Impact of Data Breaches on Businesses Reputation and How to Minimize Risk

Impact of Data Breach On Businesses

To avoid a major loss post a data breach, every organization must have an incident response plan and engage in effective threat modeling. These are proven ways to reduce the overall impact of a breach and have methods in place to strengthen consumer trust.

Businesses are now focused on data security more than ever before because of its viable impact on business i.e. kind of information a business holds including customer and employee data. Loss of any information like, customer list, account list or staff list can impact the business on a large scale. Telstra security report 2018 stated that 60% of businesses were interrupted by security breach last year.

A business interruption means lost wages, lost productivity, lost opportunity. This merely displays the inevitability of breaches and lack of perfection in security. In the Security measures that are taken by an organization, perfectionism is measured in scientific terms, while it is all about risk management. Risk management focuses on the incident itself or the data breach that has occurred, and responds to the breach in a timely manner, which will lead to a dramatic reduction in the impact on business.

“Studies show 29% of businesses that face a data breach end up losing revenue. Of those businesses, 38% experience a loss of 20% of more… The average cost of a data breach in the U.S. is $7.91 million…” (view source of stats)

Of late, a huge impact has been kicking off various industries on the grounds of data breach incidents occurring at regular intervals. This is not just impacting the organizational data loss but is hitting an organization in many other forms. Few impacts of a data breach on an organization have been discussed below:

Impact on Finances and Revenue:

A rise of Cyber crime in industries has overburdened the organizations with high costs and impacted their revenue to a large scale. IBM reported in its Data breach report 2019 that 507 organizations across 16 geographies and 17 industries have incurred an average cost of USD 3.92 million with an average data breach size of 25,575 records. Just as it was last year, the most expensive country in terms of average total cost of a data breach is the U.S. at $8.19 million, more than twice the global average. Healthcare was again the most expensive industry for data breach costs, with the total cost of a data breach in 2019 averaging $6.45 million.

When a data breach incident occurs, various financial problems can surmount the organization, depending upon the type of data breach that has infected the organization’s security. Businesses that suffer breaches may have to struggle with the cost incurred from containing the breach, compensating affected customers, comprehending a decreased share value and heightened security costs.

The losses due to security breach have been significant in past few years, yet business leaders cannot forecast how or if financials will be affected in the event of a breach. Studies have proved that 29% of businesses that face a data breach end up losing revenue out of which 38% organizations experience a loss of 20% of more and are unable to sustain the situation.

Impact on Stock prices: 

A Data breach has a lasting outcome on the victim for a prolonged period. A report on Stock prices of organizations hit by data breach by Forbes says 

“The size of a breach does not directly correlate to bigger drops in stock prices, however; companies that had the most records exposed saw their stock actually recover and outperform the market, while companies with smaller breaches saw their shares struggle in the six months after the fact.”

Although the share prices might increase, yet the stock would decrease its value on NASDAQ.  As observed by Comparitech, a U.K.-based site that aggregates consumer tech reviews, with an increase in share prices, year after year, the companies can still underperform in the long term. Organizations that experience a data breach underperform the NASDAQ by -3.7 percent on an average, after one year. 

After two years the average share price of organizations displays a rise of 17.78% (on an average) but the NASDAQ is still underperformed by -11.35 percent. Thus competitors of the organization might benefit from the decreased NASDAQ value of the cyber hit organization.

Impact on Reputation:

In the world of close networks and super fast news, any information on security breach spreads like fire over the internet or media. At times an organization gets highlighted not for its toil but for a poor security besides serving the best in its industry. The damage a data breach can have on a business can be severely demoralizing, particularly if the breach was an avoidable one or the breach puts the customer data at risk. Dark clouds of poor reputation might take a troll causing loss of customer confidence, negative press, associated identity theft, and potential customer’s views, creating long-term complications.

A Survey (The Impact of Data Breaches on Reputation & Share Value) confirms that in an event of a breach, consumers are quick to turn their backs, with 65% of data breach victims reporting ‘loss of trust’ in an organization as a result of a breach. Additionally, 85% are likely to inform others about their negative experience, with 33.4% using social media and 20% making a comment directly on a company website.

Impact on Customer Trust and Turnover:

The most important factor a customer considers while purchasing any product is- if their ‘personal information security’ is considered by the organization. Thus, if an organization does not consider the security of customer’s data, a customer can vote with their feet and take their business elsewhere.

Earlier, due to lack of awareness on cyber security, customers did not form any perception on the basis of the security plan of an  organization. But now, with increased awareness and increasing cyber attacks, customers are more conscious about where they are providing their information and how safe will it be in future. According to a 2018 survey by InMoment,

 “70% of Millennials and 60% of all consumers will make purchases more often from companies that they are loyal to, and 50% of consumers will purchase more products when they shop”.

The scale of data breaches is what continues to shift the attitude of a customer, i.e. data breaches on giant firms like Facebook, have been attracting the public’s attention to the concern of data security. Previously, data privacy was difficult to internalize, it was difficult to care because it hadn’t directly affected people. Over 80 million people were affected by the Cambridge Analytica Scandal, and nearly twice that many in the Equifax breach. Over a decade, Data breaches have been impacting customers at a large scale, but due to the interconnected system now, news spreads at a very high pace, impacting the trust of customers and hindering the reputation of the organization.

Protecting Your Organization

With all the attention pointed at an organization after a breach, it’s crucial to ensure that the aftermath-management is in place and is properly handled. If not, there can be a potential risk of losing the customers to the competitors who pose their service with a better security plan for customers.

To avoid a major loss post a data breach, every organization must have an incident response plan and engage in effective threat modeling. These are proven ways to reduce the overall impact of a breach and have methods in place to strengthen consumer trust. With a customer driven industry, placing your customer trust at risk might prove very perilous for the organization and its reputation, leaving your company at risk and organization’s reputation in a dilemma. A risk assessment can be performed to verify the preparation of an organization towards a data breach and the right steps to be taken towards minimizing potential threats.


Additional Resources: