Shadow IT and Accidental Servitization

In the labyrinth of modern business shadow IT and accidental servitization lurk like shape-shifting monsters, transforming helpful tools into complex services that can overwhelm unprepared teams. They have tentacles that entangle strategy and operations, they create huge risks and dangers, and they challenge the planned business models. This article will present some strategies to not only tame these beasts but to harness their power, turning potential adversaries into allies of progress and opportunity.

What is Shadow IT and Accidental Servitization?

“Shadow IT” refers to unsanctioned IT systems and applications that are employed within an organization without formal approval. Often developed by business units to quickly meet specific needs, these unauthorized solutions can give rise to phantom couplings – unforeseen interdependencies among systems – which can subtly embed themselves into the company’s IT framework, complicating the technological landscape. The proliferation of IoT devices within manufacturing has now amplified the impact of Shadow IT, precipitating unexpected shifts in business models and confounding employees with a sudden onset of digital disarray.

“Accidental servitization” is a related phenomenon in which a product inadvertently evolves into a service. This transition involves continuous operational demands and unforeseen financial burdens, typically without prior planning or resource allocation. In the digital realm, this shift can be particularly pronounced, as the maintenance and support of a digital product may inadvertently lead to its reclassification as a service, leading to a fundamental and often unintended shift in business strategy and resource management.

Shadow IT in the applications world

The manager at a logistics distribution center has a young son with a talent for IT that implements an Apple iPad app for keeping track of who is using which forklift trucks around the warehouse. Because it brings so many unexpected benefits (such as tracking which trucks are used the most) it is used by more and more warehouse employees, requiring more and more iPads. Soon the business processes themselves change, the app becomes mission critical, and the warehouse team faces a big problem: they have no budget for a full-time application manager; no capacity to ensure the devices are patched and up to date; there are gross security holes; and the large Apple inventory contravenes the company-wide Windows policy.  In short, a simple “app for that” turned into a mission-critical IT system that is not aligned with the corporate strategy.

This is a classic example of Shadow IT, or IT activities taken by the business, without the participation of the IT department. It is not always driven by carelessness: today, digital needs of the business lines often overwhelm the capabilities of the IT department for solutions, and the ease of adopting SaaS (you only need a credit card!) is a further driver. Related to this is the concept of phantom couplings, in which a Shadow IT solution uses data from legitimate business apps; changes to those apps then can cause massive impacts to the Shadow IT systems they are coupled with, because business may not be capable of planning for and handling the changes.

Accidental servitization in the IoT world

As digitally enabled sectors adopt Internet of Things (IoT) technologies, a related issue rears its head. The same logistics distribution center had a need to improve their operational efficiency by integrating IoT sensors for tracking forklift activities, with an aim to reduce unnecessary motion (a common form of waste). The primary goal was straightforward: track and manage the usage patterns of forklifts to reduce downtime and streamline operations. However, the data collected from these sensors offered more than just usage patterns; it provided deep insights into optimizing workflows, improving equipment routing, and effectively scheduling maintenance. As these insights were leveraged, the center found that the data was not only useful for enabling decisions but had become critical to daily operations. This has two consequences: first, a need for improved support for the IT/OT ‘plumbing’ to ensure sensors, edge devices and cloud computing were maintained to an appropriate service level; and second, the unplanned need for an internal data analytics service, to drive greater insights, requiring a dedicated team and a separate budget to manage its demands.

Impact on strategy and operations

Shadow IT and accidental servitization both have a profound effect on strategy. What starts as a tool or feature can evolve into a full-service offering, inadvertently shifting the company’s core business focus – requiring a reassessment of the company’s mission, vision, and objectives. This can demand a reallocation of resources (both human and financial) that may not be part of the strategic plan. The company may suddenly find itself in new or unexpected markets, requiring changes to market positioning or even new competencies. Supporting the new service may lead to seeking new strategic partnerships or vendor relationships, thus altering the business ecosystem. And the evolving services divert resources for other innovation opportunities, potentially leading to missed opportunities or a lag in other strategic areas.

These phenomena also have impacts on operations. New processes are required to support the services, especially support and maintenance. There can be impacts on IT infrastructure as well as risk, compliance, and security, such as the above examples show. Additional challenges include staff training, quality assurance, and for customer-facing services, a transformation in customer support.

How to make friends with the monsters

The first step is recognizing that the Shadow IT and accidental servitization monsters exist, and that the core issue here is not technology or strategy, but change. Once these monsters have effected change to create a new service, now more change will be required for realignment and integration. Here there are a few deep factors to consider: complexity and control, in which increased complexity from servitization can lead to diminished control over business processes, including finding how the company may need to regain control; possible needs for a cultural shift to adapt to and capitalize on servitization; and finally, ethical considerations including data privacy and security, informed consent, as well as stakeholder impact.

A value-driven approach developed James Anderson and James Narus provides a useful holistic framework for striving for positive outcomes, based on four key dimensions they define:

• New service opportunity. The key is to identify if this is a service evolution, a new service in an adjacent area, or a complementor service (e.g. new service offerings).
• Value proposition. The new service can be a new business opportunity; it can improve relationships with customers or generate improved insights; or – in the ideal case – co-create value for all parties.
• Impact on operating model. This includes process re-engineering, re-defining the product lifecycle, and even assigning new specialist roles.
• Impact on business model. Here one must consider a possible shift from product to service, a cannibalization of existing business, or – the focus of many digital transformation activities – a shift from an application-centric or product-centric to a data-centric or service-centric company.

By analyzing the new service through the value lens, and appreciating the obstacles associated with change, business can not only control the monsters of Shadow IT accidental servitization but exploit their inherent potential, transforming a lurking challenge into a driver of innovation and possibly rejuvenated business models.

Unleashing the monsters

Encountering shadow IT can be a signal for companies to proactively engage with underlying business challenges. Allocating resources to adopt a ‘shift-left’ philosophy – where involvement in process improvement occurs at the initial stages of issue recognition – can be quite beneficial. This proactive approach can lead to the development of solutions that more closely align with the company’s technological infrastructure and data strategy. For instance, the rise of Low-Code/No-Code platforms empowers ‘citizen developers’ within the business, exemplifying the ‘shift-left’ approach by enabling them to contribute to application development more directly and efficiently.

The same holds true for accidental servitization. Identifying the needs to support the service throughout its end-to-end lifecycle, beyond its initial implementation, forces companies to reflect on how the service will be used and the value proposition for all parties. Services can help create a more collaborative relationship.

Embracing both shadow IT and accidental servitization can help drive more innovative business models and greater value for all.

References

• https://www.researchgate.net/publication/354302223_Exploring_Accidental_Digital_Servitization_in_an_Industrial_Context
• https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/tech-forward/low-code-no-code-a-way-to-transform-shadow-it-into-a-next-gen-technology-asset