The global business environment is dynamic, presenting companies with a myriad of challenges, risks, and uncertainties that affect business operations. According to Demin et al. (2018) business risks, influence investors’ motivation, significantly affecting the growth of enterprises. In every venture, a person chooses whether or not to engage in business based on what they understand and expect from an investment, denoting the value of business uncertainties. Organizations handle corporate risks differently, accounting for the various company performance levels. Risks can be easily identified and measured for a cost-benefit evaluation of investment opportunities. This way, a company can avoid risks by not engaging in a given venture or managing reasonable risks. However, dealing with uncertainties in business is quite complicated mainly because they result from unforeseen events whose probability cannot be perfectly estimated. Recently, many companies, including Facebook, have been dealing with various risks posed by uncertain business operations. Privacy and user data management is the most significant challenge that has rendered Facebook uncertain of its future operations.
Recent Actions on Risks and Uncertainty
With technological advancement, communication has become more digitized, with social media playing a crucial role in social and business interactions. Facebook has been dealing with one privacy issue; the exposure of users’ confidential data. Facebook currently has 1.86 billion users, crowning it the largest global social platform (Bulusu, 2021). Users who establish a Facebook account agree to its Acceptable Use Policy (AUP) before submitting their information. The client information enables Facebook to connect the customer with other profiles based on the data given by the user. Furthermore, such user data allows the company to adjust the user’s feed and provide suggestions based on the provided personal data.
Recently, the company has been in the spotlight over inappropriate use of its customers’ data. According to information presented on Bloomberg Law, Bulusu (2021) records that the Federal Trade Commission (FTC) filed a case on Facebook’s violation of privacy and antitrust laws in August this year. This case is based on the company’s acquisition of Instagram and Whatsapp. This recent move by Facebook gives it more market power, which is considered disastrous since it is already the most used social media platform globally. According to FTC, Facebook has monopolized social media, making it easy for it to misuse customers’ data without facing much competition and lawsuits (Bulusu, 2021). The recent accusation is backed up by various allegations, including the Cambridge Analytica LLC’s case in which Facebook was accused of facilitating the 2016 U.S. elections by selling users’ profiles for campaign advertisement targeting (Bulusu, 2021). The FTC hopes to use this case to highlight the company’s risks regarding data management.
Third-party advertisement is one of the company’s biggest revenue sources. Its recent actions prove that it aims to use its newly gained control over Instagram and Twitter to use customer data for its own benefits. If Facebook is found guilty of the violations mentioned by the FTC, it may lose control of its new platforms or be forced to pay a considerably high amount of money. This privacy challenge is connected with the uncertainty of users’ perceptions and attitudes. As customers’ preferences change, Facebook finds it challenging to use the data collected to tailor advertisements and news feeds to suit every user without compromising their personal data (Demin, 2018). Facebook needs to improve its risk management practices to remain relevant in the market and avoid lawsuits from these issues.
Improving Risk Management
The main source of the current risk identified is Facebook’s expansion strategy by acquiring other firms in the same industry. With expansion comes operational, management, and financial risks, according to Sroufe (2017). The first strategy that would help Facebook, in this case, is thorough market research to identify consumer needs, preferences, and the associated legal requirements. Akanbi (2021) comments that the privacy challenges can be effectively addressed by companies adopting a market-focused approach. This entails looking at the environment and what other actors are doing in line with users’ satisfaction and security issues.
Second, Facebook should be clear about its user policy and invest in early detection and mitigation of risks to avert the severe consequences that follow. Alvarado et al. (2018) document that data stewardship is a serious role that should not be handled lightly. When the first complaints on user data misuse arose, the company should have taken firm steps to prevent inappropriate and advertisements-focused data sharing. Third, the company should consider implementing recent technologies in data management and their impacts on future operations. According to Alvarado et al. (2018), blockchain presents an excellent solution as it can be tailored to gather user consent and aid in preferences analysis, thereby contributing to improved risk management.
An Adverse-Selection Problem
The interaction between customers and service providers is based on knowledge sharing about the products involved. Adverse selection arises when one of the parties involved in a business interaction has more information about the product than the other (Demin, 2018). In many cases, the seller withholds some information from the buyer, giving only superficial details to the consumer. In Facebook’s case, information concerning how the user data gathered is applied is not fully disclosed to the users. Although the company states that the data is used to provide user-specific content, it does not mention the exact avenues to which the information is shared (Bulusu, 2021). The fact that users were subjected to unwanted campaign advertisements in 2016 without their approval means they were unaware that their personal profiles could advance political agenda.
The leading solution to the adverse section problem may be generated from changing Facebook’s user policy acceptance procedures. Presently, the company lists a number of issues regarding its site use and its obligation to customers’ security. However, customers cannot select the policies they want to apply to their individual cases. A person is asked to either accept the policy or refrain from using the site, which is not an option to many, considering the platform’s key role in business and social connectivity (Akanbi, 2021). Facebook can minimize this issue’s impact on business by providing an option that allows users to read each rule and decide whether such should apply to their cases or not. This way, many people will be motivated to use the site since they can be assured that only what they allow will be used and that none of their information will be shared with third parties without their consent. With more customers, Facebook’s business transactions will increase, generating more revenue.
The Moral Hazard Issue
Although contracts are designed to bind two parties in an agreement, many times, one of the actors violates the rules of engagement. A moral hazard is an unethical act committed by an organization or an individual by deviating from the agreed codes of conduct (Bulusu, 2021). Facebook faces a moral hazard problem following its violation of user data privacy. Using its customers’ personal information to attract advertisements for income generation is unethical. Over the years, Facebook has received a backlash from various stakeholders in regard to its monetization of customers’ data (Alvarado et al., 2018). Currently, Facebook takes advantage of its market share by going against user preferences and using gathered information to generate third-party companies for monetary benefits.
Moral hazard challenges in line with data security can be prevented in two main ways. First, adopting an open-book information sharing policy would enable users to see precisely how their information is used and choose whether to continue with the platform or not. Clearly, one can only decide based on what they understand, and, according to research, many people either fail to read the privacy policy or read without understanding (Akanbi, 2021). Second, training on online security could help users to be more cautious of the kind of information they share on Facebook. This way, customers will protect themselves against the severe consequences of moral hazards.
The Principal-Agent Problem
Business interactions involve a seller, described as the principal, and a buyer, defined as the agent. In many cases, buyers wrongly assume that their relationship with the principal is limited to the acquisition of goods and services and the subsequent payment. In the case presented by FTC, a principal-agent problem is evident from the fact that Facebook is using user data for the company’s financial benefits (Bulusu, 2021). The company violates the principal-agent regulation by seeking unfair advantages at the expense of the agent’s information security and personal preferences. The tools used by Facebook for this purpose include data mining for information generation and focused advertisements, in which the information shared is used to develop and disseminate news feeds and adverts. With the information collected, Facebook enters into contracts with many companies, allowing them access to users who are best suited for their content, maximizing profits from increased traffic.
The Organizational Structure
An organization’s structure determines job allocation, financial plans, and productivity. A change in the organizational structure may generate considerable gains for accompany. Facebook has a matrix structure, with the project and functional managers controlling staff and company operations (Sroufe, 2017). To meet its needs for growth and innovation, Facebook has the geographic division to deal with cultural differences and to address varying customer needs in different locations. The project division is charged with research and innovation to develop solutions that meet customers’ changing needs.
Facebook’s structure has been beneficial in allowing the company to address customers’ needs across the globe. Despite its benefits, Facebook Inc.’s corporate structure has the drawback of making it more challenging to implement directions across the company. This problem arises as a result of differences in regional management strategies throughout the firm’s geographical divisions (Sroufe, 2017). Nonetheless, these divides are required to guarantee that the business caters to the cultural and political differences that exist between nations and territories. These limitations can be addressed through role sharing and creating a unified corporate communication strategy. This plan will enable managers to share data across different countries and regions, improving operations and enforcing accountability through role-sharing. The main benefit of these strategies will be improved performance and higher profitability.
References
Akanbi, O. (2021). A market-based rationale for the privacy paradox.Media, Culture & Society, 43(8), 1497-1514.
Alvarado, C., Devadoss, N., Rivens, R., & Engels, D. W. (2018). It’s your data: A blockchain solution to Facebook’s data stewardship problem. SMU Data Science Review, 1(4), 2.
Bulusu, S. (2021). Facebook is haunted by privacy issues as FTC ups antitrust case (1). Bloomberg Law.
Demin, S. S., Dombrovskaya, E. N., Mushrub, V. A., Shichiyakh, R. A., & Gaponenko, T. V. (2018). Essence and the impact of risks and uncertainties in the investment-related decision-making process.Revista ESPACIOS, 39(31).
Sroufe, R. (2017). Integration and organizational change towards sustainability. Journal of Cleaner Production, 162, 315-329.