Building a Shadow IT Policy: A Step-by-Step Guide

FACT: 80% of employees admit to using unapproved software at work.

This phenomenon is quietly reshaping how organizations operate, often without IT teams even realizing it.

From cloud apps to personal devices, employees are bypassing official channels to get their jobs done faster and better.

But while these unauthorized tools improve efficiency, they also open the door to security breaches, data leaks, and compliance headaches.

So, how do you manage a trend that’s both a risk and an opportunity?

In this post, we’ll explore what shadow IT is, why it’s a double-edged sword, and how organizations can turn it from a hidden threat into a strategic advantage.

But first, what is shadow IT and why should we care?

What is shadow IT and why is it a problem?

Shadow IT refers to software that employees use for work without the knowledge or approval of the IT department. This includes cloud services, apps, or tools that staff download or sign up for independently.

It happens when employees find official IT solutions too slow, complex, or limiting for their needs. For example, a marketing team might use a file-sharing service not approved by IT because it’s easier to share large design files with clients.

While shadow IT may seem harmless or even helpful for productivity, it creates serious risks.

Unapproved tools may not have the proper security configurations, creating the opportunity for data breaches or cyberattacks.

Without the proper controls in place, sensitive company data may be leaked.

Why you need a shadow IT policy

A shadow IT policy is essential for modern organizations because it helps manage the inevitable reality that employees will implement their own technology solutions even when unapproved. Here’s why having a formal policy is crucial:

First, it acknowledges reality instead of pretending shadow IT doesn’t exist. Employees will find workarounds when official tools don’t meet their needs, so a policy creates a framework to handle this situation proactively.

A good policy creates clear boundaries while still allowing for innovation. It helps employees understand what kinds of tools they can adopt independently and which ones require IT approval, preventing security issues before they happen.

The policy also establishes processes for bringing shadow IT into the light. When employees find useful tools, there should be a streamlined way to evaluate these solutions for wider adoption rather than forcing people to hide their use.

From a legal standpoint, a formal policy helps protect your organization. If a data breach occurs through an unapproved application, having a clear policy shows due diligence in attempting to prevent such incidents.

Finally, a shadow IT policy drives better communication between IT and other departments. It encourages transparency about technology needs and helps the IT team understand which official solutions might be falling short, guiding future technology investments.

How to write a shadow IT policy

Begin by acknowledging why shadow IT happens. Employees typically implement unauthorized solutions to solve real problems they face. Your policy should address both the risks and the underlying needs.

Start with a clear definition of what constitutes shadow IT in your organization. Where relevant, include specific examples relevant to your industry. Then, outline a straightforward approval process that isn’t overly bureaucratic.

Consider a tiered approach based on risk levels. Meaning, not all shadow IT poses the same threat or requires the same action. Break down shadow IT usage into categories based on potential impact:

• Low Risk: Tools with minimal security or compliance concerns. For example, a widely used cloud-based note-taking app with strong encryption but no formal approval. These types of tools may lack oversight but don’t immediately threaten data integrity.
• Medium Risk: Systems that handle sensitive data without proper vetting. For example, an unapproved file-sharing service falls into this category. These tools could expose the organization to breaches or regulatory fines if misconfigured.
• High Risk: Tools that directly violate security protocols or laws. For example, an employee using a personal, unsecured email account to send proprietary data. These tools pose an immediate, severe risk to the organization.

There are a couple of advantages to this approach. First, it helps organizations focus resources on the most critical risks. It also creates proportional responses rather than treating all shadow IT equally. Finally, it allows for faster adoption of low-risk tools that can help boost employee productivity.

Consider implementing a “grace period” for declaring existing shadow IT without penalties, which can help bring hidden systems into the light.

The most successful shadow IT policies create means to legitimize useful tools rather than simply prohibiting them.

Why Shadow IT Could Be an Opportunity

While shadow IT is often viewed as a security threat, it can also be an opportunity.

Shadow IT reveals areas where employees need to find creative solutions to do their jobs.

It’s one of the most effective ways to highlight gaps in your official technology stack.

Beyond improving productivity, it can also help you discover tools that your competitors may already be leveraging.

In addition, when employees make the effort to find their own solutions, it demonstrates initiative and investment in their work.

Rather than punishing this behavior, organizations should channel this energy by creating sanctioned ways to adopt the new tools within the organization.

Leveraging Technology to Locate Shadow IT

You can’t protect what you don’t know about. Gaining visibility into your network is the only way to prevent shadow IT. Here are some of the more effective techniques to identify Shadow IT:

Network Monitoring and Traffic Analysis Tools

Technologies like network traffic analyzers (e.g., Wireshark, SolarWinds, or Cisco Secure Network Analytics) can detect unusual patterns or connections to unapproved applications and services. By monitoring data flows, organizations can identify endpoints accessing unauthorized cloud services, SaaS platforms, or external APIs. For example, a spike in traffic to a non-sanctioned file-sharing service like Dropbox could indicate shadow IT usage.

Cloud Access Security Brokers (CASBs)

CASBs (e.g., Netskope, Microsoft Cloud App Security, or Proofpoint) act as intermediaries between users and cloud services. They can be used to provide visibility into all cloud activity, including unapproved services. They can discover shadow IT by indexing accessed applications, assessing their risk levels, and flagging unsanctioned ones. For instance, a CASB might reveal employees using an unapproved collaboration tool like Slack, enabling IT to intervene.

SaaS Management Platforms (SMPs)

SMPs like Torii or Productiv provide insights into software usage across the organization. These platforms integrate with financial data, SSO systems, and network logs. They can be used to identify subscriptions or tools purchased without IT oversight.

Endpoint Detection and Response (EDR) Solutions

EDR tools (e.g., CrowdStrike Falcon, SentinelOne) monitor devices for installed software and network activity. They can detect unapproved applications running on employee devices, including BYOD hardware. For example, an EDR might flag a design tool installed locally that isn’t part of the “official” software suite.

Identity and Access Management (IAM) with SSO Integration

By implementing IAM solutions with Single Sign-On (e.g., Okta, Ping Identity), organizations can track which applications employees access using corporate credentials. Shadow IT often surfaces when users authenticate to unapproved apps via OAuth or personal accounts.

Automated Discovery Tools for Cloud Infrastructure

Tools like Breachsense scan the internet for unmanaged resources, such as virtual machines or storage buckets created without IT approval. Breachsense can uncover shadow IT deployed by developers or teams bypassing standard provisioning processes.

Practical Steps to Leverage These Technologies

To maximize effectiveness, organizations should combine these tools:

• Centralize Visibility: Integrate data from network, cloud, and endpoint tools into a unified dashboard (e.g., a SIEM like Splunk) to correlate shadow IT signals across your entire environment.
• Automate Detection: Set up real-time alerts for unauthorized app usage or new cloud service connections to catch shadow IT as it gets created.
• Engage Employees: Pair technology with surveys or expense report scans to cross-check findings. This may reveal tools not yet detected by automated systems.
• Assess and Act: Leverage risk-scoring features in CASBs or SMPs to prioritize which shadow IT instances need immediate action versus those that could be sanctioned.

Now that you’ve located your Shadow IT, what should you do?

What to do About Shadow IT

Rather than simply banning new tools, organizations can turn shadow IT into an opportunity to improve their tech stack and employee satisfaction. Here’s what companies should do:

Discover and Assess Usage

Start by locating shadow IT to figure out what’s in use. Assess each instance for risk (e.g., data exposure, compliance violations) and value (e.g., productivity gains, unique features). For example, an unapproved cloud storage tool might pose a security risk but also reveal a need for better file-sharing options.

Engage Employees

Have an open dialogue with staff to understand why they’re using shadow IT. Are approved tools too slow, complex, or lacking functionality? This feedback will highlight gaps in your official tech stack. Encourage employees to report shadow IT without fear of punishment.

Develop a Clear Policy

Create a shadow IT policy that outlines acceptable use, approval processes, and consequences. Use a tiered approach based on risk: low-risk tools might get fast-tracked for approval, medium-risk ones require mitigation, and high-risk ones face immediate bans. Ensure the policy is communicated clearly and revisited regularly to adapt to new technologies.

Provide Approved Alternatives

Address the root causes of shadow IT by offering secure, user-friendly alternatives that meet employee needs. If a team uses an unapproved messaging app for its simplicity, replace it with an enterprise-grade equivalent like Microsoft Teams or Slack, vetted for security. Involve users in testing to ensure adoption.

Improve Security and Monitoring

Deploy tools like endpoint detection systems, IAM with SSO, or automated cloud discovery tools, like Breachsense, to maintain visibility and control. Enforce security standards (e.g., encryption, access controls) on all tools, whether approved or not, and monitor usage to catch violations early. Always remember to balance network monitoring with employee privacy to avoid alienating staff.

Integrate Valuable Tools

When shadow IT tools provide real benefits not available with your current toolset, bring it into the fold. Vet it for compliance and security, then roll it out officially. For instance, if a marketing team loves an unapproved design tool, IT could approve quickly it after ensuring it meets standards, turning a rogue asset into a company-wide resource.

Educate and Train

Finally, regularly train employees on the risks of shadow IT (e.g., data breaches, legal penalties) and the benefits of sticking to approved systems. Highlight how their input shapes the tech strategy. This will help reinforce a culture of shared responsibility rather than top-down control.