Why Psychological contract is important for organizations in Sri Lanka

 


Introduction

Employment contracts are officially provided by each organization to its employees at the time of employment. Formal employment contracts are agreements that both parties must abide.

This blog covers how psychological contract influences the organizations and employees in Sri Lanka.


Definition:

According to (Rinaily , Bonifacio, 2025) a psychological contract is essentially an unwritten agreement between an employee and employer. It captures the silent expectations and perceptions that both parties have towards each other beyond the formal, written employment contract. 

A well-managed psychological contract develops mutual understanding between the employer and employee and improves organizational performance by bringing employee expectations into line with organizational goals.





Employee-Employer Relationships.

A balanced relationship that is established between the company and its employees. So that the organization's goals do not require to be explained again and again. Employees voluntarily contributed to the organization's growth (LeLabo, 2023).

e.g.: Employees completed the assignment on time when an apparel company needs to fulfill an export supply order quickly.

Here, employees recognize and act on the company's goals. As a result, the company pays bonuses, incentives, and other rewards for the enormous contributions made by its employees.

 


Employee Motivation & Retention

Employees are more likely to be motivated, effective, and dedicated to the success of the company when they are aware of and agree with what is expected from them and what they can expect in return.

Employee retention is positively and substantially influenced by the psychological contract (Ernest, OBAKPOLOR, 2020).



Innovation

Psychological contracts are essential for creating an environment that encourages innovation and adaptation. Employees are more likely to accept the changes required for innovation and take innovative risks when they feel safe and supported.

If a company can supply innovative products to the market in the industry from a developing country like Sri Lanka can compete with other countries (Gunasekera, Rohan, 2015).

e.g.: Lanka Harness Co. (Pvt) Ltd – Manufacture of sensor switches for seat belts and airbags, exporting to global automobile brands. 



Conclusion

Psychological contracts, which have a direct impact on job satisfaction and organizational success, are essential in determining how employees and employers interact, as the term psychological contract illustrates.


This approach ensures an accurate alignment between company objectives and employee expectations, promoting and adapting this strategy bring success to Sri Lankan companies with productive and cooperative workplace.



References


Ernest, OBAKPOLOR, 2020. Central and Eastern European Online Librarry. [Online]
Available at: https://www.ceeol.com/search/article-detail?id=881530
[Accessed 28 March 2025].

Gunasekera, Rohan, 2015. Automotivelogistics. [Online]
Available at: https://www.automotivelogistics.media/lanka-harness-out-of-asia/13931.article#:~:text=Lanka%20Harness%2C%20a%20Sri%20Lankan%20company%20that,famed%20for%20its%20prowess%20in%20the%20sector.&text=Lanka%20Harness%20was%20set%20up%20with%20Japanese,Toyota%2C
[Accessed 28 March 2025].

LeLabo, 2023. lelabocoworking. [Online]
Available at: https://www.lelabocoworking.com/en/nurturing-harmonious-relationships-at-work/
[Accessed 28 March 2025].

Rinaily , Bonifacio, 2025. Shiftbase. [Online]
Available at: https://www.shiftbase.com/glossary/psychological-contract
[Accessed 28 March 2025].

 


Comments

  1. Dulanjali YapaApril 21, 2025 at 8:46 AM

    Well done on your blog. You've done a great job of highlighting the psychological contract's significance in HRM and how it influences organizational commitment, employee engagement, and trust. To improve your blog, think about include case studies or real-world examples that show how businesses have effectively handled psychological contracts to increase worker performance and satisfaction. A more thorough viewpoint would also be offered by talking about potential problems, such as misplaced expectations or violations of the psychological contract, and providing solutions. A succinct summary of the main points would also increase the post's overall effect.

    ReplyDelete
  2. Lahiru HimeshMay 4, 2025 at 1:08 AM

    For sure! The concept of the psychological contract is essential in nurturing trust and understanding between employers and employees. When both parties acknowledge and effectively handle their expectations, it can lead to increased job satisfaction, decreased turnover, and a more committed workforce. How do you believe Sri Lankan companies can improve their management of these unspoken expectations in the current evolving workplace?

    ReplyDelete
  3. B.Ruchaka KarunatilakaMay 4, 2025 at 3:07 AM

    actually, This blog offers a compelling examination of the significance of psychological contracts in Sri Lankan organizations. By highlighting the unwritten mutual expectations between employers and employees, it underscores how aligning these perceptions can foster trust, motivation, and commitment. Notably, research in Sri Lanka's apparel sector has demonstrated that a strong psychological contract correlates with higher job satisfaction and organizational commitment . Furthermore, studies indicate that psychological contracts significantly influence employee retention, emphasizing their role in reducing turnover rates . Overall, the blog effectively illustrates how nurturing psychological contracts can lead to a more engaged and stable workforce in the Sri Lankan context.👍

    ReplyDelete
  4. Sujith H. Rajapaksha May 4, 2025 at 3:41 AM

    This blog does a good job introducing the concept of the psychological contract and why it matters in the Sri Lankan context. The real-life example of Lanka Harness adds credibility and local relevance. However, a more critical view would improve it for instance, what happens when the psychological contract is broken? How can employers rebuild trust? Also, it would be stronger if it briefly compared public vs. private sector approaches

    ReplyDelete
  5. Shehara KarunaratneMay 4, 2025 at 4:48 AM

    The blog effectively highlights the significance of psychological contracts in enhancing employee-employer relationships, motivation, and innovation within Sri Lankan organizations. However, it could be strengthened by addressing potential challenges, such as breaches of psychological contracts, which can lead to decreased job satisfaction and increased turnover. Incorporating real-world examples or case studies from Sri Lankan companies would provide practical insights into managing these unwritten agreements effectively.

    ReplyDelete
  6. Nilusha BogahapitiyaMay 4, 2025 at 5:12 AM


    You have clearly explained the importance of the psychological contract in an organization. I believe unwritten expectations are broken; they cause a breach of trust and lead to lower employee morale. Specifically, Sri Lankan companies often experience failures in communication. Therefore, it leads to confusion, dissatisfaction, and a high turnover. It would be further strengthened by addressing how to manage and re-establish broken physiological contracts.

    ReplyDelete

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