LAS VEGAS-To garner better gains from their technology, companies will have to start loosing control.

Right now, most companies own the computers, the servers and the licenses for the software their employees use. What's more, in-house information technology (IT) departments support it all. This all adds up to about $800 billion in inefficient spending on non-strategic resources, according to Nicholas Carr, author of the 2004 book, Does IT Matter?.

"If we could only find a way to liberate companies to do better, the whole economy would be more efficient," Carr told attendees at the National Investment Company Service Association's Technology Summit earlier this month.

In fact, IT may be among the most inefficient investments among all financial services operations, said Carr, whose calculations suggest between 70% and 90% of investment companies' IT budgets get absorbed into simply keeping infrastructure-a category into which he lumps hardware, software, licenses and labor-in order.

That's money companies could be investing in creating something new-perhaps proprietary software-that provides value, not just function, to the firm. "Business will gravitate toward the most efficient economic model," he said.

And it has already started shifting.

As part of what Carr calls the third revolution of IT, companies will leave the hardware maintenance and software support to professionals.

This model, Carr argued, marks an evolution toward a more efficient model for financial services companies by taking the best components of the two waves that preceded it. Like the PC revolution, this new trend offers speed, capacity and user customization, while, returning to elements from the age of the mainframe when all computer assets were consolidated in one place. Those mammoth machines were utilized to about 90% capacity, compared to today's desktops, which use only about 5% of capability, and servers, which, in most cases, operate at no more than 35% capacity, Carr said.

In this third revolution, outside companies will maintain, host and distribute hardware and software, thereby returning to a centralized system, known as multi-tenant model, in which different companies act as the "tenants," occupying parts of a service "housed" by the provider.

"Your core business is not running e-mail," said Matthew Glotzbach head of enterprise products at Google Enterprise. His company's is. By turning to software providers such as Google, or San Francisco-based SalesForce, companies can benefit from the scale they offer and greater, more expert, service.

It doesn't stop with e-mail either. Both Glotzbach and SalesForce Chief Executive Mark Benioff pointed to programs that replace traditional software from spreadsheets to work processing, to sales tracking programs designed specifically for one company.

Because the software is web-based and hosted by an outside vendor, there are no updates to buy or install; upgrades are instead implemented throughout the system automatically.

Also because these programs are distributed and the field stored on Internet-based technology, employees no longer need their own hard drives. That means an end to e-mail attachment files, or network-based files locking-out one user when another has the document open on their desktop. Instead, the web-based programs allow for multiple users to access the same document simultaneously, to see the work of their colleagues, and to do so from anywhere, since there's no risk of the correct file being stowed on someone's hard drive at work when they need it on the road.

Another advantage of these web-based program solutions is that because programming is the core business of these companies, they are competitive, constantly innovating toward the most user-friendly model.

Proprietary software developed in-house has fallen far behind the types of programs employees have been conditioned to expect outside of work. Benioff used the example of, which recognizes return users, remembers their most recent selections and offers recommendations drawn from its database based on those prior selections.

A web-based program would allow a trader, for example, to arrange the layout of his screen in a way that makes the most sense to him, to change everything from the colors of the screen display to the currencies he is dealing with to the layout of the data, and to do so instantaneously.

In fact, such meta-customization offered by service software is so cost effective, efficient and attractive to companies, that some projections estimate it will capture 25% of the $150 billion-a-year software industry by 2011, Benioff said.

Carr added that the outsourcing of IT headaches is not limited to software. He envisions a time where servers and memory will be provided by centralized utilities. Like the electric utilities, these companies will offer scale, run at a much more efficient capacity and have much greater redundancy at a much better cost than companies could ever achieve separately. Whatever the case, change, he said, is inevitable. "This is an opportunity to finally get the best of both worlds from IT."

(c) 2006 Money Management Executive and SourceMedia, Inc. All Rights Reserved.

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