Small Firm Size Impact Upon Psychological Contracts in the Workplace

Abstract

This research study was concerned with the impact of small firm size upon psychological contracts in the workplace, from the point of view of owner-managers. In this regard, 10 owner-managers from the northern part of Portugal were interviewed to further shed light on this issue. Literature concerning psychological contract was critically reviewed to evaluate its significance on the small firm environment. Psychological contract formation was also reviewed. Further, the key contexts of the psychological contract were explored, along with the role played by the society and the business environment on the small firms.

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Psychological contract violations have also been examined, in addition to their renegotiation after violation. There are several factors that impact on the psychological contract for the small firms, and these have also been determined, along with the factors that impact on the psychological contract amongst the workforce in small firms. Primary data was collected using semi-structured interviews. In-depth qualitative interviews were conducted with the 10 owner-managers of the research sample. Secondary data from literature was used to augment the primary data for purposes of forming sound learning outcomes of the study.

According to the research findings, the functionality and utility of the psychological contracts emerged as leading priorities for the owner-managers that were interviewed.

There was also the issue of the nature of obligations existing between owner-managers, and their employees. The high level of significance that owner-managers attach to the relationship with their employees, such as an increased level of accountability and trust benefits of being, was another issue that the study revealed. By virtue of their small size, several owner- managers concurred that this has enabled them to better serve their customers, and reinforce the existing relationship with their employees. Enhanced Flexibility is also another benefit of being small that emerged, along with increased accountability for both the owner-managers and their employees alike.

Introduction and Background

The aim of this research is to look into the impact of small firm size upon psychological contracts in the workplace. The main objectives of this research are to review literature concerning psychological contracts and evaluate its significance to the small firm environment, to assess HRM literature concerning small firms and consider which factors can impact upon psychological contracts in the work place, to assess owner-manager perceptions of the psychological contracts in small firm environment and finally, to reveal in which way small firm size impact upon psychological contracts in the workplace. This research samples the opinions of the owner-manager of 10 small firms from different sectors of the economy in the north of Portugal. The sample is characterized by three organizations in the construction sector, two coffee places/Fast Food restaurants, one cyber coffee, two unisex hairdressers, one hardware owner and finally, one insurance company.

Literature concerning psychological contract provides that the psychological contract is adaptive to the various social elements, and that its content can change as the elements from one society to another become different. For the purpose of this research, in-depth qualitative interviews have been conducted with the 10 owner-managers of the research sample.

In order to achieve the aim of the research, the author focuses on three major questions:

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  1. What function and utility does the psychological contract have in small firms?
  2. What are the nature of the obligations that exist between the employer and the employee?
  3. What has been the impact of the ‘new deal’ on small firms?

The psychological contract concept traces its origin outside the field of human resource management (HRM). Even so, the concept has become a key analytical tool for explaining and propagating HRM. The psychological contract concept has elicited considerable amount of interest from both practitioners and academicians alike, as they endeavour to search for issues that are likely to enhance the commitment and motivation of employees.

Available research evidence indicates a negative effect regarding job satisfaction, employee commitment and the psychological contract as a whole, when employees believe that the management’s promises have been broken. Cases of the above include promised training that has not been received or insufficient performance reviews, although it cannot always be ensured by the management that commitments are fulfilled, especially in case of a deterioration of employment prospects or processes like mergers and restructuring (CIPD, 2005).

Today, psychological contract is one of the most well-known terms in the field of human resources management, in which most of the available literature has been dedicated to its normative theory. In addition, little, if any, empirical evidence exists regarding the practical aspects of the psychological contract. Moreover, there appears to be a limited significance relating to whether or not firms are in a position to acknowledge the psychological contract as a human resource development function, or if this concept is considered during the designing exercise of strategies and contracts.

Most of the previous studies regarding psychological contracts have been conducted in the context of large firms, and there is very little research concerning psychological contracts in small business firms. The need for more research on that area is evident as previous research literature fails to consider how the characteristics of small firms and the conditions they face affect the role, content and dynamics of psychological contracts.

This neglect may be due to an assumption that small firms are essentially the same as large firms but on a smaller scale (Welsh and White, 1981) and that what is good for the large firm is good for the small (Hendry et al., 1995). This, however, is not always the case. Arguably, this is reflected in recent psychological contract research that advocates better management of the psychological contract through use of human resource management (HRM) practices, overlooking the fact that small firms are less likely to have such formalized systems in place.

A general criticism of much psychological contract research to date is that it represents the perspective of the employees only, with relatively few studies presenting the employer or organization’s perspective.

This study therefore can be seen as an introduction to a more detailed study to be carried by future researchers on the field of Psychological Contracts in small firms’ environment.

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Literature Review

Introduction

In this part of the research, literature concerning psychological contracts will be critically reviewed in order to evaluate its significance to the small firm environment. Accordingly, this writer will consider human resource management (HRM) literature concerning small firms and assess which factors can impact upon psychological contracts in the work place to help reveal in which ways small firm size impacts upon psychological contracts and more specifically, from the perspective of an owner-manager.

Although the psychological contract as a concept in human resource management came into being in the 1960s, nevertheless, its re-emergence during the 1990s is especially remarkable, as it came at a time when several world economies were faced by the then economic recession. At the time, psychological contracts re-emerged as an outline for comprehending the manner in which changes within an organization could impact on the behaviour of the employees (Rousseau 2001), seeing that now an economic recession would lead to a possible loss of their jobs.

Psychological contracts may be defined as the “set of expectations held by the individual employee”, and which seeks to spell out the expected input by both the organization and an individual, during the time in which the two entities are in a working relationship (Sims, 1994). From such a perspective, it is not hard to realize the importance of contracts to both an individual and the organization as well, a relationship that has been described by several organization management authors (Mowday, Porter & Steers, 1982) as an exchange relationship transcending the complete contract continuum from stringently legal to entirely psychological (Spindler, 1994).

Even as a majority of the aspects covered by this relationship could be well taken care of by legislation and inclusion in contracts of employment and which are signed by employees (may include salaries, working hours, and plans of benefits), still there is a high likelihood that some elements of the relationship of employment could as well be confined only to the subconscious (Spindler, 1994). A number of authors have referred to this phenomenon as the ‘hidden’ element (Eisenberger, Huntington, Hutchison, and Sowa, 1986; Greenberg, 1990). Essentially, it is this ‘hidden element that Argyris (1960), Schein (1980) and Rousseau (1989) refer to as psychological contract.

Psychological Contract

A major argument that revolves around the psychological contract theory is whether or not it ought to be viewed as ‘contract’ (Arnold, 1996). Divergent outlooks have it that psychological contract provides a perspective on a base that is more pragmatic, based on the perceptions of the parties involved, and as such, tends to exhibit a more profound influence in comparison with a formal contract (CIPD, 2003).

On the other hand, Sparrow and Marchington (1998) maintain that an interaction exists between the psychological contract and contracts of employment, since legal conditions and terms shall impact on obligation perceptions (Forth, Bewley & Bryson 2006). With regard to stringent comparison, psychological contract apparently appears to be an inherent reflection of the relationship of employment akin to legal contracts, though on a wider scale. Concerning power, the moment a breach of contract happens; this may adversely affect a firm, as well as its employees (Deery, Iverson and Walsh, 2006).

In concept, previous literature seems to hold that psychological contracts differ from both an implied and formal contract as it takes into account the beliefs of an individual regarding the employment terms and conditions that exists between an employer and his/her employees (Argyris, I960; Levinson et al; 1962; Schein 1965; and Kotter 1973). This perception of the relationship existing between an organization and the employees in it has become notable and acceptable in a wide variety of forums, and this includes the academic journals as well (Guzzo, Noonan. and EIron 1994; Morrison and Robinson 1997; Robinson, Kraatz, and Rousseau 1994), management textbooks (Kolb, Osland, and Rubin 1995; Makin, Cooper, and Cox 1996; Schein 1980) and practitioners journals (for example, Ehrlich 1994; Sims 1994; Wilhelm 1994).

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The kind of promises that may be contained in an employment contract of an employee could either be implicitly or explicitly communicated in a number of ways: oral discussion, written document, or through the procedures and practices of an organization (Rousseau 1989; Sims 1994).

Owing to the invasive reciprocity norms that tend to accompany any kind of exchange agreement between an organization and an employee (Rousseau 1989), an employee usually seeks out, expects and constructs “a psychological contract” as a way of comprehending and representing the relationship of employment with the managers (Shore and Tetrick 1994). For instance, it is quite possible that employees could perceive that their organization could have promised them attractive benefits, fair pay, advancement, growth opportunities, adequate resources and tools, and a working environment that is quite supportive (Rousseau and Tijoriwala 1998; Deery et al, 2006).

Whereas it is likely that the large firms may promise their workforce career development opportunities (such as specialized roles and jobs) and still deliver on the same given the availability of resources, small firms on the other hand could offer their workforce a chance to learn a wide range of abilities and skills that cuts across various areas and functions {Aldrich and Auster 1986; Aldrich and Langton 1997).

Psychological Contract Formation

Through an observation that the building blocks as well a the antecedents of psychological contracts have attracted comparatively limited attention, at least from the point of view of scholars and researchers, Rousseau (2001), came up with psychological contract cognitive proposal, whose basis is the schema. Further, Rousseau (2001) opines that the origin of contract schema is the past histories of an individual, and this tends to evolve progressively as time goes by, in tandem with cumulative extra information regarding the obligations of a contract within the confines of a workplace.

Moreover, Rousseau (2001) has noted that various contract schema could build up progress in the same firm, based on information clarity, consistency, and trustworthiness of sources of information available. In addition, schema that is either heard or observed from extra sources could greatly impact on psychological contract development, especially in a situation whereby persons are in possession of partial information regarding the setting of a new job. It is possible therefore, for an employee to integrate schema aspects that others uphold (for example, managers or co-workers), to assess what she or he owes a firm, as well as the obligations of a firm him/her.

A majority of the literature appears to lay more emphasis on the importance of trust within firms, especially from the perspective of a manager (for example, Beardwell et al 2004). An explicit assessment of the issue of trust within an organization was carried out by Alan Fox, who dwelt on the relationship between high-trust and low-trust, as well as a distinction between on the one hand, ‘high discretion work’ and ‘low-discretion work’, on the other hand. From the perspective of a work that is low-discretion, conformity and obedience is often called for (Fox 1974).

The obligation here seems to be that the subordinate ought to hold to the instructions and procedures that have been laid down. By way of contrasting the ‘high discretion work’ with one that is low, this is seen as a call for radically diverse behaviour forms, and which can vividly be witnessed in terms of alterations in the control forms within an organization. Generally, work with a low discretion is vulnerable to external control. On the other hand, work that is high discretion appears not to be subjected to such a control. Rather, control in this case is perceived to be that of self (Covey 2006).

Psychological Contracts Key Context

Scalke and Rousseau (2000) talks of the ‘Zone of negotiability’ (p. 134) in reference to those conditions and terms of employment usually permitted by the society to a firm, or an individual, for purposes of negotiation. The pattern followed by psychological contacts, with regard to employment is such that the whole society tends to enforce certain limits on a firm’s or individual’s bargaining power (Scalke & Rousseau 2000).

As a result, an employee may not usually sign away the various protections that are provided for by the labour laws of their individual country (Scalke & Rousseau 2000). It is from such a perspective that employment relationships negotiations usually occur. Furthermore, such negotiations also tend to differ with the status of an employee, so that employment negotiations for a part-time employee differ from those of a full-time employee, or those of an independent contractor (Scalke & Rousseau 2000).

Psychological Contracts Violation

A vital component with regard to the literature of psychological contract is the issue of violations of a contract, as well as the ensuing cost (Rousseau 1995; Morrison & Robinson 1997). Frequently, research tends to emphasize on the perceptions of the employees with regard to how their employers may view a contract breach, for instance, with reference to developmental opportunities, job security, or even principles of ethics (often regarded as contract violation). A contract violation could result in injustice feelings, betrayal or deception amongst the various employees (Morrison & Robinson 1997).

Such definite situations as factors of the labour market (for instance, if there exists a felt need for cutbacks or redundancies in the market), and organizational timing, bears a correlation with feelings of the employees that their psychological contracts could have been dishonoured (Turnley & Feldman 1999; Brewster & Larson 2000). Evidence exist to support the notion that employees characterized by various psychological contracts understanding react in a different way to violation of contracts, as well as to planned changes within an organization ( for example, Rousseau 2001).

Renegotiating Psychological Contracts

Brewster and Larson (2000) have dwelt on the issue of psychological contracting as a process that enables employees within an organization to re-negotiate their existing relationship with their employer. In this regard, a contract symbolizes ‘a meeting point’ between two diverse promise sets, expectations, as well as foreseen values that both the employees and the organization as a whole hold dear to.

The psychological contract renegotiation on both a thorough and continuous basis becomes quite vital, especially for the firms whose career systems are fairly formal (Rousseau 2001). This is particularly the case when a given firm pinpoints candidates in possession of enormous potentials in their work, early enough. This would thus enable such candidates to enjoy systematic programs of development, such as career ladder characterized by training reward promise, or even assignment rotations (Lester et al 2002).

Psychological Contracting in Small Firms

Wilkson (1999) has noted that almost in all cases, most of the work regarding psychological contracting seems to lay more emphasis on the larger firms, to the detriment of the smaller ones. Nonetheless, attempts have also been made to explore the relationship of employments as it appertains to the smaller firms. From the outset, perhaps it would be in order if a proper definition of the term smaller firms could be provided. A majority of the standard definitions of these firms rests on the basis of how many employees a certain firm has enlisted. Besides size, small firms tend to generally be viewed as having some vital unique characteristics.

The responsibility of an owner-manager in a small firm, as well as the influence that they tend to have on their business entity rests on perception, personality and on the whole, peculiarity (MacMahon, 1997; Cully et al., 1999; Beardwell et al., 2004). Owing to their small size, the level of closeness between say, a manager and his/her employees in small firms tends to be considerably more in comparison with the larger firms (Goffee and Scase, 1987; Cully et al., 1999; Marsden, 2004).

Employees of larger firms tend to have a limited interaction with those responsible for instituting decisions within the business. As a result, the business environment is both impersonal and ‘cold’, given that the firm’s issues can only be transmitted to the employees via an appropriate section manager. On the other hand, it is quite possible to have the employees working together with their owner-manager, thereby cementing a closer relationship with each other (Nadin & Cassell, 2007).

A fascinating argument is positioned in the literature as appertains to the impact of the proximity in the relationship among employees and a manager, with regard to the small firms. For instance, Ingram (1970) and Bolton (1971) opine that small firms seem to promote an environment that is aimed at nurturing mutual respect between on the one hand, the employer and on the other hand the employees, friendliness, as well as an overall pleasant collaboration (Bacon et al 1996; Carroll et al 1999; Huang & Brown 1999; Conway & Briner 2005).

The issue of a pleasant collaboration has also received the backing of Schumacher (1973), through his ‘beautiful house’ theory, in reference to the small firms. Conversely, Rainnie (1989) disapproved of this concept asserting that in reality, it is the same businesses that were ‘bleak houses’, subjugated by oppressive, autocratic, and dictator managers that in fact oppressed their employee. All the same, this notion was assessed as one-dimensional and wholly distrustful pointing in reality that it calls for a comprehensive assessment in the significantly intricate environment surrounding small firms (Ram, 1994).

Current experimental studies offer opposing evidence to the position of Rainnie, according to Covey (2006). The researcher believes that small firms do indeed supply considerable support that would enable a cultivation of an environment positive, in addition to employment relationships that are also positive. Furthermore, the researcher argues that such an employment relationship ought to be attained via informal channels which tend to be ideal for smaller businesses.

The existing informality level within an organization is yet another significant element of the small firms, especially with regard to the issue of psychological contracting. The style of management within a firm is the chief residing place of informality, a management style that could as well be in atonement with the working environment needs (Ram, 1994; Marlow and Patton, 2002; Mihail, 2004). According to Mihail (2004), the existing informality in small firms apparently gives their owners the ability to instil suppleness into the firm, and which appears to be a necessity, at least with regard to the viability if such a business.

Aside from the ‘bleak house’ and the ‘small is beautiful’ concepts, a third perspective of the size of a firm in relation to psychological contract could touch on employees developing negative aspects as a result of the proximity of their relationship with their employer, and this could in the end offer the employees a balance.

As such, this could be thought of as a middle ground, in which the employees of a firm could also get involved in the decision making process, as well as effectively relaying their view to the management in a more efficient manner, as opposed to large firms, while also making provisions for getting involved in the organization of the business environment on the basis of ‘familial’ and informality relationship that is needed for small firms to remain viable (MacMahon, 1996; Moule, 1998; Mihail, 2004).

In a majority of the situations, small firms lack the financial capability of their bigger counterparts, or even the same authority and power to endure the pressures of competition (Herriot & Pemberton 1996; Nadin & Cassell, 2007). Concerning employment relationship, two major lines of argument could be assumed, the first of which is quiet significant to the small firms. This argument asserts that by having employment relationships within an organization, the employees in effect gets overburdened, seeing that the owners may not try to enhance labour turnovers, while at the same time also awarding reduced salaries and wages in comparison with the larger firms (Brown and Medoff, 1989; Ram, 1994; Cully et al., 1999).

The second argument seeks to question better monetary benefits and higher wages as sufficient employment relationship measures (Herriot & Pemberton 1996)

Even though larger firms by and large offer better payment packages, this approach fails to adequately cover job satisfaction levels. Pohlmann is of the opinion that employees working for small firms not only feel more talented, they also are held in high regard by the owners of the business based on their performance. For this reason, such employees tend to derive more satisfaction from their jobs.

Another aspect of note within the small firms, and which impacts on the psychological contract, is the issue of heterogeneity that exists amongst the different ‘clusters of small firms’. Curran (1991), Curran and Kitching (1993) and Abbot and Mills (1993) have observed that there does exist considerable disparities among small firms that belongs to various sectors such as the services or manufacturing. This is chiefly as a result of an elemental gap within the business environment that is quite explicit to an individual sector, and this is what in essence impacts on the relationship between the employees and the firm.

Essentially, this sheds light on underlying complexity that seems to engulf an assessment of the small firms, seeing that profound changes could impact on the employment relationship, based on the particular sector that such a firm under investigation operates from, the relative nation, and a manager’s peculiarity (Eurofound, 2001).

Aside from sector variations, distinctions have also been identified in small firms from a global perspective, and which are attributed to legislative, societal, and mentality frameworks (Thomas et al., 2003). Typically, size is a vital categorization criterion of a firm especially with regard to small firms (Bolton, 1971; Cully et al., 1999). As nations differ with regard to population, size, and economies, so does firms as well.

For instance, an enterprise in Greece that employs say, 500 employees could be categorized as being large, but a similar firm in Germany could only be considered medium-sized (Eurofound, 2001). Aside from an illustration of impending variations from a global perspective, a practical issue does exist as well; the difficulty of amassing enough data regarding small firms in the various countries (Curran 1991; Curran et al., 1993), as well as international (Eurofound, 2001) heterogeneity levels.

There is a need to appreciate that the environment under which small firms operate is both complex and possess a number of idiosyncratic characteristics, and which could hinder research. Despite small firms existing in quite a large number, coupled with their economic importance to their individual countries on a global scale (Overell, 1996; Cully et al., 1999; Mihail, 2004), this area has over the years received limited research (Cooper and Otley, 1998; Wilkinson, 1999; Michail 2004). This may be attributed to the uniformity and complexity that oversees the small enterprises filed, since if is quite hard to generate comprehensive assumptions owing to the copious unreliable factors (Nadin & Cassell, 2007).

Factors Impacting on Psychological Contract In the Workplace

Both organizational and individual factors seem to be connected with psychological contract development at the workplace. In terms of the individual factors, these entails the expectations and experiences that could have come about as regards the employment relationships, before employees have been enlisted into a firm, upon their recruitment, during their maiden orientation into the firm, or even out of experience that accompanies employment (Rousseau, 2001). Such expectations and experiences could differ based on such personal difference elements as gender, age, education level, membership to a union, commitment not related to their work, among other reasonable differences.

On the other hand, the organization factors that impacts on psychological contract development in a firm entails the policies of the human resource department, as well as practices which could illustrate certain obligations or promises from the perspective of an employers, and also the employees’ expectations (Guest & Conway, 1998). According to Noer (2000), a majority of the firms “are operating a cultural lag from the conventional psychological contract”. Such firms’ wishes to have the flexibility that characterizes “new” contracts, while at the same time also holding on to such conventional contract artefacts as benefits and career paths. What this seems to illustrate that the employers require being more open with regard to mutual obligations, as well as to be clearer on the same, not to mention their unambiguous communication.

Within the realm of the human resource management in organizations, there has been a lot of debate regarding how useful the psychological contract concept is to this department. For instance, Sparrow and Marchington (1998) are of the opinion that the concept of psychology contract has proved useful in as far as a capturing of intricate changes at the workplace during uncertain times is concerned. In this regard, psychological contract assumes the role a framework of analysis that cuts across the entire firm, and at the same time capture concerns relating to novel practices of employment. Nevertheless, Guest (1998) asserts that this concept has been ‘operationalised’ to take into account a lot of psychological variables, of which little is known as regards the relationship between these.

For this reason then, the psychological contract has turned into one analytical nightmare (Fox 1974). The suggestion offered by Guest and Conway (1998) is that the psychological contract concept ought to be viewed best as a valuable metaphor that facilitates in making sense out of the relationship of employment, as well as facilitating in a plotting of valuable changes in such a relationship. Furthermore, the psychological contract debate also appears to be shifting towards measure issues. Frequently, the psychological contract gets an indirect measurement. For instance, through loyalty and commitment, and this is quiet controversial. Psychological contracts could also be measured in terms of a breach of contract (for example Kickul, 2001; Kic kul, Neuman, Parker & Finkl, 2001).

Although recent research appears to have devised techniques for measuring the concept of psychological contract (Westwood, Sparrow & Leung 2001), there still lacks a consensus amongst the researchers on the best way of measuring it. A research study by Coyle-Shapiro & Kessler (1999) that focused on non-contingent versus contingent workers proposes that the status of a contract has a vital role as regards how persons are able to view the relationship exchange, as well as the manner in which they respond to the stimulus emanating from this form of a relationship.

Given that contingent employees do not spend a lot of their time within a firm, this could imply that these employees may possess a limited knowledge as concerns the functions of an organization, while at the same time also harbouring a higher level of tolerance for the policies of an organization, in comparison with permanent employees (Coyle- Shapiro & Kessler 1999). While personal characteristics may seek to persuade the psychological contract, it may however develop even as individuals and organizations interacts (Herriot & Pemberton, 1996; Westwood et al., 2001).

Available research findings have also indicated that the structure of an organization, and specifically HRM, are vital grounds for enabling an interaction of the employees, thereby paving way for the formation and evaluation of psychological contracts for the human resource department within an organization, via policies, actions and practices. These occupy the frontline with regard to employment relations. Such, these are mainly considered as influential in an assessment of psychological contracts (Rousseau & Greller, 1994; Rousseau, 1995; Westwood et al., 2001).

Rousseau (1995) opines that procedures articulating future plans, indicating future contributions and inducements usually take place during HRM actions (socialization, hiring, development activities, promotion), and even when organizations are experiencing a change (restructuring, downsizing). According to Rousseau & Greller (1994) the creation as well as the maintenance of a psychological contract between on the one hand, employees and on the other hand the firm, ought to be the responsibility of the HRM. Therefore, the state in which the practices of HRM transmit future intent promises “in exchange for contributions of employees” hence persuades the evaluation and formation of psychological contract.

Psychological Contract and the Perception of Owner-Managers

A majority of managerial practices either explicitly or implicitly place emphasis on employment relations as a justification for ‘harder’ outcomes of employment. In fact, the assumption is that small firms tend to enjoy good communications, as a result of the close proximity and flexibility that the owner-manager and the employees have. Unlike some other terms that revolve around an employment contract, psychological contract is extensively skewed, is not recorded or explicit, nor has it been bound legally.

Nevertheless, a psychological contract puts forth a greater influence on the behaviour of the employees, and especially in the eyes of their employer, seeing that such employees harbour a belief that what you give is what you receive. During these competitive and difficult economic times that organizations are facing, owner-managers are in a dire need for those employees that are ready to overstretch themselves, going that extra mile to ensure that they deliver for the firm. Whenever solid psychological contracts within a firm exist, these tend to hinge more on open communication lines, clarity of purpose, trust, and mutual respect. These are the qualities that the owner managers want their employees to possess; if at all their businesses are to remain viable.

The Leader-Member Exchange (LXM) theory came into being as a way of helping to explain the interpersonal relationship quality that exists between a manager and his/her employees (Graen & Uhl-Bien, 1995). According to this theory, leaders develop various relationship qualities with the various employees. The relationship of the LXM theory vary on a continuum, ranging from relationship exchanges between employees and their managers, up to and including those relationships that are based on respect, mutual trust and obligation (Graen & Uhl-Bien, 1995).

Existing research indicates that the value of a relationship that could develop between a manager and their employees foretells such outcomes as increased satisfaction, commitment, and performance (Duchon, Green, & Taber, 1986; Graen, Novak, & Sommerkamp, 1982; Wakabayashi & Graen, 1984; Wayne & Green, 1993). Managers are at a position to assist their employees with resource-based and affective support. When this is done, then it could be expected that the value of the ensuing relationship shall impact on the level to which a breach of the psychological contract involves the performance of the subordinates.

Even as there exist variations between the large and small firms, (Welsh and White, 1981), perhaps a more befitting description of the concept of employment relationship of such a varied sector would be that of a “one size fits all”. Towards this end, the psychological contract concept seems to offer an option for the addressing of this problem (Atkinson, 2005). This is because the psychological concept is adequately supple to support an assessment that cuts across a diverse sector, while at the same time also providing a hypothetical model that enables an assessment of the internal outcomes and dynamics that have been addressed by Ram and Edwards (2003).

Internal dynamics could be exploited by taking into account the psychological contract content, the principal aspect of which are the insights of the two parties involved in the contract (an individual and the firm), of the implied mutual commitments in a relationship of this kind (Guest and Conway, 2002). These kinds of perceptions necessarily do not have to be shared by the two parties involved in a psychological contract, with the result that divergent mutuality levels could emerge (Arnold, 1996), and fragile mutuality interpreting a failure to accomplish a commitment, that is a breach of a contact becoming more likely (Kotter, 1973).

Another key aspect of the psychological contract is the issue of reciprocity. From the context of owner-managed small firm, reciprocity here refers to the actions of an employer or manager creating a perception to the employees to respond in kind (Gouldner, 1960).

An assessment of the connection between performance outcomes and internal dynamics could be accomplished via the psychological contract model as depicted by Guest and Conway (1998), a model that proposes that commitments contained in a psychological contact and their scope of fulfilment shall be reflected on the outcome of such a contract. An example of a psychological contract outcome is the employees’ performance. Evidence supporting the connection between the content and the outcomes of a psychological contract seems to be quite limited. Even then, available research does in fact imply that the “nature” of such a contract is quite applicable.

Conclusion/Summary

Psychological contract is a term used in reference to the kind of relationship that exists between on the one hand, an organization, and on the other hand, its employees (Morrison& Robinson 1997). In the formation of a psychological contract, the issue of trust is every important, amongst the various parties involved, with a majority of the literature appearing to lay more emphasis on the importance of trust within firms, especially from the perspective of a manager (for example, Rousseau 2001). A vital component with regard to the literature of psychological contract is the issue of violations of a contract, as well as the ensuing cost (Rousseau 1995; Morrison & Robinson 1997).

Frequently, research tends to emphasize on the perceptions of the employees with regard to how their employers may view a contract breach, for instance, in respect of developmental opportunities, job security, or even principles of ethics (often regarded as contract violation). A contract violation could result in injustice feelings, betrayal or deception amongst the various employees (Morrison & Robinson 1997). The psychological contract renegotiation on both a thorough and continuous basis becomes quite vital especially for the firms whose career systems are fairly formal (Rousseau 2001).

Owing to their small size, the level of closeness between say, a manager and his/her employees in small firms tends to be considerably more in comparison with the larger firms (Goffee and Scase, 1987; Cully et al., 1999; Marsden, 2004). Employees of larger firms tend to have a limited interaction with those responsible for instituting decision s within the business, resulting in impersonal and ‘cold’ business. There is a need to appreciate that the environment under which small firms operate is both complex and possess a number of idiosyncratic characteristics, and despite small firms existing in quite a large number, not many researchers have sought to research on psychological contracts as they affect these firms (Mihail, 2004).

Both organizational and individual factors seem to be connected with psychological contract development at the workplace (Guest & Conway, 1998; Noer, 2000). Available research indicates that the value of a psychological contract is the employees’ increased satisfaction, commitment, and performance (Duchon, Green, & Taber, 1986), and so the more reason why psychological contracts should be seen as a vital tool in the small business environment.

According to the literature, many times it is concluded that what is good for the large firm is good for the small one but that does not work always exactly like that. There is need for more research on that topic in order to evaluate the usefulness of psychological contract within the small business environment.

The literature that has been reviewed and explored in this chapter was concerned with psychological contracts, its formation, violation and renegotiation. Literature concerning HRM and psychological contract in small firm environment was reviewed as well as factors impacting on psychological contract in the workplace and finally the perception of owner-managers of the psychological contract. After giving a theoretical background to this research topic, the author will, in the next chapter, analyze the data collected in order to compose the findings of the research.

At the research and findings sections of this research study, a qualitative research method was carried out with 10 small firm owner-managers. In this particular case, the interviews had the form of a semi-structured questionnaire. This tool of data collection shall enable the researcher to assess the role of psychological contracts in the small firms from the point of view of the owner-managers. This way, it will be possible to explore the attitude that exists amongst the owner-managers with regard to the issue of psychological contracts, the level to which the owner-managers perceives these to be beneficial to their employees.

Methodology

Introduction

Within this chapter the author will discuss the research strategies available for this project and the method chosen as the most appropriate will be analyzed. In addition, the chapter will show in detail how the research was implemented, the procedure that was followed, data analysis tools used and finally, the limitations of the chosen methodology and ethical considerations of the study.

Research methodology has been defined as “the application of science-based procedures with a view to acquiring solutions to a number of research questions (Adams & Schvaneveldt 1991). A research methodology supplies the necessary tools to aid in the carrying out of a research, whose objective is to obtain the needed information, as it is the case of this specific research.

A research methodology entails the whole conceptualization process, an observation of the problems that needs to be studied, research questions formulation, the collection of data, data analysis, and the eventual generation of the research findings. Nevertheless, there are a number of authors who have come up with alternative methods of research (Ghauri et al., 1995; Yin 1994).

The available literature regarding methods of research assists in the process of choosing the suitable and appropriate methods necessary to conduct a specific kind of research. Moreover, Ghauri et al (1995) suggests that the method often selected for use in a given research study is determined by the objectives and problems that a research presents.

Furthermore, selecting a desirable method of research is determined by the context of the potential research. In addition, the availability of adequate literature for such a study shall also determine the research method that is adopted for a given research study, so that the relevant topics can be adequately assessed. In case this not happen, then there is a need for the conduction of further studies in order to fill in the remaining gap.

Overview and Choice of Research Strategies

According to Creswell (2008), a research design is a framework for collecting and utilizing sets of data that aim to produce logical and appropriate findings with great accuracy and that hopes to adequately and reasonably rest a research hypothesis, especially in a case whereby a quantitative study is being undertaken. A research design could either be qualitative, or quantitative.

Creswell (2008), states that there are five main differences between the two approaches. The first is the different ontological assumption. Quantitative research assumes that there is only one external and objective reality whereas qualitative may suggest that multiple subjective realities can coexist. The second difference is on the epistemological assumptions. Quantitative researchers tend to distant themselves from the studied phenomena whereas the qualitative research interacts with them. The third is the different axiological assumptions. Quantitative researchers “overtly act in an ‘unbiased’ and ‘value-free’ way”.

Qualitative researchers on the other hand “overtly act in a more ‘value-laded’ and ‘biased’ manner” (Lee, 1999:6). Fourth, we have the different rhetorical assumptions. Quantitative research uses impersonal, formal and rule-based text, contrary to the personalised, informal and context-based language of the qualitative research. The fifth difference, according to Creswell (2008), lies in methodological assumptions. Quantitative strategy applies a deductive approach whereas the qualitative makes use of induction (Lee, 1999).

Moreover, Quantitative research is mostly concerned with the quantification of the findings. Qualitative research on the other hand is defined as a research strategy that emphasises words rather than quantification in the collection and interpretation of the data. Quantitative strategy applies a deductive approach whereas the qualitative strategy makes use of induction (Lee, 1999). The former aims to test a theory and the latter builds it.

Qualitative research usually provides a more detailed and profound analysis of the specific situation. The openness between the parts is much higher than with quantitative method, which can facilitate the generation and creation of new theories. The participation of both parts is evident and they can discuss problems and explain uncertainties or ambiguities. This level of depth and detail is not achievable in quantitative research if the individual only answers closed questions.

One of the several disadvantages of qualitative methods is that is a very long process. It is impossible to make it quick and some individuals participating in the interview do not feel comfortable and can give answers under duress, or may not participate on the interview because as a result of concerns about their identity being revealed. Also it is extremely complicated to aggregate and formulate systematic comparisons.

It is not easy to define a qualitative research; given that the term lacks its own distinctive paradigm or theory. Additionally, qualitative research lacks a discrete set of practices of methods that could entirely be attributed to it. According to Patton (1987, p. 301), qualitative methods offers detailed events description, interactions and situations between things and people providing detail and depth.

Other researchers (for example, Covaledki & Dirsmith, 1990) have viewed qualitative methods as a strategy which could be utilized in the analysis of the social truths of say, a phenomenon. Despite there being variations in as far as the definitions of a qualitative research goes, nevertheless these definitions all seem to have a common feature; they are aimed at providing a richer perceptive of social realities and processes.

The philosophical background of qualitative methods lays emphasis on the benefits of better understanding the social interactions from an organization context, as well as the human behaviour meaning. This shall often entail the development of an emphatic understanding grounded on a subjective experience, and also an understanding of the links between behaviours and personal perceptions as the author attempt to do in this research.

Flick (2002) offers that those research studies that tend to stick to strategies that are inductive are best conducted using a qualitative strategy. Furthermore, qualitative research assist a researcher to embrace contextual conditions while at the same time also acting as a tool for detecting novel issues, and aiding in the development of theories that are grounded on empirical evidence. Besides, qualitative methodologies tend to have high validity levels, while at the same time also preserving data flow in a chronological manner. In any case, qualitative data is rarely vulnerable to retrospective alterations (Ghauri et al., 1995, p. 85).

After reviewing the available methods and knowing the exploratory nature of the research and the necessity of deep investigation inductive qualitative approach been chosen for the purpose of this research. The focus of this research is employers’ views since most of the studies focused on employees perspective and there is a very restricted number of studies presenting employers perspective (e.g. Guest and Conway, 2002; Nadin and Cassel, 2007 among some others).

Semi-structured interviews have been conducted with different owner-managers of a variety of ten micro/small Portuguese organizations of the Private sector in order to attempt to achieve the aim of this research.

Sample

According to Creswell (2008), sampling is one element of the statistical practice that concern itself with the selection of unique observations that are anticipated to surrender some knowledge about a population in question, specifically for purposes of forming some statistical inference.

This research study targeted owner-managers of ten small Portuguese firms. The participants owned and managed a firm with a number of employees that varies between 4 and13. During the selection process the author attempted to select firms that she is familiar with or where a close relation with the owner-manager exists, in order to make the interviews more friendly and open as well as more comfortable for the participants.

In order to achieve that, personal contacts and connections trough other organizations been used to contact the participants. The close relation between interviewer and interviewees allowed the researcher to settle interviews schedule and agreements rapidly, more easily and with quick responses. The semi-structured research interviews been administered for purposes of collecting the relevant data for the study. In terms of data collection, the participants been interviewed in June after agreement between the author and them.

Primary Data

Primary data was collected through semi instructed interviews with owner-managers of 10 small organisations. The researcher discussed with all the participants the research and its purpose with all participants individually before any agreements where made. Participation was on a voluntary basis. Each interview lasted for approximately 1h30min approximately, and was conducted individually. The data was collected and analysed first in Portuguese, before being translated to English.

Secondary Data

Secondary data is a valuable tool within a research study since it can provide insights into the research area and can also lay the foundation for further research. The main sources where the author obtained the secondary data was the existing literature such as books, journals, articles, as well as records and companies’ reports and publications. During the process of collection of secondary data, special caution was required in order to locate the precise data that fit the objectives of the research.

Interviews

According to Saunders et al (2007) there are three types of interviews; the structured interview, the semi-structured interview and the unstructured or in-depth interview.

Those can be separated in individual or group interviews. For the purpose of this study the researcher conducted semi-structured interviews with owner-managers of 10 small Portuguese firms situated in the north of Portugal. These interviews are non-standardized and the nature of the gathered information is qualitative. Those interviews bee carried out personally or “face to face” and tape recorded. The interview questions used for this research study are similar to those used by Sara Nadin in research, “New deal for old? Exploring the psychological contract in small firm environment” (Nadin & Cassell, 2007). As the research followed Nadin & Cassell (2007) methodology, this researcher first had to obtain consent from Sara Nadin by email, in order to receive and use her interview questions.

Interviewees also agreed that if the research required extra information, then some posterior phone calls could later be made by this researcher in order to clarify and complete unclear details. According to Saunders et al (2007, p.312) in-depth interviews are characterized by informality and will help the author to get a deeper understanding of the research topic. The interviewee is given the opportunity to talk freely about events, behaviour and beliefs in relation to the topic area’ (Saunders et al, 2007, p.312).

Like any other method of research, interviews too have their disadvantages. The main disadvantage is that interviews are very time consuming and consequently difficult to set up. Each interview lasted for approximately 1h30 min approximately. They were therefore quite involving to both the researcher and the interviewees.

At the start of each interview, the author explained to each participant the purpose of the research, followed by a definition of the psychological contract. Subsequent to this explanation, semi-structured question were then asked. These questions were concerned with the utility of the concept; the nature of the obligations existing between themselves and their employees and the impact of changes associated with the new deal. A copy of the interview schedule is provided in Appendix 1 (Portuguese and English version).

All interviews have been tape recorded in order to enable a better understanding of the research outcome. Furthermore, the research would in future, review the interview to make clarifications, when compiling the data.

The interview process itself was interactive in nature, with questions emerging spontaneously around the relevant themes as the interview progressed. This was important, in order to encourage interviewees to explore their thoughts and go into as much detail as possible. In addition, the quality of the results also depends on the interviewer competence.

Data Analysis

Due to the nature of the research that has been carried out by this author, an inductive research approach was adopted ‘to get a feel of what (is) was going on, so as to understand better the nature of the problem’ (Saunders et al, 2007, p.118). The aim of the inductive approach is to collect data and to establish patterns, consistencies and meanings’ (Gray, 2004, p.6).

This kind of approach permits alternative explanations and the change of emphasis during the research process. According to Saunders et al (2007) inductive approach in its nature is not as rigid as the deductive approach. Besides it is more risky in terms of ‘fear that no useful data patterns and theory will emerge’ (Saunders et al, 2007). Another inducement to use the inductive approach is the fact that a theory will be developed within the study.

The interview transcripts were analyzed using template analysis. The main idea when using template analysis is to identify themes represented in the data. These are the themes that emerge in response to the questions asked, are common to the participants and therefore are of great importance to a research study. A copy of the outline of category templates from employers is provided in Appendix 2 (Portuguese and English version).

Limitations

When carrying out a research project there is always a number of limitations.

One of the main limitations of this research project is time. When a researcher is time-constrained, they may rush through a research project without paying a great deal of attention to the research questions. There is also the risk that some owner-managers may not have been honest with the answers that they gave, out of fear that their identity would not be kept confidential, even after the researcher had given them an assurance of confidentiality. In addition, since the firms that were being investigated are very small, the sample size was also small as well. There was a need therefore, for the research and analysis to be carried out very carefully and deeply, in order to enhance the reliability of the study. The fact that the author has not previously been involved in a research of such nature is another important limitation.

Ethical Considerations

The researcher explained to all participants the purpose of this study and also guaranteed all participants that their identity would be maintained anonymously and that the interviews would be realized individually. Also the researcher guaranteed all participants that the results would not be used to their disadvantage or for any purpose that the participants were not in agreement with.

Sekeran (1992) notes: “Using the research results to the disadvantage of the participants, or for purposes that participants will not like; Not allowing them to withdraw from the research when they want to; Exposing participants to physical and mental stress; Deceiving subject by deliberately misleading them as to the true purpose of the research; Asking demeaning questions that diminish their self-respect and Putting pressure on individuals to participate in the research”. It was therefore deemed necessary to follow ethical considerations throughout this study.

The researcher needed to maintain some ethical considerations, in order to cause no harm. All participants could at any time “leave” the process, they were free to participate or not without giving any reason. The use of any information given by all participants has been used only with their consent and they been always informed before that. Their answers were elaborated anonymously.

Moreover, it was fundamental that the organisation was fully aware of the context and the purposes of the research. The consent of the organisation for the conduction of the research within its premises was ensured before its beginning. Finally, the researcher has complied with the university’s ethical guidelines.

Summary

In this chapter, the method chosen for this project has been presented. There has been reference to the nature of collected data, the way the data was collected, and the tools used for the data analysis. Finally, it was shown which were the limitations and the ethical matters that were taken under consideration by the researcher for the purposes of this study. The findings of this research are presented and discussed in the following chapter.

Analysis & Findings

In this chapter, the findings of this research will be presented. The primary data collected by the semi-structured interviews will be discussed in correlation with the secondary data that can be found in the literature review of this study. The results of this analysis will form the basis for the provision of conclusion and recommendations in the following chapter.

Business type Employees No. Business age
Unisex salon (hairdresser and beauty) 4 12
Construction company 10 9
Coffee shop/fast food 7 4
Hairdresser/Beauty salon 6 11
Construction company 12 17
Cyber café 7 8
hardware 7 12
Insurance company 13 18
Coffee shop / Fast food 9 3
Construction company 12 18

Table 1: Sample.

Analysis & Findings

Psychological Contract’s Utility and Functionality

Whereas a psychological contract is thought to ensure that the obligations of the employers to their employees and vice versa are evidently stated and stipulated, a few of the interviewees felt that to them, their main obligation to their members of staff was the salary they drew for services rendered to the business entity. Upon a further probing of the owner-managers who were interviewed by this researcher, it emerged that out of the ten, two of them were yet to issue the employees to their firms with formal contracts.

In spite of 8 employers having issued their employees with psychological contracts, only three of them were of the opinion that this document benefited both the employer as well as the employees in a positive manner.

According to one of the employers who was interviewed ,and who was to yet issue his employees with a psychological contract, the fact that he works closely with his employees, and the fact that this employers has a workforce of only 10 employees means that the level of interaction and communication between on the one hand, the employers and on the other hand, the employees, is very highly, in addition, this employer reckoned that as a result of this closeness, his employees had over time (the employees had worked at the convenient store for an average of 5 years) come to appreciate what is expected of them by their employer.

Employer-Employee Obligations Nature

Interviewing owner-managers helped shed light on the kind of a relationship that often exists amongst the owner-managers on the one hand, and their employees, on the other hand.

According to the views of one of the owner-managers who was interviewed, and who had been operating a small insurance company for 18 years, one that he had inherited from his farther, he had this to say about the importance of a psychological contract to his organisation, vis-à-vis his employees: “for me, I expect my employees to be loyal to the firm and more importantly, to respect the wishes of a customer, specially, customers who have been loyal to me all these years. The least that I can give them then, is a workforce that is loyal to them as well and a service with good quality”.

Similar sentiments were also echoed by a fast food restaurant owner with a workforce of 9 employees. Although she has been in business for only 3 years, nevertheless she has cultivated a cordial relationship with her employees, and this has resulted in employees’ increased motivation and by extension, an increased customer base. According to the owner of the coffee/fast food, “when you interact closely with your employees, you establish rapport with them. You become like one big family. By and by, the employees get to trust you more, and you in turn, treat them with kindness and dignity. Since you have their best interests at heart, better terms of payment becomes a motivating factor, because you do not wish any member of your large family to suffer”

Significance of Relationships

A hardware owner with a workforce of 7 employees was however categorical that psychological contract in a way, acts to stifle the flexibility that you would expect to be a characteristic of your employees. He contends, “When you make it known to your employees that they are expected to fulfil ABC, somehow you restrain some of your staff from thinking as it were, ‘outside the box’. It is as if you have issued an ultimatum to what they should do and what they should not do”.

He further says, “At my shop, I encourage all my employees to use their discretion to when dealing with a customer. We have rules, by which we operate by, but these are not “fixed” or cast in stone; one may alter these, depending on the situation at hand, if it is for the best interests of the customer and by extension, the firm. For me, that is how to develop the human resource skills of your employees. Make them feel a part of the organisation. Let them participate in the decision making process. This is the beauty of small firms for with the larger organisations, bureaucracy increasing as we go up the ladder. Indeed, small is beautiful”.

The idea of remaining small was also captured by another small business owner-manager of a hairdresser salon. This lady had this to say, “It is not that I would not wish to turn my business into a large enterprise. For me however, the attachment and one-on-one encounter that I have with both my clients and the employees by far supersedes the potential increased revenues that would result from increasing the size of my business. On the other hand, increased business size implies a larger workforce, an increased budget and generally, more problems. I am happy just the way I am”.

On the other hand, it was the general view of the majority of the employers who were interviewed that formal contracts were not a true index of the relationship that an employer enjoyed between him/her with the employees. If anything, these formal contracts, the employers reckoned, were more of a stipulation of amongst other things, a statement of employment conditions, such as the basic pay to the employees.

Whereas some of the owner-managers who were interviewed were categorical about the need to remain unequivocal in as far as the obligation that employees bear to their employers are concerned, it was still the opinion of a few that by making employers sign formal contracts, this somewhat acts to stifle the flexibility of such employees. For example, the owner of a construction company, who has been in business for the last 17 years and has a workforce of 12 employees, asserted that by introducing a formal contract to his employees, he would be careful not to include a procedure, as this would only restrict the employees to such procedures.

Indeed, it was a common view by all the 10 owner-managers that were interviewed by this study that owing to their small size, these firms are able to ensure that the relationship existing between a manager and the employees gets intensified. This is a necessary step to take considering that there is a possibility, as Mihail (2004) notes, that small firms could easily get disrupted by disagreements. Often times, disagreements in a small firm are to the disadvantage of all. This is because of the close proximity of the individual employees while working (Ram 1994).

A coffee/fast food owner who employed seven employees concurred that a disagreements amongst even two of the employees who affect the whole business. For example, if a waiter is not in good communication terms with say, the “chef”, then the wrong order could be given to a customer, and this shall cost the employer dearly.

For this reason therefore, it was the observation by a number of the employers interviewed on the need to ensure that they cultivate a cordial relationship with their employees, in a bid to enhance the loyalty and commitment of their staff members. The fast food owner, for instance, confessed that he had enjoyed a strong and positive relationship with his employees, who often looked at him as a father. This, he reckoned, was the underlying success to his business. This was agreed by most of the interviewees.

Benefits of Being Small

All of the 10 employers interviewed were strongly convinced that due to the nature of the small size of their businesses, this therefore demanded that every member of the organization was increasingly expected to be more accountable, than would have been the case if they were working for a bigger firm. This is because the individual contribution of every member of the staff was required. In the event that a member of the staff renegades on their duties, their lack of contribution becomes rather visible easily.

Furthermore, small firms do not make room for social loafing, something that is quite commonly amongst the members of staff of the larger organizations (Rousseau 2001). One of the employers, a owner of a construction company, opined that the fact that the employees to small firms are required to be extremely accountable is due to the fact that such organizations are not in a position to afford paying their employees if at all their input is not commensurate to the overall performance of the organization.

The majority of the owner-managers interviewed concurred that due to the fact that they were dependent on comparatively less number of employees, this acted to increase the awareness of the employees that they were not only expected to accomplish the goals and objectives of their firm with limited resources, but also that it was extremely necessary that all the employees should collectively contribute towards the attainment of such goals and objectives of the organization in an effective manner.

Flexibility in a small firm was also discovered to be of importance in the sense that should one member of the staff fall sick, then the rest of the employees have to come in and fill up their position. In light of this, it becomes necessary for the employers to ensure that all their members of staff get to know of virtually all the operations of the business, so that should they be called to fill-in the position of a sick colleague, they do so with an equal level of efficiency. At this point, all the employers concurred that they were also required to be quite flexible in the way in which they were able to allocate holiday and sick leave to their staff, without jeopardizing the overall performance of the organization.

On the other hand, the employers were also quick to note that in as far as the issue of working flexibility in the small firms is concerned this was expected of both the employers and the employees alike. For instance, in the event that the employees have put in extra hours at their place of working, the employers should also be flexible enough to let such an employees take a day off, or leave work early when a situation crops up.

In addition, employers were in agreement that such arrangements could be arrived at quite easily and quickly in a small firm, as opposed to the larger organizations, by virtue of their size. To all the owner-managers who participated in this research study, the question of trust becomes very important to a business, especially a small firm. Consequently, managers expect their employees to be trustworthy at the place of work.

Likewise, employees also expect that their employers can be trusted to pay their salaries promptly, and also to honour the promises and commitments that they make to their employees. For this reason, it becomes necessary, as the owner-managers interviewed noted, for there to be sound social relationships in a place of work. The fact that employers to small firms place great emphasis on social relationships at the place of work appear to agree with research findings that Marlow and Patton (2002) revealed, when they were trying to investigate on the role that ‘high trust relationships’ play in the small firms.

Enchanced Accountability

One owner-manager was also quick to point out the need ensure that employers do not let their personal relations impact on the relationship that the have with their employees. As Rousseau (2001), notes, this could be a potential source of conflict between an employer and the employees. It is specifically due to such conditions that have possibly prompted Covey (2006) to comment that the personal relationships that an employer enjoys with his/her employees, in addition to an observed decline with respect to the representation that employees gets from unions, have made psychological contracts to become the ultimate theoretical framework for the assessment and evaluation of modern-day employment relationship.

One could therefore put forward an argument here that from a purely pragmatic point of view, small businesses may be said to be simpler. In addition, it is also easier for the employees of such organizations to identify the need of their employer (Nadin & Cassell, 2007). By emphasizing on the small firms, the employees of small firms, and who have till now been regarded as silent partners in larger organizations, have a chance to find their voice, in the ensuing relationship that they, along with the employer enjoys, thanks to the psychological contract.

According to Deery, Iverson and Walsh (2006), the ‘division and integration of the work process is based upon the interdependence of employees undertaking duties in a flexible and broadly defined manner’ (Deery et al, 2006: 11). This is exactly the same mindset with which the owner-managers that were interviewed on this research study have sought to explore the issue of recruiting their members of staff. Further, it is also an indication of the place of psychological contract within an organization, whether this is a small firm or a large one.

Discussion

There are a number of human resource factors that were periodically highlighted during the interviews that this researcher had with owner-managers of small firms. These included the recruitment of the employees, their training, and the psychological contract.

It was the opinion of the employers that by issuing psychological contracts to their employers, it made it extremely difficult for such employees to be fired, without attracting the attention of the labour union, to which such employees could be members of. The fact that they head small firms was not seen by a majority of the managers interviewed as a handicap to the execution of the psychological contract to their organizations.

These views are in agreement to similar sentiments put forward by Beardwell and others (2004), who opined that size barely has any impact in as far as the content and the processes of psychological contracts are concerned. In addition, all the managers that were interviewed were in agreement that the main reason behind the adoption of the psychological contract is not so much as a result of practical value, but had everything to do with legal necessity. Further, the managers observed that by embracing the concept of psychological contracts, this acted to both threaten and constrain flexibility within an organization, something that is extremely necessary for the small firms to achieve, on the basis of their limited resources and workforce.

Overall, only two out of the 10 owner-managers who were interviewed were of the opinion that psychological contracts had a positive impact on their employees. Although there exist in literature a limited number of small firms that have been investigated with regard to the implementation of psychological contracts (for example, Ram, 1994; Covey, 2006), this should not act as an assertion that the researchers have sought to exclude the small firms from studies related to psychological contracts. Nevertheless, a lot less assessment has been done to evaluate the impact that psychological contracts may have on such firms, by virtue of their size. The existence of such effects has been well documented by a number of researcher (for example, Ram, 1994; Wilkinson, 1999).

In light of this, most of the owner-managers were of the opinion that a psychological contract would be best suited to their firms, at a time when they had a large enough workforce to the extent that they may no longer manage to experience a one-on-one encounter with their employees. A female owner of a cyber café that has been in operation for 8 years, and has a workforce of 7 employees commented that her main bother at the moment was recruiting and retaining employees who would ensure that her business stood up to the challenges of competition in the market. To her, the satisfaction of her clients, closely followed to those of her employees, was her immediate concern.

Other factors, such as a psychological contract, were secondary. From another angle, two out of the 10 owner-managers that were interviewed asserted that being small, as opposed to expanding their business, had its own share of benefits. First, being small ensures that the employees are also efficient because it becomes very easy for one to monitor them periodically. Secondly, being small also means that the overall expenses of the organizations shall also be low and it is therefore quite possible to operate at a profit, with sound management practices.

Conversely, increasing the number of employees does not in essence imply that the turnover of the business shall also rise in tandem.

According to the research findings, the implementation of certain decisions in a small firm is also quite fast, because the management and the owner are one and the same thing. As such, even at a time when the employees would wish to address a certain problem with the management, this may not take more time like it would in the case of a large organization, where we have in place organizational structures that require certain protocols and procedures to be adhered to in matters of the management on the one hand, and those of the manager on the other hand. Contrary to this, an employee from a small firm has direct access to the manager.

One of the employers, who owned a hairdresser/beauty salon and employed 6 members of staff, opined that by adopting psychological contracts, this was “bound to ease on the relations that the employers and their employees had at their place of work”. This is because as this lady observed, terms of employment would be spelt out clearly, and the expectations of both the employees and the employers alike would also be stipulated. The result of this, she reckoned, is that there would be fewer arguments and hence, increased productivity. On the other hand, these observations are in a sharp contrast to those provided by Ram (1994).

The authors have reported that psychological contracts are complex in terms of implementation and often times, they are mired by contradictions, further complicating the already established workplace relations between the employers and their members of the staff. Ram (1999) has also showed similar sentiments, by observing that the interpersonal relationships of the small firms are plagued by complexity and contested dynamics within a “highly negotiated set of social relations”.

The findings of the interviews with the owner-managers revealed that nearly all of them offered no formal training to their employees. In this case, all the new employees were expected to be trained on-the job. Part of the reason, as one cyber café owner and one construction company owner stated, is that small firms are constrained both in terms of the financial and human resources to be able to undertake the necessary training of members of staff. For this reason, these firms usually expect to recruit members of their staff who have either gained the relevant experience from another firm, or are willing to receive training on-the job.

As if to justify their lack of providing training to their employees, some of the owner–managers were quick to point out that the nature of their jobs was such that it did not require formal training in the first place, or that the employees would be better able to handle it if they received training while still on-the job. Additionally, 3 of the managers concurred that by having other colleagues show the new employees how to do their job, this acted to enhance and cement the social relationship that the employees enjoyed.

Nonetheless, one owner-manager of a Unisex salon insisted that training of employees was very important, especially in the beauty profession. In this case, this employer ensures that the new employees that he recruits undergoes an in-house training for a period of 3 months before they may be trusted with a client on their own. During this time, the employees have a chance to gain the necessary skills and exposure that was demanded by the trade.

The idea of employing sound practices of HRM (Human Resource management) with respect to the issue of psychological contracts has been extensively been advocated for by several sources of literature (for example, CIPD, 2003).

Even so, a majority of these sources have failed to recognize the place of small firms in as far as the issue of HRM practices are concerned, seeing that these have a higher likelihood of lacking in these kinds of formalized systems. Nevertheless this should not be taken to mean that small firms as not capable of implementing HRM practices in as far as psychological contracts are concerned.

The approach of the employers interviewed by this research study towards employment relationships on the one hand, and factors that impacts on such practices of HRM as the recruitment and training of the members of staff on the other hand, were found to be quite informal. In a majority of the cases, employment relationships were often decided by the employers, and the employees had very little say towards such issues as their pay. A few of the employers confirmed that they found such an approach easier to implement, given the fact that the employee turnover rate was very high.

All but two of the employers commented that they were often faced with a lot of difficulties in as far as the issue of staff recruitment is concerned. While there is already in place formal and critical approaches towards the exercise of staff recruitment, (for example, newspaper advertisement, or job centres), nevertheless these employers prefer to make their own recruitment through word of mouth. In fact, the inability to recruit the right staff was attributed by one of the employers as the reason why she was finding it quite difficult to expand her business.

Therefore, labour shortage is also seen as a human resource management problem that was facing some of the employers that were interviewed for this research study. However, it was not the shortage of labour per se that was the problem, as the salon owner confided. Rather, it was because most small firms could not compete with the large firms with regard to terms of payment, principally due to limited resources. As such, small firms tend to pay their employees less, relative to the larger firms. For this reason, a lot of the employees prefer working with these large organizations, whenever possible. In spite of an increase in the demand for hair stylists within the locality, the salon owner has not managed to expand and open up a second salon, mainly because far less employees are willing to take this job due to low pay.

The research findings for this study have acted to shed light on a number of ways through which the psychological contract impacts on small firms. By and large, the research findings that were obtained bore a certain level of consistency with similar studies (for example, Covey, 2006). One of the main roles of a human resource management (HRM) division within an organisation is to ensure that there is an equitable division of labour.

However, Ram (1994) has opined that in the small firms the division of labour is often times characterised by a certain level of informality, leading to a problematic and uncertain outcome. As shown previously, some of the owner-managers interviewed appeared to contradict this argument, further observing that in a small firm, the nature of their size ensures flexibility and the description of job description in a manner that is rather broad.

With regard to the kind of obligation that the owner-managers expected of their employees, loyalty, flexibility as well as commitment, appeared to have been the leading characteristics. The three characteristics were clearly connected to the limitation that comes about when a firm has few employees, coupled with the demand that they need to be more flexible, as a way of ensuring that they fulfil the firm’s demands. A majority of the owner-managers interviewed expressed the need to ensure that they cultivate good social relationships with their employees for a better performance of their businesses.

This kind of emphasis appears to draw parallels with the level of significance that Ram (1994) has attached to what the author refers to as ‘high-trust relationships in small firms’. The implication that one gets following the research findings for this study is that small firms could after all, be incapable of handling the psychological contract in a related manner to what other authors have previously recommended.

We have a couple of authors that have written on the functions of the human resource management (HRM) within existing firms (for example, Wilkson, 1999; Covey, 2006). The suggestion that these authors have offered is that there is a need to ensure that the management of psychological contracts is done in an active manner via a number of communication strategies and HRM practices (Covey, 2006).

Further, the majority of owner-managers interviewed preferred to remain small, in large part due to the social connection that they had with both their customers and the employees. As such, openness and simplicity are business values that they appeared to hold in high esteem. According to Ram (1994), the growth of a business usually brings about procedures formalization via regulations, rules, as well as job descriptions. As such, growth, along with the ensuing formalization may result in a negative effect, eradication ambiguity and fuzziness from such small organizations, and which are often times viewed as the basis of the effectiveness of these small firms, in addition to their psychological contracts.

One however, may be tempted to ask the question; if at all the small firms are aspiring to be effective, to whom does such effectiveness target? Is it the employees, the firms, or the customers? There is however a far more common allusion as to the desire of a small firm to still remain small, and which holds that for these small businesses, the ultimate goal is not for them to make a transition to the big firms through sound management and growth, as has been suggested by Brewster and Larson (2000).

These sentiments have time and again been featured by a broad-based business environment and for this reason, it may be expected that the issue shall go on fronting a challenge to the existing bodies of knowledge on research management that appears to overlook them, and this includes the literature on psychological contracts as well. This, along with a rise in the trend of a working portfolio (Covey 2006), and also an increase in the number of idiosyncratic contracts, as has been noted by Rousseau (2001), have ensured that more focus is laid on the bigger firms. This act alone, tend to place a limit to the descriptive likelihood that the future research on psychological contracts may be full of potential.

Through the carrying out of this research study, the researcher was able to gain first-hand insight into the challenges that are faced by owner-managers, while trying to keep their businesses in competition. In addition, the opinions of the owner managers, as regards the issue of psychological contracts, and the impact that they have on their businesses was also obtained. Moreover, the undertaking of this research study acted to sharpen the research skills of this writer, by way of exploring the various arguments and suggestions offered by academicians and scholars alike, on the issue of psychological contracts, and their impact on small firms.

This researcher wishes to recommend that the future approach for the study should explore the impact that the psychological contracts have had on the small firms, from the point of view of the employees working for such firms. This shall act to unearth a rich body of knowledge, since psychological contracts in the small firms affects both the owner-managers and the employees alike. It is only proper therefore, that the views and opinions of the latter are also taken into account.

Summary

A psychological contract has been defined as a ‘hidden element’ within the subconscious of both the employer, as well as the employees (Cassell et al 2002). It is more of an informal belief that is usually harboured by an individual with respect to their employment terms and conditions. The key contexts impacting on a psychological contract entails an interaction of the firm with its environment on the one hand, and the individuals working for such a firm, on the other hand.

Then we have the issue of the society that impacts on the employees, the employer, and the firm. In this case, the society seeks to enforce certain limits in a firm, and impacts on the employment bargaining power of an individual, resulting in employment negotiations and consequently, the psychological contract. Nevertheless, there are instances whereby the psychological contract may be violated, and this jeopardises the job security of employees. Furthermore, it is also a threat to the principle of ethics. Researchers and scholars alike on the psychological contract appear to lay more emphasis on the larger firms, at the expense of the smaller one.

Consequently, some proponents argue that given the level of closeness existing between the owner-managers of small firms and their employees, this close relationship is as good as a contract (for example, (Rousseau 2000; Reveley et al 2004). Small firms also tend to be increasingly more informal, with the result that the owner-manager instils suppleness in the organisation. Therefore, it may be argued that in fact, psychological contracts could be more effective within the smaller firms.

The aim of this research paper was to explore the impact that a psychological contract has on small firms, by way of interviewing owner-managers of small firms in the northern part of Portugal. In this case, a total of 10 owner-managers of small business establishment were interviewed, to further shed light on the issue at hand. To start with, the owner-managers were asked to state the obligations that they felt were necessary for them to provide their employees.

Trustworthiness and an attractive remuneration are some of the answers that they provided. Even then, such obligations were never communicated formally with the employees. The assumption here was that the close relationship that the owner-managers had come to enjoy with their employees over the years, would have served as a testament to the fact that they would indeed honour their pledges.

Another revelation of the study was that only 2 of the 10 owner-managers interviewed had issued formal contracts to their employees. Such employers also expected a commensurate level of trust and commitment from their employees and according to a majority of the owner-managers, this is the one thing that has kept their small firms going over the years. When an employer cultivate a cordial relationship with his/her employees, something that is very practical for the smaller firms, owing to their size (Rousseau 2000), the employees, on the other hand, have an enhanced commitment and motivation to their job, and they are less likely to renegade on the informal rules between them and their employer.

Moreover, it was the opinion of some of the owner-managers that by having in place a psychological contract, this would in effect act to stifle the otherwise cordial relationship that an employer could have been enjoying with his/her employees. Additionally, a psychological contract would in more ways than one, spell out the expectations of the employer from his/her employees.

If such an arrangement were to become formal, the flexibility of the employees regarding their job description would be somewhat stifled. Besides, formal contracts brings with them rules and procedures that have to be followed. This research paper also explored the idea of remaining small, for some of the small firms. It therefore emerged that some of the owner-managers view being small as a better way to connect with both their clients and their customers, something that is very hard to achieve with the larger firms.

Still, other owner-managers felt that by having in place formal contracts, this was in no way a reflection of the true index of the relationship existing between an employer and his/her employees. Being small has an added benefit, in that all the employees including the owner-managers, have to be increasingly accountable for whatever they do, than would have been the case if they were working for the bigger firms. Smaller firms also accord their employees the opportunity to identify the needs of their employer (Nadin & Cassell, 2007).

Conclusion & Recommendations

Conclusion

The aim of this study was to review the literature concerning psychological contracts, with the intention of evaluating its significance to the small firm environment. In addition, it was also the intention of the study to assess the various ways through which the small firm size impact upon psychological contracts impacts on small firms within the workplace, from the owner-managers’ point of view. Ultimately, the research study wished to assess the various issues of the Human Resource Management (HRM), and how these shall also impacts on psychological contracts, from the perspective of the small firms.

In order to facilitate in the capturing of the necessary data to afford the attainment of the findings of the research study, use was made of semi-structure Interviews during the interviewing process. The research utilized an in-depth qualitative analysis method to explore the interview findings of the 10 owner-managers from the north of Portugal who took part in this study. This method was beneficial to the study, since it enabled the owner-managers interviewed to expresses their own opinions and thought on the issue of psychological contracts, and the manner in which they felt that they concept had or could act on small businesses.

This research study sought to exploit the need to assess the different characteristics between small and large firms that can have impact upon psychological contracts. Seeing that previously research studies had already dwelt enough on the psychological contracts and how these impacts on the larger firms, it was only prudent therefore that more light could be shed on the same, but this time from the perspective of the small firms environment.

As has previously been noted by other authors (for example, (Bacon et al 1996; Carroll et al 1999; Huang & Brown 1999; Conway & Briner 2005), the influences that owner-managers tend to have on their business entity rests on perception, personality and on the whole, peculiarity. Hearing their views on the issue of psychological contracts, as well as the impacts of HRM issues on small businesses was therefore important.

According to the investigative work that this research study presented, it emerged that the issue of psychological contracts tend to impact into the small firms in significant ways. Whereas it was previously though those psychological contracts are ideally suitable for the large organizations only (for example (Turnley & Feldman 1996; Rousseau 2001; Scase 2003), nevertheless this research study has revealed that even the owner-managers of the small firms have recognized the place of psychological contracts.

Perhaps this could be as a result of the increase in the number of researchers who have sought to now focus on various aspects and elements of not only the psychological contracts itself, but also the contracting process as well. For example Conway and Briner (2002) have embarked on a study to assess contract violation, while Herriot and others (1997) have shifted focus on psychological contract content.

That the psychological contracts impacts greatly on the small firms is an issue that is not in dispute yet, a lot less studies appears to have focused on this (Lester et al 2002; Guest 2004). However, there is still a difference with regard to the contents of a psychological contract between on the one hand, a larger firm and on the other hand, a small firm. The former is thus seen to provide more tangible things to its workforce, such as promotions and career development opportunities, training of the staff, and a ghost of fringe benefits, amongst other things.

On the other hand, the small firms are usually quite reluctant to institute explicit obligations by way of formal procedures. This is in spite of the available literature having explicitly stated that formal procedures are necessary if at al firms wishes to avoid a violation of the contracts, in addition to aiding in a better management of such contracts (Arnold et al, 1995).

Seeing that not many researchers have opted to explore the place of small firms form the perspective of psychological contracts, one would then imagine that there exist a number of interesting avenues within this area that are worth of exploration (Covey 2006), with a view to enhancing the understanding that is already in existence as regards the relationship between the employers and the employees of owner-manager business, in addition to the various process that are found within psychological contracting.

One of the principle issues that this research study helped shed light on is that of the conditions that are linked with a business entity being small. Size is important with regard to psychological contracts, because it determines the procedures and processes that need to be established (CIPD, 2003). As Covey (2006) has pointed out, it is important to know the manner in which various processes of psychological contracts apply to the size of a firm, so as to he wider debate as regards the representatives of a given organization. This is an issue that has thus far attracted a great deal of controversy.

Moreover, the issue of the obligations that an employer has over his/her employees was also raised by this research study. A majority of the employers commented that they wee obliged to pay their employees their salaries, and they could not expound the issue any more.

This is sad, considering that Rousseau (1995) has opined that one of the principle characteristics of a psychological contract is its ability to remain reciprocal. In addition, it is also a clear indication that the employers are yet to take stock of the importance of assuming obligations to their employees. Further, it reveals that the employers interviewed give this particular issue limited thought. There is a need therefore to explore further the perspective of the employers, in light of the psychological contracts, and the place of their obligations to employees.

The fact that only a very limited number of employers have realized the need to implement psychological contracts within their small firms could be a further indication of the old adage that psychological contracts are best suited for the large organizations (Arnold et al 1995).

As such, the owner-managers to these small organizations have not seen it fit to shift their focus and have in place psychological contracts, possibly by virtue of their small size. However, by looking closely at the processes of psychological contracting, it emerges that the fear these small firms’ employers could in fact stem from the nature of the various obligations that are often associated with these small firms. For example, they are characterized by limited resources in addition to the existence of informality in terms of the relationships between the employers on the one hand, and the employees on the other hand.

Psychological contracts can therefore be equally applied to the small firms just as they have been implementing in the large organizations with success because as Deery and colleagues (2006) have noted, that which is believed as good for the larger firms may as well be useful for the small ones. In as much as it would be the intention of any aspiring employers to expand their workforce in tandem with the growth of the organization, this was not seen to reflect evenly amongst all the 10 owner-managers that were interviewed for this research study. What emerged is that there are still small firms employers who are keen on remaining small. This, they reckon, is with a view to maintaining their efficiency and by extension, the quality of their products and/or services, to hold onto their niche market, when facing intense competition.

With regard to the human resource management practices, the issue of employer training and recruitment came up, and a number of the employers argued that their reduced level of finances did not allow them to train and recruit employers as did their competitors from the large organizations. Instead, they chose to have their employees trained on the job by their fellow colleagues.

In addition, the employers also chose to recruit their employees directly by way of mouth from say, relatives and friends, as opposed to following the already established recruitment channels like newspaper advertising and the use of job centres, and which have been recognized by psychological contracts. Again, the employers interviewed cited the need to reduce expenses as the reason why they opted for cheaper means of recruitment. Employee retention was another issue, and the turnover rate reported by the employers was high, mainly because they could not afford to pay their workforce a salary that is commensurate with that offers by larger organizations.

The employers interviewed stated that accountability was a key ingredient in the management of small firms. This is because owing to their small size, chances are that the owner-manager shall daily have to interact with a majority, if not all of their employees. As such, in the event that they pass across as lousy managers, the employees may in turn lack a role model, and they are also likely to turn into lousy employees, with the result that the performance of the organisation goes down.

The issue of a close relationship between the owner-manager and their employees was also highlighted by the employers, and for a majority of them, the feeling was that this was as good as a formal contract. On the other hand, employees from the larger firms tend to have a limited interaction with those responsible for instituting decision within the business (Nadin & Cassell, 2007). At this point, it becomes important to point out that this research study is more of an investigation into the various perceptions that the owner-managers of 10 small businesses within the north part of Portugal holds. Nevertheless, the views that these owner-managers harbour are also extremely important to the various Human Resource Management (HRM) processes that are often exercised at small firms.

The fact that the owners of these small businesses are also the managers gives an implications that they play a essential role as regards the issue of decision making of their businesses. As such, any views that these owner-managers could be having with respect to the issue of psychological contracts are very vital. Specifically, this research study wishes to point out the need to pay close attentions to the various processes of psychological contracts, along with the elements and aspects of HRM and how these may impact on a business entity, the size of the firm in question notwithstanding.

Recommendations

There is a need for a lot more studies to be undertaken in the areas of psychological contracts and how this affects the organisations. Specifically, it is important that more emphasis is laid on the role of psychological contracts in the small firms, seeing that not many researchers decide to venture into this area. Further, it would also appear quiet prudent if a study would be carried out in which the views of the employees as concerns the issue of psychological contracts are evaluated and documented.

Better still, a comparative study could also be carried out, in which the view of the employers are obtained on the one hand, while those of the employees are also gotten, on the other hand. Upon a complication of such a research study, it might reveal gaps that have until now gone unattended on the issue of psychological contracts in small firms, and intervention measures may then be instituted.

Furthermore, assessing the views and opinions of the employees would also help the researcher to capture the understanding and interpretations that members of staff of small firms have on the psychological contracts. Besides, a reassessment of the role of the psychological contracts would also suffice more than before, seeing that employees in virtually all the firms are now expected to be more flexible (Forth et al 2004), in the wake of globalisation and increased competition in the market. This has therefore meant that the HRM department has had to reorient the procedures and processes that involve human labour in the different work places. Consequently, this is bound to impact on the psychological contract, one way or the other, thus calling for an exploration.

Review (Reflective paper)

A Psychological contract has been defined as a ‘hidden element’ within the subconscious of both the employer, as well as the employees (Cassell et al 2002).

It is more of an informal belief that is usually harboured by an individual as regards their employment terms and conditions, usually existing between for example, an employer, and his/her employees.

The key contexts that appears to impact on the psychological contracts are involved with the interactions of the firm with its environment on the one hand, and the individuals working for such a firm, on the other hand, then we have the issue of the society that impacts on the employees, the employer, as well as the firm. In this case, the society seeks to enforce certain limits in a given firm, in addition to affecting the employment bargaining power of an individual. As a result, employment negotiations come into being, and hence the psychological contract. Nevertheless, there are instances whereby the psychological contract may be violated, and this jeopardises the job security of the employee. Furthermore, it is also a threat to the principle of ethics.

The issue of psychological contracts appears to have been more focused on the larger firms, at the expense of the smaller one. Consequently, we have proponents who argue that given the level of closeness existing between the owner-managers of small firms and their employees, this close relationship is as good as a contract (for example, (Rousseau 2000; Reveley et al 2004). Small firms also tend to be increasingly more informal, with the result that the owner-manager instils suppleness in the organisation. Therefore, it may be argued that in fact, psychological contracts could be more effective within the smaller firms.

The aim of this research paper was to explore the impact that psychological contracts has had on the small firms, by way of interviewing owner-managers of small firms in the northern part of Portugal. In this case, a total of 10 owner-managers of small business establishment were interviewed, to further shed light on the issue at hand. To start with, the owner-managers were asked to state the obligations that they felt were necessary for them to provide their employees.

Trustworthiness and an attractive remuneration are some of the answers that they provided. Even then, such obligations were never communicated formally with the employees. The assumption here was that the close relationship that the owner-managers had come to enjoy with their employees over the years, would have served as a testament to the fact that they would indeed honour their pledges.

Another revelation of the study was that only 2 of the 10 owner-managers interviewed had issued formal contracts to their employees. Such employers also expected a commensurate level of trust and commitment from their employees and according to a majority of the owner-managers, this is the one thing that has kept their small firms alive, for the time that they had been in business. When an employer cultivate a cordial relationship with his/her employees, something that is very practical for the smaller firms, owing to their size (Rousseau 2000), the employees, on the other hand, have an enhanced commitment and motivation to their job, and they are less likely to renegade on the informal rules between them and their employer.

Moreover, it was the opinion of some of the owner-managers that by having in place a psychological contract, this would in effect act to stifle the otherwise cordial relationship that an employer could have been enjoying with his/her employees. Additionally, a psychological contrast would in more ways than one, spell out the expectations of the employer from his/her employees.

If such an arrangement were to become formal, what this means is that the flexibility of the employees as regards their job description would be somewhat stifled. Besides, formal contracts brings with them rules and procedures that have to be followed. The implication then is that by introducing such rules and procedures to the employees, they are more likely to stick to these, and may fail to think ‘outside the box’. This research paper also explored the idea of remaining small, for some of the small firms. It therefore emerged that some of the owner-managers view being small as a better way to connect with both their clients and their customers, something that is very hard to achieve with the larger firms.

Still, other owner-managers felt that by having in place formal contracts, this was in no way a reflection of the true index of the relationship existing between an employer and his/her employees. Being small has an added benefit, in that all the employees including the owner-managers, have to be increasingly accountable for whatever they do, than would have been the case if they were working for the bigger firms. Smaller firms also accord their employees the opportunity to identify the needs of their employer (Nadin & Cassell, 2007).

The revelation that emerged from this research study is that psychological contracts are no longer a confine for the larger firms, as has been the case previously (Arnold et al 2002). The smaller firms are increasingly embracing this concept, much to the benefit of the owner-managers, their employees and by extension, the customers. Another learning experience from this research study is that by virtue of their small size, the smaller firms are best placed to fulfil customer satisfaction, through a one-on-one interaction, something that is not very practical with the large firms.

The increased suppleness that owner-managers instil into the small firms is of benefit to these organisations, in that it enables them to face the challenges that they could be faced with. This is possible because of the level of closeness that is enjoyed by the employees with their employers. Furthermore, the research findings indicate that the owner-managers interviewed have taken stock of the obligations that they have for their employees, even as a majority of them are yet to issue formal contracts to their employees. The implication here is that psychological contracts can be very effective when they are augmented by a close relationship between on the one hand, the employers and on the other hand, the employees.

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Appendix

Outline of a six category templates from employers

Employers’ category template outline

  • Psychological contract’s utility and functionality
    • Formal contracts inadequacy
    • Psychological contact value
  • Employer-employee obligations nature
    • expectations of employees’ obligations by employers’
      • Loyalty
      • Flexibility
      • Commitment
      • Show of responsibility and interest
    • obligations of employers’ to their employees
  • Significance of relationships
    • important that employees are able to cope socially
    • cultivating sound social interaction with the staff
  • Enhanced accountability
  • Application of HRM practices
    • official/formal contracts
    • training
    • staff recruitment
  • Benefits of being small.
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