AI is no longer a futuristic concept, it is already firmly embedded in the way we work, reshaping how teams operate and make decisions. It promises greater efficiency, deeper insights and enhanced creativity.
From automating everyday tasks to enabling more informed strategic thinking, its impact is being felt across every corner of the workplace and every industry.
But while organisations are busy crafting formal AI strategies, a not-so-subtle trend is gaining momentum as employees turn to AI tools on their own, without approval, oversight or a clear understanding of the risks. This is often referred to as ’Shadow AI’ and is more prevalent than many realise.
Shadow AI is beyond a minor IT concern as it poses serious risks to cybersecurity, regulatory compliance and even the future trust employees and customers place in the business itself.
The Zendesk 2025 CX Trends Report highlights a significant rise in shadow AI usage, with some industries experiencing a year-on-year increase of up to 250%. Similarly, a global study conducted by KPMG and the University of Melbourne reveals that 57% of employees are already using AI tools without informing their employers.
The message is clear: ignoring Shadow AI will not make it disappear, it will only allow hidden risks to multiply until they become far harder, and costlier, to control.
How shadow AI creates bigger problems than you think
At first glance, Shadow AI may seem like a simple solution, with employees using these AI tools to boost productivity. However, what starts as an effort to improve efficiency can quickly spiral into much larger issues, creating vulnerabilities that can undermine the entire organisation.
Data security is one of the main concerns. Sensitive company or customer information could be unknowingly fed into unsecured third-party AI platforms, exposing businesses to cyberattacks and regulatory breaches, including under frameworks such as GDPR.
Compliance gaps also widen with Shadow AI. Regulated industries like finance and healthcare depend on strict audit trails and documentation, but unauthorised AI use leaves invisible gaps that could result in costly fines, litigation and reputational damage.
Quality and decision-making can also be compromised. AI tools that access outside approved environments may generate outputs based on unverified, biased or even hallucinated data, leading to poor business decisions that are difficult to trace or correct.
Trust may be the most critical risk of all. Customers, employees and regulators increasingly expect organisations to use AI responsibly and transparently. Just one mistake involving unauthorised tools can undermine that trust and, in some cases, the damage can be lasting.
A recent survey of UK Chief Information Officers found that one in five companies had experienced a data leak linked to unauthorised AI use. Unsurprisingly, many CIOs now regard internal risks like Shadow AI as more threatening than external cyberattacks.
How to stay ahead of the Shadow AI surge
Some may argue that the solution to the rise of AI in the workplace is to curb its use with laws or clamp down on employee experimentation. While this approach may seem logical at first glance, it’s often more impractical than effective. Employees will find ways to use these tools regardless. The real challenge for leadership is to channel this drive into a secure, transparent and innovation-friendly environment.
Here is how businesses can take control:
- Build clear AI usage policies: Establish transparent guidelines that outline which AI tools are approved, how they should be used and the responsibilities involved in safeguarding data. It’s not enough to simply state the rules; policies should also explain why these rules are in place. This helps foster a deeper understanding among employees and encourages greater compliance.
- Implement guardrails: Introduce secure, company-approved AI tools that employees are encouraged to use. These tools should be intuitive, easy to integrate into everyday workflows and tailored to meet the specific needs of your business. By offering reliable alternatives, you make it clear to employees why they should avoid unapproved or shadow tools, reducing the risk of exposure and inefficiency.
- Focus on practical AI training: Provide accessible, hands-on training that goes beyond basic tool usage. This training should also highlight the potential risks associated with AI, such as hallucinated outputs, inherent biases and data leakage. Employees need to be aware of these challenges so they can use AI responsibly and spot potential issues before they arise.
- Strengthen security protocols: Implement robust cybersecurity measures to protect sensitive data. This includes firewalls, secure APIs, encryption and Zero Trust frameworks that ensure data security, even if unapproved tools manage to slip through. Security should be an ongoing priority to safeguard against breaches that can occur through non-compliant AI usage.
- Encourage responsible innovation: Foster a culture where AI experimentation is not only permitted but actively encouraged as long as it remains within clearly defined and safe parameters. Employees should feel empowered to propose new AI tools or approaches, knowing they can do so without fear of reprimand and with the assurance that their ideas will be evaluated in a secure, transparent environment.
To truly thrive in an AI-driven world, businesses need to shift their perspective. It’s not about trying to control or resist the growth of AI – it’s about recognising its potential and embracing it as a key part of the organisation’s strategy. This shift requires more than just a set of policies or guidelines but nurturing a culture that allows AI to grow responsibly, securely and effectively, with clear frameworks in place to protect data and privacy.
Businesses that take this approach will not only minimise the risks associated with unregulated AI use but will also position themselves as leaders in an evolving landscape. As AI continues to transform the business world, those who can balance innovation with accountability will be the ones shaping the future of work.
