Promises, promises: When one firm breaks them, two could suffer

A psychological contract  is an individual’s beliefs about the informal obligations that exist between employer and employee. What happens when an employer fails to come through on these perceived promises? Research shows that organizational citizenship behavior plummets, and when employees such as business analysts have two bosses, the downside of a broken promise multiplies, according to assistant professor of information systems Gregory Dawson.

Even if you’ve never experienced this yourself, you’ve surely seen the sorry daisy-chain of consequences when a person gets ticked off at work. A boss yells at the employee, so the employee goes home and kicks the family dog. Chances are, the employee may also hold back on at-work extras -- what management scholars call organizational citizenship behavior (OCB) -- which includes non-essential but beneficial actions such as volunteering to help a co-worker, working overtime or endorsing the company at a social function.

In-office slights, fights and broken promises routinely throttle organizational citizenship behaviors and researchers have nearly two decades of evidence validating this dynamic. But, what happens to employees with two bosses, such as a business analyst employed by a consulting firm but working at a client site? Will problems with the consulting company’s management impact the client’s project? Would a client’s misdeeds inspire poor corporate citizenship and less service for the consultancy? The answer to both questions is most likely “yes,” according to Gregory Dawson, an assistant professor of information systems at the W. P. Carey School of Business. His research shows that when people report to more than one organization, one company’s breach of a psychological contract may bring negative consequences to the other firm. The effect is even worse if an employee expects the non-breaching firm to try rectifying the situation. If they don’t, there goes goodwill, and good corporate citizenship goes along with it.

Contracts unbecoming

Psychological contracts are an individual’s beliefs about the informal obligations that exist between employer and employee. Such contracts are at play when workers form expectations of how an employer will treat them. For instance, workers might expect professional courtesy, a comfortable workspace, and regular time off.

In the case of multi-agency workers, such as consultants who work for a consultancy and client simultaneously, psychological contracts exist with each firm but are different. That is, a consultant might anticipate stock options, bonus pay, or promotions from the consultancy, but it’s unlikely the consultant would await such rewards from the client firm.

Psychological contracts are promises, not simply expectations. They stem from some sort of interaction with the firm, and that interaction creates or reinforces the employee’s belief about how things will unfold. Furthermore, these promises are mutually understood by employers and employees alike. Breaches of psychological contracts may be intentional – as when a firm reneges on a promise – or unintentional. Studies have found that the result of a psychological contract breach is a feeling of violation, a sense of betrayal, frustration, and anger.

Since organizational citizenship behavior mirrors how well or poorly employees perceive employers to be fulfilling psychological contracts, OCBs falter when contracts collapse. This correlation also has been well researched and confirmed.

Two-for-one fury

“The reason my study is novel is that all previous studies of psychological contract breach have been focused on single-agency relationships, where the employee works for one boss,” Dawson notes. “Mine is the first study to look at multiple-agency relationships. The results of this study show that the consequences of breach are more far reaching that anyone anticipated.” Dawson’s research confirmed that OCB suffers for both the breaching firm and the other organization the employee is working for. But, if a breach of psychological contract is the spark of anger, unmet expectations are gasoline poured on that spark. “A psychological contract is a promise, a mutual expectation. But not all expectations are promises,” Dawson explains. “With an expectation, you may expect a firm to act a certain way, even if it was never articulated and the firm has no idea your expectation exists.” That’s often the case in the consulting arena, where consultants may expect the client to intervene if the consultancy breaches a contract that impacts the work.

Or, conversely, if the client breaches the psychological contract, the consultant may expect the consultancy to intervene. When intervention doesn’t happen, anger escalates and OCB plummets. “In my 25 years as a consultant, I saw this happen time and time again,” Dawson says.

Breaking vows

One example he shares involves the IT project manager who got engaged, so she asked her consulting firm and the client she’d been serving for the past few years to let her take a three-week honeymoon in March, two months after the project was scheduled to go live in January. “The client said, ‘fine.’ The consulting firm said ‘fine.’ But, systems implementations often get delayed, so in the course of the year after she’d asked for this time off, the project got off schedule. She wound up scheduled to take three weeks off right before the go-live date,” Dawson recalls. The client nixed the honeymoon and wouldn’t approve the consultant’s absence. “She got angry,” he continues. “She cut back on the hours she worked, which is a way of cutting back on organizational citizenship behavior. Then, she told her managers at the consulting firm, expecting them to intervene, but they didn’t.” According to Dawson, the lack of intervention was a kin to “taking this hot anger she had toward her client and lukewarm anger toward the consulting firm, and lighting it up with gasoline.”

In the end, the psychological contract breach and lack of intervention affected both firms. The consultant – a project manager – quit both firms right before a major systems implementation was to take place. As another example, Dawson points to the consultant who was put on a job with the stipulation that there would be training to shore up missing but vital skills he would need to complete that engagement. The consultancy decided to maximize profit and skip the training. The consultant expected the client to intervene, and the client didn’t. Again, the project suffered. So did the consultant.

Get in the know

Such stories are common, Dawson says. “There are studies to show that about 50 percent of people experience a psychological contract breach every couple of years.” If those people are in multi-agency jobs, then the spillover happens, too, meaning that two companies see a reduction in OCBs from the employee. “My gut tells me that in up to 50 percent of those cases, an expectation of intervention exists.” That’s why Dawson counsels corporate managers to stay in close contact with the consultants they hire … or those they hire out. “Executives regularly schedule one-on-one time with employees. ‘How’s it going? What’s working? What’s not?’ You need to be having that same sort of dialogue with your consultants so that you understand what their expectations are,” he says. “

It doesn’t need to be as frequent or formal as you might make an employee meeting, but have that conversation about expectations, experiences and concerns.” The same thing is true for the consulting-firm manager,” he continues.

“Have a conversation with the consultant about what’s going on at the client site.” If you uncover a problem and expectation of intervention, do intervene, Dawson adds. According to him, only about half of clients who know there’s an expectation of intervention actually step in when a consultancy breaches a psychological contract with a consultant. If clients don’t know there’s an expectation of intervention, intervention is “extremely rare.” That’s a costly mistake, he maintains, as lack of intervention will accelerate anger and put the brakes on the organizational citizenship behavior of giving a project one’s all.

What’s more, the act of intervention is all that’s needed to maintain goodwill and diligent work habits. “If someone expects you to do a little and you do a lot, it’s very positive. If that person expects you to take moderate action and you take moderate action, your employee or consultant is still happy. If the person expects you to do a lot and you do nothing, that person will get really ticked off,” he explains. However, his research also showed that people don’t necessarily expect the intervention to be successful. They’re just looking for proof that you’ve got their backs. “No success required,” Dawson concludes. “If an intervention is called for, people just want you to try.”

Bottom line

• Psychological contracts are an individual’s beliefs about the informal obligations that exist between employer and employee. Because they are mutually known and reflect interaction, psychological contracts are promises made by an employer to an employee.
• Employees may have expectations, too, and employers may not be aware of these expectations.
• When employers breach psychological contracts, employees react with less positive organizational citizenship behaviors (OCBs), which are the extras people bring to work, such as good attitude and or extreme diligence.
• When employers breach psychological contracts with employees who serve multiple agencies, such as consultants, the breach impacts the employee’s goodwill toward all firms involved.
• If the employee expects one of the firms to intervene and it doesn’t, the breach causes even more ire and significant impact to OCBs.