How do leader–member exchange quality and differentiation affect performance in teams? An integrated multilevel dual process model.

Abstract

Integrating leader-member exchange (LMX) research with role engagement theory (Kahn, 1990) and role system theory (Katz & Kahn, 1978), we propose a multilevel, dual process model to understand the mechanisms through which LMX quality at the individual level and LMX differentiation at the team level simultaneously affect individual and team performance. With regard to LMX differentiation, we introduce a new configural approach focusing on the pattern of LMX differentiation to complement the traditional approach focusing on the degree of LMX differentiation. Results based on multiphase, multisource data from 375 employees of 82 teams revealed that, at the individual level, LMX quality positively contributed to customer-rated employee performance through enhancing employee role engagement. At the team level, LMX differentiation exerted negative influence on teams' financial performance through disrupting team coordination. In particular, teams with the bimodal form of LMX configuration (i.e., teams that split into 2 LMX-based subgroups with comparable size) suffered most in team performance because they experienced greatest difficulty in coordinating members' activities. Furthermore, LMX differentiation strengthened the relationship between LMX quality and role engagement, and team coordination strengthened the relationship between role engagement and employee performance. Theoretical and practical implications of the findings are discussed.

Leader–member exchange (LMX) differentiation and work outcomes: Conceptual clarification and critical review

“…The first area for development concerns more research focus on the shape of the LMX distribution. As mentioned earlier, while we identify three main properties of the LMX differentiation process, we noted that there has been virtually no research on LMX variation in relation to LMX shape (for an exception, see Li & Liao, ). While examining, the shape of team distributions has been shown to have importance in relation to other areas in organizational behavior research, such as climate perceptions (e.g., González‐Romá & Hernández, ), work group diversity (e.g., Van Knippenberg & Schippers, ) and for judgments of trust (e.g., De Jong & Dirks, ), such an omission in LMX differentiation research is surprising.…”

“…Low LMX variation involves equal treatment of followers, which could occur regardless of relative contribution, and thus fulfils the norm of equality and contravenes the norm of equity. Empirical studies examining both cognitive and affective group states (e.g., Chen, He, & Weng, ; Cobb & Lau, ; Li & Liao, ) have reported moderate negative correlations between LMX variation and processes such as group cohesion, group proactivity, coordination, and communication. A particularly noteworthy study is that of Li and Liao () which was longitudinal in design and collected objective outcomes of performance (reported as team profit).…”

“…Empirical studies examining both cognitive and affective group states (e.g., Chen, He, & Weng, ; Cobb & Lau, ; Li & Liao, ) have reported moderate negative correlations between LMX variation and processes such as group cohesion, group proactivity, coordination, and communication. A particularly noteworthy study is that of Li and Liao () which was longitudinal in design and collected objective outcomes of performance (reported as team profit). The authors found an overall negative relationship between LMX variation and team profit that was mediated by team coordination.…”

Social exchange spillover in leader–member relations: A multilevel model

“…Recently, several studies have explored the relationship between LMX differentiation and group outcomes, with inconclusive results. Some studies have found that LMX differentiation was related positively to group performance (Naidoo, Scherbaum, Goldstein, & Graen, ), while others reported that LMX differentiation was related negatively to team coordination and, in turn, team performance (Li & Liao, ). Some studies have suggested that the direct effects of LMX differentiation on performance are context‐based.…”

Tracing Structure, Tie Strength, and Cognitive Networks in LMX Theory and Research

“…An important exception to this approach is that of Li and Liao (2014), who modeled four configurations of LMX differentiation: shared, bimodal, minority and fragmented -each affecting performance through its effects on coordination. Although this study suggests that there are traces of different informal structures in dyadic ties, focusing solely on leader-member relations cannot capture informal social structure with the same breadth as social network approaches.…”