Facebook is the largest social media company worldwide with 1.13billion daily active users in the mid of 2019. One of the core competencies of Facebook is the ability to move fast and add new features. In the recent years, Facebook discover many products and features to the platform such as adding timeline stories, adding photo filter edit, and deleting trending topics. Facebook also has a strong knowledge of society and networking. Facebook use this competitive advantage to create unique competence, as their networking site has better options and more capabilities compare to their competitors. In that time, almost every people left Myspace and use Facebook instead. However, there was a scandal started in 2015 when the Global Science Research (GSR) design Facebook app called “This is Your Digital Life”. The problem with the app is that the app has the ability to access other people who do not fill the survey which up to 87 million people. Then, GSR share it with Cambridge Analytica, and they sold those data to advertisers who work for presidential campaign. This problem will not be exist if Facebook did not launched Open Graph API which gave the third parties have an access to user data.
In the case of corporate accountability, Facebook is an advertising business model, with over 98% of their revenues are from advertisement (Yaakop, Anuar & Omar, 2013). As Facebook has all the user’s data, they use them to target ads to the right users. As Facebook use this kind of business model, they should more concern about the privacy of users, and do not just focus on generating revenue from the ads.
This strategy report examines the external analysis of the company relates to the scandal which include the strategy making process and core competencies of Facebook, mentions six-point plan including dynamic capability about the firm’s responses to the scandal, address SWOT analysis of the company due to the scandal, and finally discuss about strategic leadership role of top executive in Facebook and give recommendation.
Based on the PESTLE analysis, there are six factors that affect the external of the company: political, economic, social, technology, legal and environment. The most relevant factors for Facebook that relates to the scandal are social and legal.
One of the factor that affect the usage of Facebook is the educational level of the country. Other than that, people’s mindset against the acknowledgement of social network may also affects the business. For instance, when people no longer have trust or secure in giving their private information on public platform like social media, it will affect the existence of Facebook as people will stay away from Facebook (Debatin, Lovejoy, Horn & Hughes. 2009). Nowadays, based on the exhibit 6 in the case, people are more suspicious and careful about attaching his/her accounts to Facebook as there is a huge drop after 2017. This means that the majority of people have loose trust on Facebook and no longer believe that Facebook is committed to user privacy protection. Yet, many people still log in to Facebook every time even though they complain about their privacy issue. However, based on the survey, nearly everyone have the same answer that the quality of Facebook has decreased since it was started (Liu, Gummadi, Krishnamurthy & Mislove. 2011). In the future, if Facebook does not make any real changes regarding trust issue, people may totally lose their trust and will move to another social media.
When Facebook start to enter into worldwide market, they have comply with specific regulation of a certain country such as copyright laws and data protection laws. The issue with Facebook about the data breaches can affect Facebook’s reputation or it may also land them in the court as it breaches data protection laws. To handle this problem, Europe has constructed the European Area’s General Data Protection Regulation (GDPR). GDPR is a new policy concerning data privacy user. It gives users greater control over their data and give pressure to company to give better protection on personal user’s data (Albrecht, 2016). Company who not complying the law could leaded to heavy penalties. The agency that has the power to regulate this thing called Digital Protection Agency that has an authority to give education to public, clear toxic data, and levy fines (Buttarelli, 2016). Therefore, Facebook has to make some changes as the government will give more attention and more adaptive with the regulation that relates to online platform.
In March 2018, CEO of Facebook, Mark Zuckerberg, admitted it that he fail to give protection to all Facebook’s users and owe an apology in regards with the data misuse (Lomas, 2018). He also declared that, if the company do not have the power to protect the information, then the company fail to deserve the society. Mark shows the commitment by releasing a six-point plan to restore people’s trust.
Facebook’s Six-Point Plan
Facebook start to concern about the user’s trust issue, thus, they announce some recommendation to prevent further losses which called six-point plan. They promise will give complete audit of any suspicious app, and ban them if they breach the law. Then, they also disclose all the misuse data to the people that affected, and simplified the privacy setting to make it more user friendly. One of the most important, the unused apps have no longer have an access on the user’s information. Facebook also give reward to people who find a bug in the program. However, all of these programs have done privately without asking any feedback or comment from the stakeholder and society. This means that all of those plans do not really reflect the real needs of the society. Besides that, by implementing those plans, it will positively affect the image of Facebook and restore society’s trust. Those plans also reduce the chance for Facebook to deal with data protection problem that relates in the legal factor under external analysis. Furthermore, six-point plan help the company to restore all of their resources such as user, advertiser, shareholder, and brand reputation, as resources are key to superior firm performance.
Resource Based View (RBV)
In RBV approach, the most valuable assets for company to achieve the best performance are resources. The resources must be heterogeneous which means every company have different resources, and because of that, a company cannot completely follow the other company’s done. The other characteristic is immobile which means, in the short term, resources are difficult to move from company to company.
The most valuable resources of Facebook are brand image and algorithm. For example, Google introduce Google+ which is a social networking platform that has few similarities with Facebook. But why Google+ is not as successful as Facebook (Curran, Morrison & Mc Cauley, 2012). Simply because Google is well known as a search engine company, and people use Google+ only for the easy access to Gmail, Drive, and Google’s other apps, and not use it for social networking. Google has already matured their brand names as a search engine rather than social media platform. On the other hand, as Facebook has already very strong brand image and there is no other company that can compete with Facebook, many people still use Facebook even after the scandal. Facebook also has competitive advantage on the amount of advertisers. After the scandal, only seven out of thousand customers had halted their spending, this shows that, most of the advertisers has many benefit spending their money into the Facebook ads regardless any scandal that reduce Facebook’s reputation. As Facebook has a unique algorithm which advertisers be able to target the right market segment.
Strengths and Opportunities
Large consumer base become the strength of Facebook that delivers some beneficial externalities (Burke & Kraut, 2016). This huge number of users produce attractiveness on Facebook’s website and apps to new members, more drawing attention to advertisers, and increase the barrier to entry for new companies to compete against Facebook even after Facebook face a scandal. Moreover, the company generate high profit that can be beneficial for research and development investments. A survey showed that from a thousand advertisers, only seven of them had halted their spending. It is proven that Facebook have economic benefit, since this e-commerce marketing was more effective than traditional marketing. Therefore, as Facebook have these strengths, they have the opportunity to do product innovation that can be compliment for its website and apps. They also have the opportunity to invest that differ from social media business. For example, they have acquired Oculus VR which is a virtual reality company, this can create extra value on social networking services and give diversification benefit (Ripton & Prasuethsut, 2015).
Weaknesses and Threats
One of the weaknesses of the company is their products and services are imitable. The other giant tech companies like Google and Microsoft can simply develop new product that has same features like Facebook, and this makes the company vulnerable to competition. Also, the mechanism of their advertising can be a weaknesses because users may feel annoyed with many ads that pops up in their social media surface (Kapp, Peters, & Oliver, 2013). Facebook offer free of charge services to the user, therefore, the only way for Facebook to generate profits are by selling the user’s private information for advertisement. This business model leads to ethical issue. The company’s weaknesses linked to threats in the industry environment. The major threats of Facebook is losing public’s trust as public may uninstall the apps and move to another platform. Then, the other threat is imitation, and it has the potential to decrease the value of the company. In the future, if Facebook does not make some changes on their algorithm and breach the user’s trust again because of Open Graph API, people will move to other social media that has similar features but they never involve in any privacy scandal. Moreover, the legal issue will decrease the company’s performance on generating income because government will tighten any regulation that relates to social media and e-commerce.
Strategic Leadership Role
Facebook’s Top Management Team (TMT)
TMT consists of group of head executives who are in charge for the performance of the organization. Those include: all founder, managing director, all managers recognized by the CEO, etc. The main function of TMT is to interpret the policy devised by the board of directors. In constructing TMT, size should be considered. Bantel and Jackson (1989) suggested that the ideal size is somewhere below ten members. When the number of TMT is too large, there will be lacked of engagement in collaborative work between the members because the size is unmanageable. Collins and Clark (2003) also stated that the more people are recruited into the team, the less each individual member give contribution to the group. However, TMT of Facebook has 19 members in total. The reason why they have so many member in the group because Facebook has acquired 77 company across the world such as Instagram, WhatsApp, Oculus VR, etc. Then, Mark said that everyone in the team have effectively contributed in the success of the company (Thomas, 2019). In this case, we can say that the theory is just a guideline, and some firm may need to have more members depends on their needs as long as all the members can work effectively.
Facebook’s CEO Model
CEO Model is applicable for Facebook because Facebook has such a young talented CEO who is difficult to intervene by others. The good or bad of the business really depends on the CEO (Colbert, Kristof-Brown, Bradley & Barrick, 2008). This model believe that everyone in the company have trust on the leadership of the CEO. In the case of Facebook, Mark Zuckerberg is the founder, CEO, and chair of Facebook and he cannot be influenced by others because he has more than 50% voting rights (53, 3%) in the company (Stewart, 2018). Thus, employees will trust on any decision that Mark’s made as he knew the company so well. On the other hand, this means that, no one in the board have the power to change Mark’s decision. Then, Mark can simply ignore the other’s perception and those who closest to him will always win the game (Gordon, 1988). Stewart (2018) mentioned that Mark Zuckerberg and the group of insiders who work inside the company control almost 70% of Facebook’s voting shares in total. Many shareholders announced a request to acquire an independent board chair, but still, the fate of Facebook is not up to anyone but Mark Zuckerberg. Because of this, Mark may bear bounded rationality which alter the decision making process.
The result of research paper of Simon (1982) shows that every human being have bounded rationality as rationality is limited because our brain has maximum capacity on thinking and limited amount of available information that we obtain. A leader who have bounded rationality will have limited field of vision on making company’s decision. For example, before the scandal arise, Mark Zuckerberg only care about how to maximize the valuation growth and how to create profit from the advertisement program. He launched a developer tool called Open Graph API that sell the user’s private data including user’s private messages to external third parties. Of course, this will rapidly increase the revenue of Facebook and make the shareholder happy as the share price of the company also increased. However, he lose focus on protecting the privacy of user’s information. This unethical behavior leads to serious crime, in July 2018, the United Kingdom’s Information Commissioner’s Office give fine to Facebook worth £500,000 over the data scandal (ABC News, 2019). This also will result in reduce the market share price of Facebook by 18%.
Internal Responses to External Environment
It is true that Mark Zuckerberg have a blunder that cause a serious problem, but as a leader, he take the burden, accept the situation, and try to find the best solution to fix the condition. First of all, in the first five days post scandal arise in the public, He did not give any response and remain silent. While, after the company done the investigation, he apologize to the public by New York Times as the intermediary and apology tours. Mark and his team agreed to the company being supervised to more regulations and change the company’s strategy into more private-focused social network (Ghaffary, 2019). This will reflect a positive response in the society and bring back the confidence level of the society as they believe Facebook will not repeat mistake in the past. However, there is an internal conflict days after Facebook announced this strategy changes, two of Facebook’s top executives (Chief product officer, Chris Cox, and VP of WhatsApp, Chris Daniels) left the company without any reasons (Ghaffary, 2019). This shows that not everyone in the TMT members agree with any decision of the company.
Strategy Making Process in the Board of Director
Facebook should modify the company’s strategy making process in their board of director. One of the main role of board is to oversees any activities inside the company and to ensure that the activity in line with the will of the shareholders. On the other hand, CEO is the person who responsible for running those process. If those two role are accepted by one person, it will create abuse of the position. Mark Zuckerberg is basically untouchable and no one in the board have the power to give critics to him. Therefore, the correct person that can led the board is independent member who does not have any involvement in the business’s activity. He/she is more likely to control the company’s operation and give correction to the CEO. To achieve this strategy, the suitable approach is to change the majority shareholder of the company by reducing the voting rights of Mark Zuckerberg. It is recommended that Mark keeps his voting right below fifty percent as he served as founder and CEO of Facebook, which close the door for abuse of power.
The user’s privacy should be more emphasized, in order to the company will not repeat the past mistake in the future. This can be done by changing the company’s business model into freemium which give some choice to the user, whereby basic services are kept free of charge, while the other features should be paid for (Wilson, 2006). This business model will create diversification benefit for Facebook in terms of resources of income. Initially, Facebook did not receive any income from user’s registration, and the majority sources of income are from advertisement. By implementing this model, Facebook generate another sources of income from the user’s subscription if user want to have an access to the advance future. Facebook should not display any ads in user’s social media surface who pay extra for the subscription. Besides diversification benefit, by implementing this model, Facebook have the control on third parties accessing the user’s data and reduce the privacy issue in the future.
In conclusion, Facebook face two external factors regarding privacy scandal, social and legal factor. Facebook have significant loss regarding the issue: loosing trust in the society, paying the penalty worth £500,000, and significant share price dropped by 18%. To stop further loss, Mark Zuckerberg ask for an apology and announce Six-Point Plan to restore the image of the company as he know that the company’s brand image is the most valuable resource for the company. While, nowadays, Facebook has very strong user’s database and they still hold the best social media company that have 1.13billion daily active users. If they cannot maintain the position, many giant tech company together will come and compete against Facebook in the social media industry, as they will try to duplicate the features of Facebook and claim to public that their company are more safety than Facebook. So it is recommended for Facebook to immediately change the company’s governance structure which can minimize the abuse of position of the CEO. Then, in order to minimize the privacy issue in the future, it is better to change the company’s business model into freemium which also have diversification benefit in the sources of income.