An Exploration of Small Firm Psychological Contracts - Assignment Example

Critically discuss the psychological contract in the contemporary organization Introduction The development of organizational activities worldwidehas been related with the effective management of inter-organizational issues; employment relationships – in all their firms – have been proved to have significant influence on the performance of contemporary organizations and on their ability to keep their position in their market – especially in the long term. Current paper focuses on a specific form of employment relationships: the psychological contracts; the specific contracts have been proved as having a key role in the success of various organizational plans – influencing the perceptions and the resistance of the employees to the changes initiated by the organizations’ leaders. Through the research developed in the context of this paper it is proved that psychological contracts may be important for contemporary organizations but their role is not standardized; the level of their influence on organizational plans is likely to be differentiated in accordance with a series of factors – as analyzed below. Leaders in contemporary firms – of all sizes – need to identify the requirements and the role of these contracts and develop appropriate plans for their support – aiming to minimize turbulences within their organization but also to increase the employment satisfaction, a fact that could further lead to the increase of organizational performance. 2. Psychological contract in the contemporary organization – description, evidence and critical analysis Researchers and academics worldwide have extensively explored the value of psychological contract in the context of contemporary organization. One of the most important characteristics of psychological contract seems to be its ability to be transformed – aligned with the conditions of the organizational environment. In this context, the specific concept can be described using different definitions (Latornell 2007). In order to understand the role of psychological contracts in contemporary organizations it would be necessary to refer primarily to the characteristics of the specific form of employment relationship; in accordance with Rousseau (1995, 90) the traditional form of psychological contract does not – any longer – exist; the above view of Rousseau is also supported by Conway and Briner (2005) who add that psychological contract can affect organizational environment mainly through its violation (Conway and Briner 2005, 15) which can have different on organizational environment – as explained in the empirical research presented below. Guest et al. (2010) also refer to the work of Rousseau (1995) in regard to the various aspects of psychological contract as part of the employment relationship in modern organizations. The definition given by Rousseau (1995) in regard to the psychological contract is considered to reflect all the key aspects of this form of employment relationship: ‘individual beliefs, shaped by the organization, regarding terms of an exchange agreement between the individual and their organization’ (Rousseau 1995, 9 in Guest et al. 2010, 17). Because of its complexity, psychological contract has been explored and tested through appropriately customized empirical research methods; a series of such studies is presented below. Their findings can be used in order to explain the role of psychological contract in contemporary organizations; these findings would be also valuable in order to understand the potential interaction of psychological contract with other employment relations frameworks – such interaction could affect the performance of employment schemes introduced in modern organizations; at the next level, the organizational performance would be also expected to be influenced. When trying to present the context and the characteristics of psychological contract – as part of an organization’s employment relationships – it would be necessary to examine the criteria on which the relevant discussion will be based; different criteria will involve in firms of different size or in firms with different cultural background. This issue is made clear in the study of Atkinson (2008); in the above study data referring to three small firms were used in order to identify the characteristics of employment relationships in small firms – also to check the potential role of psychological contract within these firms. It was revealed that small firms are differentiated from the large firms not only as of their nature but also regarding their employment relationships framework (Atkinson 2008, 447). Nadin and Cassell (2007) have also explored the dependency of psychological contract on the size of the organization; their research is based on a series of interviews with the owners of 10 small firms in different industries; through the interviews it was revealed that the size of organization could have various effects on the psychological contracts developed within the organization; in this context, it is assumed that the performance of psychological contracts in small firms cannot be the same as in large firms; furthermore, it has been proved that due to their size, small firms cannot be totally aligned with the market’s trends in regard to the support provided to employees (Nadin and Cassell 2007, 417); for instance, the training schemes available to employees of large firms are expected to be of high quality while in small firms the availability of such programs is not guaranteed. Edwards and Karau (2007) examined the role of psychological contract in contemporary organization; emphasis was given on the potential interaction of psychological contract with other inter-organizational frameworks in order to identify the perceptions of employees on the employment relationships within their organization. In the relevant research the psychological contract was combined with the social contract - another form of employment contract; it was revealed that the above two forms of employment contracts can reflect the actual employment relationship conditions in a contemporary organization (Edwards and Karau 2007); in fact, the level of consistency in the responses of employees to the two scales (of four time each) used in the above study proves the potential combination of different employment forms in order to explore the effectiveness of human resources plans applied on modern organizations. A specific aspect of psychological contract, the contract violation, has been examined by Grimmer and Oddy (2007); in the relevant research a survey was conducted among 90 MBA students in Australia – students from two Australian universities participated in the study; in accordance with the findings of the survey, ‘the perception of contract violation is associated with lower organizational commitment and trust’ (Grimmer and Oddy 2007, 153). It is not made clear though whether other organizational characteristics and conditions are likely to influence the perception of contract violation. Moreover, it is not explained whether the same assumptions involve in all forms of employment relationship – as for instance in social contract as explored in the study of Edwards and Karau (2007) above. The potential gaps of the above study could be covered through the study of Den Heuvel et al. (2009); in the specific study the performance of psychological contract within contemporary organizations is examined from a specific perspective: the resistance developed in the workplace towards the changes initiated by specific psychological contract schemes. The research developed by Den Heuvel et al. (2009) on the specific subject is based on a survey among 208 employees of Dutch organizations – employees from 10 such organizations were asked to participate in the specific study; it was revealed that ‘by maintaining good psychological contracts with employees, organizations can build trust, which could prevent resistance to change’ (Den Heuvel, et al., 2009, 287) In modern organizations, the potential breach of psychological contract could have different effects – in accordance with the organizations’ position in the market but also in accordance with their leaders’ willingness to improve employment relationships across their organizations. In the empirical research developed in regard to this issue it has been proved that the perceptions of employees on psychological contract is affected by the level of job insecurity developed across the organization (De Jong, et al. 2009, 514); at this point the following issues should be highlighted: a) psychological contracts are indispensable part of employment relationships in contemporary organizations but their role in each organization can be differentiated – as revealed through the studies presented above; b) because of their dependency on a series of organizational conditions – as already explained – psychological contracts do not have standard performance or influence on organizational activities; c) on the other hand, psychological contracts could be quite important for the limitation of resistance towards organizational initiatives – as revealed through the study of Den Heuvel and Schalk (2009) presented above; for this reason, these contracts should be regularly reviewed by HR managers in contemporary organizations; furthermore, appropriately customized leadership plans should be developed ensuring that psychological contracts are adequately supported as parts of the organizational employment framework. The need for the provision of adequate support to the psychological contracts developed in the context of modern organizations is highlighted in the study of Turnley and Feldman (1999); through the above study explanations are given in regard to the potential effects of psychological contracts’ violation; the relevant research is based on a survey conducted among 800 managers; particular emphasis has been given on the effects of psychological contracts’ violation on ‘the level of exit, voice, and neglect behaviors and decreased levels of loyalty to the organization’ (Turnley and Feldman 1999, 895); the above factors are characterized by Turnley and Feldman (1999) as ‘situational factors’ (Turnley and Feldman 1999, 895); it was revealed that the potential existence of alternative employment schemes could affect employees’ perceptions on exit – even if psychological contracts existed in the specific organization have been violated; however, the provision of alternative employment schemes cannot help to avoid the effects of psychological contracts’ violations on the other situational factors’ mentioned above. This fact proves that power of psychological contracts in modern organizations – referring to these contracts’ power to influence the perceptions of employees on critical employment issues – even if alternative plans are available. At the next level, it is made clear that the conditions of organizational environment can lead to the increase of the rate of psychological contracts’ violations; one of the main findings of the study of Turnley and Feldman (1999) has been the fact that psychological contracts are more likely to be violated in organizations which operate in specific industrial sectors – managers working in restructuring firms have been found to face more frequently such problems compared to their counterparts in firms engaged in different industrial activities (Turnley and Feldman 1999). From a similar point of view, Chen and Brudney (2009) found that the form of employment schemes used in modern organizations are likely to influence the performance of psychological contracts in these organizations; in the research conducted using a series of data retrieved through the National Organizations Survey 2002 Chen and Brudney (2009) came to the conclusion that firms tending to use temporary and contract employment schemes are more likely to face psychological contracts’ violations compared to those firms that prefer the standard modes of employment and reward their employees with appropriately customized benefits. The lack of fair employment schemes in contemporary organizations – fairness is involved in this case with the recognition of the value of each employee and his contribution in the organizational performance – leads to the increase of psychological contracts’ violations; the organizational performance is also negatively influenced. The introduction of measures for the support of psychological contracts in contemporary firms could help to the stabilization of these firms’ performance; at the next level, their potential expansion in their industry could have more chances to be successful – since the resistance in the workplace would have been effectively controlled. 3. Conclusion The measures taken for the support of employment relationships within modern organizations can be differentiated in accordance with the position of these firms in the market but also of their capability of their leaders to respond to the needs of the internal and external organizational environment. Psychological contracts have been proved to be quite important for balancing interests within contemporary organizations; however, usually these contracts are not adequately supported causing various organizational problems. Through the research presented above it has been made clear that the stability of psychological contracts can affect the employees’ responses to various organizational challenges – for instance the violations of psychological contracts has been found to cause increase of the employees’ resistance to the plans initiated by their organizations’ leaders (Turnley and Feldman 1999). On the other hand, no standard schemes seem to exist regarding the support of psychological contracts in contemporary organizations; rather the measures taken by each organization in regard to the specific contracts seem to be depended on the resources available, the firms’ position in their industry but also the targets set by the organizational leaders – referring to both short-term and long-term organizational targets. Psychological contracts need to become independent from the above situational factors; otherwise they are likely to gradually lose their power in influencing key organizational decisions. 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