The Hidden Threat of Shadow IT in SMBs

By Rob Ashcraft, CISO at KeyStone Solutions

In the fast-paced world of small business operations, agility and speed often take precedence over formal IT protocols. Employees, eager to solve immediate problems or improve productivity often turn to the use of unauthorized applications, cloud services, or personal devices, which are collectively known as Shadow IT. While these tools can offer short-term convenience, they introduce vulnerabilities and significant risks that small and midsized businesses (SMBs) are often ill-equipped to manage. Unlike large enterprises with dedicated security teams and robust monitoring systems, SMBs may lack visibility into the tools their employees are using, creating blind spots in their cybersecurity posture.

Shadow IT typically emerges from gaps in user experience, process inefficiencies, and/or unmet operational needs. Employees may find that company-approved tools are not getting the job done, prompting them to seek out consumer-grade alternatives that are more intuitive and responsive. In many cases, departments like marketing or HR adopt their own project management or file-sharing platforms without consulting IT, simply to get work done faster. This behavior isn’t necessarily malicious, but rather a sign that the official tech stack needs modernization. The problems begin when these tools are not properly vetted for security, compliance, or data protection, thus leaving your business exposed.

The consequences of Shadow IT can be severe. Unauthorized apps may lack encryption, store data in insecure locations, or fail to meet regulatory standards. This opens the door to data breaches, insider threats, and compliance violations. According to a Forbes Insights survey, more than one in five organizations have experienced a cyber incident originating from Shadow IT. For SMBs, even a single breach can be financially devastating, damaging customer trust, and triggering legal repercussions. Moreover, the rise of remote work and BYOD (Bring Your Own Device) policies has made it easier than ever for employees to introduce unsanctioned tools into the network.

Despite its dangers, Shadow IT can also be a diagnostic tool. It reveals where employees feel underserved by existing systems and there is a need for assessment and innovation. Conducting anonymous surveys and utilizing monitoring tools such as Secure Web Gateways to scan for unsanctioned apps, businesses can uncover these hidden tools and evaluate their value. Low-risk apps that genuinely enhance productivity can be brought under governance, while high-risk tools should be replaced with secure alternatives. This approach not only improves security but also fosters a culture of collaboration between IT and other departments.

To manage Shadow IT effectively, SMBs should implement a tiered policy framework. This includes pre-approved lists of low-risk tools, streamlined approval processes for medium-risk apps, user training, and strict controls for high-risk categories like financial or customer data platforms. Education is also key. Employees must understand the risks and responsibilities associated with using unauthorized technology. By building trust and encouraging transparency, SMBs can transform Shadow IT from a lurking threat into a strategic asset.

Here are a few parting thoughts:

• Shadow IT is common in SMBs due to the need for operational agility and frustration with gaps in current authorized business tools and systems.
• Shadow IT can introduce risks such as data breaches, compliance violations, reputational damage, and potential legal consequences.
• Remote work and with a lack of BYOD policy and policy enforcement amplifies the problem, making detection harder.
• Shadow IT often reveals unmet needs, offering insight into where IT investments should focus.
• A tiered policy, user account privilege management, proactive discovery tools, and assessing the effectiveness of current operational tools and systems on a scheduled cadence will greatly improve your business’s ability to manage and mitigate Shadow IT.