ChoicePoint Problem Definition
Executive Committee
Ms. Vivian Nix
Mr. Lee Rothstein
Mr. Charles Covin
Ms. Penelope Gardner
Authors
Dionne Hill
Sungkuk Ji
Scott Schomaker
March 14, 2016
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Scott Schomaker, Dionne Hill, Sungkuk Ji
EXECUTIVE SUMMARY
From its initial spinoff from Equifax in 1997, ChoicePoint has enjoyed profitable growth. However,
as a leader in the personal data industry, ChoicePoint is vulnerable to claims that its practices have
both invaded the personal privacy of consumers and failed to ensure the accuracy of the information
it collects. These issues are the result of the nature and structure of the personal data industry.
The byproducts of ChoicePoint’s success- errors, misuse, and privacy concerns- have attracted
scrutiny which may make future profitable growth difficult. Regulations under consideration by the
U.S. Congress threaten to impact ChoicePoint’s ability to procure and sell data. Because the ultimate
effects and costs of those regulations are undetermined, market uncertainty exists which can also hurt
the company’s stock price. ChoicePoint is faced with the challenge of addressing concerns about the
very nature of its industry while still earning a profit.
COMPANY POSITION
ChoicePoint is a leading data broker that uses its vast databases of public and business records to
help clients- including businesses, government agencies, and nonprofit organizations- make better
decisions through information and technology solutions.
Strengths
In 2004, personal data was a $2 billion industry and ChoicePoint earned over $918M that year. The
company’s strengths derive from three key attributes:
1. A massive database, with over 19 billon public records, and a diverse range of services.
Services include insurance, biometric, demographic, and political information
2. An established network of data sources, from individual contractors to government agencies
and insurance companies.
3. Technology solutions for many formerly labor intensive tasks.
As data resources grow, ChoicePoint increases its value-creation for customers by connecting and
referencing various pieces of information, which grows the company’s top line. Automation of many
tasks has allowed that growth to be profitable (Figure 1) making acquisitions successful.
Figure 1
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Scott Schomaker, Dionne Hill, Sungkuk Ji
Weaknesses
Because of its success, ChoicePoint is exposed to risks that stem from its own operations and
industry-wide security concerns. Inherent in ChoicePoint’s business model are several weaknesses.
Operationally, Choice Point is vulnerable as data comes in or goes out (Figure 2). Underpinning the
entire system is public sentiment concerning privacy rights. Together, these pose great threats to the
business.
Figure 2
Since data creation is the transaction between data owner (i.e. individuals) and data creator (i.e.
insurer or governmental agency etc.), data brokers are excluded from the creation process. However,
these brokers assume certain responsibilities for damages when that data is commercially exploited.
A weakness in its system is that ChoicePoint has over 100,000 customers, but does not have the
capability to vet each customer request. As a result, criminals are able to gain access to sensitive
information and defraud the system. Given the varied state and federal rules, even legitimate
businesses can also unknowingly misuse information.
The more impactful and far-reaching ChoicePoint’s information resources become, the more likely it
is to be breached, which leaves consumers vulnerable. These vulnerabilities are exacerbated by news
stories highlighting everyday citizens who have been hurt by the strength of companies like
ChoicePoint. Privacy advocates and governments have reacted to the data brokerage industry by
advocating and enacting additional regulations that restrict third-party access to information.
PROBLEM DEFINITION
In analyzing ChoicePoint’s situation, each weakness (errors, misuse, and privacy concerns) was
considered when developing the problem definition. Each weakness was evaluated in an attempt to
rank one as more important than the others to define the problem accordingly. In trying to frame the
problem of each weakness separately, it became clear that one root cause was driving all of them:
The value of the data directly related to its use.
While ChoicePoint was monetizing data, it was also magnifying the weaknesses in its own business
model. When data was less important, people could ignore errors or some misuse and privacy was
not a major concern. As ChoicePoint continues to grow, it only increases the likelihood of regulatory
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Scott Schomaker, Dionne Hill, Sungkuk Ji
responses that impair the business.
BUSINESS IMPLICATIONS
The aforementioned existence of database breaches and information inaccuracies, along with the
concerns of privacy advocates, threaten to undermine ChoicePoint’s profits and expansion
capabilities. These pressures have many implications and can be categorized into two impact areas:
government regulations and ChoicePoint’s financial market position.
Regulatory Pressures
The laws and regulations that govern ChoicePoint’s business operations are a patchwork of policies
that differ across local, state, and federal boundaries. Security breaches, like the one recently
experienced at ChoicePoint in September 2004, will fuel outcries for more restrictive public policies.
For example, government and individuals ability to know intimate details about private citizens is
already causing reactions in Europe and Mexico where the data industry is being forced to delete
records and cease many activities. One of the proposals under review in the U.S. prohibits or
otherwise restricts the selling of social security numbers. This could cost ChoicePoint an estimated
$15-$20 million in annual revenues. The cost implications of other prominent proposals are
uncertain.
Market Position
Security concerns and the threat of more restrictive government legislation also introduce uncertainty
in the financial market, which ultimately impacts ChoicePoint’s public valuation. To date, much of
ChoicePoint’s rapid business growth has occurred through merger and acquisition activity of
information resources. These acquisitions have given the business a competitive advantage and
improved its position as an industry leader. As a result, the company’s performance and business is
dependent on its ability to leverage debt to acquire new technologies, databases, biometrics, etc.
Actions by senior leaders, like Derek Smith’s selling of $9 million shares in the wake of the recent
data breach, also impact investor confidence. Without a strong financial valuation, which can be
impaired by the current market and regulatory uncertainties, the company will not be able to continue
on the strong trajectory of its recent past (Figure 1).
NEXT STEPS
Moving ahead, mitigating the risks of regulation and market uncertainty will be explored with senior
leaders. After the above problem definition and its implication have been reviewed by the executive
committee, and input is received, solutions criteria will be created. This criterion will provide a
measurement rubric by which recommendations to improve operations, leverage political
relationships, and reinforce investor confidence will be evaluated. The goal is for senior
management to strategically react to and assuage the pressures currently threatening to undermine
ChoicePoint’s business.