March 16, 2008

psychological contract: solution?

Follow-up to importance of tacit knowledge for an orgnaisation in a resource perspective from Mathew's blog


The next 2 paragraphs are from our infamous online bible :Wikipeadia ;)

A psychological contract represents the mutual beliefs, perceptions, and informal obligations between an employer and an employee. It sets the dynamics for the relationship and defines the detailed practicality of the work to be done. It is distinguishable from the formal written contract of employment which, for the most part, only identifies mutual duties and responsibilities in a generalized form.

Breach of the psychological contract

If those in power breach the psychological contract by not paying a fair rate, or failing to make fair evaluations of performance, or treating the employee with a lack of respect, it rapidly causes disillusionment, dissatisfaction, and exit. This may arise shortly after the employee joins the company or after years of satisfactory service. The impact may be localized and contained, but if morale is more generally affected, the profitability of the organization may be diminished. Further, if the activities of the organization are perceived as being unjust or immoral, e.g. aggressive downsizing or outsourcing causes significant unemployment, its public reputation and brand image may be damaged.


well the concept of psychological contracts is an old one formed in 1960 by Chris Argyris. It is a concept which motivates the employee and influences his work drastically. Even the slighest appreciative gesture from his manager can make him work harder. But not all company's really care about that. It really depends on the nature of the leaders of a company . on how thats managed. Lemme illustrate with two examples:

eg1) INFOsys is a leading Indian IT company (which i worked for during my gap year). This company does everything possible to protect its tacit knowledge. They believe that Knowledge is the key to their success so they have excellent training facilities, mentor systems, certifications, standarised processes etc to ensure rentention and development of knowledge. They have forums on all topics, an msn messenger facility within firms which interlinks all branches all over the world, an intranet, email facility,worldwide networking between systems and phones to increase knowledge sharing.

But whats most interesting was how they protected their knowledge. The company doesn't outsource whatsoever. It may recruit 1000 graduates on one day and train them extensively instead. They see it as an investment. Even if its an area of non speaciality, they belive that through proper training, they can gain it instead.  Therefore they a learning and research center where a portion of their employees are dedicated in knowledge mangement ,training and knowledge expansion and market study. 

where does psychological contracts come in? I'm getting to that. The company feels that the employees should feel taken care of. Every branch looks like a park with world class facilities, gymnasiums, minigolf courses, boat riding within the company. They provide socialising and networking opportunities through different cultural and talent based shows. They allow flexible timings and their tasks are deadline based. 

Funny part is the company actually overloads every employee. They extract 200 % of what they should from them. But their excellent facilities such as great food courts with food from all over world for discounted prices and the fact that it provides dorms where an employee can take naps anytime of the day makes them ignore the work load. i have personally seen my colleagues sleep over at the company for days continously to meet their deadlines. But they have so much fun in the process that there are employees who never leave the company and work there till they retire.

The company's employee rentention rate looks bad because of the number of graduates who leave after working there for a gap year or two. But most employees who join the company otherwise stay and do not leave.

eg2)the GOOGLE atmosphere was discussed in our discussions. The funny part is there is a theory called generation X by Lucy kellaway ,FT Dec 99 which talks about the creative knowledge worker who works in his own time, enviroment,generally shabby and casually clothed but produces excellent results. The google company has excellent employee retention stats. Doesn't that count as a factor for its ability to retain and manage knowledge? Isn't this a psychological contract where the employer takes care of the employee and the employee puts in the extra effort? is knowledge management , pschological contracts, employee retention keys to GOOGLE's success 

- One comment Not publicly viewable

  1. Psychological contract maybe a useful concept. However, how to you make this tacit contract explicit to the HR, to the ling managers, to the CEO? Also I would suspect everyone whould have differnt expectations. Hence different psychological contracts. Maybe what we need to consider is not only satisfying their expectations but also exceed those? Since we requrie them to create “exciters” for our customers, why don’t the organsiation create those at the first place for their employees? People respond to the way you treat them, isn’t that telling something?

    27 Apr 2008, 11:05

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