Why be first if it doesn’t pay? The case of early adopters of C-TPAT supply chain security certification

The purpose of this paper is to focus on adoption of certified management standards, specifically public standards. Such standards play an increasingly important role in today’s business environment. However, to generate adoption benefits, they must be first widely accepted – a situation where they have become viewed as the de facto norms. For this state to occur early adopters play a critical role. Past research has argued that early adopters, in exchange for assuming more risk, are rewarded with higher economic returns. Yet, these findings are based on private, not public standards. With public standards, early adopters do not receive such benefits. There is evidence that public standards are becoming more important. This situation leads to a simple but important question addressed in this study – if early adopters assume the risks of embracing a new public standard without economic benefits, then what is their motivation? To resolve this question, this study draws on agency theory and prospect theory. The authors argue that early adopters embrace such standards because of their desire to minimize risk resulting from failure to support the goal at the heart of the public standards.

Data were obtained from the Customs-Trade Partnership Against Terrorism (C-TPAT) Partners Cost Benefit Survey and analyzed through structural equation modeling.

Early adopters of public standards are not driven by economic benefits but rather by the need to minimize their exposure to the risks associated with failing to satisfy the goals associated with a public standard. In other words, they were motivated by the need to minimize costs. In the case of C-TPAT, these costs are those of failing to provide or improve network security.

This study has shed new light on the standards adoption process by clarifying the specific motivations that drive early adoption of a public standard. In addition to identifying the loss aversion motives of early adopters and economic benefit motives of later adopters, the authors have also elaborated on the notion that standards have differing levels of precedence, particularly when comparing private with public standards.

In a world characterized by increasing demands for outcomes such as improved security and where governmental funding is falling, due to growing deficits and governments that are becoming more conservative, the authors expect the use of public standards to increase.

Different from prior research on private standard, the paper focuses on the organizations involved in the adoption and diffusion of a public standard, with special attention being devoted to the early adopters. The paper provides a theoretical explanation for the actions of early adopters of a public standard through the theoretical lens of prospect theory.