Most businesses today are experimenting with generative AI. Chances are the minute OpenAI released ChatGPT, someone on your team started using it to write an email, fix a spreadsheet formula or summarise a meeting.
And why wouldn’t they?
It’s quick. It’s clever. It neatly takes care of those annoying, repetitive tasks that usually sit at the bottom of everyone’s to-do list.
But here’s the catch. When employees are using AI tools that haven’t been approved, or even detected, by your organisation, there’s a high chance they’re sharing sensitive corporate data somewhere they shouldn’t. Worse still, that data could be sitting on external servers or feeding future generations of a public AI model without anyone noticing.This is the growing problem of Shadow AI, and the longer it’s left unchecked, the more damage it can do. If you’re not already thinking about how your business keeps AI usage visible and safe, now is the time to start.
So, what exactly is Shadow AI?
Shadow AI refers to the use of generative artificial intelligence tools in the workplace without approval or oversight from IT teams or management.
It’s not totally new territory. You might remember “Shadow IT” being a buzzword a few years ago, when cloud services like Dropbox or Google Docs became widely adopted by tech-savvy employees without going through official channels. Fast forward, and we’re now facing the same challenges, just with newer, more advanced tools.
Except this time, the stakes are arguably even higher.
With Shadow AI, staff may be plugging anything from draft marketing copy to legal clauses, or strategic documents, client data and product plans, into tools like ChatGPT or Gemini. Useful? Absolutely. Secure? Not always.
In many cases, these tools don’t provide the privacy controls required for business use. Worse still, any data submitted could be retained, re-used or inadvertently leaked depending on how the platform handles training data and content storage.
The risk is bigger than just IT
You don’t have to be a cybersecurity professional to appreciate what’s at risk here. Sharing sensitive data with a third-party AI platform, even unintentionally, can have serious consequences:
- Loss of intellectual property: Ideas submitted into the wrong tool could resurface somewhere you don’t want them to.
- Customer data exposure: Especially concerning in sectors where trust and confidentiality are paramount.
- Regulatory violations: Unauthorised processing and storage of personal data can result in breaches of GDPR and other data protection laws.
- Lack of auditability: With no logs or monitoring in place, it’s impossible to trace who shared what, making it difficult to take corrective action if something goes wrong.
In some cases, companies may be breaking data residency or retention rules without even knowing it. And when information feeds back into public large language models (LLMs), it may not just leave your environment, it may leave your control altogether.
Why blocking generative AI isn’t a realistic solution
Your first instinct might be to ban these tools outright. But that’s rarely effective.
Generative AI has already shown enough value across departments, from content creation to customer support to code generation, that trying to block it entirely can hurt productivity. And realistically, people will always find workarounds.
Shadow AI doesn’t happen because employees are trying to be reckless. It happens because they’re looking for faster, better ways to do their jobs. Blocking access just pushes them to use personal devices or sign up for services off the radar, compounding the problem.
So, what’s the smarter move?
Show them a better way with Microsoft 365 Copilot
Instead of banning the tools, focus on providing a secure alternative, something employees want to use and IT teams can trust.
That’s where Microsoft 365 Copilot comes in.
It’s designed specifically for the workplace and lives inside the tools your teams already know, Word, Excel, PowerPoint, Teams, Outlook and more. But here’s what sets it apart from other generative AI tools:
- It operates within your existing Microsoft 365 environment, respecting role-based access, security groups and information boundaries.
- It never uses your corporate data to train public models. Your information stays private and contained within your Microsoft tenancy.
- You control the data access. IT administrators can manage permissions and monitor usage, reducing the risk of inadvertent leaks.
- GDPR and compliance built-in. Because it’s integrated with Microsoft 365, Copilot benefits from the security and compliance controls already in place across your environment.
This isn’t about tacking on a new AI tool, it’s about empowering your teams with AI that already fits the systems and safeguards you use every day.
Addressing the AI policy gap
If you’ve made it this far and you’re thinking, “We don’t even have AI policies in place yet,” don’t worry, you’re not alone.
Many SMBs are only just beginning to draft internal guidance on acceptable AI use. In fact, some don’t yet realise just how deeply consumer-grade AI tools are already embedded in their workflows.
Here are a few simple questions we often encourage businesses to consider:
- Where are employees using AI tools, and for what purpose?
- Are you comfortable with the data being entered into those tools?
- Do you understand how that data is stored, and whether it’s exposed to training cycles?
- Have you provided an approved, secure alternative that’s easily accessible?
Answering those can help surface any blind spots, and start the process of building an internal framework your organisation can confidently stand behind.
The upside of AI doesn’t have to come with risk
This isn’t a pitch to slow down innovation. Quite the opposite.
When used correctly, AI can be a massive accelerator for small businesses. It can help teams do more with less, streamline processes, and fuel creativity in ways we’re still discovering. But it only works if your people aren’t afraid to use it, and your business isn’t afraid to let them.
The key is to make sure you’re applying guardrails, not roadblocks. Tools like Microsoft 365 Copilot can deliver the best of both worlds: the freedom for staff to harness AI on their terms, and the peace of mind that everything remains secure, private and compliant.
Sound like a smarter way to go?
Let’s talk about how to take that next step, from the risks of Shadow AI to a strategy where your data, people and productivity all stay protected.