The New Psychological Contract: From "Them and Us" to Collaboration

Definition

The psychological contract is the unspoken agreement about what the employer expects from the employee and vice versa—the mutual assumptions that govern the working relationship. The traditional contract (rooted in Taylorism) is simple: managers do the thinking, workers do the doing. Everyone understands their narrow role and executes it reliably. The new contract, required for agility, is far more collaborative and less delineated: employees are expected to exercise judgment, surface problems, propose improvements, coordinate across boundaries, and adapt their approach as circumstances demand. Managers are accountable not for control but for enabling—providing clarity, removing obstacles, and creating conditions where people can think and act. Baker emphasizes that adopting new performance management practices without shifting the underlying psychological contract will fail; the practices will be unsustainable because they contradict the deeper beliefs about roles and relationships.

In the Book

Baker opens Chapter 12 by explaining that performance, learning, and culture are inseparable. The traditional contract assumes simplicity as its primary attraction: "Simplicity is one of the primary attractions of a 'them and us' working relationship. Although straightforward, it's too basic to be effective in a climate of accelerated change and uncertainty." Speed, agility, and maneuverability are "hamstrung in a workplace culture based on the traditional employment relationship characterized as 'them and us.'" He contrasts this with the new contract: "The springboard for agile performance is a new, more collaborative, and far less delineated psychological contract." Throughout Part I, he illustrates the consequences: in the Michelle/Trevor plant example, Michelle succeeded partly by trusting her team to think and improve rather than just execute handed-down goals. The fifteen characteristics of agile enterprises (innovation mindset, seeking improvement opportunities, empowerment, decentralization) all presuppose a psychological contract where employees are trusted with information, expected to show initiative, and given authority to act. The book's treatment of non-job performance roles (attitude, teamwork, development, innovation) implicitly rests on the assumption that employees are responsible for organizational success in ways that go well beyond their formal job tasks—something the traditional contract never contemplated.

Why It Matters

This concept explains why organizational culture is not a soft-skills add-on but foundational to performance. It reveals why "agile transformation" initiatives often fail: organizations implement new practices (daily standups, cross-functional teams, flatter hierarchies) but leave the psychological contract untouched. Employees still assume managers think and decide; managers still assume workers comply without question; both sides are confused when new structures ask for something the old contract never required. It also surfaces a hidden cost of the traditional contract: it wastes human intellectual capital. People have judgment, ideas, and initiative they never offer up because the contract says "don't think—do as instructed." For practitioners, shifting the psychological contract means revisiting hiring (seeking judgment and initiative, not just skill compliance), induction (teaching organizational thinking, not just job procedures), feedback (rewarding adaptive thinking and problem-surfacing, not just goal achievement), and how managers spend their time (enabling and coaching, not command-and-control). It's a systems-wide shift, not a single practice change.