Eddie Kempe

May 6, 2013

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Eddie Kempe Nearly 20 years experience in the IT industry • Senior Technical Advisor • Senior Principal • Enterprise Architect • Solutions Architect • Network Architect • Technology Solutions Architect • Systems Engineer • Director of Information Systems • Software Engineer

Federal, State and Fortune 1000 clients

Distinctions and Certifications • Cisco Live! Speaker • US patent holder • CCDE #20110003 • CCIE #8374 • MBA from Washington University

What is Cloudsourcing?

CIO “BCRM” Framework

Contracts

Trust

Incentives

Conclusions

Cloudsourcing enables organizations to procure their entire IT infrastructure from a cloud, easily integrates with any platform and requires no management overhead.

-Techopedia

NIST Cloud Customer Cloud

“Cliff’s Notes” on Outsourcing ◦ Expected Benefit

◦ Outsourcing Costs

◦ Outsourcing Risks

◦ Risk Mitigation

Benefits Costs

• Lower cost • Cost Structure • Economies of scale • Diversified Risk

• Increased flexibility • Scale Up • Scale Down • Move assets and

personnel accordingly

• Time to Market • Accounting advantage

• Increase Transaction Costs • Increased Frictional Costs

• Example: administration of a contract employee

• Legal Costs • Monitoring or Measuring

Vendor Performance

Risks Mitigation • Shirking

• Deliberate Underperformance • Bait and Switch

• Poaching • Benefit paid for by one client

passed on to another • Vendor goes into the client’s

business

• "Vendor holdup" • overcharges for unanticipated

enhancements and contract extensions

• Understand the Project • Divide and Conquer

• Break into smaller jobs

• Align Incentives

Risks Mitigation • Shirking

• Deliberate Underperformance • Bait and Switch

• Poaching • Benefit paid for by one client

passed on to another • Vendor goes into the client’s

business

• "Vendor holdup" • overcharges for unanticipated

enhancements and contract extensions

• Understand the Project • Divide and Conquer

• Break into smaller jobs

• Align Incentives

Risk is the exploitation of vendor opportunity not predicted or prevented by the contract

A complete contract specifies the legal consequences of every possible state of the world.

The Theory of Incomplete Contracts ◦ Pioneered by Oliver Hart and his coauthors

◦ It would be impossibly complex and costly for the parties to make contracts complete

We rely heavily on Trust and Incentives

Trust has a substantial impact on economics of conducting transactions

Lack of trust significantly increases the cost and time required to conduct business

In-house service and support activities are de facto monopolies.

“The productivity of support work is not likely to go up until it is possible to be promoted into senior management for doing a good job at it.”

Career Path Example ◦ Large hospital-maintenance company ◦ After 12 to 15 years, promoted to

division heads or vice presidents ◦ As hospital employees…they would

still be pushing vacuum cleaners.

Managed Router Services (WAN)

SaaS Offering Customization

Do It Yourself WAN

Why ◦ Understand how Cloudsourcing fits with your firms

objectives and strategy

What ◦ Be able to articulate the needs of the firm

How ◦ Be willing and able to “let go” of how things are

accomplished as long as they satisfy the need

Trusted and mutually aligned partnerships can be valuable and necessary in today’s business climate.

Continually re-evaluated changes in the market to determine sources of interest divergence.

Diversify your supply chain ◦ Relying too much on any one vendor can cause

unnecessary risks ◦ The best way to improve productivity or costs is to

introduce competition

Buy “Off the Shelf” ◦ There is safety in numbers ◦ Accept that the vendor may change things you like ◦ Accept that the vendor may not add what you want