What is Shadow IT? How SaaS Apps are Driving the Next Wave of Shadow IT

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What is Shadow IT?

Shadow IT is the use of software or hardware without the knowledge of the IT team. Our research on SaaS Management shows that 57% of IT leaders are concerned about shadow IT. 

In this article, I'm going to focus exclusively on the role of SaaS in shadow IT. 

Cloud services, especially SaaS, have become the most significant contributors to shadow IT in recent years

The number of SaaS apps used in organizations has increased in recent years as employees sign up & use new apps regularly without IT (or anyone from the organization) vetting the apps for data security and compliance risks. 

If a team finds ClickUp more intuitive than Asana, they'll end up discarding the latter, but the organization would still be paying for it. This leads to wastage of funds

Additionally, these apps are potential vulnerabilities, as there is a risk of data leak & compliance issues from these apps.

Shadow IT Examples: Employees Purchase Bring Shadow Apps in Companies

SaaS apps fall into these categories:

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1. IT Managed Apps

IT managed apps are those procured and managed by IT. These apps are either complex in nature that requires setup and configuration or store critical business data that require monitoring for security and compliance reasons.

Examples: Okta, Salesforce, Office 365, AWS

2. Non-IT managed

Non-IT managed are the ones that are procured by IT and managed by department heads and business units. The IT needs to vet the apps for security, compliance and do price negotiations. 

Once implemented, the IT is not involved in the day-to-day operations of the day. Giving access to a user or terminating access of a user is done at a local level by department or team heads. 

IT can still come into the picture when support is required for specialized tasks, such as data migration when changing applications.

Examples: Workday, Mail Chimp, Adobe Creative Cloud

3. Employee Purchases

And employee purchases are the apps that are procured and managed by employees. In the product-led era, when SaaS vendors have made it easy to try apps, it’s easy for new apps to find their way into an organization.

If useful, they get adopted by the entire team, department, business unit, or even organization. 

Examples: Slack, Hangouts, Google Meet, Marketo, DropBox

Some organizations also consider social media apps as shadow apps.

As the landscape is shifting from IT managed to employee purchases, there is a move toward decentralization, leading to compromise in governance and SaaS sprawl.

Work From Home has led to steep growth in Shadow IT

Companies have recently seen a drastic increase in shadow apps. The driving factors for this increased SaaS adoption are the pandemic and remote work. 

From traditional software licensing models, organizations have started shifting to the SaaS model as it is comparatively more accessible, convenient, and cost-effective. 

On-prem software solutions usually require a different set-up on the customer's end that involves purchasing hardware, data center resources, resilience measures, substantial implementation cost, and staff for monitoring and maintenance.

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SaaS business model. Many SaaS companies use product-led models for growth, which means they target the end-user for product adoption. Due to the user-friendly nature of SaaS, employees can quickly sign up for new products and evaluate their benefits. 

Most SaaS companies offer either a free trial or follow a freemium business model, which encourages users to try their apps. 

Remember the days when Microsoft Office was installed on every PC? With the evolution of the cloud, you get access to office 365 with a single click. 

Offers Software integration. Connecting apps is easier in the SaaS world. Most of the apps offer direct one-click integrations with other complementary apps. Even if the native app doesn't provide a direct integration, you can use services like Zapier and Integrately.

Then there have been external factors that have pushed companies to adopt SaaS. The pandemic pushed the companies to adopt SaaS to ensure business continuity. 

76% of the employees say they prefer to work from home, further pushing companies to offer remote work to retain and attract good talent. 

It starts a cycle. More remote employees mean more SaaS apps, which means more shadow apps. 

It starts a cycle. More remote employees mean more SaaS apps, which means more shadow apps. 

As the number of remote jobs grows, so does shadow IT.

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