Leader Member Exchange Theory (LMX)

Leader-Member Exchange Theory (LMX) - Toolshero

Leader Member Exchange Theory: this article provides a practical explanation of the Leader Member Exchange Theory (LMX). Next to what is the Leader-Member Exchange Theory highlights this article also the process, the classification of new group or team members and the importance of reforming the Outgroup. After reading, you’ll understand the basics of this leadership theory. Enjoy reading!

What is the Leader Member Exchange Theory (LMX)?

Definition of the Leader Member Exchange Theory

The Leader Member Exchange Theory (LMX), also called the Vertical Dyad Linkage Theory, describes how leaders maintain their position in groups and how relationships develop with other members of a team that can contribute to growth or hinder development.

The model assumes that leadership consists of several dyadic (two-way) relationships that connect the leader to the members. The quality of the relationship is measured by means of the level of trust, respect, support, loyalty, job satisfaction and job performance.

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Furthermore, the Leader Member Exchange Theory (LMX) suggests that leaders automatically develop a relationship with each of their subordinates, and that the quality of this relationship strongly influences the responsibility, decision making, access to resources and performance of subordinates.

This gives rise to two sides of employees, the in-group and the out-group (exchange relationships). The in-group members are given more space to fulfil the work they do, more responsibility, more attention and greater rewards. They work within the personal circle of the leader. On the other hand, there are the out-group members.

They receive less attention, responsibility and fewer rewards. Exchanging leadership can cause friction and displeasure among the out-group, but it could also create opportunities to give capable employees room for development.

The Leader Member Exchange Theory (LMX) is rooted in the belief that leaders and followers have a relationship that could yield advantages. Various psychologists have attempted to understand leadership and its effects on followers, but it was George B. Graen and his colleagues in particular who described the leadership member exchange and made this into an effective leadership theory.

The Leader Member Exchange Theory Process

The initiation and shaping of these relationships begins immediately after a new member has been introduced in the group under the leader and includes three steps.

1. Role Taking

The new member has been added to the group and the leader assesses his or her skills and talents. This happens quickly and the leader forms an image of the new member through all expressions this new member displays and utters.

Based on this image, formed after a few signals, the leader can offer the new member opportunities to demonstrate his or her capacities in the form of appointed tasks.

In this phase of the Leader Member Exchange Theory, both the leader and the new member develop a sense of what the etiquette is like within the group. Particularly the level of respect towards and from the leader is quickly noticed and is important.

2. Role Making

The new member is carrying out his first appointed tasks and an informal and unstructured negotiation about work-related factors or relation factors often automatically takes place between the leader and the new member. Building trust is the most important phase, and the level of respect that’s established in the first phase is crucial.

Cultural and ethnic differences can cause lots of problems if not handled properly. In this phase, the leader expects that new members will work hard and are loyal and dependable during the training period.

In general, people assume that when a new member is liked by the leader, he has a good chance of being successful. If the new member is not much liked by the leader, this decreases his chances of being successful. Consequently, the leader-sometimes subconsciously-creates two sides: the ingroup or outgroup.

1. Ingroup

The ingroup is trusted, is given more risky tasks and therefore more responsibility, receives more career opportunities and opportunities for personal development, and constantly receives support and guidance. Often, they have sufficient resources at their disposal to carry out their vision.

2. Outgroup

On the other hand, an outgroup is formed. They are given tasks that aren’t challenging because the leader doesn’t have sufficient trust in them. As a result, they won’t be exposed to opportunities and chances to develop their skills, competences and capacities.

3. Routinasation

Developing routine is the last phase. In this phase, routines, expectations and standards are established and both parties gain better insight into how other parties work. The constant social exchange between the leader and the new member give rise to a pattern.

The members of the ingroup work hard and value the leader’s opinion. They wish to maintain their position and reputation by displaying respect, perseverance, patience and empathy. In this phase, the outgroup members are certain they don’t like their leader and that the leader is starting to annoy them.


Because the new group members have automatically been classified, this classification affects how the leaders are dealt with and how these become self-fulfilling, right from the start. The ingroup members are often viewed as talents, the rising stars.

The leader trusts them and is confident they work at the highest level and perform accordingly. The leader talks about this group the most as well as to this group. They are provided with all the support and advice they need. According to the Leader Member Exchange Theory, the people on this side will develop more quickly than the members in the outgroup.

The leader pays little attention to this group and doesn’t offer support and motivation for development. They only receive assignments or tasks that aren’t difficult and that entail little risk. Because this group is never tested, they have little chance of changing the leader’s opinion and are only used for simple tasks. This is inefficient and disadvantageous to both the leader and the outgroup employees.

Leader Member Exchange Theory: Reforming the Outgroup

Half the team not being able to be used adequately and to their full capacity because of the leader’s preference can be harmful. The leader has an important role in changing this and to get the most out of himself and his employees according to the Leader Member Exchange Theory.

Chances are that the leader knows exactly who are part of the outgroup beforehand. Subsequently using this information to bring about change does demand discipline and self-knowledge. If you, as a leader, aim to get more out of the outgroup, you should start by making a list with the names of the people in this group.

Analyse and think about what these people have done to lose favour.

Consider whether they’ve done something specific to damage trust, or if they display bad behaviour and ask yourself whether they’re really as incompetent as you believed beforehand. Also consider whether there are possible other factors that could have a negative effect on the employee’s motivation.

Most likely, an honest period of reflection will reveal that the majority of people in the out-group are part of the out-group for no reason and are hindered in their development. Therefore, it’s important to repair the relationship with these people.

According to the Leader Member Exchange Theory, team members with a good relationship with the manager have a higher moral and are more productive than those who don’t. This means that the manager and the group member can both profit from a healthy relationship.

Work on the relationship by speaking to each team member personally and giving them personal attention.

Take your time to discover whether they enjoy their position, what their personal goals are and what you can do to make their work more challenging or easier. Use Herzberg’s motivational theory to discover what motivates and drives them.

Subsequently, provide sufficient resources to meet these wishes. Provide sufficient training and development opportunities and be open to feedback in both directions.

Divide tasks with a high level of freedom or responsibility equally among the employees and don’t automatically give a certain person preferential treatment when others might be just as capable, if not more so, of carrying out the task.

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Now It’s Your Turn

What do you think? Do you recognise the explanation of the Leader Member Exchange Theory (LMX)? Have you experienced a situation where you felt your manager had placed you in an ingroup or outgroup? How do you think you, as an entrepreneur, can use this theory to get the most out of all employees? Do you have any tips or additional comments?

Share your experience and knowledge in the comments box below.

More information

  1. Graen, G. B., & Uhl-Bien, M. (1995). Relationship-based approach to leadership: Development of leader-member exchange (LMX) theory of leadership over 25 years: Applying a multi-level multi-domain perspective. The leadership quarterly, 6(2), 219-247.
  2. Schriesheim, C. A., Castro, S. L., & Cogliser, C. C. (1999). Leader-member exchange (LMX) research: A comprehensive review of theory, measurement, and data-analytic practices. The Leadership Quarterly, 10(1), 63-113.

How to cite this article:
Janse, B. (2019). Leader Member Exchange Theory (LMX). Retrieved [insert date] from Toolshero: https://www.toolshero.com/leadership/leader-member-exchange-theory/

Original publication date: 03/14/2019 | Last update: 08/15/2023

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Ben Janse
Article by:

Ben Janse

Ben Janse is a young professional working at ToolsHero as Content Manager. He is also an International Business student at Rotterdam Business School where he focusses on analyzing and developing management models. Thanks to his theoretical and practical knowledge, he knows how to distinguish main- and side issues and to make the essence of each article clearly visible.


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