Informal observation of leadership behavior suggests that leader’s action is not the same towards all subordinates. The importance of potential differences in this respect is brought into sharp focus by Graen’s leader-member exchange model, also known as the vertical dyad linkage theory.

The theory views leadership as consisting of a number of dyadic relationships linking the leader with a follower. The quality of the relationship is reflected by the degree of mutual trust, loyalty, support, respect, and obligation.

According to the theory, leaders form different kinds of relationships with various groups of subordinates. One group, referred to as the in-group, is favored by the leader.

Members of in-group receive considerably more attention from the leader and have more access to the organizational resources. By contrast, other subordinates fall into the out-group. These individuals are disfavored by the leader. As such, they receive fewer valued resources from their leaders.

Leaders distinguish between the in-group and out-group members on the basis of the perceived similarity with respect to personal characteristics, such as age, gender, or personality. 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. The relationship between leaders and followers follows three stages:

• Role taking: When a new member joins the organization, the leader assesses the talent and abilities of the member and offers them opportunities to demonstrate their capabilities.

• Role making: An informal and unstructured negotiation on work-related factors takes place between the leader and the member. A member who is similar to the leader is more likely to succeed. A betrayal by the member at this stage may result in him being relegated to the out-group

The LMX 7 scale assesses the degree to which leaders and followers have mutual respect for each other’s capabilities, feel a deepening sense of mutual trust, and have a sense of strong obligation to one another. Taken together, these dimensions determine the extent to which followers will be part of the leader’s in-group or out-group.

In-group followers tend to function as assistants or advisers and to have higher quality personalized exchanges with the leader than do out-group followers. These exchanges typically involve a leader’s emphasis on assignments to interesting tasks, delegation of important responsibilities, information sharing, and participation in the leader’s decisions, as well as special benefits, such as personal support and support and favorable work schedules.

Strengths of LMX Theory

	LMX theory is an exceptional theory of leadership as unlike the other theories, it concentrates and talks about specific relationships between the leader and each subordinate.
	LMX Theory is a robust explanatory theory.
	LMX Theory focuses our attention to the significance of communication in leadership. Communication is a medium through which leaders and subordinates develop, grow and maintain beneficial exchanges. When this communication is accompanied by features such as mutual trust, respect and devotion, it leads to effective leadership.
	LMX Theory is very much valid and practical in it’s approach.

Criticisms of LMX Theory

	LMX Theory fails to explain the particulars of how high-quality exchanges are created.
	LMX Theory is objected on grounds of fairness and justice as some followers receive special attention of leaders at workplace and other followers do not.

Implications

According to many studies conducted in this area, it has been found that leaders definitely do support the members of the in-group and may go to the extent of inflating their ratings on poor performance as well. This kind of a treatment is not given to the members of the out-group.

Due to the favoritism that the in-group members receive from their leaders, they are found to perform their jobs better and develop positive attitude towards their jobs in comparison to the members of the out-group. The job satisfaction of in-group members is high and they perform effectively on their jobs. They tend to receive more mentoring from their superiors which helps them in their careers. For these reasons, low attrition rate, increased salaries, and promotion rates are associated with the in-group members in comparison to that of the out-group members.