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What Are Transactional Leaders and Transformational Leaders? - HRDQ

What Are Transactional Leaders and Transformational Leaders?

Identifying and refining your leadership style is essential if you want to be the best leader you can be. There isn't necessarily one correct approach to leadership, and it can be helpful to understand some of the most common leadership styles as you work to learn what works and what doesn't in your organization.

Two leadership methods you may have heard of are transactional and transformational. These two are often pitted against each other as opposite strategies, and for good reason.

What exactly are transactional and transformational leaders, and what's the difference between the two? Which situations are each of these styles best for, and what are their potential downsides?

Table of Contents

What Is Transactional Leadership?

This leadership style incorporates rewards and punishments to direct followers and motivate them. 

A Transactional Leader

It is sometimes known as a managerial leadership style and focuses on the importance of:

  • Organization
  • Structure
  • Performance
  • Supervision
  • Outcomes

In this framework, individuals' tasks and goals are very clear and structured. When they miss deadlines, they are reprimanded and rewarded when they meet the goals set out for them.

Primary Ideas Behind Transactional Leadership

First described by sociologist Max Weber, the transactional leadership style operates on several initial assumptions.

Transactional Leadership

These are:

  • A definite and clear chain of command allows people to perform their best
  • Workers are motivated by rewards and punishments
  • To make sure that expectations are met, workers need to be monitored closely
  • Workers operate with the primary goal of obeying the instructions of the leader

This is a common leadership style used in business and on athletic teams.

Benefits of Transactional Leadership

Transactional leadership is most effective when there are simple and clearly defined problems to be solved, as this style doesn't encourage employees to find new or creative solutions.

Effective Transactional Leadership

Let's look at some of the benefits of this leadership approach before touching on some of the potential downsides.

Helps Create a Sense of Fairness

Favoritism isn't an unusual accusation in group settings of all kinds. It's easy for employees to feel like some of their coworkers are receiving special treatment for one reason or another, and a transactional system helps avoid this issue altogether.

Fairness in the Workplace

That is because feedback is based on previously defined metrics instead of the feelings or opinions of the leader. Everyone is treated the same way and receives the same rewards or punishments for the same behavior. Transactional leaders might also use the data they collect to determine who should get what project or deserves a promotion.

Allows Employees to See the Impact They're Having

When the goals are simple and clear that workers are expected to meet, it can make it easy for them to see their impact on the business's success.

Employee Speaking With Leader

For employees with an internal sense of motivation, this can be a good structure that allows them to understand how they are positively impacting the organization as a whole.

Creates a Clear System

There isn't any room for interpretation with this leadership approach. It is clearly defined what needs to be done to receive specific rewards and what will happen if certain goals aren't met.

Creating a Clear System

Some workers might appreciate this kind of structure as it is straightforward to understand. They don't have to worry about trying to figure out what their boss wants or how they can obtain certain rewards– it's clearly laid out for them ahead of time.

Can Be Essential During a Crisis

This type of leadership can also be ideal when there is a crisis at hand.

Leadership Managing a Crisis

In these situations, there is often a specific task that needs to be accomplished where having a clearly defined hierarchy and particular duties assigned to each person is essential.

Downsides of Transactional Leadership

Ineffective Transactional Leader

While this approach can be the right choice in certain circumstances, at other times, it can keep both the leaders and employees from doing their best work and achieving their full potential.

Not All Employees Are Motivated By the Same Thing

While a reward and punishment system can work well in some instances, finding things that motivate everyone to the same extent can be tricky. For example, one worker might value extra time off but not care about perks like a flexible work schedule, while another might only see money as a worthwhile reward.

Employees Discussing Motivators

Similarly, some individuals might not desire material or concrete rewards at all. Rather than being motivated by the types of things you can offer through a rewards program, they might instead only really find motivation in making a difference, helping their customers, or doing a good job.

Doesn't Allow Room For Leadership Development

While it's easy to focus on the downsides for employees, it's also important to recognize that there are some disadvantages to this leadership structure for leaders as well.

Transactional Leader

If a manager's attention is only given to measuring the performance of their staff, they likely aren't engaging in development opportunities that will help them grow into roles higher up in the organization.

Short-Term Rather Than Long-Term

This type of leadership is really focused on short-term goals and fails to plan for the future. Rather than looking at the big picture, transactional leaders are focused on quick wins and instant results. 

Leader Focused on Short Term Goals

That can be a good thing in some situations, but it also can mean that no one is looking down the road to create a plan for the years to come.

Actively Discourages Creativity and Innovation

There aren't many industries that are static these days– staying ahead of the curve and adapting to changing times is essential no matter what market your attention is focused toward. To thrive and be innovative in the current economy, there needs to be room for people to experiment and make mistakes without fearing that they will be reprimanded or punished.

Discouraging Creativity and Innovation

Transactional leadership doesn't allow this type of room for workers and actively discourages creativity. New ideas aren't rewarded, and employees are taught to stay within the bounds of the strict system presented to them.

If you feel like creative thinking is lacking in your workplace, check out our recent article about what blocks people from creativity.

Doesn't Focus on Building Relationships

Managers that use a transactional leadership style don't focus on many things that can help boost employee satisfaction and engagement, such as the relationships workers have with their managers.

Unsatisfied Team of Employees

If you want to reduce your turnover as much as possible, it's essential to recognize how vital employee relationships with their managers are. In fact, one study found that nearly 60% of workers had left a job specifically because of their manager.

What is Transformational Leadership?

First introduced by James MacGregor Burns, a presidential biographer and leadership expert, transformational leadership is a leadership style involving a leader who can inspire their followers to work towards common goals.

A Transformational Leader

According to Burns, this type of leadership is present when "leaders and followers make each other advance to a higher level of moral and motivation." People that are transformational leaders tend to be enthusiastic, energetic, and passionate. The goals of this leadership style involve promoting loyalty, inspiring growth, and instilling confidence in the group.

Primary Ideas Behind Transformational Leadership

Some of the basic assumptions that underlie the idea of transformational leadership are:

  • Followers can be encouraged to find new opportunities to learn and explore new ways of doing things by a leader that promotes creativity.
  • Followers can experience the same motivation and passion to fulfill shared goals with the help of a transformational leader that offers a clear vision.
  • With the presence of a role model in the form of a transformational leader, workers internalize the ideals of the leaders and emulate them.
  • Open lines of communication help to foster supportive relationships between workers and leaders.

In order, each of these primary ideas are known as intellectual stimulation, inspirational motivation, idealized influence, and individualized consideration.

Transformational Leadership

When a transformational leader is in charge of a group, the members are typically loyal and successful. When a leader successfully uses this style, they can help bring about a lot of commitment in the group, leading to relatively low turnover rates.

Benefits of Transformational Leadership

There are several notable benefits to a transformational approach to leadership.

Transformational Leader Helping Group Members

By being empowering and responsive, transformational leaders help group members go beyond simply participating and actually feel inspired and motivated to take on the role of leaders themselves.

Improved Well-Being

According to a study published in the Journal of Occupational and Environmental Medicine, transformational leadership positively affects employees' well-being by conveying a sense of meaningfulness and trust while helping employees develop through challenges.

Improved Well-Being

The researchers controlled for other factors connected to well-being and found that these effects remained present.

Better Performance

A High-Performing Team

Compared with groups with different types of leaders, those who lead using a transformational approach were found to have better performance and better overall satisfaction levels.

Feeling of Empowerment

A leader who genuinely inspires employees to put in their best effort can have a substantial positive effect.

Leader Inspiring Employee

Transformational leaders encourage the group and the individual to work towards a shared goal, which can create a feeling of empowerment and a significant morale boost.

Downsides of Transformational Leadership

Even though the ideas behind transformational leadership might sound much more optimistic and pleasant compared to transactional leadership, there are two sides to every coin. While transformational leadership is frequently discussed as one of the best leadership approaches out there, there are some situations where it might not be ideal.

Ineffective Transformational Leadership

For instance, a group that needs more direction and guidance might not thrive under transformational leadership and could do better with a transactional leader.

Additionally, being among a group of people led by a transformational leader can also be a recipe for burnout. Sometimes, people feel under relentless pressure to put all their energy toward the group's goals.

What's the Difference Between Transactional and Transformational Leadership?

You'll commonly find transactional and transformational leadership pitted against each other as contrasting leadership styles, and for good reason.

A transformational method utilizes inspiration, positive reinforcement, and communication to motivate the group to work towards common goals, while a transactional approach focuses on monitoring performance, supervising workers, and building systems that maximize efficiency.

There are circumstances where a transactional leadership approach can help achieve stated goals. However, it can rarely cultivate creativity, innovation, and loyalty in the same way that transformational leadership can.

Transactional and Transformational Leaders

Transactional leadership tends to focus more on attaining short-term goals, while transformational leadership is more concerned with long-term success. While transactional leaders highlight the importance of compliance, transformational leaders are more worried about commitment.

One of the primary differences between these two leadership styles is what is being used to motivate workers. While charismatic inspiration and enthusiasm are used to motivate people under a transformational leadership style, transactional leaders use rewards and punishments.

Ultimately, though, transformational leadership methods also focus on rewarding followers for a job well done. The difference is that they use intrinsic rewards such as pride or self-esteem, while transactional leaders use extrinsic rewards like promotions or pay. 

Transactional Vs. Transformational Leadership: Final Thoughts

The first step to becoming the best leader you can be is becoming aware of your current leadership style. You might not even realize that you have been focusing on specific strategies over others while leading your team, and identifying your existing style can help you make deliberate choices about the best ways to lead, depending on the situation at hand.

To help leaders reach their full potential, we've developed What's My Leadership Style. This leadership style assessment, management development tool, and training workshop allows you to become the most effective leader you can be. If you lead a team of managers, this is an excellent tool for helping each of them learn more about themselves and the best approaches to leadership.

Leader of a Team

If you've been wanting to capitalize on your leadership style strengths or help the managers at your organization develop, What's My Leadership Style can help you do that. In addition to identifying strong points, this assessment can help you discover trouble spots that need a little extra attention.

Ultimately, there is no one right leadership style for any given person. The best leaders have several styles up their sleeves that they can call upon depending on the circumstance. This can help leaders interact with others in the most effective way possible and benefit the organization as a whole.

Do you have any questions or concerns about either of the leadership styles we discussed today? Is there something you're not quite fully grasping with one or the other? If so, drop us a comment, and we'll get back to you within a day or two! We always are sure to reply to all of our reader's comments and questions, and we'd love to assist you however possible!

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About our author

Bradford R. Glaser

Brad is President and CEO of HRDQ, a publisher of soft-skills learning solutions, and HRDQ-U, an online community for learning professionals hosting webinars, workshops, and podcasts. His 35+ years of experience in adult learning and development have fostered his passion for improving the performance of organizations, teams, and individuals.