What Is Shadow IT and How Is It Impacting Your Bottom Line?

In the ever-evolving landscape of enterprise technology, CIOs and CFOs are facing a new challenge – the rise of shadow IT expenses. 

As employees increasingly adopt and integrate external technologies without the explicit approval of the IT department, managing these unaccounted expenses has become a critical concern for organizations.  

In this article, we explore the complexities of shadow IT and provide a strategic approach for CIOs and CFOs to effectively manage and mitigate the associated costs.

What Is Shadow IT?

Shadow IT refers to the use of technology, software, and services outside the sanctioned and managed IT infrastructure of an organization. While employees may turn to shadow IT for its perceived agility and efficiency, the associated expenses often go unnoticed until they impact the company’s bottom line. Common examples include unauthorized software subscriptions, cloud services, and collaboration tools.

The unregulated nature of shadow IT can introduce significant risks and costs to an organization. Security vulnerabilities, compliance issues, and duplication of services are just a few of the challenges that can arise. Moreover, the financial impact of shadow IT expenses can be substantial, affecting budgets and hindering strategic planning.

Cisco tells us that 80% of end users access software unapproved by IT.

VP of Experian, Michael Bruemmer, says 80% of breaches start with employee negligence. This includes Shadow IT.

Shadow IT is clearly not as sinister as it sounds. It’s usually just the result of people looking for better ways to do their jobs. Unfortunately, this type of technology can be a huge source of problems if left unchecked. 

Strategic Approaches to Managing Shadow IT Expenses:

1. Visibility and Discovery

  • Invest in tools and technologies that provide comprehensive visibility into the entire IT landscape, including shadow IT.
  • Regularly conduct discovery audits to identify unauthorized applications and services in use within the organization.

2. Educate and Empower Employees

  • Foster a culture of transparency by educating employees about the risks associated with shadow IT.
  • Empower staff to communicate their technology needs, encouraging them to involve IT in the decision-making process.

3. Establish Clear Policies

  • Develop and communicate clear policies regarding the use of external technologies.
  • Implement approval processes that ensure all IT-related expenditures align with organizational goals and security standards.

4. Collaborate with Business Units

  • Work closely with different business units to understand their specific technology requirements.
  • Collaborate on finding solutions that meet both business and IT objectives, reducing the inclination to resort to shadow IT.

5. Implement Cost Management Tools

  • Utilize cost management tools to track and analyze IT expenses, providing insights into where resources are being allocated.
  • Establish benchmarks and key performance indicators to measure the efficiency and effectiveness of IT spending.

6. Continuous Monitoring and Adaptation

  • Implement a continuous monitoring system to stay abreast of changes in the IT landscape.
  • Adapt policies and strategies based on evolving technology trends and employee needs.

By comprehending shadow IT and adeptly controlling it, you can reduce security vulnerabilities, enhance operational efficiency, maintain secure operations within budget constraints, and empower your team with the necessary tools to amplify productivity.

Reach out to our team of expert technology advisors for professional guidance on managing shadow IT and keeping it under control.

Why IT Is So Expensive & What You Can Do About It

Can you even imagine a world without technology? It’s hard to picture when we often exchange the phone in our hands only to pick up our laptop. Technology helps us to communicate with others and the objects around us. Our phones let us check our security system, lock up our house, gain access to our office, and check email.

When we look around today, Information Technology (IT) has permeated every aspect of our lives and our businesses. It helps us solve problems, create opportunities, and establish automation to create efficiency. However, we have become so reliant on it that we understate its benefits.

As a result, we often view IT as a commodity, not a value. When evaluating budgets, organizations often question the cost of IT and the return on investment that it provides. In this post, we’ll discuss the primary factors contributing to IT costs and ways you can optimize your technology spend.

As you might expect, many factors contribute to overall IT costs. Though they may vary across industries and organizations, the following four contributors significantly impact businesses and receive a lot of attention.

Contributors to IT Costs

1. Rising Costs of Hardware & IT Services

You can’t help but notice the rising cost of almost everything in recent years. Unsurprisingly, IT hardware and labor costs have also been pushed upwards between supply chain issues, inflation, and labor shortages.

Increasing costs have led many businesses to scrutinize their IT budgets, among others, to ensure a return on investment for their spending. However, it’s essential to consider the cost of not spending adequately on IT.

2. Importance of Cybersecurity

Any IT work, whether launching a website or building a global network, exposes your business to the risk of cybercrime. You’ve undoubtedly read articles about the cost of cybercrime and its impact.

According to Statista, the average cost of a data breach in the United States in 2023 is expected to be $9.48 million US dollars. And the estimated cost of cybercrime is projected to increase significantly. 

Protecting all systems and networks from unwanted digital attacks is essential, and cybersecurity must be a top priority for all businesses. Not only does cybersecurity help to protect your organization from financial attacks, but it also blocks disruptions to your business.

3. Leveraging Emerging Technologies

Changes in technology and emerging technologies also impact overall IT costs. While we can plan for some technological advances, we can’t plan for everything. Software designed for current needs eventually becomes outdated, often requiring costly updates.

New technologies may create opportunities and improve efficiency, but they come with a cost. Artificial intelligence (AI), machine learning, cloud and edge computing, and other advanced technologies offer tremendous value at a significant cost.

According to McKinsey, corporate investments in 2022 in advanced technologies were more than $1 trillion, demonstrating faith in their potential value. AI alone is projected to add as much as $4.4 trillion in value in the coming years.

4. Hiring Qualified People with Specialized Expertise

Hiring the right people with the right experience is vital when staffing your IT projects. Not only do they need to understand current technology, but they also need to keep abreast of industry trends.

If you don’t have the right expertise, you may deal with business disruptions and costly security breaches. Without an ability to understand current business needs with an eye to future technological advances, you risk not only not solving today’s problems or meeting the current opportunity but also the ability to transform your future.  

What You Can Do to Optimize Your IT Spend

According to KPMG’s 2023 US Technology Survey Report, 65% of respondents said they must do more with less budget in 2023. If you’re fighting the same budget battles, you’re not alone.

Before you make changes, start with an internal assessment of your IT services.

This assessment should include hardware costs to internal and external staffing resources and processes. Anything within your IT budget and that IT touches should be evaluated to determine the value and return on investment.

This assessment will provide the foundation for change, which may validate the need for budget cuts, staffing adjustments, outsourcing, and more. Once you understand the costs and their ROI, you can then evaluate and compare your opportunities.

Are you looking for a team of technology strategy experts to help you optimize your IT spend? Our team here at Blue Tree would love to talk to you and explore how we can help by not only pinpointing the source of your technology challenges but designing, implementing, and supporting cost-effective solutions to help your business grow.

Driving Business Efficiency Through the Alignment of IT Service Delivery

Driving Business Efficiency Through the Alignment of IT Service Delivery

I have been approached by C-Level executives with a common question, “How do I eliminate the disconnect between the efforts produced by my IT Department and the perception of their service delivery by internal staff? The two are asymmetric!” 

The alignment of a company’s Information Technology Service Delivery and its internal Business Consumer can be a moving target for many small to medium sized businesses. 

Often, IT is perceived as hard working but producing limited work products or is slow to produce value to its end consumer, the Business. Interestingly, the disconnect has a hidden synergy requiring further introspection. 

The following breaks down these perceptions with a solution aligning IT and the Business in a more harmonious and interactive way.

Business Perception 1:
Delivery of requested requirements do not meet expectations

There is a classic visual representation for this phenomenon. Everyone, being human, takes their own experiences into how communication is delivered and understood. 

Sometimes there is a language barrier between what the Business is requesting and how IT interprets the needed support. When this happens, there becomes an obvious disconnect between the requestor and the service provider.

Graphic courtesy of Susanne Madsen, "5 Pitfalls that Prevent us from Delivering what the Customer Really Needs".

Business Perception 2:
IT is unable to Deliver Services within desired timelines

Many businesses started small and have grown homogeneously over time. Often, their IT staff also started small but did not grow in proportion with the Business. Frequently this is done to reinvest in other non-IT related aspects of the Business (e.g., hiring more staff, increasing product speed-to-market, or expansion of services). 

Unfortunately, when IT investment (staff, skillset, or toolset/infrastructure) does not grow incrementally with Business expansion, then the Business starts acquiring Technical Debt. 

What is Technical Debt? The industry defines this as a budgetary decision, based on present Business opportunities or circumstances, that forgoes the investment in IT resulting in the depletion of IT’s ability to provide the required service delivery in the future. For example, delaying a monetary decision to upgrade the organizations aging desktop fleet results in latent computer response time, thus slowing down the efficiency of the workforce. 

It also introduces vulnerabilities as Operating System manufacturers stop releasing security patches for those aged systems. This latter example creates a circumstance where an imminent security vulnerability could negatively impact the Business on a profound scale. 

The last example of Technical Debt is not growing IT staff and skillsets in a proportionate ratio of the number of employees supported. In this scenario the supply of technical resources cannot keep up with the demand for services requested. This commonly results in IT services being delivered outside of desired timelines. The cost of Technical Debt increases with time and can become a slippery downward slope. However, Technical Debt can be mitigated.

Solution

IT is the underpinning support enabling the business to produce its products or services. Orchestrating your Business users and IT staff in harmony is essential to success. Following is an approach to bring symmetry to operations.

Grahic courtesy of Info-Tech Research Group

1. Develop the Mission and Vision of the Business if none exists.

2. Evaluate your overall Organizational Maturity. Are there aspects that can be improved? Create a Three-Year Strategic Business Plan with targeted goals increasing Organizational Maturity alongside other growth-related business goals. Ensure goals are feasible, obtainable, realistic, and require both IT and the Business to implement aspects of those goals together.

3. Assess IT’s Service Delivery Maturity. Are they Unstable? In constant Firefighting mode? Aligned as a Trusted Operator? Already a Business Partner? Or are they a full-on Innovator? If the assessment does not fall within the Business Partner or Innovator levels, work with IT to create a Three-Year IT Roadmap aligning with the Strategic Business Plan, Mission, and Vision. Periodically measure business stakeholder satisfaction throughout implementation of the IT Roadmap to measure gains or identify delivery aspects requiring further improvement. If internal resources are spread too thin to facilitate the assessment and IT Roadmap, reach out to a reputable consulting firm who can provide access to evaluation tools and assist with your planning.

4. Create an IT Steering Committee of key stakeholders consisting of a small but core group of strategic Business and IT leaders. This Committee should report to an Executive Stakeholder and collaboratively select the core IT investments required by the Business and provide principal oversite on execution and budgetary allocation.

Rome wasn’t built in a day. Give the organization time necessary to complete the above recommendations in a useful and impactful way. Ensure your strategic goals have metrics to measure whether they are being achieved. Carefully plan for budget to support these goals over a specified timeline. Adopt an organizational value set that facilitates both IT and the Business dialing into the frequency from which each is communicating to fully understand the context and intent of the Service Request and its fulfillment within Service Delivery. And lastly, continue to drive synergy and innovation by celebrating the incremental wins together.