The Hidden AI in Your Business: How Shadow AI Use Puts Your Company at Risk

This is “Shadow AI”, AI use in your organisation that happens without official approval or oversight. While it may save time in the short term, it can create serious risks for your business.

What Is Shadow AI?

Shadow AI happens when employees use AI tools outside of formal company channels. Sometimes it’s deliberate (using personal accounts to bypass IT restrictions). Sometimes it’s accidental (a cloud tool quietly enabling AI features).

Common examples include:

• ChatGPT or Gemini for writing, summarising, or idea generation.
• Midjourney, DALL·E, or Canva AI for creating images.
• Copilot or Claude for writing code.
• AI features inside existing software (Microsoft 365 Copilot, Google Workspace AI).

Why Shadow AI Is a Business Risk

Data Privacy and GDPR

Employees could unknowingly share sensitive or personal data with third-party AI tools, creating regulatory exposure.

Loss of Intellectual Property

Content, designs, or code entered into some AI platforms may be stored and used to train their models, meaning your proprietary work could end up outside your control.

Accuracy and Bias

AI tools can produce confident-sounding but factually wrong outputs, or perpetuate hidden biases. Without review processes, these errors can slip into customer-facing materials.

EU AI Act Compliance

Unmonitored AI use makes it impossible to ensure compliance with obligations around transparency, risk assessment, and record-keeping.

The BYOAI Problem

“Bring Your Own AI” is Shadow AI’s more deliberate cousin. This is when employees use their personal AI accounts or subscriptions for work tasks.

Why it’s even riskier:

• No organisational control over data storage or deletion.
• No visibility into how the tool is being used.
• No contractual protection from the AI vendor.

How to Identify Shadow AI in Your Organisation

• Staff Surveys – Ask directly about AI tool usage.
• Usage Audits – Check for AI-related software traffic.
• Manager Conversations – Gather informal intelligence from team leaders.

From Shadow AI to AI Policy

Once you know AI is being used unofficially, the solution isn’t to ban it outright. It’s to bring usage into a clear, controlled framework, starting with an AI policy that sets rules, assigns responsibilities and ensures compliance.

Next in the series: Bring Your Own AI — Why an AI Policy Is Your First Line of Defence

In our next post, we’ll walk you through the BYOAI problem in detail — and give you a free editable AI policy template so you can start protecting your business immediately.