The Increasing Risk Of Social Media

by Jay Deragon on 12/04/2012

In case anyone is wondering how much interest there is in learning about social media risk check out the graph below which illustrates the rise in interest since 2009 and predicted through 2013. The rise in searches for information about “social media risk” is a clear indication that more and more people and organizations are attempting to figure out how to manage, mitigate, reduce or transfer the inherent risk of social media. The questions on this subject matter are many while the answers are few.

In a Forbes article titled “Social Media Risk Is Like Wildfire. Where’s the Fire Engine?” Kasia Moreno writes: Social media is already recognized as the fourth-largest source of risk over the next three years, according to a recent report from Deloitte and Forbes Insights, “Aftershock: Adjusting to the New World of Risk Management.” This puts social media on par with financial risk. Executives interviewed for the report indicated that the social media risk is rising, and they worry about cyber attacks, breaches of confidentiality, fast-spreading malicious rumors about the company, as well as financial disclosures. “Everybody is walking around with a smartphone, and things can be captured and digitized instantaneously. Once digitized, social media can spread information like wildfire,” says Rick Kulevich, senior director of ethics and compliance at CDW.

Not all executives worry about social media equally. A higher percentage of executives (37%) from the consumer and industrial products industry placed social media among the top five sources of risk than did executives from the technology sector (24%) or life sciences (18%). Clearly, the consumer products executives recognize that using social media for marketing to consumers puts them at risk of unintentional damage to their reputations. 

And The Answers To The Risk Are?

Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events  The strategies to manage risk typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk.  Most of the traditional risk associated with individuals and corporations are tangible risk while most of the social media risk are intangible risk.

intangible risk are things that are recognized but not easily quantified. A common example is an economic intangible which is something not easily quantified within a given theory of economics. Social media activities contain risk of intangibles such as:

  • Customer good will, employee morale, market sentiment and aesthetic appeal (i.e. negative reaction to a twitter post).
  • Positive or negative conversations online that effect the perceptions of trust or quality
  • An expenditure of time and effort on an activity by a person (such as leveraging know-how, knowledge, collaboration, relationships, systems, and process)
  • A defensible legal property right conferred by a Legal Act (copyright, trademarks, patents, designs, customer lists), or financial transactions (R&D, goodwill, intellectual capital)
  • In business, intangibles are commonly referred to as intangible assets or intellectual capital
  • Leadership, maturity, team chemistry, network effects and so on.

Managing the risk of intangibles is new ground for most risk managers. Managing the risk of social media is not even in the job description for risk managers. None of the insurance brokers or insurance companies have “social media risk management practices”. In other words there is a void of “knowledge inventory supported by knowledgeable resources on the subject matter.

Given the rapid state of change surrounding social media practices, the risk are likely to increase over time. Maybe it is time that a “crowd of a few” form and collaboratively begin to address these issues on behalf of the many.  The emerging risk of a transparent marketplace of conversations can only be managed, reduced and mitigated through use of new knowledge.


{ 1 comment }

John McGovern January 31, 2013 at 9:58 am

Excellent approach! Economic conditions, emerging technologies and changes in consumer behavior have all conspired to create the most pressing problem faced by sales managers in every industry: how to gain the competitive edge and grow the business!
Risk Management is that edge – according to an Accenture (2011) study involving over 400 companies – “risk management is a core capability of the insurance industry and is becoming a source of competitive advantage and high performance in the industry”
Yet, most insurance brokers offer clients just one limited option when it comes to risk management: the transfer of risk through an insurance policy!
If insurance brokers had any idea that social media, which is now part of doing business and the nature of all business is risk, brokers would offer something beyond a commodity, which can be casually discarded for a better price. They would position themselves as a trusted risk management adviser – someone who works with clients to help them optimize risk. Under those conditions, they will find that new clients are more easily won, and customer loyalty is significantly enhanced. The cost of insurance becomes a lot less significant than how you help a client reduce their overall risk costs and thereby help them increase profitability.

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