What is Shadow IT?

What is Shadow IT? 

Shadow IT refers to software, applications, or cloud services that employees use without IT department approval or knowledge. It's not malicious behavior. It's pragmatic problem-solving. Employees face workflow bottlenecks, seek features unavailable through IT, or find tools easier to use than approved ones. Rather than wait for official channels, they adopt solutions independently. 

IBM defines shadow IT more formally as "the use of information-technology systems, devices, software, applications and services without explicit organizational approval." This practice has become increasingly common as cloud tools proliferate and remote work accelerates employee autonomy. 

Three Common Categories of Shadow IT 

Cloud Applications Accessed Directly from Corporate Networks 

Employees often download and use cloud services like Dropbox, personal Google Drive, or file-sharing platforms directly through company networks without IT oversight. This is the most visible form of shadow IT, yet organizations struggle to monitor it at scale.  

According to Better Cloud research, 65% of all SaaS applications are unsanctioned and used without IT approval, creating massive blind spots for security teams. Data from Statista show that 42% of team members use email accounts not approved by IT teams while conducting business operations, storing sensitive customer information and company communications in personal or unsanctioned cloud storage that IT cannot audit or secure.  

Cloud Apps Connected via OAuth Tokens 

Third-party integrations that use OAuth tokens represent a more sophisticated form of shadow IT. Instead of sharing passwords directly, employees authorize third-party applications to access their organizational accounts like Outlook, Teams, or Slack. Organizations deploying AI-powered collaboration tools face similar OAuth permission risks that require careful governance. The result is persistent backdoors into organizational data.  

Cloud Security Alliance's 2023 SaaS Security Survey showed that 67% of employees at Fortune 1000 companies utilize unapproved SaaS applications with OAuth integration, often granting excessive permissions that allow those apps to access far more data than necessary. When you understand proper governance frameworks, you can prevent these unauthorized permissions from being granted in the first place. Once employees leave the organization, those permissions often remain active, creating ongoing security exposure. 

Off-the-Shelf Packaged Software Installed Locally 

Desktop software installed without IT approval completes the shadow IT landscape. Employees download and install productivity tools, design software, or specialized business applications directly on their computers, bypassing IT procurement and security review.  

According to G2, 80% of employees admit to using software not cleared by IT teams. Local software installations are harder to detect than cloud apps. They create malware risks, introduce unpatched vulnerabilities, and fragment data across systems IT can't monitor or secure. 

Why Does It Happen? 

The explosion of generative AI tools has created a new wave of shadow IT. Organizations exploring enterprise AI adoption must address the risk of employees using free-tier ChatGPT, Claude, or other unapproved AI tools to process sensitive business data. 

IT departments traditionally operated as gatekeepers, not facilitators. Approval processes felt cumbersome. Official solutions lagged behind modern alternatives. When employees can't get what they need through official channels, they find alternatives. Low-code automation platforms, free AI tools, and cloud apps become shadow IT because IT hasn't approved or governed them. The easier it became to download cloud apps, the more prevalent shadow IT became. 

Why is Shadow IT Dangerous? 

While shadow IT may make some employees' jobs easier, the risks are real and significant. If IT teams cannot track how tools and services are used across their organization, they may be unaware of the extent to which shadow IT has pervaded it and have no idea how corporate data is being accessed, stored, and transferred.  

The usage of shadow IT also causes IT teams to lose control over data management and movement. When employees implement unapproved services or work within approved services via unapproved methods. As a result of this lack of visibility and control, shadow IT creates several critical risks: 

Data Breaches and Financial Loss 

Attackers exploit vulnerabilities in unsanctioned applications. Because IT lacks visibility into these tools, attacks happen silently. IBM estimated that breaches from cloud misconfigurations cost $4.41 million on average to remediate. Forbes found that one in five organizations suffered a cyber attack due to shadow IT. By the time IT discovers the breach, significant damage has occurred. 

Compliance Violations and Legal Liability 

Regulations like GDPR, HIPAA, and PCI-DSS require organizations to track and control sensitive data. When employees use unauthorized tools to handle this data, compliance violations follow. 

In 2021, Insight Global's employees created unauthorized Google accounts for COVID-19 contact tracing data, exposing 70,000 residents' personal information. The penalties and reputational damage were severe. Your organization needs strong governance frameworks and risk assessment processes to ensure that shadow IT doesn't become a compliance liability. 

How to Prevent Shadow IT?

Make Official Tools Actually Good 

The most effective shadow IT prevention isn't restriction. It's making approved tools so useful employees don't want alternatives. Deploying governed automation capabilities gives employees the productivity tools they want while maintaining IT control. Communicate new features regularly. Use targeted release programs so power users test innovations early. 

Implement Monitoring and Detection 

Deploy cloud access security brokers (CASB) and data loss prevention (DLP) tools like Microsoft Defender for Cloud Apps. Monitor for suspicious patterns: large data transfers to personal accounts, unusual API activity, unauthorized OAuth approvals. 

Build a Strong Center of Excellence 

Designate shadow IT champions in each department. When governing AI tools at enterprise scale, these champions become critical for identifying unauthorized AI usage and recommending approved alternatives.  

Give them authority to recommend tools, feedback directly to IT leadership, and access to new features first. They translate business needs to IT and IT requirements to business users, so approvals happen faster and shadow IT adoption drops. 

Conclusion 

Shadow IT reflects a deeper problem: IT and business needs are out of sync. Organizations that prevent shadow IT don't ban it. They fix the root cause by moving faster, communicating better, and providing tools employees actually want. 

Need help taking control of shadow IT? Contact us for a free assessment of your current risks and a governance strategy tailored to your organization. Let's turn shadow IT prevention into a business advantage.