The People Bulletin

This article advocates that the psychological contract should be used as one of the key elements which underpins and drives HR strategy. Before this can happen the psychological contract needs to come out of the closet and become more practical and usable. To do this the psychological contract is reframed into ‘The Personal Deal’. 

The flow of people through an organisation

Creating and leading the implementation of HR strategy is considered by many in HR to be the exciting part of their jobs. It requires business knowledge, real thought and innovation, as well as expertise in HR. One of the best frameworks for thinking about HR strategy is Dave Ulrich’s six B’s¹, shown in the diagram below, which captures the flow of people through an organisation:

Implementing an effective HR strategy involves planning and delivering the six B’s in an integrated way which together ensures the business has the quality and numbers of people required to achieve business goals and success.

While many HR activities fall squarely into just one of the B’s, a number fall across more than one, such as performance management which impacts Building, Binding, Boosting and Bouncing. Shaping organisation culture arguably impacts all six.

Why the psychological contract matters

Denise Rousseau the leading guru on the psychological contract² defines it as ‘the actions employees believe are expected of them and what response they expect in return from the employer‘. The psychological contract is therefore about the mutual expectations between individuals and their employer, how these expectations change, and how fulfillment or breach of these expectations impacts feelings, behaviour, and performance.

The reason the psychological contract is important is because it has real impact on business performance. If an employee expects someone to be available to discuss work issues and to appreciate their effective performance and this does not occur it typically will result in feelings of frustration, then lead to poor morale and engagement, and eventually to a search for alternative employment. The opposite may also occur; if an employee expects some praise for effective performance but finds their manager expresses genuine and specific appreciation of their special efforts this is likely to shape and focus their behaviour to provide greater effort and performance.

If we reflect on the six B’s of HR strategy we quickly see how each of them involves the psychological contract. Let’s explore these briefly:

1. Buy: Attracting people to join an organisation depends on them believing that the organisation is a good place to work compared to available alternatives. A key part of the recruitment and induction involves shaping employee expectations about what they can expect if they join. Doing this explicitly has been shown to have a real impact on the length of time people remain in the job e.g. call centre staff.
2. Build: Most employees have expectations about how their organisation will develop and train them in their present roles, and potentially for future roles. Shaping these expectations so they reflect the needs of the business, and take account of employee aspirations is really important for building long term commitment, e.g. in professional service firms.
3. Borrow: One of the challenges HR face is how to create fairness between permanent and contract employees who work alongside each other, and ensure that both focus on customer delivery. Shaping expectations of contract staff is important for organisations as diverse as the NHS and large engineering companies.
4. Bind: One of the hot topics facing many organisations is how to engage people better in the current tough economic climate. The psychological contract provides a framework for understanding and balancing the things that really matter to people with the things that matter to the organisation, e.g. balancing the desire for individual autonomy with the need for organisational control.
5. Boost: Appointing the right people at the top of an organisation is critical for business success. But once they start many new senior people are unsure of what is expected of them, e.g. new partners in accounting firms. Taking time to clarify the psychological contract for new senior people is really important and has been shown to make a big difference to the time taken to achieve effectiveness.
6. Bounce: Creating clear standards of what an organisation expects from its people, and communicating when this is not achieved is important in profit and not for profit organisations. Making the psychological contract explicit can really help in this, and reduce the number of cases of employee underperformance and dismissals.

As these examples show the psychological contract is an integral part of each of the six HR activities. It is essential that organisations provide consistent messages across all six B’s about what employees can expect, and what the organisation expects from them.

Reframing the psychological contract into the personal deal

The psychological contract is implicit and often left to chance, resulting in misunderstanding, stress, lower commitment and performance. My work in organisations across different sectors has convinced me that viewing the psychological contract as a ‘personal deal’ between individuals (e.g. between line managers and team members), or between teams (e.g. operations and finance) is far more practical and powerful. Viewing the psychological contract as something that exists between actual people and between groups of people brings it to life, and makes it a practical vehicle for increasing openness, trust and performance³.

The personal deal has four components:

1. what you want and expect from me;
2. what you give me;
3. what I want and expect from you; and
4. What I give you (and the business).

These are shown in the diagram above. The importance of this framework is that it focuses attention on understanding each individual’s expectations and how they can be fulfilled.

The value of viewing the psychological contract as a personal deal is that it makes it something that line managers and HR professionals can jointly use to structure conversations to increase understanding, engagement and performance. From an individual line manager perspective personal deal conversations enable them to be more clear and open with individual team members, and focus on what each wants from the other.

Looking at the six B’s through the lens of the personal deal provides a picture of promises and implied promises made to each employee. If an HR professional implies there are many development opportunities at the buy stage, but these are not fulfilled by the individual’s line manager during the Build stage, and are fulfilled inconsistently by HR at the boost stage, employees are likely to feel confused, and at worst disenfranchised and lied to. Defining the desired personal deal for different groups of employees, and implementing this consistently across the six B’s will drive consistency of messages to people through different HR initiatives and strategies. We have successfully implemented the personal deal in organizations in the engineering, professional services, housing and distribution sectors, and are about to start an implementation in a government department.

The value of competency frameworks is that they provide a consistent way of thinking about the behaviour expected of people, across the six Bs – i.e. for recruitment, development, promotion, etc. The personal deal goes a step further and focuses on the mutual expectations between individuals in the business, not just on the expectations about what employees will deliver. The personal deal offers a powerful practical vehicle for having conversations which create alignment in the way people in organisations understand, relate to, and deliver what each other needs.

I am convinced HR professionals can use the personal deal as a powerful and practical framework for achieving consistency in people management practices across the six B’s of HR strategy, and support line managers to develop more mutually productive relationships with their people.

Dave Ulrich & Wayne Brockbank ‘The HR Value Proposition’, Harvard Business School Press, U.S. 2005

Denise Rousseau ‘Psychological Contracts in Organizations ‘ Sage, U.S. 1995

Michael Wellin ‘Managing the Psychological Contract’ 2007, Gower Publishing, Aldershot, UK