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THE RELATIONSHIP BETWEEN LEADER-MEMBER EXCHANGE (LMX) AND EMPLOYEE CREATIVITY: THE MEDIATING EFFECT OF AUTONOMY

Master thesis, Msc Human Resource Management University of Groningen, Faculty of Economics and Business

KARLIJN VAN DOORN Student number: 2102919

Aquamarijnstreet 549 9743 PN Groningen Tel: +31 6-13632360

e-mail: c.e.van.doorn@student.rug.nl Supervisor

R. Said

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THE RELATIONSHIP BETWEEN LEADER-MEMBER EXCHANGE (LMX) AND EMPLOYEE CREATIVITY: THE MEDIATING EFFECT OF AUTONOMY

ABSTRACT

Although many scholars have examined the relationship between LMX and employee creativity, few studies have examined the processes underlying this relationship. Addressing this research gap, this study investigated whether autonomy mediated this relationship. Based on previous research, we argue that LMX positively relates to autonomy, whereas autonomy positively relates to employee creativity. A multi-source field study was used to collect data from 263 employees and 48 supervisors from different companies. In line with our

predictions, the results showed that autonomy mediated the relationship between LMX and

creativity. We found that LMX was positively related to employee creativity and autonomy,

and that autonomy was positively related to employee creativity. Factors that leaders should

take into consideration in promoting followers’ creative behaviors and possible directions for

future research are discussed.

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INTRODUCTION

Employee creativity has been heralded as a key contributor to organizations’ success and survival (Martinaityte & Sacramento, 2013). The speed of technological change, as well as increasing competition and globalization, has put enormous pressure on companies to be first-to-market, ready to develop new ideas for products and procedures, and quick to solve problems. Therefore, enhancing creativity – “the production of novel and useful ideas in any domain” (Amabile, Conti, Coon, Lazenby, & Herron, 1996: 1155) – has rapidly become an important goal of many organizations (Atwater & Carmeli, 2009). That is why the field of organizational behavior has witnessed an increasing interest in understanding factors that may promote employee creativity (Shin & Zhou, 2003).

Leadership is seen as an important factor that may influence employees’ creative behavior and performance, and leaders are thought to be one of the most influential predictors of creativity at work (Volmer, Spurk, & Niessen, 2012). Leader-member exchange (LMX), in particular, has often been linked to creativity (Scott & Bruce, 1994). LMX theory suggests that supervisors do not use the same style in dealing with employees, but rather develop a different type of relationship or exchange with each employee. This relationship is negotiated over time as a result of role expectations and fulfillments between leaders and members (Liden & Maslyn, 1998). In general, research has found that LMX is positively related to the creativity of employees (see Rosing, Frese & Bausch, 2011; Volmer et al., 2012). However, while much has been written about the direct relationship between LMX and employee creativity, researchers called for more work that investigates the mechanisms underlying the relationship between LMX and creativity (Tierney, 2011). The goal of the present study is to address this important yet relatively neglected issue.

We propose that one specific process by which LMX relates to employee creativity is

autonomy (Atwater & Carmeli, 2009). Job autonomy refers to “an individual’s sense of

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having choice in initiating and regulating actions, for example making decisions about work methods, pace, and effort” (Spreitzer, 1995: 1443). Autonomous jobs are expected to

encourage higher levels of creativity, because job autonomy makes employees feel self-

determined and free from external controls or constraints (Deci, Connell & Ryan, 1989; Wang

& Cheng, 2010). Moreover, we expect that LMX exerts positive influence on autonomy, for example because members with higher quality exchange relationships have greater

opportunities to negotiate differences with their leaders (Basu & Green, 2006) and have more decision latitude and freedom (Scott & Bruce, 1994). Therefore, we expect that autonomy will be a viable mediator, and we examine the mediating role of autonomy in the relationship between LMX and employee creativity.

This study has multiple contributions to research and practice. First, we add to the literature by providing a deeper understanding of how LMX works and whether organizations could improve employee creativity by using leader-member exchanges, so organizations can achieve a competitive advantage and be more successful. Second, by using autonomy as a mediator we extend the literature by investigating a relatively unstudied mechanism

underlying the direct relationship between LMX and employee creativity. Furthermore, the results of the present study provide important insights for practitioners, because it helps managers identify how they can enhance the creativity of their employees – and thereby increase the chances of being market leader – by establishing certain relationships with their employees.

The remainder of this article is organized as follows. First, the theory section provides

an overview of the relevant literature about the relationships between LMX, autonomy and

employee creativity as the basis for specifying our hypotheses. Second, we discuss the

methods used, followed by the results. To test our hypotheses, we collected field data among

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employees and supervisors from various companies in the Netherlands. The final section provides the conclusion, and discusses the implications for future research.

THEORY Leader-member exchange and employee creativity

Leader-member exchange (LMX) theory suggests that leaders do not use the same style in dealing with all subordinates, but rather develop a different type of relationship or exchange with each subordinate (Basu & Green, 2006; Liden & Maslyn, 1998). These relationships are negotiated over time as a result of role expectations and role fulfillments between leaders and followers (Volmer et al., 2012). Liden and Maslyn (1998) suggested that LMX is a multidimensional construct and that LMX relationships may be based on varying amounts of four “currencies of exchange”: task-related behaviors (contribution), loyalty to each other (loyalty), simply liking one another (affect) and professional respect. An exchange might be based on one, two, three or all four of these dimensions. Contribution can be defined as the “perception of the amount, direction, and quality of work-oriented activity each

member puts forward toward the mutual goals of the dyad” (Dienesch & Liden, 1986: 624).

Members who impress the leader receive resources and support. These members, of such high-quality exchanges, engage in duties and tasks that extend beyond what is required from the formal employment contract. Loyalty is “the extent to which both leader and member publicly support each other’s actions and character” (Dienesch & Liden, 1986: 625). Loyalty can be instrumental in determining the type of tasks that are entrusted to members. Affect stands for the “the mutual affection members of the dyad have for each other based primarily on interpersonal attraction rather than work or professional values” (Dienesch & Liden, 1986:

625). Professional respect is “the degree to which each member of the dyad has built a reputation, within and/or outside the organization, of excelling at his or her line of work”

(Liden & Maslyn, 1998: 50). While consisting of multiple dimensions, research has also

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shown that one higher-order factor is present that fully captures LMX (see Liden & Maslyn, 1998). Most research examines LMX as a whole construct (without making a distinction between the different currencies), and we follow this stream of research to examine how LMX is related to employee creativity.

LMX is generally regarded as a construct that can potentially increase employee

creativity and innovation. As been said before, employee creativity refers to “the production

of novel and useful ideas in any domain” (Amabile et al., 1996: 1155). Several reasons

support the expectation that LMX increases employee creativity. First, employees in high-

quality relationships are considered to be more creative, compared to their less privileged

colleagues, because of their more focused approach to challenging and difficult tasks, together

with their greater risk-taking. Moreover, high-LMX employees receive more task-related

recognition, interpersonal support, and appreciation, which can all be beneficial to employee

creative behavior (Tierney, Farmer & Graen, 1999). Second, high quality exchanges involve

contributions from both leader and members. These contributions create greater opportunities

for expanded information exchange where leaders and followers alike voice out their ideas

freely. Loyalty for each other, as demonstrated by open support, also creates trust in the

relationship. With loyalty and trust, the working environment is made more conducive for

employees to be creative, because ideas and information are discussed and exchanged (Lee,

2008). Third, in high LMX relationships, employees are allowed greater decision latitude,

which has been shown to be essential to creative performance (Scott & Bruce, 1994). Finally,

employees in high LMX relationships experience a strong sense of advocacy and liking from

their supervisors (Duchon, Green & Taber, 1986). This is necessary for creativity because this

sense of liking is conductive to a level of comfort and trust, which is a good support for risk

taking necessary to be creative (Mumford & Gustafson, 1988). High LMX relationships are

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thus likely to stimulate employee creativity. Based on the arguments presented above, we offer the following hypothesis:

Hypothesis 1: LMX is positively related to employee creativity LMX and autonomy

Autonomy refers to “an individual’s sense of having choice in initiating and regulating actions, for example making decisions about work methods, pace, and effort” (Spreitzer, 1995: 1443). Autonomous jobs make employees feel self-determined and free from external controls or constraints (Deci et al., 1989). Autonomy involves acting with a sense of energy and having the experience of choice (Gagné & Deci, 2005). Studies on LMX argue that higher quality of exchange is associated with greater autonomy (Basu & Green, 2006). Members gain autonomy by providing their abilities and loyalty to the leader during the process of role making. During this process, in which leader and members determine the nature of their dyadic relationship, followers who eventually become members of higher quality exchanges are given greater decision latitude and freedom in choosing their roles (Graen & Scandura, 1987; Scott & Bruce, 1994). Furthermore, members gain autonomy because the leader believes that high LMX employees are reliable and competent (Dienesch & Liden, 1986).

Besides that, LMX is also likely to enhance autonomy because members with higher quality

exchange relationships have greater opportunities to negotiate differences on issues of unit

functioning with their leader (Basu & Green, 2006). As been said before, employees in high

LMX relationships experience a strong sense of advocacy and liking from their supervisors,

which is necessary for autonomy (Duchon et al., 1986). Giving autonomy to members is a

risk-taking action by the leader since subordinates can decide on their own how to carry out

their duties. Hence, the leader deepens his or her dependence on the competences of the

members as well as on the goodwill, integrity, and benevolence of the member. Before a

leader gives autonomy to his members, the supervisor has decided to trust the members’

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ability to comply with his or her tasks (Seppälä, Lipponen, Pirtilla-Backman & Lipsanen, 2012). Based on the loyalty, affect and trust in LMX relationships, the jobs of high-LMX members become more autonomous, because leaders are more likely to ask loyal members to take on tasks that require independent judgment and/or responsibility (Bauer & Green, 1996;

Liden & Maslyn, 1998; Seppälä et al., 2012). The above statements suggest that LMX exerts a positive influence on job autonomy. So based on the arguments above, we offer the following hypothesis:

Hypothesis 2: LMX is positively related to autonomy LMX, autonomy, and employee creativity

As work becomes increasingly dynamic, uncertain, and knowledge-based,

organizations depend on creative ideas from employees (Grant & Berry, 2011). Autonomy is

generally conducive to employees engaging in creative behaviors (Hackman & Oldman,

1980). Job autonomy gives employees the opportunity to try out new and useful combinations

of work procedures (Wang & Cheng, 2010). Autonomous jobs enables employees to break

out of a routine to find the best solution along the way (Shalley & Gilson, 2004). Besides that,

autonomous jobs are expected to encourage higher levels of creativity than controlled jobs,

because job autonomy makes employees feel self-determined and free from external controls

or constraints (Deci et al., 1989; Wang & Cheng, 2010). Consequently, employees in these

autonomous environments should have more opportunities to develop new and useful ideas to

demonstrate originality at work (Volmer et al., 2012). Employees who have autonomy are

thus more likely to engage in risk taking, alternative thinking, and problem solving, all of

which are expected to foster creativity (Shalley & Gilson, 2004). Moreover, previous research

found that one of the most important aspects of the work environment that facilitated and

stimulated employees’ creativity was autonomy (Hennessey & Amabile, 2010). The above-

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mentioned argumentation states that autonomy is positively related to employee creativity.

That is why we offer the following hypothesis:

Hypothesis 3: Autonomy is positively related to employee creativity

According to Oldham and Cummings (1996), supportive supervision is an important determinant for creativity at work. Tierney and colleagues (1999) suggested that employees’

creativity is stimulated under conditions that permit risk taking, operational autonomy, and the freedom to deviate from status quo. LMX leaders encourage risk taking, provide greater job latitude, and expect non-routine behavior from their dyad members (Tierney et al., 1999).

These are multiple reasons why LMX theory suggests that the quality of the

relationship between a leader and a member is related to creativity (Graen & Scandura, 1987).

As argued before, leaders and members engage in a role development process during which decisions are made regarding the amount of decision latitude and autonomy the members are allowed (Scott & Bruce, 1994). In high LMX relationships, members have greater autonomy and decision latitude, both of which have been shown to be essential to employees’ creative behavior (Pelz & Andrews, 1966). Vecchio and Gobdel (1984) found that higher quality of exchange was associated with greater latitude, implying that in work situations, members in dyads of higher quality were allowed greater autonomy. Given that members in higher quality dyads are likely to have more autonomy, we expect them to be more creative. By providing members in such dyads with autonomy, leaders can create an environment that encourages free-thinking, exchange of information, and the latitude to explore and examine new ways of handling old problems. Followers are not as bound by ideas passed down the chain of

command, and have the opportunity to engage in unconventional thought and behaviors (Basu

& Green, 2006). Besides that, employees who gain greater autonomy from their leader feel

responsible for their jobs and therefore are more likely to pick up creative work involvement

as a central theme within the social-exchange process with their leader (Parker & Sprigg,

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1999; Volmer et al., 2012). The above argumentation and findings suggest that LMX is positively related to employee creativity because it can boost autonomy. Therefore we offer the following mediation hypothesis:

Hypothesis 4: Autonomy mediates the positive relationship between LMX and employee creativity

METHODS Sample and Procedure

For collecting data, we contacted companies and asked them to participate in the present study. The data were collected by means of online digital questionnaires. Respondents were employees together with their direct supervisor. These respondents worked in different companies from a variety of sectors, such as education and law firms. The supervisors received information in a cover letter about the study’s objective, we assured them of the confidentiality of their responses, and – as an incentive to participate – supervisors were promised a report or presentation of the study’s main findings. To be able to send the survey, we needed the work email addresses of the supervisors and the employees, so we could send the questionnaires to each of them individually. Data were collected with two separate questionnaires: one for the employees and the other for their supervisors. Supervisors were asked to rate their subordinates’ creativity, whereas subordinates were asked to report the quality of LMX and their autonomy.

In total, 263 employees and 48 supervisors participated in the study. Of the employees

98 were men and 164 were women (1 person did not report gender). The mean age of the

employees was 40.91 (SD = 11.84, range = 19 to 64) and the average number of years

employees worked with the company was 9.59 years (SD = 9.42), ranging from 0 to 40. The

level of education of the employees differed from primary school to university; 64 graduated

MBO, 150 graduated HBO and 25 graduated university.

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Of the 48 supervisors, 29 were men and 19 were women. The mean age of the supervisors was 44.56 (SD = 10.69, range = 26 to 70) and on average supervisors worked 12.02 years (SD = 7.42) with their current company, ranging from 2 to 31. The level of education of the supervisors differed from high school to university; 9 finished MBO, 25 graduated HBO and 12 graduated university.

Measures

To measure the variables, we used a Likert-type scale anchored from 1 (“strongly disagree”) to 5 (“strongly agree”).

LMX. We measured LMX based on the scale of Liden and Maslyn (1998). Employees

were asked to rate the quality of their LMX relationship with their direct supervisors. The LMX scale was composed of 11 items, and example item was “My supervisor is the kind of person one would like to have as a friend” ( = .87).

Autonomy. Autonomy was measured using the scale from Spreitzer (1995).

Employees indicated the extent to which each of the statements applied to them in terms of their current work. The autonomy scale was composed of 3 items. Example item was “I have significant autonomy in determining how I do my job” ( = .91)

Employee creativity. Employee creativity was the dependent variable in this study. We

measured employee creativity using the 9-item creativity scale developed by Tierney et al.

(1999). Supervisors rated the extent to which they find their employees creative. Example item was “…. generates novel, but operable ideas” ( = .91).

Analytic Approach

To test every separate relationship between the variables we used correlational analysis. To examine the mediation model we used hierarchical regression, using the method proposed by Baron and Kenny (1986). Following this method, we first examine the

relationship between LMX and creativity, then the relationship between LMX and autonomy,

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and finally the relationship between autonomy and creativity. To examine mediation, the relationship between LMX and creativity should become less or non-significant when controlling for autonomy. At the same time, autonomy should still be significantly related to creativity. Finally, to examine the significance of the mediation effect, we performed a sobel test, as recommended by Baron and Kenny (1986).

RESULTS

Table 1 shows the means and standard deviations of the variables, and the correlations among all the variables. As predicted, we found that LMX was significantly and positively correlated with autonomy (r = .21, p < .01). Besides that, the results also showed that LMX was significantly and positively correlated with employee creativity (r = .23, p < .01). As expected, we found that autonomy and employee creativity were positively and significantly correlated (r = .15, p < .05). Our control variable age also had a significant correlation with employee creativity, which implies that the older people are the less creative they are.

--- Insert Table 1 about here ---

To assess the hypothesized effects, we conducted hierarchical regression analyses.

Table 2 summarizes the regression results. Results showed a positive and significant direct effect of LMX on employee creativity (B = .41, p < .01), thus supporting hypothesis 1.

Following our theoretical reasoning, LMX also had a positive and significant direct effect on autonomy (B = .38, p < .01), confirming hypothesis 2. As can been seen in the table,

autonomy had a positive and significant direct effect on employee creativity (B = .18, p <

.05), thereby confirming hypothesis 3. Finally, when including both LMX and autonomy in the last model, LMX (still) had a positive and significant direct effect on autonomy (B = .35, p

< .01), and autonomy had a positive and marginally significant direct effect on employee

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creativity (B = .12, p < .10). The direct relationship between LMX and employee creativity indeed became slightly less significant when we include our mediator, while at the same time the mediator was still marginally significantly related to employee creativity, thereby already giving some evidence for hypothesis 4. To test whether the mediator-model is significant, we additionally performed a Sobel test (as recommended by Baron & Kenny, 1986). The results showed a marginally significant test statistic (Sobel test statistic Z: 1.41, p < .10, one-tailed), thus our results showed that autonomy indeed mediates the relationship between LMX and employee creativity, and hypothesis 4 is therefore supported. However, we should

acknowledge that LMX still had a significant effect on creativity in the last model, implying that autonomy is not the only mechanism explaining this relationship.

--- Insert Table 2 about here ---

DISCUSSION AND CONCLUSION Summary of results

This study was conducted to examine whether and how LMX is related to employee

creativity, and to investigate whether autonomy mediates the relationship between LMX and

creativity. Using a sample of 263 employees and 48 supervisors from different companies, we

found support for our hypotheses. As expected, the results showed a positive relationship

between LMX and employee creativity, and we found that autonomy mediated this

relationship. However, autonomy is not the only mechanism explaining this relationship,

because LMX still had a significant effect on creativity when including autonomy in the

analyses.

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Theoretical and managerial implications

The positive relationship we found between LMX and employee creativity is consistent with the findings of Lee (2008) and Scott and Bruce (1994). Because high-LMX employees receive more appreciation, interpersonal support and task-related recognition from their supervisor, they are more likely to engage in creative behaviors. Our results indicate that when employees have a more focused approach to challenging and difficult tasks and thus experience high LMX, they generate a higher level of creativity (Tierney et al., 1999).

Few studies have tested the relationship between LMX and employee creativity using autonomy as a mediator, and that is why we extended the literature by empirically testing this mediating effect. In line with previous research, our results showed that LMX is positively related to autonomy. This indicates that employees who have high exchange relationships with their supervisors, receive more autonomy (Basu & Green, 2006). Leaders are namely more likely to ask loyal members, with whom they have built up high-quality relationships, to take on tasks that require responsibility and independent judgment (Bauer & Green, 1996;

Seppälä et al., 2012). The positive relationship we found between autonomy and employee creativity is also in line with the findings of Hennessey and Amabile (2010) and Shalley and Gilson (2004). Employees who have autonomy are more likely to engage in creative

behaviors because autonomy gives them the opportunity to try out new and useful

combinations of work procedures (Wang & Cheng, 2010). Besides that, autonomous jobs make employees feel self-determined and free from external controls or constraints, which is likely to encourage higher levels of creativity (Deci et al., 1989). Although other processes may co-exist besides autonomy, this research has still important implications for theory, because we examined and found one important mechanism, namely autonomy.

Based on our results, there are several managerial implications. Our results suggest

that high LMX relationships can contribute to a higher level of employee creativity. These

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findings can be relevant for organizations to determine how they can increase the creativity of employees. They could have implications for training managers. Organizations should

consider training managers to initiate better relationships with followers, since employees in high-quality relationships are more likely to be creative. This would among others mean that supervisors should provide followers with the necessary support including resources,

decision-latitude and information. Besides that, supervisors should take more interest in non- work activities of their followers and consideration of their personal well-being. The results also indicate that the right amount of autonomy is beneficial for employees to be able to show creative behaviors. Job autonomy can be increased in a variety of ways. Employees should, for example, be allowed to determine with whom and in which order they carry out their tasks. Besides that, they should also have the opportunity to experiment with different ways of task completion and to take responsibility for their results. All these strategies will likely result in managers building up higher-quality relationships with employees, and employees are then more likely to show creative ideas in order to successfully finish their work.

Limitations and future directions

Besides our contributions to the current literature, the present study also has some limitations. First, the study we conducted was a cross-sectional design, which makes it difficult to conclude the causality of the relationships in this study. It could be that managers have higher-quality relationships with some employees because these employees have shown creative behaviors in the past. Therefore we recommend future research to conduct a

longitudinal research design to strengthen causal relationships and further explore the

relationships between LMX, autonomy and employee creativity. This is especially important

because it takes time to develop high LMX relationships. Second, employees’ creativity was

in this study measured using a single, subjective source, namely supervisors. Because of this,

the supervisors’ ratings of creativity may have been affected by some perceptual biases and

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this might have led to inflated ratings. Future research should therefore make use of a more objective measure of creativity. Examples of such objective measures are return on

investment of inventions and supervisory evaluations. Future research should consider having someone else (third party) rate creativity rather than the supervisor being rated by the

subordinate. Finally, we investigated job autonomy as a mediator, since it has been shown to be especially relevant for creative work involvement (Shalley & Gilson, 2004). However, future research should build on these findings and investigate whether other job

characteristics play a significant role in the relationship between LMX and employee

creativity. An example of another mechanisms is intrinsic motivation. Intrinsic motivation for creativity is thought to enhance creativity by increasing cognitive flexibility, risk taking, and persistence (Shalley et al., 2004). Employees are expected to be most creative when they experience a high level of intrinsic motivation (Shin & Zhou, 2003). Besides that, supportive supervision, which is given in LMX relationships, is an important determinant for intrinsic motivation and creativity at work (Oldham & Cummings, 1996; Grant & Berry; 2011).

Although there are some limitations, this study clearly contributes to the LMX and creativity literature by exploring the research gap of how LMX is related to employee creativity.

Conclusion

This study adds to a growing body of literature that shows that LMX and autonomy can enhance the creativity of employees. Due to the speed of technological change and turbulent work environments nowadays, it becomes more and more important for organizations to have employees who search for new opportunities and who try out

unconventional ideas at work. These creative behaviors can be used to be successful and gain

a competitive advantage. To foster employees’ creative behaviors, our study suggest that

organizations should focus on the relationship between leaders and followers, and the level of

autonomy employees receive. The results of our study will hopefully stimulate future research

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to examine other processes that can explain the relationship between LMX and employee creativity. This will lead to a better understanding about what is needed for employees to engage in creative behaviors.

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TABLE 1

M SD 1 2 3 4 5

1. Gender

1

1.63 .49

2. Age 40.91 11.84 .02

3. Leader-member exchange 3.84 .55 .04 -.08 (.87)

4. Autonomy 3.75 .85 -.09 -.01 .24*** (.91)

5. Creativity 3.52 .96 .02 -.13** .23*** .15** (.91)

1

Dummy coded, 1 = male, 2 = female * p < .10

** p < .05 *** p < .01

Note: Cronbach’s alpha is in parentheses along the diagonal

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TABLE 2

Autonomy DV: Creativity: Leader rating Predictors

1 Control variables

Gender

1

-.17 (.11)* 02 (.12) .07 (.13) .04 (.12)

Age .00 (.00) -.01 (.01)* -.01 (.01)** -.01 (.01)*

2 Main effects

Leader-member exchange .38 (.09)*** .41 (.11)*** .35 (.12)***

Autonomy .18 (.07)** .12 (.08)*

R

2

.07 .06 .04 .08

1

Dummy coded, 1 = male, 2 = female

* p < .10 ** p < .05

*** p < .01

Unstandardized B coefficients are reported with (Standard Errors)

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