive a flex ratio for any role under consideration:

•    Knowledge Investment
It’s important to measure the knowledge-based investment made by a company into a resource. These investments include things like training, continuing education, and leadership development, and can be quite expensive. If an employee leaves or is reassigned, knowledge investments made by the sponsor become a sunk cost to the company. The higher this investment, the more likely the company will want to retain the staff, which is easier to control when they are employees. On the contrary, highly administrative roles that require less knowledge investment will have a higher flex ratio and therefore be outsourced more frequently than roles that require a significantly higher knowledge investment.

Bottom line: The higher the knowledge investment, the lower the flex ratio.

•    Scale
When determining a flex ratio, we must also consider the total number of resources required, or the scale. Scale affects the flex ratio for two main reasons. The larger the scale, the more likely that the competence itself is not a core competence or is not difficult to access externally. A large workforce of employees does not necessarily create a competitive advantage.

More importantly, the higher the scale, the higher the risk of stranded resources if the development portfolio reduces or shifts its geographic focus. Many decision-makers ask, “What happens when the company grows?” However, they often neglect to address what happens when the company doesn’t.

Bottom line: The larger the scale, the higher the flex ratio.

•    Duration to Available
How long it takes for a resource to be made available is another factor to consider in a highly competitive resource market. For example, securing a CRA may take less time than finding an MD—this time is an investment. The longer it takes to find someone to fill a role, the more likely it is that the organization will want to protect that investment. That’s easier to do with an employee than it is to “rent” that competence from a supplier.

Bottom line: The longer it takes to find and secure an employee, the lower the flex ratio.

•    Knowledge Dependence
It’s also critical to measure the difference between tacit and explicit knowledge. Generally, people have tacit knowledge. This is what drives relationships. The more a role’s effectiveness depends on managing a relationship, the lower the flex ratio. Likewise, explicit knowledge is in the process of the system, not necessarily the people. For process-driven roles such as many found in data management, it’s possible to change staff members without losing process knowledge. Therefore, explicit knowledge dependence equates to a much higher flex ratio.

Bottom line: The more tacit knowledge is required for a role, the lower the flex ratio. The more the role will depend on explicit knowledge, the higher the flex ratio.

•    Competitive Advantage
Does “owning” the resource create a competitive advantage for the company? For example, an organization would likely prefer to have a pioneering scientist who discovers a new immunotherapy candidate as an employee so that they could protect this knowledge capital. The same might be said for a thought leader whose name and expertise a company wants to be associated with.

Bottom line: The higher the competitive advantage, the lower the flex ratio.

So, how exactly does the flex formula work?
To determine the “right” flex ratio for a sponsor, the above considerations can be weighted and scored based on the sponsor’s priorities. As the role-based flex ratio is determined, it’s important to balance the competing risks. A higher flex ratio may increase risk related to ownership and accountability, higher turnover, and the loss of a functional role as a core competence. On the other hand, a lower flex ratio may increase risk related to stranded resources, performance management, access to the appropriate resource, and portfolio ebbs and flows.

Flex Ratio Criteria Table: The Flex Formula¹

Applying the Formula
When we use a Likert scale (or similar) and apply the formula, the above example yields the following flex ratio results:

We find the benefits of these flexed models usually outweigh the risks. The variable flex ratio allows you to manage co-employment risks, stranded resource risk, and maximize returns on people investments. Unlike the traditional “all in” and “all out” staffing models which strike an imbalance in risk management, the flexed model manages these risks more effectively. Working with an experienced CRO that embeds its own staff within your functional portfolio can help you to assess, manage, and mitigate many co-employment risks that may exist within traditional staffing approaches.

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John Barry serves as the SVP and Chief Strategy Officer for PRA’s Strategic Solutions Division. In this role, John is responsible for managing the division’s consulting practice and providing strategic oversight on key opportunities and customer models. John has extensive experience in the drug development industry and has worked as an executive leader in a variety of functions including alliance management, business development, clinical operations, contracts, proposals, and legal. Prior to joining PRA, John was the COO at a mid-size CRO, after 4 years as head of portfolio sourcing and relationship management and a member of the senior leadership team for Merck Research Laboratories’ Global Clinical Trials Organization. Prior to joining Merck, John spent over 20 years working for two of the top five global CROs.