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Psychological Contract And Organizational Behaviour

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Part A

Critically evaluate what impact the events in this scenario are likely to have on the attitudes and perceptions of your staff and critically discuss what actions you would take to manage these negative attitudes and perceptions.


�Throughout the 1990s, the psychological contract has emerged as an important construct to explain the changing nature of the employment relationship. Initial interest was fuelled by consequences of a more cost focused and competitive business Environment’ (Judy Pate, �The changing contours of the psychological contract’, Journal of European Industrial Training, Vol. 30 No. 1, 2006, pp. 32-47). Over the years researchers have analyzed and presented various views based on cultural differences, employee-employer perception and various environmental and physical work place factors that affect the physiological contract.

The aim of the following discussion is to take the readers on a route to understand the basic aspects of physiological contract, analyze the reorganization of company and various events that will have lasting effect on the attitude and perception of the employees. (Reference Scenario stated in assignment)

Psychological Contract

�Psychological contract is the informal contract that exists between the employee and the organization and which is based on the fundamental concepts of contributions by employees and inducement by the organization in the course of working relationship’ (Wood et al, 2006, Core Concepts and Applications, pp 11-12 ). The discussion of psychological contract revolves around two core aspects, employee’s commitment, productiveness, loyalty, effort, time etc and organization’s inputs such as pay, perks, retention plan, security, social status etc. Psychological contract forms the basic binding and the relationship between the employee and the employer.

Contract Breach

According to Judy Pate measurement and assessment of psychological contract is relative in nature. There is no absolute measure of psychological contract and human nature varies from person to person and every individual has his/her own perception about the relative state of environment and organizational understanding (Judy Pate, �The changing contours of the psychological contract’, Journal of European Industrial Training, Vol. 30 No. 1, 2006, p 4). �Psychological contract breach refers to the cognitive identification that an employer has not fulfilled one or more of its perceived obligations’ (Morrison and Robinson, 1997). In an organizational environment contract breach leads to lack of trust, lower production/performance, less effort, negative work ethics and cynicism. Coming back to scenario at hand lets analyze various facts which have resulted in contract breach.

A) Organization handled the amalgamation in a very directive and non communicative manner. According to employee’s perspective it is their basic fundamental right that the decision about their future and retention should be done with involvement and discussion. The Organization failed in this aspect as it showed clear lack in communication with employees and professional exit management strategy.

B) The organization was unable to lay down a clear road map and employees had to reapply for their position and it took longer than expected, this shows a clear lack of pre-planning at organization part as employees could have been offered attractive golden hand shakes or notified well before time to look for other jobs. Again the organization failed to fulfill its obligation.

Looking at various contract breaches by organization let us discuss various impacts that have the effects on organizational level, individual level, work roles and group level.

(Figure Source: Journal of Managerial Psychology, Vol. 11 No. 7, 1996, pp. 51-60.)

Synergy and Team Cooperation

It is evident from the scenario that both departments are not able to work with each other as a

single team. The fact is that the inability of organization to prepare the staff for amalgamation has resulted into negative employee-employee relationship. This will result in lower performance and production. In addition it will further deteriorate the motivational aspect and work environment.

Fear of Downsizing- Employment Relationship

Job security and fear of loosing ones job is an important aspect of daily work life. Companies with higher turn over rates and their employees having less confidence in job sustainability tend to lead towards lower production and produce an environment which kills innovation and passion.


�Employee cynicism has been defined as a negative attitude and involves a belief that their organization lacks integrity, employees display negative emotions towards the organization and a tendency for employees to be critical of their organization’ (Judy Pate, �The changing contours of the psychological contract’, Journal of European Industrial Training, Vol. 30 No. 1, 2006, p 5). Criticism is normally targeted towards the management and the organizational policies and procedures. If this employee behavior is continued in organization employees tend to criticize every action or step taken by the management with-ought realizing its long term effect and positive aspects.

Negative Work Ethics

Amanda Hamilton describes work ethics as set of beliefs and perceptions about wok (Amanda Hamilton, вЂ?Productivity and work Ethics’, Work Study Volume 47 • Number 3 • 1998 • pp. 79вЂ"86). Taking the above scenario in consideration it is evident that employees have started to display negative work ethics such as non cooperation to fellow employees and negative attitude towards the other members of organization. One of the other major factors in this regard is also the directive stance of the management and this might enhance the workforce to indulge in malpractices.

Management’s view of Amalgamation

Micheal Beer and Nitin Nohria in their article have described the two theories about the management perspective of implementing change, Theory �E’ and theory �O’ (Michael Beer & Nitin Nohria, �Cracking



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