Psychological Contracts and Strategic Leadership

Psychological Contracts and Strategic Leadership

David Starr-Glass
Copyright: © 2017 |Pages: 11
DOI: 10.4018/978-1-5225-1049-9.ch100
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Employment is not simply an economic engagement; it has significant social and psychological implications for both employers and employees. For employees the constellation of assumptions, beliefs, and relational implications with employers constitutes a psychological contract. Employers are conscious of the psychological contract, but are perhaps more acutely aware of the complex organizational and strategic decisions that they have to make. This chapter explores the psychological contract against a framework of strategic management and strategic leadership. It suggests that a dominant strategic preoccupation might be problematic in developing productive and motivating psychological contracts. Unfortunately, weakening the psychological contract can be counter-productive because committed organizational participants are often a critical factor in the organization's strategic success. This chapter examines the tensions between strategic leadership and psychological contracts, suggesting a number of ways in which they might be reconciled through redirected and responsive leadership.
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Employment is an economic exchange in which labor and directed effort are provided and money received. Employers often see employment primarily as the process of attracting, developing, and retaining the competent labor force that they require for the organization to survive and grow. However, employment is far more than a simple economic issue and has assumed considerable psychological meaning, social significance, and cultural value. Employees also see employment as a process of productive engagement, but additionally they appreciate that it impacts their economic and social worlds and has a direct bearing on their personal wellbeing (Dollard & Bakker, 2010; Linde, 2015; Shuck & Reio, 2014).

The complex exchange process between employee and employer is mediated by an informal cluster of assumptions, beliefs, and expectations that each holds about the other’s anticipated obligations and behavior. This informal and unwritten psychological contract has been the subject of considerable debate, speculation, and research since it was first introduced into the organizational literature in the early 1960s (Argyris, 1960; Levinson, Price, Munden, Mandl, & Solley, 1962). The psychological contract provides a sense of stability for the employee because it seems to be is based on a set of enduring values and reciprocated consideration. Over time, as the underlying economic systems and social attitudes towards employment shift, it is to be anticipated that there will be changes and re-formations of the psychological contract. These changes are expected to take place gradually and in a negotiated manner; sudden and unilateral changes are always problematic, and “unexpected deviations from the limits of acceptance and tolerance can have drastic consequences, not only for the contract as perceived by the individual, but also for the level of commitment and subsequent organizational behaviors” (Schalk & Roe, 2007, p. 178).

It is important to acknowledge that “the psychological contract that gave security, stability and predictability to the relationship between employees and employers has dramatically altered in the past decades” (Hiltrop, 1995, p. 286). In the decades that Hiltrop refers to (towards the end of the 20th century) other things also changed dramatically: unprecedented increases in strategic discontinuities, a blurring of the boundaries that had previously separated businesses, a new ferocity in competitive markets, and an accelerated and conspicuous move towards globalization. To address these complex and disruptive issues – and to successfully navigate the turbulent white-water of the new age – Hitt (1998) called for a re-invigorated and thoughtful application of strategic leadership.

A decade later, assessing the record of strategic leadership, Hitt and others noted that although there had been disappointments. They conceded that it had “brought the US and world economies to the precipice of failure”; nevertheless, they continued to believe that “the potential for positive strategic leadership not only exists, but is indeed the way forward” (Hitt, Haynes, & Serpa, 2010, p. 441). These authors were not alone in advocating the power and potential of strategic leadership. As a theory, practice, and promise strategic leadership has become the most widely advocated leadership approach for organizations in our complex and troubled 21st century (Dinh et al., 2014; Rainey, 2014; Rowe & Nejad, 2009). Certainly, the power and potential of strategic leadership is much discussed, but evaluations of its application and success are significantly few (Elenkov, Judge, & Wright, 2005; Nishii, Gotte, & Raver, 2007). In particular, one important question remains unanswered: How does strategic leadership impact the psychological contract?

Key Terms in this Chapter

1099 Economy: An economy in which a significant volume of labor is provided by independent contractors rather than by organizational employees. Independent contractors are generally hired on a short-term basis to complete specific tasks. The term is derived from the US Internal Revenue Service form 1099-MISC, which organizations need to complete when paying independent contractors (see ).

Upper Echelons Theory: The understanding that the senior executives of an organization (the CEO and his/her selected top management team) are responsible for strategic formation and enactment. In viewing strategy – and in interpreting strategic possibilities – members of the organization’s upper echelons inevitably do so through the lens of their through their personal experiences, values, personalities, and other similar human factors.

Gig Economy: An unbundling or disaggregating of workers from long-term employers in the labor markets. Work-related connections are transactional and transient, with workers being engaged as independent contractors for specific projects that usually have short durations. Although the origins and extent of the gig economy are disputed, it probably arose after the financial crash of 2008 and was greatly facilitated by the Internet, social media networks, and the ability of work to be performed remotely.

Psychological Contract: The perceptions, assumptions, expectations, and behaviors that are considered to come in place between employees and employers in a work-related relationship. The psychological contract is implicit and mediated by social, cultural, and economic forces rather than by legal ones. The contract is recognized as informal in nature but is considered mutual, reciprocal, binding on both parties, and potentially subject to breach.

Employment Relationship: The formal and legal framework within which employees perform work and services for which they receive remuneration. Although the details reflect specific legal perspectives, employment relationships generally define employment, create reciprocal rights and obligations of the parties, and provide a vehicle through which employees have access to the rights and benefits conferred by formal labor-related negotiation and legislation.

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