Impact and Solutions to Facebook’s Privacy Scandal

EXECUTIVE SUMMARY

This report critically analyses the case of the well renowned social media company – Facebook. It discusses the profile of the company by describing about the company, its structure, capacity and organizational hierarchy. It further describes and chronologically analyzes the incident of Cambridge Analytica Scandal. The report further leads to the business model of Facebook and critically discuss its Corporate Accountability. It shows how Facebook was rigid and was not keen to change its business model. It accentuates both the internal and external analysis of facebook wherein the report uses models such as PESTEL analysis which discusses the political, economic, socio-cultural, technological, environmental and legal factors that affect the growth and development of Facebook as a company. Facebook prepared a six point plan so as to avoid the occurrence of such a scandal in the future. The report discusses the six point plan and highlights in postulates what steps were taken by Mark Zuckerberg to avoid the Cambridge Analytica Scandal and what happened with Kogan. The report further discusses in detail the strengths, weaknesses, opportunities and threats of Facebook by doing a SWOT analysis.

For a company to be successful operationally and financially, its strategy and the top management team that takes decisions is of paramount importance. The most vital part of this report is the Strategic leadership part wherein various models such as open bound business model, resource based view and Top Management Team Models have been discussed.

Lastly, my interpretation and conclusion has been stated based on the case and the logical analysis done on the series of events that happened during and after the scandal occurred.

Facebook- Can Ethics Scale in the Digital Age?

‘The problem is the hijacking of the human mind’ – former Google ethicist

INTRODUCTION

Profile of the case company

Facebook is a well-known social media for connecting people across the globe. Facebook was founded by Mark Zuckerberg in the year 2004. It compares with other tech companies like Amazon, Apple, and Google. Till 2018 it had more than 2.3 billion active users. (“Facebook – Corporate Governance”, 2019).

Facebook earned huge profits in the year 2017 amounting of almost $40.7 billion. The major source of earning profits for Facebook has been mobile advertisements. (ARGUS, 2019).

Cambridge Analytica scandal

The controversy involving Facebook that happened in the early 2018 called as Facebook–Cambridge Analytica data scandal. It was a huge scam, wherein the Cambridge Analytica, a political consulting firm, misused the personal data of millions of Facebook users profile without obtaining their permission for the same.

 This app namely “thisisyourdigitallife” in 2014 was created to collect data from the users without their consent. This data was then used by Cambridge Analytica towards political Campaign for Donald Trump. (“Here’s everything you need to know about the Cambridge Analytica scandal”, 2019).

Mark Zuckerberg subsequently accepted his mistake and apologized in public for not being able to prevent Facebook from misusing the private data: “It was my mistake, and I’m sorry. I started Facebook, I run it, and I’m responsible for what happens here.”(“Facebook, Social Media Privacy, and the Use and Abuse of Data | United States Senate Committee on the Judiciary”, 2019).

Get Help With Your Essay
If you need assistance with writing your essay, our professional essay writing service is here to help!
Essay Writing Service

The enormity of the whole scandal was that it raised privacy issues which had the capacity to take down the entire organization/company. Campaigns like #Deletefacebook were undertaken by several personalities including Whatsapp’s cofounder Brian Acton, wherein Elon Musk, entrepreneur and Tesla’s CEO also joined. This scandal resulted in a loss of %100 billion or 18% decline in share price of Facebook within 10 days. It even eroded the user’s trust over facebook (A Riedel &Knoop, 2019).

Facebook- business model

Facebook also considered a subscription-based approach as a business model to overcome privacy issues and in interest of its users. However, if this business model was adapted by facebook it would require facebook to substitute the advertising revenue business model leading to a loss (amounting to $40 billion in 2017) with subscriptions.

To recover this loss, Facebook would have to charge each subscriber approximately 84.41 dollars, which was the average revenue it was earning per user through the advertisement model. (“Why Facebook Will Never Change Its Business Model”, 2019).

Now the question arose that – How many facebook users will be willing to pay this amount? An online survey conducted on whether people would be willing to pay for Facebook without Ad’s, revealed that only 23% were willing to pay. (“How much would you pay for Facebook without ads?”, 2019).

Analysis of the Corporate Accountability

Interestingly, Facebook promises on its official website – ‘It’s free and always will be.’

While Facebook was committed to provide free access to its users, it also was accountable to protect their privacy. (“Why Facebook Will Never Change Its Business Model”, 2019).

Brief outline

Facebook, after the Cambridge Analytica scandal, became a subject of innumerable investigations, lawsuits and inquiries around the world and many agencies undertook investigations. (A Riedel &Knoop, 2019).

However he upheld his view that he want to connect people through an easily affordable platform and for the purpose he adapted advertising media as a business model to fund it. (“Why Facebook Will Never Change Its Business Model”, 2019).

BODY

External Analysis of the implications of the scandal

While entire incident/scandal got a huge publicity causing a huge loss of reputation to Facebook, it was quick enough to accuse and put the blame on Cambridge Analytica. However, the fact remained that operating model of Facebook it self supported such a misuse. The impact of the scandal was that it harmed the Users/subscribers as well as the Society. There was undoubtedly an exploitation of the users’ data. Zuckerberg had issued a statement saying that: “This was a breach of trust between Kogan, Cambridge Analytica and Facebook. But it was also a breach of trust between Facebook and the people who share their data with us and expect us to protect it. We need to fix that.”(“Facebook’s Zuckerberg sorry for ‘major breach of trust'”, 2019). The scandal also adversely impacted the interest of Shareholders through a loss of 18% of the share price. (“Cambridge Analytica denies accessing data on 87M Facebook users…claims 30M – Tech Crunch”, 2019).

The magnitude of Cambridge Analytica scandal had the potential to shut down the company. The scandal highlighted the business responsibilities of companies is to uphold trust of its stakeholders.

PESTEL MODEL

The PESTEL Analysis model analyses political, economic, social, technological, environment & legal factors of a company’s external environment in which it operates. It is also used to analyze and monitor the marketing environment of a company for SWOT Analysis.

In the case of Facebook, the political stability across various countries and the various government’s support across nations towards globalization, increasing regulatory support for free Wi-Fi, improving patent laws worldwide were a major factors towards ensuring its success. Socio-cultural external factors included enhanced incomes in the hands of masses and a preference for technological devices (“Facebook Inc. PESTEL/PESTLE Analysis & Recommendations – Panmore Institute”, 2019).

The Pestel analysis of Facebook helps us to understand what and how external factors are affecting Facebook. PESTEL analysis lists the components that make up the elements of a given environment and influences the dependent variables. It further lays emphasis on strategic reforms to be adapted by a Company to protect it from external threats (Eisenlauer, 2013).

Facebook’s response to the Scandal

In order to overcome crises and do the damage control, as well as to prevent abuse of platform in future, Mark Zuckerberg put forth a six point plan. This plan considered of the following (“Zuckerberg’s letter to MPs in full: Six-point plan over data use”, 2019):

Review our platform;

Tell people about data misuse;

Turn off access for unused apps;

Restrict Facebook Login data;

Encourage people to manage the apps they use;

Reward persons who highlighted weaknesses.

Certain further steps were taken by Mark Zuckerberg for Facebook like: Safeguarding the platform, to make sure that easy access was not given to developers and building better controls for its users (United States Senate, 2019).

In quarter one of the year 2018, further steps were also taken to secure data which included deleting millions of fake accounts and enhancing the role of Company’s Audit Committee towards privacy oversights (“Facebook shuts down 583 million fake accounts in first three months of 2018”, 2019).

Resource Based View

RBV brings management focus on internal resources of a company including its assets, manpower, capabilities and other resources which the company can use to enhance competiveness. (“Can Social Media Marketing Improve Customer Relationship Capabilities and Firm Performance? Dynamic Capability Perspective”, 2017).

The biggest asset for the Facebook is its billions of users worldwide resulting into huge database for advertisers. With the functionality introduced by Facebook that allowed advertiser’s websites to entrench the preference of the users based on its feature of like button, (Kessler, 2012) facebook is able to make billions.

Inspite of various threats, Facebook’s consistent efforts towards development have helped the company build resources and capabilities and score over competitors (Kakkar, 2012).

SWOT ANALYSIS

Regardless of the major controversies, position of Facebook remained unchanged. Strength of the Facebook is depicted through the rising number of users being over 2 billion and is still rising (Frue, 2019).

Facebook is the second best social media platform for advertising after Google. It strengths are connected with its opportunities. It has an aggressive strategy which emphasizes on exploiting the available opportunities and using internal resources to score over competitors (“Facebook – SWOT analysis”, 2019).

The foremost major strength of Facebook is its capability to invest in marketing development and research. Owing to its vast resources Facebook acquired other social media platforms like Whatsapp, Instagram, etc

The second foremost strength of Facebook is its billions of users spread worldwide.

Weaknesses

Since billions of users share their personal information on Facebook which could be prone to abuse by unsocial and unethical people/group of people, data breach and privacy is a major reason of concern. Though Facebook has taken up various steps to protect the privacy of information of users there are always chances of data leakage and risk of hacking. Users also feel that an informed consent is not taken by Facebook from them.

Opportunities for Facebook:

After acquiring Whatsapp and Instagram, Facebook has a huge database and an opportunity to reach maximum users. Further the measures taken by it towards enhancing transparency and data protection has helped build lost trust among users.

Threat

Facebook has a global business functioning beyond states with varying and fluctuating politics and concepts of privacy and online rights. Different laws in different states might drag Facebook into trouble.

Competition is another major threat to Facebook, as there may be other similar social networking sites being developed.

With recent scandal pertaining to breach of privacy and the fact that its membership is increasing, Facebook will now also be susceptible to cybercrime.

Legal, Ethical and economic issues faced by Facebook

Legal compliances, transparency and ethics ensure a business entity earns a reputation and consequently the profits surge. However lack of the same also sees a company’s downfall. Genuine transparency should be maintained that informs the users that how the data collected by firms will be used. In the case of Facebook, since it erred on the ethical ground it had to face a huge loss, be it in terms of reputation or loss of revenue (“Kinds of Social Responsibility: Legal, Ethical, Economic, Solved Questions”, 2019).

Strategic Leadership & how strategic leaders should make decision

Strategic Leadership refers to the management of the company as a whole. Basically it states that certain practical decisions are to be taken for the effective functionality of the Company which should be beyond personal relationships. (Finkelstein and Hambrick, 2009).

For a better understanding, CEO-TMT interface models are as follow (along with their key features):

Judge-advisor model (Arendt et al,2005)

TMT membersprovide solutions.

CEO makes the finalchoice

Final choice is seenas ‘judgement task’

CEO delegation model (Buyl et al.,2014)

CEO influences TMTbehaviours

Decisions aredelegated to topmanagers

No conflict

CEO complementarity model (Cao et al.,2010)

Complementarity in

knowledge and skills

Open bound models can be classified as Board Involvement, Advisors/consultants and Middle managers. The limitations of open bound models are Non-TMT actors are difficult to identify (especially if they are outsiders), might exist in parallel with other models and unclear through which member’s information enters decisions.

The strategic leadership philosophy at Facebook is the roles of both managers and leaders are different but they are both essential for an organization. The management team of Facebook wrestled with the issues and controversies and refused to give up. However, the leadership realized the need for a shift in approach with regard to key issues affecting the Company such as privacy, role of third parties and took a decision accordingly. (Cox, n.d.)

Conclusion:

Facebook, is a social media conglomerate which has connected billions of people across the globe and made millions in the process through advertisement. However, by disregarding legal & ethical concerns, it became vulnerable to the third parties which exploited private data of its users towards political purposes. Nevertheless Facebook’s response to the scandal was quick and its strategic leadership critically evaluated the situation and took positive measures to restore the confidence.

Mark Zuckerberg and Sandberg have done a remarkable job by building a successful company. However, now that privacy issues with Facebook are finally on their radar, they need to come up with a permanent fix of the problem. The company must fix the growing privacy issues associated with it without in any way hampering the company’s revenues in the process. Else, the organization shall be in the danger of wide open government-imposed solutions. The danger with such a contingency is that when the government comes to fix a problem, it often acts as trying to kill a mosquito with a nuclear weapon. The solution therefore is that Facebook must restrict itself and restrain third parties from accessing or pulling out the personal and private information/data of its users without obtaining their written/explicit consent.

References

ARGUS. (2019). Analysis by Joseph Bonner, CFA. Retrieved from https://www.argusresearch.com/PDFDownloader2.aspx?id=MDAwMDAwMTIzOQ==aAB0AHQAcAA6AC8ALwByAGUAcwBvAHUAcgBjAGUAcwAuAGEAcgBnAHUAcwByAGUAcwBlAGEAcgBjAGgALgBjAG8AbQAvAHIAZQBwAG8AcgB0AHMALwAwADAALwAwADAALwAxADEALwAzADgALwAwADYALQAxAEUANQAwAEYAMgAyADAALQA0AEYAQwA4AC0ANAAwADQAMwAtAEIAQwBBADIALQAyADAAOAA0ADYANAAxADgAMwBBAEMARgAuAHAAZABmAA==

A Riedel, G., &Knoop, C. (2019).Why Facebook Will Never Change Its Business Model. (2019). Retrieved from https://www.forbes.com/sites/lensherman/2018/04/16/why-facebook-will-never-change-its-business-model/#1385cf8f64a7

Cambridge Analytica denies accessing data on 87M Facebook users…claims 30M – TechCrunch. (2019). Retrieved from https://techcrunch.com/2018/04/04/cambridge-analytica-30-million/

Can Social Media Marketing Improve Customer Relationship Capabilities and Firm Performance? Dynamic Capability Perspective. (2017). Journal Of Interactive Marketing, August 2017, Vol.39, 15-26.

Cox, C. (n.d.). .

Document. (2019). Retrieved from https://www.sec.gov/Archives/edgar/data/1326801/000132680118000009/fb-12312017x10k.htm#s60B8BE2CF57E51369F427AB902408CEC

Eisenlauer, V. (2013). A Critical Hypertext Analysis of Social Media (1st ed.). Bloomsbury Publishing Plc.

Facebook – Corporate Governance. (2019). Retrieved from https://investor.fb.com/corporate-governance/?section=management

Facebook and Google completely dominate the digital ad industry. (2019). Retrieved from https://www.businessinsider.in/Facebook-and-Google-completely-dominate-the-digital-ad-industry/articleshow/58389060.cms

Facebook, Social Media Privacy, and the Use and Abuse of Data | United States Senate Committee on the Judiciary. (2019). Retrieved from https://www.judiciary.senate.gov/meetings/facebook-social-media-privacy-and-the-use-and-abuse-of-data

Facebook’s Zuckerberg sorry for ‘major breach of trust’. (2019). Retrieved from https://www.aljazeera.com/news/2018/03/facebook-zuckerberg-major-breach-trust-180322060614512.html

Facebook shuts down 583 million fake accounts in first three months of 2018. (2019). Retrieved from https://www.livemint.com/Companies/De3uYuVugypOTMIrOSPHlI/Facebook-shuts-down-583-million-fake-accounts-in-first-thre.html

Fahy, J and Smithee, A. “Strategic Marketing and the Resource Based View of the Firm,” Journal of the Academy of Marketing Science Review, Vol. 1999, 10, online at https://pdfs.semanticscholar.org/025b/5aa7e682f4cbf1d7637a0bbe51a2a0d602e7.pdf

Facebook – SWOT analysis. (2019). Retrieved from https://www.cayenneapps.com/blog/2015/08/05/facebook-swot-analysis/

Facebook Inc. PESTEL/PESTLE Analysis & Recommendations – Panmore Institute. (2019). Retrieved from http://panmore.com/facebook-inc-pestel-pestle-analysis-recommendations

Finkelstein, S. and Hambrick, D. (2009). Strategic Leadership: Theory and Research on Executives, Top Management Teams, and Boards. Oxford University Press.

Frue, K. (2019). SWOT Analysis of Facebook: How has it survived for so long?. Retrieved from https://pestleanalysis.com/swot-analysis-of-facebook/

Georgakakis, D., Greve, P. and Ruigrok, W. (2017). Top management team faultlines and firm performance: Examining the CEO-TMT interface. The Leadership Quarterly.

Here’s everything you need to know about the Cambridge Analytica scandal. (2019). Retrieved from https://www.cnbc.com/2018/03/21/facebook-cambridge-analytica-scandal-everything-you-need-to-know.html

How much would you pay for Facebook without ads?. (2019). Retrieved from https://www.vox.com/2018/4/11/17225328/facebook-ads-free-paid-service-mark-zuckerberg

In 15 years Facebook has amassed 2.3 billion users – more than followers of Christianity. (2019). Retrieved from https://www.businessinsider.in/In-15-years-Facebook-has-amassed-2-3-billion-users-more-than-followers-of-Christianity/articleshow/67841524.cms

Jones, S. (2019). What impact will Facebook scandal have? [In person]. London. Kakkar, M. (2012). Firm Strategy Analysis [Blog]. Retrieved from https://www.slideshare.net/manan/firm-strategy-analysis-facebook

Kessler, A. (2012). The Button That Made Facebook Billions. Wall Street Journal. Retrieved from https://www.wsj.com/articles/SB10001424052970204652904577196992203069570

Kinds of Social Responsibility: Legal, Ethical, Economic, Solved Questions. (2019). Retrieved from https://www.toppr.com/guides/business-studies/social-responsibilities-of-business/kinds-of-social-responsibility/

United States Senate. (2019). Testimony of Mark Zuckerberg Chairman and Chief Executive Officer, Facebook. United States.

Zuckerberg’s letter to MPs in full: Six-point plan over data use. (2019). Retrieved from https://news.sky.com/story/zuckerbergs-letter-to-mps-in-full-six-point-plan-over-data-use-11305669