Innovation is mandatory in today's ultracompetitive corporate landscape, especially for a tech giant like Microsoft. As CIO of Microsoft, Tony Scott must create a culture that encourages experimentation and innovation while simulataneously creating clear guidelines about which creative ideas are worth pursuing. That the company is filled with talented technology professionals makes balancing those two forces—freedom and control—even more difficult. CIO.com's Editor in Chief Brian Carlson sat down with Scott to hear how the CIO tackles such challenges, whether Microsoft uses open-source tools, and why he advocates for internal customers.

CIO: Do you see many rogue IT projects inside your company, and what's your strategy as CIO for dealing with them?

Scott: The subject of rogue IT or shadow IT is on every CIO's mind, and it's certainly been one of the fun things at Microsoft. We have a lot of people who have the capability to develop, whether that's their official role or not. For me the issue is creating an environment where you encourage and allow for innovation, but then quickly figure out which parts of that innovation matter and what doesn't. And so at Microsoft we have a fairly healthy methodology for doing that. We encourage innovation. But we quickly settle on those things that are going to make a difference and weed out those things that are not going to make a difference. So I don't think it's a bad thing. I think people using our tools and using our technology to solve business problems is a good thing. And then it's just a question in our case of making sure that you fully utilize those things that make a big difference and quickly get rid of those things that are just chatter or noise or not effective.

CIO: Do you use open-source tools in Microsoft IT?

Scott: I'd say it's not our predominant tendency to use open-source tools. However, where we do, it's probably in the areas that you might suspect. In test automation there's a number of great tools, vulnerability testing, also when we test for sensitive information around the company, so tools like Spider and so on are examples of that. And we certainly use them because we want to know what might be used either with us or against us from that perspective.

CIO: How do you encourage your large IT organization to innovate?

Scott: Innovation is probably one of the most interesting subjects in IT today. Certainly the demand on most IT organizations is to do more with less, do more with flat budgets, and so innovation becomes the best source for figuring out ways to accomplish that mission. In Microsoft, what we try to do is foster an environment that encourages innovation and then quickly sorts out those things that are truly innovative versus just different. I make that distinction because in an inventive world and a creative environment, often different is seen as better, and that's not necessarily the case. And so our test is, does it really matter? Can it move the needle? Can this make a 30, 40, 50 percent difference in productivity or 100 percent or 500 percent? That's kind of the barometer of what matters. If it's a 5 percent improvement or a 2 percent improvement, generally it's not that interesting. And so I think innovation is the engine that allows you to get some of these quantum leaps in terms of productivity or a new way of doing things that ultimately leads to greater value for our customers or even our internal parts of our organization.