Why "Psychological contract" is a key characteristic of HRM

What is "Psychological contract" ?

Psychological contract is a term which is somewhat difficult and challenging to define. However, it is generally accepted that it is concerned with an individual's subjective beliefs, shaped by the organisation regarding the terms of an exchange relationship between the individual the individual employee and the organization (Rousseau, 1995). 

A major feature of psychological contract is the concept of mutuality that there is a common and agreed understanding of promises and obligations the respective parties have made to each other about work, pay, loyalty, commitment, flexibility, security and career advancement.

According to Cassar and Briner, (2011) employees' beliefs are understanding and perception of the exchange relationship between what employees give to the organization (Competence, effort and loyalty) and what the organization gives in return (Reward, promotion and satisfactory work environment). This perception is made based on the understanding of the organizational commitment.

Transactional contract and Relational contract are the main dimensions of psychological contract according to Rousseau, (1995). Employees do not become the organizational members really but they are only concerned about the short term material reward and personal benefit under the transactional contract whereas the Relational contract reflects employees' affective involvement and belief in organizations because organizations not only provide necessary material reward in return to employees, but also provide guarantees for employees' work safety, skill training and career development.

Organizational commitment

Meyer and Allen, (1991) emphasized that organizational commitment illustrates the psychological status between employees and organizations. Organizational commitment implies employee determination of whether to stay not to stay in the organization and it contains three dimensions.

Figure 1. Three-component model of organizational commitment adapted from Human Resources Management Review by Meyer and Allen, (1991)

Accordingly, this defines the organizational commitment as the employees' psychological perception of the relationship between individuals and organizations and it reflects employees' psychological status of being loyal to the organization (Meyer and Allen, 1991). Further, Organizational commitment is employees sense of identification, loyalty, involvement and willingness in organizations based on their affection to organizations, individual benefits and sense of responsibility (Yamaguchi, 2013).

Effects of psychological contract on organizational commitment

The difference between the organizational commitment and the psychological contract is that, the content of organizational commitment is unidirectional which only reflects employee emotion to organization. But, the psychological contract involves a bidirectional relationship which indicates employees' belief to taking responsibilities as well as the organization is taking responsibilities too. In this employees will compare and modify the extent of both sides fulfilling the contract, in order to reach the balanced state ultimately (Cassar and Briner, 2011).

Organizational commitment is actually a result of psychological contract (Rousseau, 1995). Psychological contract has an important effect on employees as it is guaranteeing to provide high level of reward, pay for performance, promotion and development. Accordingly it will hugely affect on employees' love for the organization and decision about whether they will stay in the organization. As per the analyzing done by Luo and Yu, (2013) regarding the effect of psychological contract on organizational commitment, transactional contract has a significant negative effect on organizational commitment whereas relational contract has positive influence.

It is debatable when these facts are applying towards the work satisfaction. Since the work satisfaction changes more readily and since it is considerably unstable, it can be identified as a antecedent of organizational commitment. Yamaguchi, (2013) has shown that employees' (Mainly knowledge workers') high level of organizational commitment is mainly contributed by a high level of work satisfaction.

Figure 2. Effect of knowledge worker's psychological contract on organizational commitment and work satisfaction adapted from Psychological Contract, Organizational Commitment and Work Satisfaction by Jianwu et al, (2014). 

Reference

Cassar, V. and Briner, R. B. (2011). The Relationship between Psychological Contract Breach and Organizational Commitment: Exchange Imbalance as a Moderator of the Mediating Role of Violation. Journal of Vocational Behavior, 78, 283-289. <http://dx.doi.org/10.1016/j.jvb.2010.09.007>

Luo, J. and Yu, M. F. (2013) A Study of Knowledge Staffs’ Loyalty Based on the Psychological Contract. Journal of Xi’an Shiyou University (Social Science Edition), 1, 50-54.

Meyer, J. P. and Allen, N. J. (1991). A Three-Component Conceptualization of Organizational Commitment. Human Resources Management Review, 1, 61-89. <http://dx.doi.org/10.1016/1053-4822(91)90011-Z> 

Rousseau, D. M. (1995). Psychological Contracts in Organizations: Understanding Written and Unwritten Agreements. Sage, Newbury Park, CA.

Yamaguchi, I. (2013). A Japan-US Cross-Cultural Study of Relationships among Team Autonomy,  Organizational Social Capital, Job Satisfaction, and Organizational Commitment. International          Journal of Intercultural Relations, 37, 58-71. <http://dx.doi.org/10.1016/j.ijintrel.2012.04.016>

Wisdom IT Services India Pvt. Ltd 2018, Psychological contract in HRM - HR Management, viewed 29 October 2019, <https://www.wisdomjobs.com/e-university/hr-management-tutorial-69/the-psychological-contract-9056.html>

Zhou, J. et al. (2014) ‘Psychological Contract, Organizational Commitment and Work Satisfaction: Survey of Researchers in Chinese State-Owned Engineering Research Institutions’, Open Journal of Social Sciences, 02(09), pp. 217–225. doi: 10.4236/jss.2014.29037.

The importance of the human resource management towards the organisational success

Where the concept "HRM" begun

When considering the origin of the Human Resource Management it is identifiable that the word 'Welfare' which came in during the end of 19th century where women involved in the protection of women & girls which created as a reaction mainly to the inflexibility of industrial conditions. 

In 1920, this was taken over by 'Labor Management' simultaneously with the introduction of 'Labor manager' or ' Employment manager' job titles in to the engineering industry. The Australian psychologist, Elton Mayo who we can consider as the father of Human resource management did many experiments in measuring the relationship between the productivity & the work environment. Around 1945, this had broadly defined as 'Personnel management' as the experiences derived from the world wars had shown that the output could be impacted by the employment policies.

In mid 80s the US term 'Human Resource Management' arrived with the view of that the employees are assets or resources.

Since the early past Human Resource Management has number of definitions which given by many authors. 

• "Human resource management can be defined as a strategic, integrated and coherent approach to the employment, development and well-being of the people working in organizations" (Boxall and Purcell, 2003).

• "HRM comprises a set of policies designed to maximize organizational integration, employee commitment, flexibility and quality of work" (Guest, 1987).     

• "Human resource management (HRM) is a strategic, integrated and coherent approach to the employment, development and well-being of the people working in organizations" (Armstrong, 2014).

• "Strategic approach to managing employment relations which emphasizes that leveraging people’s capabilities is critical to achieving sustainable competitive advantage" (Bratton and Gold, 2003).   

How important the human resource management to an organisation

Human resource management has become one of the most essential factors of today's businesses. Accordingly, the Human resources management department of an organization has to play a vital role in each and every aspect of supplying the required human resources towards achieving organisation's goals. 

"The organisations consider the Human resource management department as playing a major role in staffing, training & helping to manage people so that people & the organisation are performing at maximum capability in a highly fulfilling manner" (McNamara, 1998). "When it comes to the global businesses HRM is increasingly considered a contemporary development to reshape employment relationships as a tool that may have effectively replaced other management traditions like personnel management" (Marchington & Wilkinson, 2002).

All kind of organisations including private, non-governmental & public establishments run their operations by setting different goals according to the organisation's type. However, all these types of organisations are having a similar aim of providing a quality service with the common ground called human resource. No matter how strong the other resources are, profitability of success will be low if the human resources do not involve in an effective manner. 

Opinions of the employees about the organisation's strategies is another important fact which helps to identify their satisfaction of the work. In this case, "the performance of the employees depends on their satisfaction of the work" (Uyargil et al, 2010). Facilitating fair remuneration schemes, better working environment, social & legal rights, opportunities to communicate with the colleagues & the managers will lead the employees to work with increased motivation & it will direct the organisation to a more productivity.   

"An organization needs to adopt specific HR policies and practices for different strategies. Thus, to be effective, an organization’s HR policies must be consistent with other aspects of the organization. By having appropriate HR policies and practices in place, organizations can elicit employee behaviors that are consistent with an organization’s strategy" (Rose & Kumar, 2006).

Having an effective human resource management will automatically direct the employees to contribute effectively & productively to accomplish the  organisation's goals and objectives. Employees are considered as the most important value & that is the reason why human resources management is a key factor for success of today's businesses. 

Reference

Alakoc, Z., 2014. Human Resource Management and Its Importance for Today’s Organizations. International Journal of Education and Social Science, 1(2).

Armstrong, M. (2014) Armstrong's Handbook Of Human Resource Management Practice. 13th edn.

Boxall, P. and Purcell, J. (2003). Strategy and human resource management: management, work and organisations. Hampshire, Palgrave MacMillan.

Burma, Z. A. (2014). ‘Human Resource Management and Its Importance for Today’s Organizations’, International Journal of Education and Social Science, 1(2), pp. 85–94.

Guest, D. E. (1987). Human resource management and industrial relations [1]. Journal of management Studies.

John, B. and Jeffrey, G. (2003). Human Resource Management: Theory and Practice. 3rd edn London: Palgrave Macmillan

Marchington, M. and Wilkinson, A. (2002). People Management and Development. London: CIPD

McNamara, C. (1999). Human Resources Management. Retrieved Oct 21,2019, Available at: http://www.mapnp.org/library/hr_mgmnt/hr_mgmnt.htm/

Rose, R. C. and Kumar, N. (2006). The influence of organizational and human resource management strategies on performance. Performance Improvement, Vol. 45(4), 18-24.

The History of Human Resource Management (HRM) (2015) Consensus HR. Available at: http://consensushr.com/the-history-of-human-resource-management-hrm/