What Is Shadow IT? Risks, Benefits, and How to Manage It

Large organizations have multiple departments with widely differing information technology (IT) needs. A centralized department manages these IT systems, and understanding and fulfilling each department’s requirements can prove challenging. If a department or employee’s requirements are not met by existing software or devices, they may opt for alternative solutions without the IT team’s knowledge.

Staff pursue a Shadow IT alternative when IT technology offers a poor experience.

What is Shadow IT?

Shadow IT includes any unsanctioned apps or hardware used by employees that fall outside of those managed by the IT department (sanctioned apps). It is often used as a workaround for functionality or usability gaps created by an organization’s known IT resources.

For related unauthorized tech usage, learn more from our Unmasking Shadow AI article.

Employees typically use Shadow IT for legitimate purposes, such as enhancing productivity and efficiency. It also introduces serious security risks, such as compromised data security. This article explains how to mitigate and manage the cybersecurity risks of shadow IT. 

Common causes of shadow IT

Employees usually resort to Shadow IT for legitimate reasons, such as improving productivity and efficiency. This occurs when IT provides a subpar experience or fails to meet a department's specific requirements.

The main drivers for its adoption are:

• Workaround for poor experience: Staff pursue a Shadow IT alternative when IT technology offers a poor user experience.
• Need for specific functionality: In large organizations, a centralized IT department may struggle to fully understand and meet the diverse information technology (IT) needs of multiple departments. If these requirements are not met by existing software or devices, employees may opt for alternative solutions.
• Slow approval processes: Obtaining IT approval for new technology is time-consuming and can lead to performance inefficiencies as employees wait.

Types of shadow IT

Shadow IT vectors can be categorized into three main examples:

1. Hardware: This includes servers, desktop computers, laptops, tablets, smartphones, and other personal devices operating outside of the IT infrastructure. The introduction of bring-your-own-device (BYOD) and work-from-home (WFH) policies, particularly following the COVID-19 pandemic, saw an increase in hardware shadow IT.
2. Off-the-shelf (packaged) software: Examples include Microsoft Office. The rising popularity of SaaS apps has seen a decline in this traditional type of shadow IT.
3. Cloud services (Shadow SaaS): This is currently the most prevalent type of Shadow IT, encompassing Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), and Platform-as-a-Service (PaaS). Common examples include file-sharing and messaging apps such as Dropbox, Skype, and Google Drive.

Benefits of shadow IT

While security teams often view Shadow IT as a risk, it offers several tangible benefits to users and the broader organization:

• Increased productivity: Employees can complete their required tasks more effectively and faster with direct access to relevant software. For example, unsanctioned file-sharing and messaging apps can facilitate rapid employee collaboration.
• Better suitability: Host departments are often the most equipped to determine which software best suits their specific operational needs and workflows, leading to the selection of highly functional tools.
• Faster implementation: The process for getting IT approval for new technology is often time-consuming. Bypassing this wait time with Shadow IT can create immediate task efficiency.

Shadow IT security risks

While Shadow IT undoubtedly improves the end-user experience and task efficiency, it simultaneously creates serious security gaps for an organization, often leading to significant financial and reputational damage.

The threat of Shadow IT is widely documented:

• Gartner predicts that by 2025, over half (50%) of significant cyber incidents will be caused by a lack of talent or human failure. This is supported by a 2022 Gartner survey, which revealed that 69% of employees intentionally bypassed their organization's cybersecurity guidance in the past year, often to meet a business objective.
• Other research indicates that approximately one in five surveyed organizations has suffered a cyberattack directly linked to Shadow IT.
• Nearly 1 in 2 cyberattacks reportedly stem from Shadow IT, and the costs to fix them average more than $4.2 million.

Below are the primary security risks introduced by Shadow IT, categorized for clarity.

1. Lack of visibility

A security team cannot secure what it cannot see. By operating outside sanctioned channels, Shadow IT creates blind spots that prevent organizations from achieving a complete view of their digital environment.

• Shadow IT is more difficult to detect and less likely to be discovered.
• This lack of visibility means that organizations often won't know sanctioned apps are in use until a serious security incident, such as a data breach, occurs.
• Without full visibility, IT cannot effectively monitor, secure, or revoke access to unauthorized tools, making it difficult to ensure the security and safety of company data.

Learn more about attack surface management software.

2. Third-party risk

The increasing popularity of cloud services means Shadow IT is primarily composed of unsanctioned Software-as-a-Service (SaaS) providers, often referred to as Shadow SaaS.

• Shadow IT introduces third-party risk that is already complex to manage on its own. For a comparative analysis of vendor security, see the Digital Shadows Security Rating.
• Because unsanctioned platforms have not been vetted for security by the IT team, they are easier targets for cybercriminals to exploit.
• If cybercriminals successfully exploit a vendor's poor network security, they can gain a foothold to reach the target organization's sensitive data.

3. Compliance issues

Organizations in all regulated industries are governed by strict laws concerning data handling, such as GDPR, CCPA, PCI DSS, SOX, and the SHIELD Act.

• Security teams can only enforce compliance regarding internal and third-party risks that they can see.
• Shadow IT falls outside of the IT department’s visibility and could render an organization non-compliant, resulting in steep fines and possible data leaks and data breaches.

Consider this example of shadow IT use resulting in non-compliance:

1. An employee uses an unsanctioned file-sharing app to share spreadsheets containing customers’ personally identifiable information (PII) to a coworker.
2. The employee has unknowingly set the file access permissions on the app to ‘public’.
3. The employer is unaware that the data leak has occurred, and a cybercriminal discovers the compromised data and posts it for sale on a dark web marketplace.
4. The organization is now facing harsh regulatory penalties and reputational damage for failing to secure its customers’ data.

4. Data loss

Shadow IT can create a siloed approach to data access, greatly increasing the risk of data loss, which is particularly acute when employees leave the company.

• A particular department opts for an unsanctioned data storage app, while the rest of the organization uses a sanctioned data storage app.
• The account ‘owner’ leaves the company, meaning the rest of the team can no longer access the app.
• Since no back-ups were available on the organization’s sanctioned data storage app, the critical business data is now inaccessible and effectively lost.

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Detecting shadow IT through continuous asset discovery

Gaining visibility into the entire digital environment is the essential first step in managing Shadow IT risk. Organizations can monitor and manage all known assets and their vulnerabilities by implementing an attack surface management solution.

For Shadow IT, continuous asset discovery is required that extends beyond sanctioned systems.

1. Continuous discovery and visibility

A comprehensive attack surface management solution, such as UpGuard Breach Risk, can scope your organization’s entire attack surface, including the use of unauthorized SaaS apps. Because Shadow IT creates blind spots, discovery must be continuous to detect unsanctioned assets as soon as they appear.

2. Categorizing shadow IT vectors

Effective discovery solutions must be able to identify and categorize assets across all Shadow IT vectors:

• SaaS/Cloud: Identifying all cloud services and applications employees are accessing, which is a major source of Shadow IT, often referred to as Shadow SaaS.
• Hardware/Devices: Discovering unmanaged devices (e.g., personal laptops, tablets, or smart devices) connecting to the corporate network, particularly prevalent with BYOD and WFH policies.
• Network/APIs: Mapping out undocumented or unmanaged APIs and other network-based shadow assets that can act as backdoors to corporate data.

3. Immediate alerting and remediation

By continuously monitoring the attack surface, a dedicated discovery solution can provide instant alerting of recognized risks. This enables security teams to quickly identify unauthorized software or devices and remediate these cyber threats before they escalate into serious security incidents.

5 ways to manage Shadow IT risks

Below are five strategies IT and security teams can adopt to manage and mitigate the risks associated with shadow IT usage.

1. Communicate with all departments

Understanding the needs of all end-users at your organization is the first step in ensuring that proposed security requirements align with each department’s IT needs. Encourage regular communication with department managers to ensure an open dialogue for any new technological requirements that arise. This collaborative approach often preempts the need for employees to seek unauthorized tools.

2. Educate employees

Educating employees on the risks Shadow IT introduces to your organization is important. Awareness of the risks and the processes to follow if a new app or device is needed can help drive better cooperation with information security policies. Regular security training sessions will keep these requirements front of mind.

3. Use shadow IT discovery software

Implement a comprehensive attack surface management solution, such as UpGuard Breach Risk, for continuous asset discovery and management. This software can scope your organization’s entire attack surface, including unauthorized SaaS apps. Using these tools to gain immediate visibility is the only way to manage blind spots and prevent threats from escalating.

4. Implement an IT governance framework with policy-driven controls

A practical IT governance framework should outline your organization’s policy on shadow IT, including a definition of the acceptable use of unsanctioned apps and devices. To improve adoption rates, adopt a realistic approach that considers flexible working arrangements and the evolving needs of each department.

To enforce the framework, establish policy-driven controls:

• Define acceptable use: Clearly define the security standards an application must meet to be considered "sanctioned."
• Automate enforcement: Utilize tools such as Cloud Access Security Brokers (CASBs) or network-level blocking to automatically restrict access to unsanctioned, high-risk applications that violate your security policies.
• Establish a review process: Formalize the steps an employee or department must take to request a new tool, ensuring a fast and transparent review by the IT and security teams.

5. Assess each risk individually and implement risk scoring

The severity of risk Shadow IT usage creates depends on several factors, and applying the same mitigation treatment to each instance is an inefficient strategy. IT and security teams should instead assess each usage case individually to understand the actual risk posed to the organization. For more third-party risk management insights, view Digital Shadows Competitors.

To formalize this process, implement risk scoring:

• Assign a breach-risk score: Use asset discovery data to assign a quantifiable score (e.g., a Breach-Risk Score from UpGuard) to each detected shadow asset.
• Factor in key data: The score should be enriched by factoring in:
  
  • Data sensitivity: The type and amount of sensitive data (PII, PHI, financial records) the asset handles.
  • Vulnerability: The known vulnerabilities in the app, its version, and the associated devices.
  • Vendor security posture: The security rating and history of the third-party provider hosting the application (e.g., recent breaches, public domain exposure).
• Prioritize remediation: This quantifiable information helps prioritize the restriction, remediation, or formal review of high-risk unsanctioned apps and devices.

Download our free guide to learn how you can reduce the risks associated with untracked assets, as well as other common attack vectors. 

Develop a remediation playbook for shadow IT incidents

A formalized remediation playbook is crucial for ensuring a consistent, policy-compliant, and timely response when a Shadow IT asset is discovered. This structured process helps security teams prioritize actions based on the breach-risk score and guides them from discovery through to final resolution.

1. Immediate containment

Upon discovering a high-risk Shadow IT asset (e.g., a file-sharing app with a high vulnerability score or one handling personally identifiable information, or PII), the first priority is to contain the risk.

• Block access: Immediately disconnect or block network access to the unsanctioned application, device, or service.
• Isolate data: Prevent any further transfer of company data to or from the shadow asset.

2. Data triage and preservation

Before decommissioning the shadow asset, security teams must conduct data triage to prevent the data loss risk inherent to Shadow IT.

• Identify data: Determine all company-related data currently stored on the asset.
• Secure migration: Migrate or back up critical business data securely to a sanctioned, monitored, and secure platform. This step ensures that the data is not lost when the unsanctioned account is shut down.

3. Risk/Benefit analysis

Once the immediate threat is contained and data is preserved, the security team must collaborate with the department that implemented the Shadow IT to conduct a formal assessment.

• Analyze use case: Determine if the asset fills a legitimate, critical business need that is not adequately met by currently sanctioned tools. This step addresses the root cause of Shadow IT.
• Review risk score: Use the assigned breach-risk score (e.g., from UpGuard Breach Risk) to confirm the severity of the threat the asset poses if it remains unsanctioned.

4. Policy consultation and final action

The findings from the risk/benefit analysis dictate the final course of action, which must align with the organization's IT governance framework.

• Sanction: If the asset is low-risk, fulfills a critical need, and can meet the defined security standards, initiate the formal IT approval and onboarding process to bring it under central management and control.
• Decommission: If the asset is high-risk, cannot meet security or compliance requirements, or is functionally redundant, enforce its immediate and permanent removal.

5. User education and accountability

The final step is to address the human factor behind the Shadow IT adoption.

• Reinforce training: Engage with the employee(s) who adopted the Shadow IT to reinforce security training, explain the specific risks posed by the tool they used, and educate them on the proper request process for new technology.
• Document violation: Document the policy violation in accordance with the IT governance framework, ensuring fair and consistent consequences for bypassing security measures.

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