Psychological Contracts and Strategic Leadership

Introduction

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 20^th 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 21^st 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?