Power Platform Compliance Week Day 3 – Why Managed Identities Should Be Your Default

Setting the Stage: The Evolving Landscape of Security and Compliance

The rise of low-code platforms like Microsoft Power Platform has empowered organizations to rapidly build, deploy, and scale business applications. While agility and innovation are key drivers, they often come at the cost of introducing new security and compliance challenges. Identity management is one of the most critical aspects often overlooked in this transformation. As businesses shift toward cloud-native architectures and automated workflows, the way applications and services authenticate against resources must evolve too. Traditional authentication models that rely on hardcoded credentials, service principals, or manual key management introduce unnecessary risk and complexity. That’s where managed identities come into play.

The introduction of managed identities is one of the most impactful enhancements in modern security architecture. These identities provide secure, automatic identity management and streamline the way services authenticate without requiring credentials in code. On Day 3 of Power Platform Compliance Week, we focus on why managed identities should become your default approach—not just a best practice but a foundational principle. Compliance isn't just about ticking boxes; it's about embedding security and governance into every layer of your digital environment. Managed identities allow organizations to do exactly that.

This shift is especially important in the context of Power Platform environments, where citizen developers and professional developers alike build automations, apps, and integrations that touch sensitive data and systems. Without the right controls in place, it's all too easy for these applications to become entry points for breaches or policy violations. As compliance requirements grow more stringent, adopting secure, scalable identity mechanisms becomes a non-negotiable priority. Managed identities offer a way to balance ease of development with enterprise-grade security.

As we unpack the benefits, design considerations, and implementation tips around managed identities, think of this not just as a technical improvement but as a compliance imperative. Whether you're building with Power Automate, Power Apps, or custom connectors in Azure, the case for managed identities is compelling and timely. Let’s explore why they deserve to be your default authentication method.

What Are Managed Identities and How Do They Work?

At their core, managed identities are a feature of Azure Active Directory (Azure AD) that allow services to authenticate with other Azure services without storing credentials in code. When you assign a managed identity to a Power Platform component, like a custom connector or a flow in Power Automate, that component is automatically issued an identity in Azure AD. This identity can then be granted permissions to access resources such as Azure Key Vault, SQL Databases, or Microsoft Graph APIs—securely and transparently.

There are two types of managed identities: system-assigned and user-assigned. System-assigned identities are tied to the lifecycle of the resource they’re created with. When the resource is deleted, the identity is deleted as well. User-assigned identities, on the other hand, are created independently and can be shared across multiple resources. This flexibility allows for role-based access controls (RBAC) and tighter governance of who and what has access to sensitive systems and data.

Managed identities eliminate the need for secrets in application code. Instead of developers worrying about where to store passwords or client secrets, they can rely on Azure to handle token acquisition and lifecycle management securely. This not only reduces the risk of leaked credentials but also simplifies the development process. It also aligns closely with the principles of Zero Trust—never trust, always verify—and enables granular auditing of actions performed by identities.

For Power Platform scenarios, managed identities are particularly useful when connecting to Azure-hosted services. Whether you're retrieving secrets from Azure Key Vault to use in a Power Automate flow or accessing a secured API endpoint from Power Apps, a managed identity ensures secure, auditable, and maintainable authentication. The barrier to entry is low, and the return on security investment is high.

Why Managed Identities Should Be Your Default

Defaulting to managed identities brings several clear benefits across security, scalability, and compliance dimensions. First and foremost, credentialless authentication means you drastically reduce the risk of credential leakage. No more environment variables hiding secrets, or worse, hardcoded credentials in custom connectors or scripts. This is a game-changer for organizations subject to strict compliance regulations such as GDPR, HIPAA, or FedRAMP.

Second, managed identities enable centralized control and governance. You can monitor, audit, and enforce access policies using native Azure tools. Because permissions are granted via Azure AD roles or resource-specific access control lists (ACLs), IT and security teams retain oversight of what services can access which resources, and under what conditions. This level of control is crucial for maintaining continuous compliance in dynamic environments.

Third, managed identities enhance developer and maker productivity. By abstracting away the complexity of credential handling, developers can focus on building solutions without worrying about security pitfalls. This is especially important in low-code environments like Power Platform, where users may not have deep security expertise. The easier it is to follow secure practices, the more likely they are to be adopted universally.

Fourth, the use of managed identities naturally supports automation and scalability. As your Power Platform footprint grows, so too does the complexity of managing secrets, tokens, and permissions across hundreds of applications, flows, and services. Managed identities simplify this by offering a repeatable, secure authentication pattern that scales effortlessly with your needs.

Finally, making managed identities your default helps instill a security-first culture within your organization. When the secure path is also the easiest and most seamless, compliance becomes a built-in feature rather than an afterthought. That cultural shift is invaluable in today’s threat landscape.

Common Use Cases in Power Platform

In practice, managed identities can be used across a variety of Power Platform use cases. For instance, in Power Automate, a flow might need to call an Azure Function or access data stored in Azure SQL. With a managed identity, you can authenticate securely and transparently without embedding credentials in your flow. This not only improves security posture but also future-proofs the flow against password changes or expired secrets.

In Power Apps, applications often need to connect to custom APIs or services hosted in Azure. Managed identities allow those connections to be securely authenticated, reducing the complexity and increasing trustworthiness of those integrations. This is especially useful for enterprise-grade solutions that rely on layered data access and need strict control over who can access what.

Another common use case involves Custom Connectors, where an app or flow needs to access internal APIs or services. By configuring these connectors to use managed identities, you remove the need for user-based authentication and make the service-to-service connection secure by default. This setup is not only more compliant but also more efficient, especially in scenarios that involve background processing or unattended operations.

Beyond direct resource access, managed identities are also a natural fit for connecting to Azure Key Vault, allowing you to securely store and retrieve secrets, certificates, and other sensitive configurations needed by Power Platform solutions. This approach is particularly relevant in environments with elevated compliance requirements, as access can be strictly controlled, logged, and monitored.

Implementation Considerations and Best Practices

While the case for managed identities is clear, implementing them effectively requires thoughtful planning. One of the first considerations is deciding between system-assigned vs. user-assigned identities. For short-lived or isolated workloads, system-assigned identities may suffice. But for shared services or long-term solutions, user-assigned identities offer more control and reusability.

Role assignment is another key factor. You should apply the principle of least privilege, ensuring that each identity has only the permissions it needs—nothing more. This can be managed through Azure AD roles or fine-grained resource-specific roles. Regularly reviewing and adjusting these roles should be part of your access governance cycle.

It's also important to monitor and audit your managed identity usage. Azure Activity Logs and Microsoft Purview can help track who accessed what, when, and how. This kind of telemetry is crucial for demonstrating compliance, investigating issues, and continuously improving your security posture.

From a development standpoint, educating both pro developers and citizen developers about the use and benefits of managed identities is vital. Documentation, internal workshops, and pre-configured templates can accelerate adoption. Ideally, your organization should treat the use of managed identities as a policy-driven default, enforced via tools like Azure Policy or custom DevSecOps workflows.

Lastly, think long-term. As your organization grows, so too will your Power Platform ecosystem. Building it on secure foundations today—using managed identities—ensures that scale and complexity do not come at the cost of security and compliance tomorrow.

Shifting Left: Building Secure Foundations from Day One

One of the most powerful advantages of managed identities is how well they support a “shift-left” security model—bringing security concerns earlier into the development lifecycle. Instead of retrofitting compliance after solutions are live, you can embed secure identity practices from day one. This approach not only improves efficiency but drastically reduces the cost and effort of remediation later.

For Power Platform teams, this means incorporating identity and access discussions into the planning and design stages. When a developer or business user starts building a new app or automation, they should already know that a managed identity will be used to access back-end services. Governance teams should provide guardrails and templates, not roadblocks.

This proactive approach also promotes consistency across the organization. Every app, every flow, every connector—secured the same way, logged the same way, monitored the same way. This consistency simplifies operations, strengthens your security posture, and enhances auditability. It also makes it easier to respond to incidents or compliance reviews, since you’re not dealing with one-off configurations or legacy access patterns.

By establishing managed identities as a default, you create a frictionless path to doing the right thing. Developers no longer need to choose between agility and security—they get both. And for compliance teams, that means less firefighting, fewer exceptions, and more confidence that the environment is operating within safe, governed boundaries.

Power Platform offers immense potential for innovation, but only if that innovation is grounded in strong security practices. Managed identities are one of the simplest, most powerful tools available to make that happen—and adopting them as your default is one of the smartest decisions you can make.