{"id":12567,"date":"2023-04-11T15:06:59","date_gmt":"2023-04-11T19:06:59","guid":{"rendered":"https:\/\/www.servsig.org\/wordpress\/?p=12567"},"modified":"2023-04-11T15:07:00","modified_gmt":"2023-04-11T19:07:00","slug":"corporate-digital-responsibility-cdr-in-the-age-of-ai-why-do-service-firms-engage-in-poor-cdr-practices","status":"publish","type":"post","link":"https:\/\/www.servsig.org\/wordpress\/2023\/04\/corporate-digital-responsibility-cdr-in-the-age-of-ai-why-do-service-firms-engage-in-poor-cdr-practices\/","title":{"rendered":"Corporate Digital Responsibility (CDR) in the Age of AI \u2013 Why Do Service Firms Engage in Poor CDR Practices?"},"content":{"rendered":"\n
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A guest article by Werner Kunz, Jochen Wirtz, Nicole Hartley, and James Tarbit.\u00a0<\/em><\/p>\n\n\n\n

Welcome back to our blog series on Corporate Digital Responsibility (CDR). In case you missed our previous article, we introduced the concept of CDR and discussed the significance of CDR for service companies in the Age of AI<\/a>. In part two of this series, we dive deeper into this topic by exploring why firms may not follow good CDR practices and what can be done to overcome these challenges.<\/p>\n\n\n\n

Surprisingly, many companies do not prioritize good CDR, given the risks associated with poor CDR practices. One would expect that digitally sophisticated service firms would want to follow good CDR practices. <\/p>\n\n\n\n

However, it is important to\nacknowledge that implementing good CDR practices may come with barriers and\ncosts that could discourage firms from taking action. Here, we have\nidentified four distinct categories of motivations for poor CDR\nbehaviors. <\/p>\n\n\n\n

First, service firms can benefit from capturing and utilizing consumer\ndata in their sales and marketing. This can create a sales and profit\nopportunity for service firms. For example, applying technology and data allows\nfor enhanced consumer targeting, price discrimination, and personalized\npricing. By using data and technology, service firms can better understand\ntheir customers and better tailor their products and services to meet their\nneeds.<\/p>\n\n\n\n

Second, customization and personalization can enhance the customer\nexperience by offering more convenience, enhanced accessibility, and speed of\nservice. <\/p>\n\n\n\n

Third, service firms are interested in cutting costs by automating\ncustomer service processes, which often results in enhanced agility,\nadaptability, performance, and productivity. <\/p>\n\n\n\n

While these objectives are frequently aligned with customer needs, they\ncan also carry CDR risks related to privacy, fairness, transparency, and\ndiscrimination. And often service firms face tensions related to these risks\nwith increased reliance on and integration of technology and data to achieve\nthese business objectives. <\/p>\n\n\n\n

Further, we acknowledge that it’s not always easy for service firms to allocate the necessary resources to establish and maintain a strong CDR culture. Investing in CDR has uncertain ROI outcomes such as avoidance of legal and reputational risks and potential long-term enhanced brand equity when consumers recognize and value good CDR practices of the firm. The previous discussion shows clearly that organizational objectives are often opposed to the adoption of good CDR practices. The resultant tensions can be viewed as trade-offs that service firms need to navigate in order to be profitable yet ethical. We call that the Service Firm’s CDR Calculus <\/strong>and argue that firms weigh the benefits and costs of good CDR to determine how much they will engage in CDR-positive practices. Figure 3 provides an overview of the benefits and costs of good CDR for service firms. A deeper discussion can be found in Wirtz et al. (2023).<\/p>\n\n\n\n

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Figure 3. A service firm\u2019s CDR calculus.<\/figcaption><\/figure>\n\n\n\n

How Can Firms\nBuild a Strong CDR Culture? <\/em><\/strong><\/h4>\n\n\n\n

CDR behaviors can be\nshaped and enhanced by addressing CDR tensions that arise from factors related\nto customers in the ecosystem front-end and business partners at the back-end\n(see the digital service ecosystem model that was introduced in part one of this\nblog). Figure 4 provides an overview of these factors. In the following, we\nintroduce the key CDR practices. Some are relatively simple and can be put in\nplace quickly without impacting sales or profits. However, other practices may\ninvolve more significant trade-offs that require strategic consideration, as\noutlined in the CDR calculus.<\/p>\n\n\n\n

First, it is crucial to\nestablish company-wide norms that prioritize ethical practices. To achieve\nthis, all stakeholders, including developers and frontline employees, need to understand\nand embrace the standards they must uphold. They should also be rewarded and\nmotivated to commit to these standards, creating a collective culture of CDR\nthroughout the organization. To support this culture, it is important to\nformalize and embed digital governance practices across all organizational\nunits. This ensures that everyone is on the same page and that CDR practices go\nbeyond mere box-checking and window-dressing. It is essential to avoid\nmachine-washing, which refers to intentionally misleading behaviors and\ncommunications about a firm’s ethical AI practices. Thus, establishing a strong\nCDR culture requires a concerted effort from all stakeholders, with managers\nleading the charge. By prioritizing ethical practices, formalizing digital\ngovernance practices, and avoiding misleading behaviors, we can create a\nsustainable culture of responsibility and trust that benefits our customers,\nemployees, and the organization as a whole. <\/p>\n\n\n\n

Second, customer\nprivacy and data protection must be at the forefront of managers’ minds as core\nprinciples of good CDR. For example, Amazon’s Ring’s sharing of private camera\nfootage with government agencies or Facebook’s WhatsApp’s sharing of user data\nwith advertising partners are typical violations. For good CDR, organizational\ntransparency about business models and customer data use is essential. In the\nfuture, companies may need an external audit of the design features of their\nservices against industry standards and regulatory requirements for CDR.<\/p>\n\n\n\n

Finally, to minimize the chances of accidental or forced CDR problems, managers must strive for equitable power dynamics between service companies and their business partners. Shared governance models, which can draw from current regulations, external non-profit auditing groups, and industry codes of conduct, should be employed to reduce conflicts and friction among collaborating organizations. By fostering a fair and cooperative environment, managers can ensure that all parties involved in the service ecosystem uphold CDR principles, thus reducing the risk of any potential ethical or legal issues.<\/p>\n\n\n\n

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Figure 4. Factors shaping CDR in service firms.<\/figcaption><\/figure>\n\n\n\n

New CDR Challenges Emerging from Generative AI<\/strong><\/h4>\n\n\n\n

The advent of\ngenerative AI (e.g. Dall-E, ChatGPT, Bard) has reached the general public and\nforcefully communicated the revolutionary power of AI and how it will impact how\nwe work, live, play, learn, and communicate. These new technology developments\nhave also reemphasized the importance of CDR for service firms and are paving\nthe way for a lot of highly needed new research. <\/p>\n\n\n\n

Important new opportunities\nand challenges include linked to these AI advances include:<\/p>\n\n\n\n