Personal Data Use and Morality in the E-Business Environment

Sep. 2004 Journal of Electronic Science and Technology of China Vol.2 No.3
Personal Data Use and Morality in the E-Business
Environment *
MURATA Kiyoshi 1,2 , ORITO Yohko 3
(1. Centre for Computing and Social Responsibility, De Montfort University Leicester LE1 9BH UK; 2. School of Commerce, Meiji University Tokyo
101-8301 Japan; 3. Graduate School of Commerce, Meiji University Tokyo 101-8301 Japan)
Abstract This paper deals with personal data use by firms in the e-business environment from the
viewpoint of business administration and information ethics. Whereas the tremendous development of
information and communication technology (ICT) has made it easier for firms to acquire, store, share,
and utilise personal data on their customers, firms that use personal data are exposed to risks related to
privacy issues. Since individuals fear the invasion of their privacy, the failure of a firm to appear or
remain trustworthy would make it difficult for it to maintain accurate, up-to-date databases and to
construct desirable business processes, which would affect the bottom line. Therefore, modern firms
should do what they can to ensure that their customers trust them. For them, one promising way to
remain trustworthy is to behave as a moral agent. Although it is difficult for any firm to meet the
conditions necessary to be a moral agent, competence in behaving as a moral agent is a hard-to-imitate
capability of firms for which personal data use is vital for enjoying the benefits of business relationships
in the e-business environment.
Key words personal data use; privacy; relationship management; trustworthiness; moral agent
Thanks to the tremendous development of
information and communication technology (ICT),
especially database and network technologies, and the
explosive spread of the Internet, the e-business
environment has emerged. ICT has become a
ubiquitous technology that makes it easier for firms to
establish communication linkages, or to be “wired”,
with their stakeholders. ICT enables firms in developed
countries to construct desirable business processes,
which streamline business operations and
communication, establish favourable, long-term
relationships with their partners and customers, and
improve customer satisfaction. The appropriate
application of ICT is critical for modern firms, since
the focus of competition has shifted from products to
business processes with the maturity of economy.
Moreover, the agile construction of business processes
is essential for firms, because time has become a
significant criterion of business performance in the
fragmented, uncertain market conditions that firms
confront today. Setting up a business partnership or
collaboration is an efficacious way to construct
processes agilely. The development and maintenance
of hard-to-imitate capabilities that underpin business
resources, coupled with the adoption of standard ICT
to ensure connectivity with business partners and
customers, is necessary to allow modern firms to
develop partnerships and remain competitive.
In this e-business environment, business process
innovation methodologies that use personal data about
customers, such as customer relationship management
(CRM) and supply chain management (SCM), are
promising ways for firms to perform better. Personal
data are vital for constructing efficient, effective
business processes. However, the use of such data also
has its risks. The salient risk factor is privacy. As the
right to privacy is considered important nowadays, an
invasion of privacy can become a serious concern, not
only for the individuals whose privacy is at risk, but
also for firms, whose reputation for trustworthiness in
Received 2004-06-19
* Supported by the MEXT Research Project “Global Business and IT Management: Global eSCM” at the Research Institute of Commerce, Meiji University.

No.3 MURATA Kiyoshi et al: Personal Data Use and Morality in the E-Business Environment 117
the e-business environment can be jeopardized.
This paper deals with personal data use by firms
in the e-business environment from the viewpoint of
business administration and information ethics. In our
discussion, we emphasise that ethical behaviour,
including the protection of privacy, has practical or
strategic value, as well as ethical or human value, for
modern firms.
1 Personal Data Use and Privacy
1.1 Relationship Management and Privacy Risk
In business, personal data use first became
important in marketing. Instead of mass marketing,
which aims at maximising market share, personal
marketing held the spotlight as the market fragmented
and uncertainty increased. The development of
database technology and the vast growth of computing
power has made it possible for many firms to
undertake personal marketing, which aims to maximise
the lifetime value of each customer or customer share
by using stored data to differentiate customers and to
enhance their loyalty to the firm [1,2] .
The ultimate goal of personal marketing is
relationship management, that is, to establish
favourable, long-term relationships with individual
customers by providing them with useful information
produced by analysing their consumption profile. The
idea of relationship management has been extended to
other business regions. For example, one of the main
objectives of SCM and CRM is to optimise the
relationship of a firm with its business partners and
customers. A firm and its business partners that jointly
introduce SCM systems would enjoy the benefits of
efficient, effective merchandising and logistics,
realised by the precise analysis of shared data on
individual customers. Conversely, individual
customers would benefit from the timely provision of
goods and services that they need from the firms, at
lower prices. Needless to say, the development and
maintenance of accurate databases that store large
amounts of correct personal data are essential to
successful relationship management.
In order to keep databases accurate, it is necessary
for firms to acquire correct, up-to-date data on a
continuous basis. These data are acquired mainly by
obtaining consumption data on individuals, sometimes
with their attribute data, through loyalty programmes,
which are called point card schemes in Japan, the
utilisation of information systems, such as the POS
system, and so on. The integration of data on one
person from various databases, some of which may be
purchased from third party organisations, is usually
useful for determining his or her consumption profile
and, therefore, may be helpful in effective relationship
management. Integrated and analysed data on
individual customers are shared among business
partners to optimise the activities of the collaborative
body that they form.
However, these methods of collecting and using
personal data entail serious concerns related to the
invasions of privacy of individual customers. Kotler
believes that ignorance of ethical problems, such as
privacy, might reduce the effectiveness of marketing
because consumers will develop a distrust of marketing,
and then demand the regulation of marketing
activities [3] . This is also true for relationship
management. In addition to the risk of regulation,
consumer distrust in the marketing and other business
activities of a firm may result in customers’ refusing to
provide personal data to the firm and may affect how
much stakeholders trust the firm. Without personal
data use and trust, a firm cannot survive in the
e-business environment, because it is difficult for the
firm to construct efficient, effective business processes
and to become a partner with other firms.
Consequently, the protection of privacy has a practical
or strategic value for modern firms in the e-business
environment.
1.2 Privacy as a Matter of Business
The right to privacy is not a very old concept. In
1890, Warren and Brandeis defined it as “the right to
be let alone” [4] . This “classic” definition was due to the
rampant journalism of that time, which featured gossip
items. The advent of the information society has
changed the interpretation of the right to privacy from
the classic one to “the individual’s right to control the
circulation of information concerning him or her” [5] .
It is alleged that with the maturation of society,

118
people in developed countries are aware of their rights
and the right to privacy is now universally accepted. In
fact, any business behaviour that arouses suspicion of a
violation of the right to privacy may result in withering
criticism of the firm, not only from privacy advocates,
but also from the mass media and public. The fuss over
“Lotus Market Place: Household” in 1990 clearly
showed that privacy was a matter of business [6] . In
2003, Benetton and Wal-Mart abandoned their plans to
deploy radio frequency identification (RFID) to
manage commodities because of the intense opposition
to it. It was the fear of a violation of the right to
privacy that was implicit in utilisation of RFID that
triggered opposition to it.
However, the right to privacy is an elusive
concept. Several languages, including Japanese, lack a
word corresponding to privacy exactly. Enforcement of
this right often appears arbitrary; eventually, the right
to privacy will be understood as a subjective,
timeserving concept. Ironically, whereas loyalty
programmes have rarely been harshly criticised as
threats to the right to privacy, RFID is frequently
treated as a serious infringement upon privacy. Often,
the same sales promotion information provided by a
firm causes diametrically opposite responses from
those who receive it: some welcome the provision of
information because they find it useful; others claim
that the provision of “junk” information infringes their
right to privacy. Moreover, the present e-business
environment, where massive amounts of personal data,
including personal identifiable information (PII), are
already stored in business databases and circulated
among firms, makes the practical efficacy of the
definition of the right to privacy as the right to control
personal information dubious.
The elusiveness of the right to privacy suggests
that proper handling of this business matter, as well as
predicting and controlling emergence of the privacy
problem, is never easy for any firm. Although
legislation has made great efforts to protect the privacy
of individual consumers, in step with the development
of the information society, mere compliance with the
regulations, which is sufficient to avoid accusations
and indemnity risk, is insufficient if firms are to handle
Journal of Electronic Science and Technology of China Vol.2
privacy problems properly. For example, in July 2001,
Mainichi Newspapers reported that Toppan Insatsu
sold a mailing list made and held by a bankrupt
catalogue shipper, to which Toppan attached a security
warranty, to another catalogue shipper. This sale might
be legal, but was questionable in the light of the
protection of privacy and fraught with risks related to
trust and reputation.
2 Firms as Moral Agents
2.1 Cooperation between Firms and Individual
Customers: A Game Analysis
Effective personal data use at firms is dependent
on the quality of data that they acquire, store, and share
with their business partners. Firms need accurate data
on many individual customers or consumers to conduct
e-business successfully. However, individual
customers who hate to have their right to privacy
infringed can provide firms with false data without
penalty and sometimes even with no qualms. Can firms
motivate individual customers to stop short of
behaving dishonestly and prompt them to provide true
data? Moreover, is there an incentive for firms to
maintain a favourable relationship with their
customers?
Customer
Dishonest
(Provide incorrect data)
Honest
(Provide correct data)
Tab.1 Prisoner’s dilemma
Dishonest
(Use data in an
improper way)
Firm
Honest
(Use data in a
proper way)
4, 4 10, 2
2, 10 8, 8
To answer these questions, let us consider the
situation represented in the well-known game shown in
Tab.1. In Prisoner’s Dilemma, there are two players, an
individual customer and a firm, and each has two
strategies: honest and dishonest. For the consumer
(dis)honest means providing the firm with (in)correct
personal data, while for the firm (dis)honest means
using data acquired from the customer in a(n)
(im)proper way.
The value of the payoff assigned to each outcome

No.3 MURATA Kiyoshi et al: Personal Data Use and Morality in the E-Business Environment 119
of the game is explained as follows:
1) When both players choose to be honest, the
consumer enjoys a high-level payoff by getting
desirable service provided by the firm, which is made
possible by the firm’s personal data use, and the firm
gains a high-level payoff through its enhanced
efficiency brought about by personal data use.
2) When both players choose to be dishonest, they
gain only a low-level payoff, since the firm cannot act
effectively to improve the status of the players as a
consequence of the firm’s personal data use.
3) When the customer chooses to be dishonest and
the firm is honest, the customer gets an outstanding
payoff, because she receives additional benefit from
the firm in return for providing personal data and is not
irritated by an invasion of privacy. Conversely, the firm
gains a miserable payoff, since it is forced to spend
money acquiring, storing, and utilising the incorrect
personal data.
4) When the customer chooses to be honest and
the firm is dishonest, the customer is compelled to bear
a miserable payoff. She is not provided with any
worthwhile personal service, but is exploited by the
firm. By contrast, the firm’s arbitrary utilisation and
selling of the personal data brings an outstanding
payoff to the firm.
Obviously, both of the rational players gain only
the low-level payoff, as a Nash equilibrium, if the
game is played just once. Tab.2 is the payoff matrix of
the game when it is repeated infinitely under
conditions of perfect monitoring [7,8] . This condition
means that one player can observe the other player’s
play each time the game is played. “Infinitely
repeated” means that neither player knows when the
game will end. Here, δ is a discount rate, and the
Customer
present value of the long-term payoff (multiplied by
1−δ for convenience) is shown in Tab.2. In this
infinitely repeated game, four strategies are considered.
A player chooses to be (dis)honest at each move of the
game on adopting the strategy (dis)honest at any time.
Trigger is a strategy such that the player continues to
choose honest at each move, unless the opponent
chooses dishonest; once the opponent chooses
dishonest, the player continues to choose dishonest
from then on. Tit-for-tat is another strategy, such that a
player chooses honest on the first move and makes the
same choice as the opponent’s previous choice from
the second move onward.
One Nash equilibrium in the game is [Dishonest
Anytime, Dishonest Anytime]. However, strategic
profiles [Trigger, Trigger] and [Tit-for-Tat, Tit-for-Tat]
become Nash equilibria if δ > 1/3. This means that if
the future value of a payoff is sufficiently large
compared with the present value, the players can
choose cooperative strategies. The implications of the
result of the game for e-business, under the condition
of perfect monitoring, are:
1) If an individual customer believes that it is
beneficial to conduct long-term business transactions
with a firm, she has an incentive to cooperate with the
firm,
2) If a firm believes that long-term transactions
with an individual customer are more profitable than
short-term or one-time exploitative deals, the firm has
an incentive to behave cooperatively, and
3) If both of the players believe that the opponent
favours the larger benefit of long-term transactions
versus short-term transactions, they are strongly
motivated to act cooperatively.
Tab.2 Payoff matrix of infinitely repeated prisoner’s dilemma (multiplied by 1−δ)
Firm
Dishonest Anytime Honest Anytime Trigger Tit for Tat
Dishonest Anytime 4,4 10,2 10−6δ, 2+2δ 10−6δ, 2+2δ
Honest Anytime 2,10 8,8 8,8 8,8
Trigger 2+2δ, 10−6δ 8,8 8,8 8,8
Tit for Tat 2+2δ, 10−6δ 8,8 8,8 8,8

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In this game analysis, the assumption that the
game is repeated infinitely is acceptable because it
corresponds to the going concern assumption. In reality,
the condition of perfect monitoring may seem too
strong. Indeed, it can never be true in the real world.
However, the shift in the social expectation of business
behaviour from amoral to moral has enhanced social
sensitivity to immoral behaviour by firms. In addition,
in the age of the control revolution [9] , the capacity of
individuals to control information has been
significantly improved by ICT, especially the Internet
and mobile phones. These circumstances place modern
firms under the surveillance of “little brothers” or the
voluntarily participative Panopticon [10] . Actually, many
business scandals were found out by exposure from
within and without recently. In the meantime, for firms
in the e-business environment, the importance of
ensuring the accuracy of the personal data that they
store and use is significant, as we have already
mentioned. This means that firms won’t hesitate to
spend substantial amounts to keep their databases
accurate. Therefore, it is not improper to assume the
condition of perfect monitoring in our analysis,
although it is still possible that the monitoring is
distorted because of cognitive biases.
Since many researchers and practitioners assert
the financial significance of repeat business based on a
long-term relationship with customers for firms in the
e-business environment [11] , the profitability of the
long-term transaction is quite convincing for the firms.
Therefore, a firm in the e-business environment is
likely to have the incentive to use personal data
properly and to let individual customers believe that
the long-term transaction with the firm also benefits
them. By contrast, individual customers can easily see
the benefits of the timely provision of customised
goods and services at lower prices enabled by the
proper use of personal data on customers by firms. A
major stumbling block to customers’ decisions to give
a firm their personal data on a continuous basis is the
uncertain trustworthiness of the firm or the fear that the
firm will infringe on their right to privacy. Mick et al.
states that firms that use personal data on customers
should not be harmful entities but be partners of their
Journal of Electronic Science and Technology of China Vol.2
customers [12] . Then, under what conditions do
individual customers have incentive to trust a firm?
2.2 Morality as a Hard-to-Imitate Capability
There is no quick or special remedy by which
firms can ensure that individual customers trust them.
Trustworthiness is generated by appropriate words and
deeds over a long period, but is easily lost by one-time
misconduct, and the recovery of trustworthiness takes
a long time. The stakeholders and influencers judge
what is appropriate, not the firm. The trustworthiness
reflects their trust in the firm, which exists within their
minds. Therefore, it is difficult for any firm to control
its trustworthiness and reputation or information on the
trustworthiness.
For a firm, the best way to establish and maintain
high trustworthiness is to behave as a moral agent.
Necessary conditions for a firm to be a moral agent are:
1) To be sensitive to ethical problems that its behaviour
may cause, 2) To behave defensively, that is, to be
accountable for all its business behaviour, and 3) To be
a rational interlocutor, that is, not to hesitate, when
problems with its behaviour are perceived, to discuss
problems with others who hold different values from
the firm rationally, and to commit to problem-solving
in a serious, positive manner.
Needless to say, a firm doesn’t have a personality.
To fulfil the necessary conditions, individual members
of a firm have to behave autonomously as moral agents
and share the organisational values. Organisational
measures, such as setting up an ethics steering
committee, devising a privacy policy and a code of
ethics and conduct, educating the employees on ethics,
and carrying out an ethical audit of the information
system, may help to make members of a firm behave
morally and to give the firm a good reputation as a
moral agent [13] .
Unfortunately, it is not easy for a firm to make its
stakeholders and influencers perceive it as a moral
agent. This means that the established reputation of a
firm as a moral agent is a rare resource that will allow
it survive competition in the e-business environment
and the morality of a firm is a hard-to-imitate
capability. Such a reputation will prompt individual
customers to trust the firm, which should make it easy

No.3 MURATA Kiyoshi et al: Personal Data Use and Morality in the E-Business Environment 121
for the firm to acquire and use accurate personal data
on its customers continuously and establish long-term
relationships with its customers and business partners.
Individual customers who trust the firm may agree to
transfer a range of control over information concerning
them to the firm and become business partners or
active components of the business process who
willingly manage their relationship with the firm.
3 Conclusions
Personal data use is the key to successful business
for modern firms in the e-business environment. It
makes it easier for firms to construct efficient,
effective business processes and to establish favourable,
long-term relationships with their customers and
business partners. However, this key activity is fraught
with risks that centre on privacy issues. Any business
behaviour perceived as an invasion of privacy may
erode the trustworthiness of the firm, resulting in a bad
reputation, accusations against it, and indemnities.
Moreover, the fear of invasion of privacy by individual
customers makes it difficult for firms to set up and
maintain accurate databases of personal data, which
could seriously affect their business performance.
Hence, modern firms must strive to gain their
customers’ trust.
To remain trustworthy with a good reputation,
firms should behave as moral agents. Such competence
is a hard-to-imitate capability of firms in the e-business
environment, although it is difficult for any firm to be
a moral agent. The implementation of organisational
measures to cultivate this capability is definitely
crucial for firms. Through a steady effort to establish
and maintain morality, modern firms can enjoy the
benefits of favourable, long-term relationships with
their customers and business partners.
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Brief Introduction to Author(s)
MURATA Kiyoshi is a visiting scholar at Centre for
Computing and Social Responsibility and an honorary visiting
professor at Faculty of Computing Science and Engineering, De
Montfort University, Leicester, UK, and a professor of MIS at
School of Commerce, Meiji University, Tokyo, Japan. He is a
member of the Editorial Board of Journal of Information,
Communication and Ethics in Society (ICES). His research
interest is in business and information ethics in the e-business
environment.
ORITO Yohko is a doctoral student at Graduate School of
Commerce, Meiji University, Tokyo, Japan. She received her
degrees of Bachelor of Commerce and Master of Commerce
from Meiji University in 2001 and 2003 respectively. Her
research interest is in business administrative study on personal
data use by firms and privacy.