LMX differentiation as a double‐edged sword: A social hierarchy perspective for understanding the beneficial and detrimental effects of LMX differentiation on team performance

Abstract Drawing on the social hierarchy within teams literature, we contend that leader‐member exchange differentiation (LMXD) may function as a coordination‐enabling mechanism and as a conflict‐enabling mechanism in transmitting its positive and negative effects on team performance. Specifically, we propose that the positive effect of LMXD on team performance is due to its impact on team role clarity, whereas the negative effects operate through team relationship conflict. To shed light on the boundary conditions that qualify the divergent mechanisms, we further examine the moderating roles of three team structural characteristics (also referred to as team type dimensions), including authority differentiation (AD), skill differentiation (SD), and temporal stability (TS). We conducted two studies to examine our model, which involve multi‐source and multi‐phase lagged data from multiple organizations from diverse industries. Across the two studies, we find consistent support for the coordination‐enabling mechanism and the roles of AD and SD in qualifying this mechanism. Regarding the conflict‐enabling mechanism, both studies support the moderating effect of SD. In contrast, we find limited support for the moderating effect of TS on both the coordination‐enabling and conflict‐enabling mechanisms, although we were only able to examine this in Study 2. We discuss the implications of these findings for future research on LMXD and team performance.