AstraZeneca ($AZN) is following the well-trodden path of offshoring part of its IT to India. But unlike some of its peers--and in a reversal of its own strategy--the Big Pharma is adding in-house capacity and lessening its reliance on IT service providers.
The opening of a $9 million IT facility in Chennai, India, has given AstraZeneca the capacity to pull work back from vendors. AstraZeneca currently employs 75 people at the site, but is in the middle of a hiring spree that will grow headcount to 300 by the end of the year. The facility is the first component of a three-step strategy to add IT capacity. AstraZeneca plans to open a second site in San Francisco in 2015, with a third to follow in Eastern Europe within the next two years.
Once all three sites are operational, AstraZeneca will have the capacity to handle the majority of its IT needs. "There is a shift in the strategy with most of the outsourcing works will become in-house operations. At present 70% of the IT spend is with third parties and this would become 30% in next three years," AstraZeneca Chief Information Officer David Smoley told Business Standard. By bringing work in house, Smoley hopes to lower AstraZeneca's IT spending from last year's outlay of $1.3 billion.
The change marks the beginning of the end of AstraZeneca's 13-year experiment with IT outsourcing. AstraZeneca got deep into IT outsourcing in 2001 when it struck a 7-year, $1.7 billion deal with IBM ($IBM). At the time, AstraZeneca doubted whether it would ever resume in-house management of its IT infrastructure. The IBM deal was extended in 2007 but ended in 2011. With the drug industry changing quickly, AstraZeneca felt it was better served by using a pool of IT service suppliers.
AstraZeneca struck deals with HCL Technologies and other suppliers, but now seems to have decided this model is flawed, too. The expectation is that bringing work in house will lower costs, increase efficiencies and make data safer.