The Hidden Consequences of Unmanaged SaaS

In the relentless march toward digital transformation, organizations are amassing an ever-expanding inventory of SaaS applications. These tools enable efficiency, productivity, and innovation, but their unchecked proliferation comes with consequences. 

Consider this: the average enterprise uses over 250 SaaS applications, up from just 150 in 2022. They help organizations run their operations seamlessly. However, behind the convenience and innovation lies a heap of issues: spiraling costs, sprawl, redundancies, security vulnerabilities, operational inefficiencies, and more. 

I’m not saying that every organization that uses SaaS applications will face these hassles, but those that don’t manage SaaS effectively should be bothered about it. 

When I ask fellow founders how they manage their SaaS applications and procurement processes, I often get a similar response: “Using spreadsheets,” that’s a poor practice.  

Manual SaaS management is a recipe for shadow IT, software sprawl, missed renewals, escalated SaaS spend, etc. 

In this op-ed, let me shed some light on the harsh reality of unmanaged SaaS apps and how they can impact your business growth. 

SaaS Sprawl – A Pervasive Challenge

Lack of SaaS visibility and poor application management lead to SaaS sprawl, an uncontrolled increase of SaaS applications within an organization. Resulting in a tangled web of subscriptions, licenses, and related costs that become increasingly difficult to monitor and control.

The driving factor behind SaaS sprawl is shadow IT. Employees frequently resort to shadow IT, engaging in unauthorized SaaS purchases using company credit cards. These purchases circumvent IT approvals, increasing free and duplicate apps in your portfolio (sprawl).

I frequently come across organizations with prevalent shadow IT. Here are the consequences they face:

• Employees resorting to rogue purchasing don’t consider license requirements and often purchase surplus licenses, where most of them go unused, leading to wasted spend. 
• There is no negotiation involved in shadow IT. Users might’ve purchased the application for the list price, which often exceeds current market benchmarks.

I noticed that most IT and finance teams were unaware of their portfolio’s free apps, which increased their software spending due to auto-renewals and caused integration hassles. 

I recommend that organizations use a SaaS management platform to get complete visibility over their app portfolio and prevent shadow IT before it impacts your bottom line, which will go unnoticed. 

Underutilization: A Recipe for Poor ROI

I frequently observe a procurement trend in organizations: purchasing surplus licenses by forecasting early growth. 

Predicting business scalability is not an issue, but in these uncertain market conditions, CFOs and CIOs need to be cautious about how they spend. If the requirement says 50 licenses, then the budget allocation should be limited to 50; don’t overstep it. 

The goal is to “scale your licensing needs as you grow” rather than making excessive purchases prematurely. 

I came across a customer who recently acquired 150 licenses for SaaS software, even though their requirement was only 80. They made this decision based on an early growth projection. Unfortunately, their workforce did not expand as anticipated, leaving approximately 70 licenses unused, resulting in wasted spend.

Upon further analysis, we identified that it was not just the licenses; even the features were not properly utilized, resulting in poor ROI. Unmanaged SaaS means no license and feature usage visibility, making ROI analysis and budget allocation a significant challenge for CFOs and CIOs.

Data and security: The Looming Hazards

There is absolutely no vetting done in shadow IT; users just pay the vendor if they find a product that aligns with their needs. 

However, when these unsanctioned applications are introduced into your SaaS portfolio and integrated with existing applications, they can pose significant risks.

When integrated with your internal systems, unauthorized apps from third-party vendors will leave your sensitive data vulnerable and at high risk for security breaches and data theft. This is why I recommend organizations address shadow IT activities immediately before the situation escalates. 

So, do I mean that only unauthorized apps can cause security breaches?

No, even if the applications are purchased by proper means, there are chances of security risks if they are not managed effectively. Here’s how:

Inadequate Configuration: Even when apps are granted authorization, their improper configuration can lead to unintended access for administrators, creating vulnerabilities that could be exploited for potential security breaches

Lack of Updates: Vendors regularly release security updates or patches. Ineffective management can result in these updates not being applied promptly, potentially leading to a security breach.

Insufficient Access Control: Proper access controls are essential for maintaining the security of any application, regardless of its authorization status. If user permissions are not appropriately managed, unauthorized individuals can gain access to critical data or functionalities.

My focal argument is that regardless of whether SaaS apps are officially authorized, inadequate management can lead to security problems, ultimately resulting in data loss, penalties, and damage to an organization’s reputation.

Efficiency and Productivity: An Operational Challenge

Unsanctioned applications will have an auto-renewal clause in their contract. Since the finance team is unaware of this purchase, the contract will be auto-renewed, leading to unnecessary spending.

However, just like data breaches, this challenge is not limited to unsanctioned applications; even applications purchased with IT approval will face auto-renewal hassles. 

Organizations with manual contract management often miss out on renewals or remember them at the last moment and chase their stakeholders for approvals and usage analysis instead of focusing on their core tasks. 

In some instances, if the contract is not renewed on time, the vendor will restrict access to the application, leading to application downtime. This will impact the efficiency and productivity of the teams, leading to operational challenges. 

In this competitive environment, application downtime is not something organizations should be dealing with. You need to track renewals effectively, renew on time using a SaaS management platform and use workflows to automate repetitive processes and increase the productivity and efficiency of your team. 

Integration and compliance: A Technical Hurdle

Soc 2 Type 2 is a compliance certification granted to applications capable of keeping customer data secure. Your data becomes significantly vulnerable if an employee procures an application from a third-party vendor that lacks SOC 2 compliance.

When this non-compliant application is integrated with the rest of your software stack, it exposes your entire dataset to potential security breaches. 

Furthermore, these unmanaged applications may occasionally encounter integration issues with other apps in your portfolio, complicating team collaboration and decision-making.

For an organization to achieve higher levels of growth, it is imperative to maintain seamless business operations, foster effective collaboration, and boost productivity. 

However, unmanaged SaaS applications pose a formidable challenge to teams trying to reach their goals and scale business operations. This is precisely why I strongly recommend that organizations prioritize effective and efficient application management for a brighter future.

In conclusion, it’s important to recognize the challenges posed by unmanaged SaaS applications, including cost escalation, security vulnerabilities, and operational inefficiencies. To keep your SaaS portfolio optimized, you should prioritize effective SaaS management. 

By implementing the strategies discussed, you position your organization not only to resolve current issues but also to seize future optimization and cost-saving opportunities. Effective application management isn’t just a short-term fix; it’s a strategic investment in your organization’s long-term success.

Author Name – Nidhi Jain, CEO and Co-founder of CloudEagle

Nidhi Jain, CEO and Co-founder of CloudEagle, with over 20 years of experience in SaaS procurement at companies like Goldman Sachs and Intuit, noticed a shift in SaaS purchasing to “citizen SaaS buyers” – individuals making purchases without IT, finance, or procurement approval. CloudEagle was created to help CIOs and CFOs regain control while empowering teams to select their tools, streamlining SaaS procurement, and optimizing spending.