How Do Leader-Member Exchange Quality and Differentiation Affect Performance in Teams? An Integrated Multilevel Dual Process Model

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.