Great Leaders Drive Performance at the Relationship Exchange

While researching my latest book, I stumbled upon a body of research that changed my perspective on what it takes for a leader to drive innovation, spur excellence and scale his or her organization’s capabilities. The concept is referred to as Leader Member Exchange Theory or LMX Theory.

Here’s the idea: Great leaders initiate a set of exchanges with their group members that are mutually fulfilling. Through this, they build a high quality relationship. They offer latitude and support in exchange for competence and (organizational) loyalty. This motivates the members to improve continually and support the organization’s goals, even when the ‘boss’ is not around. Most importantly it gives the members the courage to try out new ideas and take smart risks. Researchers found that even having the conversation with your member about ‘the deal’ can produce higher levels of performance!

The key here is that leaders must initiate the exchange. Less effective leaders respond to competence and loyalty by placing those member in the in-crowd. In-crowd members receive more coaching, more freedom and more important projects. The leader looks to them to be their lieutenants. The problem here is that only a few members make it into the in-crowd because the leader isn’t being proactive.

In other words, leaders need to how they build relationships throughout the group and whether they need a select in-crowd (which creates a large out-crowd). We can’t wait for our people to prove themselves to bring them into our circle of trust. We can’t reward just our in-crowd with our time, attention and mentorship. That pushes our out-crowd away and drives disengagement and turnover. We must drive innovation and performance by making efforts by taking a relationship building approach to our leadership style. Too often we depend on comp and bonus or job security to do the job, and research revealed by Dan Pink in Drive suggests that it produces low quality work in the long run.

If we trust and support our people, they grow. If we don’t, we are holding them back. And if we aren’t thinking about how to grow our trust and support in everyone we lead, we aren’t doing our key job: Creating more effective members.

Great leaders scale their organization’s power by making ‘the deal’ with every member in the group with a goal of expanding the number of trustworthy members that can truly be innovative, courageous, bold and creative. One of the best times to start the exchange conversation is during a quarterly or annual review. It’s also a good idea to make this a part of your onboarding program as well. The more you talk about it with your members and then keep your promise as they deliver, the better all of your results will be.

Take a few minutes to read through some of these remarkable studies. You’ll see why I’m so excited about this concept, and how it can revolutionize how we lead AND create better opportunities for everyone we manage.

Relationship-Based Approach to Leadership: Development of Leader-Member Exchange (LMX) Theory of Leadership over 25 Years: Applying a Multi-Level Multi-Domain Perspective

Creative Climate: A Leadership Lever for Innovation

When Creativity Enhances Sales Effectiveness: The Moderating Role of the Leader-Member Exchange

Leader–Member Exchange (LMX), Job Autonomy, and Creative Work Involvement

Here’s an excerpt from my keynote at the 2017 Global Institute of Leadership Development where I unpack this idea: