Shadow IT and security risks in SMEs

Table of contents

What is shadow IT?

Common security issues

The hidden costs?

Examples of shadow IT

Best practices for visibility

Blink and you’ll miss how quickly new technology seeps into the workplace. Employees no longer wait for official sign-off before picking up tools that help them get things done. A quick download here, a trial subscription there, and before you know it entire teams are running on apps and services the IT department has never signed off. This is shadow IT, and while it might seem harmless on the surface, it introduces risks that are particularly pressing for small and medium-sized enterprises.

What is shadow IT & why it matters for SMEs

Shadow IT refers to any hardware, software, or cloud service used within a business without the explicit approval or oversight of the IT department. It can be as innocent as using WhatsApp to message a client, saving files in Google Drive instead of the company’s approved system, or using a “free forever” analytics tool to crunch numbers faster. These tools are not necessarily dangerous in themselves; the danger arises when IT has no visibility. Such use is unknown to official cyber security measures, meaning the business might not have encryption, strong authentication, or backup in place. According to the UK’s NCSC, shadow IT includes unknown assets used for business purposes that are not accounted for under corporate IT or security policies.

For SMEs, the lack of visibility can mean serious exposure. Compliance with data protection laws (GDPR being the foremost in the UK/EU context) becomes harder to maintain. Security vulnerabilities multiply. What starts as convenience often ends as a regulatory or operational headache.

Common security issues caused by unauthorised software

When employees adopt unauthorised cloud applications or software-as-a-service (SaaS) without proper review, several vulnerabilities open up. Many shadow IT tools don't have robust security configurations, or default settings that are weak. There is also often poor patching or update practices.

Data leakage becomes a real risk, too. Sensitive business or customer data might be shared via unsecured platforms, stored in personal accounts not backed by enterprise controls, or even accessible by former employees if accounts are not properly deactivated.

The hidden costs & compliance risks of shadow IT for SMEs

The financial risks of shadow IT are often underestimated. Duplication of software licences (departments using similar tools without coordination), unplanned auto-renewals, and paying for subscriptions nobody is tracking can all erode profitability. Moreover, when regulatory audits occur, noncompliance with data handling, storage, and protection laws can result in fines, legal action, or reputational harm.

Because of missing oversight, data stored in one tool may not integrate with the rest of the business systems. That lack of integration increases inefficiencies and creates “data silos” where different teams are working with different versions or copies of information. Collaboration suffers, and mistakes creep in.

Everyday examples of shadow IT

Shadow IT often starts with well-intentioned employees trying to solve immediate problems. For example:

• A marketing team might prefer Trello over the approved project management tool because it feels faster and more visual.
• A sales rep shares files using personal Dropbox or Google Drive accounts because company file-sharing is slow or limited.
• Someone uses an unsanctioned communication tool or video platform because the official one has restrictions or poor user experience.

None of these are done maliciously. Most are born from a desire to work efficiently. But each one reduces visibility for IT, erodes consistency, and gradually builds up risk.

Best practices for visibility & security governance

SMEs need to address shadow IT proactively, not by banning everything unofficial, but by bringing it into view and managing the risk. Here are some practical approaches:

• Conduct regular audits to discover what apps and tools are being used across the business. Use network monitoring, surveys, or cloud-usage reports.
• Educate staff about cyber security risks tied to unapproved tools, explaining how data breaches happen, what compliance obligations exist, and how their choices affect the business.
• Offer secure, approved alternatives that are user-friendly. If staff are reaching for unsanctioned tools, it often means that official tools are lacking in usability or accessibility.
• Develop clear policies around BYOD (bring your own device), third-party app use, and cloud service approval. Ensure there are processes for reviewing and vetting new tools.
• Use technical controls (such as endpoint protection, network access control, multi-factor authentication, encryption, and regular patching) to secure approved tools and reduce the chance of risk from unknown or rogue software.

These practices help SMEs maintain security without suffocating innovation or flexibility.

Building trust & culture to reduce shadow IT growth

Shadow IT thrives in environments where employees feel official tools are slow or obstructive. To reduce reliance on unsanctioned tools, it helps to build a culture of trust and open communication.

Management and IT should collaborate closely. IT should be seen not as a gatekeeper, but as an enabler, helping teams by selecting tools that meet their needs and removing friction from processes. If an employee suggests a new tool, rather than shutting it down outright, evaluate it, assess its security and compliance, and if it meets criteria, consider making it official. That way, employees feel heard and are more likely to bring new tools above board instead of using them in secret.

The role of regulatory guidance in shadow IT strategy

Recent guidance from the UK’s National Cyber Security Centre (NCSC) outlines how businesses should manage “unknown assets” and rogue software services that are outside standard policy.

SMEs should pay attention not only to the applications they approve, but also to the suppliers and third-party services those tools depend on. Vulnerabilities or breaches at a vendor can spread into your business if contractual or oversight mechanisms are weak. Ensuring vendors comply with security, undergo risk assessments, and have appropriate data handling practices is essential.

Partner with Focus Group

At Focus Group, we understand that shadow IT is not just a technical challenge, but a cultural one that can impact compliance, security, and collaboration across your business. As experts in cyber security, we help SMEs bring shadow IT into the light. From identifying hidden risks to developing policies, training teams, and integrating secure, user-friendly tools, Focus Group works alongside your business to minimise threats while enabling productivity. If you’re looking to safeguard your operations and embrace secure digital transformation, our team is here to provide the guidance and support you need.