by CIO Staff

Ethics: Customer References Benefit Customer and Vendor

Feb 01, 20045 mins

Any vendors I’ve encountered have suggested that in return for better pricing or special consideration, I or others in my company be willing to provide references, participate in press releases, case studies or even talk to investors on their behalf. As CIO of Macromedia, a $340 million software company, I believe that it is possible to entertain such propositions without crossing ethical boundaries as long as the rules of engagement are clearly defined.

First and foremost, I will not agree to be a guaranteed reference for anyone under any circumstances. Whether the vendor is a Fortune 500 supplier or a venture-funded “new idea,” I always make it clear that being a reference is solely at my discretion. If I do agree to provide a reference because a product or service met or exceeded expectations, I also make it clear to the vendor that claims of success must not be embellished. In order to make sure that doesn’t happen, I insist on the right to review and approve any use of our company name

or brand in any collateral material, website, news release or case study. Depending on the vendor and the situation, my company formalizes such agreements contractually.

On occasions when we enter into special arrangements with vendors related to early adoption of a new product or a significant unproven upgrade, we insist on some unique rules. For example, I was recently introduced to the management team of a new company in the business intelligence space through my involvement in a CIO consortium. After the team came in to pitch the company’s value proposition and capabilities, we were interested in testing its new approach to analytics. After some negotiation, they offered a tightly scoped pilot project, several perpetual licenses and perpetual support on those licenses at an unbelievably low cost. Because the company is a startup and has very few real customers at this point, we’ve received an incredible amount of attention from it at all levels. As of this writing, we are two months into the pilot and quite impressed with the software. We have agreed to act as a reference on the condition that we are satisfied with the pilot.

Why Customer References Are Good for Business

These types of relationships can result in win-win situations. In my opinion, leveraging discounts on new or relatively unproven technology in exchange for a reference is just smart business. It helps startup vendors, and it benefits the early adopters.

We often take the same approach with larger and more established companies. Do I think I deserve a deep discount or special support attention for being an early adopter of a new and substantial upgrade or release? Of course. Am I willing to be a reference if it all works out well? Why not? The benefit applies both ways. Such an arrangement helps me achieve business value at a reduced cost, and I am happy to brag about it if it works.

When providing references, I would also be clear that special attention was received throughout the upgrade and would disclose any snags we hit along the way.

Advisory relationships and their effect on references should also be monitored very closely because of the naturally biased opinions of advisory board members. For example, I retained a telecommunications cost management company to audit past telecom bills, renegotiate telecom contracts, and manage the communications billing and reconciliation process. I began my relationship with this company on a very limited basis, but over time I became impressed with its business model and ability to save me money. When the CEO of the company decided to form a technology advisory board, he asked me to serve as a member. Because of my belief that aiding the company in this capacity could ultimately enable it to serve us better, I accepted the invitation (after receiving approval from our CFO). Although this is an uncompensated position, I now feel obligated to inform all references of my relationship as an adviser prior to giving feedback. I’ve yet to run into anyone who felt I was misleading them for personal gain.

The Importance of Full Disclosure

CIOs interviewing references should always ask the question: What is your or your company’s relationship with the vendor, and have you or your company been compensated or given preferential treatment in return for this reference? Additionally, you should ask about the reference’s business relationship with the vendor. Is a partnership in place that would provide incentive for an embellished reference such as a reseller or OEM arrangement? That is, does additional business for the referenced company directly or indirectly benefit your company?

I recently visited with salespeople for a chip manufacturer who were touting the company’s improvements in internal productivity and reduction in IT support costs due to its aggressive internal PC refresh program. I was naturally a bit skeptical. After all, the more a company refreshes PC technology, the more chips it sells, right? It is absolutely important to understand the motive of the individual providing the reference. I’m certainly not accusing the chip maker of spreading untruths; I’m simply putting the feedback in context.

I’ve noticed that since the dotcom meltdown, reporters on financial news TV shows seem to make a point of asking analysts about their relationship with the companies they are recommending. In hindsight, it seems like it should have always been an obvious question, doesn’t it? CIOs, in my opinion, have an obligation to each other to provide truthful references while being honest about the nature of their business relationships. Whether the vendor is an established business partner or a venture-funded startup, CIOs should never compromise what should be considered among the core values of the profession.