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Employee Purchasing of SaaS Applications Drives Shadow IT – It’s Not Always a Bad Thing

purchasing applications


Think about software acquisition just 10 to 15 years ago, when most applications consisted of hardwired, on-premise software. IT or procurement teams served as the main gatekeepers for choosing the right solutions to support the organization, overseeing vendor relationships, and managing entitlements.

In most instances, typical employees likely never thought about purchasing new applications and software tools to help them work smarter and more efficiently — it simply wasn’t practical.

Software acquisition looks dramatically different nowadays, thanks to the rise of Software-as-a-Service (SaaS). And organizations are making critical decisions to increasingly implement product-led growth strategies, often leveraging the product as the main vehicle to acquire, activate, and retain customers.

Take Canva, for example. The company offers its popular graphic design tool for free to hook new users. But in order to unlock all of the core features, the user needs to purchase an inexpensive subscription. Because of the low cost and ease of adoption, any employee with an email and credit card can purchase the software independently of your company’s IT oversight.

Today, individual employees and lines of business (LOBs) are the primary groups purchasing SaaS applications, with IT teams controlling just 27% of the SaaS spend.

This rise of decentralized purchasing of software and services outside of IT — referred to as Shadow IT — means most organizations have minimal visibility into their full SaaS library. In fact, our 2022 SaaS Management Index shows that the average large organization today employs an average of 609 SaaS applications, yet underestimates that figure by 2 to 3 times.

With decentralization forecasted to increase in the coming years, SaaS spending poses significant financial and security risks for organizations, but also opens the door to tremendous innovation. With a dedicated SaaS Management platform serving as a centralized system of record, you can peek behind the curtain to uncover Shadow IT and optimize your SaaS spend.

Employees Purchasing Applications is a Source of Risk and Innovation

As we discussed previously, Shadow IT can lead to wasted spend on redundant SaaS applications, security and compliance risks, and missed renewals. But not all Shadow IT is bad.

When employees and LOBs utilize the tools that best serve their needs, productivity soars. According to a recent Forrester survey of more than 10,000 users, two-thirds (66%) of Gen Z and millennial workers say autonomy in choosing the apps, services, and devices they use for work is a top priority, while 53% of Gen X workers agree. And while millennials and Gen X workers comprise 80% of the workforce today, the group is forecasted to shrink 6% by 2030, as older generations leave the workforce.

The survey not only demonstrates the impact software autonomy has on today’s workers, it proves to be a key focus for all organizations over the next decade. Your graphic designer likely uses a preferred design platform, just as your CFO favors a specific workflow management tool. Instead of forcing them into a solution, give them skin in the game by allowing them to choose their own tools — with guidance from IT, of course.

Unleashing the Power of Shadow IT to Empower Employees with Best-in-Class SaaS

While limiting purchasing of SaaS applications to IT or procurement seems like a simple solution, just note it’s far easier said than done. Any employee with access to a public network can access cloud-based SaaS tools. And employees will likely find workarounds to SaaS discovery measures like single sign-on tools and cloud access security brokers.

Allowing employee-led purchasing is also good for business. According to a survey from Entrust:

  • 97% of employees report feeling more productive when allowed to use their preferred technologies and applications
  • 77% believe their organizations could gain a competitive edge if leaders were more open to finding tech solutions

According to Zylo CEO Eric Christopher, “The solution to shadow IT isn’t to cut back on SaaS — and consequently miss out on gains in productivity and innovation. Rather, your organization needs to identify better ways to detect and govern the shadow applications your employees are using.”

So, how do you begin to uncover employee purchasing and shadow applications? Follow these steps:

  • Discover all of your SaaS applications. Make sure to establish a continuous and frictionless process, as your SaaS portfolio changes constantly. The average organization adds eight new applications and retires three each month, so constant surveillance remains key. A dedicated SaaS Management platform, such as Zylo, tracks your SaaS purchases in real time, even Shadow IT.
  • Vet the applications you find in the shadows to ensure they comply with your organization’s security and compliance rules of governance.
  • Eliminate unused or underutilized SaaS applications, so you can focus on the tools your employees love, and lower your tech spend, too.
  • Collaborate among IT, procurement, and business units to determine the SaaS applications that best serve your people. Coupa, a leading cloud platform for business spend management, used Zylo data insights to reduce its SaaS portfolio from 600 to 400 applications. The savings allowed them to offer best-in-class applications to all employees.
  • Offer the best SaaS applications and allow employees to choose their favorite tools. With an App Catalog, your employees can discover a library of pre-vetted tools, or search for similar tools if their preferred application isn’t supported by your organization.

When it comes to tracking and managing employees purchasing SaaS applications – or shadow IT – it boils down to finding the right balance for your organization and ensuring ongoing visibility of applications and governance. Zylo’s industry-leading SaaS management platform helps organizations of all sizes uncover Shadow IT — and ultimately lower costs.

Ready to see how Zylo continuously monitors Shadow IT? Schedule your personalized demo today.

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Zylo is the leading enterprise SaaS management platform that transforms how companies manage and optimize the vast and accelerating number of cloud-based applications organizations rely on today. The platform provides one system of record for all cloud-based software purchased across a company, enabling customers to discover, manage, measure and optimize cloud investments with real-time insights into spend, utilization and feedback data.