Transactional Leadership Vs. Transformational Leadership: What’s The Difference?

Leadership and different ways to lead are major debates in the business world. There are a lot of classes, seminars, and books written on leadership and leadership styles, showing that there’s a lack of general consensus.

When it comes to running a department in a business or other organization, however, there are two major types of leadership styles: transactional leadership and transformational leadership.

Transactional leadership is, in many ways, exactly what it sounds like. Managers set out goals for their employees, and if they meet them, they’re rewarded. If they don’t meet them, they’re punished.

Transformational leadership is a more abstract style of leadership. It takes a more hands-off approach and encourages employees to be creative and solve problems on their own. The idea behind it is that both the leaders and the followers lift one another and pursue the goal together.

Key Takeaways:

What Is Transactional Leadership?

Transactional leadership is a leadership style that involves setting goals for people to meet and then rewarding or punishing them accordingly. The punishment need not be severe depending on the circumstances, and the reward can be minor, but the basic idea is a reward-punishment model.

While it sounds negative, transactional leadership isn’t necessarily a bad way to lead. Many businesses use it, such as in manufacturing or sales, where there are quotas to meet. Sometimes the reward may be a bonus or additional time off.

The leadership style is based on the German sociologist Max Weber’s theory of rational-legal authority. Being a sociologist in the ‘40s, Weber spent a lot of time studying leadership – that was just one of his theories. However, it was taken and updated in 1981 by Bernard Bass, who explored the psychology of the leader and follower mentality.

Despite the fact that it isn’t inherently negative, transactional leaders generally aren’t as well-liked by their subordinates as other types of leaders. As with all philosophies, transactional leadership has positive attributes as well as negative ones.

Pros

• Practicality. This style of leadership is focused on the practical. You focus on getting done what needs to be done and are rewarded for doing so.

• Hierarchical. While putting in the pros category, this could fall in either. Having an obvious hierarchy prevents confusion and promotes efficiency, but it can be rigid, unforgiving, and prone to abuse.

• Efficiency. Tasks are set up to be done efficiently and regularly. Everyone knows what their job is and what time they’re expected to finish it, thereby making them focus on their work.

• Consistency. This type of leadership leads to a consistent work environment. Generally, employees have a particular job that they’re supposed to repeat – though not always – and they know what it is and how quickly they have to finish it. That means they know what to expect and what’s expected of them every time they come to work.

Cons

• Rigidity. Due to the strong hierarchical structure, there isn’t a lot of room for innovation in transactional leadership. There’s a strong emphasis on rules and keeping the current system running.

• Impersonalness. The management isn’t often involved with their subordinates in this leadership style. Workers tend to be given their tasks, and then they are dispatched to do them. Managers don’t necessarily get to know their workers or make an effort to tailor the work to their strengths.

• Micromanagement. As a rule, there are expectations for how things should be done, as well as when and by whom. Even that level of expectation could be bordering on micromanagement, but many managers take it further by pushing their employees rather than encouraging them.

• Reactive. This style doesn’t encourage creativity or exploration, which means that if something isn’t working right, everyone has to react to it, as it’s all focused on the short term.

Transactional leadership tends to work best in an environment where the organization is focused on short-term goals or quotas. It’s efficient, direct, and consistent, but if that sort of organizational system isn’t what you need, then it’s best to look to other leadership styles.

What Is Transformational Leadership?

Transformational leadership is a leadership style that is based on the idea of encouraging subordinates’ creativity and participation. Transformational leaders try to raise everyone up by encouraging interest and passion in the project itself.

This type of leadership is most often used in creative or complex organizations where individual workers need to be able to think for themselves and have some freedom in their actions. Technology companies, for instance, tend to favor this type of leadership, especially in startups.

The idea of transformational leadership was introduced by the sociologist James V. Downton. The concept was further discussed by a presidential biographer named James MacGregor Burns.

He developed the idea by talking about how presidents would lead. His idea was that when leaders could take people beyond Maslow’s hierarchy of needs and into their interests, it would promote collaboration and interest. This could be done by the leader’s own example.

Transformational leadership, as with other types, has places where it excels and places where it doesn’t.

Pros

• Proactive. As this is an environment that fosters creativity and problem-solving, employees are encouraged to look ahead and solve potential problems.

• Inclusive. Everyone is invited to participate. This allows for discussion and innovative solutions to problems, as well as making use of everyone’s strengths. Teamwork is expected and encouraged.

• Creative. Innovation is encouraged and rewarded. People are encouraged to look for work they enjoy doing (within the parameters of their job description) and work on that.

• Overarching. This type of leadership style is big-picture-focused. The leader encourages everyone to share in the goal and mission, fostering teamwork.

Cons

• Imprecise. Due to being focused on the overarching goal, the details can sometimes get overlooked. Things like time management and what parts of a project need to be done should be considered so that you don’t get lost in the shuffle.

• Slow moving. As there aren’t short-term goals set up in this style of leadership, it can feel like not much is getting done or not much progress is being made. Fostering a transformational leadership culture can also take time, as the workers have to be on board in order for it to work.

• Requires diligence. Because there aren’t short-term goals, it can require effort and determination to keep everyone motivated over a long period of time.

• Inconsistent. As this style encourages creativity and change, it isn’t always clear what to expect when coming into an organization that uses transformational leadership. Sometimes goals can shift as time goes on, further adding to the inconsistency.

Transformational leadership tends to work best for long-term, creative goals. Many engineering firms use transformational leadership, as do technology companies. Both careers require a great deal of creativity and being able to change priorities if production, planning, or supply hits a snag.

Transactional Leadership vs. Transformational Leadership FAQ

1. What are the main principles of leadership?

   There are no generally accepted leadership qualities. It will depend on the type of leadership you’re looking for or who you ask. However, there are some qualities that show up on almost every list.

   1. Vision.

   2. Humility.

   3. Respect.

   4. Empowerment.

   5. Responsibility

   6. Confidence.

   7. Kindness.

2. Is transactional leadership or transformational leadership more effective?

   Both transactional leadership and transformational leadership can be equally effective. However, they have different strengths and weaknesses, which make them better suited for different situations. As a rule, transactional leadership is best suited to short-term focused goals, such as manufacturing.

   Transformational leadership, on the other hand, is best suited to long-term or highly creative endeavors. It gives the workers more freedom and more ownership over the project, which encourages more innovation and working harder towards the goal.

   Generally speaking; however, the most effective leadership style is going to be a blend of the two types of leadership. Almost no one is an entirely transactional leader or an entirely transformational leader.

3. What are the most prevalent types of leadership styles?

   While there’s no consensus on how many leadership styles there are, there are six that tend to get repeated mentions in lists of this sort. They include:

   1. Autocratic

   2. Paternalistic

   3. Democratic

   4. Laissez-faire

   5. Transactional

   6. Transformational

Author

Di Doherty

Di has been a writer for more than half her life. Most of her writing so far has been fiction, and she’s gotten short stories published in online magazines Kzine and Silver Blade, as well as a flash fiction piece in the Bookends review. Di graduated from Mary Baldwin College (now University) with a degree in Psychology and Sociology.