Dive Brief:

• When helping clients to rein in “shadow IT,” which refers to apps purchased by employees without company oversight, Zylo favors a balanced approach, according to Ben Pippenger, the software-as-a-service management firm’s chief strategy officer and co-founder.

• Banning employee-led software purchases outright could stifle innovation, he said in an interview, adding that companies should instead focus on putting controls in place to avoid headaches such as out-of-control SaaS costs and exposure to data security risks.

• Tools such as AI-powered SaaS apps could be “sources of innovation for the business,” Pippenger said. “There could be so much productivity unlocked and so many potential use cases that we’re not even thinking about yet. Rather than imposing a flat-out ban, think about guidelines and controls such as telling employees who use these tools to avoid putting sensitive information in them.”

Dive Insight:

By 2024, global SaaS spending is projected to reach $232 billion, compared with $197 billion in 2023, an increase of 18%, according to Gartner.

In 2022, for the first time ever, more money was spent on SaaS than on-premise software, and by 2026, SaaS spending is expected to comprise two-thirds of all enterprise application revenue, according to Zylo’s 2023 SaaS Management Index Report, released in January.

“While SaaS offers incredible upside, its decentralized nature makes it challenging to manage,” the report said. “Unlike on-premise software, SaaS purchases often aren’t funneled through and managed by the IT team. Instead, anyone and everyone is a SaaS buyer.”

The research found that IT teams, on average, led only about 18% of companies’ software application purchases. Over a third (37%) of the apps were bought by employees, and 45% were purchased by leaders of business units within the organization.

“There’s just an incredible amount of money being spent on SaaS applications, and not a whole lot of oversight around it,” Pippenger said. This can lead to a host of problems, including wasted software licenses and duplicative apps that perform the same function, on top of data security risks, he said.

In one case, Zylo worked with a client that had more than 40 different project management tools within its inventory without realizing it.

The first step to addressing such problems is gaining visibility into what’s going on within the organization’s SaaS environment, according to Pippenger, who spent two years at Salesforce as a product management leader before co-founding Zylo in 2016.

“You really need a [technological] tool to do this, because it’s just not possible to do it manually,” Pippenger said, adding that SaaS challenges are “dynamic and evolving literally every day.”

An effective SaaS management program also includes an internal company policy governing how the organization approaches app purchases, he said.

Zylo’s report advised companies working on SaaS governance to find a “sweet spot where employees are empowered to choose the SaaS tools they want while the organization can still effectively manage risk, compliance, and costs by establishing freedom within a framework.”