Dynamic Exchange

2014-11-26 17.44.59

Leader-Member Exchange (LMX)

Over the past half-century most literature on leadership has overly focussed on leaders. Leader Member Exchange (LMX) theory however describes the unique exchange relationship which a leader develops with each subordinate and the implication of these relationships towards effectiveness. It describes the role-making processes between a leader and each follower and the exchange relationship that evolves over time (Dansereau, Graen & Haga, 1975; Graen, Cashman, 1975). The basic premise of the theory is that leaders develop an exchange relationship with each subordinate and both parties mutually define the subordinate’s role.

Like Locus of Control there are two opposing ends within the LMX spectrum, these are defined as follows: a) High-exchange and b) Low-exchange relationships. A High-exchange relationship is formed gradually over a period of time on the basis of personal compatibility and subordinate competence and dependability. The exchange cycle is repeated over and over again and likely to evolve to the point where there is a high degree of mutual dependence loyalty and support. In contrast, a low exchange relationship has less mutual influence present. Subordinates in this situation need and tend to only comply with formal role requirements (duties, rules, standard procedures and directions from the leader). Subordinates in a low exchange environment typically only receive standard benefits for the job, such as salary and annual leave. There is little or no emotional contract.

Within any exchange environment good leaders recognise that “true leadership must be for the benefit of the followers, not the enrichment of the leaders” (Robert Townsend). Being a leader is a process that involves continuous learning driven by a never-dying curiosity. Therefore, Townsends’ viewpoint deducts that low-exchange must be the priority challenge for modern leaders. With respect to leadership within the ecommerce realm the responsibility to nurture low exchange relationships can impact on an organisations ability to navigate immediate challenges in addition to exploiting future opportunities.

One of the most important elements with respect to ecommerce website design is Responsive Design. A concept that suggests design and development should respond to the user’s behaviour based on screen size, platform or orientation. In practice Responsive Design consists of a mix of flexible grids, layouts and images with an intelligent use of CSS media queries. So as a user changes devices a website automatically switches to accommodate image size, scripting abilities and resolution. In other words, the backend website technology should automatically respond to the match a user’s front-end preference, eliminating the need for different design and development phases.

This raises the question, how does this relate to Leader Member Exchange? In short, it’s actually quite relevant and calls for a level of Emotional Intelligence (and time management) to execute. Successful Responsive Design requires a high degree of teamwork, compatibility and multi-discipline integration. A modern ecommerce company will always have three key disciplines within the organisation, namely: a) Coders/Programmers b) Designers and c) Leaders/Project Managers. The biggest challenge facing ecommerce leaders today is to maintain a relational dynamism in a digital environment. Ecommerce & Digital leaders must allocate time for followers attention, remain responsive to their needs / feelings while adapting for time consuming activities to influence and motivate their team. They must also learn do so at a time when their primary resource, TIME, is depleting every minute.

Daniel Goleman described the effect of a leaders’ application of Emotional Intelligence: “Great leaders move us. They ignite our passion and inspire the best in us”. The CEO of Zappos.com exemplified this quite eloquently throughout Amazons acquisition of Zappos.com. Tony Hsieh was initially an investor in Zappos.com before eventually becoming the CEO. He has since led “Zappos from a struggling Internet start-up to a merger with Amazon.com in 2009 for $1.2 billion” (inkly.com). Since his appointment Hsieh helped Zappos.com “develop a zany corporate culture of close-knit employees obsessed with great customer service”. The company’s’ website states “Customer Service Isn’t Just a Department”; it’s embedded in the culture and conveyed through their tagline “Powered by Service” (Zappos.com). The extract below is taken from Hsieh’s book, Delivering Happiness: 

    “A Path to Profits, Passion, and Purpose, highlights how Zappos.com came to put people—customers and employees—first. I emailed the entire company several times and got a lot of suggestions and feedback on which core values were the most important to our employees. I was surprised the process took so long, but we wanted to make sure not to rush through the process because whatever core values we eventually came up with, we wanted to be ones that we could truly embrace….

We eventually came up with our final list of ten core values [from an initial list of 37], which we still use today:

  1. Deliver WOW Through Service
  2. Embrace and Drive Change
  3. Create Fun and a Little Weirdness
  4. Be Adventurous, Creative, and Open-Minded
  5. Pursue Growth and Learning
  6. Build Open and Honest Relationships with Communication
  7. Build a Positive Team and Family Spirit
  8. Do More with Less
  9. Be Passionate and Determined
  10. Be Humble

Traditional Leader Member Exchange studies assume three cornerstones of effectiveness, which is only partly, true (Leader, follow, environment / situation). What Hsieh demonstrated is a new world LMX concept. In the digital world the need for a new Leader Member Audience Exchange has arisen. This LMAX concept includes a valuable stakeholder, the customer, through the medium of Responsive Design, feedback and collaboration. The hypothesis of ‘People First’ resonates with ‘Mobile First’ in the modern technological age, Mobile First being the new buzzword to describe a shift in consumer behaviour from laptop to mobile. It also aligns with user-centred design whereby digital products are designed exclusively with the consumer in mind and the platform in which they engage.

After the announcement of the Amazon deal, Hsieh rewarded each of his employees with a free Kindle e-book reader in addition to a bonus equal to 40% of their annual salary to retain his team. Hsieh shared the wealth with those who made it possible, a powerful recognition of the value he puts on his followers. Hsieh continues in Delivering Happiness:

“Be Humble is probably the core value that ends up affecting our hiring decisions the most. There are a lot of experienced, smart and talented people we interview that we know can make an immediate impact on our top or bottom line. But a lot of them are also really egotistical, so we end up not hiring them. Our philosophy at Zappos is that we’re willing to make short-term sacrifices (including lost revenue or profits) if we believe that the long-term benefits are worth it. Protecting the company culture and sticking to core values is a long-term benefit.” (Hsieh)

It’s clear from these words that Hsieh doesn’t just write about the importance of his people; he truly trusts, empowers, and listens to each and every one them. The fact that Zappos.com is ranked “38th in Fortune’s 2014 100 Best Companies to Work For” is testament to the exchange orientation encouraged and nurtured by Hsieh. Mikael Ohlsson, Ikea’s CEO, said: “We always recruit through values. We spend an enormous effort in strengthening the values: togetherness, down to earth and hard working.” (Milne, 2012)

Similarly, Inventor Alex Shlaferman, 20, founder of Vante Toys, has done likewise. Shlaferman “now employs seven people in his hometown headquarters in Brooklyn and another 48 in China, 40 full-time labourers, and a management staff of eight at a factory that he owns” (businessinsider.com. 2014). Shlaferman honestly describes the extra step that he has taken claiming that “everyone is on my salary” (businessinsider.com, 2014). Here Shaferman has eliminated a potential clash-point within his organisation by levelling the playing field with respect to remuneration, it’s off the table; the team at Vante toys can focus on getting on with the job rather than wasting time to negotiate salary. In terms of LMAX triangulation his followers know that everyone in the organisation is equal and move forth in unison, in a scrum-like formation, for the benefit of the consumer.

Jeffrey Pfeffer tagged Zappos.com as a “people-centred” organisation. His research shows that there are seven people-centred practices strongly associated with higher profits and significantly reducing employee turnover, these are:

  1. Job security – eliminate fear of redundancies or downsizing
  2. Careful hiring – a good fit with the company’s’ culture
  3. Power to the people – self-managed teams
  4. Generous pay – performance related pay
  5. Plenty of training and upskilling
  6. Less emphasis on status – aim to build a “we” ethos
  7. Trust building – through the sharing of information and collaboration

Hsieh and Shaferman have captured these people-centred practices in their own unique way, integrating the seven steps within their organisations, reinforcing leader member (audience) exchange. Evidence to support its effectiveness is proven by the steep growth curve. Shaferman noted that “A few years ago, I was 16 and running my company out of my bedroom, using my parents’ credit cards. My first year in business I filed taxes for $110,000. Before we knew it, we hit $1 million and then $3 million. We’ve been growing by 300-400% every year,” he says. Last year, revenue was about $5 million but if he hits his hoped-for 2014 holiday sales, “We expect $10 million this Christmas.” (Businessinsider.com, 2014).

Leaders recognise that all these factors are a package deal and to have an impact they must be instilled at a cultural level, installed in a systematic fashion. According to Pfeffer, “only 12% of today’s organizations have the systematic approaches and persistence to qualify as true people-centred organizations, thus giving them a competitive advantage. People are the name of the game.” (Pfeffer, 2013)

Personality traits found in both a leader and subordinate is a factor. For example, extraversion and agreeableness in the early stages of a new team simulation can predict the development of a more favourable exchange relationship because these are more supporting and trusting styles of interaction. Leader behaviour is more supportive when it includes more consultation, delegation, mentoring, less close monitoring and domination of interactions. It is likely that some subordinates are proactive about developing a favourable relationship rather than passively accepting whatever the leader decides to do.

Business is so consumed with leadership and searching for leaders, so much that the importance of who they lead, followers, is largely overlooked. Subordinate outcome a hot research topic (Erdogan & Liden, 2002; Gerstner & Day, 1997; Ilies, Nahrgang, & Morgeston, 2007; Liden, Sparrowe, & Wayne, 1997; Schriesheim et al., 1999). Studies found that favourable downward exchange relationships usually correlate with role clarity, higher satisfaction, organisational commitment, citizenship behaviours and better subordinate performance. The effect is a higher level of subordinate trust and a reciprocal causality is likely (Dirks & Ferrin, 2002). A field experiment found that leaders trained to develop favourable exchange relationships with their subordinates had subsequent gains in the objective performance and satisfaction of the subordinate.

“If the purpose is not clear and motivating, leaders and followers can only pursue their perceived self-interest, not their common interest. The process of clarifying purpose can mobilize a group, heal painful rifts, and help the group steer through treacherous passages. It is a critical act of strong leadership and courageous followership. Equally fundamental are the group’s shared values. Clarifying core values validates the purpose and determines how we will and how we won’t pursue it. If the purpose is pursued in the context of decent human values, it serves as a guiding light in navigating our relationship with a leader. If the purpose intrinsically violates or is pursued in a way that violates decent human values, however, it is not an ethically valid guide. For example, “making a profit for shareholders” is a purpose we can use to guide our actions. “Making a profit regardless of the impact on the community or environment” nullifies its validity in determining appropriate action. A common purpose pursued with decent values is the heart of the healthy leader-follower relationship.” (Challeff, 1995)

Chaleff argues that it is essential to replace negative conception of followers with a positive conception. Upward dyadic relationship affects downward dyadic relationships insofar as a manager who has a favourable exchange-relationship with their leader is more likely to establish favourable exchange relationships with subordinates.

An important research question in recent years is how the feelings and emotions of followers are affected by that of the leader’s and the implications this has for effective leadership (Askanasy & Jordan, 2008, Bono, Foldes, Vinson & Muros, 2007; Gooty, Connelly, Grifith, & Gupta, 2010) because “people leave managers, not organisations” (Torrington et al, 2008). This draws upon a leader’s’ ability to appropriately apply Emotional Intelligence. Emotions are classed as brief intense reactions to an event or person, whereas moods are longer, less intense and are not focused on specific events or person. A leader’s’ influence can take on many forms. For instance, a leader can convey a positive mood through behaviour and enthusiasm by delivering inspirational or visionary speeches about new initiatives. Influence can also be enhanced by the expression of negative emotions to emphasise the seriousness of criticism for irresponsible actions or behaviour. The effective use of negative emotions however requires a great deal of skill, highlighting the impact that Emotional Intelligence can have in an organisation.

Followership is not synonymous with subordinates. A follower is a reflection of the leader, sharing values and a common purpose. They believe in the organisations’ purpose, the reason for its existence, buying into its mission, vision and values. They are energetically invested to this end. “In any organization, once the beliefs and energies of a critical mass of people are engaged, conversion to a new idea will spread like an epidemic” (Kim et al, 2003).

True leader and follower exchange is dedicated to a common goal. Granted, both parties bring their own self-interest to the table, while there’s nothing inherently problematic with self-interest, it must enhance and not eclipse the common purpose. Pursuit of self-interest is driven by an emotional contract. Once this contact is aligned with the relationship exchange, significant value is added to the organisation. This again calls upon the application of Emotional Intelligence whereby leaders who are supportive and acknowledge their followers’ self-interest and personal goals command loyalty, respect and commitment in return, thus solidifying the emotional contract. The love affair with the ‘Great Man’, a concept clung to far too long by organisations, can go awry. “Great leaders need great followers who can amplify their strengths but also correct or modulate their inevitable” (Riggio, 2008).

Good leaders draw upon the talents of their followers, confident acknowledgment that they need the strength of their followers to accomplish important missions on the highway to success. There’s truth in the belief that great leaders inspire followers but It is no less true that mediocre or poor leaders can demoralise followers. That said, followers’ commitment and actions are not necessarily dependent on the leader” (Bennis, 2008).

Dedication and self-empowerment are powerful factors whereby followers can make a leader look great. Many organisations today train people how to be great followers. “Brent Uken, of Ernst & Young, has a strategy to introduce dynamic followership so it can take hold in the culture. Microsoft identifies one critical employee skill as ‘comfort around authority”’ and has a curriculum to help employees engage leaders with candour and intellectual vigour” (Riggio, 2008).

In fact, there’s little known about how the role-making process actually occurs. While some theories imply that exchange relationships evolve in a continuous and smooth fashion from initial impressions, forming quickly and remaining stable, other dyadic relationship studies argue that relationships progress is through a series of ups and downs (Fairhurst, 1993).

Also, there is little research dedicated to the world of ecommerce. The modern era has led to the formation of fragmented cultures in which exchange members work remotely, often across different countries. Although this type of culture is low in solidarity and sociability the “freedom given to individuals in these cultures can generate substantial benefits” (Goffee et al 2006). Such an autonomous environment promotes creativity by nurturing self-managed teams. Aside from the risk, like the abuse of freedom where “even simple attempts to cooperate – meetings, for example – can be undermined by too many individuals driven by their own agenda” (Goffee et al 2006), this type of organisational structure has become a common feature in the digital age.


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