Home > News > After the Big Data Breach, Has Target Learned Its Lesson?

Comments 0 Comments

Peter Drucker, considered by some to be “the man who invented management,” usually gets credit for the phrase, “Culture eats strategy for breakfast.” Target’s woes following its historic data breach last November proves how true it is.

It seems clear at this point that the breach was disastrous for the company. First-quarter sales figures following the breach showed a 16% decline over the same period the year before, and Target’s stock has fallen 11% since December – though the $941 million quagmire that was the company’s Canada expansion certainly didn’t help matters, either.

I believe that guttered consumer confidence plays a significant role — something that could have been avoided had Target’s post-breach emphasis been less on risk assessment and messaging and more on mitigation through quick action.

While there have been surveys that tell a different story, with at least one reporting that more than 60% of Target shoppers aren’t too worried about their data security, it’s worth bearing in mind what that sage pundit Sarah Palin once pointed out: polls are for strippers and cross-country skiers. The common wisdom now is that a breach can undo years of brand equity, and that appears to be the case at Target.

A New Direction

On May 28, the proxy adviser Institutional Shareholder Services recommended that Target replace seven of its 10 board members, citing the data breach last November. “The data breach revealed that the company was inadequately prepared for the significant risks of doing business in today’s electronic commerce environment,” the ISS statement said. The shareholders have since decided against the ISS recommendation, however, keeping its board members.

In a spirited written defense of the Target board, its interim chairperson pointed out that pre-breach the company had increased its information security team to 300, annually trained more than 350,000 employees to better protect customer data and had a 24-hour operations center constantly reviewing suspicious activity. Unfortunately, when the moment of truth arrived, and the warning bell clanged, someone overrode the system on several occasions and the data was leaked methodically over several days first within the Target system and then was transmitted to Russia for sale on the black market.

The ISS recommendation followed on the heels of some major changes at the highest levels of the company. CEO Gregg Steinhafel walked the plank in early May about a week after announcing a major hire in Bob DeRodes, formerly of Homeland Security, who became the company’s new chief information officer.

The changes at the top were a good sign, since both the breach and its fallout were the consequences of failed leadership, but they were not enough.

Target never addressed the bigger problem regarding its handling of the breach: the company was too slow, less than transparent and insufficiently empathetic — and that was a failure of culture from the boardroom to the mail room.

The recommendation of ISS suggests this in no uncertain terms. The ultimate leaders of a company are its board members. The proxy’s recommendation signals something new in the business landscape. In the age of transparency and the 24-hour news cycle, there is nowhere to hide — not even in the boardroom. Hackers have been preaching that for years and identity theft victims understand that as well.

The Root of the Problem

It is with good reason that Target finds itself in a tough spot these days, and it is by no means only because they mismanaged their data security exposing millions of their customers to fraudsters.

As Target said in a recent statement regarding data security: “Target was among the best-in-class within the retail industry.” In light of the questionable state of information security in the retail world and the mega breaches that have plagued the sector for years, I am not sure what that really says about Target.

That said, the sad reality is that there’s no longer a “best” when it comes to security. Breaches are the third certainty in life. In the age of the super hacker, there is no such thing as failsafe data security. Hackers love to prove they can do things, make scads of money when they do, and there is little they cannot accomplish with sufficient computing power that is unwittingly aided and abetted by the weakest link in all security programs — humans.

The failure in leadership at Target was a failure in vision. Target talks a lot about its guests, but by not having a strong culture of responsiveness to the best interests of their guests they showed a complete lack of hospitality. In the age of the breach, reaction is everything. The actions taken when your customer’s information has been breached need to be drilled like missile launch exercises on a nuclear submarine so that they become second nature and the notification process is pure muscle memory.

Target failed not only because its information strategy failed, but because its culture took a backseat to the misguided strategic notions that expressions of remorse, 10% discounts and bold reactive measures after millions of consumer records have been improperly accessed can win back the hearts and minds of customers who have been put in economic harm’s way. In a corporate culture that assumes and prepares for the worst-case data security scenarios, and puts the emphasis on urgency, transparency and empathy, the true risk of a breach— massive loss of customer loyalty — can be contained and perhaps reversed. Putting the pitfalls of the inevitable into human terms is how you build and sustain brand equity.

More on Identity Theft:

Image: BrianAJackson

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team