Social Media in Business

Traditionally, companies managed most business functions of the value chain internally, with different departments responsible for the respective activities. R&D and marketing functions were particularly expensive but vital to the competitiveness and success of a company. The concept of the value chain as a tool for strategic management emerged in the 1980s and called for reassessment of the value adding activities of the firm, and therefore a restructuring of the business model (Porter, 1996). Effectively, the last two decades yielded an increasingly popular alternative to in-house R&D, marketing and other business activities – outsourcing. Outsourcing allowed companies to focus resources on their core competencies and contract supporting business activities to external partners, providing a cheaper and more flexible way to manage the business model.

The advent of social media has not only resulted in a platform for networking, communication and CRM (Customer Relations Management) but has been a major destination of outsourcing for firms, which has served to effectively restructure business models. Social media can be classified as public social media and social enterprise tools – depending on if the media is used for company external or internal communication. Through keeping up an active dialogue with consumers companies can increase their customer awareness and create strategies more fitting to the markets needs and wants. In contrast to traditional market research, listening and interacting with customers though social media is free. Social media can also be used as a communication, collaboration and knowledge sharing tool within a company and with its business partners. Later on we will discuss the emerging importance of managing a virtual organization and present a case study of a social business community. The key to social media and the main reason behind its impact on business operation is that it levels the playing field allowing for interactive communication with all parties involved – customers, investors, partners and other stakeholders.

Social media can provide cost savings and improve efficiency in:

• Marketing – research, advertising and branding
• Product development – feedback, crowd sourcing
• Strategy development – knowing the customer
• Networking benefits – customers, partners and investors
• Enterprise tool – managing a virtual organisation, supporting collaboration and innovation

The top five business benefits of employing social tools identified in CompTIA's Social Business: Trends and Opportunities study are (Marketwatch.com, 2012): 

• Better communication with customers, cited by 61 percent of responding companies
• Cost savings (51 percent) 
• Brand positioning (49 percent) 
• Real-time customer satisfaction (48 percent) 
• Potential lead generation (43 percent) 

CompTIA's Social Business: Trends and Opportunities study is based on a January 2012 online survey of 400 IT and business professionals in a variety of industries in the United States. The survey showed that 82 % of responding companies have a Facebook presence, 68 % have a Twitter profile and 68 % have a LinkedIn page. However, less than 20 % were using social enterprise tools at the time of the survey. 

Social Networking in Marketing

  

It has been well documented and noted in all aspects of society the incredible rise of Social Media and its use by individuals, consumers and increasingly corporations. One of its biggest effects though that it is having is on the Marketing Strategies of companies that are targeting mainly young consumers who are using the internet and Social Networking sites more and more. To give an example of this, in 2009, Facebook had 130 million users, and at the end of 2011 it had over 850 million active users. There has also been a change in focus on who holds the power in the relationship between company and buyer because consumers now know that they can be reached and are waiting for companies to get in touch with them.

Changes to Advertising:

One of the most important aspects to any marketing campaign is a companies advertising, which has been changed dramatically. Adverts are now more customized to an individual more than ever before and more importantly are done so virtually. For example Ford has recently showed it is no longer using traditional advertising methods such as massive blitz on TV with celebrities promoting their cars or in house promotions. The American car company tapped 100 of the most successful bloggers and gave them a new version each of their Fiesta range for 6 months. However each ‘blogger’ was required to once a month to upload a video of the car onto YouTube and were encouraged to talk about it on their ‘Facebook’ and ‘Twitter’ accounts.

Papa John’s ran an aggressive campaign on Facebook to expand its business. It added 148,000 fans on the company’s own page through standardized advertising of its pizzas. It offered a free medium pizza to anyone who signed up to be its fan on Facebook. The promotion gained it thousands of new customers and drove up its Internet traffic by more than 253%.

Marketers and companies promoting their products online have followed a fairly standard strategy in the past, first buying digital ads and then building their own Web sites, and more recently amassing followers on social networks like Facebook and Twitter.  It is unfair though that most people presume that most adverts are run through Facebook. For example, Coupon.com, one of the largest distributors of Coupons to online consumers runs adverts and is used on more than 500 retail and social networks, not just Facebook.

Companies are increasingly running online adverts that focus less on pitching their products than promoting their Facebook pages and Twitter accounts.

The adverts, which have menu tabs and resemble mini-Web sites themselves, allow users to click within the ads to see a brand’s Twitter messages or Facebook wall posts in real time, or to watch a brand’s video content from YouTube — all without leaving the Web page where the advert appears on. For example a recent advert placed online by the cleaning brand Mrs. Meyers, said, “Clean should smell better” and instructed users to “Hover to expand.” When a cursor is placed over the ad, it extends downward to expose an area that, depending on what button is clicked, displays real-time Facebook wall posts, Twitter users posting about Mrs. Meyers, or a video from the brand about Thelma Meyer, for whom the brand is named. This is having a tremendous affect. Google recently did a survey to find out how many people asked for these adverts to be removed and on average only 1/1000 had done so (Newman - 2011).

Companies are now encouraging their employees to post information, videos and promotions on their own social networking and social media sites. Grey Sky Films, a video production firm uses sites like MySpace and YouTube to show off its work and encourages it employees to spread their work. Both co-founders agree when they say, “Our policy is pretty simple: Keep it fun, interesting and appropriate.”

Communicating with customers and Relationship Management:

General opinion from surveys conducted seems to indicate that the main benefit of Social Media is the positive effect that it has on brand management. We also believe this to be true, however 70% of respondents suggested that engagement with consumers is one of the other main befits and what has changed the most. And this has affected mainly SME’s. One of New Zealand’s best selling wine company’s is a good example of this. Misha’s Vineyard, as they have been able to develop one-to-one relationships with wine journalists around the world – many of who write reviews which directly affects sales and rankings of the products that the company sells.

“Social media is one of the key trends in driving our business,” says Kira Wampler, a social media-marketing consultant at Intuit. “It is more than just pure marketing. It’s about fast connections with customers and building ongoing relationships.”  

Increasingly, corporate titans such as Jet-Blue Airways, Coca Cola, Comcast and Whole Foods Market are using Twitter, the micro blogging social network as a way to communicate with their customers. The popular technology has helped companies quickly and cost effectively respond to complaints, answer questions and tailor products and services. It has supplemented current customer services, reducing the need / easing the load on calls centers. For example Lenovo has seen a 20% reduction in its call center activity in the USA over the last six months because nearly 50,000 customers go to its various community websites for information about laptops and ask questions to ‘experts’ and ‘helpers’ where possible.

Social Networks:

However it is not just twitter that is being used as a platform to help with customer service. Facebook, YouTube and online software services such as LiveOps, Salesforce.com and RightNow Technologies are all being used to improve customer service retain users and gain a competitive advantage.

Facebook has probably been the most famous company / social network that has been used by companies to advertise to customers, retain old ones and attract potential new consumers. Some of the most notable companies that are using Facebook include Ernst & Young, The Guardian, Zynga and also now many of the leading universities. Facebook is seen as a particularly powerful tool because if a company wants to target a specific audience it can. Take for example a wedding dress company that is based in Hong Kong. It can go to Facebook, ask its advert to be publicized to only females who are from the ages of say 20 – 50 and have their status as “engaged”. The effects on Marketing are that we are seeing a considerable shift away from traditional methods to modern, technology methods.

Effects on Branding:     

Social Media has upended how consumers engage with brands and how companies now in turn brand themselves, which is dominated by the Internet. We believe in a way that it is transforming the economics and fundamentals that are required for successful marketing and branding and making traditional strategies simply not possible anymore. Today consumers are promiscuous with their brand relationships. For example, previously, when buying a car, one would have gone to the local dealer and probably would have been reeled in by the salesman and he would have made a sale. However in this new modern day, we connect with myriad brands, through media channels that are beyond the control of the manufacturer and also the salesman. After we buy a product, we do so much more than just use it. We remain aggressively engaged, publicly promoting the product through status updates on social networking site, which is essentially collaborating in the brands development. This is where we believe branding is so significant and has had its biggest effect since the rise of Social Media.

From a company’s point of view, what have changed the most is what the customer views as important and the journey, as well as its length in deciding which brand to choose from. Previously, customers would have spent a lot more time considering what and when to buy a product. However now, generally consumers take a iterative and less reductive journey of four stages: considering a product, evaluating, enjoying and advocating it. It is the last stage, advocating which has most affected businesses in modern day, and social media is the reason why. For example, more than 60% of consumers of facial skin care products do online research about them after purchase and then comment on the results that they find.

Word of mouth: the best form of modern day advertising?

A recent study by a marketing consulting company has found out that up to 90% of spend goes to advertising and retail promotions. Yet the single most powerful impetus to buy is someone else’s advocacy and positive word of mouth promotion about a product. Consumers often get annoyed because they are bombarded with adverts, so companies are now acknowledging this and offering you a reward if you recommend that company to a friend. For example, Qatar Airways will give you a minimum of a 25% discounts on your international flights if you get a friend or family member to book a flight with them and then sign up to their loyalty program. The company hopes that this would then set of a chain of events and messages from one and other to spread what is supposed to be good word of mouth advertising. The cheapest and arguably the best form of advertising. According to Florida and Goodnight (2005) the way that companies are trying to maximize this potential is by focusing on what they call “Creative Capitol”, simply put, an arsenal of thinkers whose ideas can be turned into valuable products and services. They also say that technology and its advancements has meant that the distance between the CEO and the final consumer of all companies, of all sizes is getting smaller, because Social Media has made consumers demand more personalized responses and attention from companies senior management.  

Image and crisis management 

It is difficult to speak about the effect of Social media on business without looking at its effect on businesses’ approach to crises, and their use of this platform to shape their image to consumers.

According to Soder Chuck (2011), social media is a force which even the smallest companies cannot ignore anymore.  Social media now provides a platform through which companies can directly and quickly get information out to its audiences in the event of a crisis. 


It is unlikely that anyone here is unfamiliar with the fact that, as previously mentioned, over 80% of companies now have an online presence or facebook page. These pages are often used as tools to maintain the image of a company in the event of a crisis. In the entertainment industry, celebrities and figures of importance are often quick to take to twitter or facebook to respond to claims made against them, or to rectify rumours and concerns of the public. Many would be familiar with the 2009 Tiger Woods scandal, and his statements on twitter apologizing to the public and taking full responsibility for some of the issues which arose from his affairs. 


The CEO of BP apologized formally on youtube to the public concerning the oilspill in the gulf of Mexico. Link can be found here.  


Dowell, (2010) actually refers to a similar issue where guitarist John Mayer was racially inappropriate in an interview, and used this to point out how twitter has become a platform for celebrities to rectify issues and manage their images, just like full on businesses do. Below is a video by Chris Brown, apologizing to his fans and to Rihanna after the incident in which he assaulted her. 

It is difficult to overlook the vast effect that social networking has had on crisis and image management for businesses. 

Your task for today is to:

“ Formulate a way to use Social Media to manage the given crisis and salvage your company’s image. Feel free to include out of the box ideas like logo changes and donations, and publicizing these through social media”

“Social media, on a whole, is becoming a medium for work as well as play.” (Nigel Wright Recruitment 2011) 

‘Word-of-mouth’ by using Interactive Social Media http://www.mbaknol.com/wp-content/uploads/2010/09/venture_capital_stages_of_financing_mbaknol.jpg

How Social Media Has Changed Start-up Market Entry Strategies

Entrepreneurship and innovation are hot topics in business today and social media has provided start-ups with a platform and a set of tools. Below, we have highlighted the revolution social media has brought to the different stages of a start-up, from idea generation to market entry.

Product and business model development

Social media provides the entrepreneurs a channel, through which he can communicate with consumers to review marker tastes, and test and develop his product based on the feedback. For a business idea and a start-up to be successful reevaluation and early development of a product or business model is essential. After all, if progress is too slow you will wither run out of money or be surpassed by a competitor. Social media is a cheap way for companies to research the market and get early evaluation of the viability of the venture.

There are many social networking sites out there aimed specifically at the entrepreneur-investor community where entrepreneurs can find industry peers and investors for inspiration, research and support. Post-launch of their businesses, many entrepreneurs will say that in the early stages, the greatest resource and support they experienced was inspiration – inspiration to keep going as well as inspiration on how to develop the product and reach the market. One such entrepreneur, Filip Mlekicki from Chromosense LLc, stated in an interview with OpenIDEO (openideo.com, April 2012) that being surrounded by likeminded and entrepreneurs in the same stages was the most inspirational, whereas mentors and incubators mostly tended to put limits on his ambitions. When faced with the long road of hard work ahead of you many entrepreneurs might lose faith in their abilities or idea and chose not to take the business further.

Ultimately, making use of social media in the initial stages helps the start-up to evaluate the product from the eyes of the consumer to become aware of the market and develop the product accordingly. The benefits to networking and keeping up a social media presence also apply when it comes to finding peers, mentors and investors that can help you see your business idea and model in a new light. Compared to earlier generations of entrepreneurs, these networks are now larger (no geographical constraints) and easier to maintain thanks to increased interaction through social media both for private and professional purposes. 

 (For anyone interested a list of social networks can be found here)

Funding

When it comes to raising capital an entrepreneur generally puts in his own savings and contributions from FFFs (friends, family and fools). If the entrepreneur is lucky enough, he will find a business angel to invest seed capital and act as a mentor. In later stages – when larger sums need to be invested and the company has proven its potential – venture capitalist step in to fund the start-up.

Picture from http://blog.macrobusinesscapital.com/

Networking has always been vital when it comes to funding, and can be a very lengthy process in itself – one that requires communication and networking skill as well as reassessment and development of the product/business model when getting investor feedback. Social networking thus offers another benefit besides from the earlier discussed marketing and customer relations aspect. There are several social networking communities out there where entrepreneurs and investors can meet to present and discuss business ideas. This allows entrepreneurs, business angels and VCs to approach potential partnerships beyond the geographical limits. Being active in social media and creating brand awareness early on in the start-ups life can potentially speed up the funding process as well as it allows for earlier reassessment of the business model based on investor feedback. 

Illustration from: http://www.netoutlet.com/investment-based-crowdfunding-looks-set-to-become-legal-in-the-us/

Many start-ups become painfully aware of the funding gap between the initial investment and VC funding, especially if the entrepreneur is struggling to find a business angel willing to invest. An emerging social media tool that offers an alternative to seed financing is ‘crowdfunding’. Crowdfunding is a way of crowdsourcing where the start-ups can offer equity or other rewards for people willing to contribute to the capital needed. The industry is still in the infant stages but companies such as Indiegogo, Kickstarter , Sponsume and Grow VC are offering crowdfunding platforms. The U.S. JOBS Act signed earlier this spring will allow for the industry to develop into a real alternative for start-ups seeking financing. (More information on crowdfunding and the JOBS Act)

 Market entry and brand building

Just as social media gurus recommend already established companies to utilize social media to improve their brand image, start-ups have a lot to gain from social media presence and brand building. For market entry, the earlier a start-up can get its brand out to the public and present its product the better. By creating an interesting social media profile – private or professional – the entrepreneur can reach out to its target audience and create a customer base even before the formal market entry. Early brand awareness can then result in early market adoption and a more successful market entry. 

Case: The Cupcake Van – Flirty Cupcakes

Flirty Cupcakes is a company that started out with a very innovative marketing strategy in 2009. The business idea itself was to set up a portable bakery by selling freshly baked cupcakes from a van. Every morning the van would drive to a new location, set up shop for a couple of hours and then drive off to another location. The truly innovative part of this story however is in the use of social media. By tweeting and ‘facebooking’ its location customers (old and potential) would then know where to go to find the cupcake van. This marketing strategy was a success with the customers and differentiated Flirty Cupcakes from other bakeries. Additionally, by actively interacting with the public the bakery constantly got feedback and suggestions on different flavours, giving them the chance to respond to customer needs. Eventually the start-up was profitable enough to invest in café/bakery and today it runs both. This story also highlights the value of embarking on unconventional marketing campaigns through the use of social media.

Social Networking in Job Hunting

Networking

Even though other forms of job recruiting such as internet job boards are becoming more prevalent, the number one method of recruiting by employers is still word of mouth networking. Therefore, even if job seekers are not directly using their profiles to be recruited, they may use their social media sites to networks with other. In many ways, social media tools are just ways to more efficiently tap the networks a person already has. (Green LMI 2011)

When employers use social media to review candidates it is shown that 15.5% of them look to see if they have a strong/appropriate network and 12.1% search for references. Therefore, even after using their networking skills to acquire an interview, it is still important for a candidate to have a strong network represented in their social profiles. (Green LMI 2011) 

Searching for Jobs

Using internet job boards and social media sites to find and apply for jobs is becoming more prominent. 24% of people in 2011 stated that they used blogs and other social networking sites to look for jobs. And 28% of people thought that it was essential to be active in social media in order to advance their careers. (Kelly 2011)

The lack of a job seeker having a presence in social media can be harmful to them. This limits their ability to be found as well as limits the opportunities which they can seek. Conversely, as long as it is used responsibly, it is not harmful for them to have an online presence. In fact, in certain industries, having a presence in social media is very beneficial and in some cases required. Some of these industries include: Marketing, information technology, recruitment, public affairs and communications. Not only will their skills in social media help them to find employment, it may carry into their responsibilities as a full time employee.

Reviewing Experience

Where job seekers use social media to search for and be recruited for job, they also use it to review their experiences. Firms must keep in mind that their interviewing and recruiting processes reflect back upon them. It is another form of marketing. Therefore if a candidate has a good interview experience, they may share this over their networks. However, if they have a negative experience, then there is an even higher likelihood that they will share it. Once information is in the social media network, it has the potential to go viral. Therefore, employers should be cautious regarding how they treat job candidates. (Easier 2012)  

Social Media in Recruitment

Recruiting Candidates

As the popularity of Social Media increases, so does its usefulness for employers. It is becoming more and more common for employers to seek out job candidates using social media networks; especially in large firms (>100 employees). Roughly 45% of large firms stated that they use social media to find and recruit employees. When asked about future use of social media to recruit employees, 28.6% of firms stated an intention of increasing their utilization. (Green LMI 2011) 

Out of the firms that use social media for recruiting, 74% of them use LinkedIn as their primary resource.

This is followed by 7.7% and 3.8% using Facebook and Twitter respectively. LinkedIn is viewed as a more professional version of social media and is therefore taken more seriously by employers. Many perceive it as an online resume which has the ability to track their network. (Green LMI 2011)

It has been concluded by many recruiters that often, the best candidates for the job are those who promote themselves well and therefore prefer to be found rather than apply on their own. Therefore, tools such as social media are becoming more important in the search. Recruiters need to become more proficient in the use of these networks which provide a database of potential employees which can be filtered and sifted through. (Nigel Wright Recruitment 2011)

Eric Lefkofsky, the founder of Groupon, stated, “To me, no one has fully cracked the code on social recruiting yet. If and when the code is cracked, it would pay for job seekers to be prepared.”

Reviewing Applicants

An increasing number of employers are using social media sites to evaluate potential employees and job applicants. As of 2011, 27.2% of employers said that they evaluate and determine whether to hire new job candidates using tools such as Facebook and Linked in. When asked about their future use of social media for this purpose, 25.9% showed that they intended to increase their use while 65.8% stated they would at least stay the same. (Green LMI 2011)

Employers who use social media have stated that some of the key factors they are looking for in an applicant’s profile are: Presenting themselves appropriately, experience, communication skills, appropriate friend/network, references, highlighted skills, professionalism and resume. (Green LMI 2011) Therefore, when a person posts inappropriate, discriminatory or negative pictures and comments on their social media profiles can really stand out upon review by potential or current employers. (Green LMI 2011)

As stated above, LinkedIn is seen as a professional social media site compared to those such as Twitter and Facebook whose key purpose is social interaction. However, this distinction is not always taken into consideration by employers. Roughly 60% of firms that use social media in their review process have stated that a candidates profile pages have the potential to have a negative impact on a hiring decision. However, conversely, approximately 70% report that their online presence can have a positive effect. (Green LMI 2011).

Potential Ethical Issues

Judgment of Content

The use of social media by employers to review candidates is a new concept. Therefore, issues in determining its ethical integrity are still up in the air. When an employer is reviewing a potential job candidate’s media page, let’s say Facebook, where is the line drawn to determine what is innocent fun and what is grounds for dismissal? If a candidate has a picture posted of them at a party, does that mean they were just having fun or that they are irresponsible people who would create and unprofessional work environment? (Thomas 2012) 

Unintentional Discrimination & Bias 

A second issue that arises when an employer searches a candidate’s personal pages is finding additional information. In some ways this may be a good thing. You may discover that they have extra skillsets or experiences that have not been listed on their resume. However, other information found may cause unintentional bias. For example, an employer may find that their female candidate is pregnant. It is illegal for employers to discriminate against pregnancy. Yet, finding this information, which may be inconvenient to employers, may cause an unintentional bias. The same issue can occur for race, gender and religion as well. (Bacon Wilson Law 2011) In addition to these demographic factors, recruiters may also discriminate based on factors such as what school the candidate attended or previous employers. When searching through social media profiles, an employer can filter on factors such as these. This has caused some job seekers to feel discriminated against, and therefore they believe being recruited face to face by a recruiter gives a more fair representation (Nigel Wright Recruitment 2011).

Because of these potential discriminatory issues, 26% of people are afraid that their networks will have an adverse effect on their careers. In addition, 33% of people say that they deliberately censor what is on their social networking sites to avoid potential career problems. (Kelly 2011).

Enterprise 2.0.

Enterprise 2.0. is the concept of Web 2.0 and collaboration though social networks in business processes company internally or with its external business partners and customers. As mentioned, social media tools can be used in internal business processes. According to the survey presented earlier less than 20 % of the 400 IT and business executives surveyed were using social enterprise tools at that point in time. Social media for external use (with the public) however was significantly more common with 84 %, 68 % and 68 % for Facebook, Twitter and LinkedIn respectively (CompTIA, 2012).

People’s positive preference for social media for private use, especially social networking services, has made corporate software providers are increasingly adopting the same kind of social tools into their intranet software. Just like public social media changed the way people communicate with each other, companies and even authorities and levelled the playing field to the advantage of the grassroots social enterprise software also aims to revolutionise daily communication. Company internal communications involves daily interaction, team work and collaboration as well as knowledge sharing. In a modern environment where a significant amount of work is done in virtual teams the quality of the management tools will directly affect the performance of the individuals. A study on the performance of dispersed virtual teams showed that, more so than the level of dispersion, the task related processes (e.g. project management tools for coordination and monitoring) have a greater impact on the success of the team (Sierdrat et al, 2009). The authors also conclude that incorporating high quality task-related processes, such as interactive work tools and an attainable knowledge pool, is key in setting up an environment where teams can perform to their full potential. 

In the knowledge based business environment organisational learning and knowledge management are significant challenges when it comes to developing a company’s competitive advantage (Kasper and Haltmeyer, N/A). Knowledge sharing and knowledge transfer are intangible processes of how to utilize and retain the knowledge gathered by employees and the company. As knowledge is intangible the challenge consists of how to document, share and reuse knowledge accumulated over time and when key employees leave the organisation. Additionally, knowledge sharing and collaboration are often seen to contribute to innovation. An open, transparent and collaborative culture created by use of interactive enterprise tools can thus spur innovation and organizational learning and sustain competitive advantage (Law and Gunasekaran, 2009). Next we will consider the case of Cognizant to show practical knowledge management attempts through social enterprise media.

Cognizant is an IT and business consulting company that recently was revised by Ivy Business Journal on it successful incorporation of social media in its business operation. Cognizant developed and introduced a social intranet to support communication, dialogue, collaboration and knowledge sharing. In the intranet employees blog about projects and maintain an active dialogue of sharing experiences and suggestions to challenges. To incentivize the employees to adopt the new process and encourage both consumption and contribution to the content, the level of use was introduce in their assessment scheme. Employees get the equivalent to ‘frequent flyer points’ for participating and more senior managers get rated on their usage of the tool on different projects. Additionally, the team behind a project gets recognition if they are the top users of social technologies.


Cognizant also started a similar community with with all its employees, executive clients, business partners and industry experts (including academics). The members get to share experiences, best practices and discuss industry news. The community was well received by the participating parties since they value the opportunity to network with their peers. Thus, Cognizant has a company internal platform for content-in-context when it comes to knowledge management and a professional network with many of its industry peers. “… employees learn from each other, resulting in more effective client projects; project and industry knowledge is shared with Cognizant’s business partners; and Cognizant, in turn, learns from clients and industry experts about what is happening in the marketplace.” (Iyer et al, 2011)

By facilitating communication, collaboration, knowledge sharing and innovation social enterprise tools can improve the performance and organisational learning of companies essentially improving their competitive advantage. Considering the documented benefits of virtual teams (given the right practical tools as well as open environment) and the increasing impact of globalisation on work practices, social enterprise tools will most likely bring with them a new platform for business communication spiralling the development of the virtual organisation.

Conclusion

According to the BBC, the speed at which ideas can be generated, tested and brought to fruition is accelerating faster than we could have anticipated - largely because of the explosion of social media and mobile and cloud computing (BBC, 2012).

Over the next decade, the process of sharing and developing ideas will be dramatically accelerated by the advance of these relatively young technologies having a major impact on the way products and services are brought to market, businesses are structured, job roles are created and talent is attracted, rewarded and retained. Social networks are transforming how we as individuals interact with one another, and even how businesses interact with their audiences. 

References

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Phone Hacking Scandal and its ethical implications:

Phone hacking scandal from start to finish and main cases:

There were always suspicions as to how Milly Dowler died and also the whole reporting of her murder. However the full phone hacking scandal did not become fully clear till it was revealed what the British newspaper, News of the World, part of Rupert Murdoch’s News Corporation had done with relation to Milly Dowler and many other celebrities and politicians.

The News of the World (NoW) had been illicitly hacking into the voicemail messages of prominent people to find stories. It was not the first time though that this had happened. One NoW journalist, admitting that he had intercepting voicemail messages on royal aides' phones (BBC – 2011). The judge into this case, which had targeted the Prince’s of Great Britain, William, Harry and Charles, said, “What you did was plainly on the wrong side of the line. This was serious criminal conduct to which we must not become numbed.” More than 600 calls were made to the three individuals to allow them to access the information they wanted.

The pair had used mobile phone numbers and secret codes used by network operators to hack into the voicemails to see if there was any information of interest. Neil Saunders, for Mulcaire, said his client accepted his conduct was morally and ethically wrong and represented "a gross invasion of privacy".

Millie Dowler:

What the company did which was most shocking to everyone was the case with Milly Dowler. She went missing in 2002 and it was later revealed that she had actually been murdered. The newspaper reporter had kept 11,000 pages of notes of the Dowler family to see what he could report on them. News of the World journalists intercepted – and deleted – the voicemail messages of Milly Dowler. Journalists deleted the messages in the first few days after Milly's disappearance in order to free up space for more messages. As a result friends and relatives of Milly concluded wrongly that she might still be alive. Police feared evidence might have been destroyed. The company did what is common among newspaper companies, and hired a private investigator, Glenn Mulcaire to find news stories for them. However this practice was illegal as the company begun to directly interfere, receive and tamper with other people’s phones and private lives. The journalists encountered a problem in that Milly’s voicemail had started to fill up, so they deleted them to allow for more messages to come in from her parents. They received $3,200,000 in cash and Murdoch personally donated $1,000,000 to a charity that the Dowler family could choose from.

The deletion of the messages also caused difficulties for the police by confusing the picture when they had few leads to pursue. It also potentially destroyed valuable evidence.

What NoW did was completely ethically incorrect and un-professional. However they did this for several reasons. Firstly, the company had to get access to exclusive news stories that it could put in its newspapers so that they would sell more than their competitors. Secondly, an investigation into the scandal found that many journalists had feared the increasing international competition from foreign media companies, which caused them to push the legal boundaries.

Celebrities:

Although Milly Dowler’s case was the one that rightfully attracted the most attention, she was not the sole victim. Sportsmen and women, politicians, film stars and other celebrities were all targeted. Below we will highlight the most important ones and also the cases, which have received the most press coverage.

Sienna Miller, international film star was one target. The News of the World admitted “misuse of private information, breach of confidence, publication of articles derived from voicemail hacking and a course of conduct of harassment over a period of more than 12 months”, according to Hugh Tomlinson QC, for Miss Miller.  She won more than $160,000 in compensation although she had sought more than $650,000.

Hugh Grant, another international film star was another victim of the newspapers crimes. He accused another newspaper, the Daily Mail as to have hacked his phone and it would have been the only way that a particular story about him could have been published. The article, which Mr Grant sued and won damages over, claimed his relationship with Jemima Khan was on the rocks because of his late night calls with a "plummy-voiced" studio executive from Warner Brothers. The actor said, “The story was completely untrue and could only have been written because people had been tampering with my voicemails”. This case has also yet to go to court because of the size of the allegations.

Gordon Brown, the former Prime Minister of the United Kingdom was also said to have had his phone hacked when he was the Chancellor. This was in 2005 / 2006 before the global financial crisis. The reason why he was supposedly targeted was because he had been involved in a battle to keep the UK out of the single currency, the Euro. News of The World wanted to know, as competition would suggest, the information first. That particular case has yet to go to court though.

Max Clifford is another individual who actually had his phone hacked. He is a leading Celebrity publicist, with clients such as Simon Cowell, which meant that NOW; being one of the leading Showbiz reporting newspapers would need all that they could from him. He received more than $1,200,000 of compensation.

Other places:

As News Corp operates on a Global scale with operations in Australia, the UK, US and Europe, when this case broke out, governments from those countries and locations looked into whether this had been done within their own borders. The main case, which has been brought to light, is that the FBI is set to investigate News Corporation over allegations that News International had hacked the phones of the victims of the 9/11 terrorist attacks. It got to such a serious and important stage that the Republican, Peter King who is the chairman of homeland security had written to the FBI for a case to be opened and to be “…examined thoroughly.” 

Court Cases and the Leveson Inquiry:

Incredible public pressure to investigate what had been going on as well as British law had forced the Police and the government to begin an investigation. There have been enquiries before and some are still underway. They include the Leveson inquiry and Operation Weeting. Piers Morgan, the former News of the World and Daily Mirror Editor, was questioned about references he made in articles and interviews that suggest he was aware of phone hacking. On Desert Island Discs in 2009, Mr Morgan responded to a question about unethical methods by saying a lot of the work was done by third parties rather than reporters employed by newspapers. “That’s not to defend it, because obviously you were running the results of their work,” he continued. “I’m quite happy to be parked in the corner of tabloid beast and to have to sit here defending all these things I used to get up to, and I make no pretense about the stuff we used to do.”

Also, the Metropolitan Police has faced criticism for their initial inquiry in 2006 into phone hacking at the paper. In 2009 the Police chose to re-launch their investigation despite claims by some that hacking was more widespread than one "rogue" reporter. In January 2011 the police did re-open the investigation. On the same day the NOW sacked Ian Edmondson, an assistant editor, when e-mails relating to phone hacking were allegedly found on the newspaper's systems. Those arrested and bailed by police also included Mr Edmondson, NoW chief reporter Neville Thurlbeck, senior NoW journalist James Weatherup, freelance journalist Terenia Taras, an unnamed 63-year-old man, two more unnamed sources and the former CEO of News International and the papers editor. Meanwhile, a third investigation - Operation Elveden - is examining allegations that journalists from News International made "inappropriate" payments to police.

Egoism Ethics

A common phrased used in the practice of journalism is “Get it first. But first, get it right.” This phrase means that not only are you supposed to make sure you are the first to publish the story, you have to also make sure that the information, and how you obtained the information, is also right. (Pressman 2011)

However, in the case of the News Corp phone hacking scandal this no longer seemed to apply. The only portion they paid attention to was: “Get it first.” They did this by whatever means necessary. In order to get a story first, NoW was willing to sacrifice the privacy, peace of mind and rights of others. In doing so they demonstrated a Teleological Moral Philosophy. More specifically, they demonstrated egoism.

Teleology is the moral philosophy under which an act is considered morally right and justified if it produces desired results. Under egoism, a subcategory of teleology, a person will justify their actions if the results are of great benefit to themselves.

Examples of Egoist Behavior

Violation of Privacy

Not only is the concept of phone hacking and accessing someone’s personal messages an immoral invasion of privacy, it is also illegal in many countries. The following are three examples of laws defending a person’s right to privacy. “Appropriate technical and organizational measures shall be taken against unauthorized or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data.”- UK (Data Protection Act 1998)

“No one shall be subjected to arbitrary or unlawful interference with his privacy, family, home or correspondence, nor to unlawful attacks on his honor and reputation.”- Hong Kong (Kellogg 2005).

“…the intentional surveillance of an individual’s activities or conversations can have a corrosive effect on his sense of privacy and is generally considered as a serious affront to the integrity of the individual subjected to this practice.”- Australia (Kellogg 2005).

These reporters and private investigators put themselves and the potential of a prime story above the privacy and rights of others. This is a clear demonstration of egoist behavior. The dean of the CUNY Graduate School of Journalism, Stephen Shepard said, “It’s not a gray area. What they did was illegal and even if it weren’t, it’s just plain wrong. There’s no defense for it. Even the government needs a warrant to get into a house or a computer. You can’t break into something like this and get away with it.” (Pressman 2011)

Milly Dowler

There were several aspects of the Milly Dowler case that were unethical and egoist. First, following along with the rest of the victims, there was a clear invasion of privacy. Members of News Corp found the passcode to Milly’s voicemail. They then used the information they learned from her messages to feed their own ambitions of achieving a top story.

Secondly, they gave Milly’s family false hope that she was still alive. The reporters, after listening to the voicemail, deleted several messages. This would ensure the mailbox to not meet its limit allowing new messages to be saved. However, since messages were being read and deleted, Milly’s parents believed that their daughter was still alive and accessing her phone. 

And lastly, the actions taken by the reporters are classified as obstruction of justice. The messages that had been deleted off of Milly’s phone were considered to be evidence. These messages could have provided the police with information to help find Milly and her killer. The case of Milly Dowler was debatably the most unethical aspect of the whole News Corp scandal. Those involved risked the life of a young girl, the capture of a serial killer and the peace of mind of a family simply to gain information for a story to advance their own careers.

Conflict of Interest

It was claimed that there were several police officers involved in this situation. Police officers were bribed to find personal information on several of the phone hacking victims. (BBC 2012) This, outside of being illegal, creates a conflict of interest. The police officers are supposed to be against actions such as these. However, by accepting these bribes they put their own personal gain and advancement over their job and the moral implications.

Influence of Unethical Behavior

It is said that Rupert Murdoch created a culture in his media industry that promoted the idea of getting the story by any means necessary. By doing this he taught that the end story justified to means. Therefore, many believe that the upper levels of the company condoned the idea of breaking laws and hacking phones. (Bernstein 2011)

Industry Implications

A study conducted by PBS and YouGov showed that 58 per cent of Britons lost trust in the written press, in particular, and the national media in general (with 51 per cent saying their trust in all media had been reduced after the incident) (Marketing Week Nov 14, 2011). After the scandal unfolded and industry practices came into the limelight, it became clear that questionable or unethical practices were common throughout the British press, not only within News of the World or the Murdoch Empire itself.

Intuitively, in an aggressive business environment where firms compete for sales and market share business practices are bound to converge over time across firm. In our case, since all actors within the media industry are also racing to get the same input – the story – this intuition grows even stronger.

Given the public’s changed perception of the honesty and honorability of the entire media industry, it is not only the companies within the Murdoch Empire and the reporters found guilty of wrongdoings that have to stand for the implications. This scandal shook the sector of the British written press and the consequences thereof – as in every case of industry scandals – will change industry practices for good. As unethical and unlawful behaviour is openly discussed and condemned, public frustration and disapproval will increase and ultimately change the cognition of and the attitudes towards ‘unethical’ conduct (Conroy and Emerson, 2006).

Looking back at other major scandals the implications have always been felt across the industry. The common denominator for scandals such as Enron, Madoff and the GFC is that the public’s (consumers, investors, citizens) confidence in all industry players was affected. As we shall see below, history has shown that even the ‘innocent’ firms must take additional measures to rebuild that confidence and restore the industry image. A crisis in an industry is a crisis for the industry. To highlight the wide-ranging impacts on an entire industry and the business practices of all stakeholders we will use the standard case of the Enron collapse in 2001 for illustrative purposes. Just as the Enron/Andersen debacle made investors lose faith in the market mediators the phone hacking scandal made the public lose faith in the press. This industry image will however effect perceptions of all firms and institutions involved, not only the ones at the eye of the storm. 

Enron And Arthur Andersen

Enron’s and its auditing firm Andersen’s collapse in 2001 affected first-hand the energy sector and the accounting and investing industries. In short, the accounting industry was regulated and new auditing standards were introduced and the investment industry reacted to investors heightened level of concern through tougher scrutiny and valuation practices. Besides introducing new business practices to conform to requirements from the accounting and investment industries, firms in the energy sector also had to adapt policies for image restoration to detach themselves from the shadow of Enron and Arthur Andersen. 

After the scandal, the US Government Accounting Office found four major problematic areas that allowed for the Enron/Andersen scandal, namely: corporate governance, independent audit of financial statements, oversight of the accounting profession, and accounting and financial reporting issues (Stinson 2004). Below is a brief outline of the main impacts the Enron/Andersen debacle had on several different sectors of the business environment (Stinson 2004):

• Accounting and Auditing Standards: regulation of record retention policies of accounting firms, internal/external auditors – auditing vs. non-auditing activities
• Consulting: Separation of auditing and consulting services to different firms
• Corporate Governance: The role of the board was revaluated
• Management Accountability: CEO and CFO have to sign off on financial statements (Sarbanes-Oxley Act)
• Energy industry: All firms were feared to have had similar unethical practices. E.g. rating agencies required energy firms to lower their debt-to-equity ratio to 50 %.
• Education: Ethics into accounting curriculums. Management and corporate culture.
• Debate:  Purpose of the firm – a profit-making machine or a stable, productive economic unit?

It is important to note that many corporations and accounting firms adopted these changes before state regulations took effect. For example, Disney and Apple responded by separating their auditing and non-auditing activities. Additionally, the concerns about accounting standards were worldwide and e.g. in Singapore there was a push for companies to rotate their auditors on a regular basis. (Stinson 2004)

Essentially, Enron revealed the downside – and the failure – of the self-regulated business model that was a product of liberalization, deregulation and globalization promoted in America at that time. Similarly, the phone hacking scandal reviled the failure of the British media’s self-regulatory organ – the Press Complaints Commission – which is now to shut down and be replaced, in time, by a new system under design to take charge of press regulation (Guardian, March 8, 2012).

However, whereas heavier regulation followed the Enron/Anderson saga, regulation of the media – the fourth estate – has always been controversial. In a western society freedom of press and speech are the cornerstones of democracy and the state’s control over this raises an array of other ethical questions.

Karl Grossman, of SUNY Old Westbury, argued that Murdoch was “a dishonest, unprincipled and corrupt man,” who was “making a travesty of what journalism is supposed to be about.” (Grossman 2011)

There are two segments of the teleological moral philosophy: egoism or utilitarianism. Utilitarianism is the ethical option to choose actions that generated the greatest good for the greatest number of people. Unfortunately, NoW chose egoism and focus solely on there own desires and personal advancement.

With scandals such as Enron and the phone hacking, ethical business practices have become a hot discussion topic in the public. The business practices of multinationals and small firms alike will be molded by the public’s judgment of their behavior, and therefore the cognitive perceptions of right and wrong. Practical modifications to industry business practices will indisputably follow, although one must ask how pervasive these changes were, are, or can be, given the cyclical nature of public outcry and policy change and then an inevitable return to either finding loopholes in the new legislation, or returning to breaking rules.

For companies caught up in an industry crisis policies, image restoration need to be a priority and voluntary actions preceding regulations are generally viewed favorably by the public eye.

Moral of the story: No drama and don’t be pigs!

Extension to the Blog about for the Phone hacking scandal:

Over the last few weeks there have been further developments in the phone hacking scandal which has now become a major global invent, in which countries such as Australia, America and Canada are now investigating as to whether News Corporation had in fact hacked the phones of high profile celebrities and also ordinary citizens. However the most important event since the revelations first came out is that Rupert Murdoch, the Chairman of the company has been deemed “Not fit to run a Media empire such as that of News Corporation. The conclusion to the Leveson Inquiry, which has been, recognized as an ethics enquiry because of the behavior of the newspaper’s and the other media companies, said, “…that Mr. Murdoch exhibited willful blindness to what was going on in News Corporation.” There is one main consequence from this, which is considerably significant to the future of the company and also media.

 The fact that British MP’s have said that they do not see him as someone who can control such a media empire means that the organizational structure will surely have to change, and with that the way that the company conducts its business. The board of directors and the company as a whole are still looking into the situation themselves. News Corp said in a statement it was "carefully reviewing" the report and would "respond shortly", adding: "The company fully acknowledges significant wrongdoing at News of the World and apologies to everyone whose privacy was invaded" (BBC – 2012).

Overall we believe that there are many lessons that can be learned from this scandal. Although companies are always meant to abide by a correct and acceptable ethical standard, they often do not. If we apply the Business Ethics theory of Utilitarianism, all organizations, irrespective of size and power should aim to follow these principles whereby there is the over aching aim that the end outcome, for a business this being the product or service that is offered should benefit the greatest amount of people possible, whilst attempting to harm as few people as it can. Although there are laws and governments which are meant to regulate un-ethical behavior, we believe that for cases such as the phone hacking scandal to not happen again, each time a new product is going to be launched, there should be a government organization that does a serious review of it and must first allow it to pass. The ever changing world of business and globalization will always make it harder and harder for firms to be honest and behave morally, however if examples can be made of good companies and individuals who do behave correctly, then this might make society as a whole to behave and act in the ways they should. What needs to be done for now though is for officials to take a tougher standpoint.

Response to Comments

As “Anonymous” questioned below, shouldn’t some of the blame in phone hacking scandals lye with the phone companies? Situations such as these prove that there are security issues and limitations when it comes to mobile phones. However, except for basic precautionary measures, it is nearly impossible for the phone company to prevent entirely. If the phone company is selling off customer information, then yes, clearly they are to blame. However, even though accusations were made in the NoW scandal, no evidence could be provided. 

Methods of Phone Hacking

There are multiple techniques that a hacker can use to gain access to your phone:

1)      As used by NoW, a hacker can gain access to you voicemail remotely through use of a pin number. Phones are provided with default pins (typically something generic such as the last 4 digits of your phone number) when first purchased and many users never change this. Hackers know this and take the chance that their targets have not changed the pin. (Drury 2011)

2)      Hackers can also attempt to access the voicemails remotely with a pin after impersonating the target. If a pin number has been changed, the hacker can call the phone provider pretending to be the owner of the phone and request to reset the pin on the phone. (Dunn 2011)

3)      When a user tries to access their voicemail from their own phone, typically they will not have to enter the pin number. Hackers take advantage of this by using “spoofing” programs that fool the phone’s caller ID into believing that it is being called from the same number. (Mills 2011)

4)      The “Man in the Middle” tactic is a little more complex. This routes all transactions to a phone to a third party before actually being sent to the intended user. This can be done by the hacker introducing malware to the target’s phone through a Spam text message or fake application. (Murphy 2012)

Security Precautions by Users

There are several basic safety measures that a person can take to protect their cell privacy.

First is to use strong passwords. Steven Rambam, an investigator and director of Pallorium, Inc. stated that “90% of voicemail-specific problems can be prevented if strong passwords are put into place.” When a phone provider gives you a default passcode, change it. Default pins make hacking easier. For added security, change your pin numbers regularly.

Secondly, if you receive a message from your provider asking permission to update of reconfigure your phone do not automatically select yes. Contact your provider first to make sure it is valid. Some hackers use these messages to configure your phone to allow them access.

And finally, only purchase Apps from reputable distributors. Fake Apps are an easy way for hackers to gain access to your phone. Once you download their app, you also download their malware into your phone.

(Murphy 2012)

Providers at a Disadvantage

There are very few measures that phone providers have the ability to take in order to prevent phone hacking. First, the provider can make it mandatory for the user to change their pin. And second, they can be more stringent with their methods of identifying callers to their service desks looking to rest passwords. Other than this, at the moment, phone customers are at the will of a growing technologically savvy population. (Nguyen 2011)

There are literally step-by-step directions posted on the internet that tell someone how to go about hacking a phone. And the tricky part about phone hacking is that it is nearly impossible to tell if someone has read your voicemails. Once the owner has opened the message it just read as being opened. It does not track if it is viewed again at a later point. Therefore, a hacker could continue reading messages indefinitely unnoticed. (Nguyen 2011)

Chuck Bokath, an engineer at the Georgia Tech research Institute describes hacking phones as “trivial”. In a growingly tech savvy world, more and more people have the capability to hack much more than cellphones. Supporting Bokath’s point, Kevin Mitnick, a security consultant, states that “Any 15 year old that knows how to write a simple script can find a VoIP provider that spoofs caller ID and set this up in about 30 minutes… If you’re not adept at programming, you could use a spoofing service and pay for it.”

Conclusion

A phone provider can only be as safe as their security technology. The problem with this however, is that the hacking technology, is many cases, is stronger. Therefore, even though it may seem as if phone service providers should also be at fault, there is only so much security that they can reasonably provide for their customers.

Drury, Paul. 2011. “Mobile Phone Hacking and How to Prevent It.” Security and Protection Agency. < http://www.security-protection-agency.com/2011/07/mobile-phone-hacking-and-how-to-prevent-it/>

Dunn, John. 2011. “Mobile Phone Hacking- Can you Stop it?” PCWorld. < http://www.pcworld.com/article/217647/mobile_phone_hacking_can_you_stop_it.html>

Mills, Elinor. 2011. “Kevin Mitnick Shows How Easy it is to Hack a Phone.” CNET News. < http://news.cnet.com/8301-27080_3-20077732-245/kevin-mitnick-shows-how-easy-it-is-to-hack-a-phone/>

Murphy, Kate. 2012. “Build up Your Phone’s Defenses Against Hackers.” New York Times. < http://www.nytimes.com/2012/01/26/technology/personaltech/protecting-a-cellphone-against-hackers.html

Nguyen, Tuan. 2011. “How Phone Hacking Works.” Smart Planet. < http://www.smartplanet.com/blog/thinking-tech/how-phone-hacking-works-and-other-lessons-from-the-news-corp-scandal/7872>