Reading: Leader-Member Exchange Theory (LMX Theory) Explained

Leader-Member Exchange Theory or LMX Theory is a two-way relationship or a dyadic relationship between the leaders and their team members that focus on how the leaders’ relationships with subordinates or followers vary and how it affects the resource allocations and outcomes.

The LMX ways of relationships give rise to two sides of employees- in-group & out-group. Leaders let in-group members work within their personal circle by doing some favors while they give less attention or favor to the out-group members.

All in all, the Leader-Member Exchange LMX theory suggests that the quality of the relationship between leaders and their team members ultimately decides the degree of loyalty, mutual trust, respect, obligation and

What is Leader-Member Exchange Theory?

Definition – The Leader-Member exchange theory or LMX theory is defined as a relationship-based approach to leadership that suggests how the quality of leaders’ dyadic (two-way) relationship with team members of different groups contributes to their growth or opposes their development. – This means a leader might have good trust, respect, and connection-based relationships with some of the team members but not with the others.

LMX theory was previously the vertical dyad linkage theory, which also examines the relationship between leaders and followers. Research showed that managers or leaders engage in different kinds of exchanges with their followers. This difference arises from the leaders’ need to have trusted followers to support and assist them in their functioning.

As research slowly progressed in this field, the vertical dyad linkage model developed into leader-member exchange theory. This transformation led to a shift of focus from differentiation in the work unit to the features and characteristics of dyadic leader-member relationships. Furthermore, it focused on their association with antecedents as well as the outcomes.

Understanding Leader-Member Exchange Theory

Before LMX theory, the generally accepted method of analyzing a leader’s performance was an “average leadership style”. This style involves asking followers to report to the manager or leader’s leadership style and then the average of the responses is taken to determine the results.

The leader-member exchange theory presents a contrast to the previous method. This theory explained a dyadic model of leadership by pointing out the faults in assessing the leadership style of all managers through a standard method. This is because each manager has a different style of leadership. Also, the relationship of a manager varies with each subordinate.

While talking about the supervisor-subordinate dyadic relationships, the Leader-Member Exchange Theory proposed by Graen and his colleagues explains that the relationship between leaders and followers develops because of their workplace interactions (Dansereau, Graen, & Haga, 1975; Graen & Scandura, 1987; Graen & Uhl-Bien m 1995; Graen & Wakabayashi, 1994; Liden & Graen, 1980).

Graen & Uhl-Bien m in 1995 analyzed role theory and social exchange theory to suggest that Leader-Member Exchange LMX framework focuses on the differentiated exchange relationships that a leader develops and maintains with team members or followers within workgroups, suggesting that leaders develop differential dyadic relationships with the various group members.

Gerstner & Day in 1997 suggested that evidence from prior work showcases the leader-member exchange substantially influences task commitment, job satisfaction, task performance, turnover intention, helping behaviors, etc.

What is the process of LMX Theory of Leadership?

The relationship between a leader and follower goes through the following three stages:

1. Role Taking

In the first stage, the member joins the team. In this stage, the leader or manager evaluates the abilities and talents of the member. This helps the leader decide what opportunities to offer the follower that matches the followers’ capabilities. This is the stage when a follower starts developing a relationship with a manager.

This is the foundational stage of the leader-member exchange theory, where the manager first gets acquainted with the followers. A follower works towards forming a good first impression to stand out in the crowd.

A follower’s relationship with their colleagues, superiors, and subordinates determines their position in the firm and the kind of responsibility they will be assigned with. This stage may last for a few days or even just a few hours based on the situation or circumstances that transpire. The follower must convey their talents, motivations, and skills to the manager.

2. Role Making

In the second stage of leader-member exchange theory, the followers and leaders are involved in unstructured and informal negotiations. In this, the role of the member and the benefits they receive in return is decided. The members in this stage blossom and grow in their jobs, responsibilities, and managers’ expectations. The members work hard and prove that they are dedicated, loyal, and worthy of the trust bestowed upon them via the roles assigned to them. In this stage, the managers usually sort team members into two groups known as in-group and out-group.

a) In-group

The in-group are people that are in the inner circle of the leader or the manager. These members have gained the loyalty and trust of the manager. Managers feel that they can trust the members of this group to assist them in their tasks successfully. As a result, they are more personally invested in the member’s success path. The members of this group get the best, most challenging, and exciting work. They get the most face time with the managers and receive continuous support and guidance from the manager.

b) Out-group

The out-group consists of members that are not close enough to the manager and hence are not in the manager’s inner circle. They receive fewer opportunities and engaging tasks. Their role in the organization may not be crucial to advancing the organization’s goals and success. If an employee is a part of such a group, they do not interact much with the manager and lose out on the opportunities that in-group members get. A manager may not perceive such members as trustworthy or skilled enough to take on their assigned tasks.

3. Role Routinization

This is the last phase of the relationship in which the managers and followers form a routine. A pattern of social exchange is established. Members in the in-group work very hard to maintain their reputation and relationship with the leader. Out-group members find it hard to form a meaningful relationship with their managers. It is very tough to move from out-group to in-group as managers become static in their followers’ opinions. The routinization stage becomes a form of permanence.

Four Stages in the development of LMX Theory

George B. Graen and Mary Uhl-Bien in their 1995 paper titled “Relationship-Based Approach to Leadership: Development of Leader-Member Exchange (LMX) Theory of Leadership over 25 Years: Applying a Multi-Level Multi-Domain Perspective” discuss the development of leader-member exchange via four evolutionary stages-

Stage 1: Vertical dyad linkage

In this stage, validation of differentiation within work units takes place. Here, the level of analysis would be dyads with the work units.

Stage 2: Leader-member exchange

At the second stage, there occurs a validation of differentiated relationships for the organizational outcomes. Here, the level of analysis will be dyad.

Stage 3: Leadership-making

The third stage revolves around the theory and exploration of dyadic relationship development. At this stage, the level of analysis will again be dyad.

Stage 4: Team-Making

At the final stage, the occurrence of the competence network investigation of assembling dyads into larger collectives takes place to investigate how differentiated dyadic relationships combine to form larger, network systems. The level of analysis at this stage will be collectives as aggregations of dyads.

4 Tips to Build Stronger Relationships with Team Members

The criticism of the theory leads us to the following tips that can improve the relationship of managers or leaders with their followers:

1. Focus on the Strengths Rather than Weaknesses

A leader must not scrutinize the weaknesses of their employees without acknowledging and appreciating their strengths. A laser focus on the liability may lead the leader to lose sight of their employees’ strengths.

It is essential to ignore weaknesses up to a certain extent as it may put things into more excellent perspectives.

2. Conduct Regular One-on-One Meetings

A manager or a leader must strengthen their bonds with everyone in the organization. This means that they need to use their interpersonal skills to form relationships with everyone to communicate information effectively.

One way to do so is to schedule regular one-on-one meetings with your direct reports to improve your relationship with them. This can help forge a strong relationship with the followers.

3. Ask Questions

Forming judgments quickly can be too tempting, and it is easy to conclude things about your followers. It is easy to believe that their actions have ill intentions. It is crucial to understand their point of view, and an excellent way to do so is to ask questions and listen with intent.

Questions like the follower’s long-term goals, biggest challenges with the current role, and what they find rewarding about their current role? These questions demonstrate their perspective with clarity. Their answers help managers to evaluate the follower’s skills.

4. Actively Seek Advice

A Harvard business review found that 24% of leaders overestimate their skills. This proves that it may be tough for managers to be self-aware.

This is why they must ask for feedback and seek advice. Gaining insights from others will help a leader understand how to improve their approach. 

Strengths of LMX Theory

• Emphasizes the specific relationships between the leader and each subordinate
• It is considered a robust explanatory theory to describe the role of quality relationships between leaders and followers
• Talks about the significance of communication in leadership
• It is highly practical and valid in its approach

Criticism of the LMX Theory

One of the biggest criticisms of the leader-manger exchange theory is that it is perceived as unfair. The distinction between in-group and out-group in itself is discriminatory. It may hurt everyone in the organization as it may harbor unhealthy competition.

This theory also fails to explain how to build and create high-quality exchanges in the first place. It simply suggests that such a relationship is established automatically.