Shining a Light on Shadow IT Costs

By Jon Winsett

CEO, NPI

April 04, 2014

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There are many challenges facing today’s IT organizations. Perennial favorites – security and budgets – continue to rank high, as well as newcomers like mobile device management. A new one that’s starting to get some attention is something quite different. Something a little more stealthy....

Shadow IT is the unsanctioned, decentralized technology spending that happens in business departments every day – and it’s become a concern for IT and sourcing executives. CIO Insight’s Tony Kontzer discusses the widespread nature of shadow IT across the global business sector:

“In surveying 300 IT workers and 300 line-of-business workers at enterprises in the United States, United Kingdom, Australia and New Zealand, Stratecast found that more than 80 percent of both groups admit to using SaaS apps at work without IT's approval. Despite the fact that many respondents are aware that they're circumventing IT approval processes and introducing potential risks, they feel that the business value in rogue SaaS apps outweighs any potential concerns.”

So, exactly how much rogue spending is happening? Experts estimate that stealth technology purchases can account for as much 20 percent of an enterprise’s entire IT spend. Thanks to BYOD and the cloud, it’s easier than ever for workers to run their application of choice on corporate and personal devices without going through traditional purchase approval channels.

Cultural factors are contributing to this trend:

  • Instant-gratification habits
  • Easy self-service availability of applications and tools
  • Technology-savvy workers
  • But are there other factors contributing to the circumvention of a company’s IT sourcing procedures?

    Stratecast’s survey findings show that 38 percent of business and 32 percent of IT workers use non-approved apps because IT approval processes are too slow. Nearly 25 percent of those surveyed use non-approved SaaS apps because they are better than the approved alternative. Meanwhile, 18 percent of business workers and 14 percent of IT workers use these apps because the approved tools don't perform needed functions.

    DIY IT purchasing is driving workers and departments away from sourcing best practices – which is good news for vendors, and bad news for everyone else.

    Companies need to address the growing disconnect between the IT sourcing function (whether housed in IT or in procurement) and departmental users. IT sourcing processes should be designed to improve the quality and speed of IT purchasing. This requires a cross-functional approach where procurement, IT and the business stakeholders collaborate throughout the buying process – each bringing their expertise to the table so the company achieves the best possible outcome: right product, right price, quickly. Let’s take a marketing automation platform purchase as an example – the marketing team brings deep understanding of required features/functions and business case, IT brings deep understanding of security/maintenance/integration considerations, and sourcing brings deep understanding of how to benchmark pricing and terms and negotiate effectively with vendors.

    The solution to shadow IT will require tackling its root causes head on – starting with the issues that lie in sourcing’s jurisdiction. When sourcing becomes an enabler and expediter of effective IT purchasing, the desire to purchase “off the radar” will dissipate.