While the digitisation of business operations brings plenty of advantages, it also means getting to grips with new threats. One of these is shadow IT. Essentially, shadow IT is the use of your business’s IT systems, software and applications without approval from your IT department. Here’s some insight into this issue, the risks it presents and what to do about it.

The Risks of Shadow IT

Shadow IT isn’t all bad – in fact, one of the main reasons for engaging in shadow IT by employees is to work more efficiently. This is often the case in organisations where company security policies are so convoluted and time consuming to implement that employees feel it’s simply faster to get the job done on their own, private device or through personal cloud storage or messaging apps like WhatsApp. Where IT approval forms a bottleneck, shadow IT can actually support and improve productivity.

Although shadow IT is not inherently dangerous, it can open up businesses to significant risks – if your IT department isn’t aware of an application or device, it can’t be sure it’s secure. These risks include:

• Data loss – Data on shadow IT applications and devices are not subjected to organisational data backup and recovery processes, so once this data is lost on a personal device or app, it is permanently lost. This could easily occur if a personal laptop or smartphone is stolen, lost or damaged, or an account compromised if that person does not have their own secure backup system in place.

• Data breach – Similarly, personal accounts and devices not registered on the IT system may not have the same level of security as official devices on your network. If they are targeted by a malicious attack from a hacker, malware or a virus, the consequences can be severe. Not only can organisational data on that device be compromised, the device can be a source for a malicious attack on your entire system when it accesses your network.

• Inefficiency – Despite often turning to shadow IT to make work more efficient, inefficiencies can easily result. In a professionally designed and maintained network, all software is selected and optimised in line with workflow to create the most efficient system possible. When using other applications and software on shadow IT, you might make your task faster, but create a bottleneck downstream or a single point of failure.

• Security updates – As a managed IT services provider, we know that most updates and patches are critical because they fix security vulnerabilities in the system. But most people are more relaxed when it comes to their own personal devices, putting off security and software updates because they take up your time and can be frustrating. This means that the software and applications on shadow IT devices do not often have the same level of security as devices maintained on the network, creating vulnerabilities within the system when they connect.

AI Tools Are the New Frontier of Shadow IT

A newer version of this same problem has crept into businesses over the past couple of years, and it’s arguably harder to spot than an unapproved app on someone’s phone. Employees now regularly paste company information into free AI chatbots and writing assistants to draft emails, summarise documents, or generate reports, often without a second thought about where that data actually goes.

The appeal is obvious. These tools are fast, free to start using, and can genuinely make someone’s job easier. But when staff sign up with a personal email address and start feeding client details, financial figures, or internal strategy documents into a public AI tool, your business loses visibility and control over that information the moment it’s submitted. Many free AI services also use submitted content to train future models, meaning sensitive business data could technically become part of a system your competitors use too.

This kind of AI tool sprawl tends to happen quietly, one browser tab at a time, across dozens of employees who each think they’re just being efficient. Left unmanaged, a business can end up with data spread across a dozen different AI platforms with no consistent policy governing what can and can’t be shared. Bringing this under control starts with an honest, non-judgemental conversation with staff about which AI tools they’re already using, followed by a clear policy on which platforms are approved and what information should never be entered into any of them.

How to Counter These Risks

Since BYOD (Bring Your Own Device) and shadow IT isn’t going to go away, it’s essential that organisations learn about the threats it presents and develops a way to mitigate them, from educating employees and formalising BYOD policies to streamlining current policies and monitoring unsanctioned applications. This is not about becoming Big Brother, but finding a middle ground where both the IT department and users win.

Strategies for countering shadow IT risks include:

• Educating your staff – Include best practices for using personal devices, shadow IT and AI tools into your training and education programs to minimise risks from human error and poor personal data security. Not only are you helping your staff better understand IT risks in the workplace, you are helping to better protect their own personal data on their devices.

• Stay up-to-date – IT security threats and best practices are constantly evolving as the landscape changes, so it’s important to stay current with the latest security best practices and governance in order to implement effective security from the top down.

• Find a partner – Managing an internal IT department can be overwhelming in a small or medium sized business, with the costs and the demand to stay current quickly getting out of control. It is often more cost-effective and more productive to partner with a managed IT services provider who can meet these constantly changing needs at an affordable and predictable monthly cost.

Let Our Managed IT Services Team Take Care of Your IT Needs

When IT is not your core business, it shouldn’t be taking up a huge proportion of your resources, time and effort. Instead, outsource your IT needs to a partner that has the resources and expertise to deliver these services affordably. At Otto IT, we work with small and medium sized business across Australia, delivering affordable IT services that boost efficiency, secure your data and allow you to get back to what you do best.

Contact us today for more information on our cloud computing solutions, business continuity and disaster recovery solutions, managed hosting services, and more.

Frequently Asked Questions

Is shadow IT always a security risk?

Not automatically, but it removes your IT team’s ability to assess and manage that risk. A tool might be perfectly secure on its own, yet still create exposure simply because nobody responsible for your network knew it was in use.

How do I find out what shadow IT is already in use across my business?

Start with a straightforward staff survey asking which tools and apps people use to get their work done, including AI assistants. Network monitoring tools can also flag unusual traffic or unfamiliar applications connecting to company data.

Should we just block AI tools entirely to avoid the risk?

Outright bans usually push the behaviour further underground rather than stopping it. A more effective approach is approving a small set of vetted AI tools and giving staff clear rules on what information is off limits.

What industries are most exposed to shadow IT risks?

Businesses handling sensitive client data, such as legal, financial, healthcare, and professional services firms, face the highest stakes, since a data breach through an unapproved app can carry serious compliance and reputational consequences.