Entrepreneurship and small business are at the core of economic growth. After all, new giants such as Google and Facebook germinated from humble beginnings, much like the launch of Hewlett-Packard in a garage. While entrepreneurship has always been a key segment of the economy, there has been a huge surge in this sector since the 1990s. For technology start-ups, the biggest innovation boost came from the increasing reliability of access to, and the speed of, the Internet.
Whereas the failure rate of small businesses is alarmingly high, the ambition to “make it happen” has never dissipated. Now there are university degrees, incubators, business-academia collaborations, television and media shows such as Shark Tank, crowd-funding, and the community of angel investors—all ready to feed this passion. One of the most powerful influences behind this tidal wave seems to be wealth creation at an unprecedented rate and in a few short years. Names we have had barely a chance to get acquainted with have gone through the roof in share price and market caps in a short period of time. Innovation deserves big applause!
Before we explore the ethics of technology-based innovation, let us recognize that innovation generally is an ethical thing to do. As Chris Fabian and Robert Fabricant suggest in their blog, innovation is humanistic.1 It likely improves the ecosystem, creates more wealth that can be used to do more good, enhances lifestyle and contributes to material happiness. And it could help greatly in reducing pain and discomfort, hunger, sickness and ignorance worldwide. The Gates Foundation is just one example of how doing well leads to doing good. So ethics and innovation are generally not on a collision course. While the net impact of some innovations on society is either debatable or not yet known,2 generally, innovation has infused positive energy in the economy over time.
Technology-based Innovations
We classify technology-based innovations into two categories: technology-enabled and technology-centric. The former involves technology as a lever to make a traditional business model more open source, virtual and efficient. An example is the Lending Club, an online platform that matches borrowers with money from individuals and institutions. Borrowing and lending are two parts of the same transaction, traditionally dominated by financial institutions, now getting a virtual treatment from the Lending Club.
In contrast, more dynamic initiatives of wealth creation involve technology-centric innovation. An example is Instagram. The platform allows you to take a picture or video, choose a filter to transform its look and feel, and post it to Instagram for sharing with friends and family. While sharing is not new, a business model with a new way of sharing in the virtual environment presents tremendous potential for its stakeholders. It is fast, virtual and efficient; it works in a one-to-many relationship. In this realm, we are looking at needs that may not have been previously examined in terms of an entirely new business model. For decades, perhaps centuries, we have lived with photo film and snail-mail to share our memories. Instagram made a technology-centric model feasible by ignoring traditional media and channels of communication. This, in turn, improved the quality of experience with impressive gains in efficiency as well.
Since technology-enabled innovation transforms an existing value creation model, ethical codes of conduct, policies and practices in place may provide a starting point for the new business. The Lending Club, for example, could lean on the history of the mortgage lending sector to begin to determine its dos and do nots. For technology-centric models, the challenges might be significant because they have no history on which to draw. Instagram’s innovators, for example, had to create their own code to support their business model. In sum, any innovative use of technology warrants a careful examination of ethical implications. We discuss this in three parts aligned to the developmental stages of innovations: initiation, launch and postlaunch.
Initiation
At the initiation stage, innovators are focused typically on making their idea come alive; they are almost exclusively consumed by the journey from thought to implementation. At this early stage of innovation, they have little time to think about anything else; no one is going to question them if they do not yet have a written code of ethics. However, innovators should think about ethical implications of the idea as far into the future as they can project. And this should be imparted to others in the small group that the entrepreneur recruits to work on the idea. Such recruitment is likely driven by urgency of delivering the product, process or platform on which the innovation is expected to thrive. However, this should not be enough; after all, the culture and values of the business entity being born hinges upon the entrepreneur and the few people who are first to arrive. This group often establishes an unwritten code of ethics that guides the group during the initiation phase and beyond.
Bitcoin, a form of virtual currency, serves as a context for issues leading to ethical dilemmas at the initiation stage. One can trade bitcoins across national and regional boundaries with one currency and with few transaction costs. It is safe and protects the anonymity of transactions. However, the birth of bitcoin suffers from an inherent limitation of no backing from any currency regulatory agency and, thus, severely limits the amount of trust in the currency, currently treated by many as a commodity. Anonymity defies transparency, which is a necessary attribute for many things fiduciary in nature and, therefore, central to currency management. The secrecy of identity could have side effects; for example, it nurtures an environment of illegal trading, criminal behavior and underground economy. Although laudable, the bitcoin initiative suffers from inherent ethical dilemmas. If these could not be addressed at the initiation stage, the trust in ecosystems built around bitcoin currency will be limited. Some businesses seem to support transactions in bitcoins; however, there is no overwhelming outburst to get on the bandwagon. And most important, leadership of this innovation seems scattered, perhaps not even traceable to one or a few leaders. No wonder, the hiccups in the journey of electronic currency suggest fundamental problems with the idea itself.
Yik-Yak and its peers (e.g., Whisper and Secret) have adopted a business model that supports messaging apps for anonymous posting of content. Yik-Yak, the leader in this push, ranked in the top 10 of all social networking apps in the Apple store in 2014.3 It is popular among college students and catching up with high school students as well. The problem is that students often post immature content, including bullying threats and trash talking. Anonymity breeds unwarranted heroics, leading only to greater risk to the communities, including schools. To counter abuse of the app, the company uses a geo-fence around physical school campuses to block the use of the app in schools. But students easily circumvent this at the end of the school day when they leave school grounds.
An ethically flawed idea may suffer from correctable deficiencies, but it could also be downright incurable. Entrepreneurs should engage in an early assessment of ethical dilemmas that may surface from any innovation under consideration. The entrepreneurial plate is currently quite full, with issues lurking to be examined in the case of drones, robotics and artificial intelligence,4 for example. In each opportunity space, doing the right thing is more critical than doing the thing right.
Launch
If there are no fundamental issues of ethical nature inherent in the idea, the next stage of innovation risk surfaces at the launching stage. No matter how impressive the technology, ultimately, the idea meets the human user. This invariably happens at the launching stage where human experience with the innovation is confirmed.5 Equally important, such experience in the Internet era happens on a large scale. Everything can go just right, or much can fall apart at this stage, not because the idea is inherently flawed, but because it now puts human trust to the test.
Uber, an app-based ride services business, provides an example. Companies, even families or groups, can authorize rides for others (e.g., employees, children) and pay directly, without requiring the employee to seek reimbursement or the child to pay directly. The Uber ride itself may be a matter of pride if Uber could develop a brand name that stands out for a unique experience (e.g., reliability, on-time service, rider safety, well-maintained cars, courteous drivers). Upon launch in many nations, Uber has run into a crisis of confidence, not because of the technology behind the business model, but rather because of the human interaction with it.
It seems Uber is aware of rider safety issues as a potential risk. The company’s web site discusses rider safety and claims that it screens drivers. However, problems suggesting systemic failures ensued as soon as people were introduced to the service on a massive scale. A case of alleged rape by an Uber taxi driver in India has induced the government to ban all app-based taxi services. Thailand has barred all app-based taxi service operators who use personal vehicles. A lawsuit has been filed in California against Uber for allegedly misleading customers with an assertion that they screen drivers.6 While similar app-based services have appeared on the scene, Uber has gained the most attention on issues of rider safety, something that its technology-enabled model does not address.
In a thought-provoking piece, Christopher Mims equates Uber to a “logical endpoint of the gradual transformation of the tech industry into something new.”7 He asserts that the emphasis of early tech companies was on “being an enabling force, on improving life first and perhaps changing the world in the process.” Sure enough, Google strives to live up to such ambitions and so do several other tech companies. Mims suggests that the new tech companies play a zero-sum game. The focus of innovation has shifted from sustaining communities to making owners wealthy.
Uber’s growth seems impressive, but its launch has shown significant vulnerabilities. One wonders what happens when a technology is embedded within communities. As Schneier puts it, the society thrives on trust and when such trust is violated, issues of ethics, security and control, and regulation arise.8 Without trust, people would not use Uber, or any, services. Ethical leadership has an obligation to manage innovation. For Uber, putting trust back into the business will remain a formidable challenge; how it addresses the dilemma will define its destiny.
Postlaunch
Fabian and Fabricant discuss UNICEF’s Innovation Labs, which provide a good example of a value-based approach to problem solving that effectively bridges technology and development.9 One idea is to create a translation layer between start-up thinking (Would people use my product?) and development thinking (Will the change become institutionalized over time?). Ensuring widespread adoption of the innovation is the key to impactful and lasting innovation. Without it, the world gets left out of the benefits of innovation.
Over time, some innovations successfully cross the bridge from start-up thinking to development thinking. Such innovative businesses become major players in world economies. By one estimate, five US tech firms—Apple, Amazon.com, Facebook, Google and Microsoft—are valued at a combined US $1.8 trillion, compared to a combined US $1.3 trillion for all 30 blue-chip companies in the German DAX index. For one thing, each is relatively new on the economic scene and each has successfully navigated the initiation and launch phases, managing effectively any and all challenges along the way. For example, on the privacy front, Facebook faces a similar challenge to Uber, but it has managed to nurture the trust of its users well, barring occasional mishaps. And even at the advanced stage of proving its worth, Google still has to respond to challenges of privacy; the battle continues, but there is more trust and greater willingness of people to use Google services.
In the postlaunch period, the role of IT innovation firms changes from that of an adversary to an ally. With the amount of influence they wield on the private and work life of individuals, it is clear that in some respect they are more powerful than even the national governments of some countries. More important, their influence cuts across national boundaries and varied cultures across the globe. For these established companies with abundant influence and resources, the accountability shifts toward shaping the policies and practices, regulations, and conventions that make the world a better place.
Conclusion
Technology inherently is neither good nor bad; what matters is how it is introduced to a purpose. While its downside should be contained to mitigate risk, its upside potential must be explored fully. And all this requires that trust is kept in balance so as not to cause anticipated benefits to prematurely vanish. The world has gained a great deal from information technology, and it appears, on balance, the associated risk is worth taking. And yet, one should expect bumpy rides in the future, while the greater good is achieved.
Endnotes
1 Fabian, Chris; Robert Fabricant; “The Ethics of Innovation,” Stanford Social Innovation Review, 5 August 2014, www.ssireview.org/blog/entry/the_ethics_of_innovation
2 An example is the mapping of the human genome. It is unclear what negative side effects this project would produce.
3 Rusli, Evelyn M.; Jeff Elder; “Behind the App’s Rise, Dark Side Looms,” The Wall Street Journal, 26 November 2014, p. B1-B4
4 Marcus, Gary; “Artificial Intelligence Isn’t a Threat—Yet,” The Wall Street Journal, 13-14 December 2014, p. C3
5 Innovators are typically seeking feedback from prospective customers at an early stage. However, this may not always be culturally holistic or globally complete.
6 Sugden J.; A. Malhotva; D. Macmillan; “Uber Under Attack Around Globe,” The Wall Street Journal, 9 December 2014, p. B1
7 Mims, Christopher; “Uber and a Fraught New Era for Tech,” The Wall Street Journal, 25 November 2014, p. B1-B5
8 Schneier, Bruce; Liars and Outliers, Wiley, 2012
9 Op. cit., Fabian and Fabricant, p. 4
Vasant Raval, DBA, CISA, ACMA, is a professor of accountancy at Creighton University (Omaha, Nebraska, USA). The coauthor of two books on information systems and security, his areas of teaching and research interest include information security and corporate governance. Opinions expressed in this column are his own and not those of Creighton University. He can be reached at vraval@creighton.edu.