What is shadow IT? Risks, benefits, and examples

Shadow IT is the use of technology solutions, hardware, or software by employees without the explicit approval or knowledge of an organization's IT department. While it can lead to innovation and productivity gains, shadow IT also introduces significant security risks, compliance issues, and management challenges for organizations.

Shadow IT is a term that has been gaining traction in recent years, as more and more companies grapple with the unintended consequences of employee-driven technology adoption. It's a complex and multifaceted issue that can have far-reaching implications for businesses of all sizes and industries.

At first glance, shadow IT might seem like a relatively innocuous problem. After all, if employees are using technology to get their work done more efficiently, that's a good thing, right? But as with most things in life, it's not quite that simple.

While shadow IT can certainly bring benefits to organizations, such as increased productivity and innovation, it can also expose them to a host of risks and challenges. From data breaches and compliance violations to cost inefficiencies and management headaches, the dangers of unchecked shadow IT are not to be underestimated. 

In this article, we’ll take a look at the world of shadow IT to understand what it is, why it’s being used, risks involved, and how to manage it effectively.

What is shadow IT?

Shadow IT refers to any technology solutions or systems, including hardware and software, that employees use without the knowledge or ‘blessing’ of their organization's IT department. It encompasses a wide range of tools and platforms, from unsanctioned cloud storage and communication apps to unapproved project management software and data analytics tools.

Real-world example: Your Marketing Manager Jill is tasked with creating a new campaign for an upcoming product launch. She needs to collaborate with her team, track progress, and manage a variety of digital assets. The company-approved project management software feels outdated and doesn't meet her team's needs, so Jill decides to use a new cloud-based tool she discovered. She signs up for an account, invites her team members, and they begin working on the project using the new platform. The campaign is a success, but IT is unaware that the team used an unapproved tool.

This scenario is a classic example of shadow IT in action. While Jill and her team were able to work more efficiently and achieve their goals, the use of an unapproved tool opens up potential security risks and compliance issues that IT isn’t clued in on.

It's important to note that shadow IT often arises from good intentions. Employees are not typically trying to be malicious or careless; they are simply trying to find the best ways to do their jobs. However, the unintended consequences of shadow IT can be significant. Let’s explore below.

Why is shadow IT used?

There are several reasons employees turn to shadow IT solutions. Here are some of the most common drivers:

• The need for speed and efficiency: In fast-paced business environments, employees often seek out tools that can help them work more quickly and efficiently. When approved company tools feel slow or cumbersome, the allure of faster, more streamlined alternatives can be strong.

• The desire for better features and functionality: Employees may turn to shadow IT solutions when they feel that approved tools lack the features or capabilities they need to do their jobs effectively. The grass can seem greener on the other side, especially when it comes to tools that promise to make work easier or more enjoyable.

• The need for flexibility and autonomy: Different teams and individuals have different technology needs and preferences. Shadow IT can arise when employees feel constrained by the limitations of approved tools and seek more flexibility to adapt solutions to their unique work requirements.

• The importance of user experience: Many enterprise software solutions are not known for their intuitive interfaces or ease of use. When employees encounter tools that are user-friendly, visually appealing, and require minimal training, the temptation to adopt them can be strong.

• The demand for better collaboration: For most workplaces today, effective collaboration is essential. Employees may turn to shadow IT tools like messaging apps or file-sharing platforms to work together more seamlessly, especially if approved solutions fall short.

Shadow IT examples

Shadow IT can take many forms, depending on the needs and preferences of individual employees and teams. Here are a few common examples:

Cloud storage services

Cloud storage platforms like Dropbox, Google Drive, and OneDrive have become ubiquitous in both personal and professional contexts. They offer an easy way to store, access, and share files from anywhere, making them attractive solutions for employees who need to collaborate remotely or access work documents on the go. However, when employees use personal cloud storage accounts for work purposes, it can create security and data management risks.

Communication tools

The rise of remote work has fueled the adoption of messaging and video conferencing tools like Slack and Zoom. These platforms can be invaluable for team communication and collaboration, but they can also pose security and compliance risks when used outside of approved channels.

SaaS applications

Software-as-a-Service (SaaS) applications have exploded in popularity in recent years, offering powerful tools for everything from project management and document management to graphic design. The ease of sign-up and low barrier to entry make SaaS apps prime targets for shadow IT adoption.

These are just a few examples of how shadow IT can manifest in organizations. The specific tools and platforms will vary depending on the industry, company size, and employee needs. However, the underlying risks and challenges are often similar.

Shadow IT risks

While shadow IT can offer benefits in terms of agility and innovation, it also comes with significant risks that organizations need to be aware of. Here are some of the key dangers:

Security vulnerabilities

One of the most significant risks of shadow IT is the potential for security breaches and data leaks. When employees use unauthorized tools, those solutions may lack the robust security features and controls that enterprise-grade platforms and infrastructure offer.

Compliance violations

Many industries have strict regulations and standards around data privacy, security, and handling. When shadow IT solutions don't meet these requirements, organizations can face serious compliance issues and legal liabilities.

Consider a healthcare organization where doctors start using an unapproved messaging app to discuss patient cases. If that app doesn't comply with HIPAA regulations for protecting patient data, the organization could be subject to hefty fines and reputational damage.

Data loss and fragmentation

With data spread across multiple shadow IT systems, organizations face a higher risk of data loss and fragmentation. If an employee leaves the company or an unapproved tool is discontinued, critical business information can be lost permanently.

Imagine a scenario where a product team has been using an unapproved project management tool for years. If the vendor goes out of business and shuts down the service without warning, the team could lose access to all their project history, files, and communications.

IT management challenges

Shadow IT can create significant headaches for IT departments, who may struggle to maintain visibility and control over the organization's technology landscape. Some common challenges include:

• Compatibility issues between approved and unapproved systems
• Redundancy and inefficiency when multiple teams use different tools for the same purpose
• Difficulty providing support and maintenance for unapproved platforms
• Lack of centralized data management and governance

Cost and resource inefficiencies

While shadow IT tools may seem inexpensive or even free at first glance, they can lead to hidden costs and resource drains over time. Organizations may end up paying for duplicate functionality across multiple platforms, or incurring unexpected expenses to bring shadow IT systems into compliance. Moreover, the time and effort employees spend researching, implementing, and troubleshooting shadow IT solutions could be better spent on core business activities and strategic initiatives.

Scalability and performance issues

Many shadow IT tools are designed for individual or small team use, rather than enterprise-scale deployment. As adoption grows, these platforms may struggle to handle increased demand, leading to performance issues, outages, and frustrated users.

For example, a department may adopt a free project management tool that works well for a small team. But as the department grows and the tool is used by dozens of people across multiple complex projects, it may start to slow down, crash, or create more problems than it solves.

Benefits of shadow IT

While these risks of shadow IT are significant, it's important to recognize that it’s not an entirely negative phenomenon. In fact, when managed properly, it can offer some important benefits to organizations which include:

Increased agility and innovation

Shadow IT often arises when employees are trying to solve problems and work more efficiently. By exploring new tools and solutions, they can uncover innovative approaches that might not have been considered through formal IT channels.

For example, a marketing team might experiment with a new social media management platform and discover advanced analytics and automation features that help them optimize their campaigns and drive better results. This kind of grassroots innovation can be a valuable source of competitive advantage.

Improved productivity and collaboration

In some cases, the tools employees choose for themselves are simply better suited to their needs and workflows than the approved alternatives. When workers have access to intuitive, efficient, and purpose-built solutions, they can be more productive and effective in their roles.

Moreover, shadow IT tools can sometimes facilitate better collaboration across teams and departments. A cross-functional project team might adopt a collaboration platform that allows them to easily share files, provide feedback, and track progress in real-time, breaking down silos and speeding up delivery.

Cost savings and flexibility

Believe it or not, shadow IT can occasionally lead to cost savings for organizations. Many shadow IT tools offer free or low-cost tiers that can be sufficient for certain use cases, allowing companies to meet business needs without incurring large enterprise software license fees.

Additionally, the flexibility of shadow IT tools can be an asset for fast-moving, project-based work. Rather than going through lengthy procurement and implementation cycles, employees can quickly spin up the solutions they need, use them for as long as necessary, and then move on.

Employee satisfaction and engagement

When employees feel empowered to choose and use the tools that work best for them, it can boost job satisfaction and engagement. No one enjoys struggling with clunky, inefficient software that makes their work harder than it needs to be.

By giving employees some autonomy in their tool selection (within reasonable boundaries), organizations can foster a culture of ownership, trust, and innovation. Happier, more engaged employees are more likely to stick around and contribute their best work.

Realizing these benefits requires a proactive and balanced approach to shadow IT management. That's where a well-crafted shadow IT policy comes into play.

Implementing a shadow IT policy

To effectively manage shadow IT, organizations need a clear and comprehensive policy that sets expectations and guidelines for employees. A shadow IT policy is not about eliminating all unapproved tools, but rather about creating a framework for their responsible use. 

Here are some key elements to consider:

• Education and awareness: The first step is to make sure employees understand what shadow IT is, why it can be risky, and how to identify and report unapproved tools. This can be done through training sessions, online resources, and regular communication from IT and leadership.

• Clear approval process: Employees should know exactly how to request and gain approval for new tools. This might involve submitting a business case, outlining the benefits and risks, and getting sign-off from relevant stakeholders. The approval process should be streamlined and efficient, so as not to discourage innovation.

• Security and compliance guidelines: Any new tool or system should meet the company's security and compliance standards. This might involve evaluating the vendor's security practices, ensuring data is encrypted in transit and at rest, and confirming that the tool complies with relevant regulations.

• Integration and data management: The policy should outline how new tools will be integrated with existing systems and how data will be managed across platforms. This can help prevent data silos and ensure that critical information is accessible and secure.

• Ongoing monitoring and review: Shadow IT isn't a one-and-done deal. The policy should include provisions for regular monitoring and review of unapproved tools, to ensure they're still meeting business needs and adhering to security and compliance standards. 

• Consequences and enforcement: Finally, the policy should spell out the consequences for employees who violate shadow IT guidelines, from additional training to disciplinary action. Enforcement should be consistent and fair, with the goal of mitigating risks while still fostering innovation.

Balancing innovation and security with Rippling

While shadow IT can introduce risks, it also presents valuable opportunities for innovation and productivity. Rippling recognizes this and provides a comprehensive platform to help organizations effectively manage and harness the benefits of shadow IT, while minimizing potential downsides.

Rippling's identity and access management capabilities are specifically designed to give IT the visibility and control they need to secure the organization's digital assets, even in the face of shadow IT. By unifying user identity and access management within a single platform, Rippling enables organizations to:

• Gain real-time visibility into all apps and devices being used across the company
• Automate user provisioning and deprovisioning based on role and employment status
• Enforce granular access controls and security policies
• Monitor user activity and detect potential threats
• Enforce device trust so only approved devices can access business apps
• Ensure compliance with industry regulations and internal policies

With Rippling, IT teams can effectively manage shadow IT by creating a framework of visibility, control, and security around it. It's not about stifling creativity or micromanaging every app and device, but rather about creating guardrails and visibility to keep your organization secure and compliant.

This blog is based on information available to Rippling as of August 22, 2024.

Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.