Abstract

In 2018, it became public knowledge that millions of Facebook users’ data had been harvested
without their consent. At the heart of the issue was Cambridge Analytica (CA) which in
partnership with Cambridge researcher, Aleksandr Kogan harvested data from millions of
Facebook profiles. Kogan had developed an application called “thisisyourdigitallife” which
featured a personality quiz and CA paid for people to take it. The app recorded results of each
quiz, collected data from quiz taker’s Facebook account such as personal information and
Facebook activity (e.g., what content was “liked”) as well as their Facebook friends which led to
data harvesting of about 87 million Facebook profiles. The researcher then passed on this data to
CA, which then used an algorithm that enabled them to psychologically profile people based on
their Facebook interactions. Donald Trump had hired CA as a part of his 2016 Presidential
election strategy. In order to deliver pro-Trump materials to individuals online, CA targeted
individuals with a lesser known Facebook feature called “dark post” that contains personalized
ads that are visible only to targeted individuals.CA consciously exploited fears of individuals
with targeted advertising based on their personality profiles. The use of highly personalized ads
made them vulnerable to Trump’s messages that compelled them to vote for him. This digital
onslaught played a significant role in Trump’s victory over Hilary Clinton. This article will
review how CA was able to harvest users’ personal data and what were its repercussions.

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 Analytical scandal

The controversy involving Facebook that happened in the early 2018 called as Facebook–
Cambridge Analytical data scandal. It was a huge scam, wherein the Cambridge Analytical, 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 Analytical towards political
Campaign for Donald Trump. ("Here's everything you need to know about the Cambridge
Analytical 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).

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 &Knop, 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 Analytical scandal, became a subject of innumerable

investigations, lawsuits and inquiries around the world and many agencies undertook
investigations. (A Riedel &Knop, 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 Analytical. However, the fact
remained that operating model of Facebook itself 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 Kegan, Cambridge Analytical 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 Analytical denies accessing data on 87M Facebook users…claims 30M –
Tech Crunch", 2019).

The magnitude of Cambridge Analytical 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 - Palmore Institute", 2019).

The Pestle 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):

1. Review our platform;

2. Tell people about data misuse;
3. Turn off access for unused apps;
4. Restrict Facebook Login data;
5. Encourage people to manage the apps they use;
6. 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 members provide solutions.

 CEO makes the final choice
 Final choice is seen as ‘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

 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