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The explosion of Software-as-a-Service (SaaS) in recent years dramatically changed how organizations acquire software, with organizations adopting an average of six new SaaS applications each month.
By design, the cloud-based nature and low cost of SaaS applications make it easier for teams and individual employees to obtain new tools to boost productivity, enhance collaboration, and optimize training—often expensed through accounts payable or a company credit card.
But unregulated employee spending on SaaS also comes with a downside, most notably as a source of shadow IT. While the name sounds ominous, the shadow IT definition is fairly straightforward. It simply refers to acquiring software and services outside the ownership or control of centralized IT organizations.
Shadow IT examples include everything from SaaS applications sourced by business units to individual licenses adopted (and then expensed) by employees. When left uncontested, shadow IT can lead to wasted spend on unnecessary or redundant SaaS applications, inability to rightsize licenses, security and compliance issues, and more.
Allowing individual employees to purchase SaaS tools isn’t inherently problematic. Issues arise, however, due to a lack of centralized governance by IT teams, who normally control IT budgets and spending, and vet security protocols.
According to Zylo’s 2023 SaaS Management Index, today’s IT departments control just 31% of all SaaS spending in the typical company—but directly manage only 18% of SaaS applications. With this data, it’s easy to see how shadow IT increasingly becomes problematic for organizations of all sizes.
Some of the key shadow IT risks include:
Similar to SaaS management best practices, organizations can find all shadow IT instances by following a SaaS discovery process. Then, they can limit Shadow IT by actively monitoring it.
Most organizations underestimate the number of applications operating within their technology stack. Zylo data shows the average large organization maintains more than 600 applications.
Multiple methods exist for discovering and inventorying shadow applications and their attributes, including:
By following the money, regardless of the procurement process, organizations can identify a comprehensive view of their shadow IT spend. Many businesses now utilize SaaS management tools, such as Zylo’s Discovery Engine, and SaaS management platform to provide a near 100-percent accuracy for SaaS detection and categorization.
As a software category, SaaS is now the largest market segment of public cloud services. In fact, Gartner predicts global SaaS spend will grow up to $195 billion – up from $167 billion in 2022.
A key reason for this explosive growth is the fact that the majority of SaaS application purchases no longer originate in IT budgets, but in lines of business (LOB) budgets. In fact, International Data Corporation projects that 70% of all application purchases are now sourced from business budgets. This trend of decentralized purchasing is likely to continue, and direct IT management of SaaS applications will likely decrease, leading to more decentralized IT environments and increased shadow IT.
Aside from the notable risks—wasted spend, data breaches, redundant purchases, privacy violations—shadow IT offers some benefits.
By “crowd-sourcing” application acquisition, IT environments can quickly adapt and innovate with agility and speed—an upshot to the Shadow IT trend. Employees typically purchase SaaS Tools outside of IT when they believe their company-sponsored software doesn’t solve their needs. Giving employees more freedom to do their jobs, on their terms, can enhance efficiencies while boosting productivity and morale.
With shadow IT only expected to increase as SaaS continues to grow as a cloud software market segment, savvy organizations must innovate and find new ways to transform the challenges of shadow IT into new opportunities.
See how the world’s most innovative companies deploy SaaS management to control costs and risks from shadow IT using Zylo’s SaaS Management Platform.
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