LMX Theory, Hawthorne Effect, and Organizational Culture

Leader-Member Exchange Theory and Role Development

Leader-Member Exchange (LMX) theory offers three key tasks that define the relationships between leaders and employees. These are role-taking, where managers assign roles to new team members; role-making, where managers begin to define the roles of team members more collaboratively; and routinization, where the established routines between the team member and the manager become settled and predictable. For the manager, this theory is valuable because it can identify the roles that different team members play in the organization. Managers can then use these roles to motivate workers. Those who are in the in-group can be given greater responsibilities because they are more competent and more trusted, while those in the out-group receive fewer opportunities due to lower levels of demonstrated trust or competence.

An example of how this works can be seen in a startup where roles continually evolve. Initially, new employees are given a fairly specific role — one through which management can gauge how much the employee can be trusted to perform tasks. When the employee proves capable, they may be called upon to fill an expanded role and, in doing so, may help shape that role themselves. Eventually, those who are positioned to advance rapidly as the company grows are those who demonstrate the most commitment and competency, thereby winning the trust of management. It is important for managers to understand, however, that where a relationship may seem strained with someone in the out-group, such individuals can be brought back into the in-group if there is sufficient will on the part of the manager to repair the relationship and establish trust.

The Hawthorne Effect and Halo Effect in the Workplace

The Hawthorne effect and the halo effect are two distinct cognitive phenomena that can significantly impact the workplace. The Hawthorne effect, also known as the observer-expectancy effect, describes a situation where subjects improve their behavior when they know they are being observed. In one organizational context, workers operated remotely from a head office. Head office conducted performance evaluations based on both statistical analysis of performance and on occasional work-site visits. Employees were known to improve their performance during such visits — regardless of their normal performance levels, they would at least meet minimum standards during supervisor visits, particularly in service areas not normally captured by performance statistics. The Hawthorne effect likely applied to most workers, so it may have balanced out such that no one was especially disadvantaged by it; nevertheless, it remained an area of performance evaluation that management found difficult to control.

The halo effect is a cognitive bias that manifests in business when a manager judges an employee's performance partly on the basis of their overall personal impression of that employee. Employees who are more personally favored may receive inflated assessments in performance reviews, while the reverse halo effect applies to those viewed less favorably — they may be evaluated more critically than their actual performance warrants. Human resources departments often attempt to eliminate the halo effect by implementing quantitative performance measures. In some organizations, the halo effect has only limited impact on formal performance reviews. However, the hiring of managers can be clearly colored by this bias, as senior managers tend to favor candidates they would be more comfortable working with. The halo effect therefore becomes embedded in the hiring process in an informal way, whereby workers of roughly equal competence may have different levels of opportunity to advance depending on how well-liked they are as individuals. The human dimension of organizational life is not something easily removed.

A virtual team is one that works remotely, with members located in different places and almost all communication conducted through digital channels. The Internet and telecommunications technology are the primary media through which virtual team members interact. Leaders of virtual teams face unique challenges in keeping the team cohesive and productive. A leader in a virtual environment must first recognize that communication is inherently less smooth than in a co-located setting and plan accordingly. Without the benefit of non-verbal communication, and where time zone and cultural differences exist, a virtual team can still succeed if its leader fosters high levels of communication and a culture that emphasizes swift resolution of any problems.