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Is the Equifax Hack the Worst Ever—and Why? Case Study Equifax (along with TransUnion and Experian) is one of the three main U.S. credit bureaus, which maintain vast repositories of personal and financial data used by lenders to determine creditworthiness when consumers apply for a credit card, mortgage, or other loans. The company handles data on more than 820 million consumers and more than 91 million businesses worldwide and manages a database with employee information from approximately 11,000 employers, according to its website. These data are provided by banks and other companies directly to Equifax and the other credit bureaus. Consumers have little choice over how credit bureaus collect and store their personal and financial data. Equifax has more data on you than just about anyone else. If any company needs airtight security for its information systems, it should be credit reporting bureaus such as Equifax. Unfortunately this has not been the case. On September 7, 2017 Equifax reported that from mid-May through July 2017 hackers had gained access to some of its systems and potentially the personal information of about 143 million U.S. consumers, including Social Security numbers and driver’s license numbers. Credit card numbers for 209,000 consumers and personal information used in disputes for 182,000 people were also compromised. Equifax reported the breach to law enforcement and also hired a cybersecurity firm to investigate. The size of the breach, importance, and quantity of personal information compromised by this breach are considered unprecedented. Immediately after Equifax discovered the breach, three top executives, including Chief Financial Officer John Gamble, sold shares worth a combined $1.8 million, according to Securities and Exchange Commission filings. A company spokesman claimed the three executives had no knowledge that an intrusion had occurred at the time they sold their shares on August 1 and August 2. Bloomberg reported that the share sales were not planned in advance. On October 4, 2017 Equifax CEO Richard Smith testified before Congress and apologized for the breach. The size of the Equifax data breach was second only to the Yahoo breach of 2013, which affected data of all of Yahoo’s 3 billion customers. The Equifax breach was especially damaging because of the amount of sensitive personal and financial data stored by Equifax that was stolen, and the role such data play in securing consumers’ bank accounts, medical histories, and access to financing. In one swoop the hackers gained access to several essential pieces of personal information that could help attackers commit fraud. According to Avivah Litan, a fraud analyst at Gartner Inc., on a scale of risk to consumers of 1 to 10, this is a 10. After taking Equifax public in 2005, CEO Smith transformed the company from a slow-growing credit-reporting company (1–2 percent organic growth per year) into a global data powerhouse. Equifax bought companies with databases housing information about consumers’ employment histories, savings, and salaries, and expanded internationally. The company bought and sold pieces of data that enabled lenders, landlords, and insurance companies to make decisions about granting credit, hiring job seekers, and renting an apartment. Equifax was transformed into a lucrative business housing $12 trillion of consumer wealth data. In 2016, the company generated $3.1 billion in revenue. Competitors privately observed that Equifax did not upgrade its technological capabilities to keep pace with its aggressive growth. Equifax appeared to be more focused on growing data it could commercialize. Hackers gained access to Equifax systems containing customer names, Social Security numbers, birth dates, and addresses. These four pieces of data are generally required for individuals to apply for various types of consumer credit, including credit cards and personal loans. Criminals who have access to such data could use it to obtain approval for credit using other people’s names. Credit specialist and former Equifax manager John Ulzheimer calls this is a “nightmare scenario” because all four critical pieces of information for identity theft are in one place. The hack involved a known vulnerability in Apache Struts, a type of open-source software Equifax and other companies use to build websites. This software vulnerability had been publicly identified in March 2017, and a patch to fix it was released at that time. That means Equifax had the information to eliminate this vulnerability two months before the breach occurred. It did nothing. Weaknesses in Equifax security systems were evident well before the big hack. A hacker was able to access credit-report data between April 2013 and January 2014. The company discovered that it mistakenly exposed consumer data as a result of a “technical error” that occurred during a 2015 software change. Breaches in 2016 and 2017 compromised information on consumers’ W-2 forms that were stored by Equifax units. Additionally, Equifax disclosed in February 2017 that a “technical issue” compromised credit information of some consumers who used identity-theft protection services from LifeLock. Analyses earlier in 2017 performed by four companies that rank the security status of companies based on publicly available information showed that Equifax was behind on basic maintenance of websites that could have been involved in transmitting sensitive consumer information. Cyberrisk analysis firm Cyence rated the danger of a data breach at Equifax during the next 12 months at 50 percent. It also found the company performed poorly when compared with other financial-services companies. The other analyses gave Equifax a higher overall ranking, but the company fared poorly in overall web-services security, application security, and software patching. A security analysis by Fair Isaac Corporation (FICO), a data analytics company focusing on credit scoring services, found that by July 14 public-facing websites run by Equifax had expired certificates, errors in the chain of certificates, or other web-security issues. Certificates are used to validate that a user’s connection with a website is legitimate and secure. The findings of the outside security analyses appear to conflict with public declarations by Equifax executives that cybersecurity was a top priority. Senior executives had previously said cybersecurity was one of the fastest-growing areas of expense for the company. Equifax executives touted Equifax’s focus on security in an investor presentation that took place weeks after the company had discovered the attack. Equifax has not revealed specifics about the attack, but either its databases were not encrypted or hackers were able to exploit an application vulnerability that provided access to data in an unencrypted state. Experts think—and hope—that the hackers were unable to access all of Equifax’s encrypted databases to match up information such as driver license or Social Security numbers needed to create a complete data profile for identity theft. Equifax management stated that although the hack potentially accessed data on approximately 143 million U.S. consumers, it had found no evidence of unauthorized activity in the company’s core credit reporting databases. The hack triggered an uproar among consumers, financial organizations, privacy advocates, and the press. Equifax lost one-third of its stock market value. Equifax CEO Smith resigned, with the CSO (chief security officer) and CIO departing the company as well. Banks had to replace approximately 209,000 credit cards that were stolen in the breach, a major expense. Lawsuits are in the works. Unfortunately the worst impact will be on consumers themselves, because the theft of uniquely identifying personal information such as Social Security numbers, address history, debt history, and birth dates could have a permanent effect. These pieces of critical personal data could be floating around the Dark Web for exploitation and identity theft for many years. Such information would help hackers answer the series of security questions that are often required to access financial accounts. According to Pamela Dixon, executive director of the World Privacy Forum, “This is about as bad as it gets.” If you have a credit report, there’s at least a 50 percent chance or more that your data were stolen in this breach. The data breach exposed Equifax to legal and financial challenges, although the regulatory environment is likely to become more lenient under the current presidential administration. It already is too lenient. Credit reporting bureaus such as Equifax are very lightly regulated. Given the scale of the data compromised, the punishment for breaches is close to nonexistent. There is no federally sanctioned insurance or audit system for data storage, the way the Federal Deposit Insurance Corporation provides insurance for banks after losses. For many types of data, there are few licensing requirements for housing personally identifiable information. In many cases, terms-of-service documents indemnify companies against legal consequences for breaches. Experts said it was highly unlikely that any regulatory body would shut Equifax down over this breach. The company is considered too critical to the American financial system. The two regulators that do have jurisdiction over Equifax, the Federal Trade Commission and the Consumer Financial Protection Bureau, declined to comment on any potential punishments over the credit agency’s breach. Even after one of the most serious data breaches in history, no one is really in a position to stop Equifax from continuing to do business as usual. And the scope of the problem is much wider. Public policy has no good way to heavily punish companies that fail to safeguard our data. The United States and other countries have allowed the emergence of huge phenomenally detailed databases full of personal information available to financial companies, technology companies, medical organizations, advertisers, insurers, retailers, and the government. Equifax has offered very weak remedies for consumers. People can go to the Equifax website to see if their information has been compromised. The site asks customers to provide their last name and the last six digits of their Social Security number. However, even if they do that, they do not necessarily learn whether they were affected. Instead, the site provides an enrollment date for its protection service. Equifax offered a free year of credit protection service to consumers enrolling before November 2017. Obviously, all of these measures won’t help much because stolen personal data will be available to hackers on the Dark Web for years to come. Governments involved in state-sponsored cyberwarfare are able to use the data to populate databases of detailed personal and medical information that can be used for blackmail or future attacks. Ironically, the credit-protection service that Equifax is offering requires subscribers to waive their legal rights to seek compensation from Equifax for their losses in order to use the service, while Equifax goes unpunished. On March 1, 2018, Equifax announced that the breach had compromised an additional 2.4 million more Americans’ names and driver’s license numbers. In late 2018, the U.S. House Committee on Oversight and Government Reform published a new report on the Equifax breach. The report concluded that the incident was “entirely preventable” and occurred because Equifax had failed to implement an adequate security program to protect its sensitive data. But authorities have neither sanctioned Equifax nor addressed the deeper industry-wide flaws that the incident exposed. Since the hack, Equifax has spent over $1 billion, including costs for litigation and fines, and will have to pay a settlement of up to $700 million to resolve investigations and lawsuits stemming from the data breach. The company continues to do business as usual.Harmful data breaches keep happening. In almost all cases, even when the data concerns tens or hundreds of millions of people, companies such as Equifax and Yahoo that were hacked continue to operate. There will be hacks—and afterward, there will be more. Companies need to be even more diligent about incorporating security into every aspect of their IT infrastructure and systems development activities. According to Litan, to prevent data breaches such as Equifax’s, organizations need many layers of security controls. They need to assume that prevention methods are going to fail.
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Will the Coronavirus Pandemic Make Working from Home the New Normal? As COVID-19 continued to spread around the globe, companies large and small started to make changes to the way they work, shuttering their offices and requiring most or all of their employees to work remotely from their homes. During the pandemic, ClearRisk, which offers integrated, cloud-based software solutions for claims, fleet, incident, and insurance certificate management had its entire staff working from home. Many large law firms, including Reed Smith, Baker McKenzie, and Nixon Peabody, closed offices and required work at home during the pandemic. The law firms emphasized that they could continue to serve clients despite office closings and remote work. OpenText Corp., a Canadian provider of enterprise information management products, plans to eliminate more than half of its 120 offices globally, with 2000 of its 15,000-person workforce working from home permanently. In mid-May 2020, Twitter Inc. notified employees that most of them could work from home indefinitely. According to a recent MIT report, 34 percent of Americans who previously commuted to work stated that they were working from home by the first week of April 2020 due to the coronavirus outbreak. Prior to the pandemic, the number of people regularly working from home remained in the single digits, with only about 4 percent of the US workforce working from home at least half the time. However, the trend of working from home had been slowly gaining momentum thanks to advances in information technology for remote work and changes in corporate work culture. The coronavirus pandemic may mark a tipping point. It’s likely that many people who started working from home for the first time during the pandemic will continue to do so thereafter. New health guidelines about distancing will require some workplaces to expand to accommodate all their employees or to have a significant percentage of employees work permanently from home. Information technologies driving these changes include broadband high-speed Internet connections, laptop computers, tablets, smartphones, email, messaging, and videoconferencing tools. As companies shift their work from face-to-face to remote, video conferencing is becoming the new normal for meetings. People are trying to have good conversations, share critical information, generate new ideas, reach consensus, and make decisions quickly on this platform. Although less than ideal for face-to-face interactions, videoconferencing is becoming more powerful and affordable. There are many options, including Skype, Skype for Business, Zoom, Microsoft Teams, Amazon Chime, BlueJeans, Cisco’s WebEx, GoToMeetings, and Google Meet. Some business people are using the same tools they do in their personal communications, such as FaceTime and Facebook Messenger. (FaceTime now supports group video chat with up to 32 people.) Video conference software such as WebEx and BlueJeans appears designed for more corporate uses. Other software such as Microsoft’s Skype and Zoom feels more consumer-friendly and easier to set up, with free or low-cost versions suitable for smaller businesses. Skype works for video chats, calls, and instant messaging and can handle up to 50 people in a single video call. Skype allows calls to be recorded in case someone misses a meeting. Skype also provides file-sharing capabilities, caller ID, voicemail, a split view mode to keep conversations separate, and screen share on mobile devices. Up to 1,000 users can participate in a single Zoom video call, and 49 videos can appear on the screen at once. Zoom includes collaboration tools like simultaneous screen-sharing and co-annotation, and the ability to record meetings and generate transcripts. Users can adjust meeting times, select multiple hosts, and communicate via chat if microphones and cameras are turned off. There are definite benefits to remote work: lower overhead, more flexible schedules, reductions in employee commuting time and attrition rates, and increases in productivity. (Many companies reported that productivity did not suffer when employees worked at home during the pandemic.) According to Global Workplace Analytics, a typical company saves about $11,000 per half-time telecommuter per year. Working remotely also poses challenges. Not all employees have access to the Internet at home, and many work in industries that require on-site work. About 80 percent of American adults have high-speed broadband Internet service at home. However, according to a Pew Research Center study, racial minorities, older adults, rural residents, and people with lower levels of education and income are less likely to have in-home broadband service. In addition, one in five American adults access the Internet only through their smartphones. Employees with little children or small apartments find working at home more difficult. Full-time employees are four times more likely to have remote work options than part-time employees. According to Global Workplace Analytics, a typical remote worker is college-educated, at least 45 years old, and earns an annual salary of $58,000 while working for a company with more than 100 employees. Although email and text messaging are very useful, they are not effective tools for communication compared to the information exchange and personal connection of face-to-face conversations. Remote work also inhibits the creativity and innovative thinking that take place when people interact with each other face-to-face, and videoconferencing is only a partial solution. Studies have found that people working together in the same room tend to solve problems more quickly than remote collaborators, and that team cohesion suffers when members work remotely.
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Rethinking Global Supply Chains In recent years, supply chain management thinking has emphasized optimizing costs by creating global supply chains and relying on one or two key suppliers for a given product or component, even if they are located in a faraway country. Supply chains have become increasingly global. Global supply chains have made it possible for original equipment manufacturers (OEMs) and Tier 1 vendors in the automotive supply chain, for example, to meet aggressive cost targets while keeping the price of new vehicles low. Lower transportation costs, falling trade barriers, the growth of subcontracting, and use of the Internet as a low-cost global communication tool have enabled many companies to shift to a global sourcing model. That prevailing wisdom is now being challenged. The coronavirus pandemic, an unanticipated “black swan” event of unprecedented magnitude, shut down much of the world economy, disrupting supply chains throughout the globe. China had become a major world supplier to the pharmaceutical, electronics, metals, and auto industries, as well as a wide range of consumer and industrial products, including surgical gowns, masks, and other personal protective equipment. When China shut its factories and halted domestic and international travel to stop the spread of the virus, companies in other countries had to shut down or delay production and deliveries as well. As coronavirus closed borders across the world, China reportedly met its internal demand for masks at the expense of countries who import Chinese masks, like the United States. Supply chains were also disrupted as individual countries shut down production, transportation, and retail sales to block the spread of coronavirus infections. Subcontracting has become more prevalent, driven by increased sophistication of components, manufacturing processes that require specialists, and the desire on the part of producers to have more flexible capacity that can be turned on and off depending on demand. The result is supply chains with deeper tiering. Suppliers draw upon their suppliers, who in turn draw on their own networks of suppliers in multistage production networks. It is becoming more common to have four or more tiers of suppliers. This level of complexity makes it very difficult for companies to have visibility into who all their suppliers actually are. Without this knowledge, many companies are caught off guard when major disruptions occur. Over the past decade, there have been other “black swan” events, including the U.S.–China trade war and the 2011 east Japan earthquake and tsunami. Some companies responded by setting up alternative sources for their supply chains. But many refused to change, believing it would be nearly impossible to replace key Chinese suppliers. No one realized what would happen when the world’s second largest economy completely shut down. The coronavirus pandemic should be a wake-up call. What can companies do now to mitigate global supply chain risk? First, businesses should eliminate their dependence on sourcing from a single supplier, region, or country. They should develop alternate supply sources and increase their safety stocks. These moves will increase costs, but they will make supply chains more resilient. However, supply availability can depend on the unique capabilities of a vendor or the location of specific resources. If a firm can easily locate and work with an alternative supplier, it may be able to get by with less safety stock. Firms with a complex manufacturing process that needs certification will need more. For example, Novo Nordisk, which manufactures half of the world’s insulin supply at its facility in Kalundborg, Denmark, maintains a five-year reserve because insulin is such an essential medication for diabetes. Second, companies should consider more regionalization of production and even localization of suppliers if feasible. When Toyota pioneered lean production in Japan in the 1970s, its suppliers were colocated nearby. Toyota continues to practice localization more than many of its competitors. More than 350 suppliers for Toyota’s Georgetown, Kentucky factory are located in the United States, with over 100 within the state of Kentucky. Coca-Cola was well-positioned to weather pandemic supply chain disruptions because its production is localized. Beverages sold in the United States are produced there. Drinks in Germany are made in Germany. Drinks in Kenya are made in Kenya. Unfortunately, many companies have chosen to adopt lean and just-in-time production methods that span global networks, focusing on price rather than supplier diversity. The coronavirus pandemic exposed the vulnerability of this approach. Third, companies should consider reducing the number of products they make. Kimberly-Clark, which makes Cottonelle toilet paper, Huggies diapers, and other household goods, saw a surge in sales in the first quarter of 2020 as consumers bought more staples to use while staying at home. Kimberly-Clark decided to limit the number of products it produces. By making a smaller array of products, the company could ease pressure on factories that had to ramp up production to meet this new level of demand. All of these measures require a new mindset that recognizes that some amount of profit will have to be sacrificed in exchange for supply security, and that supply chains should be designed with more awareness of risks.
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Is Social Business Good Business? Case Study As companies become more dispersed in the global marketplace, businesses are turning increasingly to workplace collaboration technology, including tools for internal social networking. These tools can promote employee collaboration and knowledge sharing, and help employees make faster decisions, develop more innovative ideas for products and services, and become more engaged in their work and their companies. Adoption of internal enterprise social networking is also being driven by the flood of email that employees typically receive each day and are increasingly unable to handle. Hundreds of email messages must be opened, read, answered, forwarded, or deleted. For example, Winnipeg, Manitoba–based Duha Group, which produces color paint samples and color systems for paint companies across the globe, was able to eliminate 125,000 excess emails per year by adopting Salesforce Chatter social collaboration tools. Managing Director Emeric Duha, who used to receive 50 emails each morning from Asia, Europe, and Australia, now has a Chatter feed of everything going on in the company. Another driver of enterprise social networking is “app fatigue.” In order to collaborate, many employees have to log on to numerous apps, creating additional work. Contemporary enterprise social networking systems often integrate multiple capabilities in one place. Recent studies have found that collaboration tools could be effective in boosting efficiency and productivity, while enabling users to make better business decisions. The products also expanded the potential for innovation. Not all companies, however, are successfully using them. Implementation and adoption of enterprise social networking depends not only on the capabilities of the technology but on the organization’s culture and the compatibility of these tools with the firm’s business processes. The technologies won’t provide benefits if they are applied to flawed business processes and organizational behaviors. Digital collaboration tools such as Microsoft Teams, Chatter, Yammer, Zoom, and WebEx added to email, texting, and messaging may enmesh employees in too many interactions, leaving even less time for in-depth individual thinking and problem-solving. When firms introduce new social media technology (as well as other technologies), a sizable number of employees resist the new tools, clinging to old ways of working, including email, because they are more familiar and comfortable. There are companies where employees have duplicated communication on both social media and email, increasing the time and cost of performing their jobs. BASF, the world’s largest chemical producer with subsidiaries and joint ventures in more than 80 countries, prohibited some project teams from using email to encourage employees to use new social media tools. Social business requires a change in thinking, including the ability to view the organization more democratically in a flatter and more horizontal way. A social business is much more open to everyone’s ideas. A secretary, assembly line worker, or sales clerk might be the source of the next big idea. As a result, getting people to espouse social business tools requires more of a “pull” approach, one that engages workers and offers them a significantly better way to work. In most cases, they can’t be forced to use social apps. Enterprise capabilities for managing social networks and sharing digital content can help or hurt an organization. Social networks can provide rich and diverse sources of information that enhance organizational productivity, efficiency, and innovation, or they can be used to support preexisting groups of like-minded people that are reluctant to communicate and exchange knowledge with outsiders. Productivity and morale will fall if employees use internal social networks to criticize others or pursue personal agendas. Social business applications modeled on consumer-facing platforms such as Facebook and Twitter will not necessarily work well in an organization or organizational department that has incompatible objectives. Will the firm use social business for operations, human resources, or innovation? The social media platform that will work best depends on its specific business purpose. Additionally employees who have actively used Facebook and Twitter in their personal lives are often hesitant to use similar social tools for work purposes because they see social media primarily as an informal, personal means of self-expression and communication with friends and family. Most managers want employees to use internal social tools to communicate informally about work, but not to discuss personal matters. Employees accustomed to Facebook and Twitter may have trouble imagining how they could use social tools without getting personal. This means that instead of focusing on the technology, businesses should first identify how social initiatives will actually improve work practices for employees and managers. They need a detailed understanding of social networks: how people are currently working, with whom they are working, what their needs are, and measures for overcoming employee biases and resistance. A successful social business strategy requires leadership and behavioral changes. Just sponsoring a social project is not enough—managers need to demonstrate their commitment to a more open, transparent work style. Employees who are used to collaborating and doing business in more traditional ways need an incentive to use social software. Changing an organization to work in a different way requires enlisting those most engaged and interested in helping, and designing and building the right workplace environment for using social technologies. Management needs to ensure that the internal and external social networking efforts of the company are providing genuine value to the business. Content on the networks needs to be relevant, up-to-date, and easy to access; users need to be able to connect to people who have the information they need and would otherwise be out of reach or difficult to reach. Social business tools should be appropriate for the tasks on hand and the organization’s business processes, and users need to understand how and why to use them. For example, NASA’s Goddard Space Flight Center had to abandon a custom-built enterprise social network called Spacebook because no one knew how its social tools would help people do their jobs. Spacebook had been designed and developed without taking into consideration the organization’s culture and politics. This is not an isolated phenomenon. Dimension Data found that one-fourth of the 900 enterprises it surveyed focused more on the successful implementation of collaboration technology, rather than how it’s used and adopted. Despite the challenges associated with launching an internal social network, there are companies using these networks successfully. One company that has made social business work is Standard Bank, Africa’s largest financial services provider, which operates in 33 countries (including 19 in Africa). Standard Bank has embraced social business to keep up with the pace of twenty-first-century business. The bank is using Microsoft Yammer to help it become a more dynamic organization. Use of Yammer at Standard Bank started to take off in 2013, when the bank staged an important conference for its executives around the world and was looking for a collaborative platform for communicating conference logistics and posting content such as PowerPoint presentations. Many agencies and consultants who worked for the bank used Yammer and liked the tool. Once conference participants saw how intuitive and useful Yammer was, they wanted to use it in their own operations. Usage exploded, and the Yammer social network grew to over 20,000 users just six months after Standard Bank adopted the Enterprise version. Belinda Carreira, Standard Bank’s Executive Head of Interactive Marketing, is also reaching out to departments most likely to benefit from enterprise social networking. Standard Bank has over 400 Yammer social groups. Many are organized around projects and problem-solving, such as finding credit card solutions that work well in African countries. Yammer has become a platform for listening, where employees can easily share their concerns and insights. Yammer is also used for internal education. Yammer enables trainers to present more visual and varied material than in the past, including videos from the Internet. In some locations, the Internet may be down for half the day, but Standard’s employees are still able to a