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Taking Shadow IT Out of the Shadows, Part 1

Shadow IT is one of the names for the Information Technology work and expense that’s done outside of the control of the formal IT organization and outside the formal IT budget. It’s more prevalent in some companies than in others, and it often changes over time within a company. I’ve found that the amount of Shadow IT in a business usually varies in inverse proportion to the level of satisfaction the business feels for the formal IT organization. If business people feel that the formal IT organization is providing everything the business needs, then Shadow IT is virtually nonexistent. But if the formal IT organization is failing, then the expenditure on Shadow IT can exceed the formal IT budget.

To understand Shadow IT, imagine yourself as a business executive. You’ve got a job to do and business objectives to achieve. If you feel that the formal IT organization is standing in the way of achieving your goals, then you’ll find another way to be successful, even if it means hiring consultants or utilizing your employees to create your own underground IT organization.

The Good News
Shadow IT has good points and bad points. One of the good points is that Shadow IT demonstrates a real business interest in information technology and in information technology projects. You know the interest is real when the business is willing to invest their own budget to get work done that they feel they can’t get done through normal channels.

The Problem
But Shadow IT also has bad points. Business executives who make their own IT decisions optimize those decisions around their perception of their own short-term needs, and they underestimate the interdependency that their systems have with other corporate systems.

Let’s break down that problem into its three components:

1. Perception of Needs
The focus of a business executive is on his or her own needs — not the needs of the business as a whole. For example, a sales executive will see the need for a sales tracking system or an order entry system or a customer relationship management system, but will not typically step back and look at the bigger picture. Yes, they realize that sales information is required by manufacturing or distribution or service providers downstream. But that won’t be their focus, and so those other needs won’t be a principal part of their system requirements.

For example, I worked with a company in the late 1980s where the sales organization made its own deal to buy notebook PCs for its sales force. The vendor was pushing WordPerfect word processing software, and so they bundled a copy of the WordPerfect software into the deal. As a result, the sales organization established WordPerfect as a standard for the organization, in spite of the fact that Microsoft Word was used everywhere else in the company. This worked fine for internal sales documents, but created havoc whenever anyone from outside the sales organization needed to review or share documents.

2. Short-term Emphasis
The business executive is usually focused on the current quarter or the current year. Goals are defined that way, and so the business executive is typically looking for quick results.

Rarely do business executives understand or consider all of the long-term implications of a systems purchasing decision or outsourcing decision. They don’t see the problems of supporting a set of diverse software and hardware platforms. They don’t consider the need for a resilient system that has to be available 24×7, and has to be able to handle peak user demand that may be a hundred times greater than the average demand. They don’t see that the simple “off-the-shelf” software they’re purchasing may not adapt to the evolving needs of the business.

The short-term emphasis also leads to quick decisions, and sometimes a desperate business executive will just buy the first solution that he or she sees, without going through any sort of logical analysis of alternatives. Or in many cases the executive will just buy the same solution that he or she used at a previous employer, whether or not it’s the right fit for the current business.

I’ve seen this happen several times. The most notable example was a department executive who was under budget at the end of the year, and ran into a pushy salesperson who offered a bottom-of-the-line enterprise software product at an end-of-quarter special price. Without looking at other alternatives, without doing a pilot of the software to assess its capabilities, and without even considering the need for hardware to run the software, the executive made a mid-six-figure dollar commitment to buy the software and use up his remaining budget for the year. The consequences of the decision would haunt the business for years to come.

3. Systems Interdependency
The business executive often makes simplistic assumptions about data. According to most executives, data is always accurate, consistent, timely, complete, and easily available. A manufacturing executive might buy a scheduling system and assume that existing order data will just flow right into the new system without any changes or validation. But the reality may be very different: data is only as good as the people who enter it, the system that validates it, the format it’s stored in, and the management discipline of other organizations in the company. And feeding data from one system to another may require a tremendous amount of technical expertise and possibly an entirely new system just to do data conversions.

The Cost of Shadow IT
I had a neighbor once who, in preparation for selling her house, brought in a cheap painter to make the outside of the house look nicer. The painter skipped the normal steps of scraping, cleaning and priming the house, and just painted over whatever was there, including dirt and even leaves that adhered to the house. The neighbor was happy with the low price for painting the house, and the house looked good for a few months, but I’m sure the people who bought the house paid the price for my neighbor’s shortcuts.

And so it is with Shadow IT. A professional IT organization has to look at all of the different aspects of information technology use: not just the initial cost of software and hardware, but all of the training, maintenance, customization, integration, infrastructure and support that continues for years to come. Shadow IT is often done following less than professional standards. While the result may be adequate in the short-term, the systems implemented using this approach often fail in the long-term, fall apart when critical people leave the business, or incur large costs later in their life cycle.

Often the Shadow IT projects end up being handed off to the formal IT organization. The formal IT organization then has to go back and fill in all of the gaps left by amateur IT people who took short-cuts, much like the short-cuts taken by my neighbor’s house painter.

And since Shadow IT projects often use hardware and operating system platforms that don’t follow corporate standards, the formal IT organization gets saddled with new platforms that require training and support resources that don’t exist in their organizations.

Thus the short-term savings that may have accrued by using Shadow IT are more than offset by longer-term costs paid by the formal IT group. And ultimately those costs hurt the business bottom line.

In Part 2 I’ll describe the five most common approaches that formal IT organizations take in dealing with Shadow IT, I’ll offer some comments and advice on each approach, and I’ll give you my recommendations.

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