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As companies collect consumer data in increasingly larger quantity and mine the data more deeply, trade-offs arise with respect to companies' practices about information privacy. A company may choose practices that augment targeted advertisements or services. However, the financial rewards associated with privacy practices are highly uncertain, since they are affected by a company's competition with rivals. Moreover, such practices expose the company to privacy risks, in that it is burdened with safeguarding sensitive data against theft, and may suffer negative consequences from data loss such as revenue decrease, public outcry and penalty by governments. This research aims to help companies make strategically valuable and socially responsible decisions about privacy practices. The researchers develop a broadly applicable analytical framework on making decisions about information privacy under uncertainty by companies, organizations, governmental agencies, and individuals. In particular, the framework provides the first risk-based analysis on a company's decision-making about privacy practices. It is also among the first to analyze the strategic values of privacy practices and how such practices affect the relative performance of competing companies. The results of the research will lead to new conversations and provide a better understanding about the interplay among (1) companies' practices and attitudes toward privacy; (2) companies' competitive behavior and outcome; and (3) new technologies. The broader impact of the research lies in the development of new methodologies for companies to evaluate their privacy practices and better position themselves in a competitive environment in a socially responsible way. It also lies in helping policy makers understand the trade-offs faced by companies when proposing privacy regulations to balance company performance and consumer welfare.
The framework builds on the risk theories in economics, which provide formulations and general tools for analyzing preferences, valuations and choices among risky alternatives. The analysis is distinct by its formulation of choice under privacy risks, where the risk-model parameters cover the set of consequences, states of nature, set of actions, and the probabilities. It is useful for studying the effects of privacy-related investments, policies and technology adoptions by examining how they alter the parameters. The analysis is also augmented with elements from behavioral economics, but focuses on companies' behavioral patterns. More importantly, the analysis extends the choice under privacy risks by incorporating strategy research on competitive advantage and competitive interactions among rival companies. It asks whether and how privacy practices can be a source of competitive advantage and affect company performance.
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EAGER: Understanding the Strategic Values of Privacy Practices in Organizations