Shockwaves from the Edge: Part 3 in a Series

by Chunka Mui

A mission critical question arises with edge innovations (see parts 1 and 2) that are driven by detailed information about products in customers’ hands and about the customers themselves. Will potential customers embrace it? Or are they too concerned about privacy and security?

Consider the current situation. Not too long ago, ABN AMRO Mortgage Group lost a magnetic tape containing account information for two million customers. A network break-in at credit-card-payments processor CardSystems Solutions, Inc., exposed up to 40 million credit cards accounts. These are not isolated incidents. Lost tapes, stolen computers, rogue employees, unsupervised contractors, insecure networks, and compromised databases—all leading to compromised customer information—seem almost regular news features. Real damage is being inflicted. A study co-sponsored by the Better Business Bureau estimated that about 8.9 million Americans were victims of identify fraud in 2005, resulting in one year loses of $56.6 billion to businesses and customers.

Carelessness and rogue activity are not the only concerns.  Perhaps more potentially damaging to brand and customer relationship are ill-conceived strategies for monetizing customer information.  For example, Facebook.com is reportedly working on a system that allows advertisers to target users, not just on basic demographic information like gender, age, and location, but also based on preferences, interests and other information in their personal Facebook pages. Taking the approach one step further, the system would also allow what might be called peer pressure advertising, targeted advertising based upon information a user’s friends and connections in the social network. It will be interesting to see whether users accept this level of data mining, or will they perceive it as a violation of their social contract with their social network host?

What limits will customers have on the specifics about themselves and their habits?  Certainly, customers will reject organizations that don’t handle their data with proper care. An inability to master privacy and security issues, or at least avoid their worst pitfalls, might well undermine a company’s ability to capitalize on edge innovations, no matter how powerful the design.

Privacy and security are, of course, multi-faceted problems that defy a simple answer. At the least, every organization should enact best practice privacy and security guidelines such as those recommended by the Better Business Bureau and TRUSTe, an independent non-profit co-founded by the Electronic Frontier Foundation. While these standards offer no absolute guarantees, they do provide base-level capabilities and offer some reassurance to customers.

Enacting such guidelines, however, would be just window dressing if that were all companies did. Privacy measures built on legal mandates and legalistic policies are inherently weak. Why else are most privacy policies hard to decipher and opt out procedures conveniently difficult to exercise? In truth, most customer relationship management (CRM) strategies are just poorly veiled attempts to sell more to customers, in large part by using customer’s information against them. As the name implies, CRM is about managing the customer. That’s why “CRM” is sometimes referred to as a “customer roach motel” strategy: customers can come in but they can’t get out.

Instead, companies should differentiate themselves by establishing deep trust and a true information partnership with their customers. This would facilitate information gathering, and encourage customers to share even more information than the company might otherwise collect. But, in order to do this, companies need to adopt deeper principles that guide privacy and security. Here are three:

First, do no harm. The famous admonition, usually attributed to Hippocrates and applied to medicine, would do well for holders of sensitive personal information as well. What information is kept, how it is used, how long it is kept, with whom it is shared, and how it is handled; all of these should be assessed through the lens of “first, do no harm” to the subject. A simple test would be whether company executives would gladly submit their own information, or better yet, their mother’s information, to be managed and used in the same manner as that of customers.

Build trust though transparency. Widely scattered private information is a by-product of the digital economy. Customers know there is really no going back. Their uneasiness comes from not knowing who holds what and how they use it. Reputable information holders can build trust by being transparent, both in terms of the information that they hold and how they use it. They should make it easy for customers to review their own information. Information holders should also make it clear how customer information is used and, most importantly, make themselves accountable for that usage.

Share the wealth. Perhaps the best way to construct an information partnership is share the value derived. Could information holders entice customers to share even more information by offering them some of the resultant value? Brokers that sold information would share some of the profits with the subjects. Companies that analyzed the information for better decision-making would share some of the benefits of that analysis.

Establishing trusted information partnerships with customers would upend traditional notions of customer relationship management. Trust would in fact be a business strategy, rather than a relationship strategy.

Next in the series:  A New Mission And A 90-Day Plan.

ABOUT THE AUTHOR

Chunka Mui

Chunka Mui is the co-author, with Larry Downes, of Unleashing the Killer App, Digital Strategies for Market Dominance, the digital strategy best-seller (Harvard Business School Press, 1998).  His current writing projects include Killer Platforms, an essay series that explores leading edge digital strategies, and The Devils’s Advocate, Avoiding the Mistakes that Cost Companies Billions, a book, co-authored with Paul Carroll, that draws the lessons of the largest strategic failures of the last 25 years.

In addition to research and writing projects, Chunka Mui is an independent business advisor and a frequent speaker at public and private conferences. He also chairs the Diamond Fellows, Diamond Management and Technology Consultants’ network of external advisors, and regularly works with Diamond consultants on client-related research and consulting projects. He is also a member of the board of advisors for Brulant.

Previously, he was a partner and chief innovation officer at Diamond, a vice president at the CSC Index division of Computer Sciences Corporation, and a founding member of Center for Strategic Technology Research (CSTaR) at Arthur Andersen & Company (now Accenture).

Chunka Mui was born in Hong Kong but grew up on the south side of Chicago.  He holds a B.S. Degree in Computer Science and Engineering from MIT.  To find out more about Chunka Mui, or to contact him, visit  http://www.chunkamui.com/contact.htm.

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