Leader–Member Exchange and the Operating Model: A Resource-Based Comparison of In-sourced and Outsourced Delivery

Abstract

This paper aims to examine the influence of outsourcing on leader–member exchange (LMX) relationships and its implications for organisational resources from a resource-based view (RBV) perspective. LMX theory has largely focused on relationships between leaders and members within the same organisation. However, outsourcing arrangements increasingly separate formal employment from operational supervision, creating challenges for maintaining effective leader–member relationships across organisational boundaries. This paper adopts a conceptual approach integrating LMX theory and RBV to examine LMX as a relational resource based on value, rarity, inimitability and non-substitutability. In-house and outsourced operating models are compared in terms of relational continuity, credible reciprocity, discretionary latitude and clarity of authority. The analysis considers the South African institutional and legal context, with medical scheme administration serving as an illustrative setting. The analysis suggests that outsourcing may weaken the conditions supporting high-quality LMX, particularly through fragmented managerial authority, limited reciprocity and reduced relational continuity. These relational constraints may affect the strategic value of leader–member relationships and introduce organisational costs that are not adequately captured in conventional outsourcing evaluations. This paper contributes to LMX theory by extending its consideration beyond conventional organisational boundaries and offers an RBV perspective on the relational consequences of outsourcing. The proposed conceptual framework and testable propositions provide a basis for future empirical research and the evaluation of organisational sourcing decisions.