EXCHANGE THEORY Chapter 3 Leader Member Exchange Theory 2 - - PowerPoint PPT Presentation

LEADER-MEMBER EXCHANGE THEORY

Chapter 3

Leader Member Exchange Theory

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 Initially the theory described the nature of in

groups and out groups called the vertical dyad linkage theory

 Focuses on the ongoing relationship that leaders

and members of their group experiences as they:

 Negotiate and exchange mutual perceptions,

influenced, types and amount of work, loyalty and perquisites, etc.

(Graen & Uhl-Bien, 1995)

Leader Member Exchange Theory

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 Leaders perceive high-exchange relation

members as more: (in-groups)

 Competent, hardworking, likable  Receive more benefits, better assignments, schedules,

praise, assistance, etc.

 Leaders perceive low-exchange relation

members as less: (out-groups)

 Committed, competent, hardworking and loyal  Receive fewer benefits, less support and opportunity

to participate

Leadership Member Exchange Theory



Theory now separates followers into high- exchange and low-exchange groups



Emphasizes that a leader should develop high- quality exchanges with all rather than just a few.

 Three phases of leadership making

which develops over time:

(a) stranger phase (b) acquaintance phase (c) mature partnership phase

LMX - Leadership Making Phases

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Phase I Stranger Phase II Acquaintance Phase III - Partnership Roles Scripted Tested Negotiated Influences One way Mixed Reciprocal Exchanges Low quality Medium quality High quality Interests Self Self and other Group Time Chart not in text

LMX Theory

Stranger

• Interactions within the leader-subordinate dyad are

generally rule bound

• Rely on contractual relationships
• Relate to each other within prescribed organizational

roles

• Experience lower quality exchanges
• Motives of subordinate directed toward self-interest

rather than good of the group

Phase 1

LMX Theory

Acquaintance

Begins with an “offer” by leader/subordinate for improved career-oriented

social exchanges

• Testing period for both, assessing whether
• the subordinate is interested in taking on new roles
• leader is willing to provide new challenges
• Shift in dyad from formalized interactions to new ways of relating
• Quality of exchanges improve along with greater trust & respect
• Less focus on self-interest, more on goals of the group

Phase 2

LMX Theory Mature Partnership

• Marked by high-quality leader-member exchanges
• Experience high degree of mutual trust, respect, and obligation toward each other
• Tested relationship and found it dependable
• High degree of reciprocity between leaders and subordinates
• May depend on each other for favors and special assistance
• Highly developed patterns of relating that produce positive
• utcomes for both themselves & the organization

Phase 3

Partnerships are transformational – moving beyond self-interest to

accomplish greater good of the team & organization

LMX Outcomes for Employees

(Harris, Wheeler & Kacmar, 2009)

Advantages of High LMX

 Preferential treatment  Increased job-related

communication

 Ample access to supervisors  increased performance-

related feedback

Disadvantages of Low LMX

 limited trust and support

from supervisors

 few benefits outside the

employment contract

Leader-Member Exchange Theory

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 The Benefits of Quality Exchanges

 Less Employee Turnover  More Positive Performance Evaluations  Higher Frequency of Promotions  Greater Organizational Commitment 

Leadership Making develops progressively over time in three phases:

1.

The Stranger Phase

2.

The Acquaintance Phase

3.

The Mature Partnership Phase

LMX Theory Casual Chain

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 Leadership styles relate to the three phases:

 Stranger, Acquaintance and Partner  Considered a universal theory as the ideal style is a

high exchange relationship (Partner)

 Strategies for success focus on reciprocal influence,

negotiated roles, mutual trust and the integration of individual and group needs

 Performance goals are production efficiency and

follower satisfaction and development

Leader-Member Exchange (LMX) Causal Chain Leadership Styles Stranger (low mutual trust) Acquaintance (moderate mutual trust) Partner (high mutual trust) Performance Goal Production efficiency. Follower satisfaction and development Criterion: % of employees in partner role) Ideal Conditions Universal Strategies for Success Reciprocal influence Fluid, negotiated roles High sense of mutual trust Integration of both individual and group needs

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Application

 For organizations and case analysis:

 Identify subordinates perceived to be in the high

exchange and low exchange groups – Specifically those in:

 Phase I (Stranger),  Phase II (Acquaintance) and  Phase III (Mature Partnership)

Application

 Leader initiates the following strategies:

1.

Create a special relationship with all subordinates characterized by reciprocal influence

2.

Offer each subordinate the opportunity to take on new roles and responsibilities (negotiated roles)

3.

Nurture high quality exchanges with all subordinates

4.

Build trust and respect with all subordinates

5.

Look beyond their own work unit and create high-quality partnerships with people throughout the organization

Application

 In instances of low performance consider applying some of the

strategies from attribution theory

 Express a sincere desire to assist  Provide feedback professionally by focusing on the behavior and

not the individual

 Point out the adverse effect of the behavior  Mutually identify reasons for inadequate performance  Ask the person to suggest remedies, then reach agreement on action

steps

 Summarize the discussion and verify agreement

Application

 For performance goals measure:

 Percent of employees in partnership role  Production efficiency  Follower satisfaction and development

Strengths

 It accurately describes the leadership process

and the presence of in-groups and out-groups

 The only leadership approach to consider the

dyadic relationship of leader and follower and the exchanges that determine organizational effectiveness.

 It highlights communication as the vehicle through

which leaders and subordinates achieve a productive working environment

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Strengths

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 Research supports LMX’s claims to positive

• rganizational outcomes

 Innovation, empowerment, positive job climate, and

• rganizational citizenship behavior.

Weaknesses

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 Tends to be simplistic and to ignore situational variables

such as:

 Unit has untalented or incompetent employees  Presence of self-serving employees  It fails to explain how high-quality leader-member

exchanges are created. How are trust and respect gained?