Does Your Organization Use SaaS? Beware of Shadow IT Risks!

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With pressure to enhance security and promote innovation in organizations, 91% of IT professionals feel they must compromise one for the other. Thus, employees tend to find new tools that make daily work easier. While these tools can boost productivity, they can also create a problem called "Shadow IT."

Gartner found that shadow IT makes up 30-40% of IT spending in large enterprises. It poses significant risks to your organization’s data security.

In this article, we’ll look at how the increasing use of SaaS can lead to shadow IT, its potential dangers, and practical steps your organization can take to reduce these risks.

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What is Shadow IT?
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Simply put, shadow IT is the practice of procuring and using IT systems— namely software and cloud services— without the knowledge or approval of the organization’s IT department. Shadow IT is also called fake IT or stealth IT.

Shadow IT involves applications and systems that go unrecognized or unaccounted for. These tools can enter an organization’s ecosystem without the knowledge of those in charge. If your organization has shadow IT, enterprise data is constantly at risk of exposure and breaches by unknown third parties, former employees, hackers, data brokers, and more.

Following are some famous real-world examples of shadow IT:

• Target data breach (2013): In this famous incident, hackers accessed Target’s network through a third-party vendor. Employees had used unauthorized software, allowing the attackers to infiltrate systems and steal the credit card information of millions of customers.
• Uber’s data breach (2016): Uber faced a significant data breach when hackers accessed the personal information of 57 million users. The breach occurred partly because employees were using unapproved apps that didn’t have the necessary security measures in place.

By addressing shadow IT, companies can boost security and productivity. However, employees often use shadow IT when approved tools don’t meet their needs. This shows that organizations must regularly review and update their software to support their teams better.

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Reasons employees turn to shadow IT

Employees often seek out Shadow IT for several reasons:

• Convenience: Many approved tools can be complicated or time-consuming to use. Employees who find simpler, more intuitive applications may prefer those options to complete their work efficiently.
• Speed: In fast-paced environments, employees often feel pressured to complete tasks quickly. If an unapproved tool allows them to finish their work faster, they may choose to use it, even if it hasn’t been vetted.
• Familiarity: Employees frequently have personal experience with popular apps and software. If they are already comfortable using these tools in their personal lives, they are more likely to use them at work, believing they can enhance productivity.
• Lack of awareness: Some employees may not fully understand the risks of using unauthorized software. They might not realize their actions could expose the company to data breaches or compliance issues.
• Unmet needs: When approved tools do not fulfill specific job requirements or lack certain features, employees may look for alternatives that better suit their needs. This can lead them to adopt applications that aren’t officially sanctioned.
• Limited IT support: In some cases, employees may feel that IT does not respond quickly enough to their requests for new tools or updates. Frustration with this lack of support can drive them to seek out their solutions.
• Collaboration needs: As teams become more distributed, employees may seek tools that enhance collaboration, even if those tools are not officially approved. They may turn to apps facilitating real-time communication or project management, leading to shadow IT.

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The risks of shadow IT

Shadow IT can expose organizations to serious risks affecting security and compliance.

1. Increased risk of data breaches

Unapproved applications often lack proper security features, making them easier targets for hackers. For example, the 2019 data breach at Capital One resulted from a misconfigured web application firewall. An employee had uploaded sensitive data to an unsecured storage service, allowing hackers to access the personal information of over 100 million customers.

2. Lack of encryption and inadequate security measures

Many unauthorized tools don’t encrypt data, making it vulnerable to interception. For example, cybercriminals can easily access sensitive documents if employees use a simple file-sharing service without encryption. Many organizations have found instances of sensitive data being shared without encryption.

3. Risks of storing sensitive data in unauthorized applications

Employees storing sensitive information in unapproved apps can lead to compliance issues. For instance, organizations can face significant fines for using a cloud service that doesn’t comply with data protection regulations. By storing information in an unapproved tool, they put sensitive data at risk and face regulatory penalties.

4. Potential for increased costs and inefficiencies

In 2023, two-thirds of companies planned to increase their app investments, with 71% boosting spending on SaaS security management. However, this investment leads to cost waste for organizations that didn't address existing shadow IT issues.

Shadow IT can create duplicate subscriptions and tools that don’t integrate well with existing systems. For example, when different departments use separate project management tools, it can lead to confusion and miscommunication, ultimately slowing down projects. Thus, you should ensure this doesn't happen in your organization by clearly communicating with your employees.

5. Difficulty in meeting regulatory requirements

Organizations must comply with strict regulations like ISO 27001, SOC 2 Type II, GDPR, HIPAA, and others regarding data security. Shadow IT complicates compliance efforts because unauthorized tools may not meet these legal standards.

For instance, a healthcare provider using an unapproved app for patient records could risk HIPAA violations, resulting in fines of up to $1.5 million per violation. The global average cost of a data breach in 2024 is projected at $4.88 million—a 10% increase from last year.

6. Challenges in Managing User Access and Permissions

Shadow IT makes it difficult to track access to sensitive data, increasing the risk of unauthorized access. For example, if an employee at a major financial institution shares confidential client data through an unapproved communication app, it can expose sensitive information and raise compliance concerns with privacy regulations.

Organizations need to be aware of the potential risks associated with shadow IT to proactively mitigate them. The following table categorizes common risks, their impacts, and strategies for mitigation, providing a clear overview at a glance.

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Identifying shadow IT in your organization

The arrival of the SaaS industry and cloud-based software delivery pushed shadow IT to prominence. According to a McAfee report, an average company uses about 108 known cloud services and 975 unknown services that comprise shadow IT. About 80% of employees accept using SaaS apps at the workplace, and most do so without IT approvals.‍

Recognizing shadow IT is the first step toward managing it effectively. Here are some straightforward ways to identify unauthorized software and applications in your organization:

1. Unfamiliar Applications on Employee Devices

One of the most common signs of shadow IT is the presence of unfamiliar applications on employee devices. If your IT team notices apps that haven’t been officially approved or documented, it’s a red flag.

For instance, sensitive data may be at risk if employees use file-sharing apps that the company hasn’t authorized. In 2023, 30% of files were shared via personal accounts, sidestepping corporate policies, with an average of 54 shared resources per employee. Regularly reviewing installed applications on work devices can help identify these unauthorized tools.

You must understand the distinctions between approved tools and shadow IT to enhance security and streamline operations. Check this table for a detailed overview.

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2. Increased Reliance on Personal Email Accounts for Work

When employees start using personal email accounts for work-related tasks, it can indicate the use of shadow IT. This often happens when employees feel that company-approved tools are too slow or cumbersome.

For example, if team members are sharing files or communicating critical information via personal Gmail accounts instead of company email, it’s a sign they might be using unapproved apps. Monitoring email usage can help identify these patterns.

3. Importance of Cataloging All Software Used Within the Organization

Creating a comprehensive list of all software and applications in use is essential. This inventory should include approved tools and any other tools employees may use.

Organizations can better understand what software is being used and evaluate its security risks by maintaining a catalog. Regularly updating this catalog ensures that IT has visibility into all applications, reducing the chances of unapproved tools being overlooked.

4. Use of Network Monitoring Tools

In 2023, 41% of enterprise employees used technology without IT oversight. However, network monitoring tools can effectively identify shadow IT if you don’t want this in your organization. These tools track all traffic on the network and can flag unauthorized applications.

For example, the monitoring tool will alert IT if a significant amount of data is being uploaded to a file-sharing service that isn’t approved. This allows organizations to take action quickly and assess any risks associated with that application.

5. Employee Surveys and Audits

Conducting surveys and audits can provide valuable insights into software usage within the organization. By asking employees about their tools, IT can identify shadow IT more effectively.

For instance, an anonymous survey might reveal that many employees are using a specific project management app that isn’t approved. Regular audits can also help confirm that employees are using only the tools vetted and authorized by the company.

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Key drivers of shadow IT in the cloud-first world

So far, we have established the growth of shadow IT and its prominence in the SaaS era. But, what underpins the shadow IT phenomenon and makes it commonplace? Let’s explore.

Traditionally, IT governance and policies are built around protecting the organization’s interests, with a scant focus on making the solutions readily available to the users. Employees must navigate a tedious (often complex) requisition and approval process via the department-level authority, and then IT teams to procure any software or hardware.

However, a survey found that 37% of IT professionals believe their organization lacks clarity on consequences for employees using unapproved apps. They also believe greater collaboration on shadow IT solutions could provide a competitive edge.

Depending upon the organization’s size and internal processes, the procurements can take inordinate durations with little scope for efficiency and convenience.

The arrival of the SaaS delivery model made it convenient for individuals & teams to subscribe to cloud-based solutions without needing explicit approvals from the IT department. Research from CORE found that shadow IT usage surged by 59% since the widespread adoption of remote work, with 54% of IT teams believing this increases data breach risks.

Imagine your organization’s users, including remote workers using collaboration apps and file hosting services, can do so independently without keeping IT teams in the loop. This convenience and availability of critical IT services with SaaS results in shadow IT.

Another driver of shadow IT emerges from the fact that traditional IT isn’t fully prepared to deal with the freedom and convenience made available with SaaS apps. The current IT governance frameworks acknowledge SaaS and the choices it brings to the users, but the policies, practices, and technology that can govern the fragmented SaaS usage within the organization’s framework have yet to be updated.‍

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Key strategies for mitigating shadow IT risks

Organizations should adopt best practices that promote transparency, compliance, and security to effectively manage shadow IT. Before discussing in detail, check this table that outlines actionable strategies for managing shadow IT risks.

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Now, let’s explore the in-depth process for mitigating shadow IT. To effectively manage and reduce the risks associated with shadow IT, organizations can implement several strategies:

1. Creating guidelines for acceptable software use

In a survey, over two-thirds of IT leaders would rather allow a highly-valued employee to choose their tools than risk losing them. However, as an IT leader, this is not an effective approach.

Rather, establish clear guidelines that outline which software and applications are approved for use within the organization. These guidelines should include criteria for selecting tools, such as security standards and compliance requirements. By providing a clear framework, employees will know what is acceptable and feel more confident in using approved applications.

2. Educating employees about the risks of shadow IT

Educating employees about the dangers of shadow IT is crucial. According to Gartner, employees trained in technology-related tasks are 2.5 times less likely to introduce cyber risks.

You can conduct training sessions explaining potential risks, such as data breaches and compliance issues. Use real-world examples to illustrate the consequences of using unapproved software. When employees understand the impact of their choices, they are more likely to follow established guidelines.

3. Providing authorized SaaS tools that meet employees’ needs

A 2021 HP survey indicated that 39% of office workers aged 18-24 were unclear about their organization’s data security policies, and 54% prioritized meeting deadlines over security risks.

Offer a selection of authorized SaaS tools that address the specific needs of different teams. Engage with employees to understand what tools would help them be more productive. By providing approved, user-friendly, efficient alternatives, you can reduce the temptation to turn to unauthorized applications.

4. Gathering feedback from employees on required software

Nearly half of younger office workers view security measures as time-wasters, and 31% have attempted to bypass security protocols. It emphasizes the need for security training and a people-centric SaaS management approach. You must regularly collect employee feedback regarding the software they use and what additional tools they need.

This can be done through surveys or informal discussions. By involving employees in decision-making, you can better align your software offerings with their needs and minimize the chances of shadow IT emerging.

Joshua Peskay, a 3CPO (CIO, CISO, and CPO) at RoundTable Technology, talks about how remote work has driven employees to use unauthorized apps, which puts sensitive company data at risk. Check out his detailed podcast for more insights.

Insert video: https://youtu.be/M6F5FYw8JEE?si=MIgNPI6qMEDvKMXh]

5. Using a SaaS management platform

By 2026, 10% of large enterprises will adopt a zero-trust security model, up from less than 1% in 2023. If you are looking for the most effective way to stay ahead of shadow IT, implementing a SaaS management platform (SMP) is your best choice. An SMP helps monitor and manage all applications used across the organization.

An SMP can quickly find applications that employees are using without approval. This helps you understand the full landscape of software and address any risks. The platform evaluates the security and compliance risks associated with each tool. This allows you to prioritize which applications need immediate attention based on their potential impact on your organization.

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CloudEagle.ai - The Key To Preventing Shadow IT

CloudEagle.ai is a SaaS management and procurement platform. It enables organizations to manage, optimize, govern, and renew SaaS from a single platform. Its centralized interface not only enhances operational efficiency but also maximizes resource allocation.

One of its key strengths lies in its ability to identify and eliminate shadow IT, ensuring a secure work environment for your organization.

Complete shadow IT discovery

CloudEagle.ai excels in uncovering unauthorized applications across your organization. Here’s a detailed look at how it works:

Identifying unauthorized apps: CloudEagle.ai integrates with over 500 systems, including single sign-on (SSO) solutions, human resource information systems (HRIS), finance systems, and other enterprise applications. This integration allows the platform to collect comprehensive data about employee software usage across different departments.

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By analyzing user activity within these integrated systems, CloudEagle.ai can pinpoint any shadow IT applications employees may use without official approval.

For instance, the platform will flag these applications for review if employees access file-sharing services or project management tools it does not sanction. This visibility helps IT teams understand the extent of shadow IT within the organization.

Check out this inspiring case study of how Rec Room gained complete visibility into the free apps used by its teams with CloudEagle.ai.

Optimize your procurement process: A complex or outdated procurement process can lead to employee frustration and the use of shadow IT. It's essential to simplify this process. Use tools like CloudEagle.ai to automate and speed up procurement workflows, reducing bottlenecks and user dissatisfaction.

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Also, make sure to educate employees on the new process and encourage them to use the official channels for getting applications. When it's easy to access approved tools, there's less temptation to go around the system. A smooth and user-friendly procurement experience reduces shadow IT and fosters a culture of compliance.

Self-service app catalog: You can stop shadow IT by using a self-service app catalog. This tool lets employees quickly request access to important apps through Slack or Microsoft Teams.

They can get what they need in just minutes, which helps them work better. Quick access means employees spend less time waiting for permissions and can be more productive.

At the same time, it eases the load on your IT team by reducing access requests. Fewer requests mean IT staff can focus on more critical tasks instead of managing endless app access tickets.

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With CloudEagle’s app catalog, employees can easily find and request approved apps, keeping your company safe from unauthorized software. This means employees are directed toward using only IT vetted and approved apps.

Continually evaluate and update IT infrastructure: Consistently evaluate and update your IT infrastructure to meet evolving needs and security standards. Conduct regular assessments to identify vulnerabilities or outdated systems and implement necessary upgrades to boost performance.

Use transition plans to minimize disruptions during updates and stay informed about new technologies and best practices. By regularly assessing and updating your IT infrastructure, you can maintain a secure and efficient environment that supports your business objectives.‍‍

Risk assessment: CloudEagle.ai assesses its risk levels once unauthorized applications are identified. It evaluates data security, compliance with industry regulations, and integration capabilities with existing systems. This risk assessment enables organizations to prioritize which shadow IT applications need immediate attention.

Taking action: Once CloudEagle.ai identifies and assesses shadow IT apps, clear steps are taken to eliminate them. The platform assists IT teams in communicating with employees about the risks of unauthorized apps and guides them to approved alternatives. Sometimes, CloudEagle.ai can automatically remove these unauthorized apps from employee devices, making the transition smooth and minimizing disruption.

Ongoing monitoring: The platform doesn’t just stop at detection and removal; it also offers ongoing monitoring capabilities. By continuously tracking application usage and integrating with existing IT systems, CloudEagle.ai ensures that any new instances of shadow IT are quickly identified and addressed.

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Conclusion

Shadow IT is becoming more common as organizations increasingly rely on SaaS apps. The convenience and flexibility these tools offer make them appealing to employees. While shadow IT can improve efficiency and workflows, it exposes companies to vulnerabilities like data breaches and compliance issues.

As businesses navigate this SaaS-driven landscape, it’s essential to balance the benefits of shadow IT with the need to mitigate its risks. Organizations should adopt best practices to tackle these challenges, enhancing visibility and control over the applications.

It’s time to transform traditional SaaS management to meet the needs of a SaaS-centric world. Embracing this shift allows companies to maximize the benefits of SaaS applications while minimizing risks. It leads to a secure and productive work environment.

Schedule a demo with CloudEagle.ai to learn how it can help you eliminate shadow IT in your organization.