Microsoft has been centralizing and consolidating the IT infrastructure and operations used to run the company, while also trying to drive more spending to new development and "transformational" projects, Microsoft CIO Stuart Scott said at the InformationWeek 500 conference in Tucson, Ariz., Sunday.

Scott shared the stage with his boss, chief operating officer Kevin Turner, to spotlight one part of Microsoft that usually doesn't get much attention, the internal workings of its own IT department.

Having Scott and Turner on the stage led to some interesting exchanges. Scott noted that the IT organization now spends almost 45% of its budget on new product development (as opposed to maintenance and ongoing support), a notable improvement from 30% in the past. Turner, asked to point to areas Microsoft IT can still improve, said, "I'd like you to be up around 65% application development spending."

One of Scott's biggest efforts to date has been to centralize IT operations, pulling functions in from the business units and in some cases stomping out "shadow IT" functions that inevitably sprout in such a tech-smart company. The company has consolidated 26 data centers to five and eliminated about 1,000 applications in two years, with the goal of taking out another 1,000, Scott said.

Virtualization efforts have helped it double CPU utilization rates. "We don't put anything in the data center unless it's virtualized," Scott said. Microsoft has cut IT spending as a percent of revenue while total spending is about flat, though Scott and Turner wouldn't reveal Microsoft's total IT budget.

The group also has begun using services more to provide IT functions, such as handing its corporate e-mail over to the group that runs its consumer e-mail operation. It has shifted a third of its spending and people toward such services, Scott said.

At the same time it's consolidating, Microsoft IT has been expanding efforts elsewhere, and Turner and Scott particularly emphasized new collaboration efforts. Microsoft employees now have more than 300,000 blogs and wikis, something they keep track of using an enterprise search tool, Scott said.

If Scott's IT initiatives sound a lot like Microsoft's software marketing strategy, they are. He's expected to be the first implementer of any technology coming to market, from the 80,000 Vista desktops IT runs to the upcoming versions of SQL server and Visual Studio his team's working to implement now. The job also means keeping a step ahead of a group of employees who don't think twice about writing their own code or provisioning their own server if they have an IT need. "I view that as competition," Scott said. "My operation needs to be better."

Scott, who came to the CIO job from GE with a mission to bring "operational excellence" to the IT operations, acknowledged that he has had to work on accepting that some failure will come with pursuing bigger, more ambitious projects. "I've had to be a bigger risk taker," he said, comparing it to a venture capitalist approach to a portfolio, where not every startup pays off.

Turner, who came to Microsoft after holding the CIO job and other executive roles at Wal-Mart, returned often to the theme of urging IT leaders -- including Scott -- to bring big, ambitious, transformational projects to their companies, and pursue those with as much vigor as their more metrics-driven, operational projects. During quarterly meetings Turner and Scott have with chairman Bill Gates, those projects are what Gates spends most of the time on, Turner said. "He pushes us to be more transformational, and he gives us some air cover on [those projects]."