Leader Member Exchange Theory

Vertical Dyad Linkage Theory (VDL) Theory: 

The first study of exchange theory is known as Vertical Dyad Linkage (VDL) theory and focuses on the nature of the relationship that develops between managers and members of their teams (dyadic relationships). The theory assumes that leaders develop an exchange with each of their subordinates, and that the quality of these leader-member exchange (LMX) relationships influences subordinates' responsibility, decision influence, access to resources and performance. This theory focuses on increasing organizational success by creating positive relations between the leader and subordinate.

In Group & Out Group:

Informal observation of leadership behavior suggests that leader’s action and behavior is not the same towards all subordinates. The quality of this relationship is reflected by the degree of mutual trust, loyalty, support, respect, and obligation and leaders form different kinds of relationships with various groups of subordinates. There exists natural tendency for groups to develop into subgroups. These groups can be classified as In-Group & Out-Group and subordinates become a part of the in-group or the out-group based on how well they work with the leader and how well the leader works with them.

1. In-Group:

Relationships that were based on expanded and negotiated role responsibilities (extra-roles) are called the in-group. This group is favored by the leader and its members receive considerably more attention, considered more dependable, are highly involved and more communicative and have more access to the organizational resources. A follower may also be granted an in-group status if the leader believes that person to be especially competent at performing his or her job, loyal, trustworthy and skilled. This group is made up of the team members that the manager trusts the most. Subordinates in this group receive more attention, information, influence, confidence, opportunities, training, interesting and challenging work and concern from their leaders compared to out-group subordinates. 

2. Out-Group:

Relationships that were based on the formal employment contract (defined roles), are called the out-group. By contrast, all other subordinates that are not “In-Group” fall into the “Out-Group”. If team members betray the trust of the manager, or prove that they're unmotivated or incompetent, they're put into the Out-Group. These individuals are disfavored by the leader and receive fewer valued resources from their leaders. Subordinates in the out-group are less compatible with the leader and usually just come to work, do their job, and go home. This group's work is often restricted and unchallenging and they often don't receive opportunities for growth or advancement.

Relationship Stages: 

The theory states that all relationships between managers and subordinates start very soon after a person joins a team and follows these three stages: 

• Role Taking
• Role-Making
• Routinization

Let's look at each stage in greater detail.

1. Role-Taking: 

The member joins the team and the leader evaluates his or her abilities and talents. Based on this, the leader may offer opportunities to demonstrate capabilities. Managers use this time to assess new members' skills and abilities.

2. Role-Making:

In the second phase, the leader and member take part in an unstructured and informal negotiation whereby a role is created for the member and the unspoken promise of benefit and power in return for dedication and loyalty takes place. New team members begin to work on their jobs and responsibilities and manager’s general expectation is that the new team members will work hard, be loyal and prove trustworthy as they get used to their new role.

Trust-building is very important in this stage, and any feelings of betrayal, especially by the leader, can result in the member being demoted to the out-group. This negotiation includes relationship factors as well as pure work-related ones, and a member who is similar to the leader in various ways is more likely to succeed. The theory says that, during this stage, managers sort new team members (often subconsciously) into one of two groups defined earlier.

3. Routinization:

During this last phase, routines between team members and their managers are established. and a pattern of ongoing social exchange between the leader and the member becomes established. Being a successful or in-group member usually includes being similar in many ways to the leader. In-Group team members work hard to maintain the good opinion of their managers, by sustaining trust, respect, empathy, patience, persistence, reasonableness and sensitivity. They are good at seeing the viewpoint of other people, especially their leader. Aggression, sarcasm and a self-centered view are qualities seen in the out-group as they may start to dislike or distrust their managers.

How Classification Happens?

Personality and other personal characteristics are related to this process and membership in one group or the other is based on how subordinates involve themselves in expanding their role responsibilities with the leader. Often, in-group members have a similar personality and work-ethic to their manager. Subordinates who are interested in negotiating with the leader what they are willing to do for the group can become a part of the in-group. These negotiations involve exchanges in which subordinates do certain activities that go beyond their formal job descriptions, and the leader, in turn, does more for these subordinates. Once team members have been classified, even subconsciously, as In-Group or Out-Group, that classification affects how their managers relate to them from then on. Because it's so hard to move out of the Out-Group once the perception has been established, Out-Group members may have to change departments or organizations in order to grow.

LMX Theory & Organizational Effectiveness: 

LMX theory is directly related to organizational effectiveness as the quality of leader–member exchanges relate to positive outcomes for leaders, followers, groups, and the organization in general. More In-Group members means high-quality leader–member exchanges and that results in less employee turnover, more positive performance evaluations, higher frequency of promotions and greater organizational commitment. 

LMX Theory and Leadership Making: 

Leadership making is a prescriptive approach to leadership emphasizing that a leader should develop high-quality exchanges with all of the leader’s subordinates rather than just a few. It attempts to make every subordinate feel as if he or she is a part of the in-group and, by so doing, avoids the inequities and negative implications of being in an out-group. You can practically implement this model at your workplace by analyzing your own team and becoming aware of how you perceive members of your own team. You can follow the following steps to apply prescriptive approach in your leadership setting: 

1. Analyze your team.
2. Identify Your Out-Group
3. Analyze the reasons for their being in Out-Group
4. Start working on re-building the relationship
5. Open communication channels with them and start paying attention to their needs and aspirations
6. Understand their motivational drivers, development needs and career interests
7. Identify and provide opportunities that aligns their career goals with organizational goals
8. Provide training, mentoring, coaching and other developmental opportunities
9. Monitor the development over a period of time