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  • Writer's pictureDylan Rana

Should we fear Shadow IT? Does it help or hinder SaaS Procurement?

Finding new software solutions is a brilliant way for teams to improve their productivity and enhance their workflows. Often, it’s the programs that employees find themselves that work best for their specific needs.

This has led to the phenomenon of Shadow IT, where employees use their own software without the authorization of an organization’s IT team.

As employees get more comfortable with using SaaS products, the amount of unauthorised software running on networks has skyrocketed, with an estimated 65% of all SaaS apps used in businesses being unsanctioned by IT.

While on the surface, Shadow IT may seem like a harmless act of employees taking initiative, it presents some tough challenges for business owners. Unsanctioned software can reduce SaaS security, cause compliance issues, and ultimately increase your overall software costs.

However, the desire for employees to find their own solutions may help businesses find the best SaaS tools for the job.

In this article, we will delve into the increasing importance of Shadow IT. We will explore the factors contributing to its rise, the risks and costs associated with it, and the strategies that business owners can employ to turn this seemingly rogue behavior into a strategic advantage for their company.

What is Shadow IT?

Shadow IT may sound like something out of a spy novel, but its implications for today’s businesses are all too real. Shadow IT refers to the use of software or services without the explicit approval of the IT department or management.

Here’s a simple example: Imagine an employee who finds the company’s approved communication tool cumbersome and lacking features.

Instead of raising the issue with the IT department, they start using a different messaging app—one that’s not vetted or approved by the company.



Why does it happen?

Shadow IT often emerges from the best of intentions. Employees, aiming to be more productive and efficient, seek out tools that they believe will help them perform their jobs better.

Here are some common reasons why:

  • Approved tools are inadequate: The tools sanctioned by IT or management may but outdated or lack the features needed to do the job.

  • Speed and convenience: Employees might find quicker solutions than waiting for IT approval.

  • Lack of awareness: Some employees might not even realize they are using Shadow IT, thinking that if a tool is freely available on the internet, it’s fine to use.

Shadow IT is not a fringe occurrence—it’s widespread and growing. This is not limited to any particular industry; it’s a trend that cuts across sectors, from healthcare and finance to education and retail.

What are the implications of Shadow IT?

Unsanctioned software can certainly present many challenges to businesses. These largely stem from the inability of IT or upper management to monitor activity and enforce security procedures.

Why does this matter?

  • Security Risks: This is the most immediate concern with Shadow IT. Unsanctioned applications and services may not adhere to the stringent security protocols set up by an organization's IT department.

  • Compliance Issues: Many companies deal with sensitive data and compliance with data protection standards is critical. Shadow IT can lead to severe violations of these standards, as the data might be handled and stored in ways that don't comply with regulations like GDPR, HIPAA, or CCPA. If applications aren’t visible to IT teams, they cannot see whether data is being handled correctly.

  • Difficult for IT staff to support teams: Shadow IT can leave IT departments in the dark about what’s being used within the organization. This lack of visibility makes it challenging for IT to support users, troubleshoot issues, or plan for technology upgrades and changes.

There's also an efficiency argument to be made. If teams are using their own tools, it can make it difficult to organization-wide data and skills sharing. How so?

  • Shadow IT reduces the mobility of data between teams, creating information silos. For example, if a CRM doesn't integrate well with another, customer interactions may be difficult to share across teams.

  • There may be a skills gap across teams if some teams aren't actively using "approved software" in their daily workflow.

  • This also affects the skills mobility across the organization. If employees move to a different department, will they know how to use the systems they prefer?

Should we see Shadow IT as an opportunity?

While Shadow IT can introduce risks, such as security vulnerabilities and compliance issues, it also has its upside. It can be a sign of employees’ initiative and a source of innovation, as workers seek out new and effective tools that the IT department might not be aware of.

In the context of SaaS procurement, Shadow IT is a signal of which software products employees prefer to use.



Simply put, if employees go out of their way to use a different solution to the "official" option, is that "official" tool really the best choice?

This can point to where the official tools are falling short in terms of functionality, ease of use, or accessibility.

How do you tackle Shadow IT?

What’s the best way to address and manage a growing trend of Shadow IT? What practices can ensure you’re extracting the benefits of employee initiative while also eliminating Shadow IT’s downsides?

There are three important aspects to this:

  • Involving employees in the SaaS procurement process

  • Enforcing strict but fair software and data security rules

  • Eliminating unwanted or unnecessary software licences

Let's talk about it!

Involving Employees in the SaaS Procurement Process

Shadow IT can present useful software options for IT and management to pursue. The most efficient way of approaching SaaS procurement is to involve employees in every step of this process.

Here's how:

  • Survey and Feedback: Regularly survey employees about the tools they use and need. Encourage them to provide feedback on the official tools and any Shadow IT tools they prefer.

  • Collaborative Decision-Making: Include representatives from various departments in the software selection process.

  • Pilot Programs: Before fully committing to a new SaaS product, run a pilot program with a small group of employees. Use their feedback to make an informed decision.

  • Open Channels of Communication: Establish a policy where employees can safely report their use of non-approved tools without fear of retribution. This encourages transparency and trust.

Why is this step so important? Even with strict policies, if employees don’t feel the software options are right for them, they’ll be less inclined to use it. Ignoring employee advice may even make your business far less efficient.

Enforcing and Monitoring SaaS Security Rules

Once you’ve found a software stack that suits your organization, it’s time to enforce the rules. Remember, it’s not enough to just have policies in place, employees must be aware of the consequences of using unsanctioned software.

Here’s how:

  • Document and share a robust software policy: Don’t leave any room for speculation or misinterpretation. It should cover what software tools are permitted and how they should be used. Crucially, you should tell employees how to propose new tools if the official ones aren’t a good fit.

  • Conduct security audits: Regularly audit the use of SaaS applications in your organization to ensure compliance with your security policies.

  • Implement firewalls or device management tools: Use firewalls and access control lists to block unauthorized SaaS applications at the network level. Mobile Device Management (MDM) or Endpoint Detection and Response (EDR) solutions can also be used to crack down on the use of personal devices.

  • Train employees on the implications of Shadow IT: Regularly train employees on the importance of SaaS security and how to use applications responsibly.

Eliminating unwanted or unnecessary software licences

Shadow IT has led to organizations accumulating an abundance of software licences. Did you know the average business has over 120 SaaS applications in its stack?

To improve efficiency and discourage the use of depreciated or unsanctioned software, businesses should eliminate all software licences that don’t fit within the organization’s workflow.

The best way to manage this is by working with a SaaS procurement and negotiation partner like Smartcost.io.

We specialize in helping businesses manage their software subscriptions and contracts. They act as intermediaries between the business and the software vendors, leveraging their expertise and relationships to secure the best possible terms for their clients.

Here’s how we can help tackle Shadow IT:

  • Perform a software audit: We will analyze your current SaaS subscriptions and identify areas where costs can be reduced—whether through renegotiating contracts, eliminating redundant subscriptions, or recommending more cost-effective alternatives.

  • SaaS Negotiation: With extensive experience in the SaaS industry, will negotiate more favorable contract terms with vendors, including pricing, service levels, and exit clauses. On average, our clients save over 30% by working with us.

  • Provide ongoing monitoring and management: Our experts will help you continuously monitor your SaaS usage and will alert you to potential issues and opportunities for further optimization.

Tackle Shadow IT and reduce your SaaS spend with Smartcost.io

Is Shadow IT running rampant? Your business is probably overspending on software—big time.

Smartcost.io is here to help. As a premier SaaS negotiation service, we specialize in identifying, managing, and reducing your software costs. We don’t just help you cut expenses; we empower you to regain control of your software environment.

We’ll analyze your current SaaS subscriptions, identify redundancies, and recommend cost-effective alternatives. Then, once we’ve found the perfect SaaS stack for your needs, we’ll negotiate the best deal for you.

Don't let Shadow IT squeeze your software budget. Take action today and let Smartcost.io turn your software chaos into a strategic advantage with a free savings estimate.


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