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Five things private equity firms need to know before outsourcing their IT

By George Ralph, RFA – Outsourcing IT is a viable option for many private equity firms who are looking for high quality, enterprise grade technology without the headache of managing it in house. 

The last Deloitte global outsourcing survey in 2016 indicated that the market for outsourced services would almost certainly continue, but outsourced service providers would need to change and adapt to meet the needs of customers, who expect innovation, and want to see their businesses enhanced and improved by service providers. 

Increased regulations and changes to compliance legislation have not dented the trend for outsourcing, as ISG report in their research which has seen spending on outsourced services rise by 31 per cent in the financial services sector during the first half of 2017.

There are many outsource partners out there, competing for business from the private equity community. But what do you need to know before outsourcing your IT?

1) Specialist partners who understand your business are essential. It might be tempting to use one of the dominant outsource partners, who have a huge range of services and solutions out there, but remember, they will have a little knowledge about a lot of industries, and won’t necessarily understand the specific challenges faced by private equity firms. 

2) What are your requirements now, and can you predict what they may be in the future? Ensure T&Cs are flexible enough to meet the specific demands of your business now and in 3 and 5 years’ time. Most firms can’t take the risk of being tied into restrictive contracts, so choose a partner who offers flexible terms that can be adapted to meet your needs. If your team needs unusual support hours, or additional support desk cover, and onsite assistance, then ensure this can be accommodated.

3) Risk management is a key driver for every private equity firm and outsourcing brings perceived risk, and loss of control. In order to mitigate the risks associated with a new outsource partner, it is advisable to dig deeper into their history to ensure that they are financially viable, with a solid customer base and experienced team to underpin the services they are providing. Most of our private equity clients use our services for their portfolio companies as well. They retain control and add value to their investments.

4) Qualifications matter. Does the outsource partner of choice have the right accreditations and do they invest in keeping these up to date. Not only does this prove that the engineers have learnt about the technology they are using, it also demonstrates the company’s commitment and investment, both time and money, in maintaining your data to the best of their ability. If you are paying for the most up to date expertise and infrastructure, that’s what you should be getting.

5) Outsource partners must meeting and exceed security and compliance regulations. Can the partner demonstrate that your data will be stored in accordance with the security requirements that the industry demands. Data centres should be physically secure, adhering to ISO27001 and SSAE16/Type II standards, and with options to encrypt, or use multi-factor authentication. Intrusion detection and continuous monitoring will ensure uninterrupted service and enhanced cybersecurity protection. In the past 12 months alone, Amazon, Groupon, American Express, the US Navy, Scottrade and Debenhams have all suffered data breaches at hands of the third party partner. The reputational damage and potential fines can be crippling.

Despite this, outsourcing or the “everything as a service” approach still brings the greatest benefits, with some commentators calling this “Inevitable architecture”. Start-ups and established firms alike are looking to external technology partners to help them deliver the most innovative services they can to their customers.

 

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