Leader Membership Exchange Theory and Social Exchange Theory

Posted: January 5th, 2023

Leader Membership Exchange Theory and Social Exchange Theory

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Leader Membership Exchange Theory and Social Exchange Theory

Leader Membership Exchange Theory

            The leader-member exchange (LMX) theory is a model that outlines how leaders relate to their subordinates and how they maintain their leadership position within an established entity, and how these aspects can hinder or facilitate organizational development. The underlying assumption is that leadership comprises a wide range of dyadic relationships between the leader and the members. They can form high-quality relationships based on trust, obligation and respect, or low-quality relationships limited to the employment contract (Erdogran & Bauer, 2015). Typically, subordinates receive valuable tangible and intangible resources and favor from the leader in high-quality LMX relationships. Managers interact with their members beyond the formal setting to offer support in the work environment and to provide subordinates with greater responsibilities and autonomy. The intended goal is to motivate employees to internalize personal goals in addition to those of the leader and the organization. Conversely, low-quality LMX relationships are characterized by a lack of favor and limited valuable resources accessible to the subordinates. Exchanges between the leader and members are restricted to the formal employment contract and the leader does not make efforts to motivate or develop the employees (Martin et al., 2019). In response, subordinates can fail to internalize their goals as they solely focus on achieving the leader’s goals. Under this theory, effective leadership centers on the development of high-quality relationships between leaders and their subordinates to enhance their performance and wellbeing. promoting such relationships also provides subordinates with a sense of identity to the group, thereby promoting inclusivity, gratitude, and loyalty.

            Over time, researchers have evaluated the correlation between leadership behaviors and outcomes as a measure towards determining LMX quality. Megheirkouni (2017) revealed that how leaders behaved towards their subordinates was indicative of their trustworthiness, loyalty, and supportiveness aspects that positively or negatively impact the relationship quality. It is important to note, however, that these studies do not typically include new relationships or a longitudinal design. As such, the general assumption is that high-quality exchanges promote positive perceptions of a leader in terms of authenticity, ethics, and the integration of transformational leadership. Newly-forming relationships do not provide sufficient data to determine the significance of a leader in such settings and there is a need for further research (Erdogan & Bauer, 2015).

            When measuring the quality of exchange, research on LMX theory integrates two main measures including the LMX-7 measure proposed by Scandura and Graen (1984), and the LMX-Multidimensional proposed by Liden and Maslyn (1998). The latter comprises twelve items outlined in four dimensions based on professional respect, loyalty, contribution, and affect (Erdogan & Bauer, 2015). Alternatively, LMX quality can be measured from the subordinate’s perspective to understand the correlations from a practical setting, although the results might be subjective. Keskes et al. (2018) notes that there is a lack of agreement in literature regarding the integration of subordinate’s perspectives in measuring LMX quality. To start with, the degree to which employees and leaders respect or like each other varies across each individual. Within the dyad, the different dynamics between leaders and their subordinates lead to varying success levels and it can be a challenge to meet each other’s standards. To add on, the leader might be less inclined to report low-quality relationships in an effort to reinforce a positive social desirability image (Erdogan & Bauer, 2015).

LMX in the Healthcare Setting

            LMX theory varies significantly from other leadership theories as it diversifies its focus to include the leader, employees, the environment, and the situation. It emphasizes the value developing interpersonal relationships between the two parties with high levels of commitment, respect, and mutual trust, while showing their benefits. According to Jungbauer et al. (2018), LMX has played an integral role in guiding healthcare leadership practices that could be applied across the globe. These benefits and strengths are particularly evident in high-quality LMX that has been shown to create conducive healthcare environments to facilitate healing and effective multidisciplinary collaboration.

            High-quality LMX relationships between a leader and their teams present significant benefits to the leader in terms of performance, independence, and motivation. The study by Erdogan and Bauer (2015) revealed that such relationships promote positive group performance since employees understand their role and how it contributes to the achievement of their personal and organizational goals. It also helps in increasing their self-efficacy and employees feel the need to take more initiative in their capacity. As a result, the leader creates a suitable setting that promotes responsibility and accountability across the team. In the same study, Erdogan and Bauer (2015) note that it is easier for leaders in such relationships to create and oversee effective work units where subordinates can extend their capabilities, build networks, and take measurable risks to achieve certain goals.

            To add on, LMX relationships have a significant impact on individuals in middle management and employees without supervisory roles in the healthcare setting. Studies reveal an increase in job satisfaction and subordinates feel more appreciated or motivated to develop their careers. Subordinates with high-quality LMX relationships with their leaders also benefit from an increased access to organizational resources, an aspect that increases their creativity and gives them more responsibilities in the workplace (martin et al., 2018). They can also receive work-based benefits relating to more career development opportunities or engaging in different tasks that could help them improve their skills in the long terms. Employees can be assigned more roles thereby reinforcing mutual respect and accountability. Keskes et al. (2018) add that high-quality relationships between leaders and followers have been instrumental in improving the work experience, thereby translating into affective outcomes and performance in employees and patients altogether.

            It is, however, important to note that this leadership approach presents some drawbacks and concerns. A major concern is that it overlooks the impact of external situational and contextual factors on relationships beyond the leader-member dyad. Some of these factors include the organizational culture, number of team members, employees’ roles, duration of assignments, and the location (Megheirkouni, 2017). Additionally, LMX mainly emphasizes the subordinates’ satisfaction with their leader rather than the quality of their relationship, making it difficult to determine if such relationships promote more professional development across the organization. Erdogan & Bauer (2015) note that a comprehensive dyad-based model should factor in each party’s exchange and the ability to invest in the provided resources. In this context, a strong exchange is facilitated by the parties’ abilities to offer high-quality skills and competencies in the organization. The overall process is also time-consuming as it requires the development of a relationship over time and it is dependent on the size of the team. Larger teams may require more time to build such relationships for the leader to pay individual attention to each member.

            Over time, researchers have attempted to address some of the concerns associated with this theory with the aim of developing a prescriptive approach for the implementation of LMX by healthcare practitioners. Jungbauer et al. (2018) recommend the integration of transparent decision-making processes to increase trust and to engage different personalities among the followers. It is also important to consider the leader’s perspective when understanding and outlining LMX relationships to provide a more objective and comprehensive view of quality. This aspect targets to address the subjective approach that focused on the follower, ultimately presenting the impression that LMX quality was determined by satisfaction with the leader at the expense of obligation, trust, and respect. It should be noted that relationships and trust are independent from employees’ satisfaction with their leader.

Social Exchange Theory

            The social exchange theory (SET) hypothesizes that human exchanges and interactions are mainly driven by results whereby social exchange is facilitated by costs and rewards. In this context, human behavior and decisions are influenced by a comparison of costs and rewards that they would incur during interactions. If the individual perceives the costs to be higher than the anticipated results in a particular relationship, there is a higher probability of abandoning or terminating the relationship. In an organizational setting, the social exchange theory argues that effective workplace relationships contribute to more benefits for the organization. As a result, these relationships form a crucial foundation and it is vital for first-level managers to develop quality and effective networks in the workplace (Hogg et al., 2005).

            SET is closely related to the rational choice theory and structuralism since the core concepts are cost and rewards. Liquat and mehmood (2017) explain that this theory conceptualizes exchange as a social behavior that presents economic and social outcomes. To this extent, the underlying presumption is that relationship decisions are centered on fair returns for incurred costs. Costs in this context are defined as the aspects of an individual’s rational life that might bear undesirable consequences, while rewards are the desirable returns resulting from a particular relationship. Generally, there are several assumptions under this theory that relate to how human beings form relationships and their overall nature. For one, human beings are rational and secondly, they seek rewards and avoid punishments to the best of their capability. Another assumption is that human beings use different monetary and non-monetary standards to evaluate costs and rewards. Additionally, relationships are interdependent and that rational life is a process.

            This theory was founded on the conventions of perceived equivalence in the concepts of reciprocity and mutuality which play a crucial role in increasing stability within an organization. When employees perceive that their efforts are being rewarded accordingly, their perception of autonomy is optimized, ultimately resulting in increased trust between the leader and employees. In its application, this theory presents significant benefits to the employee including easy accessibility to resources and information, goodwill, emotional support and mutual trust to address workplace problems accordingly. For the organization, an effective workforce increases morale and job performance, thereby resulting increased productivity. Research by Nazir et al. (2018) also shows that the benefits are far more significant when employees work in cost-constrained environments since the relationships in such settings are centered on sharing resources and information to address workplace problems. The perception of autonomy is also greatly influenced by the quality of supervisor-employee relationship in addition to the employees’ general satisfaction with their leader. These factors impact an employee’s choice of employment and the organization’s overall turnover rate.

            Similar to LMX, the social exchange theory reinforces the notion that when employees are provided with sufficient information and resources and are supported by their leader, they have a higher probability of being committed to the establishment. On the contrary, employees working in a hierarchical workplace characterized by poor resource and information flow tend to have lower leader satisfaction. Anggraeni (2018) notes that these employees also have lower perceptions of autonomy within the setting, an aspect that translates to lower job satisfaction and higher turnover.  Supervisors, therefore, have a responsibility of forming functional relationships with employees with the goal of ensuring that their needs are well-understood and met within the organizational setting.

Social Exchange Theory in Healthcare

            Within the healthcare setting, SET is operationalized by evaluating the impact of leadership support and satisfaction levels on practitioners’ contentment and the achievement of organizational goals. Liaquat and Mehmood (2017) add that this measure should be quantified based on how personnel perceive the quality of mutuality in terms of psychological and physical resources. Employees working in a comfortable setting where their interests are attended to have a greater level of commitment based on the type of leadership in place. They are also more likely to portray innovative behavior and seek out more opportunities to portray their creativity. A study by Nazir et al. (2018) further suggested that progressive supervisor and organizational support is critical to increasing employee innovative behavior, their morale, and ultimately reducing their turnover rate. Support can be provided either financially or non-financially, and the organization should create a network that encourages positive interactions between leaders and employees. In line with this, it is vital to encourage multidisciplinary interactions within the healthcare setting as a platform for creating newer opportunities for employees to explore and perfect their skills (Cropanzano et al., 2017).  Perceived organizational support has been attributed to affective commitment and increased performance particularly when integrated into a multidisciplinary team.

            Based on the social exchange theory, high-quality relationships between leaders and subordinates contribute to positive outcomes for employees and the healthcare setting, whereas low perceived organizational support presents negative outcomes such as low morale (Nazir et al., 2018). These aspects have a negative impact on the organization as they hinder the achievement of the leader’s or organizational goals. Within the context of the nursing profession, low-quality relationships and low perceived organizational support can increase pressure on nurses to perform their responsibilities accordingly, ultimately causing adverse effects on the quality of care provided. The role of the leader or supervisor should not be overlooked as they are instrumental in boosting organizational commitment, innovative behavior, job performance, and overall morale. Research by Nazir et al. (2018) reveals that when employees have a positive relationship with their supervisor, their perception of the organization is improved and they are more inclined towards being innovative. Innovation, in this context, is a risky task that requires the establishment of positive dynamics centered on providing extra support to employees, understanding their needs, and creating a conducive work environment. As such, the leader should possess virtuous qualities such as justice, loyalty, honesty, and respect in order to encourage employees and to improve their overall performance.

References

Anggraeni, A. I. (2018). The effect of psychological contract, perceived organizational support, and value congruence on organizational citizenship behavior: social exchange theory perspectives. Calitatea, 19(162), 67-72. Retrieved from: https://www.researchgate.net/profile/Ade_Anggraeni/publication/322920890_The_effect_of_psychological_contract_perceived_organizational_support_and_value_congruence_on_organizational_citizenship_behavior_Social_exchange_theory_perspectives/links/5c8793f4299bf1e02e28a0fb/The-effect-of-psychological-contract-perceived-organizational-support-and-value-congruence-on-organizational-citizenship-behavior-Social-exchange-theory-perspectives.pdf

Cropanzano, R., Anthony, E. L., Daniels, S. R., & Hall, A. V. (2017). Social exchange theory: A critical review with theoretical remedies. Academy of Management Annals, 11(1), 479-516. https://doi.org/10.5465/annals.2015.0099

Erdogan, B., & Bauer, T. N. (2015). Leader–member exchange theory. In The Oxford Handbook of Leader-Member Exchange. https://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780199326174.001.0001/oxfordhb-9780199326174-e-23

Hogg, M.A., Martin, R., Epitropaki, O., Mankad, A., Svensson, A., & Weeden, K. (2005). Effective Leadership in Salient Groups: Revisiting Leader-Member Exchange Theory from the Perspective of the Social Identity Theory of Leadership. SAGE Journals, 31(7), 991-1004. doi:10.1177/0146167204273098

Jungbauer, K. L., Loewenbrück, K., Reichmann, H., Wendsche, J., & Wegge, J. (2018). How does leadership influence incident reporting intention in healthcare? A dual process model of leader–member exchange. German Journal of Human Resource Management, 32(1), 27-51. doi/abs/10.1177/2397002217745315

Keskes, I., Sallan, J. M., Simo, P., & Fernandez, V. (2018). Transformational leadership and organizational commitment: Mediating role of leader-member exchange. Journal of Management Development.  https://doi.org/10.1108/JMD-04-2017- 0132 

Liaquat, M., & Mehmood, K. (2017). Organization citizenship behavior: Notion of social exchange theory. Journal of Business and Social Review in Emerging Economies, 3(2), 209-216.

Martin, R., Thomas, G., Legood, A., & Dello Russo, S. (2018). Leader–member exchange (LMX) differentiation and work outcomes: Conceptual clarification and critical review. Journal of Organizational Behavior, 39(2), 151-168.

Megheirkouni, M. (2017). Revisiting leader-member exchange theory: Insights into stadia management. International Journal of Event and Festival Management.

Nazir, S., Qun, W., Hui, L., & Shafi, A. (2018). Influence of social exchange relationships on affective commitment and innovative behavior: Role of perceived organizational support. Sustainability, 10(12), 4418. https://doi.org/10.3390/su10124418