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Impact of Leader Member Exchange on

Organizational Performance and

Commitment with Organizational Culture as Moderator: A Non-Monetary Tactic to Enhance Outcome

Usman Tariq, Ramsha Mumtaz, Dr. H. Mushtaq Ahmad, Dr. Ajmal Waheed

Abstract— Due to mounting competition organizational performance and commitment is becoming the core business activity. Leader member exchange in workplace can bring both key players closer for achieving organizational goals through better understanding and communication (Maslyn & Uhl-Bien, 2001) and organizations are trying hard to achieve through sustainable economic approaches (K. J. Harris, W heeler, & Kacmar, 2009). This paper is aimed to analyze the impact of leader member exchange on organizational performance and commitment with the moderating role of organizational culture as proposed (Liu, Kwan, Fu, and Mao (2013) and persuaded to check the impact of leadership on organizational performance and other determinants along with cultural variation. The target population for this study was manufacturing sector employees of Pakistan among which 146 employees were taken for data collection through questionnaire based survey (n=146) through simple random sampling technique. The results showed that there is a positive and significant relationship between leader member exchange, organizational performance and commitment. Moreover culture moderated this relationship significantly. This study can help organizations’ leaders to enhance organizational performance and commitment without any monetary expense just by bridging the members of firm into a communication’s chain through leader member exchange.

Key Words— Organizational Performance, organizational commitment, leader member exchange and organizational culture

——————————  ——————————

1 INTRODUCTION

Communication gap between the participants of organization leads towards many malfunctioning which can harm organizational productivity and performance. It is generally observed that increased leader member interaction can play a vital role in learning organization’s environment which will lead to more organizational commitment and goal achievement (Vidyarthi, Erdogan, Anand, Liden, & Chaudhry,
2014). The leader member exchange (LMX) behavior is a
bridge between an employer and employee in which
supervisor exchange values with subordinates in a two-way
relationship to enhance the subordinate’s performance, adaptability, devotion and responsibilities for better employment experience and organizational effectiveness that resulted in positive appraisal for subordinate (T. B. Harris, Li,
& Kirkman, 2014). LMX also facilitates employee with more
compatible role taking, customized role making and effective routinizing with employer by making himself more committed with the organization (Leach, 2005) to enhance organizational output.
Job performance of an individual employee is the main
construct of organizational productivity and output. Organizational performance does not only include the objectives achievement but also stressing on working
conditions and environment of the organization which are the executer of the original performance (K. J. Harris et al., 2009; Ogbonna & Harris, 2000). Employee’s input in the organization will be appraised when its performance will be compatible with the leader’s rating and standards. These expectations can only meet when leader and member interact and share what they want from each other in the workplace setting. Organizational performance makes the employees deserve to get the appraisal and recognition by the leader.
The positive appraisal evolves organizational commitment
which is also necessary for the long term effectiveness of the organization. It have three phases; normative, affective & behavioral; these are about the work, members and better relationships (Mowday, Steers, & Porter, 1979). Commitment derives from the interaction and trust which a leader nourishes in the organization and especially in employees. This trust catalyzes employees to be emotionally attached with the organization and its objectives (Steers, 1977). Organizational commitment just not ensure but also retain the employees’ efficiency as it reduce the distances among the participants of the organization but can only propagate through better leader member interaction.
In this era of globalization, the organizational success not only
depends on efficient utilization of resources and broad vision

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strategies (Schein, 2010) but also on strong organizational culture to achieve the real organizational glory. Equal employment opportunities and diversification concept in the workforce have gathered the diverse manpower under one roof (Hartnell, Ou, & Kinicki, 2011) which may belong from different cultures having different norms and traditions. So the culture should be such strong in which leader can overcome these variations to ensure uniformity and performance.
In developed countries, the power distance is low to make
workers committed and participative decision making trend is
growing which have brought leader and member more close
to each other than ever (Lian, Lance Ferris, & Brown, 2012).
But in local and regional environment, a coercive way has
been adopted to ensure the discipline of workplace which leads to unsatisfied, uncommitted and unmotivated employees which in return will harm their productivity and performance. Lot of work has been done on the determinants of leader member exchange as very rare has discussed its ultimate benefits in the form of performance enhancement and commitment booster in a particular culture setting which is a much needed research to do.
The purpose of this study is to analyze the impact of a leader member exchange on organizational performance and
commitment. Moreover, the study will also analyze the role of organizational culture as a moderator in the relationship between leader member exchange with both organizational performance and organizational commitment. The rationale of this study is the previous research gap proposed by Liu et al. (2013) who persuaded to explore the impact of leadership aspects on organizational performance in different cultures to know the cultural variation’s influence on interaction between leader and member to get more efficient performance. Study will also extend LMX theory in dimensions of harvesting commitment as well as performance in a cultural setting.

2 LITERATURE REVIEW

2.1 LEADER MEMBER EXCHANGE & THEORETICAL

FOUNDATION

Leader Member Exchange is too important for the sustained growth of any organization. According to Maslyn and Uhl- Bien (2001) LMX is an important tool for maintaining good relationship between leaders and subordinates. Longer the tenure of the relationship, stronger and better will be the exchange process which will increase the employees’ commitment and productivity. Bauer and Green (1996) highlighted that leader member exchange system resulted in the delegation of tasks and power by the leader because an incremental increase has been perceived by the employer. Theoretical roots of leader member exchange theory were found very significant in many areas of organization. According to Scandura and Graen (1984) leader member exchange behavior in an organization can provide greater productivity, job satisfaction and supervisor satisfaction. Supervisor’s support is significantly high in low LMX group to make them socialized with organization through exchange of desired behaviors. Furthermore leader member exchange theory also found its roots in organizational citizenship and
behavior of an employee as the communication between supervisor and subordinate act as a bridge through which a subordinate can perceive what is expected from him/her (Settoon, Bennett, & Liden, 1996). Gerstner and Day (1997) has done a meta-analysis on LMX in which he described that leader member exchange is significantly related with job performance, supervision, overall satisfaction, commitment, role conflict, role clarity, member competence, and turnover intentions. Dienesch and Liden (1986) criticized that the LMX is a multidimensional construct and it is not very rational to view it from unitary aspect. However, LXM plays pivotal role in overall organizational performance, hence, it is imperative to explore this phenomenon.

2.2 LEADER MEMBER EXCHANGE & ORGANIZATIONAL

PERFORMANCE

Organization performance is important for institution as it reflected its progress in marketplace. According to March and Sutton (1997), organizational performance is not sustainable in a competitive environment due to its dynamicity. Importance of organizational performance has been acknowledged but still the ways to enhance it are not properly unveiled. Organizational Performance is not only associated with the goals of the firm but it also has some societal implications as organizational participants develop the social capital which
,olds the behavior patterns to enhance business performance
(Lesser & Storck, 2001).
Citizenship behavior and leader member exchange influence
the in-role and extra-role performance of employees which
combined to constitute organizational performance. Moreover
Janssen and Van Yperen (2004) talked about these positive
outcomes of organization performance and enlightened that
the leader-rated job performance is better shown by those employees who possess mastery orientation behavior. This logic further confirmed by Erdogan and Enders (2007) who used social exchange theory to link the leader member exchange with job satisfaction and job performance. According to that theory Supervisor’s communication with organization and followers are inter-related that can be catalyzed through perceived organizational support for better output. But this exchange can never occur in a single dimension but in dyadic. Dyadic exchange is a vital dimension of leader member exchange to develop employee’s satisfaction while the work which has been produced by employees accompanied with better relationship contribute towards performance (Graen, Novak, & Sommerkamp, 1982). It was further extended by Kacmar, Witt, Zivnuska, and Gully (2003) who also found that Performance rating of the employees who reported to supervisor frequently is better than the employees who reported on infrequent basis. Not only communication is necessary but also the empowerment or delegation of tasks is vital to increase productivity. Marcoulides and Heck (1993) discussed about the positive moderating role of empowerment in the context of leader member exchange and job outcomes. So the following hypothesis is going to be proposed;
H1: There is a significant relationship between leader member
exchange and organizational performance

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2.3 LEADER MEMBER EXCHANGE & ORGANIZATIONAL

COMMITMENT

Organizational commitment is a key brick of a strong organizational building and nourishes it with devotion. Meyer and Allen (1991) explained organizational commitment as a human resource function as it is the job of strategic managers to induce it in the bottom line employees to extract the maximum output from them. Mowday et al. (1979) enlightened that it is necessary to measure the commitment level to get grip upon the ever changing efficiency by knowing that how much the employees own the organization. O'Reilly, Chatman, and Caldwell (1991) highlighted the importance of commitment’s compliance with the objective of the organization. Relationship between management and workers also get improved due to this theory as in this way they are supporting each other in the holistic matters of organization (Janssen & Van Yperen, 2004).
Commitment starts from support which an employee
presumes from his organization and that was elaborated by
Wayne, Shore, and Liden (1997) who told that perceived
organization support comes from leader member exchange as employee feel more relaxed when he can discuss his problems of workplace with leader and got the appreciation. Wang, Law, Hackett, Wang, and Chen (2005) spotted it with further clarification by linking it with organization citizenship behavior which got improved when transformational leadership is here. That ends up in lesser absenteeism and reduced turnover (Oh & Chung, 2011) as employee getting loyal with the organization due to enhanced commitment and support. The communication element reduces the power distance between the members so they show more commitment towards the organization. Moreover Leach (2005) confirmed it by implementing this logic in the nursing field where he found that more correlation with pharmaceutical and medical staff enable the nurses to perform better due to
culture and performance. Organizational culture can mediate the relationship between leadership styles and organizational performance as culture itself contributes in job performance to some extent. Humanistic orientation can also influence the performance as it results in better team designing and socialization of new comers into organizational environment (Marcoulides & Heck, 1993). Some more leadership styles also associated with performance which is mentioned by House et al. (1999) that self-protective and autonomous leadership are varied by organizational culture because most of the organizations are moving towards democratic style and the extent of autonomy depends upon the leader who is different while moving across various firms.
Leader’s communication can have its effect on commitment
level but the presence of supporting organizational culture act as catalyst in this relationship. Silverthorne (2004) discussed it by concluding that cultural variations can moderate the leadership abilities to put an impact on job satisfaction and commitment. Commitment of employees made them oriented around the organization’s objective which normally designed by the leaders by confronting the social and cultural norms of organization (Lok & Crawford, 1999).
H3: Organizational Culture moderated the relationship between leader member exchange and organizational
performance.
H4: Organizational Culture moderates the relationship
between leader member exchange and organizational
commitment.

3 THEORETICAL FRAMEWORK

Organizational

the commitment with whole system.
H2: There is a relationship between leader member exchange and organizational Commitment.

2.4 MODERATING ROLE OF CULTURE

Organizational culture is a set of traits and behaviors of its members through which they can not only perceive and think about their internal environment but also can cope with external problems. It should be taught to new members to make them compatible with the organization’s current philosophy (Schein, 1984). Avolio, Zhu, Koh, and Bhatia (2004) also elaborated the importance of organizational culture by

Leader

Member

Exchange

Organizational

Culture

Performance

Organizational

Commitment

attributing it as a vital part of socialization process. Cultural
traits like involvement, consistency and mission are good predictors of organization’s productivity and performance. Organizational Culture can moderate the impact of leader member exchange on the organizational performance as cultural variation change the interaction parameters within an organization. Better way to analyze this impact is to link the precise influences of organizational culture on the developing factors of performance (Saffold, 1988). These developing factors were discussed by Ogbonna and Harris (2000) who explained a three dimension relationship among leadership,

3.1 SOURCE This framework has also been suggested by Liu

et al (2013) in their study as future research path but the
moderating role of organizational culture has been found by
the extensive literature review. INDEPENDENT VARIABLE Leader member exchange DEPENDENT VARIABLE Organizational Performance Organizational Commitment MODERATING VARIABLE Organizational Culture

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4 METHODOLOGY

4.1 SAMPLE

The target population for this study comprised of the employees of manufacturing and service organizations and the sample size consisted of 146 employees (n=146) belongs from home appliances industry of Gujranwala. This study used random sampling technique which falls in probability sampling domain for the selection of respondents. Simple random sampling technique has the main feature of having equal chances of selection of respondent within the population. In our study this techniques leads us to the selection of various home appliances employees to collect responses of this research.

4.2 PROCEDURE

The home appliance industry was approach in person and explained the purpose of the study. When they were satisfied the questionnaire were distributed personally to respondents. Each respondent was given one questionnaire and were asked to fill in while the researcher was around to help in case they need. The personal approach was selected to get the date accurate and early. The data was collected in one stage process in which questionnaires were distributed and got filled in personal presence due to some vital reasons. First of all it helped in responding queries about the items which are difficult to understand for the respondents as some of the manufacturing sector employees found it difficult to conceive the theme of few items in their appropriate context. Secondly self-administering helped a lot to keep the responses unbiased up to some extent.
The home appliance industry was approached in person and
explained the purpose of the study then the questionnaires
were distributed personally to respondents. Each respondent was given one questionnaire and were asked to fill in while the researcher was around to help in case they need. The data collection was done in one time process through self- administered method which helps to keep responses unbiased up to some extent. To get more realistic views about our theme, those organizations were selected who were in the business for more than five years.

4.3 MEASUREMENT

Five point likert scale was used to get the responses from respondents in case of measures regarding all variables. In this scale rating alternatives are categorized as 5= strongly agree,
4= agree, 3= neither agree nor disagree, 2=disagree, and 1=
strongly disagree.
Leader member exchange was measured by using a scale
developed by (Scandura & Graen, 1984). After doing some
appropriate modifications, 7 items were selected to get response. This scale measured the exchange relationship between leader and follower.
Dimovski and Škerlavaj (2005) developed an instrument to measure organizational performance which was used in this study. This instrument had the items related financial,
suppliers, employees and customers’ aspect of performance. Among all the questions, 9 items had been included to the instrument to collect responses for this study.
Meyer and Allen (1991) developed a scale of organizational commitment this study to measure organizational commitment. Scale was further modified by both the authors in 1997. It includes items of affective, continuance and normative commitment. 9 items were included in instrument from all the given items related to the theme of this research study. This scale measured the commitment level of employees with the organization.
Organizational culture was measured by using the organizational culture assessment instrument (Cameron & Quinn, 2011). This instrument contained items about dominant characteristics, organizational leadership, management of employees, organizational glue and strategic emphases.

5 ANALYSIS AND FINDINGS

In order to analyze the results of this research, we have entered all the data which we collected from our respondents about leader member exchange, organizational performance, organizational commitment and organizational culture into SPSS. We have applied multiple tests to elaborate the findings like Descriptive Statistics, Reliability or Cronbach Alpha, Pearson Correlation, Regression and Moderating Effect Test by Andrew F. Hayes to discuss the findings on the basis of concrete fact and figures.
It is depicting the values of cronbach’s alpha which indicates
the reliability of instrument as well as of variables. Leader member exchange, organizational performance and organizational commitment are showing the values 0.859,
0.753 and 0.701 respectively. It is indicating that the instruments used for research are highly reliable for the study
as the rule of thumb for this is that only those measures can be used who has this value greater than 0.70.

Table 1

Cronbach Alpha

Table 2

Descriptive analysis

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Table 4

Regression Table

Model Summaryb

a. Predictors: (Constant), LMX
b. Dependent Variable: OP
1-2 included the demographics of the research study. In terms of gender, there were 66.4 % male respondents while 33.6% were the female ones. 58.2% of the employees were lies between 21-30 years age group. Employees belonged from manufacturing and service industries were respectively 51.4% and 48.6%. As far as employment tenure is concerned, 76% employees had less than 5 years tenure in the respective organization. Most of the respondents were intermediate and graduated in terms of their qualification.

Table 3

Correlations

Model Summaryb

a. Predictors: (Constant), LMX
b. Dependent Variable: OC
Then to check the impact extent of leader member exchange on organizational performance and organizational commitment, linear regression analysis was applied with Durbin-Watson. R square tells the total change in the dependent variables (organizational performance and organizational commitment) due to the impact of independent variables (Customer Satisfaction & Brand Image). For leader member exchange and organizational performance, it is showing the value 0.483 which enlightened that leader member exchange can bring 48% change in organizational performance. Durbin-Watson test is basically used to check the direction of the impact that either the variables are positively or negatively correlated or integrated. As for organization performance, it is showing the value 1.511 which is less than 2 so it means that leader member exchange and organizational performance are positively correlated. Meanwhile for the relationship between leader member exchange and organizational commitment showing the value of R square about 0.698 concluding that leader member exchange can bring 69% change in organizational commitment and it is positively correlated as Durbin-Watson value is 1.910 which is less than 2. Furthermore this relation has also been supported by the above mentioned Pearson correlation in which the values indicated that organizational commitment is more closely related with leader member exchange than the organizational performance.

Table 5

ANOVAa

**. Correlation is significant at the 0.01 level (2-tailed).
It shows the Pearson Correlation among the variables. As the values of leader member exchange for organizational performance and organizational commitment are 0.695 and
0.836 respectively. So it is showing a significant correlation among the independent and dependent variables.
a. Dependent Variable: OP
b. Predictors: (Constant), LMX

ANOVAa

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a. Dependent Variable: OC
b. Predictors: (Constant), LMX
Results explain the significance level exist between the
relationship between variables. As both ANOVA tables for
organizational performance and organizational commitment respectively are showing the .000 value of significance which is less than 0.05 so it means that leader member exchange is strongly related with both organizational performance and organizational commitment.

Table 6

Beta Values

Interactions: int_1 LMX X OCL

It is about checking the impact of moderating variable which
is organizational culture in our case by applying a test
designed by Andrew F. Hayes. Results showed that for int_1, the value of P is 0.1561 which is greater than 0.05 so it enlightened that organizational culture does not moderate the relationship between leader member exchange and organizational performance.
Model = 1, Y = OC, X = LMX, M = OC, Sample size: 146, Outcome: OC

Table 8

Moderation Model

a. Dependent Variable: OP

Coefficientsa

a. Dependent Variable: OC

It highlights the beta values of research variables which depict the sole impact of independent variable on dependent variable. Tables are showing that the beta value for organizational commitment is 0.836 which is higher than the beta value of organizational performance which is 0.695. Thus both of our hypotheses H1 and H2 respectively approved as there is significant relationship among leader member exchange, organizational performance and organizational commitment. Collinearity had also been analyzed as tolerance values and VIF are 1 in both cases which is less than 5 so it depicts that there is no multi collinearity existed between variables.
Model = 1, Y = OP, X = LMX, M = OCL, Sample size: 146, Outcome: OP

Table 7

Moderation Model

Interactions: int_1 LMX X OCL

Above mentioned analysis is about checking the impact of moderating variable which is organizational culture in our case by applying a test designed by Andrew F. Hayes. Results showed that for int_1, the value of P is 0.0001 which is lesser than 0.05 so it enlightened that organizational culture significantly moderate the relationship between leader member exchange and organizational performance.

6 DISCUSSION

This research study revealed that there is a significant relationship between leader member exchange with both organizational performance and Organizational commitment. As shown by the values of Pearson correlation, all the variables under study are significantly correlated but the relation between leader member exchange and organizational commitment was more stronger than the relationship between leader member exchange and the organizational performance depicted by the values of correlation and R square which were
0.836 and 0.698 respectively. It also supported the fact explained by Wayne et al (1997) that the communication
between leader and its subordinates enhances the affective commitment of subordinates. Thus, based on the analysis and findings hypothesis 1 and 2 are upheld and accepted. Organizational culture as a moderator had also been found significant for the relationship between leader member exchange and organizational commitment as the significance value of the interaction was 0.0001 which was lesser than 0.05. Steers et al (1997) also found in their research that supportive organizational culture has been required to enhance the employees devotion towards the company through the inter organization communication. Thus H4 is highly supported by the facts and figures. Therefore, hypothesis 4 was upheld and accepted. While there was no moderating effect was found of organizational culture in the relationship between leader member exchange and organizational performance due to the interaction significance value which was higher than 0.05. Hence, hypothesis 3 was not upheld and accepted and therefore rejected.

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7 CONCLUSION

The core objective of this research was revolved around to check the impact of leader member exchange on organizational performance and commitment with the moderating role of organizational culture which was found positive by the results. The findings of the study showed that there is significant and positive relationship between leader member exchange and both the variables, i.e., organizational performance and organizational commitment respectively. The study further depicted that leader member exchange, the distance between leader and his/her subordinates reduced which turned out in better understanding of bilateral issues, problems and demands and afterwards that particular phenomenon resulted in the better performance not only of individual employees but also of the whole organization and the ever committed workers too. The present study’ results are in line with Lok et al (1999) which supported that the efficiency of the workers can be improved by manipulating the communication means and frequency at workplace. Research study has also verified the role of organizational culture as a moderator in case leader member exchange on organizational commitment but not on organizational performance. The reason behind this result can be diverse cultural dimensions which are mostly not deal about the performance or economic dimensions of the organization.

8 IMPLICATIONS

This research study has implications in both practical and theoretical aspects. As far as the theoretical aspect has been concerned, this research study is not only highlighting the importance of leader member exchange to a manager at workplace but also indicating towards a potentially a free of cost solution to enhance the performance and commitment of organization through better communication between leader and subordinates. Moreover managers can also get benefit from it to standardize the cultural elements or ingredients in the organization by knowing the fact that it can act as a catalyst for enhancing commitment level of employees. Meanwhile on the theoretical implications end, this study is evolving a new role of leader member exchange beyond of the behavioral and workplace environment context by putting it as a predictor of organizational performance and commitment thus the leader member exchange theory can be extended in this dimension.

9 LIMITATIONS & FUTURE RESEARCH

This research study has been conducted in the manufacturing sector of Pakistan due to lack of resources and time. Future researchers can replicate it on more sectors including service sector to capture a holistic view. Sample size was small for this research but in future larger samples can be used to make it more generalized and unbiased. One can work on the pause cycle of leader member exchange as it ended up the leader’s communication with only those employees who are more closed to him so in future research, this phase can be completed by inducing socializing and peer to peer communication to get more advance benefits. Future research can also use other moderating and mediating variables rather
than the organizational culture to grasp the relationship with more diversity.

10 ACKNOWLEDGMENT

All praises are for Allah Almighty who give us sense and wit to complete this research study with the best of our knowledge. Furthermore the authors of this study are presented immense regards to the colleagues which were all along us while drafting this research study.
.

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