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Esssay. Relational vs Transactional psychological contracts

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This is an essay, written for the LSE Summer School 2013, focused on the comparison and analysis of transactional and relational, Psychological Contracts (PC) and their intreconnection with different working environments. The author tries to keep a deeper eye on the emerging trend of hiring initially on a transactional contractual basis and later on a relational one. The limited scope and academic requirements constrained a more elaborated view on the causes of psychological contract breach and a wider approach on the several PC models have already been developed. The Harvard model is used as a "map of the HRM territory" (Beer et al., 1984) to depict how the HR-policies can empower the two, examined, psychological contract types.

Publié dans : Business, Technologie

Esssay. Relational vs Transactional psychological contracts

  1. 1. LSE ID Number 201235650 Summer School 2013 midsession examination MG190 Human Resource Management and Employment Relations Assessed Essay Question “Compare and contrast the relational and transactional types of psychological contracts. In what kinds of work environment do you think each would be most the more appropriate? What kinds of HR policies can be used to reinforce them? Give reasons for your answer.” Teacher responsible: Prof. David Mardsen Lecturers – Prof. Sarah Ashwin and Prof. David Mardsen Classes – Chiarra Benassi, Bethania Mendes-de-Brito-Antunes, Karin King Main Text: 1050 words London, 17-07-2013
  2. 2. LSE ID Number 201235650 2 Contents 1. Introduction ....................................................................................................................................3 2. Transactional vs. Relational ............................................................................................................3 3. Working environment – Climbing the Mintzberg’s iceberg............................................................3 4. HR-policies ......................................................................................................................................4 5. Conclusion – Need for change? ......................................................................................................4 Bibliography ............................................................................................................................................6
  3. 3. LSE ID Number 201235650 3 1. Introduction The conceptualisation of psychological contracts (PCs) started around 60s when (Argyris, 1960; Levinson, 1962) first researched how employees and supervisors relationships shape the implicit expectations given to each other. (Schein, 1980) and (Herriot & Pemberton, 1995) extended the research by integrating a clear two-level distinction (individual/organisational) and by introducing self-perception as moderating factor, respectively. Does it worth taking seriously PCs (Guest, 1998)? Of course it does, as psychological contracts are indeed a transaction, but not formal, not documented and very regularly violated as (Robinson & Rousseau, 1994) have already proved. How to perceive the role of the two main contracting types? The exchange theory (Blau, 1967) explains how PCs are structured. Relational contracts are built on the social exchange theory while transactional ones rely on the economic exchange theory. This approach however is not enough to explain new HR configurations. This essay thrives to enlighten the functional traits of relational and transactional contracts. Paradigms and example cases will be used to prove the interconnections between the contract type and the working conditions. The applicability of Harvard- model’s HR-policy choices in relation to the two contracting modes will be further outlined (table 1). In the end, a conclusive statement supporting the transition to hybrid contractual interfaces will be drawn, hoping to augment the reader’s awareness on the change dynamics. 2. Transactional vs. Relational Revising the axiomatic view of (Hage, 1965) on organisations it is recalled how tight is the connection between the mechanistic organisation (focus on short-term competiveness) and transactional contracts, and between also the organic firm (focus on long-term adaptability) and relational contracts. Transactional contracts do not involve all parties (especially bottom workers), they are focused on short-term efficiency and try to cope with financial obligations. Workforce’s identity does not play an important role as work processes are standardised and the production philosophy is structured on a performance-ratio reward system. This recalls us the fast food company case (MG190 Lecture 4, p.11), where only some working rules (e.g. hygiene) were tailored as core success drivers. Relational contracts emphasize broad, long term, socio-emotional obligations, such as commitment and loyalty, consistent with collective interest (Parks & Schmedemann, 1994), and have a pervasive effect on personal as well as work life. 3. Working environment – Climbing the Mintzberg’s iceberg From the one side machine bureaucracy asking for numerical flexibility and symbolic job boundaries (transactional contracts) and on the other side there is the administrative adhocracy where functional flexibility and autonomy are the prerequisites (relational contracts). It is expected, in working places where the procedure of delivering results is prototyped and supported by a large-sized technostructure, transactional contracting to be preferred. The tax-office employees (MG190 Lecture 3, p.1) did not possess any Valuable, Rare, Inimitable and Organisation- focused skills (Barney, 1991) thus transactional contracting was more appropriate in this job-context. NEC became the leader in semiconductors mainly because found out the manner to operate on more efficient frontiers by unifying the multiple roles of HR-departments (Prahalad, 1993; Prahalad & Hamel, 1990) and becoming from an employee champion, a change agent without violating its core value1 (Ulrich, 1997). In addition, transactional contracts imply higher level of knowledge codification followed by less customization and more process standardization, and the opposite 1 ‘Grow Your Career with the Winning Team!’ (source:http://www.nec.com.hk/web/nechk/abou t/career)
  4. 4. LSE ID Number 201235650 4 applies for the relational contracts (more face-to-face knowledge transmission). The aforementioned view is supported by the comparison of Dell’ s and HP’s strategy in (Hansen, Nohria, & Tierney, 1999, p. 6) article. 4. HR-policies Due to the limited scope of this essay we will focus on the typical Harvard-model, using the map of the HRM territory of (Beer, 1984, p. 16). The box of HRM policy choices consists of four components which are the following;  employee influence  HR flow  reward systems  work systems The next table illustrates what kind of HRM policies will empower the two examined forms of contracts (table 1). 5. Conclusion – Need for change? Is the trade-off finally between “Reciprocity or whose job is it?” (Coyle- Shapiro, Kessler, & Purcell, 2004). There is one way to conceive the path between bureaucratic (low trust) or participative (partnering) organizational structuring; to anticipate the change in the stability. The case of Consult Co. and ICC where the retention problem emerged in the end is an indicative example. Workforce characteristics (Y-ers), volatile demand rates, and short-term competition calls for short-term (initial) contracting. In line with this assumption is (Hiltrop, 1995, p. 289) view. Thus HR-departments should get prepared to re-engineer the psychological contracting arena realizing speedy the emerging hybrid contractual typology. Table 1. Allocating HR-policy choices to psychological contracting types Contract type HR-policy choices Relational Transactional Employee influence Participation in decision-making Employee voice - Collective bargaining (USA) - Regulatory work councils (EU) - Ringi system (Japan) Networked structure High mutual reciprocity Innovative ideas: employee ideas are given a chance (Pfeffer, 1996); process innovations High managerial authority (Lockean view; John Lock believed that property right was given by God) Highly hierarchical structure Top-down control system Politically biased labour unions Standardised thinking/products HR-flow - Inflow - Internal flow - Outflow Operating core is cross-trained Functional flexibility Development of people Career development workshops More subjective (inter- personal) employee evaluation Effective motivation Less monitoring Internal labour market Commitment-based HR configuration (Lepak & Snell, 1999) High investments on Techno structure & Support staff Numerical flexibility Development of routines Minimize payroll and processing-costs Objective (standardised) employee evaluation Obligational motivation ‘Stick and carrot’ monitoring External labour market Compliance-based HR configuration (Lepak & Snell, 1999)
  5. 5. LSE ID Number 201235650 5 Reward system Pay for performance Innovation for bonus Nurture outside competition Intrinsic rewards Lateral (cross-team) design of compensation system Fringe benefits Profit sharing culture (group performance) Scanlon plans Benchmarking compensation schemes (Baron & Kreps, 1999, p. 253) Pay for skills Productivity for bonus Nurture inside competition Extrinsic rewards Top-down design of compensation system Cost-effective benefits Piece-rate (individual performance) Management by objectives Tournament compensation schemes (Baron & Kreps, 1999, p. 253) Work system Narrowly defined jobs Specialisation of employees Inventory of human capital Vertical career mobility Upsizing dynamic capabilities (Teece, Pisano, & Shuen, 1997) Life-long employment & Up-or- Out Paid outplacement Termination avoided : detrimental for both parties (high transaction costs) Incentives for late retirement Status difference eliminated Broadly defined jobs Rotation of employees Inventory of financial resources Lateral career mobility Downsizing personnel costs hierarchically In-and-Out employment Lack of outplacements Termination: possible and harmful for employee No retirement incentives Status symbolism reinforced through hierarchy
  6. 6. LSE ID Number 201235650 6 Bibliography Argyris, C. (1960). Understanding organizational behavior. Oxford, England: Dorsey. Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99- 120. Baron, J. N., & Kreps, D. M. (1999). Strategic human resources : frameworks for general managers. New York: John Wiley. Beer, M. (1984). Managing human assets. New York: Free ; London : Collier Macmillan. Blau, P. M. (1967). Exchange and power in social life. New York: John Wiley and Sons. Coyle-Shapiro, J. A. M., Kessler, I., & Purcell, J. (2004). Exploring Organizationally Directed Citizenship Behaviour: Reciprocity or ‘It's my Job’?*. Journal of Management Studies, 41(1), 85- 106. Guest, D. E. (1998). Is the psychological contract worth taking seriously? Journal of Organizational Behavior, 19, 649-664. Hage, J. (1965). An Axiomatic Theory of Organizations. Administrative Science Quarterly, 10(3), 289-320. Hansen, M. T., Nohria, N., & Tierney, T. (1999). What's your strategy for managing knowledge? Response. Harvard Business Review, 77(3), 196- 196. Herriot, P., & Pemberton, C. (1995). New deals : the revolution in managerial careers. Chichester: Wiley. Hiltrop, J.-M. (1995). The changing psychological contract: The human resource challenge of the 1990s. European Management Journal, 13(3), 286-294. Lepak, D. P., & Snell, S. A. (1999). The human resource architecture: Toward a theory of human capital allocation and development. Academy of Management Review, 24(1), 31-48. Levinson, H. (1962). Men, management, and mental health. Cambridge,: Harvard University Press. Parks, J. M., & Schmedemann, D. A. (1994). When Promises Become Contracts - Implied Contracts and Handbook Provisions on Job Security. Human Resource Management, 33(3), 403- 423. Pfeffer, J. (1996). When it comes to ''best practices'' why do smart organizations occasionally do dumb things? Organizational Dynamics, 25(1), 33-&. Prahalad, C. K. (1993). The Role of Core Competences in the Corporation. Research-Technology Management, 36(6), 40-47. Prahalad, C. K., & Hamel, G. (1990). The Core Competence of the Corporation. Harvard Business Review, 68(3), 79- 91. Robinson, S. L., & Rousseau, D. M. (1994). Violating the psychological contract: Not the exception but the norm. Journal of Organizational Behavior, 15(3), 245-259. Schein, E. H. (1980). Organizational psychology (3d ed.). Englewood Cliffs, N.J.: Prentice-Hall. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509-533. Ulrich, D. (1997). Human resource champions : the next agenda for adding value and delivering results. Boston: Harvard Business School Press.

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