CRO Service Quality and Corporate Performance The relationship between ISR s Service Variability Index (SVI) and share price

Size: px

Start display at page:

Download "CRO Service Quality and Corporate Performance The relationship between ISR s Service Variability Index (SVI) and share price"

Debra Owen
6 years ago
Views:

1 CRO Service Quality and Crprate Perfrmance The relatinship between ISR s Service Variability Index (SVI) and share price It s a cmmnly held belief that if a service prvider cnsistently meets custmer expectatins, then it will prsper financially. ISR wanted t find ut if this was true fr the Cntract Research Organizatin (CRO) industry. T d s, ISR examined fur years f histrical service prvider perfrmance data paired with share price fr five leading CROs. The cnclusin: A slid relatinship exists between a CRO s service quality and their financial perfrmance. Service quality was measured using ISR s prprietary Service Variability Index (SVI) and financial perfrmance was measured using share price. The SVI is an index develped by ISR t measure hw well service rganizatins meet custmer expectatins. The analysis: ISR analyzed the SVI data frm the 29, 21, 211, and 212 CRO Quality Benchmarking reprts alngside each cmpany s clsing stck price n the first day f trading in that year. The share price data cincide with the time ISR s primary survey data was being cllected. This analysis includes the public cmpanies available, at the time that had enugh respnses t ISR s survey t make the analysis viable, and include Cvance, ICON, Kendle (t 211), PAREXEL, and PPD (t December 211). Bth the SVI and the share price were indexed, using 29 as the base year. The SVI figures are based n 816 service encunter ratings f these five cmpanies, ensuring high cnfidence in the analysis. Overall, these service prviders have, n average, imprved their service delivery ver the past fur years and the SVI has a very strng relatinship t the average cmpany share price. In aggregate, the relatinship between ISR s SVI and a cmpany s share price hlds true Cmpsite 8 6 ISR's Service Variability Index Share price (1-Jan) The caveats: Under n pretense d we believe there is a single metric that can explain r predict the stck market perfrmance f pharmaceutical service prviders. The supply and demand frces exerted n a cmpany s stck price are an accumulatin f current and past perfrmance, future expectatins, management strength, cmpetitive frces, and macr ecnmic trends. In the wrld f pharmaceutical service prviders these frces manifest themselves in the frm f bk-t-bill ratis, custmer prtflis, strategic relatinships (e.g. predictable revenue streams), service diversificatin, fixed vs. variable assets, gegraphic mix, and the ebbs and flws f industry cnslidatin.

2 Therefre, if causal inference cannt be claimed, hw then d we explain the crrelatin which des exist? Back t first principles: a service prvider which is imprving its service is likely t enjy imprved financial success. ISR s SVI reliably measures service quality and hence is crrelated with financial perfrmance. The gal f this paper is t stimulate cnversatin regarding the imprtance service executin plays in the financial health f an rganizatin and t encurage the pharmaceutical service prvider industry t adpt a cnsistent and cntinual prgram that ensures they are measuring their perfrmance against their custmers expectatins. ISR s Service Variability Index: Industry Standard Research created the Service Variability Index fr ur inaugural CRO Quality Benchmarking reprt in 29. It gives ur clients, in ne place, a summary f a prvider s perfrmance variability. The premise f the SVI is that service prviders shuld strive t meet custmer expectatins. There shuld nt be t many instances where they fall belw custmer expectatins and they shuld nt sandbag expectatins in rder t artificially inflate perfrmance. ISR s Service Variability Index (SVI) is a prprietary measure f service prvider perfrmance against expectatins. 1% 8% Service Prvider perfrmance Ideal distributin 6% 4% 2% % Greatly Misses Smewhat Misses Meets Smewhat Exceeds Greatly Exceeds Academic research demnstrates that as an industry matures and repeat purchases becme mre prevalent, custmers start expecting mre frm their suppliers, thus making it harder fr suppliers t exceed expectatins. The SVI is a representatin f the differential between the ideal distributin and a particular service prvider s actual perfrmance against expectatins. As reprted in ISR s syndicated reprts, the SVI is typically represented via a chart similar t the ne abve. The chart cntains tw metrics, a blue slid line that represents the ideal distributin fr service prvider perfrmance and the red bars are hw the individual service prvider perfrmed against expectatins. It is the difference between these tw metrics that creates the SVI.

3 Breaking dwn the analysis fr each cmpany reveals sme very interesting results and the verall findings hld: that service prvider perfrmance, measured by ISR s SVI, is highly relatinal t a cmpany s share price. We start by taking a lk at PAREXEL (ticker PRXL) and Kendle (ticker KNDL) t illustrate the relatinship remains intact during a time when perfrmance and share price are either rapidly climbing r rapidly falling. 25 PAREXEL and Kendle PRXL's Service Variability Index PRXL share price (1-Jan) KNDL's Service Variability Index KNDL share price (1-Jan) The analysis f PAREXEL and Kendle was ne f the mre persuading factrs that led ISR t publish this paper. The fact that the SVI-t-stck price was crrelated fr cmpanies experiencing bth psitive and negative perfrmance gives sme validity t the relatinship. The next set f service prviders cnsists f PPD (ticker PPDI) and ICON (ticker ICLR). Again, these CROs have experienced bth a rise (PPDI) and decline (ICLR) in verall share price ver the measurement perid. ICON is an interesting picture in that they have had large swings in their SVI ver the time perid, but the relatinship between SVI and share price remains intact. PPD, n the ther hand, has dne an excellent jb at cnsistently raising the bar n their perfrmance and their share price (pre-buyut) rse at rughly the same rate PPD and ICON PPDI's Service Variability Index PPDI share price (1-Jan) ICLR's Service Variability Index ICLR share price (1-Jan)

4 The final service prvider examined is Cvance (ticker CVD). Cvance is smewhat f a special case in that their revenues, and therefre stck price, are nly partially a result f fullservice clinical develpment services the heart f the SVI. Cvance, unlike ICON, PAREXEL, PPD, and Kendle, generates a large prprtin f their revenue based n their preclinical and central labs fferings. That said, the relatinship between their SVI and share price still hlds Cvance CVD's Service Variability Index CVD share price (1-Jan) Regardless f the exact service mix, the relatinship between the SVI and a cmpany s share price are directinal, but smewhat weaker than the traditinal full-service clinical develpment CROs.

5 CRO Service Quality and Crprate Perfrmance The relatinship between ISR s Service Variability Index (SVI) and share price The cnclusin: A slid relatinship exists between a CRO s service quality and their financial perfrmance. Service quality was measured using ISR s prprietary Service Variability Index (SVI) and financial perfrmance was measured using share price. One f ISR s crprate tenants is that market data and intelligence are n gd if an individual r rganizatin can t use them t imprve the business envirnment in which they perate. There is clearly a relatinship between a CRO s service quality, measured by ISR s Service Variability Index (SVI), and their financial perfrmance. While we d nt pretend there is a large enugh sample size fr definitive statistical review, the R 2 fr this data set is 7%, meaning 7% f the variatin in stck price can be explained by the SVI, and frm a straight crrelatin perspective the data is crrelated at 82%. Cnsistently measuring service quality is gd peratinal practice. This analysis illustrates that there exists a relatinship between CRO service quality and financial success. Lyal custmers cme frm cnsistently meeting expectatins and eliminating surprises. Using ISR s battery f questins, methdlgies, and prven driver analytics, CROs can develp and keep mre lyal custmers. ISR s questinnaire design expertise, prprietary data analysis, and strategic insight can assist individuals and rganizatins in making the best data-driven peratinal and strategic decisins pssible. ISR s questinnaire design expertise, prprietary data analysis, and strategic insight can assist individuals and rganizatins by: Ensuring service quality and cnsistency is wrld-class, leading t imprved financial perfrmance fr public r private cmpanies. Making sure that yur investments, mergers, and acquisitins are with cmpanies exhibiting superir service quality. Develping emplyee perfrmance gals linked t service quality. Develping lyal custmers by ensuring there is a match between expectatins and perfrmance. Cntact Us ISR: Wrking t ensure yu and yur rganizatin Act with Cnfidence. (919) inf@isrreprts.cm Industry Standard Research, LLC

EcoStruxure for Data Centers FAQ

EcoStruxure for Data Centers FAQ EcStruxure fr Data Centers FAQ Revisin 1 by Patrick Dnvan Executive summary EcStruxure TM fr Data Centers is Schneider Electric s IT-enabled, pen, interperable system architecture fr data centers. This