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 a single correct approach to leadership, and it can be helpful to understand some of the most common leadership styles as you work to learn what does and doesn't work 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?

What Is Transactional Leadership?

This leadership style uses rewards and punishments to guide and motivate followers.

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.

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 problems are simple and clearly defined, as this style doesn't encourage employees to find new or creative solutions.

Let's look at some of the benefits of this leadership approach before touching on 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 that some coworkers are receiving special treatment for one reason or another, and a transactional system helps avoid this issue altogether.

That is because feedback is based on previously defined metrics rather than the leader's feelings or opinions. 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 who deserves a promotion.

Allows Employees to See the Impact They're Having

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

For employees with an internal sense of motivation, this can be a useful structure that helps them 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.

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 a crisis is at hand.

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

Downsides of Transactional Leadership

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, identifying what motivates everyone equally 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.

Similarly, some individuals might not desire material or concrete rewards at all. Rather than by the rewards you can offer through a rewards program, they might be motivated by 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 this leadership structure has disadvantages for leaders.

If a manager's attention is focused solely on measuring their staff's performance, they likely aren't engaging in development opportunities that will help them grow into higher-level roles 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 focusing on the big picture, transactional leaders prioritize quick wins and immediate results.

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 on. To thrive and be innovative in the current economy, there needs to be room for people to experiment and make mistakes without fear of reprimand or punishment.

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 strict system imposed on 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 who 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.

If you want to reduce your turnover as much as possible, it's essential to recognize the importance of employee relationships with their managers. 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 in which a leader inspires followers to work towards common goals.

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 who 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:

• A leader can encourage followers to find new opportunities to learn and explore new ways of doing things by promoting creativity.
• Followers can experience the same motivation and passion to fulfill shared goals through a transformational leader who offers a clear vision.
• With a transformational leader as a role model, workers internalize the leader's ideals and emulate them.
• Open lines of communication help to foster supportive relationships between workers and leaders.

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

When a transformational leader leads a group, the members are typically loyal and successful. When a leader successfully uses this style, they can help foster strong commitment within the group, leading to relatively low turnover rates.

Benefits of Transformational Leadership

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

By being empowering and responsive, transformational leaders help group members go beyond simply participating and feel inspired and motivated to take on leadership roles 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.

The researchers controlled for other factors related to well-being and found that these effects persisted.

Better Performance

Compared with groups led by different types of leaders, those led by a transformational approach were found to have better performance and overall satisfaction.

Feeling of Empowerment

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

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 more optimistic and pleasant than those of transactional leadership, there is a flip side to every coin. While transformational leadership is frequently discussed as one of the best leadership approaches, there are situations where it might not be ideal.

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 part of a group led by a transformational leader can 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 leadership tends to focus more on attaining short-term goals, while transformational leadership is more concerned with long-term success. While transactional leaders emphasize compliance, transformational leaders prioritize commitment.

One of the primary differences between these two leadership styles is the means used to motivate workers. While charismatic leaders use inspiration and enthusiasm to motivate people under a transformational leadership style, transactional leaders rely on 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, whereas transactional leaders use extrinsic rewards such as 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 allow 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.

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 about one or the other? If so, drop us a comment, and we'll get back to you within a day or two! We always make sure to reply to all our readers' comments and questions, and we'd love to assist you however we can!