Why we need to understand psychological contracts


What makes it possible for people to work together and create value?

For starters, a relationship needs to be created between them.

The most obvious kind that we have around us is an employer-employee relationship in organisations.

In that context, the term Psychological Contract is what the people entering that relationship see as the contract between them, rather than the actual written contract they have signed.

But, you can see this everywhere where interaction happens between people.

For example, a psychological contract exists between us and our children, between us and a search engine like google, between us and a place that serves coffee like Starbucks.

So, how can we model the idea of a psychological contract and use it for good?

The picture above is an adaptation of a framework published by David Guest in 2004.

The basic concept is that any relationship involves promises and expectations on both sides.

For example, an employer promises to pay us and we promise to do work for them. We expect to get paid and they expect us to do work.

These promises and expectations are combined into a deal, which may be very different in the participants minds than what is down on paper.

Fairness in how that deal is implemented by both parties leads to trust.

Then, the level of trust leads to attitudes and behaviour.

If the deal is not implemented fairly, then trust is eroded, people become demotivated and start to produce less and act up more.

If the deal is implemented fairly, trust is increased, people are happier and more productive.

The same basic model can be applied widely.

For example, many years ago, we visited Vienna. We needed food and to use the facilities, so we went to a McDonalds, figuring that it would be the same everywhere and we’d get both there.

We ordered food and then went to use the facilities. It turned out we had to pay.

If we had used the facilities first, then our payment would have been taken off the bill.

As we had already eaten, that wasn’t an option. McDonalds in Vienna, however, refused to refund the charge.

We had a psychological deal with McDonalds – to be treated the same the world over – and this was unfair.

Unsurprisingly, we left with a negative impression of McDonalds and Vienna, with trust eroded and a memory of an experience that has lasted many years.

The psychological contract also underpins how we interact with websites.

When we go to search on google, we expect a search box and a thought-provoking doodle.

We also expect to find what we are searching for, with a balance of advertised and organic content.

But that may no longer be the case – Seth Godin wrote in 2013 about how companies like google change from wanting to create value for customers to creating value for shareholders.

We may live in a world where we sign contracts all the time – take all the software ones that we sign without reading such as when Apple brings out an upgrade on the iPhone.

At the end, however, the only contracts that matter are psychological.

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