Forget the notion of IT shared services; the future is in "Technology Commons," both as a technique to leverage large-scale technology economics and as a way of dealing with governance issues using mechanisms that have been in place for hundreds of years.

Throughout history, societies have discovered effective ways to collectively share resources. By the mid-nineteenth century, for example, American farmers successfully organized cooperatives to process, market and distribute wool, cotton, tobacco, grains and dairy products.

For most independent farmers with finite resources and small plots of land to till, it was prohibitively expensive, time-consuming and inefficient for them to individually market and distribute their products to consumers. The establishment of cooperatives to help farmers lower their production and distribution costs made perfect sense. This analogy can be applied to your organization's IT operations.

Picture two corn farmers with adjacent 1,000-acre plots in Iowa. Both operate similar machinery to harvest and store their crops. There's no inherent competitive advantage in the equipment they use, so they agree to share the costs and maintenance of the equipment under a cooperative agreement. As a result, they each turn a higher profit through lowered operating expenses without ceding any competitive advantage to the other.

Similar approaches are materializing on the digital landscape. Technology Commons, including universally accessible e-mail systems such as Google's Gmail and Amazon's Elastic Computer Cloud (EC2), are beginning to proliferate, providing end users with low-latency, high-speed web services at a marginal price point.

Widespread availability of high-bandwidth networks has opened up immense possibilities for pioneering organizations to leverage these types of opportunities. For instance, leading U.S. research universities, including MIT, Harvard, Princeton and Stanford, are in the early stages of exploring potential opportunities for sharing high-performance computers, storage and other technology services across high-speed networks. Comparable discussions are taking place among IT and business leaders in hospitality, financial services and other industries.

Tech Commons offer participants several benefits. Most investment banks, for example, invest heavily in rolling out new revenue-generating products and services to customers during bull market runs. As new systems are deployed to support new business opportunities, they require additional processing power and storage to support them, so they add more servers and storage capacity. But when business contracts during a bear market, investment banks typically find themselves saddled with excess computing capacity that they're still required to pay for and support.

The creation of Tech Commons, either by organizations in the same industry or across different types of vertical industries, provides organizations with opportunities to utilize their IT investments more cost-effectively, drive down their fixed IT costs and free up more capital for discretionary, or "grow the business," projects. An investment bank with excess server capacity could lease, rent or otherwise share that resource with other organizations under a for-profit (or barter) business model.

Leveraging 'The Commons' to Lower OpEx

Ninety-five percent of operating expense (OpEx) resides not in IT but in other areas of organizations, predominantly in labor. In 2009, the U.S. Fortune 500 companies will pay out roughly $10 trillion in aggregate OpEx and just $500 billion of technology expense. But IT investments such as the application of Tech Commons can be applied to dramatically improve OpEx.

Most people have heard of Nicholas Carr, the former executive editor of the Harvard Business Review who wrote a 2003 article entitled, "IT Doesn't Matter." In the article, Carr reasoned that the strategic importance of IT has diminished as hardware and software have become more commoditized. "[IT] doesn't matter strategically and doesn't provide one company with any way to distinguish itself in any meaningful way from its competition," Carr wrote.

There's some truth to Carr's argument. The storage systems used by, say, a multinational re-insurance company don't provide it with any competitive advantage over industry rivals. The same also can be said for the servers, desktop machines and even some of the more mundane software that are used to run an organization's day-to-day operations, such as general ledger, payroll and accounts receivables. These are precisely the types of technologies and applications that are tailor-made for use in "The Commons," whether they're utilized through a consortium of companies or if they're hosted by a third-party provider in the cloud.

But counter to Carr's assertions, IT does matter, and it matters very much. But it's really the differentiation of IT that matters for pioneering organizations that are able to apply it strategically through targeted investments.

Companies that have optimal technology intensity -- the best mix of IT investments to grow and protect revenues while reducing and avoiding costs at a managed level of risk -- typically outperform their peers by 3 percent to 5 percent of their pre-tax profit margins, according to Rubin Worldwide research. Organizations that invest the most in IT, however, don't necessarily outperform their peers. Instead, it's those companies that make the most effective use of their IT investments that are the biggest return-on-investment beneficiaries.

That's part of the rationale for taking advantage of Tech Commons. It's inefficient for companies to support stand-alone data centers, storage silos and other non-strategic systems that cost millions of dollars to operate yet don't offer any competitive advantage. The costs to house and maintain those systems with a dedicated staff are prohibitively expensive -- it makes more sense to have some other entity host those systems for you at a reduced rate by applying more efficient economies of scale.

In turn, corporations that turn over commodity IT services to The Commons can lower their fixed IT operating costs and direct more investment into revenue-generating projects. Lowering fixed IT costs also creates more agility for the organization to react to new business opportunities more quickly.

In a typical company, 64 percent of IT costs are fixed and constant. Organizations that are stuck with high fixed IT costs, however, have less flexibility than their competitors to react to changing market conditions and surgically inject IT investments in new business projects. But by changing the existing IT model and applying innovative approaches such as Tech Commons to lower IT infrastructure and other mundane operating costs, the portion of IT spending in an organization that's variable and can be applied to strategic investments can rise to 60 pecent or higher.

Fifty percent of all IT costs are people-related. Organizations can outsource some IT activities to lower their labor costs -- particularly for commodity-type activities such as help desk services and software maintenance -- but you can't let everyone go. You need some resident knowledge in-house. By contrast, Tech Commons can be applied to help lower an organization's fixed hardware and software costs. There's an opportunity for early adopters to improve their IT infrastructure costs by a factor of 10 through the use of private and public cloud computing models.

Managing Commons

As with any type of commons, such as common pastures that have been over-grazed by livestock, there are inherent problems associated with the management and successful operation of a shared activity. With Tech Commons, one of the most glaring challenges includes the security risks inherent with sharing a common system or application among multiple entities. Then there are liability issues associated with operating a shared resource as well as other legal and contractual concerns that have to be addressed

Sarbanes-Oxley and antitrust issues also must be considered when members of commons represent a significant bloc of a particular industry. Participants in a Tech Commons also would have to iron out confidentiality agreements and put together effective governance structures with agreed-upon internal controls that satisfy all members.

But each of these are concerns that can be dealt with. Most commons can be governed by a board of representatives assembled from participating companies.

"The efficiency of a commons infrastructure makes a ton of sense except in areas where there's value-added risk or concerns about security," says John Sviokla, vice chairman of Diamond Management & Technology Consultants in Chicago and a former Harvard Business School professor. But, "Sharing a common infrastructure for firms on Wall Street might be mitigated by desires for controls and risk avoidance," he adds. "When you look at the fact that technology in most firms is a relatively small but important part of their cost of goods, it makes sense."