June 28, 2023

The Shadow Effect: How shadow IT causes wastage and how you can avoid it

Shadow IT is often seen as a security vulnerability. What most organizations miss is the fact it causes huge financial leakages as well.

Shadow IT is apps, tech and services that employees or teams use that the IT department has not sanctioned. Typically, this could be an employee or team buying software for their own needs, without necessarily going through the procurement team. We call this decentralized buying

This happens for the following reasons.

Procurement processes take too long: A Spendflo Research study showed that organizations can take over 60 days to procure SaaS. High-growth startups do not have this time to wait for essential tools.

Security processes are not taken seriously: An RSA study in 2012 found that 35% of employees feel the need to circumvent security policies to just get the job done. This isn’t likely to have changed much, especially when pressures of performance are immense in high-growth organizations.

A recent HBR study found that “67% of the participants reported failing to fully adhere to cybersecurity policies at least once, with an average failure-to-comply rate of once out of every 20 job tasks.” What’s more revealing is why they do so.

Productivity loss is unacceptable: Any time that the employee waits for a SaaS tool to be procured is time lost in engineering and product development performance. Most organizations can’t afford this.

“When asked why they failed to follow security policies, our participants’ top three responses were, “to better accomplish tasks for my job,” “to get something I needed,” and “to help others get their work done.” 

Circumventing IT/procurement is easy: SaaS tools can be bought and used instantly today. Any employee can just use their credit card to pay for SaaS and integrate with enterprise tools. This temps teams to buy what they need and go through the processes later. 

While the security vulnerabilities of shadow IT is widely documented, the financial implications can be immense. 

Financial challenges of Shadow IT 

Wasteful spending

Gartner finds that of all SaaS spends, 25% is “underutilized or overdeployed.” With  spends going well over $5 million, $125,000 can be attributed to yearly SaaS wastage. This happens when unused licenses are not cancelled, licenses of employees who have left the organization are not revoked, etc. Such wasteful spending can have a direct impact on the bottom line, affecting the profitability and valuation of the organization.

Duplicate licenses

This is more common that one might think, across various scenarios. For example, when a new department leader joins an organization, it is fairly common that they demand a set of tools they are familiar with. Or one or two features might be missing in the current approved tool, making team members subscribe to another for their needs. Or when an employee transfers internally, they might have access to tools from their previous role. All of this creates duplicate licenses, adding to wasteful spending.

Inadequate product evaluation

There are dozens of alternatives for every use case. For example, G2 lists 430+ tools under the category of project management alone. While it’s impossible for any organization to evaluate them all, a thorough analysis of the top tools can offer significant negotiation leverage. When the procurement teams know the features and prices of various tools, they can use that information to get better deals from their chosen vendors. Without this, organizations overpay for SaaS all the time.

Shelfware SaaS 

Gartner calls SaaS tools purchased and then shelved “Shelfware as a Service.” This typically happens when an employee or a team wants a tool for a short period of time (that may or may not sanctioned by the organization) for a project and forgets to cancel it after the work is done. 

Foregone discounts

When SaaS buying is decentralized, negotiation leverages are lost. Procurement teams can get volume discounts, long-term pricing, free upgrades/upscaling, etc. that employees can’t negotiate for when they buy standalone licenses on their own. 

Productivity and efficiency losses

Often, the primary reason for decentralized buying and shadow IT is the immediate increase in productivity, over the long-term, this can be counter-productive. For instance, If every team uses a different communication tool, gaps in information sharing and collaboration are inevitable. This significantly affects cross-functional efficiencies. Moreover, higher the number of tools, more the effort for integration and maintenance. 

Cybersecurity costs

The penanties, fines and levies on security breaches are increasing significantly all over the world. In addition to loss of reputation and customer trust, regulatory expenses alone can be crippling.

Minimize shadow IT with better SaaS management

To eliminate shadow IT, without affecting organizational productivity and efficiency, you need better SaaS management. This is what it looks like.

  • Strategic visibility into the SaaS stack
  • Monitoring of active licenses and users from a single source of truth
  • Uncovering unused licenses continuously
  • Real-time usage insights for every tool, department and user
  • Centralizing SaaS data with SSO integrations or Chrome plugins
  • Accessing usage based on administrator and user roles

See how you can eliminate SaaS wastage from shadow IT and save 30% on your SaaS stack while you’re at it, try Spendflo today.

you can save as much as 30% on SaaS spends

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Guru Kirupa
Karthikeyan Manivannan

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With Spendflo, you can save as much as 30% on SaaS spends

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