Independent Labs

Independent labs are a service business that thrives on the need to perform quality testing services to answer a variety of customer questions. Successful labs protect their customers confidentiality, meet timelines, act as the independent third party and build relationships based on customers' needs.

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Offering Financial, Technical, and Regulatory Advantages While Acting as an Independent Third Party

Independent labs are a service industry that provides answers or verification of answers in an evolving and increasingly complex world. A loose definition of an independent laboratory is a person or group that provides independent verification or testing to identify something, determine performance characteristics, or confirm attainment of specifications. Reasons why an independent laboratory is used include:

1. IN-HOUSE CAPABILITIES ARE UNAVAILABLE
2. RESULTS ARE NEEDED FASTER THAN CAN BE ACCOMPLISHED WITH INTERNAL CAPABILITIES
3. INDEPENDENT ANALYSIS IS REQUIRED BY CUSTOMER OR GOVERNMENT
4. CONFIRMATION OF INTERNAL FINDINGS IS NEEDED

The decision to use an independent lab is based on financial, technical, and/or regulatory points. Deciding which lab to use is based on that lab’s ability to service the customer’s needs and the relationship the lab builds with the customer.

Evolution of independent labs

The evolution of independent laboratories in many ways follows the course of man’s evolution. Testing has always been a component of the scientific process. The caveman that first captured fire and tested his invention by sticking his hand in it, and the clan in the next cave that confirmed that fire burns but can also be used as a tool for survival, are similar to the inventor or corporation that develops a product and the independent lab that confirms the material or performance specification. Initially, and in some cases still to this day, the consumer is the ultimate independent lab, although unwittingly at times.

As man evolved, the thinking and questions grew more complex. The questions grew even more complex with the aid of accountants, lawyers and, of course, the government. The inventors/corporations began asking: Does this fill a need, and what are its limitations? Does the product meet the customer’s specifications? Will the product hurt the consumer or the environment? How do we improve the product? Why is our competitor’s product better? How do we protect our intellectual property? Is our competitor infringing on our patent? The consumers began asking: Did we receive what we paid for? If the component we bought meets specifications, why is our product failing? Could this product be the cause of a problem? The need to answer these questions before the product reached the end user, led to the growth of independent labs. And the primary driving force for the need for independent labs today is the cost of answering all these questions.

While some testing, such as process quality control, is still best performed in-house, the cost of adding the equipment and technical staff to answer varied and changing questions may not make financial sense to the inventor/corporation. Business philosophy has also changed from a focus on fully integrated systems to a focus on core competencies and the use of competent contractors. Also, trust is not always a given in human interactions, and lack of trust creates the opportunity for an independent lab to act as an impartial third party acceptable to both sides of the issue.

Challenges to independent labs

The ability to service these needs presents some unique and not-so-unique business challenges to an independent lab. An independent lab has the same financial needs as any business: to balance the breadth of capabilities required to meet the majority of the market needs, control costs, and provide a return on investment. As with any service business, the quality of the product (in this case the data), the ability to meet time lines, communication with the customer, protection of confidentiality, and any value-added services define the lab and determine its success as a business.

One unique management challenge is staff selection. While the quality of the data must be unimpeachable, the ability to communicate with and understand customer needs before, during, and after delivery is not always the forte of technically oriented scientists and engineers, but it is just as important to the success of the independent lab. In addition, the technical staff needs to fit the type of testing performed by the laboratory. The repetitive, high-throughput testing performed at many independent laboratories requires the right individuals to perform the tests with the same quality over time. Project-based laboratories need staff who can change focus and grasp the quality and technical needs quickly. Many labs may have both activities and require just the right mix of staff. In all cases, the combination of technical expertise and the ability to multitask, listen, and communicate is essential.

Another unique management aspect for independent labs is the selection of markets. As with most businesses, independent labs need to know their core competencies, markets, and limitations. The equipment and staff may have capabilities over a variety of markets, but customer needs may vary widely, making it difficult for the business to be successful across multiple market segments. An example would be environmental chromatography and pharmaceutical chromatography. The instrumentation and techniques are similar, but the documentation and performance requirements for each market are quite different. At the same time, knowledge of closely related markets and the ability to serve them may become an advantage or a necessity if one’s primary market has a downturn.

Independent labs can be found servicing just about every industry. Some service a specific industry, such as consumer products, automotive, aerospace, pharmaceutical, food, or agriculture. Others may cover a material, such as petroleum, plastics, rubber, coatings, or metals, over several industries or in a specific niche such as fuels, lubricants, or plastic medical devices. Still others may focus on a type of testing, as in environmental, electrical, fire, or acoustical performance.

Independent labs often have some form of accreditation. The accreditation may be a requirement for some customers and markets and may help a lab acquire new business. Unfortunately, the cost and time it takes to add new methods to the scope of accreditation tends to limit the responsiveness of the lab to changing customer needs. In some cases, the lab may be able to perform an inter-laboratory study or gauge R&R study with the customer’s internal lab to demonstrate capability, instead of or along with accreditation activities. Accreditation can also increase the cost to enter and therefore limit entry into a market. Starting a new lab in a market requiring accreditation may require additional financing to carry the business for several months or even a year or more until accreditation can be completed.

Academic and in-house labs

Independent labs may seem to compete with academic and in-house industrial laboratories, but in reality, they fill a different role and may even work with other labs. The academic labs often have unique capabilities that cannot be found routinely in the commercial market. Although they may have routine testing capabilities, their service profile is usually different from that of a commercial independent lab. Some states legally limit them from competing with commercial entities. Typically, the commercial independent labs have the advantage in service and accreditation.

When a company outsources testing, industrial labs may feel that independent labs are competing with or taking away their work. However, there are areas of testing that are best performed by an in-house lab and some that are better performed by an independent lab.

Sometimes researchers perform their own testing within an industrial lab. However, depending on the circumstances, it may be more efficient to have an independent lab perform the tests and free up the research staff to concentrate on new product development.

Independent labs are sometimes developed from inhouse industrial labs to leverage the investment in the equipment and staff. In most cases, the lab is set up as a separate entity to ensure separation for confidentiality while still allowing support for the parent company’s testing needs. This is a particularly unique challenge, depending on the structure of the lab prior to separation and the need to develop new systems prior to or immediately following launch. Excellent document controls, access control, and education of the staff on maintenance of confidentiality are critical to making customers, sometimes including former competitors, feel comfortable using the lab’s services.

In the current down economy, there are opportunities for and threats to independent labs. An independent lab can fill the testing needs of companies experiencing cutbacks in internal capabilities or deciding to outsource their testing. However, if the lab is positioned in a down market segment, the lab may need to make its own business decisions on cutbacks or re-position to work in other market areas.

As mentioned earlier, independent labs are a service business that thrives on the need to perform quality testing services to answer a variety of customer questions. Successful labs protect their customers’ confidentiality; meet their time lines; act as the independent third party; and build relationships based on service, trust, and anticipation of the customers’ needs.

As a result, independent labs fill a need in the market. There is a need for all three types of labs. Some of the most successful companies use independent labs as well as in-house and academic labs to further their success. Take a look at the independent labs that service your industry. If you are not using one already, you may want to take a closer look and start building a relationship with one or more. There may come a time when you need their service to answer a question, and a good independent lab may make all the difference.

Categories: Business Management

Published In

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Show me the Money

Published: October 1, 2009

Cover Story

Show Me the Money

So far, nearly 5,000 grants totalling over $1 billion have been awarded by NIH. Most have been awarded to research labs at large universities and small colleges, while some have been awarded to small, privately owned research and product development companies.