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The Scary Side Effects of a Data Breach

Ray Moorman

News stories about data breaches are increasingly common as hackers are becoming more intelligent in their means of infiltrating companies’ networks. Businesses have put certain security measures in place, but these features aren't always enough to keep outsiders from accessing sensitive data. In addition to compromised security and the potential for fraudulent charges, data breaches come with a variety of negative consequences.

Diminished reputation 
A good reputation is often a company’s most prized asset as a business must work constantly to build and maintain the integrity of its brand. However, one compromising episode like a data breach can tarnish even the best of reputations. While every hack is different and effects enterprises in various ways, companies that have been breached will often say their reputation was negatively impacted. In fact, 46 percent of organizations say they suffered damage to their reputation and brand value as a result of a cybersecurity breach (1).

Before the Internet, businesses may have been able to recover more quickly without stories spreading at such a wide distribution in such a short amount of time. Today, however, that is clearly not the case. News of a data breach travels far and wide, affecting a company’s identity for customers around the world. When creating a contingency plan for potential breaches, enterprises should include media preparation and strategies for maintaining their reputations through the ordeal, from beginning to end.

Decreased competitive ability 
Often, data hackers are interested in a business's proprietary information, including customer lists, pricing strategies, and trade secrets (2). Once cybercriminals have this information, they can effectively damage a company's competitiveness by providing these materials to industry rivals or by exposing the information to the public. This effect is heightened if the data breach is not discovered immediately and is allowed to continue for weeks or months at a time.

Additionally, a company’s competitive ability will decrease following a data breach as customers are likely to look to other sources for making purchases. A data breach, if not identified fast enough, can have major effects on a company. Rebuilding a reputation can take more time and effort than it did to build it in the first place.

Lost customer trust 
Clients share their sensitive information with businesses frequently, assuming the companies have the proper security measures in place to protect their data. As soon as a data breach occurs, customers will question the amount of trust they've put into a business. Furthermore, consumers want to believe that enterprises can not only prevent but also properly manage a potential data breach (3). While the hack itself might affect customer loyalty, companies that don't handle the attack with competence will likely see a more negative impact on client confidence. The majority of consumers won’t do business with an enterprise they can't depend on.

It’s a company’s responsibility to maintain client allegiance. Since loss of trust often comes not from the breach itself, but from lack of follow-up after an incident, companies must be transparent with affected customers. Enterprises should already have a contingency plan in place and communicate it with consumers as soon as possible. The more information businesses can share with clients, the better. This action will show companies are not attempting to hide information and can maintain customer loyalty and trust throughout the data breach aftermath.

Reduced revenue 
Once businesses are aware that their system has been infiltrated by an outsider, the most common course of action is to stop operations until a solution is found. Companies have to find the source of the data breach, especially if a particular network flaw allowed the hacker to access sensitive information. With processes on shutdown to eradicate the criminal activity, enterprises can lose revenue (4). The longer a business's network is down, the more profits a company stands to surrender. In addition, earnings may also decrease as a result of diminished customer trust. If clients look elsewhere for products and services following a data breach, enterprises can be seriously affected.

Unfortunately, it's not about if a data breach will occur, but when. Companies around the world and from a variety of industries experience these incidents every year with differing magnitudes and overall effect. Businesses can suffer from serious consequences, including decreased revenue, trust and competitiveness if a hack is not discovered quickly and handled properly. To avoid these side effects, enterprises must be transparent with their client base and willing to provide answers to important customer questions. With frequent communication and the right breach assistance provider, businesses can maintain their reputation, even following a data breach.

  1. http://www-935.ibm.com/services/multimedia/RLL12363USEN_2014_Forbes_Insights.pdf
  2. https://www.globalscape.com/blog/2013/11/11/3-long-termdata-breach-consequences
  3. http://www.forbes.com/sites/katevinton/2014/07/01/how-companies-can-rebuild-trust-after-a-security-breach/
  4. https://www.allclearid.com/business/resources/five-consequences-information-security-breach

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