Security executives converged in Boston this August to hear how their peers are tackling enterprise security and managing risk. When it comes to information security, the reflection you see in your morning mirror is probably not that of a sharp, confident, professional IT executive. Rather, that man in the mirror is more likely to look like a gangly, awkward, not yet to be fully trusted teenager. At least that is what The Global State of Information Security 2006 survey tells us.

The survey – the largest of its kind – reveals that global information executives, still relatively new to security’s disciplines, are learning and improving but are still prone to risky behaviours that could have devastating consequences.

The study by CIO, CSO and PricewaterhouseCoopers (PwC), with 7,791 respondents in 50 countries, indicates that an increasing number of executives across all industries continue to make incremental improvements in deploying information security policies and technologies, although the rate of improvement is slower than in previous years.

They are becoming more financially independent, with some security budgets increasing at double-digit rates. They say they are more confident in their level of security, perhaps because their networks have not had a serious virus or worm in the past 12 months.

But teenagers, as any parent knows, have a tendency to live in the moment and an ability to ignore what is good for them. The survey shows that most executives with security responsibilities have made little or no progress in implementing strategic security measures that could have prevented many of the security mishaps reported this year. Only 37 per cent of respondents say they have an overall security strategy and they are planning to focus more on tactical fixes than on strategic initiatives, ensuring that in the coming year they will be more reactive than proactive.

One of the most unsettling findings in this year’s study is the sad state of security in India, by a wide margin the world’s primary locus for IT outsourcing. The problem is less with the outsourcing companies themselves than with the dangerous waters they swim in. Many respondents from India admit to not adhering to the most routine security practises. The problem is obvious but right now it is apparently easier to ignore than to address.

"I need proactive, consistent threat management and pre-programmed responses built into our system to mitigate issues"

James Ballou, head of security, Driscoll Children’s Hospital

Harder to ignore is the constant news of large organisations losing laptops packed with unencrypted personal data on millions of customers. Every year reports of such incidents should motivate companies to tighten security but every year the survey indicates that is not happening. Similarly, even after Hurricane Katrina, which hit the Gulf Coast seven months before the survey, a majority of US companies still did not have a business continuity/disaster recovery plan in place. Complacency, it seems, abounds. A large proportion of security executives admitted they are not in compliance with regulations that specifically dictate security measures their organisation must undertake or risk stiff sanctions, up to and including prison time for executives. Some of these regulations – such as California’s security breach law, the Health Insurance Portability and Accountability Act (HIPAA), and non-US laws such as the European Union Data Privacy Directive – have been around for years. Is this an example of adolescent rebellion or are security executives finding it hard to obtain the necessary resources to comply?

The answer, says Mark Lobel, a PwC advisory partner specialising in security, is neither. The information security discipline still suffers from the fundamental problem of making a business value case for security. Security is still viewed and calculated as a cost, not as something that could add strategic value and therefore translate into revenue or even savings. But if one digs into the results, there are reasons for optimism. There is evidence organisations that comply with security laws are more likely to be integrating and aligning security with their enterprise’s business strategy and processes, which in turn reduces the number of successful attacks and the financial losses that result from them. In short, security can create value if it is part of an organisation’s business plan and if the executive in charge is part of the team making those strategic spending and policy decisions.

Slowly growing up

The 2006 survey shows that more companies are thinking about security strategically, at least in some areas. A larger percentage of companies are aligning security with business objectives – 20 per cent of respondents say they align all security spending with their business goals, up from 15 per cent in 2004.

One of the biggest changes from last year is that more companies are integrating physical and information security. The percentage of organisations that report having some form of integration between physical and information security has grown rapidly, to 75 per cent in 2006 from 29 per cent in 2003. A similar spike occurred in the percentage of respondents saying their physical and information security chiefs report to the same executive leader, to 40 per cent from 11 per cent in 2003.

As to why that is important, one need look no further than the daily newspaper stories about lost and stolen laptops containing private customer information. Both the US Department of Veterans Affairs and AIG were involved this spring in high-profile cases of stolen laptops. With physical and information security combined, fewer laptops may be lost and if they are lost or stolen, that combination should make gaining access to the data stored in them nearly impossible.

“In today’s environment of IP-based control devices, cameras and other security sensors, the physical aspect is becoming more of an IT issue,” says Jason Spaltro, executive director of information security for Sony Pictures Entertainment.

With increasing aggregation and integration of security functions comes larger security budgets. Almost half of the survey respondents say their budgets would increase this year, with more than one out of five saying the rate of increase would be in the double digits. That is a faster increase than the overall IT budget. More security executives are being granted more financial autonomy too. That signals that security heads are being granted more responsibility, a key ingredient to raising security’s strategic profile in the organisation. However, the vast majority of companies worldwide – almost 64 per cent – still have not created C-level security positions such as chief security officer.

Managing security strategically and at the executive level, may make sense in theory but is increasingly looking like a moot point in the boardroom.

The wild, wild east

India lags far behind the rest of the world in instituting even the most basic information security practises and tools. With the subcontinent claiming status as the outsourcing partner of choice for the biggest IT powerhouses in the world – 49 per cent of all offshore outsourcing implementations are located in India, with up to 90 per cent of worldwide outsourcing revenue going to India, according to Duke University and Ciber/Archstone Consulting. These findings should be a source of considerable concern.

The widespread absence of even the most routine security tools – patch management, content filters and access control software – and policies, such as secure disposal of hardware, business continuity plans, setting security baselines for outside business partners, has left many Indian companies vulnerable to serious attack and the inevitable financial losses that follow.

Extortion, fraud and intellectual property theft occurred last year at one in every five or six Indian companies – rates that are double and even quadruple those of the rest of the world. Nearly one in three Indian organisations suffered some financial loss because of a cyber attack last year, compared with one out of five worldwide and one out of eight in the United States.

“You cannot take information security for granted in India,” warns PwC’s Lobel.

While the survey does not identify companies by name and most likely does not represent the security practises and levels of the popular Indian outsourcing companies, Lobel suggests taking a cautious tack before jumping into an outsourcing relationship. The first step companies should take when considering outsourcing work to India is to verify that an Indian-based unit’s security processes and policies are of the same calibre as its US unit.

Second, Lobel suggests conducting a risk assessment of the Indian unit’s security practises. Even if an Indian organisation says that it follows a familiar, specific security practise, do not presume the organisation defines the practise the same way that you do. “Conducting background checks may mean something entirely different in India than it does here,” Lobel points out. Find out exactly what the practise involves.

Indian security officials have their work cut out for them but they do say they plan to work to improve information security. Indian organisations lead their foreign counterparts in deploying new security measures and policies and they are not just tactical. A substantially larger percentage of Indian companies (nearly double the rate worldwide) report plans to hire a C-level security executive this year. Whether the Indian organisations are able to follow through and begin to reduce the security gap is something that should show up in the 2007 survey.

The strategy gap

Perhaps not coincidentally, this year executives are shifting from more strategic security practises toward more traditional technology practises. In 2005, for every one technology item on the security executive’s to-do list, respondents mentioned four process fixes. This year, that ratio is nearly one-to-one. In all, of the top dozen items on the 2006 security to-do list, seven can be described as a technological fix. Among the top five are some of the more routine and easy security measures, including data backup, network firewalls, application firewalls and instituting user passwords. That explains why the percentage of companies reporting they have an overall strategic plan in place was unchanged at 37 per cent.

At the very least, some of the shifts are perplexing. Dropping from the top spot in 2005 to fourth place this year is the development of a business continuity and disaster recovery plan. That is a surprising result given Hurricane Katrina’s reminder of the importance of such plans.

But news coverage about disasters and security breaches may not be a driver for security investments. IP protection did not even make the 2006 top 10 list. The kicker here is that designing an overall information security strategy did not make the 2006 list.

"Having a corporate structure in place regarding crisis is sometimes more important than having a detailed plan on how to react to specific events"

Jason Jackson, director of emergency management, Wal-Mart Stores

Why has strategic planning for security become an afterthought? One answer may be that in an information vacuum – security executives report that they are unsure of their budgets, where attacks have come from and where they will find people with the skills they need – short term solutions seem more prudent than long range ones.

Sony’s Spaltro offers a more fundamental reason: information security managers have techies coming into the job. They speak geek. Their bosses do not. “I tend to open meetings with executives by reminding them that security is a business decision and everything we do from cameras to encryption to information classification is a decision that the business makes to protect its assets and I don’t own that decision,” says Spaltro.
“I’m there to be the bridge between the technology and the risk that they face and help them to make decisions but in the end it is really for them to tell me what to go execute.”
For information security to be most effective, aligning the technological processes with the organisation’s strategic plan is critical. Companies that make security part of their strategic plan, says Lobel, have fewer breaches, lower financial losses and fewer network downtimes.

Time to get tough

A surprising proportion of survey respondents admit that they are not in compliance with the information security laws and regulations that govern their industries.

That includes high-profile laws that have been on the books for years. More than one-quarter of US security executives who say their organisations need to be compliant with HIPAA, the eight-year-old law that requires US healthcare organisations to protect patient information, admit that they are not.

Non-compliance runs broad and deep in all industries and ignorance of applicable law is a big factor. Nearly one in five US survey respondents said they should be but are not in compliance with California’s 2002 security breach law, which requires companies to notify individuals if an unauthorised person obtains access to their private information, such as credit card numbers.

Only 22 per cent of all US respondents say the law applies to them. However, given that the law applies to any organisation that has even one California resident as a customer, student or client – more than one in 10 Americans – a good portion of the 78 per cent of enterprises that think the law does not apply to them are likely wrong. Similarly, it would have been hard over the past four years to miss the requirements of laws such as Sarbanes-Oxley and Gramm-Leach-Bliley – an Act opening up competition among banks, securities companies and insurance companies. Still, more than one-third of all US respondents say they are not in compliance with Sarbanes-Oxley even though they should be and more than one out of seven said they were not compliant with Gramm-Leach-Bliley. Considering the stiff criminal penalties of not complying, many executives seem to be leaving themselves open to lawsuits and possible prison terms and exposing their enterprise to fines.

This is not simply an American phenomenon. Half of Australian organisations surveyed admit to not complying with their country’s privacy legislation. Almost a third of UK respondents say they do not comply with the eight-year-old Data Protection Act and nearly one-third of stereotypically law-abiding Canadian organisations do not comply with their nation’s privacy act.

At the root of this may be a lack of enforcement. To date, the cost of non-compliance is not as high as the expense of complying – in terms of the price of labour, hardware and software. In the absence of penalties being enforced, security executives have not been able to mount a business case for compliance. Add to that the fact that despite high-profile security breaches and lost laptops over the past year, the actual damages and ID thefts that can be directly tied to the incidents are small, says Jim Lewis, director of the Technology and Public Policy programme at the Centre for Strategic and International Studies. “People may have a sense that they are not as vulnerable as they used to be,” he says. So not complying with laws is perceived as less risky.

If security is to improve, security laws need more teeth. That applies to an organisation’s own rules as well. Survey respondents report that more than two-thirds of users are compliant with their organisation’s security policies. One of the most critical factors for reducing network downtime is compliance with an organisation’s security rules, Lobel points out, but that requirement is not even in control objectives for information and related technology or Cobit, the international bible for IT governance. Lobel suggests organisations assign penalties for not complying with their own security policies. But make sure, he adds, that the penalty matches the infraction. “You may not want to terminate someone who puts passwords on yellow sticky notes but there have to be some consequences,” says Lobel.

The best and brightest

The financial services sector leads all others in integrating information security with strategic operations.

Companies in the financial services sector – banks, insurance companies, investment firms – are more likely to employ a CSO than other industries. Security budgets in the financial sector are typically a bigger slice of the IT budget as a whole and increase at a faster rate than in other sectors. That may be because financial services companies are more likely to link security policies and spending to business processes. These companies are proactive, instituting formal information security processes such as log file monitoring and periodic penetration tests. More of their employees follow company security policies. Not surprising, financial services companies also have deployed more information security technology gadgets, such as intrusion detection and encryption tools and identity management solutions.

Financial services organisations are almost twice as likely to have an overall strategic security plan in place. Consequently, they reported fewer financial losses, less network downtime and fewer incidents of stolen private information than any other industry sector. The reason for all this is also obvious. The product in the financial services industry is money – and money is the prime target of cybercriminals, including organised crime, insiders and even terrorists. Protecting the money is the industry’s most critical concern. The past few years have seen a sharp increase in cybercrime – phishing, identity theft, extortion and spyware, to name a few. Anytime a security executive can demonstrate to top executives that investing in security can protect and increase shareholder value, he will be more likely to convince the boardroom to make that investment and make security a strategic part of the organisation.

Financial services companies are more likely than enterprises in other industries to use ROI to measure the effectiveness of security investments – 29 per cent versus an average of 25 per cent – and they also are more likely to use potential impact on revenue to justify investments – 36 per cent versus an average of 27 per cent. These arguments work. More financial services companies saw a double-digit increase in their 2006 security budgets than those in any other sector. Regulation plays a part too. The financial industry must adhere to the most stringent information security laws and therefore it leads other industries in following proven, strategic information security practises. Following this line of reasoning about regulatory compliance, one would think that government, healthcare and education – all highly regulated and entrusted with securing private information – would match the financial sector in instituting strategic security practises. One would, however, think wrongly.

According to the survey, government, healthcare and education, despite their responsibility for protecting the personal information of hundreds of millions of citizens, patients and students, are less likely than finance to follow the best tactical and strategic security practises. The government and healthcare sectors, for the most part, lead other sectors in following and instituting information security policies and moving to become more strategic. But the two sectors are well behind financial services. Only 42 per cent of government entities report having an overall security strategy, compared with 56 per cent in the financial sector.

The education sector is even farther behind in developing, following and deploying information security practises. Educational organisations find themselves in this position even after highly publicised network break-ins, including those at San Diego State University and most recently at Ohio University, which exposed students’ and their families’ data, including home addresses, social security, credit card numbers and tax information. In fact, the education sector suffers more negative security events – viruses and worms, denial-of-service attacks, identity thefts, unauthorised entries and trafficking in illicit data – and more network downtime than the average respondent worldwide. The security future does not look bright for the educational sector either. A smaller portion of educational security respondents than most other sectors say they plan to hire a C-level security leader, conduct background checks of new hires, start checking if networks are compliant with security policies, conduct or institute employee security awareness programmes or install encryption tools – to name just a few.

Size matters

Smaller companies seem to suffer less from attacks than bigger ones but that does not mean they are better at security. When it comes to security, bigger is not always better. Sure, large companies tend to have more strategic and effective security operations than smaller companies, so they should have fewer breaches and less negative fallout from attacks. Right?

Wrong. CIO found that companies with revenue between $100 million and $1 billion experienced fewer security breaches than their larger counterparts.

Nearly 30 per cent of these companies claimed their security measures have never been compromised compared with just 16 per cent of larger enterprises. Bigger companies also have less of a handle on what is happening in their (larger) networks.

They are less likely than their smaller counterparts to know how many security breaches they have had (42 per cent of the bigger companies had no clue versus 29 per cent of midsize companies and 16 per cent of the small-market companies, those with less than $100m in revenue). Bigger budgets and more security staff also make no difference when it comes to recovering from an attack. The percentage of midsize companies that experienced network downtime lasting more than a day matches the figure for large companies: about 10 per cent. Finally, midsize companies have a slightly clearer picture of the losses they sustain in an attack. 55 per cent knew the extent of their financial losses; just 51 per cent of large companies could make the same claim.

Why is this so? Security specialists cite two factors to explain the discrepancies between the actions and outcomes of the big guys and their smaller counterparts.Larger companies most likely sustain more cyberattack attempts than smaller ones because the returns to the hacker are greater if the attack succeeds. Big companies also tend to be more complex and keeping tabs becomes challenging, to say the least.

But experts say the gap between mid and large companies might have been even wider if the larger companies had not followed more strategic security practises. The lesson here is that midsize companies might reduce the number of security breaches they experience, and the damage caused by them, if they did the same.

Educational organisations are sticking to more mundane and tactical security fixes: installing firewalls, backing up data and deploying network security tools. It is relatively easy to predict that the education sector’s security outcomes will not improve significantly in 2007.

In the dark

You know your information security strategy is working when the number of successful breaches is low, the amount in financial losses is negligible and network downtime is kept to a minimum. Unfortunately, a large percentage of security leaders worldwide have no idea if their security plans are working because they do not know any of these numbers.

From 2003 to 2005, the percentage of survey respondents saying they had fewer than 10 negative information security incidents in the past year remained steady. This year, CIO included the option that companies do not know how many negative security incidents occurred and nearly one-third of respondents admit that they do not know how many breaches or unauthorised access events occurred within their organisations.

To a certain extent, that is understandable. Attacks can be hard to identify and networks can be extensive. What is less comprehensible is that a significant portion of respondents say they have not installed some of the most rudimentary network safeguards. Only one-third of respondents have put in place patch management tools or monitor user activity. Less than half use intrusion detection software or monitor log files – the two best methods organisations can employ to detect breaches – and even fewer use intrusion prevention tools. Surprisingly, more than 20 per cent of respondents do not even have a network firewall.

Installing a firewall is easy. If a significant number of respondents have not done that, it is not surprising that many more are struggling with the hard stuff. It is hard to quantify attacks and what is lost because of them. First, just understanding what constitutes an incident can be confusing. Second, the ability to track, record, correlate and communicate up the executive chain is lacking in most organisations. For the fourth consecutive year, there was an increase in the percentage of respondents throwing their hands up and saying they have no idea how much money their companies lost due to attacks. It is now up to 50 per cent.

“How do you calculate the loss of intellectual property or the damage to a corporate reputation?” asks Lobel. “Very smart people have a hard time agreeing on the value.” But until the security department can put a credible dollar figure on what the company is losing because of poor security, the boardroom is not going to listen to security executives asking for more money to spend on technology or on skilled security workers – cited as the top resources needed to improve security. The CEO wants to know how security affects shareholder value. But answering that would require a strategic overview and security professionals, by and large, do not have one. At least, not this year.