Shadow IT is a growing concern for organizations as it can expose them to various security risks. A study found that 30-40% of IT spend in large enterprises goes into shadow IT, which includes IT systems, devices, software, applications and services used without explicit approval from the IT department

Despite the risks, professionals resort to shadow IT to enhance their performance and improve their agility at work to meet deadlines. 

In this blog post, you’ll learn how to reduce the risks associated with shadow IT and ensure the security of your SaaS systems.

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What is Shadow IT?

Shadow IT is the utilization of both hardware, software or cloud services within an organization without the explicit authority of the IT department. This may be as simple as sharing documents in a personal Google drive, or as complicated as a group of people buying their own project management system without utilizing procurement services.

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A Brief History

The early 2000s were the first time when Shadow IT started to be noticeable because workers started to get personal USB drives and mobile devices to the office. Eventually, it grew to illegal downloads of desktop applications, and these days it mostly appears in the form of cloud-based SaaS programs. This has been fueled by the emergence of freemium tools, remote work and BYOD (bring your own device) policies.

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How Common Is It?

Shadow IT is no longer an exception it has become the rule.It has been found out that more than 70 percent of the organizations have suffered security attacks due to unauthorized applications and it is estimated that 30 to 40 percent of IT expenditure is not in the official budget. It is a common issue in any industry due to Shadow IT.

Intentional and Unintentional Shadow IT.

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• Intentional: Employees are aware that they are using unapproved apps to satisfy short-term requirements-- such as sharing files with a personal Dropbox account.
• Accidental: In other cases, workers do not even know that they are circumventing IT. As an example, when a work email is used to sign up to a free trial of a SaaS application, this can cause unwanted compliance gaps.

The Many Forms of Shadow IT

• Hardware: Work-related personal devices like laptops, tablet computers, or USB drives are used without authorization.
• Software: Unlicensed or unlimited desktop and mobile applications that are not listed in the IT catalog.

Cloud Services: SaaS solutions, storage drives and communication tools being implemented without IT supervision.

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Shadow IT examples

Shadow IT can be described as the consumption of services, systems or devices within an organization without the consent of the IT department. It can frequently occur when employees are downloading or buying tools to enhance productivity since the approved solutions are not entirely able to satisfy their demands.

The most frequent types of Shadow IT are the following:

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1. SaaS Applications and Cloud Services.

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Employees can use cloud-based applications without necessarily going through the procurement.

• Examples: Asana and Trello are examples of project management tools, Google Drive is an example of file storage tools, or HubSpot and Marketo are examples of marketing tools.

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2. Local Applications

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Illegally obtained desktop or mobile software on the company machines.

• Examples: Free editing software, unlicensed productivity software or even games downloaded into work laptops.

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3. Devices (Hardware and IoT)

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Personal or smart devices can be linked by employees without permission.

• Examples: Work laptops, tablets, or smartphones; device IoT, such as wireless printers, cameras, thermostats or even smart TVs in an office environment.

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4. Mobile Applications

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Was downloaded using personal or work-issued phones onto unapproved apps to access company data.

• Examples: WhatsApp or Telegram messaging application, or other applications that are not checked by IT (mobile scanning applications or note taking applications).

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5. Browser Extensions

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The extensions are installed by employees who are unaware of the dangers to their security.

• Examples: Password managers, ad blockers, grammar checkers, or productivity extensions to Chrome, Firefox, or Edge.

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6. Collaboration Tools

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Teams can use informal communication that gets around IT surveillance.

• Examples: Slack workspaces, Zoom free accounts or Microsoft Teams groups created without being managed by official IT.

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7. File Sharing Services

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Storage and file-sharing systems that have not been approved may expose confidential company information.

• Examples: Dropbox, WeTransfer or personal Google drive.

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8. Cloud Infrastructure and Virtual Machines.

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Purchases of infrastructure are also part of Shadow IT.

Examples These are virtual desktops or servers hosted on AWS, VMware or Microsoft Azure, configured without IT supervision.

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Why does shadow IT occur in organizations?

Shadow IT is usually brought about by the fact that employees do not feel that the tools that are offered by their organization may address their needs fully. A study showed that 61% of the employees did not like their company licenses and tech stack at work. Consequently, they download and install the software that is more convenient or efficient in addressing the day-to-day work challenges.

Here are a few reasons why shadow IT occurs in organizations:

1. Unsatisfied users

When IT departments fail to meet the needs of employees, they feel that they should directly purchase a better software application.

2. Slow sanctioning or approval

Seeking approvals can take over 60 days depending on the bandwidth and priority of the IT team. Employees tend to bypass the IT department to get work done as they have deadlines to meet.

3. Easy accessibility

Purchasing a SaaS tool is as easy as ordering pizza from a food app, since all you need is a credit card. The monthly pricing model of many SaaS tools makes it easy for users to adopt it and commit to a lower amount of money. 

4. Lack of awareness

Some employees could be unaware of the associated risks with unapproved technology, such as data breaches, compliance violations and loss of sensitive information, or they might not understand the importance of IT policies and procedures.

5. Malicious Intent

Some employees might use shadow IT to steal data, access confidential information or introduce other risks such as data theft, unauthorized access and potential security vulnerabilities to the organization.

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What are the benefits of shadow IT?

While Shadow IT carries risks, it can also provide real benefits when managed effectively. The key advantages it can produce to organizations are the following:

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1. More Productivity and Efficiency.

The problem is that the employees do not necessarily have time to wait until IT approval. Shadow IT enables them to use the solutions that address urgent demands, accelerating work processes and minimizing the bottlenecks. As an example, a file-sharing application or even a bare and simple task organizer can assist a team in finishing the task more quickly.

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2. Innovation

Workers tend to discover new methods of work when they are testing new tools. Shadow IT may be a place of trial, where organizations can find out the usefulness of an application in practice before implementing it on the record.

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3. Cost Savings

Where in other instances, workers would opt to use free or low-cost versions rather than demand costly enterprise software. Such shadow IT tools can help lower the initial expenses and show areas in which the company can be paying too much on the current licenses.

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4. Employee Empowerment

By letting the teams utilize familiar or favorite tools, they will have more autonomy. This does not only enhance morale, but also, adoption and satisfaction, as the employees feel to have more control over how they work.

What are the risks of shadow IT?

By installing unauthorized software, employees may unknowingly put sensitive data at risk and bypass IT protections.There is no visibility and control that poses risks, which may damage security, compliance and even the bottom line of a company.

The main types of risks of Shadow IT are as follows:

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1. Security Risks

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• Data breaches: The apps that are not authorized are not necessarily enterprise-level secure. Unless these tools meet internal protection requirements, sensitive company data can be exposed.
• Security gaps: By using unauthorised collaboration tools, employees are permitted to transfer intellectual property, without encryption or suitable access control measures in place, making it susceptible to theft or abuse.
• Unauthorised access: Allowing unauthorised access to weak credentials can take place as the apps lack interconnection with company authentication systems.

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2. Compliance Risks

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• Non-compliance with regulatory requirements: SaaS applications are not all in compliance with data privacy laws, such as GDPR, HIPAA, or SOC 2. Their use subjects the company to audits, fines, and negative publicity.
• Problems related to data ownership: When the information is saved in a personal account or a cloud drive by the employees, the companies lose controls and can be guilty of the breaches of the data retention or residency standards.

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3. Cost and Efficiency Risks

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• Financial losses: Tools not approved can interfere with the infrastructure of the company, resulting in unplanned downtime, incompatibility or even expensive cleanup.
• Duplicate expenses: When teams are not managed centrally, there may be overlap in paying for a similar tool, which unnecessarily increases SaaS expenses.
• Inability to control the resources: Once the employees move out of the organization carrying the company data within the personal accounts, it becomes expensive or even impossible to retrieve it.

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4. Other Risks

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• Operational disruption: Shadow IT has the capacity to disrupt approved systems leading to outages or integration difficulties that disrupt business continuity.‍
• Reputational loss: Shadow IT may lead to a loss of trust among customers, partners and regulators due to data breach, or compliance failure.

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How to discover and manage shadow IT

Balancing security with employee productivity and innovation is never easy. Shadow IT won’t disappear entirely, but with the right mix of discovery, governance, and education, organizations can minimize risks without slowing teams down.

Here are proven ways to manage it effectively:

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1. Add cybersecurity technologies.

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Leverage attack surface management (ASM) tools to detect internet-facing assets and identify Shadow IT as it emerges. Once discovered, IT teams can:

• Assess vulnerabilities.
• Use the firewalls, encryption and access controls.
• Check and revise frequently to ensure that the security standards are adhered to.

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2. Develop policies and systems of governance.

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Establish clear policies regarding the use of technology, procurement and approvals. Early detection of unauthorized tools often comes by frequently monitoring networks and employee activity such as identification of freemium sign ups.

The need for disciplinary action can be suspension, termination or even legal action in case employees deliberately go around with rules.

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3. Make use of special discovery utilities.

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Discovery platforms can automatically scan, monitor, and analyze the apps employees use. These devices evaluate the risks, create analytics and block the high-risk applications by the help of firewalls or proxies. SaaS Intelligence such as the one offered by Spendflo takes it a step further and centralizes the SaaS usage in a single dashboard, making it easily visible.

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4. Educate your workforce

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One of the most effective protections of Shadow IT is employee awareness. Constant training can:

• Make the dangers of unauthorized apps known.
• Strengthen company security policies.
• Encourage safe substitutes which are IT approved.

Technology, governance, and education can co-exist in reducing the risks of Shadow IT and promoting safe innovation by organizations.

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Protect your organizations from the risks of shadow IT

Though at a surface level it may appear as a harmless practice, shadow IT has grave challenges to both the IT departments and the business at large. As Jeanne Ross, the MIT Sloan Center of Information Systems Research Director, once stated:

Shadow IT, as it has long been known, is a nightmare to IT departments and ultimately to everyone with an organization.

The most typical risks that organizations deal with are the following:

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1. The loss of IT visibility and control.

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 The use of unauthorized tools by employees means that IT teams cannot have control over the software that is being used. This forms an area of blind spots in monitoring, licensing and management of vendors.

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2. Information insecurity and compliance.

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 Unvetted SaaS applications do not always comply with security or compliance regulations like GDPR, HIPAA or SOC 2. Data that is sensitive is capable of being revealed without the knowledge of the company.

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3. Unavailability and poor security.

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 Hack tools do not necessarily comply with enterprise-level uptime and do not necessarily support multi-factor authentication. This renders systems prone to attacks and outages.

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4. Loss and inconsistencies of data.

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 Storing data in various applications that are not approved leads to fragmented data, duplication or even the irreversible loss of important information.

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5. Vulnerability of network security.

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 Shadow IT may lead to malicious code, phishing, and unsecured integration, increasing the attack surface of the firm.

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6. Risks associated with OAuth applications.

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 OAuth is used to authenticate many SaaS tools. In case workers provide excessive access to the apps that are not verified, hackers can access the sensitive company information via breached accounts.

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Best Practices to Minimize Shadow IT Risks

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Businesses can reduce risks by taking proactive actions on governance rather than prohibiting Shadow IT altogether:

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1. Make use of SaaS management software.

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 The adoption of SaaS tools is simple due to the availability of freemium models and cheap prices, although the security differs. An application like Spendflo, a SaaS management platform will assist IT departments in identifying unauthorized applications, monitoring usage, and enforcing compliance without slowing down employees.

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2. Maintain a legal BYOD list

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 Specify the devices that employees can use in accordance with the policies of bring your own device (BYOD). This is to make sure that only secure and approved devices are used to gain access to the company systems.

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3. Outlaw jailbroken or rooted devices.

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 iOS devices have been jailbroken or Android devices have been rootkitted, eliminating critical security features. They should be prohibited clearly in the organization and employees should be trained about the dangers.

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4. Limit inappropriate apps.

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 Establish and implement a blacklist of apps that have been known to violate security. Install block at network where possible.

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5. Get all purchases IT approved.

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 IT should have to check and approve every new tool or software downloaded. This is a balance between innovation and compliance.

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Manage shadow IT with efficient SaaS management

Managing and optimizing shadow IT in an organization is daunting, whether it involves detecting shadow IT or finding the best tools to minimize associated risks. Shadow IT has few perks, and the risks associated with it often outweigh the benefits. 

With Spendflo, 

• Get advanced insights that help you gauge the actual usage of IT apps you’ve purchased
• Measure your employee’s sentiment for each SaaS tool. Do they think it is useful? Does the tool help them be more productive? This data helps you eliminate shadow IT proactively
• Optimize SaaS spending and get maximum ROI on your IT spending 
• Automate your SaaS management to save time and effort.  

Try Spendflo to enhance the security of your tech stack and reduce SaaS costs by 30%.

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Frequently Asked Questions

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Should organizations ban Shadow IT completely?

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Not necessarily. Outlawing Shadow IT is not usually effective since workers tend to use the tools to address an actual productivity gap. Rather, organizations ought to be involved in monitoring and managing Shadow IT. By detecting unauthorized applications and bringing them together into approved solutions, the business risks can be minimized, and the needs of the employees can be served. There are tools such as SaaS Intelligence provided by Spendflo that simplify the finding of Shadow IT and putting it under control.

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‍What industries are most affected by Shadow IT?

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Shadow IT is typical of all SaaS-intensive industries, but in particular, it affects technology, financial services, health, and professional services. These industries are dependent on dozens (and even hundreds) of cloud applications, and it is no problem when the employees are going around procurement. Indicatively, marketing and design teams tend to use SaaS tools separately which poses an unseen cost and compliance risk.

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What’s the future of Shadow IT?

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Shadow IT isn’t going away, it's evolving.With the increase of SaaS usage, employees will keep trying new tools. Visibility and governance, as opposed to prohibition, is the future. By implementing AI-enabled platforms of procurement and monitoring such as Spendflo, organizations can achieve equilibrium between innovation and compliance, saving costs and keeping things safe without paralyzing teams.

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