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

LEADER-MEMBER EXCHANGE THEORY Chapter 3

Leader Member Exchange Theory 2  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 3  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 5 Phase I Phase II Phase III - Stranger Acquaintance 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

Phase 1 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

LMX Theory Phase 2 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 3 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 outcomes for both themselves & the organization 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 Disadvantages of High LMX Low LMX  Preferential treatment  limited trust and support from supervisors  Increased job-related communication  few benefits outside the employment contract  Ample access to supervisors  increased performance- related feedback

Leader-Member Exchange Theory 10  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: The Stranger Phase 1. The Acquaintance Phase 2. The Mature Partnership Phase 3.

LMX Theory Casual Chain 11  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) Ideal Conditions  Universal Strategies for Success  Reciprocal influence  Fluid, negotiated roles  High sense of mutual trust  Integration of both Performance Goal  Production efficiency. individual and group  Follower satisfaction and needs development  Criterion: % of employees in partner role) 12

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: Create a special relationship with all subordinates 1. characterized by reciprocal influence Offer each subordinate the opportunity to take on new 2. roles and responsibilities (negotiated roles) Nurture high quality exchanges with all subordinates 3. Build trust and respect with all subordinates 4. Look beyond their own work unit and create high-quality 5. 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 17

Strengths 18  Research supports LMX’s claims to positive organizational outcomes  Innovation, empowerment, positive job climate, and organizational citizenship behavior.

Weaknesses 19  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?