3 Common SaaS Sources of Shadow IT

With SaaS, the Pareto principle – the idea that 80% of consequences come from 20% of actions – also applies to IT. A majority of SaaS-related problems usually stem from a minority of IT spend. It’s one of the issues presented by shadow IT (software and services outside of direct IT control). As companies adopt more SaaS applications to equip their workforce for productivity, IT is often left scrambling to keep up.

With organizations adopting an average of six new SaaS applications each month, it’s no surprise that shadow IT is growing rather than shrinking within most companies today. But what can we do about it?

Based on a review of more than $30 billion in active SaaS spending under management, Zylo recently released its annual SaaS Management Index report. As part of the data analysis, Zylo examined anonymized employee expense spending at hundreds of businesses that use Zylo’s SaaS management platform.

By analyzing the expense and reimbursement line of supplier spend, Zylo identified three of the most common types of applications that exist as shadow IT.

What is Shadow IT?

To start, shadow IT might not be quite as nefarious as it sounds. “Shadow IT refers to IT devices, software and services outside the ownership or control of IT organizations,” according to Gartner’s straightforward definition.

Shadow IT includes everything from SaaS applications sourced by a fast-moving GTM team to individual licenses adopted (and then expensed) by individual employees. In a phrase, shadow IT refers in part to SaaS applications that somebody knows something about — it’s just not consolidated and centrally controlled by IT.

Some of the challenges associated with shadow IT include:

• Reduced security and compliance with disparate software and use cases.
• Unnecessary spend on duplicate SaaS applications or redundant functionality.
• Inability to rightsize licenses.
• Diluted buying power without a consolidated and accurate SaaS application budget.
• Increased IT sprawl over time.

What are the Sources of Shadow IT?

SaaS applications are meant to make it easier for teams and employees to adopt new tools for productivity, collaboration, and training. But this can have a downside: employee expense spending is a notable source of shadow IT.

According to our benchmark data, today IT controls just 31% of all SaaS spending in the typical company — but directly manages only 18% of SaaS applications.

Business units (that is, teams working and iterating to quickly solve problems) control more IT spend and individual employees account for more SaaS applications.

The result is more decentralized management of SaaS applications — and more shadow IT over time.

Employees expensing SaaS applications is a particularly notable contribution to the problem: this purchasing approach accounts for just 6% of SaaS spend but represents more than one-third of SaaS inventory in the average organization.

3 Frequently Expensed SaaS Applications that Lead to Shadow IT

Which kinds of applications are the biggest sources of shadow IT? Entire teams are now empowered through SaaS collaboration, training, and web conferencing applications. But these applications have also become some of the biggest sources of shadow IT.

1. Team Collaboration Applications

Common products: Asana, Slack, Jira, Airtable, Monday

What makes team collaboration applications a likely source of shadow IT?

• Relatively low cost – The low cost of individual licenses make it more likely that these applications will be expenses by employees.
• Specialization – Different teams prefer different tools. For example, Jira may be preferred in engineering teams, but Asana is better suited for marketing teams.
• No established acquisition process – Frequently, companies fail to designate a standard application or application acquisition approval process, leading to a kind of “Wild West” where teams and employees source their own tools for collaboration.

The risks associated with team collaboration applications include:

• Compliance – Are employees accessing personally identifiable information or customer data within these apps?
• Security – Have the applications been vetted for security? Do we know all users, including external parties, who are using the app? Are so-called “leavers” (employees who have left the company) off-boarded so they no longer have access to the application and its content?
• Data – If an application exists as shadow IT, its data protection is unknown, which could represent a vulnerability.

2. Training & LMS Applications

Common products: Skilljar, Docebo, Cloud Academy

What makes training applications a likely source of shadow IT?

While the main issue in collaboration SaaS applications is the number of available tools, training software presents a different challenge for IT: these applications have a huge range of specific training functions. Sales, corporate training, security training, technical training — all present different requirements. It’s a broad category that can be difficult to effectively manage.

The risks associated with training applications include:

• Cost overruns -Without accounting for headcount and differing team needs, the cost of these SaaS applications can quickly add up.
• Surprise renewals – Without direct IT management, overseeing these contracts may fall on the back burner.
• Under-utilization or redundancy – If it’s not being used but costs money, it’s wasted money. If it’s being used but can be better managed by another adopted application, it’s also wasted money.

3. Web Conferencing & Video Chat Tools

Common products: Blue Jeans, Citrix GoToMeeting, Zoom

What makes web conferencing applications a likely source of shadow IT?

• Universal need – With remote work, nearly anyone who previously worked in an office now needs a way to meet with team members. While Zoom may be the biggest, remote teams have a wide range of SaaS application options, which can quickly add to shadow IT.
• Dissatisfaction with company-selected tools -Teams or employees not happy with their pre-selected web conferencing tools may “go rogue” and use more common applications, like Zoom.
• Freemium offerings – With many entry-level prices starting at $0, it’s no wonder teams acquire web conferencing tools at a greater frequency than other applications.

The risks associated with web conferencing applications include:

• Underutilized licenses – Zoom is a prime example of how premium tier licenses can frequently go underused. For example, for meetings over 45 min, a premium subscription is required. But if you’re paying a premium price for license users who don’t use premium features (i.e. employees who keep meetings to 30 minutes), it’s wasted.
• Diluted buying power – Again, it’s not uncommon for teams and employees to expense applications that have already been purchased by the organization. Team and employee subscriptions typically don’t leverage the buying power of the entire organization, thus costing more on a per-seat basis (and reducing the ability to purchase required seats down the line).

RELATED: ComputerWorld: How ViacomCBS Cut Zoom Costs, Not Jobs

How Do You Address These Common Sources of Shadow IT?

You can’t solve a problem until you know where the biggest issues lie.

The first step to “solving” shadow IT is SaaS discovery. That means uncovering how you’re spending, where you’re spending, and how much you’re spending across the entire organization — whether the SaaS applications are sourced by IT, by business units, or by individual employees.

Use a SaaS management platform (like Zylo) to help your organization discover shadow IT, and optimize applications by:

• Reducing redundant functions
• Consolidating subscriptions
• Rightsizing licenses
• Introducing proactive renewal planning
• Establish central visibility and flexible software governance

Shadow IT is not something that can be eliminated entirely. At the same time, shadow IT presents increased risk for the company — both in terms of finance and security. Getting a handle on all of your SaaS licenses (and spend) will lay the foundation for more purposeful spending and a more secure employee stack.

Ready to start addressing your shadow IT? Request a demo of Zylo today.