I added a simplified workflow and amended it to add additional statuses and conditions. However, when I go to the issues screen, my users can see the transition buttons (which is correct), but they can also see a workflow button with dropdown which allows them to transition to any step. How can I remove the workflow dropdown or restrict my users from seeing this?
The point of the simplified workflow is that it allows you to go from any status to any other.
The buttons you are seeing are transitions in your workflow. To remove them, you need to remove those transitions (or heavily restrict them) - including the "from Anywhere" ones the simplified workflow had. If you look at the edit workflow diagram, you'll see "all" coming into each status - it's probably those you're seeing in the dropdown
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