FILAMER CHRISTIAN UNIVERSITY

Autonomous Status-Commission on Higher Education

Accredited Level IV-ACSCU-AAI
Roxas Avenue, Roxas City, Capiz

MELREN FAITH D. DACLES PROF. MARLENE AGUIRRE, MBA, MPA

MBA STUDENT COURSE FACILITATOR

EXECUTIVE DEVELOPMENT REPORT NO. 3

“LEADER-MEMBER EXCHANGE THEORY”

The leader–member exchange (LMX) theory is a relationship-based

approach to leadership that focuses on the two-way (dyadic)
relationship between leaders and followers.
The LMX Theory conceives leadership as a process that is focused
on the interactions between a leader and subordinates.
Traditionally, researchers thought of leadership as something that
was done at a group level. Unlike the trait or skill approach,
the LMX theory focuses on an interactive relationship not just on
the leader or follower.
THEORY
LMX Theory challenges the belief that leaders should interrelate
with and have the same association with every member of their
group. This theory addresses the issue that people are vastly
different and need to be interacted with as such.
LMX theory claims that leaders do not treat each subordinate the
same. The work-related attitudes and behaviours of those
subordinates depend on how they are treated by their leader.
EVOLUTION
Much of what has become leader–member exchange theory has origins
in the introduction of the vertical dyad linkage theory (VDL) in
1975. Vertical dyad linkage theory has become widely known as
leader–member exchange theory, although researchers such as George
B. Graen and Mary Uhl-Bien maintain that current LMX theory
differs markedly from early VDL work. Previous leadership theories
had assumed that all subordinates have similar characteristics
and that all supervisors behaved in the same fashion with all
their subordinates. Gerstner and Day explain that traditional
leadership theories attributed leadership effectiveness to
personal characteristics of the leader, to features of the
situation, or to an interaction between the two. LMX seeks to
provide a different perspective that treats each
subordinate/supervisor pair as an individual dyad with its own
relationships. According to LMX, the quality of this dyadic
relationship predicts attitudinal and behavioural outcomes at the
individual, group, and organizational level.
Vertical Dyad Linkage Theory – researchers originally focused on
vertical linkages between leaders and each of their
subordinates.
Further research into these dyads revealed two distinct types of
relationships:
In-Group – Special relationship in which more privileges,
preference, and access to resources are given in exchange for
going “above and beyond” routine duties.
In-Group Privileges
 Preferential treatment from leaders, upper management,
CEO’s etc.
 Better, higher quality information exchange
 Free access to leadership feedback, signatures etc.
 Better chance to receive higher marks on performance
feedbacks
 Access to resources (paper, money, staffing, etc.)
Out-Group – Typically only do the minimum amount of work and in
exchange are given low level of access to resources and decision
making.
Out-Group Realities
 Lack of access to resources, leadership input, fair
feedback
 Limited trust and information exchanges with leadership
 Feeling of neglect and loss of team identity
 Lower production and morale.
The Four Stages
In 1995 with the 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," George B. Graen and Mary Uhl-Bien discuss the
development of LMX from through four evolutionary stages.
Stage 1: Vertical dyad linkage
Graen and Uhl-Bien explain that research into issues relating to
leader–member exchange began with studies on work socialization
and vertical dyad linkage which found that many managerial
processes in organizations occurred on a dyadic basis, with
managers forming differentiated relationships with those who
reported to them. Some employees described what are called "high-
quality exchanges" (also known as "in-group"), which are
"characterized by a high degree of mutual trust, respect, and
obligation. Others described "low-quality exchanges" (also known
as "out-group"), which are "characterized by low trust, respect,
and obligation." According to Graen and Uhl-Bien, early VDL
research concluded that these differentiated relationships
resulted from a manager's limited time and social resources,
allowing him/her to form only a few higher-quality exchange
relationships.
Stage 2: Leader–member exchange
In the second stage, terminology shifted from vertical dyad
linkage to leader–member exchange. Graen and Uhl-Bien explain that
VDL research was followed by a series of studies which moved the
theory "beyond a description of the differentiated relationships
in a work unit. A number of studies analyzed the specific
characteristics of LMX relationships, and other studies analyzed
the relationship between LMX and organizational
outcomes/consequences. Graen and Uhl-Bien describe the central
concepts of LMX research at this time as:
(1) development of LMX relationships is influenced by
characteristics and behaviours of leaders and members and occurs
through a role-making process, and
(2) higher-quality LMX relationships have very positive outcomes
for leaders, followers, work units, and the organization in
general.
Stage 3: Leadership-making
Graen and Uhl-Bien recount that the research in the third stage
moved beyond "in-groups" and "out-groups" and focused more on
producing effective leadership process through the development of
effective leadership relationships. According to Graen and Uhl-
Bien, the key difference in this stage is that it says that
managers should make high-quality LMX relationships available to
all employees, rather than having differentiated relationships
among employees as described in the VDL approach. This stage uses
the Leadership Making model to provide a more descriptive and
practically useful model of leadership development. The idea of
Leadership Making began with two longitudinal field experiments
that analyzed what would happen if leaders were trained to give
all of their subordinates the opportunity to develop a high-
quality relationship. Results showed that the performance of
subordinates who took advantage of the opportunity to develop a
high-quality LMX improved dramatically. Overall, the performance
of the work unit improved by increasing the number of high-quality
LMX relationships. The Leadership Making model was developed.
Stage 4: Team-Making
At the fourth stage Graen and Uhl-Bien propose using a systems-
level perspective to investigate how differentiated dyadic
relationships combine to form larger, network systems. These
networks are what make up an organization's "leadership
structure", or the "pattern of leadership relationships among
individuals throughout the organization". Graen and Uhl-Bien
explain that the leadership structure emerges from the network of
relationships and mutual dependencies that develop as organization
members fulfill roles and complete tasks. Investigation at this
stage analyzes task interdependencies and the quality of the
relationships that develop due to these
interdependencies. Specifically, research seeks to identify where
more effective leadership relationships have a large impact on
task performance as well as how differentiated relationships
affect each other and the entire leadership structure.

Limitations
A major problem with the leader–member exchange approach to
leadership is that it is not theory; it uses circular arguments
and is akin to a tautology or it forces innovation. For instance,
good leadership is about having good relations. What causes these
good relations? This question is unclear and the problem is that
most of the research uses LMX as an independent or moderator
variable, which violates the exogeneity assumption made in causal
models and hence creates an intractable endogeneity problem. (The
variables x are exogenous and the variables y are endogenous. The
defining distinction between x and y is that y may be (and
generally is) restricted by x, but not conversely.) Also, research
on the topic is not particularly helpful in describing the
specific leader behaviours that promote high quality
relationships; in fact, these behaviours are exogenous to LMX,
which is an outcome variable (i.e., trusting, liking, etc.). Thus,
exogenous manipulation of the construct is not possible and only
manipulation of its antecedents is possible. This is due largely
to the fact that LMX is a descriptive (rather than normative)
theory which focuses on explaining how people relate to and
interact with each other rather than on a prescription for how to
form high quality LMX relationships. LMX research has limited
discussion of leader behaviours that can promote relationship
building, for the most part offering only generalities about the
need for leaders to show trust, respect, openness, autonomy and
discretion. As a recent review suggests, it is time for this
branch of leadership research to go back to square one.