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March 10, 2021


Defining transactional leadership.

Transactional leader on the telephone

Imagine working in an environment where employees are given short- and long-term goals to work towards, with structured deadlines and strict guidance that adhere to company policy. In this scenario, self-motivation is key. Employees can work with relative independence, so long as they don’t fall below the expectations that have been set for them. And if they do miss the mark, they can expect to be reprimanded and supervised until their work gets back on track. But if they succeed in meeting their goals, they’re rewarded accordingly.

In reality, you don’t have to imagine this kind of workplace, because it already exists thanks to transactional leadership. It may not be the most freeform approach to management or employee stewardship, but for some companies that thrive in a more structured environment, it can be the key to success.

What is transactional leadership?

Transactional leadership is a more structured approach to management that relies on rigorous checks and balances throughout a company’s production lifecycle. Typically, employees are given their short- and long-term goals and expected to work toward them under supervision, and everyone is expected to adhere to strict guidelines set by the company. Employees who meet their goals are rewarded, while those who fail to meet their deadlines are reprimanded.

While it’s true that this form of leadership doesn’t necessarily work well in creative environments where a more open structure is preferred, transactional leaders work well in environments that thrive on structure and organization. Plus, employees are allowed a certain degree of autonomy within the confines of company policy, so long as they’re capable of meeting their goals effectively and on time. For employees who excel in an environment based on consistent company policies, transactional leadership can be a key motivating factor in encouraging them to realize company goals. Rules, regulations, and a high degree of organization is the foundation upon which transactional leaders build their organization.

A managerial approach to enacting transactional leadership may vary based on your organizational structure. For example, some may choose to create a motivation system built on rewards for each goal met or lean on a more intensive approach to supervising if it supports employees in meeting company goals. It can be a more intensive approach to leadership, but in the right environment, it can lead to exceptional motivation and results.

Transactional vs Transformational Leadership.

While transactional and transformational leadership both focus on subordinate motivation, meeting company goals, and creating a thriving organizational environment, the approaches to achieving these goals are actually quite different. Transformational leadership is focused on a more open approach that encourages employees to think outside the box and find new and inventive ways to address company needs. With a focus on rethinking patterns and moving away from the tried-and-true methods of functionality and problem-solving, transformational leaders aim to give their subordinates more freedom and creativity to achieve their tasks and goals.

Conversely, transactional leaders are all about maintaining the status quo—but not in a negative way. Rather, it’s more of a “If it’s not broke, don’t fix it” approach where the organizational system mandates what needs to be done and how it needs to be done, with strict guidelines, plans of how to motivate, rules, and regulations. Subordinates are given the format in which they’re expected to meet their long- and short-term goals, and they’re rewarded accordingly when they achieve their objectives. Of course, that means subordinates are also disciplined if they fail to meet the goals that are set out for them. Where transformational leadership is all about a free-flowing approach to handling tasks and problem-solving, transactional leaders thrive on organizational routine, rules, schedules, structure, and oversight.

History of transactional leadership theory.

The roots of transactional leadership come from a study conducted by German sociologist Max Weber in 1947. While exploring different leadership styles, Weber identified three different categories, using the term “legal rational authority” as a stand-in for what would eventually become transactional leadership. According to Weber, this approach was based on the idea that subordinates needed certain motivations based on structure and a more oppressive management style to produce results.

As time went on, the theory evolved. In 1978, James McGregor Burns—a political scientist—wrote a book on leadership and posited that leaders who relied on the transactional model needed to employ the approach from a foundation of morality, responsibility, and honesty. He also identified the basic quality of transactional leadership, stating how it’s founded on the idea of a give-and-take approach.

Later, in 1981, researcher Bernard Bass furthered the theory by explaining the psychological aspects of leader/follower instincts. His findings were bolstered in the ’90s by researchers Bruce Avolio and Jane Howell. Their additions to the theory included the concept of active management, where managers could amend workflow based on any issues or problems and take a slightly more hands-off approach so long as employees were able to work functionally without intensive oversight. This was also when the idea of reward was included in the process, where employees who met or exceeded productivity expectations would be praised and receive extra benefits.

What are characteristics of transactional leaders?

Because transactional leadership is a more structured approach to employee relations, it tends to be thought of as a “left brain” management style. In comparison to a more “right brain” approach that’s freeform, open to change, and constantly evolving based on employee feedback and participation, transactional leadership’s left-brain approach is guided by form and function. Often, it can be dictated from the top down based on company rules and a more rigid manager/subordinate structure.

Some of the common characteristics of transactional leaders include:

  • A focus on short-term goals: Efficiency and productivity are paramount, which means managers want to see results—fast. Short-term goals help employees reach their objectives faster.

  • Favoring policy, structure, and rules: Here, leadership behavior is not so much about innovation and out-of-the-box thinking as it is about following company mandates to a T. Employees who step outside of this structure run the risk of being reprimanded.

  • An emphasis on efficiency: With a strong structure in place, and no room for innovation, subordinates are expected to focus all of their energy on producing results as quickly as possible.

  • Rewards and reprimands: Subordinates who meet company production goals are lauded in kind, while those who don’t may receive disciplinary actions.

  • Inflexibility and opposition to change: Transactional leadership aims to uphold the status quo—no questions asked. Deviating from the plan could lead to production delays and other issues that may impact efficiency.

  • Reactive: Rather than thinking ahead or planning for issues, transactional management tends to react to situations only when they have no other choice.

  • Favoring hierarchy: This approach also adheres to the idea that everyone knows their place in the chain of command and doesn’t step outside that role to ensure the structure is upheld.

  • Micromanagement: While not all approaches to transactional leadership include micromanagement, many believe the way to improve employee output and create efficient production is through intensive oversight. This can also extend to the overall approach to the production timeline.

  • Practicality: Again, the focus here is action based on rules and regulations, rather than theories based on creative thinking and a “let’s try it” approach.

  • A lack of personal connection: Overall, transactional managers don’t connect with employees on a personal level so that the focus is on the work at hand and personal issues aren’t able to interfere with productivity.

Manager sitting at computer | Empathy

What are the benefits of transactional leadership?

For certain businesses, transactional leadership can be an important part of the company structure, and a guidepost for success. Some arenas where transactional leadership can help include in the military, with policing, managing first responders and more in the public service sector. Additionally, transactional leadership is helpful in arenas such as sales and manufacturing, especially in situations where production lines are part of a company’s manufacturing schedule. 

Those who have a business degree and manage one of these operations may find many benefits in this type of management theory. It’s been said that leaders such as Microsoft founder Bill Gates, Starbucks founder Howard Schultz, and football coach Vince Lombardi relied on transactional leadership to guide their professional endeavors.

Whether you’re currently managing a business, moving into business management, or just starting out on the path toward business management, seeking higher education can help you learn more about how transactional leadership can support your company’s goals. Taking online classes and working toward a business management degree can easily work into your schedule, even if you’re currently employed full-time. You’ll have the flexibility to learn at your own pace and gain valuable insight into leadership theories that can make a big difference in your company’s output and productivity.

There are many different approaches to leadership and many theories, principles, attitudes and behaviors that guide those leadership approaches. But for the right business, company, and management team, transactional leadership skills can be used to motivate your employees to become their most productive selves.

Advantages and disadvantages of transactional leadership.

As you’re deciding whether or not transactional leadership is the right approach for you and your business, it helps to know the plusses and minuses associated with the practice. Some of the advantages of transactional leadership include:

  • It’s a responsive way of effectively maintaining the status quo: There’s nothing wrong with stability, especially in high-pressure environments. Transactional leadership can help uphold company rules and regulations, but also amend them as needed if problems arise.
  • It supports work environments that thrive on repetition: Whether your company is large or small, transactional leadership is a great way to support businesses that rely on repetitive output to meet production demands. The more things are streamlined and automated, the better production runs.
  • It’s a solid approach to crisis management and troubleshooting: When you’re firmly entrenched in company mandate, it can be easier to address issues that impede production or compromise the company. The rigidity and structure of transactional leadership can lend itself to quick solves.
  • It rewards self-motivation: Employees who can follow instructions and meet their targets are celebrated accordingly, which can improve output and morale. Similarly, those who fall behind or don’t follow rules can be reprimanded. This black-and-white approach can make it easier for employees to carve out their roles and work more effectively.
  • It can be more cost effective: When a company or business employs a top-down approach that’s guided by strict rules and regulations, it’s less likely that more middlemen will be needed to help guide employees and manage company output.
  • It’s a great way to achieve short-term goals: If speed is key to your production timelines, transactional leadership is an excellent way to get things moving—and keep them going—to meet daily and weekly goals.

Some of the disadvantages of transactional leadership include:

  • It’s not necessarily the best approach to achieve long-term goals: Because transactional leadership is so focused on maintaining rules and regulations, it doesn’t leave much room for future plans and the ability to adapt to an evolving marketplace.
  • It doesn’t allow for innovations: One of the main tenets of transactional leadership is to never change. Adhering to such a strict approach can hold a company back from exploring a different approach that could lead to greater success.
  • Leaders can be put under a lot of pressure to succeed: A top-down leadership approach that doesn’t encourage employee collaboration can mean that transactional leaders can bear a big burden of responsibility on every level.
  • Employee motivational rewards can be lacking: Often, productive employees will get rewards such as free lunch, a day off, or other assorted perks and monetary gains. Such rewards can be seen as middling and don’t necessarily encourage employees to go above and beyond the call of duty.
  • Personal initiative isn’t encouraged: Even if an employee finds a better way to achieve company goals, transactional leadership doesn’t lend itself to embracing employee input—especially if it changes the rules or deviates from a mandated plan. Both of these issues can negatively affect company growth and employee morale.
  • Mistakes can prove to be costly: A number-crunching, cookie-cutter approach to managing production can lead to instances where problems aren’t caught until it’s too late.

Are you a transactional leader?

Before adopting a new leadership style or amending your current style to include a new approach, it can be helpful to explore your business personality characteristics. You may be a transactional leader if:

  • You are comfortable telling others what to do.
  • You’re capable of towing the company line.
  • You know how to execute decisions based on a strict adherence to company mandate.
  • You don’t feel the need to confer with anyone else on your decisions.
  • You instruct employees to check with you before they make decisions that could affect the company.
  • You strictly monitor employee output while setting short-term goals.
  • You consider company procedure to be the guiding law, but amend it when improvement is needed.

Of course, transactional leadership isn’t the only leadership approach that may work for you and your business or company. If you thrive on leading through example and don’t believe in micromanagement, effective leadership may be the most complementary leadership style for you. Are you disciplined in your assessments but thrive on experimentation and smart risks? Consider exploring adaptive leadership as your preferred approach. Meanwhile, situational leadership is great for those who are confident in delegating while still participating within the organization as needed, and visionary leadership lends itself to high-minded thinking and innovations that are built on persistence.

Whichever approach you choose to explore, it all starts with a single step

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